Volker Raffel took over the responsibilities of running the businesses of E.ON in Romania, as the new CEO with a new Board of Directors, this August. However, Volker Raffel is not a stranger to the local energy landscape, as he was involved in the very beginning of E.ON’s entry into the Romanian energy market starting 2004 and worked until 2005 as Deputy General Director of the former company E.ON Moldova Distribuție. Beyond pandemics with its challenges, and the prices explosion this year, the local market is rapidly changing to comply with the European strategies and regulations. We talked to Volker Raffel about all these and discovered where E.ON Romania is heading!
Dear Mr. Volker Raffel, tell us a few words about the company’s footprint in Romania and also about the investments E.ON has made in the last 16 years, and their impact on the energy infrastructure in Romania.
E.ON made an important commitment to Romania when, back in 2005, it purchased the former state-owned power and gas sales and distribution companies. We said back then that we did not only want to be just another majority shareholder of the newly-acquired companies, but also a reliable partner and a long-term investor strengthening the organizations within Romania by offering know-how transfer.
The German Group E.ON is now one of the leaders in the energy market, its presence in Romania having been consolidated for 16 years. The flagship companies of the group are Delgaz Grid and E.ON Energie Romania, which carry out energy distribution and supply activities respectively and energy solutions for about 3,3 million customers.
The infrastructure that we took over was rather precarious for many reasons but especially due to the low quality of installations built in the ’90s. It was a difficult period of transition in Romania, and that was reflected also by the low-quality customer services.
We committed ourselves to substantial investments to modernize it and this is what we have been doing all these years. Of the around 1.8 billion euros invested by E.ON during the period 2005-2020, approximately 1.3 billion euros were directed towards the power and gas distribution segment. Over 8,500 km of natural gas grid and around 6,850 km power grid were modernized. The natural gas distribution grid was extended by over 2,200 km and the power distribution grid was extended by around 2,800 km. On the gas side, the number of connected customers increased by 56%, from 1.2 million in 2005 to 1.87 million currently and, on the power side, the number of connected customers increased by around 11%, from 1.35 million in 2006 to 1.52 million in 2020.
Through our investments in the digitalization and automatization of the power grid, we managed to reduce the frequency of power outages by 6 times and their duration by 9 times and, considering all this progress we made, last year we managed to be the best in Romania! Gas leakages were significantly reduced, to one-third of their initial value and thus the grid safety increased as well.
In parallel, E.ON had decided some years ago to have share-service companies for the whole E.ON group based in Romania, as well as a software development company and this is another proof of our engagement for the Romanian market.
Changing the status from traditional power and gas supplier to innovation and digitalization oriented customer solution company was one of the major challenges of these years. Currently, our portfolio for companies and municipalities includes, for instance, solutions for the generation of high efficiency decentralized electric power as, among others, cogeneration, trigeneration or PV solutions through smart lighting. For residential customers, we have developed integrated heating solutions, air conditioning, technical assistance, renewable energy generated at home and e-mobility.
Beyond the emergency measures related to the exceptional situation during this fall and winter, are there any legislative/regulatory changes with significant impact for E.ON business in Romania to be implemented soon?
I am convinced that Romania is a very good place to invest in and that is why we decided to speed up the renewal of our grids in the distribution company, and to invest in e-mobility, PV for prosumers and many other customer solutions. Of course, first, we need to find solutions for this winter. Also, beyond there are some other ideas for further developing the energy infrastructure in Romania.
For more predictability in energy markets, all players must start to sell and buy energy not only on short-term, e.g. for the next few weeks or months to come, but rather already for the next two years. And the legal and regulatory framework needs to reflect it.
Regarding gas, additional Black Sea volumes would be very welcome, as this winter shows. Romania has a big advantage to have such opportunities and should use them soon.
Regarding electricity, it is true that renewables will be a very important part of the future power production, but we also need energy when the wind is not blowing and here gas still is needed for some decades, which in the long run will be replaced by biomethane and hydrogen.
Regarding the legal framework of our industry, we need a debate about the gasification strategy. With high gas prices leading to less consumption, we see that some of the new infrastructures are poorly used. As new gas grids cost money and these costs are leading to increased gas distribution tariffs for everybody, such investments only should be done in better cases.
Is E.ON Romania interested in developing new gas distribution pipelines with European financing?
Delgaz Grid has consistently increased investments in electricity and gas networks in recent years. For this year we have budgeted investments worth about 666 million lei (136 million euros) – increased by about 50% vs. 2019, the year before the COVID-19 pandemics. For the next year, we have proposed record investments of over 910 million lei (180 million euros) to accelerate investments in modernization, expansion and digitization of networks – increased by about 100% vs. 2019.
The extension of the distribution system for the connection of new consumers is one of our targets. For this reason, we have allocated this year around 34 million euros, which is an addition of approximately 300% as compared to last year. For next year, we have allocated 54 million euros, five times more than in 2020.
We support the decision of the Romanian authorities to plead for the inclusion of natural gas in the EU taxonomy. It would be very good for the development of gas networks to benefit from European funds, but this depends on what decision will be taken at the EC level. A compromise that would still allow the financing for the extension and modernization of the distribution grids would be conditioning the funding by the adding of green gas into the system – with a special focus on hydrogen, although other gases as biomethane and synthetic gas should not be excluded from public policies.
We completely endorse the fact that natural gas is a strategic advantage that Romania must exploit to the benefit of its citizens, but authorities should seek to advocate for the unbundling between hydrogen-ready networks and the objective of immediately supplying the green fuel.
