Romanian thermal power plants are ageing, they have outdated technologies and most of them risk not complying with the environmental conditions imposed by the European Commission (EC) starting with 2021. Romania last year submitted the Integrated National Energy and Climate Change Plans (NECP), but the document, in addition to setting too little a target for renewable energy, also envisages a reduction in coal production capacities.
NECP are instruments created within the reviewed regulation of the Energy Union, aimed to support the Member States of the European Union (EU) in planning the climate and energy sectors. These plans are developed over a ten-year period, replacing other reference documents in this area. The government document has caused great dissatisfaction, the main reason being the too small target for the share of renewable energy in final energy consumption, of only 27.9%. According to a recent analysis conducted by Bankwach Romania Association, ambiguity remains one of the main issues of the NECP. An example in this regard is that it is already anticipated that in 2020 coal-fired capacity will be 3.7 GW, by 2.2 GW lower than the one currently available in the system. This decrease is not explained anywhere in NECP, nor did the Ministry of Energy or any operator announce the closure of any unit by the end of this year. In addition, by 2030, other units with a capacity of 500 MW are expected to be withdrawn. This slow reduction in coal-fired capacities is inexplicable, the authors of the study point out, given that the average age of coal units in Romania is 42 years, so most of them will not be able to make profit. The calculations underpinning the elaboration of the NECP are based on the National Energy Strategy, which provides for the construction of a new 600 MW unit at the Rovinari Thermal Power Plant. According to the quoted analysis, if this unit is built, it will probably never be profitable. Expenses with fuel, with CO2 emission allowances and limestone will consume 82% of total revenue, while the remaining available is insufficient to cover other costs (wages, operating costs) and even less to make a profit. The reduced target for the share of energy produced from renewable sources is not the only surprising element of the NECP. Equally striking is the evolution of coal-fired installed capacity. The installed capacity will drop from 3,212 MW in 2020 to 3,212 MW in 2030. An unexpected forecast, the analysis points out, for two reasons: a sudden decrease should take place in 2019. According to Transelectrica data, the total coal-fired installed capacity available on 01.02.2019 is 5,915 MW, by over 2 GW more than NECP estimates for 2020 – 3,752 MW. Although there are some units that have not operated in recent years, their combined power is below 1.3 GW, which means that some facilities used today will be decommissioned. However, neither the Ministry of Energy nor Transelectrica or operators of thermal power plants have announced any scheduled withdrawal for 2019 (or for any other moment). Only 540 MW will be withdrawn for a decade after 2020. The coal-fired installed capacity will diminish slightly by 2030, but this evaluation is questionable, the authors claim, for several reasons.
The average age of coal-fired units in Romania is 42 years, their age varying between 32 and 52 years. It means that in 2030 the average age will reach 53 years, exceeding the economic viability estimated at approximately 40 years in the case of coal-fired power plants. Withdrawing such a low number of units over the following decade would only be possible through major investments in upgrading those remaining operational, but most companies are barely able to cover their operating costs.
Limiting global warming to 1.5 degrees Celsius will only be possible if energy systems are radically transformed to zero emissions by 2050. Romania seems to be failing to take concrete steps to achieve this goal, given the unchanged reliance on coal dependence for electricity generation.
The new EU pollution standards
The new EU pollution standards (BAT – Best Available Techniques), adopted in July 2017 and which will come into force in 2021, impose stricter limits on the air emissions of certain pollutants from large combustion plants – including sulphur dioxide (SO2), nitrogen oxide (NOx) and dust. Many units in Romania cannot fall within the existing limits, although they benefit from several derogations. This is largely due to the fact that operators cannot afford the necessary investments. Therefore, Romania violates the European legislation in the field. In 2017, the EC sent to Romania a letter of formal notice, as 4 thermal power plants were operating without integrated environmental permit. In fact, the issue of authorizations for these thermal power plants was not possible, since the pollution reduction technologies were missing. In 2018, another letter was sent to Romania, as emissions of sulphur dioxide and dust from Govora 2 and Deva 2 coal-fired power plants “significantly exceed the limits provided by the national ceilings.” No thermal power plant in Romania has requested yet a derogation from the new limits provided by the Industrial Emissions Directive. The most probable explanation for this insignificant decrease in the coal-fired installed capacity is due to the fact that estimates in NECP are based on the National Energy Strategy, published by the Ministry of Energy. The document provides for 4 priority projects, including the construction of a 600 MW lignite unit on the Rovinari thermal power plant site. Many thermal power plants in Romania are still benefiting from derogations from the emission limits for different pollutants by 2020, through the National Transition Plan (NTP). This allows plants to comply with the emission limit values applicable to them on 31.12.2015, which are higher than those set by the Industrial Emissions Directive, as long as the total national emissions drop from one year to another below a certain ceiling (for example, from 9,496 tons in 2016 to 3,960 tons in 2019 for sulphur dioxide). Some units have also benefited from other derogations, for example, through the Accession Treaty of Romania or the Large Combustion Plants Directive, but they have expired.
