Eugenia Gușilov: Romanian state has some good energy policies, but overall reforms happen slowly

Vladimir Mitev

Eugenia Gușilov is the founder of ROEC – the first independent energy studies think tank and energy-focused consultancy in Romania. A Fulbright alumna and a graduate of Columbia University, New York (USA), she has a Master of International Affairs with a concentration in International Energy Management and Policy and a Certificate from the Harriman Institute with a thesis analyzing the Russian Production Sharing Agreements. Eugenia Gușilov answers a number of questions on Romanian energy sector in the present times:

– the rise of the prosumers (households, which produce electricity and sell it to the market);

– the fate of the American energy projects in Romania – e.g. the one on the nuclear modular reactors;

– the natural gas extraction in Romania;

– the effects from the listing of Hidroelectrica – the state-owned company, which owns a number of hydro power plants, on the Bucharest Stock Exchange;

– the evolution of just transition;

– the changing energy geopolitics in the region after the start of the war in Ukraine.

Romania has quite a good development of the so-called prosumers in society. These are households who produce electricity in their homes using solar panels, for example.

The rise of prosumers started two years ago. It was very prominent at that time. Now it continues to develop, and I know that recently the conditions have changed somehow. So now it’s not enough just to have the solar panels, you also have to have the batteries and I would like to ask you, as an energy expert, to explain what is going on, what is the current state of affairs in Romania with regard to prosumers in terms of legislation and other issues.

Yes, it’s an area that has moved really well in Romania in the last two years, but again, it goes back to why this segment has moved better than all the others. It’s because the state doesn’t deliver the projects that it has announced and committed to deliver or is not able to complete projects that should have been completed a long time ago. Some of them are 80-90% completed (we have hydro projects that are in this state of near completeness). So, the little guys, the ordinary people are tired of waiting for a solution from the state (especially in the context of the 2022 energy crisis). So now, ordinary people are doing something about it, but also with the help of energy experts.

I was one of those experts who said: “Don’t wait for the government to help you and deliver projects that it can’t deliver for more than 10 years”. We’ve been waiting for the Cernavodă 3 and 4 (new units at Romania’s only nuclear power plant) since 2007. That’s a project that  is not advancing.

We’re waiting for Tarnița–Lăpuștești hydroelectric pumped-storage project. That’s a project that we’ve been talking about in Romania since the 80s, so 30-40 years, and it’s not happening. So, I think it’s a very bad decision to wait for the government to provide cheap electricity.

That’s why a lot of people have taken matters into their own hands and invested, some out of their own pockets, others with the help of government subsidies that are in place (“Casa Verde” program), and they have equipped their houses with solar panels. That is why we have seen this phenomenal increase in installed capacity, which now equals the power of two nuclear reactors installed at Cernavodă. So, Unit 1 and Unit 2 have an installed capacity of 1,400 megawatts (MW) and the total installed capacityat the prosumer  level was 1,500 MW this summer.

So, you see, I think it’s also something that has developed because the other solutions or the projects that should have helped are not there in time to help you when there’s an energy crisis. So, now this segment has developed too quickly. It has caught up with our decision makers who are not ready and they say that they can’t deal with the increasing power of the consumers because they don’t have the balancing capacity to integrate this installed capacity that is present at the level of the consumers.

They have now made it mandatory for the prosumers and the next installations to be equipped with storage at the individual project level. Although we have to emphasize that the same obligation does not apply to the large renewable power plants – solar farms or wind farms. There is no legal obligation for them to be equipped with storage. This rule creates discrimination,not a level playing field, because there’s one set of rules for the industrial scale renewable projects and there’s another set of rules (that require storage) for the small scale renewable investors, because that’s what the prosumers are. They are renewable energy investors at the household level, not at the industrial level (projects that sell electricity on the exchange). So that’s where we are. The government has been caught off guard again. And that’s why these attempts to change the legislation – to make it compulsory for them to be equipped with storage, but that adds to the cost of installing and operating and using such systems. Then there is also talk of the government wanting to increase the collection of VAT and the fact that they may increase the level of VAT for solar panels next year. So prosumers are going to face additional costs, if that happens on the VAT front. 

