The Market for Energy Efficiency in Romania

Table of Contents
Country Profile
Energy Sector Profile
Legislation, Policies and Programs for Energy Efficiency
Demand for Energy Efficiency – The Major Players
Product Markets
Strengths, Weaknesses, Opportunities, and Threats Analysis
Contacts

COUNTRY PROFILE
Romania, through necessity rather than design, underwent the most abrupt economic transition of all the Central and Eastern European countries. Almost overnight in December 1989, absolute central control disappeared to be replaced by market forces. After a steep decline in GDP of 29% in the following three years, economic growth returned. However, this growth was driven by credit-based expansion of existing, inefficient heavy industries, and therefore could not be sustained. Since 1996, the economy has registered successive declines, and a return to growth is not expected until 2000.

The economy remains fairly closed, with exports accounting for only 16% of GDP in 1997. Even under central planning, Romania was never as dependent on heavy industry as some of its neighbours, and agriculture still accounts for 19% of GDP. Per capita GDP stands at only about one-third of the level seen in the poorest EU countries, and it is estimated that over 20% of the population lives below the poverty line. Although Romania has begun the process of meeting the criteria for EU membership, it has a long way to go, and full membership is not expected until well into the next century.

ENERGY SECTOR PROFILE
Romania’s energy sector must rank among the oldest in the world, being the first country to produce oil commercially, and among the first to generate electricity commercially. The country is relatively energy-rich, having significant oil and gas reserves and considerable quantities of lignite.

Electricity
Romania’s power sector produces about 58 TWh annually, from 23 GW of installed capacity. About 70% of the total electricity production comes from fossil-fuel plant, and most of the rest from hydro-plant. Cernavoda, Romania’s nuclear plant, makes a relatively insignificant contribution. Virtually all generating plant is owned by subsidiaries of CONEL, the state-owned power company. However, when CONEL was created from RENEL, the vertically integrated monopoly, it did not assume ownership of Cernavoda. The vast majority of CONEL’s thermal power plant also supplies district heat.

Only about 20% of Romania’s generating plant is less than 15 years old, and over one-third is older than 25 years. There is therefore a considerable need for investment in refurbishment. Investment needs have been estimated as US$4 - 5 billion over the long-term, of which $0.9 billion is for modernisation of transmission and distribution systems.

Electricity prices remain well below cost-covering levels, especially in the residential sector. However, there is a strong commitment to address this problem in the immediate future. There have been three tariff adjustments in 1999 and, in the last two years, household prices have risen by 105%, while industrial prices have fallen by 33%. Unfortunately, the steady weakening of the leu means that successive increases in household electricity tariffs have done little to close the gap with international prices. Although the full household tariff is now higher than the industrial rate, approximately 40% of Romania’s domestic electricity consumers qualify for the ‘social tariff’, a lifeline rate introduced to protect vulnerable sections of the population from the worst effects of price increases.

Romania’s power sector is currently in the early stages of a radical restructuring, of which the creation of CONEL is the first stage. CONEL will retain ownership of the grid, and control of dispatching. Generators will then be sold off, and the generation market will be opened up to independent power producers and autoproducers. Finally, licences will be granted to privatised distribution companies, who will have the monopoly of supply in their areas of the country. The 1998 Energy Law that enabled these changes makes specific provision for the promotion of the efficient use of electricity by end-users (DSM).

Gas
Romania produces domestically about 75% of the natural gas it consumes, importing the balance from Russia. The gas distribution infrastructure is extensive, although somewhat aged, and the availability of gas is therefore very good. To provide a greater diversity of supply, Romania is currently investigating options for constructing pipelines to allow imports from a range of other countries including Norway, Turkmenistan and the Netherlands.

Heat and hot water
Approximately 30% of Romania’s total building stock receives its heat and hot water from district heating systems, a figure that rises to 58% in urban areas. District heating accounts for about 60% of the country’s total heat and hot water demand. A total of 68 towns and cities have district heating networks, 40 of which receive heat from CONEL-owned power plant.

The performance of the district heating systems tends to be poor, partly because of insufficient insulation of pipes, fuel shortages and excessive corrosion leading to hot water loss. But perhaps the most important factor leading to poor performance is the uncontrolled expansion of networks in the past, with the result that certain systems can only meet about 60% of peak heat demand. Requirements are usually met by supplementing district heat with coal or wood burnt in open hearths.

LEGISLATION, POLICIES AND PROGRAMS FOR ENERGY EFFICIENCY
Romania is a signatory to the Kyoto Protocol on Climate Change, and has undertaken to cut greenhouse gas emissions by 8% relative to 1989 levels by 2008-12. It has also ratified the Energy Charter Treaty, in August 1997. The number of policies and programmes specifically aimed at promoting energy efficiency in Romania is relatively limited:

• The 1998 Energy Law, which lays down the principles for energy sector restructuring and privatisation, contains some elements placing a responsibility on utility companies to promote energy efficiency.
• Funds have been provided under the EU PHARE programme, to promote energy efficiency improvements in small and medium-sized enterprises (SMEs). A pilot project will be undertaken in a number of different industrial sub-sectors, and the results disseminated to other SMEs.
• Energy efficiency standards have been introduced for most household appliances and for buildings.
• Power sector modernisations have been supported from a fund created through a levy on electricity and heat sales.

Local authorities
A total of almost 2,700 municipalities, including 182 cities, form the lowest tier of local government in Romania. These municipalities are responsible for environmental protection, housing, heat supply, street-lighting, pre-schools and primary schools, and a range of public buildings including sports centres, museums and libraries. Above the municipalities are the 42 counties, responsible for co-ordinating the actions of the municipalities.

