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Coal Transition, A New Chance for Jiu Valley, Romania

A new chance for Jiu Valley could be the current policy of the European Commission to support countries in process of coal transition, in this regard launching in 2019 the Coal Regions in Transition Initiative and the European Green Deal, whose goal is to transform Europe into a climate neutral area by 2050. The Just Transition Mechanism was introduced to this end, as a tool targeting the mobilization of funds for investments intended to regions in energy transition during 2021-2027.

Jiu Valley is one of the beneficiaries of this European initiative, together with other 18 regions in seven countries (Poland, Germany, Czech Republic, Greece, Slovakia, Spain and Slovenia), but to obtain funds the authorities will have to prepare and submit projects. For now, a new strategy is being prepared for the development of Jiu Valley that will be approved in the first half of this year by the Government, then following to be sent to Brussels. Named ‘Jiu Valley Strategy for the transition from coal’, the document is being prepared by the consulting firm PricewaterhouseCoopers.

According to a draft of this development strategy that extends until 2030, the analysis of the historical evolution of the mono-industrial area of Jiu Valley and of the current profile of the microregion highlights significant differences of development in relation to the rest of the country. Moreover, the prospect of closing the last four operational mines brings new challenges.

Through this document the officials of the local administration in Jiu Valley undertake the ‘just transition strategy’, which will be approved at central government level, in the perspective of a significant transformation of the area during 2021-2030 in terms of recalibrating the perception of inhabitants on the local identity and their role in the energy transition process, as well as unlocking the potential of the area for the economic development of Jiu Valley on multiple levels, for improving the life of the inhabitants, for promoting innovation and decarbonization.

The prospect for developing the area is carefully calibrated to be sustainable in the long run by preparing specific projects that are the basis for the implementation of the strategy. All these objectives are aligned to the good European practices specific to coal regions in transition and the directions targeted through important European initiatives, such as the Just Transition Mechanism, the European Green Deal, the EU Cohesion Policy, capitalizing on the local competitive advantages of Jiu Valley.

In 1997, the Jiu Valley was going through a painful reform, started brutally and without long-term vision, and Romania was affected by the miners’ rampages that terrified Europe. The authorities at the time, but also those that followed, did not manage to replace mining with something to provide an alternative for the tens of thousands of people who by then had made a living from coal. Only promises and many strategies that have miserably failed, one by one. Extreme poverty, unemployment, despair, accentuated aging of the population and rising crime are the words that best describe the situation today in Jiu Valley, 24 years after the great restructuring. Now, Complexul Energetic Hunedoara is preparing for a new restructuring that will also mean its division.

Transelectrica endorsed the transfer to the Ministry of Energy of the operational energy assets in Paroseni of the coal-fired power producer controlled by the state Complexul Energetic Hunedoara (CEH) against the cancellation of its budgetary debts. Also, the fate of Mintia power plant will soon be decided, being likely to be taken over by the local authorities in Hunedoara County, according to the representatives of the insolvency administrator of the Complex, Expert Insolventa SPRL. At CEH, the situation is extremely tensed.

 

Trade took the lead in the race with mining

Transition from the mono-industrial period proves to be a complex and slow process, with significant challenges for all stakeholders. Although the previous attempts of economic recovery of the area have failed to materialize, Jiu Valley has a high potential for economic diversification, if the existing resources are put to their best use and the adopted actions target the creation of an environment conducive to supporting economic development. Jiu Valley is an area with industrial tradition in the mining field and coal exploitation and power production have represented over time the main driver for the local economy.

Jiu Valley has witnessed an important economic growth before 1989, a development supported by the policy of ensuring the country’s energy security in that period. But over the last 20 years this sector has been exposed to sudden changes, layoffs and restructuring of the mining industry contributing to a sustained demographic decline in Jiu Valley, falling from approximately 170,000 inhabitants in 1997 to around 133,000 inhabitants in 2019. The restructuring process continues to date, in line with the evolutions related to coal transition at European level, with the prospect of closing the four mines that are still active.

The current structure of Jiu Valley economy reflects the results of both the initiatives of transformation aimed at phasing out the dominant mining activity and the attempts of diversification implemented in the region. The latter have focused mainly on sectors characterized by a low level of technology, low technical skills and limited investment capital. Consequently, the current economic profile of Jiu Valley is dominated by the service sector – especially trade, over 40% of the total number of active companies in the private environment in Jiu Valley operating in this sector.