You like to criticize the state, but in fact, two years ago, if I’m not mistaken, prosumers were tax exempt and that was one of the reasons why this sector grew so fast. On the other hand, the state also has a program that supports people who buy photovoltaic panels. What can you say about this policy of the Romanian state to support the sector?

Well, it’s a good thing that the Romanian government has done, in the sense that initially they didn’t, put unnecessary obstacles in front of the prosumers. But the state tries to change the rules periodically because it wants to raise money.  It is trying to find new sources of revenue, and that’s why the VAT for new solar installations might go up next year. 

I don’t think the government itself was prepared for this huge interest from the market. The interest from the market came because of the energy crisis and the price explosion in 2022. Without the war in Ukraine and the energy crisis that year, it would have developed at a slower pace. But because many people were rightly scared in 2022, many of them installed solar panels paying out of their own pocket or with the help of a bank loan. So, many of these investments were not made with government subsidies, so not with the help of the government program which experienced huge delays (there have been cases where applications submitted in 2019 were not processed even three years later).

So, the government is offering subsidies, yes, but it is also very slow in processing these applications. There were people who waited 3-3,5  years for their dossiers, their files, to be approved so that they could make the investment and put the solar panels on their houses. A lot of this explosion in the prosumer segment is due to the middle class, to the people who had the means to invest in solar energy installations. The prosumer phenomenon in Romania is 90%, more than 90% driven by solar panels, so not micro wind installations or biomass. The RES installations chosen by prosumers are solar panels, so it is primarily photovoltaic technology.

If we’re talking more about the state in its energy policy, there were recent statements by the Minister of Energy, Mr Burduja, who complained that the price of electricity in our region has been very high in recent months, while in Western Europe, and in fact in the whole of Europe up to Austria, maybe it is, it tends to be much lower. And he also said, if I’m not mistaken, that some measures would be taken even on a European level, because it’s a common interest of Bulgaria, Greece, Romania and so on. What do you know about this? What can be done in this case? And what do you think will be done to somehow normalise energy prices?

Well, I think the problem that has been exposed this summer (and we may struggle with it again this coming winter) – specifically the fact that we have seen higher prices in this part of Europe, Southeastern Europe, as opposed to the more normal prices in Northern Europe, Western Europe, even, even Central Northern Europe, so Poland, the Baltic States. This problem is because our part of the continent – Southeastern Europe, Romania, Bulgaria, Greece, these are the countries that are the weakest link in the European energy market, the integrated energy market. These are the countries that have delayed reforms. These are the countries that have planned investments that have not materialized. Our energy minister wants to blame Ukraine and says that we have higher prices because of the war in Ukraine and that’s why we see these higher prices. But,there are other neighbours of Ukraine (Hungary, Poland, Slovakia) which have not seen such high energy prices. So, this argument is not very convincing. 

This leads me to the conclusion that these higher energy prices are the result of the failure of these 3 countries to make the necessary investments in time, because we’re talking about Cernanodă 3 and 4, two reactors that would have added 1,400 MW  to the existing installed capacity in Romania, which would have been a great help in this whole situation, which could have covered the energy consumption of the Republic of Moldova, which could have provided electricity to Ukraine or could have covered the peak demand in Romania during the summer. Our societies, our economies are evolving and moving towards more electrification. We use more electricity, because of all the new devices that we use.

Specifically, when we see heat waves like we saw in Romania this summer, temperatures going above 40 degrees Celsius – something unprecedented in this part of the world, people will use the air conditioners more. In Bulgaria, I know in winter people use air conditioners (A/Cs), but on the heat function to warm their homes. So, in Bulgaria the A/Cs  are used to heat the houses in winter, while in Romania to cool indoor spaces during summer.

