CHAPTER 5 ROMANIA POLICIES AND MEASURES FOR GHG EMISSIONS REDUCTION AND MITIGATION STRATEGIES IN ROMANIA Lavinia Andrei, Sergiu Celac, Mihaela Dupleac, Gheorghe Manea, Dumitru Mihu, Sabin Muscalu 106 5.1 INTRODUCTION Aim and Scope GHG emissions in Romania have continually decreased in the period 1990-2000, due mainly to the decline in economic output.1 Nevertheless, energy consumption and GHG emission levels per unit of GDP remain significantly higher than the average for other industrialized countries, suggesting that the need and opportunity to undertake measures specifically aimed at GHG reduction is great. Romania has signed and ratified the major international treaties and conventions in the field of environmental protection, including the Kyoto Protocol. In order to satisfy the requirements of accession to the European Union, Romania has also developed several national strategies to promote sustainable development. However, agreed comprehensive and detailed medium and long-term strategies on reform of the energy sector -- which is responsible for around one half of 2 Romania’s total CO2 emissions -- do not currently exist. Developing such a plan of action requires an accurate understanding of the present constraints and opportunities for GHG reduction within this sector. This report is intended to contribute to this task by analyzing two examples of how two energy providers are coping with the challenge of GHG emissions reduction. The relevant general characteristics of the Romanian energy sector are described in this section, below. Section 2 presents the criteria used for assessing our case studies, while Section 3 examines the performance of two combined heat and power plants. On the basis of this analysis, Section 4 offers general conclusions for the reform of the energy sector. The sources of information used for this study comprise the following: - examination of the available data in statistical reports, national and sector (energy and environment) strategies, energy companies’ reports, NGO studies and others (see References); - interviews carried out by the authors with representatives of ministries, energy companies, NGOs, universities and research institutes (see Annex 3: List of Interviews); - questionnaires regarding the status of the measures applied for GHG emissions reduction, addressed to energy companies; - meetings and consultations with members of the Romanian Energy Working Group;3 - a workshop with other NGOs. General Characteristics of the Romanian Energy Sector The energy sector in Romania has been, and to a large extent still is, plagued by the specific problems faced by most countries in transition: • low efficiency of energy production and usage; • high marginal cost of energy production; 107 • poor legislative, institutional and regulatory infrastructure, plus administrative inefficiency leading to high transaction costs; • increases in energy prices that consistently exceed the general rate of inflation; • low collection rates especially from industrial users but also from individual consumers because of the high share of energy bills in total household expenditure; • poor record on energy conservation and compliance with national environmental requirements (see Annex 2). These problems have been exacerbated by the poor performance of the economy, particularly over the past few years, high inflation rates and the disappointing level of foreign direct and portfolio investment. The most important single incentive for meaningful reform has been external. Since the political changes of 1989, the Romanian energy sector has benefited from grants, loans and technical assistance programs from the international community. Major donors include political institutions such as the European Commission and various United Nations agencies while loans have been arranged through the major international financial institutions, chiefly European Bank for Reconstruction and Development (EBRD) and the World Bank. In addition to multilateral projects, several individual countries, notably Denmark, the Netherlands, France and the United States are active in the energy and energy efficiency field in Romania with bilateral projects. A significant proportion of those resources has been directed towards improving energy efficiency, thus to reducing GHG emissions. Much of this assistance has been motivated by the need to prepare Romania for accession to the European Union. Power generation, distribution and transport used to be a vertically integrated state monopoly and were controlled, after 1989, by the former Romanian Energy Authority RENEL “Regie Autonome” (R.A.),4 later restructured as the National Electricity Company S.A., Conel. In July 2000, Conel was dismantled by a governmental decision. Four new companies have been established, which act independently on a contractual basis, as separate judicial entities. These are joint stock companies as follows:5 • TRANSELECTRICA, S.A.6 – in charge of the transportation and dispatch of electricity through the national grid; • ELECTRICA, S.A. – in charge of electricity distribution and supply; • TERMOELECTRICA, S.A. – in charge of heat and electricity generation and of fuel supply and imports. It provides 40 percent of the national heat output, supplying both hot water for heating and domestic consumption and steam from combined heat and power plants and thermal plants; • HIDROELECTRICA, S.A. – in charge of hydroelectric generation. There is also a category of independent power producers, currently numbering 10, but around 90 percent of national energy output is still produced by former Conel power facilities.7 The Medium Term Strategy of the Government (2000) provides for the 108 privatization of electricity and heat generation and distribution activities in the 2001-2004 period. At the district level, over 400 Regii Autonome (RAs) were established after 1989. In 1994 a Government Ordinance limited the number of local RAs to 250, either through amalgamation or transformation into commercial companies. Most of the remaining local RAs are located in larger cities and have kept their status through loans from international financial institutions (European Bank for Investment, EBI, or EBRD). In addition, over 100 commercial local district heating companies have been established in smaller towns, including former local RAs.8 The high level of emissions from Romania’s energy sector is in part a result of continued reliance on hard coal and lignite – which account for 62 percent of the sector’s total emissions.9 However, the level of emissions is further increased by the general inefficiency with which power and heat are generated. Problems include: lack of operating and investment capital (owing in part to payment arrears); use of obsolete equipment designed in the 1960s and 70s without regard to environmental considerations; poor maintenance and poor management. In short, there is an urgent need for both institutional reform and technical rehabilitation. 5.2 EVALUATION CRITERIA The criteria used for assessing our case studies consist of the following: a) Energy savings b) GHG emission reduction c) Economic benefits, including: - costs per unit of energy produced - rate of collection from consumers d) Quality of Service e) Social benefits, including: - transparency and communication - consumer satisfaction - consumer education f) Project sustainability/replication, including: - increase in the number of consumers served - replication of the project in other locations Ideally, an assessment of good practice should be based on data regarding all these points. In the cases we studied, however, such information was not always available or the relevant authorities were unwilling to supply it. Access to financial information, in particular, was often not granted. Several attempts to obtain more information related to 109 economic performances of the cases were made, but data provided was rather scarce. Therefore, the assessments related to the economic criteria are based on the statements of plant managers. 5.3 CASE STUDIES Introduction To evaluate current policies and measures within the Romanian energy sector, we have selected two providers of district heating. District heating systems are major suppliers of heat to Romania’s urban population, are responsible for a significant share of GHG emissions and often unable to maintain adequate levels of service to residential consumers. Sixty-one XVIII of Romania’s larger towns have district heating systems, most of which are supplied by heat and power cogeneration plants, are owned by the former Conel or by industry. In some towns district heating is provided by heat-only plants, owned by the former Conel, by municipalities or by industrial enterprises. Energy losses in district heating systems are high due to poor pipe insulation, corrosion and lack of maintenance. In buildings, the two main problems are: the lack of meters and controls; and poor insulation and sealing. For existing buildings, the standards for insulation and heat loss are below OECD levels. For the new buildings the standards comply with the European ones. In a number of areas (including Bucharest and Constanta) the district heating system is chronically unable to meet peak demand (only 60 percent of the peak demand in these areas is met)XVIII. In Bucharest, as in other major Romanian cities, the distribution system is operating at beyond the designed supply capacity because during the communist period the residential construction outpaced the installation of heating