The energy transition is taking place extremely fast, not only in Europe, but worldwide, and this turns it into a major challenge, but also an opportunity for the energy sector. To better reflect the developments affecting the energy market as a whole, ENGIE also intends to adjust somewhat its development investment focus in Romania, we found out from Eric Stab, Chairman & CEO at ENGIE Romania.
How does the gas market change of late in terms of demand, players and consumers, pricing?
The gas market is changing a lot but not really in a well-controlled, continuous way, with measures which are not always taken in the right, logical order. I refer here to the necessary conditions for a liberalized gas market to perform well. As you know, we are in the process of deregulating gas prices. We ended price regulation of the industrial and commercial consumers in January 2015 and we expect that the household segment will be deregulated by 2021 or 2018, depending on the evolution of the market conditions. But market players expect more than an administrative liberalization of wholesale prices, which is of course a positive development.
As a significant market player, we would like to get more clarity on the way the gas market will function after the price regulation ends. For instance, will the regulated retail prices for households be phased-out after the end of the wholesale price liberalization? Also, we see that after almost 3 years of centralized gas trading in Romania, the liquidity of the wholesale gas trading is still very low, which means that market players do not have enough flexibility to source their gas needs and they do not have a meaningful market price signal. Last but not least, the Romanian gas market still does not have a functional balancing market regime that assigns the system costs to the companies which are responsible of such costs. The latter, combined with the need of a properly functioning network code, is the most urgent measure to be taken. Other measures will then be a logical further step.
As regards the market factors, we hope that this year the gas demand will stabilize after several difficult years for gas consumers. Wholesale gas prices in Europe have decreased significantly compared to 2010, benefiting from the significant drop of oil prices, so there is room for higher gas consumption in Europe and in Romania. Unfortunately, these market trends have not been very visible in Romania because of the very fast gas price liberalization for the non-household segment (which meant a steep increase of their gas costs), whilst the residential price segment is still regulated.
What should be done to have a more functional natural gas market in Romania ?
Romania has committed to liberalize the gas and electricity markets in this decade. A significant legislative and regulatory effort is required to allow the country to move smoothly from a regulated market to a free and competitive gas market. In order to successfully achieve the liberalization of the gas market, several pre-requisites and instruments need to be put in place. All these changes do however have to be very well thought-through and their consequences properly assessed. Hasty decisions are at risk of creating market distortions or even chaos.
Firstly, to facilitate the transition from regulated to market-based gas prices, an effective support mechanism for vulnerable consumers should be enforced. The current system of addressing consumer protection through regulated prices for all is inequitable, detrimental to the security of supply as it discourages natural gas exploration and production and deferring improvements in energy efficiency.
Secondly, the development of the wholesale market is crucial. What happens today is that, despite the opening of two commodity exchanges, the wholesale gas market remains very illiquid (in terms of number of transactions and volumes). In this respect, Romanian Authorities should take the lead and, in cooperation with centralized market operators and the industry, develop different trading products on the centralized trading platforms in order to increase the attractiveness of the centralized platforms for gas trading.
Then, a very important aspect that should be taken into consideration is related to emergency rules in case of security of supply issues. This emergency plan should allow network operators to operate securely the gas networks at times of constrained gas supply and should include a clear identification of protected customers, incentives that are transparent and proportional for customers which could contribute to the system stability by postponing their supply, clear milestones and responsibilities for the key stakeholders and commercial conditions under which emergency measures are implemented.
Related to this topic of the security of supply, the public authorities should also have clear storage policy
in order to reinforce the security of supply and avoid market distortions by encouraging market players to fulfill their storage obligations and by incentivizing investments in storage capacities.
Before all these measures are implemented, there are also some critical technical aspects like creating a real balancing market and implementing a modern network code that need to be addressed as a matter of urgency in order to support an effective transition to a well-functioning liberalized gas market.
More generally speaking, Romania should be seen as an important player of the regional gas market, therefore investments in infrastructure and completion of functional physical interconnections need to be duly progressed so that reverse flows become operational without further delays. Political support in this respect is the key to increasing Romania’s long term security of supply through diversification of sources, as well as to contributing to the diversity of supply of the region. Institutional efforts should be strengthened to streamline the implementation of Projects of Common Interest, such as the Romanian section of the Bulgaria-Romania-Hungary-Austria corridor, a project with energy security implications both for Romania and the South-East European region.
Speaking about investments, the question of regulations and taxes should also be addressed, knowing that a stable and predictable regulatory and tax regime are crucial aspects when talking about energy independence, the investment attractiveness of the gas sector being at risk in case the current system does not evolve.
How can we tackle the major challenges of energy’s transition to a low-carbon economy: access to sustainable energy, climate change mitigation and adaptation and the rationale use of resources?
The energy transition has become a unique phenomenon – not only an evolution but a Revolution – that is taking place extremely fast, not only in Europe, but worldwide. It is characterized by decarbonization, decentralization, digitalization, and increased efficiency in our energy production and consumption. The energy transition is a major challenge but also an opportunity for the energy sector and a common concern for countries, cities, economic players, local communities and citizens.
The historic agreement reached at the conclusion of the COP21 conference in Paris set a binding agreement, with extremely ambitious targets. We all have a major role to play, as governments, cities, authorities, businesses and individuals, to ensure, with our own commitments, that these targets can be met.
To better reflect the developments affecting the energy market as a whole, ENGIE also intends to adjust somewhat its development investment focus in Romania. Future investments will increasingly be dedicated to energy efficiency solutions, digitalization of energy tools and services, decentralized energy generation (in form of CHP and micro-cogeneration) and also the promotion of green mobility. ENGIE is, for instance, currently building its first CNG station. CNG is an alternative fuel that can contribute to significantly improving the quality of the air, especially in urban environments, but also to better use Romanian gas as a local resource.