We have new appliances, new uses of these appliances, and the situation this summer with the higher prices points to a deficit in production and installed capacity. So, the generation is not enough, even with the exchanges that we have, because Romania imports a lot of electricity from Bulgaria, with whom we have the highest interconnection capacity. But it is not enough to cover the peak moments, when demand is at its peak. This again points to a domestic failure to deliver projects like the Midia natural gas power plant that they started and should have completed in 2020. And we are now in 2024 and the minister is telling us that we should wait a little bit longer and that it will be completed and commissioned by the end of this year, by the beginning of next year… We have been hearing this for four years! The nuclear power projects at Cernavodă, I mean the reactors 3 and 4, are not moving forward.

We can’t believe the date that they have in mind or that they are proposing – that we will have unit 3 of the nuclear power plan by 2030. We can’t trust that because they’ve been saying that since 2007. I imagine what the situation would have been without the prosumers, who have added 1,500 MW of new installed capacity, at the individual level, at the residential level in Romania. 

Again, it’s the failure of the state to complete the projects that they’ve been working on for years. Some of them should have been operational already and they are not. 

Before criticizing the European energy model or the energy market, I would look at what these countries should have done and didn’t do. And the fault lies first and foremost at the domestic level. Only when you can show to your European partners and to Brussels that you have done everything you can do, that you have invested, that you have reformed, that you have implemented all the reforms, then you can go and ask Brussels to give us more money because we need more interconnection capacity, or we want to build an additional line between this country and that country. Brussels has allowed subsidies during the peak of the energy crisis in 2022. Romania has granted subsidies and is a country, one of the few European countries, that still grants subsidies at the consumption level. And the Romanian subsidy scheme did not last only for themost difficult period, 2022. It’s in force today. As we speak, Romanians are enjoying a subsidized price: the industrial consumers, residential consumers, they are paying a subsidised price for electricity and they will continue to do so until April 1, 2025. So, it’s not that Romania didn’t use state intervention. Romania has intervened, Romania has re-regulated prices. And if other European countries have since dropped this intervention or have made this intervention short-term for the duration of the crisis, and have gone back to market prices in the meantime, Romania has not gone back to market prices, not yet. We’re still under this subsidised regime.

I also want to ask you about your assessment of the ongoing just transition process in Romania. It has different components. One is that the closure of certain jobs related to mines and thermal power plants should somehow be linked to the opening of new jobs, hopefully for qualified workers. That is the economic aspect. There is also a social aspect, because people who lose their jobs are expected to receive some funds, either for welfare or for retraining. And there is also an aspect related to new technology, in some way related to the modernisation of companies or production facilities. So what is your assessment of the ongoing just transition in Romania? How successful is it or what problems does it face?

Well, Romania started down this road reluctantly and late. Again, Romania, Bulgaria, Greece are countries that resisted phasing out coal and dragged it out as long as they could, until they couldn’t. And then they reluctantly went down this path and closed down coal-fired power stations. The EU was generous. There is a lot of money to be spent. But Romania was late, a late starter, in accessing this money.

I would have to look into it myself to give you a more detailed answer on how the programs under the Just Transition Fund are going. But what I can tell you is that Romania was a late starter. Poland was much more ahead of us at the level of 2020, in terms of accessing this money, in terms of drawing up the strategies, in terms of bringing the stakeholders together and identifying what they want to do for the region. Romania was behind Poland in these aspects at that time. 

As for the social aspect, well, the social aspect in Romania is being manipulated by politicians, including Minister Burduja himself, who instead of telling the people in these coal-dependent regions the truth, that this is a thing of the past, that it’s going to be closed down, he acted out of desire not to lose votes because it’s an election year. He has reopened some coal-fired units saying that we want to promote coal mining and we want to extend the life of these coal-fired plants.

Nnot telling the truth to the very people affected by this process ( just transition and decarbonization), but selling illusions. This is what our politicians have been doing, especially the minister, the current minister. I think it serves no one. And it does not help these people. It’s much more honest to tell them the truth and help them get access to that money, to build new projects, to acquire the skills needed for a new, for a greener economy, than to tell them lies about how you’re going to extend the use of coal in those regions just to get their votes in this upcoming election.

So that is what happened.

