The merger between the producer (ELCEN) and the distributor of hot water and heat (Termoenergetica) within an integrated centralized heating system in Bucharest is the only solution for solving problems with hot water and heat, modernization, green energy, cleaner air in Bucharest, reducing losses, the decrease in the Gcal price with a positive impact on the bills issued to the population, claims Claudiu Crețu, CEO of ELCEN, in an exclusive interview with Energynomics. He says that at the end of 2023, Termoenergetica recorded a debt to ELCEN of almost 1 billion lei, two other big challenges for the company being the electricity sold at a negative price and the high price of carbon certificates.
What were the Key Performance Indicators (KPIs) of 2023 for ELCEN? What are your plans for 2024?
The main performance indicator for the year 2023 aimed at ensuring continuity in the supply of electricity and thermal energy at the local level and in the national energy system. An important step achieved in 2023 (the month of February) was the exit from insolvency after more than 6 years. Thus, ELCEN became a viable company, the exit from insolvency unlocking the way to accessing funds and implementing the renovation program.
Another important indicator concerned the efficiency of the production of electricity and thermal energy. In this sense, ELCEN carried out investments in 3 of the 4 CETs in 2023 to increase thermal energy production in Bucharest. ELCEN put into operation hot water boilers (CAFs) at CET Bucharest West, CET Bucharest Sud and CET Grozăvești, thus increasing the installed thermal capacity of the company by approx. 400 Gcal.
The main objective of the company for the year 2024 aims at major investments in the modernization of energy installations and the implementation of new cogeneration plants with high energy efficiency with positive consequences on the economy, the environment and the population. ELCEN aims to quickly access the available non-reimbursable European funds, essential for the modernization of the company’s production capacities. Three of the four thermoelectric plants belonging to ELCEN are over 50 years old, using a technology specific to the 70s.
New projects targeted by ELCEN in 2024:
- Implementation of a high-efficiency cogeneration unit within CTE Bucharest Sud;
- The efficiency of the activity of CTE Grozăvesti by implementing a high-efficiency cogeneration unit;
- Implementation of high-efficiency cogeneration capacities using thermal engines, in CTE Progresu.
In March 2024, ELCEN launched in the electronic public procurement system a market consultation for Owners Engineer services for the construction of two cogeneration plants on the site of CET Grozăvești and CET Bucharest Sud. They are state-of-the-art, hydrogen-ready power plant projects. We will apply for financing through the Modernization Fund.
In the medium and long term, the investment objectives also involve the integration of renewable technologies. We are very carefully analyzing the opportunities for using electricity and thermal energy storage, geothermal, heat pumps, including photovoltaics, where appropriate, within ELCEN. On the geothermal side, we have already initiated some steps, in the sense that we signed in Washington, in February 2024, an agreement to carry out the feasibility study on the exploitation of geothermal energy for heating Bucharest, with the support of the US Department of Energy. The exploration of the integration potential of geothermal energy comes in the context of the existence of geothermal resources on almost the entire surface of the Municipality of Bucharest, especially in the northern part. Geothermal energy can be a cost-effective, reliable, sustainable, ecological local solution for heating, being already successfully used for this purpose in the western part of Romania. We are and currently act in the perspective of a sustainable future. Our interest is to have a central heating system (essential in dense urban agglomerations) efficient, flexible, decarbonized and, above all, constant and safe.
What were the biggest challenges during 2023?
Challenge 1: account receivables from the thermal system – affecting the ability to pay. This situation required increased attention in the context in which Termoenergetica, the distributor of heating agent in Bucharest, had and still has a very large debt to ELCEN of the order of hundreds of millions of lei. At the time of 2023, Termoenergetica registered a debt to ELCEN of almost 1 billion lei for thermal energy delivered by ELCEN and not paid on time. Such a funding shortfall attracted the major risk of the impossibility of ELCEN purchasing the amount of gas necessary for the generation of heating agent for the supply of hot water and heat to the homes of Bucharest residents. In this regard, ELCEN has made every effort to avoid insolvency with the risk of bankruptcy. Without the necessary liquidity, ELCEN would have gone straight into bankruptcy because it is a company that was already insolvent and, according to the law, cannot go into insolvency again. The pressure on ELCEN’s cash flow has manifested itself and is manifesting itself in the conditions where the company has massive medium and long-term investment plans in new production capacities, the total value of which is estimated at approximately 650 million euros.
Challenge 2: Electricity sold at a negative price. Low energy demand and significantly lower wholesale prices compared to 2022 are one of the factors that put intense pressure on the company’s cash flow in 2023. OPCOM’s spot price for electricity has been negative several times, following surplus production in relation to consumption, so that ELCEN practically paid buyers to sell it the generated electricity, not being able to stop production in cogeneration, as that would have meant no longer delivering thermal energy for the supply of hot water and heat to consumers in Bucharest .
Challenge 3: the price of CO2 certificates. The cost of CO2 certificates represents the second highest value in the share of expenses at the ELCEN level, after the expenses allocated for the purchase of fuel/raw material for the production of electricity and thermal energy. ELCEN, complies 100% with environmental restrictions. We have permanent monitoring systems, the dispersion of noxes is done hundreds of meters high, so we comply with national and European norms. However, for CO2 emissions, we pay greenhouse gas emission certificates worth approximately 100 million euros per year.