 

556 mines have disappeared

During 1995-2007 over 650,000 employees have been made redundant in the five mining areas in Romania (Jiu Valley, Deva, Rovinari, Motru, Baia Mare), which has generated significant social problems. Also, 556 mines have been closed, the draft strategy shows. In the early 1990s, the Jiu Valley had a population of about 140,000 and more than 45,000 employees in 15 mining units that supplied about 22 million tons of coal annually. Currently, only four mines are still operational (EM Lonea, EM Livezeni, EM Vulcan and EM Lupeni), but they will also be closed in the following years.

 

General objectives of the strategy

According to the draft strategy, the general objectives of transition from coal in Jiu Valley are the following:

  • Sustainable development of urban multi-modal mobility, in a unitary manner, facilitating accessibility in all areas of the microregion by consolidating connectivity between the component towns/municipalities and immediately adjacent areas would open the Jiu Valley to new opportunities for all industries.
  • Creating a diversified economic environment, focused on consolidating growth and competitiveness of small and medium sized enterprises with activities and products with high added value, supported by initiatives favouring innovation and local entrepreneurship.
  • Consistent and sustainable development of tourism and creative industries in Jiu Valley, by stimulating local producers, enhancement of natural and cultural heritage of the area and connecting to the neighbouring regions.
  • Creating a dynamic and performing social and professional climate in order to optimize standards of living and ensuring in a responsible manner the transition of Jiu Valley to green economy.

 

Reshaping the energy sector

Maintaining electricity production in Jiu Valley will continue to remain an objective of the transition. From this perspective, projects in this field will aim at making investments in new capacities to produce energy from renewable sources, using the viable energy assets in Jiu Valley to produce electricity and heat based on a different fuel than coal, as well as supporting the development of a centre of excellence in the energy sector in Jiu Valley. It will focus on research-development-innovation and should contribute to creating opportunities for the whole ecosystem starting from public institutions, large companies, technological SMEs that could contract studies in the field or could implement the results of research.

According to UN Climate Agreement, signed in Paris, Europe and OECD countries must give up coal by 2030 and even earlier, an evolution assumed by the signatory governments of Powering Past Coal Alliance. Romania has postponed the decision of giving up coal, but amid increased economic pressure on the energy sector, in 2018 the Ministry of Energy announced for the first time the prospect of considering the process of coal transition by 2040.

To capitalize on opportunities given by energy transition at global level, Romania has committed to address new directions of development of the energy sector according to the Energy Union Strategy and Clean Energy Package. Reaching the decarbonization targets set under the 2021-2030 Integrated National Energy and Climate Plan (INECP) will require significant investments, in the following main dimensions: Decarbonization – GHG emissions and removals; Decarbonization – energy from renewable sources; Energy efficiency; Energy security; Internal energy market; Research, innovation and competitiveness.

 

Sources of funding in the support of coal transition

An important component of this strategy is funding projects proposed for development on the dimensions related to the development pillars, funding following to be ensured mainly from European and national funds, the quoted document mentions. It is relevant to mention The Just Transition Mechanism, which also includes the Operational Program for Just Transition, dedicated to coal regions for supporting transition to a climate neutral economy, which will be implemented through three pillars:

  • The Just Transition Fund, which is not dedicated to energy transition, but to the social and economic costs of transition (economic diversification, retraining etc.) and provides for the allocation of sources of funding in addition to those for the cohesion policy, to which transfers from European Regional Development Fund and the European Social Fund Plus national allocations will be added, as well as national co-financing.
  • Dedicated scheme under InvestEU
  • A loan facility granted by the European Investment Bank for the public sector (EUR 10bn) for investment projects in energy and transport infrastructure, heating networks, public transport, energy efficiency measures, social infrastructure and other projects directly benefiting the communities in the affected areas and which will contribute to reducing the social and economic costs of transition. Also, financing mechanisms aimed at supporting the energy intensive industrial sectors and the electricity sector will be capitalized, in order to answer the needs in the field of innovation necessary for transition to a low carbon economy, respectively:

– The Innovation Fund will finance highly innovative technologies and flagship projects with European added value, which can bring significant emission reductions;

– The Modernization Fund will support investments in the generation and use of energy from renewable sources; energy efficiency; energy storage; modernization of energy networks, including heating, pipelines and networks; just transition for carbon-dependent regions: redistribution of labour, retraining of workers, education, job search initiatives and start-ups.