Local authorities are fairly autonomous with regard to budgets. Local taxes and a share of income tax form the bulk of the budgets of municipalities. Only 36% of local government expenditure comes from central government.

Housing ownership
Even under the centrally-planned regime, private ownership of housing was relatively common. Since economic transition has been under way, housing is probably the sector that has seen the greatest degree of privatisation. Of about 7.5 million dwellings, only 347,000 remained in public ownership by the mid-1990s. The average size of apartments is large by the standards of the region, and overcrowding is not normally a problem. The main focus of the construction industry for the next few years is therefore expected to be refurbishment and modernisation of apartments, rather than increasing the housing stock. Where refurbishments are extensive, this will provide opportunities for incorporating thermal improvements. Securing loans against homes is virtually unknown in Romania, so housing sales tend to be cash-only. This also limits the possibilities for financing energy efficiency improvements.

Buildings insulation
Although summers in Romania are hot, the country’s continental climate results in a heating season that is very sharp, although relatively short. The heating season lasts for about 180 days, with the number of degree-days ranging from 2,900 to 5,150. The building regulations mandate minimum insulation standards on new buildings, but these are considerably less stringent than in most Western European countries. In any case, as these regulations apply only to new buildings, they will have little or no impact on the thermal insulation standards of most Romanian homes. A large proportion of new home construction is both financed and performed by the future occupant, and so it is likely that every opportunity is sought to cut costs. Under these circumstances, tightening the building codes to include higher levels of thermal insulation would probably achieve very little.

The market for building insulation materials is thus dictated largely by the rate at which homes are refurbished. This is likely to be constrained by the limited spending power of households, and the non-availability of finance. It is estimated that at least one-third of Romania’s 7.6 million dwellings are in urgent need of major refurbishment, including energy efficiency improvements. To realise this substantial market for insulation materials, it is likely that official programmes involving concessional finance or grants would be necessary.

Efficient lighting
Energy consumption in public lighting has increased greatly since the beginning of economic transition, for the simple reason that many public places are now adequately lit for the first time since the early 1980s. In order to save electricity during earlier energy crises, about 80% of lamps had been removed, and many areas were plunged into complete darkness after sunset. Although a significant fraction of the relamping has been with high-pressure sodium (HPS) lamps, there are nevertheless many mercury vapour (MV) lamps in operation, which are intrinsically less efficient than HPS. Furthermore, a large proportion of lamps in operation are older Romanian-made models, which do not meet international standards of efficiency. Finally, the level of maintenance that has been carried out on luminaires has, for a long period, been sub-optimal, leading to further energy waste.

A number of assessments have been made of the potential for street-lighting retrofits. In Cluj-Napoca, for example, half the 15,000 lamps were MV, and 6% were very inefficient incandescents. A pilot lighting project in one street resulted in annual savings of about 860 kWh per luminaire, with a payback period of 1.26 years. However, the project revealed that there may be difficulties with excessive harmonic distortion, which will need further attention. The greatest obstacle to wider replication of these pilot projects is the non-availability of finance. Several municipalities are lobbying CONEL to implement DSM projects based around street-lighting.

Household lighting levels are also increasing, as the population attempts to forget the darkness that characterised the final years of the Ceaucescu regime. The first steps towards promoting efficient lamps have been taken, with the launch of a draft energy efficiency label for lighting products. Manufacturers and importers will be forbidden from supplying lamps with an efficiency of less than 8.5 lm/W for incandescents and 25 lm/W for fluorescents. Unfortunately, most households have insufficient spending power to invest in energy efficient lamps. While the introduction of labelling on lamps is an important step forward, it is certain that some form of financial assistance will be needed to achieve a significant market penetration for the most efficient models of lamp.

Energy efficient motors and variable speed drives
It is estimated that 50% of industrial energy consumption is used by electric motors driving pumps, fans and compressors. Many of these motors are oversized and therefore inefficient. Although detailed data has not been gathered on the potential for savings through appropriate sizing of motors, it has been estimated that variable speed drives (VSDs) could result in savings of 5% in total electricity consumption.

Particularly promising candidates for electric motor efficiency improvements are public water pumping stations and pumps in the petroleum industry. In both cases, savings are possible both through more appropriate sizing of motors and through the use of VSDs. Various pilot projects have indicated the potential for savings. Reductions in power consumption of 40-50% were achieved in the pumps at a petroleum refinery through the use of VSDs. In a water pumping station in Craiova, 18% savings were achieved through the use of VSDs. A similar project is also under way at Targu Mures as part of the on-going joint implementation agreement between Romania and the Netherlands.

SWOT ANALYSIS

 CONTACTS

Romanian Energy Policy Association
APER
Calea 13 Septembrie
Rooms 6.223 – 6.225
Sector 5
Bucharest
Tel.: +40 1 781 77 75
Fax: +40 1 335 0280

Romanian Association for Optimisation of Energy Consumption
SOCER
Str. Ion Maiorescu 10
Craiova 1100
Romania
Tel.: + 40 51 417 015
Fax: + 40 51 418 378

Romanian Agency for Energy Conservation
ARCE
Calei Victoriei str. 152
Sector 1 Bucharest
Romania
Tel.: + 40 1 650 64 70
Fax + 40 1 312 3197

Federation of Municipalities in Romania
First Floor, Sector 3
Str. Academiei Nr. 3-5
Bucharest
Tel.: +40 1 311 34 91
Fax: +40 1 312 24 76

Prepared by the International Institute for Energy Conservation (IIEC)
September 1999

Support for this document was provided by the Export Council for Energy Efficiency (ECEE) and the US Department of Energy (award DE-FC41-94R110679). This support does not constitute an endorsement by the US Department of Energy of the views expressed in the article.

Updated: 03/29/02