Almost 8 million people live in over 83 thousand blocks in Romania. Most of these multi-storey buildings were designed and built to be connected to district heating systems, much more energy efficient than individual heating solutions. However, district heating systems have constantly deteriorated in the past decades, which led to major difficulties both in ensuring the necessary services to consumers and in the efficient management of companies in this sector.
“Top to bottom” solutions delay to appear and for the time being we see no approach for unifying all perspectives: technical-technological, financial, administrative and political. A new model is looking for image, under pressure of “bottom-up” trends: disconnections, defaults, insolvencies/bankruptcy, punctual investments and emergency decisions from authorities.
Financial blockage
The most visible reality is the financial blockage. Every autumn, heat suppliers and distributors come into spotlight because of problems that leave tens of thousands without hot water and heating. Historical debts and the more recent debts roll from beneficiaries to gas companies and block deliveries. The entire chain of receipts is flawed, making debts and penalties to cause insolvency or bankruptcy of district heating companies.
An analysis of ATH Energ shows that, in the past five years, six large cities were left without functional district heating systems (DHS) (Reșita, Alexandria, Târgoviște, Brăila, Târgu Mureș, Zalău), and in other five cities the respective companies entered into insolvency (Drobeta Turnu Severin, Galați, Bacău, Piatra Neamț, Suceava).
Bucharest is the largest consumer of centralized heating in Romania, with over 1.7 million inhabitants connected to the heating system. In October, they faced several weeks when heat and hot water were supplied intermittently, insufficiently or not at all. ELCEN wasn’t able to supply to RADET the necessary heat volumes, after GDF Suez, its gas supplier, refused to make available the raw material, in order to warn on outstanding invoices. The heat producer admits to have outstanding debts, but blames RADET for this situation. “ELCEN has accumulated debts of RON 88 millions to Distrigaz, while we have to recover from RADET approximately RON 2.5 billions, without calculating the penalties, for the heat delivered and unpaid during November 2012 – September 2014”, ELCEN shows. On the other side, Bucharest Municipality says RADET has paid almost RON 700 millions for the heat received in the first nine months of 2014. However, there are numerous outstanding bills from the population, some older than 8 years, and many of the homes with debts belong to municipalities, which accumulate the most important share in total debts.
Mergers and outsourcing
One of the administrative solutions invoked is the merger of the heat producer and distributor, in order to overcome the financial blockage and optimize the entire flow. The Capital provides the typical model for this situation. After many months of contradictory discussions, municipal councilors approved the project regarding the RADET-ELCEN merger, the new entity following to be coordinated by the municipality. It’s not clear yet how the historical debts of the autonomous administration to ELCEN can be settled or if the fact that the municipality will control and coordinate both production and distribution of heat and hot water proves to be more efficient. The official solution: ELCEN-RADET integrated system will be leased in 2015 by international tender to an experienced operator, which would ensure the technical, economic and social viability of the system.
The solution of a private producer is not without risks either, as shown by the situation in Suceava. Bioenergy Suceava, the only heat and hot water producer in the city, announced in November that if no solutions were found to pay for the services provided it would stop hot water supplies, because it had no money to purchase biomass.
Adrian Bodea, shareholder of Adrem Invest, which owns a 49% stake in Bioenergy, explained that the company was in financial blockage, because hot water produced and delivered was unpaid. Biomass supplier Holzindustrie Schweighofer calls for a debt of EUR 1.7 millions that it has to recover from Bioenergy and ceased deliveries.
Bioenergy invested almost EUR 90 millions in the biomass-fired cogeneration power plant in Suceava. The company produces heat and hot water, which it sells to Termica SA, which is insolvent. From November 2013 until September 2014, Bioenergy sold to Termica SA heat worth RON 28.1 millions, of which it collected only RON 12 millions, and Termica SA debt to Bioenergy amounts to RON 16 millions.
Technical solutions
There are technical solutions of optimization at the producer’s level. But they solve only to a little extent the efficiency and profitability problems of the system. District heating networks are obsolete in general, with an age of 30 to 50 years, and oversized by 30-50%. Therefore, heat losses are high and cost with pumping energy are high as well, which leads to much diminished annual average technical performances compared to those considered at design. Under such conditions, achieving an integrated production and transmission-distribution system is one of the priorities, in experts’ opinion.
One of the solutions presented by experts is upgrading and resizing the heat production, transmission and distribution capacities. For this, it takes (large) investments and (long) time for implementation.
Another solution, presented by Professor Victor Athanasovici in September 2014, involves a new national policy for the unitary cost of fuel consumed in district heating systems, including by amending ANRE regulations.
Contradictory policies
In the plan of policies regarding heating, the authorities have focused, for decades, almost exclusively on support granted to end-users, with high costs and often not covered in reality, which has decisively contributed to financial blockages.
Keeping relatively low prices for gas for households has perversely led to encouraging disconnection and individual solutions, through autonomous heating systems. The impact on district heating systems is devastating and means the drastic reduction of end-customers. From 3 million apartments connected in 1990, the number fell to 1.65 million in 2007 and 1.35 million in July 2014.
In the recent years, a focus was put on reducing the pressure of heating costs by the thermal rehabilitation of residential buildings. About 6-8% of the total were rehabilitated, at a cost of EUR 2,000-2,500 per apartment. In conditions in which 90% of the buildings are older than 20 years, the investment necessary and the duration of implementation are very large, so rehabilitation is not a solution for the near future.
The latest option presented by authorities invokes the possibility of migration of heating systems of the population from the use of gas as primary energy to electricity. Once again, not a very realistic solution, in conditions in which the electricity necessary to heat the large urban centers exceeds by far the production and supply capacities of the national power system.
While skeptics talk about the slow death of the district heating system, a more detached analysis notices how it continues to reshape on its own. It’s true, in the meantime a large part of inhabitants of urban areas are suffering from the cold.
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The full version of this article can be read in printed edition of energynomics.ro Magazine, issued this November.
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