Thermal power plants in Romania
- Bacau: 60 MW, in conservation (not working in the recent years);
- Iasi: 60 MW, compliance deadline for SO2, NOx emissions – 30.06.2020 (could meet the environmental requirements imposed in 2021);
- Craiova 1: 150 MW, compliance deadline for NOx emissions – 30.06.2020 (upgrade is necessary that probably it will not be able to afford);
- Craiova 2: 150 MW, compliance deadline for NOx emissions – 30.06.2020 (upgrade is necessary that probably it will not be able to afford);
- Isalnita 7: 315 MW, compliance deadline for NOx emissions – 30.06.2020 (upgrade is necessary that probably it will not be able to afford);
- Isalnita 8: 315 MW, compliance deadline for NOx emissions – 30.06.2020 (upgrade is necessary that probably it will not be able to afford);
- Rovinari 3: 330 MW, compliance deadline for NOx emissions – 30.06.2020 (could meet the environmental requirements imposed as of 2021);
- Rovinari 4: 330 MW, compliance deadline for NOx emissions – 30.06.2020 (could meet the environmental requirements imposed as of 2021);
- Rovinari 5: 330 MW, in modernization (upgrades are necessary that probably it could not afford);
- Rovinari 6: 330 MW (could meet the environmental requirements imposed as of 2021);
- Turceni 1: 330 MW (not working in the recent years);
- Turceni 3: 330 MW, compliance deadline for NOx emissions – 30.06.2020 (could meet the environmental requirements imposed as of 2021);
- Turceni 4: 330 MW, compliance deadline for NOx emissions – 30.06.2020 (could meet the environmental requirements imposed as of 2021)
- Turceni 5: 330 MW (could meet the environmental requirements imposed as of 2021);
- Turceni 6: 330 MW (not working in the recent years);
- Turceni 7: 330 MW (could meet the environmental requirements imposed as of 2021);
- Govora 3: 50 MW, without integrated environmental permit, compliance deadline for SO2, NOx, PM emissions – 30.06.2020 (upgrades are necessary that probably it could not afford);
- Govora 4: 50 MW, without integrated environmental permit, compliance deadline for SO2, NOx, PM emissions – 30.06.2020 (could meet the environmental requirements imposed as of 2021);
- Drobeta 1: 60 MW, bankruptcy;
- Drobeta 4: 60 MW, bankruptcy;
- Drobeta 5: 60 MW, bankruptcy;
- Drobeta 6: 60 MW, bankruptcy;
- Paroseni 1: 50 MW, without integrated environmental permit (upgrades are necessary that probably it could not afford);
- Mintia 2: 210 MW, without integrated environmental permit (upgrades are necessary that probably it could not afford);
- Mintia 3: 235 MW, without integrated environmental permit, compliance deadline for SO2, NOx, PM emissions – 30.06.2020 (upgrades are necessary that probably it could not afford);
- Mintia 4: 210 MW, without integrated environmental permit, compliance deadline for SO2, NOx, PM emissions – 30.06.2020 (upgrades are necessary that probably it could not afford);
- Mintia 5: 210 MW, without integrated environmental permit, compliance deadline for SO2, NOx, PM emissions – 30.06.2020 (upgrades are necessary that probably it could not afford);
- Mintia 6: 210 MW, without integrated environmental permit, compliance deadline for NOx, PM emissions – 30.06.2020 (upgrades are necessary that probably it could not afford);
* Coal-fired installed capacity on 01.02.2019
Note: Almost all coal-fired power plants in Romania are owned by the state, with the exception of those in Bacau (operated by Thermoenergy Group) and Iasi (Veolia). Govora is owned by Valcea County Council and the rest are companies where the majority shareholder is the Ministry of Energy: Drobeta operated through RAAN; Craiova, Isalnita, Turceni and Rovinari are managed by Oltenia Energy Complex (CEO); Mintia (Deva) and Paroseni – by Hunedoara Energy Complex (CEH). The last two companies also exploit lignite and hard coal mines.
Non-operating thermal power plants
Bacau: The coal-fired unit in Bacau was used in the past to supply heat to the city. For this, Bacau currently uses a gas-fired unit. Although the coal-fired unit has been in conservation for years, the company does not plan to decommission it “until a local/national strategy of clarification of the situation is published,” according to a communique from 2017.
