Possible Obligation Schemes to Apply Energy Efficiency in Romania

Virgil MusatescuRomanian WEC Member Committee

Challenges for energy sector in

Romania

• Renewables: 24% of TPES and ca. 38% of electricity produced. For electricity: support mechanism – green certificates.

• Results over-passed expectations, especially for wind, solar – next: biomass

• Difficulties for the system control, however useful in years with low humidity (ex. 2011 and 2012).

Challenges for energy sector in

Romania (2)

• GHG emissions reduction: - 21% under ETS. On track!

• Energy efficiency has a deficit. What to do?

• Need to clarify some regulations (even accounting rules);

- Need for sustainable support mechanisms;

- Need to implement new Directive’s (2012/27/CE) provisions

Challenges for Romanian energy

sector in (3)

• “Energy Trilemma”:

a) Safety energy supply: domestic resources are depleting – coal:>30 years; oil and gas: <15 years for BAU.

b) Sustainable development;

c) Social equity/Energy affordability

Common tool to mitigate problems: Energy Efficiency (EE)

Energy Efficiency in Romania –

Potential

6823100Total

24314.0Commercial

139031.5Transport & Communications

360041.5Residential

159013.0Industry

Maximum technical potential (thou

toe/year)

Average cost effective potential

(%)

Sector

Identified difficulties

• Not appropriate understanding of ESCO’s role and realization of favorable primary and secondary legislation (EnPC and suitable financial schemes). Related to this: underdevelopment of TPF and ESCO market;

• Difficulties in adequate use of European instruments, especially Structural and Cohesion funds in energy efficiency projects – ex. Development of Economic Competition Program;

• Still few support national programs for EE: buildings thermal rehabilitation, replacement of old vehicles, “green house program” etc.

Obligation Schemes (art.7)

• An energy efficiency obligation (EEO) – a regulatory mechanism that requires obligated parties to meet quantitative energy saving targets by implementing approved end-use energy efficiency measures.

• 3 key features:

- a quantitative target for energy efficiency improvement;

- obligated parties that must meet the target; and

- a system that: defines the energy saving activities that can be implemented to meet the target; measures, verifies, and reports the energy savings achieved through these activities; and confirms that the activities actually took place.

Status of the EEO Scheme in

Romania• Incipient stage. Series of debates to clarify:

a) Quantitative target – under debate at the Government level

b) Obligated parties:

- Providers of networked energy (e.g., electricity and natural gas distributors or standalone retail suppliers);

- Providers of other energy forms (e.g.LPG, district heating, etc.);

- A third party “energy efficiency utility”.

- When an obligated energy provider fails to deliver or procure those energy savings, it will incur financial penalties – how they are applied?

Status of the EEO Scheme in

Romania (2)c) Clarify details concerning the system:

- Defined by the regulator (in Romania case: electricity and natural gas);

- Establishes compliance regime to determine whether obligated energy providers have met their individual scheme targets and to apply sanctions if they fail to do so (reporting, monitoring, applying sanctions);

- Defines eligible savings;

- Performance incentives;

- Trading scheme;

- Who will support it – funding: sharing between actors: state, consumers, obligated parts.

Pre-selected schemes

A. White certificates scheme in Romania case

Pro’s: - Market mechanism so – at least theoretically -minimize the energy efficiency costs to society;

- They can create competition among different energy efficiency technologies

- Existing experience with similar scheme for green certificates;

- Financially strong possible obligated parties (5 big electricity and 3 big gas distributors);

- Lessons learned from international experience;

- The possibility to integrate with the green certificates scheme or Kyoto Protocol flexible instruments.

Pre-selected schemes (2)

• Contra’s:

- Difficult to apply to district heating companies (weak financially);

• Difficult administration and high costs because the complexity of setting rules and applying it in the market.

- Not agreeable to distributors – a survey among their managers showed their reluctance;

- Cost recovery through tariffs that affects affordability;

- Because the electricity and gas markets are not entirely liberalized, this can lead to higher administrative costs for such schemes reducing substantially their effectiveness.

Pre-selected schemes (3)

B. Long term agreements (LTA)

- They are voluntary and long term;

- Usually used for industry branches;

- Agreed targets for energy savings;

- Negotiated with manufacturing, glass, and

cement industries;

- Simple cost recovery through market;

- Not neutral to the energy efficient technologies.

Pre-selected schemes (4)

C. Third party scheme (ESCO’s)

- Many distributors/retailers prefer to contribute to a specific fund to save energy;

- Necessity to develop entity/ies to deliver energy savings that has/ve better experience in this field than retailers/distributors;

- Necessity to establish financial schemes to cover the risks (dedicated loans, vehicle entity/ies, etc.);

- Possibility to establish a National Fund which can collect from many sources (including foreign ones, e.g. European Structural Funds, participation of MD Banks)

Other schemes

• Taxes on energy or CO2 or combined.

• Standards and norms (different of those already mandatory in EU) for energy efficiency (including for buildings and vehicles).

• National and local programs for cogeneration modernization (based on transferring subsidies to energy savings)

Conclusion

• In conclusion, even if some programs to better use energy are in place in Romania and experience with market mechanisms as tradable certificates does exist, the process to select appropriate combination of schemes is at the beginning.

• Most probable there will be a combination among existing collateral working schemes and new ones.

• Experience of countries like Poland is valuable for us to make a better decision.

Thank you for your attention!

Looking forward to your comments and questions!

Virgil Musatescu at

virgilmusatescu@gmail.com

vimu2309@yahoo.com