Challenge 4: Age of facilities. The energy equipment has an advanced degree of technical and moral wear and tear and is very close to the end of its period of operational safety. In the last approx. 15 years, ELCEN did not make major investments, as the company’s financial capacity was strongly influenced by the increase in the debts of RADET, respectively Termoenergetica towards ELCEN, which led to the company entering insolvency in 2016 and, implicitly, to the impossibility of attracting of non-reimbursable European funds for the efficiency of cogeneration.
What are the most important pillars of the new ELCEN-Termoenergetica merger strategy? What would the merger entail from the perspective of cost reduction?
The merger between the producer (ELCEN) and the distributor of hot water and heat (Termoenergetica) within an integrated centralized heating system in Bucharest is the only solution for solving problems with hot water and heat, modernization, green energy, cleaner air in Bucharest, reducing losses, the decrease in the Gcal price. with a positive impact on the bills issued to the population. A new economically and financially viable company will be able to implement a unique development and investment strategy aimed at efficiency at the level of the entire system, not just at a certain segment. Due to the interdependence of the two companies that make up Bucharest’s centralized heating system, both the production side and the transport-distribution side must undergo modernizations at the same time. To make extensive, major investments, solid financial resources are needed. Only a credible company can be able to attract such important sources of financing for the efficiency of the centralized heating system in Bucharest. It is important to have a merger in one new, bankable, credible, healthy company. In order to have this merger, it is essential that the current debts are paid. Termoenergetica, a company of PMB, currently owes ELCEN, a company subordinate to the Ministry of Energy, approximately 850 million lei. The Ministry of Energy notified the General City Hall regarding the Memorandum approved during the meeting of the Government of Romania on 31.01.2024, which provides for the steps to be taken in view of the merger. In the context of the measures established in the Memorandum, the Ministry of Energy requested PMB to issue an official point of view reflecting the agreement in principle (non-binding) for the ELCEN-Termoenergetica merger. Such an agreement in favor of the realization of the integrated centralized heating system would bring several important benefits, among which: integrated planning and implementation of investments, solving the debt problem between TERMOENERGETICA-ELCEN, significant reduction of operational costs and in invoices to the final consumer.
Oradea is the successful model in Romania that clearly demonstrates the viability of the integrated system – production, transport, distribution. The Gcal price in Oradea is about 400 lei, compared to about 1000 lei in Bucharest. Through integration, investments, efficiency, in Oradea they managed to reduce losses and costs considerably. It is also possible in Bucharest. Let’s just move forward on solid foundations. Fusion is the basis, the foundation.
Merger – cost reduction:
- Investments in the modernization/efficiency of the system means increased energy efficiency, reduced consumption, lower production costs and, implicitly, lower prices for electricity and thermal energy.
- Due to the integrated development of the system and its efficiency, the losses and implicitly the Gcal cost will be significantly reduced, which means money saved for the development and modernization projects.
- Investments in new power plants also mean the reduction of carbon emissions, which leads to savings in terms of the purchase of CO2 certificates and, implicitly, the decrease in the production price with a positive impact in reducing the Gcal price.
What are the steps taken in the acquisition of modular systems? When and where will they be located? What will the costs be?
This project is initiated and run by PMB. We know the details provided in the media, as follows: The City Hall of the Capital, through the Municipal Company Energetica Servicii, launched in January 2024, the tender for the purchase of 20 mini thermal power plants to be located in several thermal points, located at the ends the heating network, where the operation is deficient. Through the acquisition of the 20 modular capacities, Termoenergetica will ensure the supply of heating agent and hot water for 340 blocks with over 16,300 apartments and approximately 40,000 tenants from all 6 sectors. The value of the contract is estimated at around 79 million lei.
How will the connection of the 4 CETs directly to the Transgaz network be effectively achieved, when and at what cost?
ELCEN recently signed a contract with Transgaz for Transgaz to carry out a Feasibility Study that will demonstrate the technical-economic-financial viability of ELCEN’s direct connection to the SNT (National Natural Gas Transmission System).
Currently, the 4 CHPs are supplied with natural gas through the distribution system of Distrigaz Sud Rețele. The connection of ELCEN to the natural gas distribution system involves sums charged to ELCEN that fall between 25-50 million euros annually.
What does connecting ELCEN directly to SNT mean?
Through the direct connection to the national natural gas transport system, the value of the economy resulting from the non-payment of the distribution tariff (tens of millions of euros annually) and the limited period of time in which the investment expenses are recovered, will considerably influence the reduction of the production expenses thermal and electrical energy, which will automatically lead to a decrease in the Gcal price.
What are the up-to-date situations with outstanding payment amounts in the Termoenergetica-ELCEN-PMB equation?
ELCEN currently has to recover from Termoenergetica debts in the amount of 856,217,153.02 lei related to the consumption months of October 2023-January 2024 for the thermal energy sold and delivered to Termoenergetica, but unpaid.
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This interview first appeared in the printed edition of Energynomics Magazine, issued in March 2024.
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