Turceni 1 and 6: Unlike the other units operating on the site, units 1 and 6 in Turceni have not been upgraded over the past two decades. A wet desulphurization system for flue gas was built for unit 6, but because more costly investment was needed to streamline the unit, the company decided in 2016 to connect unit 7 to the desulphurization system and dismantle unit 6. The operator of Turceni power plant announced in 2016 that it would dismantle unit 1 as well, repeating the announcement in 2018, but this has not happened yet.
Drobeta: The power plant operator, RAAN, has gone bankrupt since 2015. To ensure the city’s heating, the municipality has rented two boilers since 2016 and plans to build a gas unit as a long-term solution. In turn, electricity is no longer produced.
Unsafe thermal power plants
Isalnita: Although CEO has invested in both units of the power plant to meet emission requirements, their future is uncertain. These facilities are the oldest lignite units in Romania, operating 300,000 hours each since 1967. In addition, in order to meet the new EU pollution standards for 2021, CEO prioritizes investments for the other thermal power plants it manages – particularly Rovinari and Turceni. In 2016, the company announced that unit 8 would be closed by 2019, but during 2017 and 2018 this announcement has turned into “the thermal plant will especially use unit 7.”
Craiova: These are the most recent units of CEO, being put into operation in 1987 and 1989, respectively. Consequently, no rehabilitation works have been executed. Upgrading will become necessary, as the units have over 150,000 hours of operation to date and an age of 30 years. Moreover, additional emission reduction measures will be needed to meet the new EU pollution standards, which will lead to an increase in total costs. Starting from this consideration, as in the case of Isalnita, CEO will prioritize the Rovinari and Turceni thermal plants, which are more efficient. A potential advantage of this thermal power plant is that it produces heat for Craiova, one of the largest cities in Romania and an important industrial centre, so that probably at least one unit will remain functional or will be switched to natural gas if necessary.
Rovinari 5: The unit was closed in February 2015 for rehabilitation in order to increase efficiency and meet emissions requirements. The upgrade was due for completion in 24-30 months, but suffered further delays. In February 2019, the project was completed at a rate of 45% and was delayed once again. Given that CEO was strongly affected by the increase in the price of CO2 emission allowances and that it should upgrade other units by 2021, the completion of this investment remains uncertain.
Govora 3: There are currently three large combustion plants (LCP) operating on the Govora thermal power plant site. One of them was switched to gas, another was modernized to continue to operate on coal and the last – Govora 3 – has not undergone any upgrade work and has record emissions. Moreover, together with Minitia 2, it has exceeded the NTP ceiling for SO2 and dust, emitting more than all plants included in the plan. Given that there are no plans to upgrade Govora 3 and that the thermal power plant can rely on other two plants to continue production, this unit will most likely be the first to be withdrawn.
Mintia: Unit 2 is the only plant of the thermal power station that does not benefit from derogations from the emission limits under NTP. It is due to the fact that the regulations of LCP Directive do not apply to it, with the condition of operating maximum 20,000 hours until December 31, 2015. But this did not happen. According to the latest Annual Environmental Report, this unit operated for 1,270 hours in 2017 alone, clearly violating Directive 13. The report further states that “for unit 2, CEH did not make a decision on definitive withdrawal from operation before initiating insolvency proceedings (…) Unit 2 was started in July 2017 for tests.” The other units of Mintia thermal power plant have not been upgraded either. The National Energy Strategy mentions that, besides unit 3, the other plants will be withdrawn. The national gas company Romgaz has also announced an intention to build in the near future a gas-fired unit on the site of Mintia thermal power plant.
Paroseni: Together with the other thermal power plant of CEH – Mintia – Paroseni is still operating illegally, in absence of an integrated environmental permit. CEH is in a poor economic condition, managing at the same time 4 non-profitable hard coal mines. After many delays, things started to move last year at Paroseni, when an investment of EUR 65 million to reduce SO2 emissions was started. However, it is no clear whether the other limit emissions under the new EU pollution standards will be met, given that the unit does not have the technology of selective non-catalytic reduction of nitrogen oxides (SNCR).
Safe thermal power plants 2020
Iasi: The relatively low capacity thermal power plant in Iasi is operated by Veolia, the French transnational utility company. Although the unit is old enough, the company may decide to switch it to natural gas. Unlike the other thermal power plants mentioned above, the fact that CET Iasi II has an integrated environmental permit valid and has been upgraded to reduce pollution is an advantage. The thermal power plant also supplies heat to the city with the fourth largest population in Romania and therefore receives a cogeneration bonus amounting to a total of RON 27 million in 2017.
