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energyworld No 13 | July - August 2016

Oil & Gas • Electricity • Renewables • Environment


July-August 2016 Price: 5 Euros





The Best Source for Energy News

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Publisher Apostolos Komnos Publishing Assistant Dragos Zaharia Deputy Editor Emilia Damian Edition Advisor George Pavlopoulos Editors Emilia Damian Penelope Mitroulia Nikolay Jekov Stevan Veljovic Vladimir Spasic Lorenc Gordani Kostas Voutsadakis George Pavlopoulos Ian Becker Yiannis Pispirigos Art Director Anastasia Komnou Email:

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The english edition for SE Europe & Eastern Mediterranean Issue Nr 13 July - August 2016 ISSUE PRICE 5 Euros

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There should be no doubt that energy security is one of the main challenges of the 21st century. For national governments and multinational organizations, for companies and households, energy security is top priority in everyday life and planning – especially, as the “western” way of life cannot be maintained without the undisrupted flow of energy, mainly in the form of electricity. Coal, oil and natural gas, nuclear power and renewables, all the main sources of energy are at the same time, the main sources of life on our planet.

Indeed, cyberattacks against energy grids are multiplying. The Stuxnet that hit Iran in 2010 and the blackout caused in the Ukrainian energy system in December 2015 are the two most known and massive cyberattacks in this area. But as Europe, the US and almost every country on the planet has entered the “age of terror”, as the agencies have lots of information about terror groups and organizations making plans to hit the “vital organs” of the global economy and civilization, priorities have already changed, at every level.

So, as life is bound with energy, any malfunction in the energy generation and distribution system could prove lethal for humanity. Knowing this, all kinds of terrorists could potentially be united around one and the same aim: to harm the global energy grids, either through the already known and traditional methods or by using the vast capabilities provided by Internet and the “viruses” circulating within its “bloodstream”.

The European Union and the governments of the memberstates have already speeded up their planning and actions in this level. But so does the other side. Let’s hope there is no doubt about the winner in this race of life and death…

News in brief

02 6

Trends in the global energy market In 2015, the world set two new all-time records, for fossil fuel consumption and for global carbon dioxide emissions. At the same time, according to the recently released 2016 BP Statistical Review of World Energy, global coal consumption declined by 1% during last year, the largest year-over-year decline since at least 1965. These developments marked the global “energy landscape” of 2015 and are telling us a lot about the trends in the sector during this year and the ones to follow. Regarding the fossil fuel consumption, the new high was driven by new global consumption records for petroleum and natural gas, which will be the case for 2016, despite the “grey” forecasts about the economy. As for carbon dioxide emissions, the good news is that they seem to be slowing down, as 2015 marked the second straight year that the increase was smaller than the year before. In terms of countries, the U.S. continued to lead the world in reducing carbon dioxide emissions, as last year they fell by 145 million tons, by far the largest decline of any country in the world. Finally, China remained the world’s largest producer and consumer of coal (50% of the global total), but we have also some good news here, as the country’s coal demand has now also declined for two continuous years.

Oil market balance and prices recovery As the oil prices seem to have recovered during the first half of the year from the 15year low of 27$/barrel in February, moving around 50$/barrel in June, OPEC forecasts that the world oil market will be more balanced in the second half. Although the Organization of the Petroleum Exporting Countries made no change to its output policy at a June 2nd meeting, its experts estimate that the current production level is lower than the average forecast demand for the following six months. “The excess supply in the market is likely to ease over the coming quarters”, OPEC said in a monthly report, resulting in “a more balanced oil market toward the end of the year”. From its side, the International Energy Agency confirmed that the oil market is now in balance, thanks to unplanned outages and robust demand, particularly from emerging economies. “At halfway in 2016, the oil market seems to be balancing. However, we must not forget that there are large volumes of shut-in productions, mainly in Nigeria and Libya, that could return to the market, and the strong start for oil demand growth seen this year might not be maintained”, it said in its latest monthly report. In other words, IEA is assessing there are strong possibilities that the equilibrium will again tilt into surplus early next year, affecting the global oil prices directly. OPEC and IEA are pointing at attacks on Nigeria’s oil infrastructure, wildfires in Canada and losses elsewhere that pushed the level of unplanned supply outages to the highest in at least five years in May. As a matter of fact, crude output from OPEC countries fell by 100.000 barrels in May to 32,61 mln barrels per day – even though it is still 500.000 higher compared to May last year. In general, it should be noted that after the nuclear deal with the West and the lifting of the sanctions, Iran has clearly emerged as OPEC’s fastest source of supply growth so far this year, with an anticipated annual gain of nearly 700.000 bpd. As for Nigeria, it could be the second most significant source of increase in 2017, should of course security issues in the Niger Delta be resolved.