We believe that the investments needed for the accommodation of hydrogen are the safest way to the maximizing of European funding absorption. However, it is imperative that over the next period authorities concentrate their efforts on establishing hydrogen technical norms as well as setting a proper investment regulatory framework, since hydrogen-ready grids require special infrastructure components and higher operational costs.
We also reiterate the fact that the E.ON Group has relevant expertise in working with hydrogen, one of our priorities being the ensuring of the transfer of know-how to Romania, which should be then used in the relationship with the relevant authorities as well.
Do you expect the services segment to become more important for E.ON in Romania, or is the distribution to remain the main revenue source for the group?
Both the distribution and the customer solution activities are equally important strategic directions for the business of E.ON. The income from the distribution activity is indeed a little higher if we look at the consolidated EBIT of the E.ON Romania Group. We also expect that this situation continues over the next years, as well.
On the other hand, there is an increase of the income from solutions in total on the customer solution segment, this also includes the income from the natural gas and power supply activities. For instance, since 2018, when we started providing solutions for companies and municipalities, our sales in this segment increased 15 times, due to our photovoltaic and wide-scale energy efficiency projects. At the same time, our heating, cooling, e-mobility solutions for residential customers bring added value to our business. Thus, we expect that the income from solutions keeps growing in proportion over the next years, as part of the total income in this segment.
What is the role of energy efficiency services in the approach you have in mind for the near future?
Energy efficiency is a central pillar of the energy system of the future and the interest in the efficiency increase of the power and natural gas consumption is, for certain, a more and more significant part in the decision to purchase a service or a product. This can be seen in the increasing demand for our solutions and services which put energy efficiency in the first place and give customers the possibility to achieve savings on their bills.
In the household segment, for instance, there has been an increase by 45% of the demand for our heating solution during the first nine months of this year, as compared to the same period of last year. Due to the technology in condensation and the high energy efficiency rating class, this solution can lead to a reduction of the natural gas consumption of up to 30%. For our cooling solution with inverter technology, which ensures a reduction of power consumption by up to 33%, we had an increase in demand over 100% for the nine months of this year that have passed, compared to the same period of last year.
As far as companies and the municipalities are concerned, there is also a significant increase in the demand for energy efficiency services and of our energy audit and management services. This demand is mainly generated by the wish of the beneficiaries to both reduce their CO2 footprint that comes with the generation process and optimize energy costs.
For instance, the energy audit service is the first step for the adoption of a personalized energy consumption efficiency increase solution and it is an integral part of our solutions. Using this service, we are accurately establishing the consumption of the customer, the efficiency level of the consumers from the system and we can identify the appropriate solutions, which also show the actual cost reduction involved. The energy management service tailored for administrative-territorial units and the one for business customers, gives customers the possibility to monitor, in real-time, the levels of all energy consumers in the grid and is the actual base for the development of our Energy Efficiency Improvement Program.
On the other hand, all the photovoltaic units that we build, but also all our lighting projects, which are and have been developed and implemented up to this point, include both energy audit and energy management.
At the same time, we can see a higher level of availability from the authorities, regarding the monitoring and control of the main energy consumers, like public lighting. The new smart public lighting system can reduce the electric power consumption for public lighting by 47%.
You recently announced hundreds of PV projects in your portfolio in Romania. Is this a trend to continue?
Reaching Romania’s target for 2030, of 30.7% share of electricity production capacity from renewable sources, should lead to an additional production capacity installed in renewable sources, with around 7,000 MW, of which approximately 3,700 MW from photovoltaic sources.
Thus, we see here a very good growth potential for PV solutions for companies. More and more companies in Romania, as all over Europe as well, choose sustainable business models and we are here to offer them state of the art solutions, adjusted to their needs. For instance, our partners are operating in a wide variety of economic sectors such as automotive, chemical and petrochemical, food, logistics centers, shopping centers and office buildings, large retailers, industrial producers in various industries, etc.
Also, in the residential segment, we can see that the number of prosumers has increased significantly. For instance, while by the end of 2020 we had about 120 prosumers connected to the grid, after the first 9 months of this year, we have about 1,580 prosumers which is a 13-fold increase. We believe the trend will gather pace if the government programs supporting the development of small energy producers are continued. According to ANRE, there will be half a million small prosumers in Romania in less than ten years.
We launched E.ON Solar Home, last year, the complete solution of photovoltaic panels, with power applications ranging between 3kW and 15kW, for household customers in three counties, and since April this year, we have extended our offer in seven other counties. Now, we are weighing the extension of the installation capacity to other counties too.
Digitalized distribution and decarbonization – this is the future of the energy industry. What does this mean for E.ON Romania, its employees, customers and business partners?
Our efforts are directed towards the supply of smart, sustainable, turnkey solutions and products and thus contribute to a decarbonized world. We wish to support our customers in producing their green energy, to increase their energy efficiency levels, turn to e-mobility and thus reach our climate-related objectives together. The key to sustainability is strong partnerships and this is why we put the customer at the core of our undertakings.
To reach our digitalization objectives, new technologies and innovation are clear and mandatory answers for the future. To us, digitalization means services that bring with them simplicity, time-saving, mobility, openness, easiness and clarity in the relationship with our customers.
Energy transition and the decentralization that comes with generating energy from renewable sources, the technological process, sectorial coupling and digitalization turn the electric power grid into a „smart grid”. Our grids will evolve into smart platforms which will manage a complex mix of energy, but also data flows. The energy grids – electric lines, transformer stations, smart meters and the data connections that allow them to communicate will be the internet of energy. The digitalized energy system will create new perspectives and new opportunities for people, companies and communities.
Only together with our partners, as a connected community, we can create a greener and more sustainable future, this being our strategic target.
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This article firstly appeared in the printed edition of Energynomics Magazine, issued in December 2021.
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