In the context of post-COVID-19 economic recovery efforts of Member States, the European Commission has launched a new initiative of interest – a budget of EUR 166.7 billion for 2021, which will be complemented by EUR 211 billion in grants and approximately EUR 133 billion in loans under Next Generation EU, the temporary recovery tool for mobilizing investment and reviving the European economy.

The budget is fully in line with the commitment to invest in the future for a greener, more digital and more resilient Europe. Once adopted, it will be the first budget in the new multiannual financial framework 2021-2027 and the first annual budget proposed by the European Commission under the von der Leyen mandate.

In addition to the European programs and mechanisms, co-financing through the national operational programs proposed by the Ministry of European Funds for the new financial year will be added:

  • Operational Program Just Transition (OPJT)
  • Operational Program Sustainable Development (OPSD)
  • Operational Program Transport (OPT)
  • Operational Program Smart Growth, Digitization and Financial Instruments (OPSGDFI)
  • Operational Program Health (OPH)
  • Operational Program Education and Employment (OPEE)
  • Operational Program Inclusion and Social Dignity (OPISD)
  • Regional Operational Programs – implemented at region level (ROP West) the National Recovery and Resilience Plan prepared to use the funds allocated through the Recovery and Resilience Mechanism through three pillars: green transition and climate change, public services, urban development and capitalization on heritage and economic competitiveness and resilience.

 

Major losses at CEH

As a result of losses accumulated by CEH since establishment to date, the company in insolvency is facing serious problems, the achieved revenues covering only partially expenses, which has led to a substantial increase in debts. The poor financial situation has not allowed investments to support current activities, which has led to diminished production of electricity.

Moreover, CEH is facing the risk of withdrawal of operating licenses due to non-compliance with the timely purchase of greenhouse gas emission allowances. In 2019, CEH conducted a technical and economic analysis on the procedure of giving assets in payment.

As a result of this analysis, a possible scenario resulted, namely: giving in payment certain assets belonging to Electrocentrale Deva Branch to Hunedoara County Council and the Local Council of Deva Municipality in order to ensure supply of thermal energy in centralized system in the city of Deva; as well as giving in payment certain assets belonging to CEH (SE Paroseni, EM Lonea, EM Livezeni, EM Vulcan, EM Lupeni, Prestserv Petrosani) and the incorporation of a new company.

The context and structure of CEH, the inadequate technical condition and the high degree of wear and tear of certain energy and mining assets due to lack of investment and the difficult financial situation of the company limit the implementation of viable recovery measures, the only possibility in the opinion of CEH to continue the activity of electricity production for the national electric power system (NPS) as well as the provision of thermal energy for the cities in the Jiu Valley being the application of the procedure of giving in payment the functional assets.

With an installed power of 150 MW and a net power of 130 MW, Paroseni power plant currently covers less than 0.5% of the national needs, CEH delivering in NPS less than 1.5% of energy produced by dispatchable power plants in the first three months of 2020.

Although Romania continues to rely on the existing thermal power plants to maintain the safe operation of the national energy system and to ensure a reasonable level of energy independence, according to the working version of the Energy Strategy of Romania 2019-2030, with an Outlook to 2050, lignite exploited in Oltenia area will remain in the energy mix after the following 10 years and not hard coal from Jiu Valley.

As regards energy efficiency, according to the preliminary version of the Regional Strategy for Smart Specialization 2021-2027 (RIS3) of the Western Region, the building sector is one of the major energy consumers (40% of the final energy consumption) and responsible for a significant quantity of CO2 emissions (36% of CO2 emissions). ATUs in Jiu Valley have benefited from opportunities of accessing European funds for the thermal rehabilitation of buildings, all ATUs being actively involved in steps necessary to perform energy efficiency works.