Fury in the German states about the climate action plan Germany’s regional governments are concerned that they are being railroaded into climate change goals that could damage their economies. In fact, they seem furious about at least some of the federal government’s plans, which are aiming to help the country reach a goal of almost complete greenhouse gas neutrality by 2050. During their meeting in Hamburg, in June 8-9, economy ministers from the 16 German states reiterated their worries about the potential impact caused by the implementation of the so-called “Climate Action Plan 2050”. The draft already endorsed by the government, calls for all sectors – including energy, transport, agriculture, industry and private households – to contribute to lowering the emission of harmful greenhouse gases. But not everyone agrees on the specific measures and the pace towards the “free carbon economy” envisaged by certain ministers (and perhaps Angela Merkel herself…) in Berlin. As the ministers pointed out in their joint communique, “the measures should and must be quantified in their impact on growth and employment and should not draw any asymmetric and hardly controllable cost burdens for the economy”. The motion also calls for Berlin to gather more input from regional governments and from the industry before pushing ahead. It is also important that the regional governments have powerful allies by their side. As a matter of fact, industry


players had already complained months ago that they were under-represented in the process and that the whole drafting system was unfair. The chemical industry for example, feels it has not been sufficiently consulted. Mr. Utz Tillmann, director-general of VCI, the German chemical industry association, told Handelsblatt that Germany could not unilaterally embark on this path without losing its competitive advantage over other countries. He said any substantial climate protection measures had to be agreed globally, not nationally.

A difficult situation in Venezuela There is no doubt that Venezuela is facing the most severe and difficult economic and political crisis among OPEC members. The tumbling of the oil prices has hit the South American country, where rioting and looting from hungry and angry people are threatening the government of Nicolas Maduro. As for the crude production, it has dropped to 2,37 million barrels per day in May – which means it was down some 5 percent from April and nearly 11 percent from 2015’s average. But despite this, Caracas is regularly fulfilling its debt obligations towards international creditors. And at the same time, Venezuelan crude oil sales to the United States rose nearly 4 percent in May, to 792.000 bpd, after declining since January. It should be noted that since last year, the country has regularly imported light crude to formulate exportable blends. That has allowed PDVSA, the public oil company, to feed its Caribbean refineries while sending more Merey crude to the United States and other destinations.

From its side, the BDI (Bundesverband der Deutschen Industrie) called for all the “players” to be involved in the project before any final decisions are made, including the federal parliament, the states and of course the industry. And as the country is entering the last year before the September 2017 general elections, it would be no surprise if the plans were abandoned and the decision “transferred” to the next German government…

Overview George Pavlopoulos

03 8

KEEPING BOTH EYES ON THE SECURITY OF ENERGY GRIDS… Severe weather conditions, slowing population growth and the threat of cyberattacks on utility companies and energy infrastructure are among the top dangers facing the energy market, according to the World Energy Council. As a matter of fact, the frequency of extreme weather events had risen by fourfold in the last 30 years – and would likely do so again in the next three decades. But above all, governments and experts are focusing on the various terror activities, from cyberattacks to direct hits against the energy infrastructure…

