Friday, July 4, 2008

Romania: Energy Savings Afoot

Oxford Business Group Latest Briefing

With new EU member states under pressure to comply with a revised common energy policy, joint-efforts between international and local banks have been made to kick-start energy efficient practices in Romania.

Four mayor players in Romania’s banking sector have recently received a total of 45m euros from the European Bank of Reconstruction and Development (EBRD) to fund investment in energy efficiency projects. BRD-Société Générale announced in May 2008 the reception of a 10m euros funding to be allocated as loans to entrepreneurial initiatives to raise energy efficiency levels. The three other benefactors were Banca Commercial Romana (BCR), the Romanian Savings Bank (CEC) and Banca Transilvania. They received sums of 20m, 10m and 5m euros respectively. The initiative has been complemented with an extra 24m euros of EU grants from the Phare programme - the main channel for the EU’s financial and technical cooperation with accession countries.

With these initiatives, the EBRD is aiming to push the country to increase energy efficiency levels in line with EU-directives. As part of Europe’s new energy policy - implemented in January 2007 - member-states are required to make better use of energy resources in order to lower both the level of pollution and the economic impact of high energy prices. The EU is expecting all members, including Romania, to achieve a 20% reduction in energy consumption compared to 1990 levels by the year 2020.

Ilie Stefan, the Romanian minister for administration, told local media in May that the government had set itself the ambitious target of reducing energy consumption by 4.5% and of improving output by at least 80%.

By EU standards, Romania has a long way to go. Current statistics show that Romania’s energy intensity is 1.44 times higher than the average of the 25 EU member states and among the highest in the region. Improvements have been slow, particularly in the industrial sector, which is the biggest energy consumer.

Modernisation of the national energy infrastructure, according to some industry experts, is key to a more efficient consumption of energy. There is a particular need to invest in the upgrade and rehabilitation of electricity assets, especially power stations. Furthermore, efforts need to be spent on the development of renewable energy sources and education on safety and efficiency.

According to the EBRD, the funds can boost small-scale development and application of efficiency practices and renewable resources. This supports the institution’s decision to join efforts with local banks, which have an extensive network throughout the country and therefore the means to reach small scale entrepreneurs, in particular small and medium-sized enterprises (SMEs). An added advantage for the banks is that this segment is of increasing value in the fight for market share.

On the back of these positive developments, a vast amount of money has flown into the country’s energy sector from both existing private players updating their structures or foreign entrants acquiring Romanian assets. For instance Transelectrica - state-owned transmission and System Operator - announced plans earlier this year to invest 10m euros annually in the following four years to revamp its transformations stations.

Another example is Distrigaz Sud - a major natural gas supplier in the South of the country - which plans to spend around 40m euros this year on upgrading its distribution network and protection systems.

Finally, Italian energy conglomerate Enel - which recently bought a majority stake in Electrica Muntenia Sud, the sole electricity distributor for residential and industrial customers in Bucharest - plans to invest 1bn euros in the next 15 years in overhauling the network in Banat, in the South West of the country, and Dobrogea, along the Black Sea coast.

As energy efficiency is increasingly convincing private companies of its profitability, the country now has a unique opportunity to lower its energy bill costs. With that in mind, the country is becoming aware that turning energy down a notch has the potential to fire up the country’s competitiveness.

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