The area is distinguished at national level by the first prize obtained by Vulcan Municipality for the materialization of projects initiated by the United Nations Development Program in Romania, through the Global Environment Facility (thermal rehabilitation and endowment of thermal power plants of all education units).

 

Electricity production will not disappear from Jiu Valley

Maintaining electricity production in Jiu Valley will continue to remain a desideratum of transition; therefore, projects in this field will be prioritized, their feasibility following to be analysed from both the perspective of potential (especially of renewable energy sources in order to identify the optimal sites for promoting and attracting private investors for making investments in new production capacities) and from the perspective of technical limitations and possibilities of additional investments.

Depending on renewable energy sources available and exploitable in the Jiu Valley, it will be considered to attract and/or make investments in new capacities to produce energy from renewable sources, both operational (connected to the grid) and for the use of renewable energy at the level of public, economic and/or industrial operators. Depending on the identified potential, including investments in building capacities to produce energy from renewable sources placed on lands belonging to former mines will be considered, therefore developing integrated projects of decontamination – regeneration – reconversion.

To assess the potential of renewable energy sources in Jiu Valley it will be considered to start a study in order to identify the types of renewable energy (solar, wind, hydro, geothermal, bioenergy – biomass, waste etc.) available and exploitable in Jiu Valley and the optimal sites for these types of investments.

The possibility of using the viable energy assets in Jiu Valley to produce electricity and heat based on a different fuel than coal within Paroseni thermal power plant will also be analysed. In order to identify the best solutions, the aim will be to streamline electricity and heat production, diversify the energy mix (for example, using natural gas as transition fuel, unconventional energy sources, hydrogen), contribute to the safety and adequacy of NPS, reduce CO2 emissions and ensure a long-term sustainable economic viability.

Taking into account the social benefits of large-scale use of district heating systems (for example, accessibility of thermal energy for population with low income) and the economic and environmental benefits (for example, the reduction of the number of individual heating systems and implicitly of pollution), while analysing the opportunity to converting Paroseni thermal power plant, including the potential of modernization, rehabilitation, retrofitting and extension of the district heating system in Jiu Valley will be analysed, to ensure heating for the localities in Jiu Valley.

The viability of these initiatives will be assessed following evaluations and technical and economic analyses and will require the favourable opinion of the Ministry of Economy, Energy and Business Environment, of Transelectrica and of ATUs (if it is decided that they take over certain assets).

Modernization, rehabilitation, retrofitting and extension of the district heating system will consider the efficiency of the district heating system by reducing the consumption of energy resources and reducing greenhouse gas emissions. The social benefits of large-scale use of district heating systems will also be considered (accessibility of thermal energy for the population with low income), as well as the economic and environmental benefits (from the point of view of energy efficiency and control of pollution) and the contribution of these systems to strengthening energy security and facilitating flexibility in the use of the various categories of primary resources.

The establishment and development of a centre of excellence in energy in the Jiu Valley, focused on research-development-innovation will be able to contribute positively to creating opportunities for the entire ecosystem starting from public institutions, large companies, technological SMEs that could contract studies in the field or could implement the results of research (including by starting strategic projects in the field of advanced technologies, in order to develop a hydrogen industry).

The focus will be on identifying viable solutions and projects in the field of energy production /distribution /storage and reducing carbon emissions. Pilot projects to exploit the energy potential of the area will be considered (e.g. recovery of methane gas from the degassing of operational coal deposits using cogeneration plants for the production of electricity and heat, extraction and recovery of methane gas from coal deposits which are no longer in operation using surface drilling, underground pumped storage hydropower plant etc.) in order to identify viable solutions and projects in the field of energy production, distribution and storage (e.g. implementation of a pilot energy supply project using as fuel with ‘zero carbon’ green hydrogen, produced by electrolysis using solar energy converted into electricity by photovoltaic panels), followed by the scaling of these pilot projects, depending on the demonstrated technical and economic potential.

Finally, the improvement of the energy performance of the housing stock and public buildings will be considered, by continuing the projects of thermal rehabilitation and modernization of buildings (both public and residential), in parallel with population information and awareness campaigns in the Jiu Valley on responsible energy consumption and energy efficiency measures.