“When the U.S. Department of Homeland Security (DHS) began to seriously examine domestic critical infrastructure vulnerabilities in light of the September 11 attacks, it focused almost exclusively on risks of terrorist attack or debilitation. It has since become clear that system failure can occur not only from man-made attacks; this was highlighted in the U.S. by Hurricane Katrina and prompted the adoption of an “all-hazards” approach by DHS in 2006. But a second consideration raises the issue of international supply disruptions and potential political vulnerabilities deriving from over-reliance on one supplier, as has been a serious concern in countries supplied almost exclusively by Gazprom”. Seven years ago, just a few days before Barack Obama’s first inauguration as a president of the United States of America, this is how the magazine “Journal of Energy Security” described the potential threats against the country’s energy infrastructure and supplies. Four years later, in January 2013 and as Obama was preparing for his second

term in the White House, Rachael King wrote in the Wall Street Journal that “Internet-based attacks on critical U.S. energy infrastructure are occurring at a greater rate than previously understood, according to a new government report”. “The report, issued by a cyber security team that operates within the Department of Homeland Security, found that thousands of control systems used in critical infrastructure are linked directly to the Internet and are vulnerable to attack by viruses and other malware. In the fiscal year that ended on September 30th, 2012, companies reported 198 cyber incidents to the DHS’s Industrial Control Systems Cyber Emergency Response Team, more than 40% of which were directed against companies operating in the energy sector”, she added. And last April, as the US was heading towards the November presidential election, Europe was facing the British referendum and the relationship between the West and Russia was still “in the cold”, the World Energy Council (the UN-accredited organization) warned that


hackers could bring down the power grid with a massive cyberattack on the UK’s energy infrastructure. Noting, at the same time, that the UK was not the only one facing similar problems and stepping up its defenses against hackers, as energy leaders in Germany and other countries are increasingly concerned with cyber threats. “This heightened awareness is on the one hand related to the debate over EU-wide regulations on cyber security in 2015”, it said. According to numerous officials, the security breach is already been discussed at the level of the European Network of Transmission Systems Operators for Electricity (ENTSO-E), which brings together bosses of the continent’s transmissions industry operators (TSOs). The association is understood to be communicating closely and regularly with the European Commission about potential cybersecurity threats to Europe’s grids. The European Commission estimates that “natural disasters, terrorist attacks, and criminal activity can all disrupt the critical energy infrastructure Europeans

The vulnerability of power grids to hackers was demonstrated in 2010, when a computer worm known as Stuxnet derailed nuclear centrifuges in Iran. The worm – which is thought to have been developed by an advanced nation state – was the first known cyberattack on physical infrastructure

depend on”. Underlining, at the same time, that “while national authorities are primarily responsible for the protection of energy facilities such as power plants and transmission lines, energy disruptions can be felt across national borders. A European dimension to help manage the risks across the EU is therefore needed”. “Cyber is among the top issues keeping energy (players) awake at night”, Christoph Frei, the secretary general of the World Energy Council, recently told CNBC. “Why should it be limited to Ukraine? We have seen other cyberattacks on banks ... why should this be different in infrastructure?” he added separately. As a matter of fact, attacks on major utility companies and power networks are an increasing concern for governments and corporations. European officials point out that hundreds of thousands of homes in Ukraine were left without electricity in December, after an alleged malware attack on the power system – with the Russians being the number one suspect.


The EU’s cyber security strategy includes a proposed directive on network and information security which is aimed at enhancing the resilience of information systems across Europe. It is a key component of the EU’s Digital Agenda, as it sees trust and security as a vital part of a vibrant digital society

