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Clean Energy for All Europeans – a view from Romania on the new governance Regulation

The proposed Regulation on the Governance of the Energy Union is part of the legislative package “Clean Energy for All Europeans” presented by the European Commission (EC) on November 30, 2016. The Governance Regulation (as the entire package) has to do with the EU 2030 Climate and Energy framework targets, and acts as a “holding” structure to ensure policy alignment on commitments that the EU has made under the Paris Agreement. These commitments have been made by the EU as a whole, but their implementation is up to the Member States (MSs), i.e.: the binding targets are for the EU, but there are no specific binding national targets for each EU country. The collective EU target is to be reached through individual pledges made by Member States in their integrated national energy and climate plans. Therefore, the governance regulation attempts to incentivize states to pledge high in order to create more obligation for the MSs to deliver on the collective 2030 energy and climate targets: min. 40% cut in economy-wide GHG emissions compared to 1990; min. 27% for share of renewable energy consumed in the EU; min. 30% energy efficiency target in 2030; and 15% electricity interconnection in 2030.

More to the point, the Governance Regulation obliges MSs to:

• produce an integrated national energy and climate plan (INECP) for 2021-2030 by January 1, 2019;
• prepare such plans for 10 year periods going forward;
• engage in an iterative consultation process with the Commission (e.g.: the first draft national plans to be provided by January 1, 2018);
• update the 10-year plan once during the period, although amendments are allowed only to increase the targets;
• prepare and report long-term low-emissions strategies with a 50 year perspective;
• produce biannual progress reports on the implementation of plans across the 5 dimensions of the Energy Union, starting with 2021;
• produce annual reports on the international commitments (UNFCCC and Paris Agreement) of the EU and its members ;
• create national and Union inventory systems for GHG emissions, policies, measures, and projections to track national contributions.

The regulation would ensure direct applicability of provisions, comparability of INECPs and reports, and would streamline various monitoring and reporting obligations which stem from other parts of the EU energy acquis. One can only praise the intention to integrate the planning, monitoring and reporting obligation for energy and climate (which currently are conducted separately). Enhancing the role of e-reporting is also salutary. The proposal to eliminate redundancies, streamline or repeal over 50 monitoring and reporting obligations will lead in the future to more efficiency and less red tape. However, in the immediate future (next 2-3 years) this transition will increase, not reduce, the administrative burden on MSs, especially in countries with understaffed ministries and deficient monitoring and analytical capacities.

On May 18, 2017 the EP draft report was published on the proposed Energy Governance Regulation, authored by MEPs Claude Turmes and Michèle Rivasi, in which a further 199 amendments to the text are proposed that would make the text even more ambitious. For instance, the authors introduce the idea of a “fully renewables-based energy system at the latest by 2050” (amendment 3); a proposed RES target “of at least 45% renewable energy in 2030” (am. 69); a “Union’s binding energy efficiency target of at least 40% in 2030” and “a binding national energy efficiency target for 2030” instead of “indicative” contributions (am. 76 and 147); as well as a shorter submission time for INECPs – every 5 years instead of every 10 years (am. 96). The changes express a higher level of ambition than the initial text proposed by the Commission, but which of these amendments will make it into the final version of the Regulation, if any, is hard to predict.

Central and Eastern Europe (CEE)

For climate enthusiasts, a 27% target of RES as a share of EU energy consumption may seem like a slowdown compared to the one set in 2006 (20% by 2020), as evident from amendments proposed by Turmes and Rivasi who advance a much higher target (45% renewable energy in 2030). However, the Commission has to be mindful of the reality in Central and Eastern Europe, where coal still plays an important role. The EU sees itself as a global leader in renewables, but it must not forget that it has members who cannot commit more than they already have to the EU’s green agenda, as well as making sure that the clean energy drive does not impose undue costs on its poorer Member States. The governance regulation does stress that MSs are to take into account the equitable distribution of renewable energy deployment across the EU, economic potential, geographic and natural constraints. Thus, it would be fair to allow more leeway for CEE countries: a more moderate level of green ambition, a longer timeframe for implementation, and indicative (not binding) national targets.