I know that in Romania there is sometimes a discourse that international capital or global capital corporations are somehow privileged, including by the Romanian state, in relation to national indigenous capital. Is there such a discourse or such a reality when it comes to the just transition, in the sense that perhaps companies owned by Western European companies or people are more involved in the just transition or benefit more from it than local Romanian companies?

I wouldn’t say that. And why wouldn’t I say that? Because, the coal sector, the coal-fired power stations, they are entirely in the hands of the Romanian state. There are no private companies exploiting coal-fired generators in Romania. There haven’t been any. So, it’s all state-owned companies.

And I would say that the Romanian state is actually much more busy developing state aid schemes or support schemes for the state-owned companies than it is helping the private sector and foreign companies to access finance. I would say that if anyone is discriminated against in Romania, it’s the foreign companies, because the state has a vested interest in helping the state-owned companies. And let me tell you, the energy sector in Romania is 80% state-owned.

The Romanian state is failing and not doing enough to create and develop the policies that would incentivise private investors to put their money into new projects. It spends most of its time trying to help the state-owned energy companies. So, it’s actually failing on the front of creating the policies and the level playing field for all participants in the energy sector. It’s clearly favouring the state-owned energy companies, even in the way it distributes money, including European money.

Speaking of state-owned companies in the energy sector, Hidroelectrica was a very large company and it was listed on the Bucharest Stock Exchange some time ago. It is said to have contributed significantly to the increase in volume and perhaps also to the attraction of some capital in terms of the increasing volume of exchanges on that stock exchange. But I’d like to ask you how you see this, minority stake privatisation, the listing of Hydroelectrica? What has it changed for the company, for the Romanian state, for investors or citizens?

Hidroelectrica is not just any company. It’s the crown jewel of all the state-owned energy companies. It’s the most valuable state-owned company in the energy sector.

I think this privatisation of a minority stake in Hydroelectrica is a good thing because it brings more transparency, more control, but the state remains the majority shareholder. Even now you see there’s this discussion about how the European Union doesn’t want to approvesome money –  the 3^rd payment through the National Recovery and Resilience Plan, because Romania has failed to deliver on the reform front, because it has failed to modernise and ensure that competent people are at the helm of these companies, state-owned energy companies. 

So now we have about a billion euros that is being held up by the European Union and may not be transferred to Romania because Romania hasn’t ensured transparent and competent governance and hasn’t implemented the reform specifically in the state-owned energy companies. Now, the fact that Hydroelectrica has listed a minority stake, I think, is a good development because it brings more scrutiny and because you also have individual stakeholders and owners, even if they are minority owners, who can have an insight. But their say is little, because if it’s 20%, you don’t have much influence and the decisions are still made by the majority stakeholder. So it’s still the state that dictates what happens in Hidroelectrica and what projects are implemented and invested in. Not the small investors. But it’s a good first step in the right direction.

There has been a lot of hype about American investment in the Romanian energy sector. One example is the opportunities for offshore natural gas in the Black Sea. The other is probably the so-called modular nuclear power plants.

I know that in both cases there have been problems. Could you tell us about the current status of these projects, both in terms of natural gas extraction in the Black Sea and modular nuclear power plants?

Let’s start with natural gas in the Black Sea. An important step forward was made last year, in 2023, when in June, so in the middle of the year, OMV Petrom, which is the operator, the main company and the title holder there, made the final investment decision, the FID. This is the most important step in any investment, because before the FID it’s just data collection, getting the right legislation and legal framework in place, doing seismic work, mapping and so on and so forth.

But once a project gets the FID, that means the green light, that means the project goes ahead. So, from that point of view we have this certainty because OMV made the final investment decision in the middle of last year. What they are telling us now is that they want to see the first gas sometime around 2026 – 2027.

So that means they need 3-to-4 years, for all the  contractors to put everything in place for the gas molecules to start flowing and to be fed into the Romanian natural gas system. So, on that front, things have moved forward. And that is why I explained why this FID is very important.

It’s not like a simple authorisation or like a permit. No, it represents the 100% commitment of the project owners to move forward as they actually spend money to develop for production. So, it is happening.