This assault was the first widely known example of hackers bringing down a major power network. But it is not the only serious threat. As Europe was already “dancing with terror” and France had suffered two major attacks during 2015 (in January and November), last February, there were media reports that ISIS terrorists may have been planning an attack on a Belgian nuclear power plant. Fortunately, they didn’t manage to complete their work on that level – unfortunately, almost one month later, on March 22, a twin terror attack rocked Brussels, in the Zaventem airport and a metro station near the European Commission… So, here’s the big and crucial question: Are Europe’s power grids readied against cyberattacks and any other kind of attacks? “The consequences of a cyberattack on an active power grid could be disastrous. There would be not only the cost of repairing the immediate damages, but also the cost of the disruption to homes, businesses and services that rely on electricity. Drawing on expertise from power-network security, technology policy, regulatory economics, disaster impact assessment, network simulation and engineering, a project known as SESAME is the first

that has been funded by the EU to take on this problem”, Jon Cartwright wrote last September in Horizon, a magazine about EU research and innovation. According to the magazine, the team of SESAME has designed a so-called “blackout stimulator”, which works out how much a blackout would cost, so that operators can decide whether it is worth deploying expensive countermeasures. These could include installing alternative transmission lines in case a regular line fails, and encrypting information. Furthermore, the system has already been tested it on two national power grids: Austria and Romania. At the same time, the EU authorities, national governments and secret services remain on heightened alert, trying to assert all available information and all possible scenarios, aiming at diminishing the possibilities of a successful attack against power and electricity grids all over Europe. Let’s just hope that the existing plans are enough…

Overview Slavtcho Neykov*


THE PROTECTION OF THE ENERGY INFRASTRUCTURE The discussion on infrastructure security, including energy security, should be certainly intensified – the February 2016 energy security package as proposed by the EC is a good basis for this. However, further to the rapidly changing environment, new types of threats appear – and these turn to be of broader validity. The approach firstly demands reconsideration of priorities and the way these are addressed should not be on paper but in real terms.

The infrastructure security, being part of the overall energy security context together with the security of supply and demand, so far seems not to have been in the spotlight of the policy and decision makers. At an EU level, the security of supply issue (mostly in the context of gas) is on the front line – although, objectively looking, it is quite debatable whether it has ever been a substantial issue from a factual point of view. Nonetheless, both the strategic documents and the legislation, which are currently implemented, seem to re-emphasize its leading importance. The new energy security package (February 2016) refers inter alia to the infrastructure topic – but it still is not in force and most probably 2017 will be the year of its actual implementation. In parallel, there are concerns, which are linked to new types of problems, that appeared and which require not only immediate, but very real attention aside from the theoretical debates as they could hardly fit within lengthy and complicated procedures of rules’ implementation. These problems affect mostly the infrastructure and particularly

its protection. They refer to new or quickly rising issues as metal thefts and threats of energy terrorism; besides, recent years have shown that there is need for more attention to coping with the availability of adequate means to meet force majeure e.g. harsh winter challenges, floods etc. In this aspect, it should be also noted that while for the metal thefts and the threat of energy terrorism common actions at European and international level are needed, the weather related aspects pose mostly national concerns.

National level...

While at an EU level the discussions seemed until recently to be mostly theoretical, at a national level the issue has always had particularly practical relevance as this is where actual implementation lies. However, similar to the energy security, the topic of protecting the critical infrastructure has entirely different dimensions from country to country if one compares these on the ground of the general frame – and this is so regardless whether the concrete challenges are linked to deep snow within a harsh winter or a terrorist



threat. Thus, along the common rules, the pragmatics of the infrastructure security look differently e.g. in Sofia, compared to Kiev or Brussels. In addition, the political interference on the topic at a national level shows variety of formats. On one side, the political class certainly understands its importance; however, implementing measures costs money. And the expenditures related to the increased needs for the infrastructure protection might turn out to be substantial. On this ground, the politicians – especially some in South East Europe - are tempted to use tools on the edge of their competences. This concerns particularly the attempts to influence the decisions of the national energy regulatory authorities when it comes to the reflection of these expenditures in the energy prices. And both this perception and the approach need to be changed – one should not forget that not having electricity or gas is much worse than having to pay more for them.

