What are the main achievements of E.ON in Romania, what is the impact of the support scheme on the supply segment, what solutions exist to have affordable energy prices and what exactly do distribution operators need to further support investments in networks are some of the topics addressed in an exclusive interview for Energynomics by Volker Raffel, general manager of E.ON Romania.
How much has the group invested in Romania so far? What are the main KPIs achieved in 2022 and what investments do you have planned for 2023?
This year, E.ON exceeded the threshold of 2 billion euros invested in Romania since entering the market in 2005. It is a symbolic milestone that demonstrates our long-term commitment to Romania. And I would mention one more figure that tends to go unjustly unnoticed, namely the approximately 2.8 billion euros representing the fees and taxes transferred to the state budget in all these years. In addition, we support the local economy and thousands of jobs through collaborations with 900 direct suppliers and approximately 2,300 suppliers of products and services along the entire supply chain.
One of our goals was for the approximately 3.4 million customers to benefit from supply and distribution services at European standards. We have invested around 1.5 billion euros in the distribution part, most of which (60-70%) is strictly in the modernization of network components. Other main chapters in which we have invested are network expansions and digitalization, which have led to a significant reduction of response times in case of interruptions.
Our efforts have shown their effects, so we are the company with the lowest interruption period in Romania, with only 89 minutes last year, well below the national average of 130 minutes. The duration of interruptions decreased by 26% compared to the previous year, when the indicator was of 120 minutes and is 20 times less compared to the 1,800 minutes/year, which was recorded before the privatization in 2005. We thus reached under 100 minutes of unscheduled interruptions, which is within European parameters.
With regard to gas distribution, we have modernized 8,850 km of the network, that is, more than 50% of the network was taken over during privatization, and if we were to make a comparison, this means more than the Bucharest-New York distance. At the same time, in order to connect new consumers, we extended the network by about 3,000 km.
This year we proposed to invest 690 million lei (140 million euro) in the distribution area, over 3.6% more than the previous year. For next year we want to be able to maintain a high level of investments, at least at the same level as this year.
How has the crisis affected investment projects, including projects financed by EU funds?
Accessing European funds is a priority for us, the main goal being to achieve the objectives of modernization, digitalization and efficiency of the infrastructure. We have already managed to complete 9 projects. Currently, we have 8 ongoing projects, worth approximately 52.5 million euros (257.5 million lei), with a co-financing of approximately 37.1 million euros (184 million lei), aimed at modernizing, automation and digitization of the distribution network, cyber security, etc.
At the same time, we submitted the documentation for the financing of another project worth approximately 7.9 million euros (38.7 million lei), of which approximately 7.6 million euros (37.2 million lei) from European funds, currently in the evaluation process at the level of the responsible authorities. This project aims to expand smart metering, upgrade substations and overhead power lines.
Last but not least, Delgaz Grid developed the first smart grid project of common interest in Romania, in partnership with transport operators from Romania and Hungary, Transelectrica and MAVIR – the Carpathian Modernized Energy Network – CARMEN. The estimated total value of the project is of approximately 129 million euro, of which 83.5 million euro correspond to Delgaz Grid’s investments. The CARMEN project was included on the fifth list of Energy Projects of Common Interest (PIC), the aim being to attract EU financing of approximately half of the total budget of the project, through the “Connecting Europe Facility” program.
What should 2023 hold for investors in terms of market changes to overcome the current energy crisis?
Romania can use its excellent energy starting point to manage the crisis even better than many other countries. The sudden shortage of gas and electricity across Europe has led to unhealthy competition at the European level, where all the “rich” states and companies have entered into competition with suppliers trying to supply energy to household customers. Especially in the case of Romania, with its gas and electricity production resources, we could no longer explain to any customer why 100% of gas/electricity quantities had to be paid at crisis import prices, while Romania has to import only about 10% of the volumes.
The new solution addresses these shortcomings and does not discourage investment, and therefore GEO 153/2022 is a very suitable solution. The Ordinance combines customers’ and their suppliers’ access to gas and domestic energy from already existing power plants (what the EU calls “inframarginal plants”), which do not have substantially changed production costs, with a free market approach for the remaining quantities: if you don’t pay the importers’ price, they can go elsewhere and you won’t get the imports, which Romania still needs.
Through this combined approach we can alleviate price pressure for a significant part of the volumes and make crash pricing only apply to the rest, which must come from imports or from production where costs have risen, such as for example, in the case of abuse.
During such an interim regime we should prepare for a return to a liberalized market, but ensure that it operates from the outset in a fair, liquid and transparent way, with viable contract types, with barriers to entry in the market for companies that only want to profit in good times but disappear in bad times, in line with a reformed European market that has by then overcome the geopolitical shock.
What can be done to accelerate the adoption of a definition of the vulnerable consumer and to solve the main problem of the market?
The Vulnerable Consumer Act passed last year was a step forward, but it was passed before the energy crisis worsened and I think it needs to be updated. The law must be completed in such a way that it becomes functional, in the sense of the most correct and complete identification of the minimum energy needs, and it should concretely link the problem of energy poverty, including the minimum energy needs, to the aspect of energy efficiency, so that this problem is treated in an integrated way.
Support schemes for investments in the energy efficiency of a home, such as the installation of photovoltaic panels, LED lighting, building renovation, are the clear solution to overcoming the energy price crisis.
For example, Italy has one of the smartest metering systems. The state offers consumers a “Super Bonus”, i.e. 110% of the investment costs in energy efficiency projects, through a tax reduction scheme. This is financed with European money, leading to an increased absorption of EU funds by Italy – an aspect that Romania could and must improve.
The administrative task of verifying whether the energy savings are real is carried out by private companies, which is feasible for the state and which has also stimulated the interest of many actors in the field to operate transparently – this leads to an increased level of equity in the tax system. This scheme is useful for customers from two points of view: the energy consumption is lower and it recovers 110% of its investment costs. The state gains by increasing the fairness of the tax system, at the same time it saves money and does not have to subsidize where it no longer needs to, thus being able to redirect these amounts and use them to reduce energy costs for other consumers.
I think that in Romania too, the state must offer incentives and fiscal advantages to consumers for the purchase of energy-efficient equipment. For example, condensing boilers that reduce consumption by up to 30%, air conditioners with Inverter technology that reduce consumption by up to 33% and heat pumps that are up to 5 times more efficient than gas ones.
What is the current state of the cap and compensation scheme? How are the banks reacting and how much more support can be expected from the banks and from the equity loans provided by the parent company?
E.ON recorded a loss of almost 100 million euros in the first nine months of the year, caused by the government’s non-recognition of natural gas and electricity purchase costs for all customers in the portfolio and the impact of the compensation for domestic customers as well as due to frozen distribution rates.
During this year, we accumulated 3.1 billion lei (620 million euros) of financial-banking debt to co-finance the support scheme. In the first nine months of this year alone, we borrowed over 9 million lei (1.8 million euros) per day (!!!) to pre-finance the support scheme.
Therefore, the amendments to GEO 119, which are now in the Chamber of Deputies, must provide that the state pays its debts on time and in full.
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This interview first appeared in the printed edition of Energynomics Magazine, issued in December 2022.
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