And we should see the first results in 2026. I would say more 2027, because in Romania everything takes longer and you rarely have a surprise that something is done faster, rather, you know, that a project is delayed. So, I would say 2027 rather than 2026. 

On the front of the small modular reactor, this is indeed a project with the involvement of the American company NuScale. They have the technology that the Romanians want to implement at the selected site. The chosen site is Doicești. It’s the site of a former coal-fired power plant, which has been dismantled, but it’s still connected to the electricity grid.

In a way, that was a major factor in the decision to locate the project there. But it’s also moving at a slower pace because there is significant, shall we say, resistance in Romanian society to any American involvement in the energy sector. This is quite strange, because we seem to have quite strong undercurrent in Romanian society and also in Romanian state institutions that want to derail these American investments in the Romanian energy sector.

If these investments do not happen, then Romania will be at the mercy of electricity imports from other countries and will not be able to stand on its own two feet. So, its’ the work of the pro-Russian forces, which you know we have in the form of Diana Șoșoacă’s party, which has this very pro-Russian stance, I mean openly pro-Russian, so you would always see this alignment in their public discourse. The people who were anti-vaxxers, who support Russia and are against supporting Ukraine, are also the people who do not want any American investment in the Romanian economy. It is the same people, the same tribe, the same group of people.

But let’s say that the more progressive part of Romanian society wants to see American investment in Romania. Now, in terms of the Black Sea, you see that this is no longer an American investment, or a project with American involvement, because Exxon pulled out and sold its stake to the state-owned Romgaz, which is a national company, state-owned. Even in the case of the Neptune Deep natural gas project in the Black Sea, it is no longer an American investment. It ended when the ownership was transferred to Romgaz. 

We’ll see if Romania will be able to see this SMR project, small modular reactor plant at Doicești, come to fruition and materialise, or if this will be another derailed American investment and, subsequently a Russian victory in the Romanian economy in the sense that an American investment will not be eventually made.

I hope they succeed with this project. But there is a track record, a significant track record that we cannot neglect of American investment, like Chevron with shale gas, like Exxon with Neptune Deep in the Black Sea, offshore natural gas, which makes me very cautious. So, I’m cautiously optimistic and I’d like to see this project come to life. But Romania is an unpredictable country, so anything can happen.

Since the beginning of October, there is an LNG terminal in Alexandroupolis, Greece, which is connected to Bulgaria, and via Bulgaria the natural gas can reach Romania, Moldova, Ukraine, Hungary, Slovakia, and so on. At the same time, it is expected that after the end of this year, the last Russian natural gas will no longer pass through Ukraine. So, is it possible for you to make some kind of forecast as to what the natural gas map of the region, especially Southeastern Europe, will look like in the near future?

Sure. I would say that the crisis in 2022 resulted in something positive in the sense that our region, Southeastern Europe, managed to significantly break the monopoly of Russian natural gas imports and started, finally started these West-East gas flows, with the help of this LNG terminal in Alexandroupolis, through the Trans-Balkan line, so gas that now reaches Moldova and is non-Russian gas. This is a positive development. 

However, there is still some residual gas transit through Ukraine and this agreement that governs this transit of gas, Russian gas, through Ukraine will end. I mean, it only covers until the end of this year. Normally the expectation would be that this transit would stop, and the Ukrainian side has said that it has no intention of continuing this transit. However, we have seen a willingness, on the other hand, it’s a bit strange for me and I don’t understand it, a willingness on the part of Kyiv to find alternative solutions, well, usually proposed by Hungary or Slovakia, who would like to continue this Ukrainian gas transit through Ukraine, and they have come up with this artificial trick. They say: “Okay, we’re going to take ownership of this gas, just like they did with the oil proposal, we’re going to take ownership of the oil at the Ukrainian-Belarusian border, so the gas that goes through Ukraine is no longer Russian, it’s ours.”

I mean, it’s Hungarian gas or Slovakian gas. It’s a trick, so it’s like an artificial mechanism that they’ve come up with to sort of circumvent the difficulties, even though EU sanctions only apply to oil, not to gas. But it’s a trick, it’s like an invention that allows them to continue to get natural gas from Russia, through Ukraine.