… and international aspects

Without any doubt, within Europe the

national level approach is strongly influenced by the EU set-up. In fact, it is fair to state that via the Energy Community, the EU energy policy is already the energy policy of Europe – and this is also linked to the energy infrastructure issues. Within the EU, a set of strategies has been developed on different dimensions of the energy security topic within the last ten years. And the abundance is rather exhaustive – starting with the 2006 EC Communication on a European Programme for Critical Infrastructure Protection (2006), which inter alia recognized the threat of terrorism as a priority; these issues, together with the identification of some shortcomings, were reemphasized in the new approach to this programme as developed in 2013. Extra focuses appeared in 2014 with the Energy Security Strategy, the 2015 Energy Union Strategy and more recently with the new Energy Security Package. When it comes to concrete legislation in force, so far Directive 2008/114/EC on the identification and designation of European critical infrastructures and the assessment of the need to improve their protection

remains the key – and it does not only concern energy, but telecommunications and transport as well. Nonetheless, this abundance needs to be critically reviewed as to what extent it is sufficiently functional from the perspective of the current infrastructure threats – particularly via international cooperation. Here are two issues, which seem to deserve more attention. When it comes to metal theft, it was already mentioned that the topic does not concern only the energy sector. This vast problem became so important that a Metal Theft Coalition was established more than a year ago, which unites eleven associations with a total turnover of hundreds of billion Euros. The coalition requested European level actions, including quick harmonization of preventive measures at a national policy level - to what extent they will be met, remains to be seen. The energy terrorism topic is much more complicated. Luckily, in Europe, the issue of energy terrorism, where infrastructure might be a key target,


has not had substantial appearances yet; however, there is a set of factors, which presuppose much stronger attention, including in the context of the refugees’ problem. And this attention should be rather at a European and not only at an EU level – this is objectively logical recalling the existing and planned infrastructure, which concerns not only EU member states. This pushes forward other problems and respectively questions, which need clear answers – particularly about the objective possibility for the effective prevention and timely reactions where necessary. A major real life issue is the operational synchronization among the countries, which requires adequate coordination steps within an adequate framework. The constant monitoring of this synchronization is a must, but it also presupposes administrative stability and continuity even in the context of the available EU level rulings (Directive 114/2008), which concern e.g. the nominated security liaison officers and their effective communication. The point reappears in the new EC security package, but the factual implementation is, as usual, something totally different. Another key point in the context of the fight with energy terrorism is linked to

the EU – Russia energy relations, which are currently blocked. It should not be forgotten that Russia – apart from being a key supplier of gas to EU and nonEU countries – has also an objectively important role to play in other energy fields. Russian companies are strongly involved in refineries’ ownership and oil supply; some have provided technologies and deal with fuel in the nuclear sphere; others have direct influence even in gas transit etc. Thus, improving the EU – Russia energy dialogue is important not only for both sides, but for entire Europe as the coordination for adequate meeting of the infrastructure security challenges and the respective restoration of the once existing early warning mechanism are objectively needed. These factors logically put forward the need for revision of key questions, linked to the EU – Russia relations not only in the energy sphere, but in the overall political context in general, including from the point of view of sanctions.

Some wrap-up

The discussion on the infrastructure security, including the energy one, should be certainly intensified – the February 2016 energy security package as proposed by EC is a good basis for this. However, further to the rapidly changing environment new types of

threats appear – and these turn to be of broader validity. The approach demands firstly reconsideration of priorities and the way these are coped with not on paper but in real terms. It is fair to note that the potential dangers have been already noted – however, this has been done under different circumstances, which today have much more realistic dimensions. Thus, as to face these, common action at European rather than EU level only within the scope of intensive preventive measures is needed as soon as possible. And realism should be the key guiding principle in this aspect – together with the recollection that the dangers in this dimension jump over any political and geographical borders much easier than expected with no respect to strategic papers.

Slavtcho Neykov is Chairman of the Board of Directors of the Energy Management Institute. He was Secretary General of the Bulgarian Ministry of Energy, Commissioner in the State Energy Regulatory Commission, expert at the Energy Charter Secretariat in Brussels and Director of the Energy Community Secretariat in Vienna. He was member of the board of directors of several energy companies and a Deputy CEO and Head of Office for the Relations with the EU of Naftoindustria Serbia.