The introduction of an emission performance standard for capacity mechanisms (proposed by the internal market design reform) will mostly affect CEE countries: Bulgaria, the Czech Republic, Greece, Hungary, Poland, Romania, Slovakia, and Slovenia (the Baltic States have no domestic coal production and coal use in the energy mix is negligible). Therefore, it is reasonable to assume that these CEE countries have a common denominator and their national positions will be reflective of the EURACOAL view on the matter, which rejects the limitation on capacity mechanisms in the form of the 550 g CO₂/kWh emission performance standard: “No coal plant can meet this standard unless fitted with CCS – the very best-performing coal plants without CCS might emit 700g CO2/kWh and many lignite plants emit more than 1000 g CO2/kWh.9” (Euracoal Position paper, May 2017). However, worldwide CCS deployment has been slow. In many CEE countries (Poland, Bulgaria, Czech Republic, Romania) coal remains a key energy security option. A strong push back from coal-reliant CEE countries against the introduction of this emission performance standard, as well as higher renewable pledges at national level, is therefore to be expected. Eastern European countries have been unjustly labelled “backward-looking east EU states”, simply because they cannot underwrite the same level of green policy ambition as Sweden (49% RES target for 2020) or Finland (38%). Moreover, in the past, some Eastern European countries have assumed very high 2020 RES deployment targets: Latvia (40%), Estonia (25%), Slovenia (25%), Romania (24%), or Lithuania (23%). It is true however that countries with a higher share of coal in the energy mix tend to have lower 2020 RES targets: Bulgaria, Czech Republic, and Poland for instance.

Coal vs RES in select CEE countries

Source: coal data (Euracoal, EU country profiles), RES data: baseline vs 2020 targets (2009 RES Directive)

However, Eastern European governments (among them, MSs with the lowest income and highest % of poverty and energy poverty in the EU – Bulgaria and Romania are a case in point) have a different pressing concern: social fairness and protection of the vulnerable consumer. Therefore, from a Romanian perspective, other aspects of the clean energy transition are more of interest, such as: the intention to set up an Energy Poverty Observatory, the new Modernization Fund, the EU ETS revision with solidarity in mind for the lower income MSs, etc. The fact that the Commission wants to address the topic of energy poverty/ vulnerable consumers at EU level is most welcome, especially since some states (e.g.: Romania), when left to their own devices, fail to undertake the necessary action in a timely manner. The Regulation would empower the Commission to exert more pressure on national policy-making in this regard, which is welcome and beneficial for countries most affected by poverty and with weak social protection policies.

Romania focus

The Regulation will exert a top down pressure for better policy planning and management at national level. It will oblige MSs to better organize and keep track of data, especially in countries with haphazard policy-making and where institutional memory in ministries is not a strong point, and Romania is a case in point. It will create pressure to improve the collection of statistical data. For instance, at present in Romania, nobody knows the exact number of households that are not connected to the electricity grid. In 2006, their estimated number was 67,738 nationwide (according to the Government Decree (GD) no. 328/2007 which approved the last electrification program for 2007-2009). However, a GD for a subsequent electrification program submitted for public consultation in 2012 (but never approved) cites a completely different number: 98,871 households not connected to the power grid. Neither the 2006 nor the 2012 document detail the methodology used to arrive at these numbers. This is a prime example of inconsistency of statistical data in Romania, which is precisely what the Regulation would address, since the integrated reporting on the internal energy market (Art 21), for instance, will require info on “national objectives with regards to energy poverty, including the number of households in energy poverty” amongst others. Aside from optimizing data collection and analysis, the planning and reporting obligations will provide more certainty for investors. In Romania, the private sector has been complaining for years about the need to have stability and predictability of the regulatory framework. This Regulation will force governments to plan and report not only on the status quo (already adopted provisions), but also on policies and measures intended to be adopted, and on timetables for their implementation.

Romanian officials have made few public statements on the Clean Energy Package, while the Energy Ministry has hitherto kept a low public profile on the matter. Early in 2017 (January-February), the Energy Ministry is known to have organized a series of information sessions to inform stakeholders of key provisions in the package. To my knowledge, a publicly expressed government position on the 2016 Clean Energy Package was not formulated. However, at competent Ministry level, a non-paper must exist, if only to articulate Romania’s position at the upcoming European Council on June 22-23. Such a position will most probably include:

• a rejection of the proposed 550 g CO₂/kWh emission performance standard which (if approved) would apply to new plants from 2018 and to existing plants from 2023. Romania has an installed capacity of 6,385 MW of coal-fired power plants (of which 3,300 MW available) which represents a quarter of the total installed electricity capacity in 2016 (24,686 MW). Therefore, the provision would definitely affect Romania, a country where 27% of electricity produced in 2015 was coal-fired and only a part of the coal TPPs comply with environmental requirements. Romania feels very strongly about asserting its sovereign right over the design of its own energy mix, of which coal is seen as a strategic part.
• support for maintaining the original EC formulation for the national energy efficiency target as “indicative” and at a 27% level, as agreed at the European Council in October 2014. Energy efficiency is very important to Romania, but there is a desire not to overcommit, thus avoiding penalties in case of failure to deliver.
• Romania is doing very well on renewables already – in 2015, 40% of electricity production in Romania came from renewable energy sources: 27% hydro, 11% wind and 2.43% solar. Consequently, an EU 27% target should not pose a concern, especially since Romania has EU funding available – for 2014-2020 – for construction of additional renewable generation capacity under the Operational Program for Large Infrastructure (POIM), Axis 6 – Increased energy production from less exploited RES (biomass, biogas, geothermal).

After introducing a very generous support scheme for renewables in 2008, the level of enthusiasm for RES in Romania has abated. The latest energy policy document – Romania’s energy strategy up to 2030 – explicitly states that a new RES support scheme is unlikely. Furthermore, as of 2013, Romanian authorities have been preoccupied with energy affordability and the impact of support schemes on the consumer’s energy bill which led to the adoption of Government Emergency Ordinance (GEO) #57/2013, a decree that delayed the transaction of part of the green certificates (GCs) until 2018. This has affected the bankability of projects and investments have dropped sharply compared to the boom year of 2012. The recent GEO no. 24/2017 amends the Romanian RES law to bring a more balanced approach, by extending the validity of GCs issued after March 2017 for the entire period of the support scheme (until March 31, 2032), by lowering the GC cap (from 57€ to 35€), and through the provision that the mandatory annual quota for the purchase of GCs established by the regulator, starting in 2018, must not exceed an average impact of EUR 11.1/MWh in the bill of the end-consumer.

• EU statistics on GHG emissions show that by 2014, Romania’s GHG emissions had already fallen by 56% compared to 1990 levels (from 252 million tonnes of CO2 equivalent in 1990 to 110 million tonnes of CO2 equivalent), the second biggest decrease in the EU (after Lithuania, -59%) which means that Romania has contributed more than its fair share to the collective EU benchmark of 40% GHG reduction by 2030. Climate action is an indisputably lofty and noble goal. However, further renewable energy deployment or GHG reduction should rest on the shoulders of the richer EU MSs (which also account for the biggest share of EU-wide GHG emissions: 21.9% Germany, 12.6% UK, 10.76% France, 9.69% Italy – data for 2014).

In theory, as a country that showed support for the Energy Union project, Romania should, by extension, favor the Energy Union Governance Regulation. In practice however, the proposed regulation will translate into a higher administrative burden imposed on the key competent ministries, and in particular on Romania’s Energy and Environment Ministries, at least in the first years. The administrative capacity of the Romanian central government apparatus is not adequately equipped to handle the workload required to fulfill all the research, analysis, tracking and synthesis required by so many – and so frequent – monitoring and reporting obligations across different sectors. The Communication talks about channeling investments to the energy poor and exploiting synergies with initiatives underway in other sectors (buildings, low emission transport, eco-design and energy labelling). The success of this depends on the cross-sector multi-stakeholder consultations, and Romania does not have a particularly strong record in speedy inter-ministerial cooperation, or decision-making inclusive of all stakeholders. Moreover, a culture of cooperation with think tanks and other independent analytical centers does not exist either. Therefore, the implementation of this regulation will put Romanian institutions under significant strain in the short term, especially as, for some sectorial requirements (Art. 18 (a)5 – RES share in district heating, RES use in buildings, RES produced by cities and by self-consumers), nobody is currently tracking such indicators. The regulation stipulates that the first draft national plans are to be provided by January 1, 2018, however in Romania work on INECPS did not even start. To conclude, drafting the first integrated national reports, new data collection, and identifying certain indicators that have not been tracked before within a very tight schedule (6 months), will be very time consuming and will require much effort for countries with weak monitoring and analytical capacities, especially during the first such exercise. The upside is that in the long run the regulation will force a top-down optimization of national energy policy formulation and implementation, and reduce the room for surprises.

NOTE: This analysis was written on June 17, 2017 for Central Europe Energy Partners (CEEP) and first published in the CEEP Report Q2/2017, pp. 13-16: http://www.ceep.be/www/wp-content/uploads/2017/07/Q2-CEEP-Report-2017.pdf ↑