Rovinari 3, 4 and 6: This thermal plant is the most efficient of those operated by CEO. Built between lignite mines, fuel is shipped directly onto the conveyor belts to the thermal power plant, so transport costs are significantly reduced. However, all quarries managed by CEO will need to be expanded to continue production, and mining machinery also needs modernization, so costs will increase over time. CEO plans to invest in these units to meet the new EU pollution standards and the integrated environmental permit which had expired on 31.12.2017 was renewed on 25.05.2018, thus operating illegally for 10 months last year.
Turceni 3, 4, 5 and 7: Unit 7 at the Turceni Thermal Power Plant benefited from a derogation from the LCP Directive, provided it operated for 20,000 hours until December 31, 2015. This condition has not been observed and the unit has operated illegally for nearly 3 years, until November 23, 2018, when the integrated environmental permit of the thermal power plant was reviewed to include this unit as well. Having already benefited from a derogation, it now has to meet the strictest pollution limits under the new EU pollution standards. According to the latest permit, this is possible, given that units 5 and 7 have been upgraded and are now equipped with selective non-catalytic nitrogen oxide (NOx) emission reduction technology. The same investment is also provided for the other two functional units.
Govora 4: The thermal power plant operates illegally because it does not have an integrated environmental permit, but according to its reauthorization request it could theoretically be legalized. The request shows that various investments have been made to ensure that the plant complies with existing environmental legislation – a desulphurization plant and a selective non-catalytic NOx reduction system.
Rovinari 7 project
In 2012, Romania announced its intention to build a new coal unit on the site of Rovinari Thermal Power Plant. Based on the available information, the report analyses economically the project of the 600 MW supercritical unit having available the data of the preliminary feasibility study, information from the energy market and strategic energy documents. Starting from the current short-term perspective of the energy market, the study addresses two fundamental issues regarding the operation of the new Rovinari unit.
Economic aspects: There may be difficulties in paying the instalments of the loan needed to build the unit, as cash flow generation would be limited and insufficient given the current prices in the energy market.
Environmental aspects: Issuing environmental permits will also pose a challenge, under a stricter procedure to grant them under the current EU legal framework. Directive 2014/52/EU of the European Parliament and of the Council amended Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment. The amended Directive seeks to enhance the quality of the environmental impact assessment procedure and align this process to the principles of smart regulation. In addition, the Directive mentions that the issues to be taken into account implicitly in the environmental assessment are the impact of the project on climate and its vulnerability to climate change. It is important to note that the planned unit in Rovinari is already included in the National Energy Strategy, so it can receive additional support from the government. According to the National Energy Strategy, this project would create a significant number of jobs in the region, but the document does not mention how they will be created. The analysis focuses on the economic challenges and vulnerabilities of the 600 MW lignite-fired plant planned in Rovinari. The potential for generating the profit of a thermal power plant is determined by the revenue generating capacity and the costs associated with energy production. In the case of a coal-fired power plant, there are three important elements of the production cost: fuel cost, in this case lignite; the cost of carbon dioxide (CO2) associated with energy production; cost of limestone added to reduce sulphur dioxide (SOx) emissions.
For the Rovinari 7 project, 82% of total revenue will be used to cover the three costs. According to the analysis, even in the first year of operation, the project will generate only a gross commercial margin (total revenues – costs) of RON 187 million. This is likely to be insufficient to cover fixed costs (salaries, operating and maintenance costs etc.), depreciation costs and interest expenses related to the project. The authors of the analysis point out that it was based on normal market conditions, in the sense that the planned unit would sell electricity on the liberalized market, where no other sales of electricity, such as that produced from renewable energy sources, biomass would be recorded and no additional compensation would be granted through capacity allocation mechanisms. Prices on the energy market in Romania are calculated based on prices for the Day-Ahead Market (DAM) and on futures prices on the energy exchange in Romania (Operator of the Electricity and Gas Market in Romania – OPCOM). Therefore, the assessment of the estimated financial performance of the planned unit will be based on available energy sales prices. The level of DAM for base load on OPCOM fluctuated for most of 2018 below EUR 50/MWh. Futures prices expected for 2019 and 2020 are below EUR 50/MWh. These market conditions are not a good environment for project implementation. No other additional selling opportunity – biomass co-firing, system services etc, was considered, which could increase sales revenue. Under these conditions, the thermal power plant will face a very difficult financial environment from the first year. By analysing the structure of operational costs from a prudent scenario perspective, the project would not be able to generate the cash needed to pay the loan instalments needed for the construction or to provide some return to shareholders. We mention that this project is already among the objectives of the National Energy Strategy, so it could benefit from additional support schemes – biomass co-firing, additional income sources etc, but these have not been mentioned so far in any document.