Interview of Peder Andreasen* Vladimir Spasic

05 14

THE “NEW FRONTIER” FOR EUROPE’S POWER SYSTEM The power system will be a mix of local and European with storage developing. Consumers will become more active. Our power system will be more digital offering consumers more control and more latitude to play a positive role for the system. The challenge is to unlock flexibility from the demand side. Consumers need to be incentivized to support the system by adapting their behavior.

Peder Andreasen

We are seeing big changes in the European regulations regarding electricity networks. Can you tell us what are the most significant? The internal energy market regulation needs to both give direction and reflect technical developments. This is why it needs frequent updates, adjustments and developments. The last large regulatory package took effect in 2009 and in the meantime driven by climate ambitions, technology developments and subsidies, renewables have progressed and reached a much higher percentage of Europe’s energy mix than 5 or 10 years ago. European markets are more and more connected and integrated. This means more power is traded cross-border. In these last five years, we have also seen that markets are not yet fully renewables-ready. Prices are not reflecting the real state of the power system and consumers are not set free. The upcoming legislative proposals should tackle these issues in priority. What are the most important changes we can expect in next few years? Europe signed the Paris Climate Agreement last year. It has its own

objective to decarbonize its economy by 2050. This is setting the scene for the years to come. We will see more renewables, more electricity used in transport, in heating and other areas that we are not even able to guess today. The power system will be a mix of local and European with storage developing. Consumers will become more active. Our power system will be more digital offering consumers more control and more latitude to play a positive role for the system. This will lead to new businesses and jobs as well. What are the major threats to European electricity networks? Variable renewable generation is challenging for the system. Electricity travels at the speed of light and the power produced needs to be consumed instantly. When the sun is not shining or the wind is not blowing, other sources of energy need to be activated within seconds. The “New Frontier” for Europe’s power system is to unlock flexibility from the demand side. Consumers need to be incentivized to support the system by adapting their behaviour. At the same time, all generators should be treated


equally and electricity prices need to be reflecting the actual situation of the system. When the system is under stress, electricity should cost more. How have renewables changed electricity networks? Are these networks a major obstacle for the further development of renewables? We are about to publish the sixth edition of our 10-year network development plan. This is a master plan to determine how the grid needs to be developed to support the energy transition. This new edition of the 10-year network development plan shows that even if local grids and activation of demand will play a greater role in the years to come, renewables will still require the network to be reinforced. Out of the 100 billion investments foreseen by 2030, 2/3 are directly linked to renewables’ integration. Investments in the grid will remove bottlenecks in the grid and allow cheap renewable power flows to reach main consumption centres. Countries of the South East Europe region are members of the ENTSO-E. From your point of view what are

their main problems now and what challenges are ahead of them? The South Eastern Europe is an important region for ENTSO-E. Power markets need to be developed and integrated. This will lead to social welfare gains for the people in the region and these benefits need to be made visible for the consumers. The recent agreement of the countries of the Western Balkans 6 region to integrate day-ahead markets is an important step in the right direction but we all have to realize that there is still a lot of work ahead of us. ENTSO-E is going to focus on the region during a regional conference in Thessaloniki on November 3rd. Personally, I very strongly believe in regional cooperation where the national differences in terms of geography and energy mix can be optimised in cross border solutions. How important is the regional approach when we are talking about electricity networks, transition to renewables? Cross-border and variable power flows are increasing. This calls for greater cooperation at a regional level for more security, an optimal use of the network

and market efficiency. Transmission system operators agreed in 2015 on a roadmap to roll out new coordination centres. Regional cooperation is however not just a TSO matter. We also need the political and regulatory level to support and develop regional cooperation. Consumers would benefit a great deal from national energy policies and regulations being more coordinated regionally.