The projects of thermal rehabilitation and modernization of buildings will be carried out on the basis of energy audits (the aim will be to identify the energy situation of each building, as well as the concrete measures to be applied to improve the energy efficiency of buildings, reduce electricity and heat costs and implicitly the reduction of adverse effects on the environment) and technical expertise where appropriate (the identification of the necessary measures on seismic risk/fire protection will be considered). These investments will aim at reducing energy costs, increasing comfort and standard of living and creating new economic opportunities and jobs (within specialized companies).

 

Proposed actions

  • Identifying the types of renewable energy (solar, wind, hydro, geothermal, bioenergy – biomass, waste etc.) available and exploitable in Jiu Valley by conducting a study in order to capitalize on potential from renewable energy sources in Jiu Valley.
  • Identifying the optimal sites for these types of investments (developing maps).
  • Attracting/making investments in new capacities to produce energy from renewable sources depending on the potential identified as a result of studies conducted, both operational (connected to the grid) and for the use of renewable energy at the level of public, economic and/or industrial operators.
  • Using the viable energy assets in Jiu Valley to produce electricity and heat based on a different fuel than coal within Paroseni thermal power plant.
  • Reducing GHG emissions and increasing energy efficiency by developing the district heating system in Jiu Valley, by launching an advisability study to establish the potential for modernization, rehabilitation, retrofitting and extension of the district heating system from Jiu Valley to ensure the thermal agent in the localities from Jiu Valley in conditions of economic efficiency.
  • Starting the investment, depending on the result of the study and the feasibility.
  • Establishing a centre of excellence in the field of energy in Jiu Valley, focused on research-development-innovation.
  • Carrying out research-development-innovation projects in order to identify and start pilot projects for capitalizing on energy resources in Jiu Valley and integration with smart technologies and low emissions.
  • Starting strategic projects in the field of advanced technologies, in order to develop a hydrogen industry.
  • Scaling pilot projects, based on studies and research conducted, depending on the demonstrated technical and economic potential.
  • Improving energy efficiency in public buildings (including consolidation measures if necessary).
  • Improving energy efficiency in residential buildings (including consolidation measures if necessary).
  • Carrying out information and awareness campaigns for the population of Jiu Valley on responsible energy consumption and energy efficiency measures.
  • Providing support/advice for the preparation and submission of financing files and subsequent settlement for individuals wishing to access financing through national programs (for example, carried out through the Environment Fund Administration – Energy Efficient House).

 

Utility networks, technologically obsolete

From the perspective of utilities, the energy networks are mostly those installed before 1980, both for transport and distribution, in this sense developments adapted to what will happen in the future in terms of energy in the Jiu Valley being necessary – namely, whether local production will continue to exist, even if diminished, or it will be necessary to bring energy from another production area in the country, shows the document prepared by PwC.

The district heating network no longer exists on the entire Jiu Valley, currently the heating of the population in all six cities being provided in a decentralized way, based on gas and wood or coal-fired power plants and stoves, individual for each household. Natural gas is present in all the six main localities in the Jiu Valley, only extension works being necessary, in order to offer access to all households and economic agents to the distribution network. The expansion of the gas network is also one of the development opportunities in terms of energy for the Jiu Valley through the transition from coal technology to energy production through natural gas blocks.

 

Steps towards a smart city

Starting from the current situation, the development of utility networks and street lighting networks will aim, on the one hand, to ensure comfort at normal standards, such as by expanding the gas network, and on the other hand, to improve services that can generate added value, such as telecommunications networks, increasing citizen safety and urban comfort through public lighting networks.

According to an analysis conducted by RDA West, the development of smart cities is at an early stage in the West Region, especially for the Jiu Valley, the integration of technology and communications to boost the efficient use of infrastructure and resources not being exploited by local public administrations. One of the first directions, considered basic for this transition to smart cities, is the digitization of ATUs (public environment).

According to RDA West estimates, there are 680 companies in the region whose main activity is the production of custom software, with a total of approximately 3,310 employees, an industry that has the highest labour productivity. These companies could provide the necessary software solutions in the digitization process of the region, and consequently, collaboration with these companies will have a significant impact at the level of the Jiu Valley – IT specialists will be maintained in the region and specialists from other regions will be attracted and the turnover of the sector in the region will increase significantly.

