Friday, October 31, 2008

Romania: Spending on Power Generation

Oxford Business Group Latest Briefing

As tightening international credit calls for a reconsideration of investment plans in a variety of sectors, energy players show no sign of cutting back on funding their expansion in the generation and distribution of electric power through renewable resources.

According to the latest Invest Romania issue, investments in the electric energy sector are expected to reach 8 to 10bn euros in the coming years. On the back of the country's successful privatisation of the oil sector and most of the distribution units in electric energy, a string of foreign companies, including CEZ, E.ON and Enel, are now eyeing the opportunities created by the opening of the energy production sector.

Wind energy seems to take a particular prominent place in energy players' investment plans. Romania has a wind power potential of 14,000 MW whereas currently only 7 MW has been installed. This leaves investors with a vast playing field and, according to Invest Romania, the announced wind energy projects amount to a total capacity of 10,000 MW.

Last week, CEZ Romania - the local arm of the Czech energy group CEZ which owns the electricity distributor Electrica Oltenia in Romania since 2005 - reiterated its plan to invest 1.1bn euros in what is considered to be Europe's largest wind park, in the Dobrogea region, in the Eastern part of the country. Upon completion, the wind park is expected to deliver a total of 600 MW to the national grid. The first phase, due to be operational by the end of 2009, should see the delivery of 347.5 MW while the remaining 252.5 MW will be completed by the end of 2010.

German holding E.ON is also keeping ahead of the game. In September, local media reported on plans of E.ON to establish three wind energy parks with an installed power totalling 112 MW in Vaslui County in the eastern part of the country. Although unconfirmed by the company, the investment could be worth over 170m euros. Earlier in the year, the company established E.ON Regenerabile Romania to handle the group's renewable energy production.

It is only a year since Enel acquired a 100% stake in Blue Line, a Romanian company that owns the rights to develop wind power projects. "We aim to use this company as a platform for the development of wind potential in Romania and we aim to produce up to 200MW by the year 2011," Matteo Codazzi, CEO & Country Manager of Enel Romania told OBG. Elaborating on these investment plans, Codazzi declared that "investing in wind energy makes sense from an economic, financial and strategic point of view. Although overall contribution to a country energy output will rarely be a double-digit figure, wind energy is cheap, environmentally friendly and secure in terms of supply."

Other areas of renewable energy are also being eyed by a number of international players. In nuclear generation for example, a number of European utility companies such as Germany's RWE, Italy's Enel, Spain's Iberdrola, CEZ and Belgium-based Electrabel, together with ArcelorMittal Romania, are involved in the bidding process for the construction of reactors 3 and 4 of the Cernavoda nuclear power station.

Additionally, private investments in hydro-power are growing as state-owned hydropower generator Hidroelectrica sold off 17 micro hydropower plants to Austrian company Wienstrom for a total of 28.4m euros in June 2008.

These developments are in line with the authorities' ambition to increase both energy securityrenewable energies usage, the country aims to generate 11% of the domestic gross energy consumption from renewable resources by 2010. By promoting renewable energy resources and the expansion of the nuclear energy plant, the Romanian authorities aim to be energy self-sufficient by 2014.

Meanwhile, to absorb the additionally generated power in the national grid, Transelectrica, the state-owned energy transportation company, is to invest around 600m euros in network upgrades as well as the construction of new interconnection lines with neighbouring countries. Currently, Transelectrica and the country's electricity distributors have committed to accommodating an additional 2000 MW of electric power to the national grid.

According to Codazzi, in order to realise the full potential of this wind energy, bottlenecks in energy transmission have to be overcome.

Despite the adjustment of growth projections for a variety of sectors, investors show confidence in the area of energy generation, particularly due to the diversified range of energy sources that the country offers. As Adrian Borotea, corporate affairs manager of CEZ Romania recently told local media, "Energy-wise, because of its balanced generation portfolio, where hydropower and nuclear power account for a large share, and the thermoelectric power plants run mostly on domestically obtained fuel, Romania has a low exposure to the international financial crises."

However, Borotea does foresee a higher impact on energy consumption due to the weaker business environment. "Energy consumption is likely to stagnate; this will make energy companies more careful with the money they allocate to project development, considering investments in this field take a very long time to recoup", he said.

Commenting on whether the global economic slowdown and the resulting drop in oil prices may detract investors from their commitments to alternative energy, Codazzi said that "despite their competitive costs, usage of alternative sources make sense to increase security of supply and cut CO2 emissions; short-term fluctuations in the price of a barrel of oil will do little to outweigh these long-term benefits."

International investors in Romania have opened up to the gains that can be made in the development of alternative energy. With energy security and green power now high on the country's political agenda, private sector interest is set to bring the country's potential to full fruition.
and usage of renewable resources. As part of the negotiations for EU membership and the common policy for the promotion of

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