28th of February, 2013 www.ispe.ro

Romanian Power System – the right time to act

Ph.D.(Eng) Carmencita CONSTANTIN,

Director of Energy & Environment Strategies Department, ISPE

28th of February, 2013 - ZF Power Summit ’13

Current situation of electricity generation in Romania

Electricity generation structure by resources type, in the last years (Source: RERA annual reports)

2009 and 2011 – dry years, with increased coal based electricity production (37%)

2010 – a rainy year, with increased hydro based electricity production

Electricity production from wind, biomass & PV

Source: NIS, Energy balances 2009-2011

Increasing RES contribution in the energy mix in the last years

PV

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28th of February, 2013 - ZF Power Summit ’13

Electricity generation structure in RomaniaISPE forecast

Scenario – considering NPP :

4 Units at NPP Cernavoda until 2030

Scenario – considering NPP :

4 Units at NPP Cernavoda until 2030Scenario – considering NPP:

3 Units at NPP Cernavoda until 2020

Scenario – considering NPP:

3 Units at NPP Cernavoda until 2020

Increase of NPP capacity

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28th of February, 2013 - ZF Power Summit ’13

Electricity generation structure in RomaniaISPE forecast (2)

Scenario - without NPP:

2 Units at NPP Cernavoda until 2030

Scenario - without NPP:

2 Units at NPP Cernavoda until 2030

Scenario - without NPP:

2 Units at NPP Cernavoda until 2020

Scenario - without NPP:

2 Units at NPP Cernavoda until 2020

Increase share of natural gas with 3% in 2020 and 7% in 2030 due to the recently discovered reserves in the Black Sea.

Same NPP capacity as today

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28th of February, 2013 - ZF Power Summit ’13

Future coal based electricity generation needs CCS or CCU deployment

Why Getica today?•Availability of the financing solution

• NER 300 financing instrument covers• 50% of the investment costs and• 50% of the operating costs for the first 10 years of operation

• This opportunity may not rise again•We need it in the nearest future•Industry horizontal development

Where is Getica today?•Under Governmental assessment process deciding whether

• to compete for the second call of NER 300, or• to apply for finance from other available sources (Structural and Cohesion

Funds, others)

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www.getica-ccs.ro

www.globalccsinstitute.com

www.bellona.org/ccs

http://www.minind.ro/evenimente/getica_css/index.html

28th of February, 2013 - ZF Power Summit ’13

Conventional power plants facing today electricity markets

Current market conditions for conventional power plants

RES plants operating mode

RES priority dispatch

Decrease in electricity demand

Flexible operating mode for conventionalpowerplants

Reduced operatinghours

Reduced incomes

Higher operating costs

Unprofitable conventional plants

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28th of February, 2013 - ZF Power Summit ’13

Taxation system restraining investments in the power sector

Evolution of the end-user electricity price break-down in Romania

Taxation development Market distorsions

Impediments in the development of energy markets

Increase of incentive component

Decrease of generation, transport and distribution components

Decrease of funds for investment

Proposal - A share of the incentive component should be allocated to

investment funds for GEN&T&D

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013

41% 39% 37%

29%27% 26%

6% 10% 13%

24% 24% 24%

Structure of the final end-user electricity price

Generation Transport & distribution Contribution COG Bonus, GC, plus accise VAT

28th of February, 2013 - ZF Power Summit ’13

Difficulty in raising funding for the power sector

Decreased attractiveness of the power sector

Soft demand, market

dynamics, policies

uncertainty

New taxes

Increasing risks

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Due to key factors, like new and diversified taxes, increasing risks, soft demand, changes in the market Due to key factors, like new and diversified taxes, increasing risks, soft demand, changes in the market dynamics, uncertainty of the results of the current policies in progress, the power sector becomes less dynamics, uncertainty of the results of the current policies in progress, the power sector becomes less and less attractive for the financial institutions to invest in. and less attractive for the financial institutions to invest in.