Collaboration with the IT industry in the Jiu Valley in order to develop and modernize the infrastructure in the region, but also with the help of various financing mechanisms aimed at technology and communications, is achievable to a large extent and with a major impact on the development of the region. Using technology and improving basic needs, integrating smart city elements as far as possible (e.g., street sensor networks, smart utility metering, traffic monitoring systems and citizen safety surveillance), the Jiu Valley could be transformed into a modern post-coal region adapted to the needs of its citizens, attractive for those outside the Jiu Valley.

 

Entrepreneurship did not attract former miners

The entrepreneurial spirit that the authorities hoped to economically relaunch the Jiu Valley area proved to be just an illusion. The registered evolutions are relatively modest, in the period 2017-2019 only 627 companies being established, most with one or maximum two employees. Of these, most were established in 2017, while in 2019 only 100 new companies were established. In total, most companies, about 40%, have trade as their field of activity, ensuring 30% of the turnover of companies in the Jiu Valley and attracting 20% of the workforce employed in the private sector.

Therefore, out of the total number of employees in the Jiu Valley, about 25,000 employees in 2018, the share of those in the public sector was over 40%, well above the situation registered at national level.

 

What does the strategy propose

Despite all the initiatives to revitalize the area, today the Jiu Valley is unattractive for investors, who are reluctant to set up businesses here to the detriment of other more accessible and better-connected areas. To change the situation, the strategy proposes: supporting energy activities alternative to mining that maximize the use of the area’s natural resources; creating an investment-friendly ecosystem; supporting local economic operators in developing and diversifying the offers of goods and services with high added value; creating a stable and predictable environment; promoting entrepreneurship.

 

Attracting investments and developing the economic environment

Attracting investments in the Jiu Valley is an important component that will underpin future economic growth and the development of the local business environment, providing the capital needed for the development of the Jiu Valley, complementary to public sources of funding and local private investment.

The contribution of technology and knowledge will be able to facilitate a transfer of technology and innovation that will spread throughout the value chain (at the level of companies involved in making a product or service), by exposing local companies to skills and abilities that are currently missing or are underdeveloped as well as by increasing the competitiveness and productivity of local companies.

Conducting territorial analyses in order to identify areas, lands and buildings with industrial functional potential (including the reintroduction of closed mining perimeters in the economic circuit) and the development of an integrated plan for the Jiu Valley for the development of a business infrastructure by establishing of technological/industrial/scientific areas/parks will be an important step in attracting investors. In order to ensure the business infrastructure, the development of integrated offers will be considered, with locations for several types of activities with a high degree of technology.

In order to revitalize the local economic environment, the aim will be to stimulate investments located in areas with high added value, which can benefit from the steps taken in the research and development area as well as the use of local values, specifics and resources.

The steps will be taken to support the growth and development of the manufacturing industry (e.g., light industry, but not only) but also to support the efforts of local economic operators to enlarge product and service portfolios, put resources to their best use and a high degree of digitization, of clean and environmentally friendly technologies and industrial processes. The growth and economic development of the Jiu Valley depend to a large extent on the ability to stimulate and capitalize on the entrepreneurial spirit of local businessmen and young people in particular.

The entrepreneurial environment in the Jiu Valley will benefit from support in identifying new business ideas and developing initiatives, not only to grow and expand, but also to be competitive, resilient and sustainable, benefiting from specific, customized skills and support infrastructure needed to put ideas into practice, to help them identify and develop competitive advantages and identify new markets.

 

Lack of jobs

In 2019, the Jiu Valley registered about 100,000 people able to work, of which only a quarter benefited from a stable job. Maintaining a high unemployment rate would exacerbate financial difficulties and poverty, social tensions and isolation. The Jiu Valley is facing a significant social decline (134,000 people in 2019 compared to 166,000 in 1998) amid pronounced migration, with an estimated trend of annual population decline until 2030 when the population could reach about 114,000. The actions proposed to reduce unemployment include:

  • Development of learning centres specializing in IT, public administration, energy, in partnership with schools and universities;
  • Implementation of diversified continuous training programs (short courses, specialization/improvement courses, qualification, retraining, vocational retraining) adapted to the needs of the local labour market, in line with the requirements of economic sectors with competitive potential (e.g., smart specialization);
  • Introduction of diversified practical training programs within companies.

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