Energy Strategy Summit 2019

CPAG co-founder Laurian Lungu was a guest speaker at the 5th edition of the Energy Strategy Summit organised by in Bucharest, on 11 June 2019.

Main points made in the speech:

Highlighted a few aspects which would impact Romania’s energy transition process towards achieving its 2030 climate and energy targets, as envisaged by the EU’s energy strategy objectives, namely:

  1. The link between economic growth and energy consumption.
  2. Dual challenge facing the energy industry, i.e. reducing emissions but keeping up the world demand for energy.
  3. Financing the energy transition process.

Traditionally, the correlation between economic growth and energy consumption was very strong: 0.82 over the period 1991-2009. After the crisis, the link weakened with the correlation falling to 0.18 over the period 2010-2017, driven by falling energy intensity, notably in the industry sector, where it dropped by around 40%. For Romania, empirical data tend to support the so called ‘’growth theory’’ (at least until 2009) implying a unidirectional causality, running from energy consumption to economic growth. The structure of the economy is undergoing a continuous change, with the economy becoming ‘’lighter’’, i.e. an increasing share of services in total value added.

On current trends, global energy demand is forecast to grow by a third over the next two decades. Achieving zero net greenhouse gas emissions by 2050 would be formidable challenge for the industry sector. Necessarily, natural gas would need to play an important role in this equation. In Romania natural gas represents the most important source of primary energy, accounting for almost 30% of the total energy mix. And, its relative weight is bound to remain almost the same, at least over the next decade.

Financing energy transition presents a major opportunity for both creditors and borrowers alike. This transition would need to be accompanied by a technical revolution. Long term energy infrastructure investments would need to be four times higher than amount currently prevailing. A conservative estimate for Romania’s energy sector investment requirements for the 2030 horizon is EUR 25 Bn. On average, this comes to around EUR 2 Bn. annually, the equivalent of 1% of 2018 GDP. It represents a remarkable investment effort. As in other countries, a significant share of this investment would need to be supported by the state. And, to increase investment efficiency, it would require long term planning, ideally agreed with the relevant stakeholders.

The impact of energy transition process on the companies’ competitiveness still contains many unknowns. Higher future energy compliance costs could impact negatively companies’ valuations. Proper quantification of this risk and a gradual coordination of investment stages would be paramount for accomplishing a successful transition process. The state will play a crucial role in this. A stable fiscal and legislative system is a necessary precondition for this to happen. Barring adequate economic policies, aimed at supporting domestic free competitive energy market, attaining the 2030 energy targets could become much harder to achieve.