Now, my personal opinion, as an expert, is that Ukraine should close this natural gas transit through its territory, because these are countries, Hungary and Slovakia, that do not support Ukraine anyway. They oppose any support, financial or military, they oppose it both in the EU and in NATO, so I don’t understand why Kiev is playing nice with two countries that don’t want to help Ukraine anyway. So, Kyiv does not have much  to lose by shutting down this transit once and for all.

Kyiv also has a legitimate argument because there is a war going on in their country, so it’s a force majeure event, it’s legitimate. And this, I mean, stopping this natural gas transit through Ukraine would also deprive the pro-Russian and anti-Ukrainian lobby in Hungary and Slovakia of their main argument that “No, we cannot help Ukraine because we are dependent on the Russian gas that goes through Ukraine.” But if that gas stops flowing through Ukraine, that argument is gone.

So, as an expert, I think it would be better for Kiev’s interests if they stopped the transit of Russian gas through Ukraine at the end of December.

Let’s end the interview with a more general question. It seems that there are American, Western European and perhaps Russian visions and stakes for the geopolitical balance in the energy of the region. So, is it right to ask who is winning in this situation two years after the war in Ukraine? And is the victory really permanent or will there be further changes in these geopolitical balances between these three major blocs?

I think the 2022 crisis has made significant cracks in the Russian monopoly, the energy monopoly of our region, and has managed to bring some successes in the sense that it has managed to move Germany away from dependence on Russian gas. And that’s a great victory for American and Western European influence. But there are countries, smaller countries, that remain dependent. And it is a willing dependence, one that they choose. It’s their own will. They choose to remain dependent on Russia.

I’m talking about Hungary, I’m talking about Slovakia. It means that Russia’s influence is not over in our region as long as we have EU member states, NATO member states, Turkey for example, which is trying to have it both ways, to sit in both places – to be part of NATO, but also to engage economically with Russia for profit.

So, I would say it’s a partial victory. I would say it’s a big win for the West, but it’s not, you know, a definitive win, because we have to close this dependency of NATO member countries and European countries on Russia. And these are the weakest links, the ones I mentioned, Hungary, Slovakia, Greece, Turkey.

Is it correct to describe the relations between these three blocs in the energy geopolitics of the region, only as relations of competitors? Or do they also have some kind of cooperation at certain levels?

I think any cooperation that existed ended in February 2022. Maybe some things still pass through despite the sanctions. Western-made electronics still end up in the missiles that hit Ukraine and that are launched by Russia. But I think the era of cooperation between the West and Russia is over.

It is a chapter that has closed. It is evident from the fact that the place that was left empty in the Russian markets, in the Russian economy, was immediately occupied by China. China now fills this space and provides those goods, sometimes services, but mostly goods on the Russian market that were previously supplied by Western companies.

India is buying Russian oil and will buy from anyone who has cheap oil to sell. Turkey, India, China, Iran, these are the countries that are helping Russia to survive the sanctions regime. Without their help Russia would be in a much, much worse situation. 
The West on the other hand, did not completely wake up to this new reality. It is reluctant to use its entire force and it pursues this step-by-step counter strategy instead. It seems that the collective West (of which Romania and Bulgaria are a part) is playing by the old playbook while its enemies (Russia, China, Iran) are writing an entirely new playbook altogether. The geopolitical landscape is changing, the economic dynamic is shifting. We are all right in the middle of these changes. There’s much the West can still do to counter the enemies of the free world and enforce international law. The question is: will it do it? If transgressions are not sanctioned, if international law becomes optional, if Russia is still allowed to sit on the UN security council after what it has done (and is still doing) in Ukraine, do not wonder why the international system does not work. Rules need to be enforced. 

Photo: As of September 2024 more than 150 000 Romanian households are prosumers, which is the result of state policy of encouragement the growth of that sector of the economy, as well as good communication by stakeholders and positive attitude by electricity distributors (source: Pixabay, CC0)

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