Evolution of prices for CO2 emission allowances
It will be essential for the viability of the project. Coal-fired power plants that do not have carbon dioxide (CO2) reduction technologies are typically the installations that generate the highest CO2 emissions in any country. This is the case here, and the still-functioning coal-fired units are even more polluting with regard to greenhouse gases, especially nitrogen oxide (NOx), sulphur dioxide (SO2), carbon dioxide (CO2), but also particulate matter (PM 10, PM 2.5). An essential issue under the new Emissions Trading Scheme is the price level on European exchanges. A sharp rise in prices has been observed over the past 15 months, which has significantly influenced the financial sustainability of coal-fired units, as they operate anyway at a high rate of carbon dioxide (CO2) emissions. The current ETS price level is over EUR 21/MWh, accounting for about 50% of the sales price the project can make.
The construction cost of the thermal power plant corresponds to the European industrial standards. The planned unit would operate at higher pressures and temperatures compared to conventional thermal power plants or with circulating fluidized bed technology. It is important to note that, based on the preliminary feasibility study of the project, a staged flue gas cleaning system was designed to meet the limits imposed by the LCP Directive. Thus, there will be a flue gas desulphurization plant, and in the second stage a selective non-catalytic reduction system would reduce the emissions of nitrogen oxides (NOx) of the planned unit. However, a system for reducing carbon dioxide emissions (CO2) is not foreseen, and this will have significant implications on the financial sustainability. The total cost of the investment is slightly less than one billion euros and includes the cost of the plant, project development costs and unplanned costs, in line with relevant industry standards. One of the important features of the planned investment is the efficiency of the thermal power plant. The use of coal in conventional units and adding desulphurization equipment and equipment for the reduction of nitrogen oxides of flue gas would reduce efficiency. Considering only the additional flue gas cleaning system, without reference to additional efficiency improvement methods, meeting the required efficiency limits will become difficult. From the perspective of the capacity allocation mechanism, in many EU Member States, one of the eligibility criteria for participation in such markets is the minimum efficiency criterion.
ClientEarth and Greenpeace notify EC
ClientEarth and Greenpeace Romania have reported to the European Commission about the very low level of sanctions imposed by authorities on coal-fired power plant operators in breach of European law, urging the Commission to act, a Greenpeace Romania release said. The two organizations claim that the fines, which in some cases are at the same level as those imposed on restaurants that allow customers to smoke indoors, are part of Romania’s systematic failure to set and apply appropriate sanctions. Under the Industrial Emissions Directive (IED), Member States are obliged to adopt ‘effective’, ‘proportionate’ and ‘dissuasive’ sanctions to punish non-compliant operators. In Romania, sanctions imposed on operators of coal-fired power plants are far too small to prevent their illegal operation, the press release said. For example, for operators of coal-fired power plants, whose annual revenues are typically between EUR 86 and 400 million, the sanction for non-authorized operation is a single fine from RON 30,000 to RON 60,000. Moreover, if the operator pays the fine within 15 days, the level drops to half the minimum, i.e. RON 15,000. By comparison, in Spain and Greece, the operators of thermal power plants are exposed to fines of up to EUR 2 million for operation without authorization. At present, 3 out of 8 coal-fired power plants operate since 2013 without integrated environmental permit, but have only been fined once. Sanctions could be more effective and could discourage illegal operation if the authorities apply them repeatedly. The Commission will examine the complaint filed by ClientEarth and Greenpeace and will decide whether to take legal action against Romania.
Government plans to erase debts
The Government wants to erase the budget debts of power producers facing financial problems such as CEH or Electrocentrale Bucharest and has developed a procedure whereby they will be able to transfer in lieu of payment to the Ministry of Energy functional production assets in exchange for extinguishing tax receivables that the National Agency for Fiscal Administration (ANAF) has over them. The measure, which would apply until December 31, 2021, is an attempt to keep alive these vital units for the safety of the functioning of the national energy system. The debt erasure measure is justified “in view of the difficult economic and financial situation of some economic operators, such as CEH and Electrocentrale Bucharest, which have electricity generation capacities of particular importance in maintaining the level of safety in operation of the National Power System,” reads a document of the Executive. The document also states that the measure is justified by the fact that the dispatchable energy production units have the obligation to offer all the electricity available on the balancing market and that the economic operators holding dispatchable units have debts managed by ANAF and the adoption of some measures for their recovery through enforcement measures or other means of extinguishing claims do not ensure the desideratum of maintenance within the National Power System.