AT Kearny: Inefficient electricity production leads to stagnating demand in the next 10 years. Cernavoda and Tarnita projects, not so attractive
Source: Ponsulak
Romania needs consistent investments in the energy sector in the coming ten years, as well as a transparent and stable strategy for being competitive on the regional market, as although the existing power production capacities are enough to secure the electricity demand, many of them are highly inefficient, according to the Romania Strategic Energy Market Outlook 2014 – 2025 report issued by AT Kearny for Fondul Proprietatea.

Romania's energy sector does not need investment because of insufficient power production capacities, but because the existing ones need either to be refurbished or to be replaced”, explained Michael Weiss, Partner with AT Kearney, during a press conference.

The fact that many of the production facilities are inefficient is reflected by the electricity generation cost which is inflated by 24 percent, also as a result of the overcompensation in the green energy field.

Therefore, investments should be directed to operational power plants which need to be refurbished or to new projects to replace the old ones. Romania's strategy in terms of energy developments should be connected to the country's action plan with respect to industry – the energy intensive sectors have been affected in particular by the lack of predictability and stability in the energy market and consequently might face deindustrialization - in order to revive electricity demand which will see a marginal increase (+0.7 percent) by 2025, shows the AT Kearny study.

On the one hand Romania will be challenged to phase out its inefficient power production units which generate sunk costs. On the other hand, we can take advantage of this opportunity to reshape the production capacities park to propel Romania to the position of competitive net exporter”, added Weiss in the context of the implementation of the market coupling project, Romania being connected with the energy markets in the Czech Republic, Hungary and Slovakia.

In spite of the recent decline in terms of new green energy projects, the renewable energy sector will be the most attractive for investors in the next ten years, provided the current subvention scheme is maintained.

Yet, as this field is overcompensated, the subsidies applied should be revised to minimize the risk of speculative investments and burdening consumers, indicates the study. Provided such changes are introduced to correctly size the support-scheme, the renewable energy sources, especially biomass, can contribute significantly to streamline costs in the energy sector.

Besides, smaller power production facilities are seen as a more reliable and appropriate solution to meet both investors' requirements and the demand of the energy system, due to higher flexibility and lower grid-related costs or losses.

In this context, AT Kearny found that the Cernavoda Units 3 and 4 project is less commercially attractive since it would require a major support-scheme, while generating sunk costs by withdrawing lignite form the market.

As regards the other strategic project, the Tarnita-Lapustesti hydropower plant, the study states that additional balacing capacity is not justified by demand expected for Romania, given the current information on the project.

Positioning Tarnita as a regional player (on the integrated market) involves the alignment with neighboring countries to avoid overinvestment in the region. Local funding would mean subsidizing neighboring countries”,concludes the research.

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