Peder Andreasen is President of the European network of transmission system operators for electricity (ENTSO-E)

Interview of Simon Uzunov* Vladimir Spasic

06 16

EFFICIENT USE OF NETWORK CAPACITY KEY FOR INTEGRATION The main challenge for countries in South East Europe regarding electricity networks is the restructuring of the network operation according to the EU Third Energy Package, which is an obligation for all countries in this region. Also, efficient use of existing network capacity is another challenge and in a longer term this is the first step toward market integration in South East Europe.

What are the biggest threats for electricity networks in SEE? The development of electricity networks is aimed at meeting energy targets with particular regard, according to ENTSO-E, to the strengthening of the energy market, the integration of renewable energy sources (RES) and addressing the security of supply. The threats to the development of the electricity markets are many. Some are directly related to the use and development of electricity networks, such as incoherent legislation on VAT, cross-subsidies and non-transparent use of transmission revenue, delayed, inadequate or inefficient unbundling of network operators, etc. Some are of administrative or political nature – such as definition of rights and obligations for specific activities on the borders, absence of membership in ENTSO-E, etc. In particular, some threats come from inconsistencies with the EU legislation related to the borders between the EU Member States and non-EU neighbouring countries in South East Europe – such as the definition and treatment of interconnectors, the existing

legal and regulatory gap, the absence of membership in ACER and consistency between EU and the Energy Community projects of common interest. Integration of large generation capacities from renewable sources (RES) introduce additional technical uncertainties and volatility in the networks, increased costs of operation and balancing and the need for sophisticated management. At the same time, such a production is regularly followed by incentives – lack of balance responsibility for relatively long periods of time, mandatory buyout, priority access to the grid, support schemes in the pricing, etc. All of these are present in the SEE countries on a relatively low level, except for Romania and Bulgaria. Security of supply is another source of threat when it comes to the use of networks – in particular it is subject to low generation adequacy, changes in allocation of the loads, sudden crisis in network operation or in electricity production, etc. These threats are serious. One only has to think of the recent floods in Serbia, Bosnia and Herzegovina and Croatia.


What are the main challenges that lay ahead of countries in South East Europe regarding electricity networks? The most complex task ahead is the restructuring of the network operation according to the EU Third Energy Package, which is an obligation for all countries in the region. The unbundling model for energy transmission networks may require adjustment of laws and secondary legislation, new responsibilities for system operation and network investments and in some cases modified corporate structures. Other acts of the EU acquis are being prepared or considered for adoption, such as the regulation on TransEuropean Energy Infrastructure, the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT), etc. A substructure of the Third Package defining aspects of its implementation are the EU Network Codes. Ten Network Codes are to become part of EU legislation in the next couple of years, defining the key aspects of operation, development and integration of the ENTSO-E grid and the EU electricity market. In August 2015, the first Network Code (for Capacity Allocation and Congestion Management - CACM) entered into force. It provides rules for network management across borders and integration of national markets on a regional and EU level. This and all other Network Codes shall be mandatory for the countries in SEE. That is going to be the main challenge for electricity network operators in the years to come.

Efficient use of existing network capacity is another challenge. The South East Europe Coordinated Auction Office (SEE CAO) in Podgorica is the main platform for regionally coordinated allocation of transmission capacity which provides its services for the borders between Croatia, Bosnia and Herzegovina, Montenegro, Albania, Greece and Turkey. Fyrom recently entered the mechanism for its border with Greece. The platform allows for more efficient use of the interconnections and facilitates the regional trading operations. Introduction of other borders of the remaining countries into the platform would improve the overall efficiency. In a longer term, however, this is the first step toward market integration in the region. With implementation of the CACM Regulation, the mechanism for coupling of the day-ahead and intra-day markets shall be applied, with implicit auctions of the capacities for that purpose. The organization of the liberalized market with all of its features and attributes is essential for sustainable network development. Currently, as many as three power exchanges are active in the region – CROPEX in Croatia, SEEPEX in Serbia and IBEX in Bulgaria. There is another initiative for the establishment of power exchange in Albania and future coupling with the electricity market in Kosovo - following the completion of the new interconnection line. Other countries will have to decide how to develop a national market operator and attain their access to a power exchange.