28th of February, 2013 - ZF Power Summit ’13

Financing the investments in the power sector

Raising funds from capital markets implies:

•ensuring the adequateness of expected return

•facing competition from other industrial sectors, the banking sector itself and governments

In a world of constrained capital resources, the power sector confronts with the following cause and effect problem:

Difficulty in ensuring the

adequate return

Evolution of risk profile

and analysis of the

emerging risks

Negative effects on the

overall financial

feasibility of investments

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28th of February, 2013 - ZF Power Summit ’13

Factors affecting the financial institutions perspective of the power sector

Market dynamics

Soft demand

Policies uncertainty

Introduction of large amounts of

renewable capacities

Need of balancing capacities

Banks find it difficult to commit

finance on a medium/long term

without PPA

Long economic recession and

increased energy efficiency

Extension of the soft demand

period from short to medium term

Banks fear a further decrease of

the energy demand

Most of the energy policies and actions are still in progress

with uncertain outcomes

Need of regulatory and policy clarity

Financial institutions will remain reluctant

and cautious until the policies’ results

become visible

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28th of February, 2013 - ZF Power Summit ’13

Increasing the attractiveness of the energy sector

Incentives provided to the conventional power plants

Wider introduction of capacity payment mechanisms in order to balance the renewable intermittency

Securing project’s revenues

through the conclusion of long term PPA Not appropriate for a competitive market

but

Required by financiers

Predictable regulatory framework, with clear foreseen policies’ results

The risks drivers must be properly managed and mitigated

Adequate remuneration of the risks in the expected profit

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28th of February, 2013 - ZF Power Summit ’13

The CO2 price – driver for investing in the power sector

RES support

mechanism

RES electricity generation increase

Decrease of conventional plants

electricity generationReduced

electricity demand due to economic crisis

Low demand of CO2

allowances

Low interest in cost-efficient

emission reduction

Distorted investment

signal

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28th of February, 2013 - ZF Power Summit ’13

Recent important ISPE projects

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ISPE contribution to the Romanian electricity generation fleet

ISPE projects abroad

• Technical assistance (feasibility studies, detailed design) for deployment of installations needed forcompliance to the environmental requirements - FGD plant, dense slurry disposal of firing residues,low NOx burners at: Oltenia Energy Complex, Hunedoara Energy Complex, Colterm Timisoara,Romag Termo, Braila TPP

Compliance to the environment requirements

• Technical assistance for:• modernization works foreseen in the National Investment Plan - 1635 MW• new electricity generating capacities - 4449 MW• reimbursement for already build capacities for 860 MW

New capacities and modernization of existing ones within NIP

• ISPE – part of the first Romanian Waste to Energy Project, currently in tendering phase for signingthe EPC contract

• Technical documentations for new RES capacities:• 21000 MW wind• 3000 MW PV• 1500 MW biomass

RES

• New utilities (compressed air, nitrogen, electricity, heat, cooling water) power plant running onliquid fuel

• Provided services: documentations from basic design to tendering documents

Yemen - New Power Plant for Aden Refinery Company of ~50 MW installed capacity

Interconnection line of 400 kV Reşiţa(România)–Pancevo(Serbia)

28th of February, 2013 - ZF Power Summit ’13

ISPE projects in preparation

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• Use of geothermal resources for medical, recreational facilities, providing heat,defrosting the airport runaways

Geothermal

• Proposal for the usage of hydrogen as backup for RES power plants

Hydrogen

• Proposal to use the municipal waste and mud from waste water treatment plants forelectricity generation

Biogas

28th of February, 2013 - ZF Power Summit ’13

Lack of qualified human resource in the Romanian power sector

Institutions: Government, Agencies

Universities and postgraduate level

Generation and T&D companies:

• Management: state aid rules, financing sources

• Operating staff: new technologies

Consultancy and designing companies: ageing human resource

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28th of February, 2013 - ZF Power Summit ’13

It is time for action !

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Electricity = infrastructure, base for economical and social development