Related to the above, the signing of a Memorandum of Understanding on the Regional Balkan Initiatives between the beneficiaries of the Western Balkan (WB6) process in April 2016, brought additional focus through the two commitments of the countries - for coupling of the national market of each country with at least one neighbouring country by July 2018 and for the establishment of an operational regional balancing mechanism by December 2018. These, along with the required national market reforms including deregulation of the electricity prices, as well as developing regulatory rules for all aspects on trans-national level such as dispute settlement, reciprocity, third party access exemptions, licensing and cross-border representation of companies, will remain challenges for the SEE regional market development in the near future. Is safety in the electricity networks of SEE at the appropriate level? The situation regarding the safety level of the electricity networks operation in SEE is not alarming under the existing conditions and modes of operation – save in case of emergencies. Most countries fulfil the “Barcelona criterion” for a level of electricity interconnection equivalent to at least 10% of their installed generation capacity, which is accepted as the official EU indicator and target for 2020. Nevertheless, according to ENTSO-E, the electricity networks in South East Europe


are relatively sparse compared to the rest of the continent. The increase of the existing transmission capacities, both cross-border and internal, is a prerequisite for efficient market integration. There are a number of reasons to expect an increase of flows – in particular due to increased transit from north to south and east to west, differences in price (e.g. after commissioning of the HVDC line between Montenegro and Italy), as well as due to increased exploitation of RES – at the moment these are significant in Greece, Bulgaria and Romania, in order to achieve the committed national targets.

into mid-term and annual investment programs, and communicated to ENTSO-E for its bi-annual Ten-Year Network Development Plan (TYNDP) and corresponding Regional Investment Plan for the Continental South East region, which are in turn consulted by the countries in preparation of their consequent investment programs. This general platform provides information on investment priorities including clustering of projects on a regional level, aimed to solve specific problems, meet forecasts or support development policies.

The most complex task ahead is the restructuring of the network operation according to the EU Third Energy Package

The coordination framework of ENTSO-E is recognized and applied by the network operators as the main guideline for priorities on both a European and a regional level. In the context of the Energy Community, the investment policies are further supported through appraisal and identification of projects of Energy Community interest which must fulfil a set of strict conditions specified in the applied methodology, maximize social benefits and serve as counter-party for the Projects of Common Interest (PCI) in the EU.

Are there any projections about investments needed in electricity networks in SEE? Investments in the electricity networks in each country in South East Europe are identified and structured in annual updates of their Network Development Plans typically with a horizon of ten years. They are prepared by the transmission system operators and based on the national indicative electricity generation development acts. The plans are then transferred

The successful ranking of a project may facilitate its access to funds for technical assistance or implementation, such as those outlined in the Western Balkan Investment Facility (WBIF). The selected candidate investment projects for the electricity networks in South East Europe in the Energy Community project list, after reaching affirmation through their technical evaluation, shall be submitted to the Ministerial Council in October this

year. The 2014 list summoned priority projects in electricity transmission worth an estimated E900 million. Another platform for regional investment in electricity networks in South East Europe is the Western Balkan (WB6) initiative. The Western Balkans Summit of 2015 in Vienna identified four electricity network projects eligible for co-financing through the so-called Connectivity Agenda, worth E274 million. How important is cooperation between countries in the region? Is it on a desirable and needed level? The countries in the SEE region have developed a relationship between their transmission system operators and the Energy Community provides an alternative platform for communication and close cooperation – in addition to ENTSO-E (the transmission system operators of Kosovo* and Albania are not yet members). Regional electricity market integration and the development of the networks in SEE further promote the need for close cooperation between the countries in the development of coherent legal frameworks, compatible regulation and coherent investment policies. The effects are however delayed and uneven, mainly due to lack of political focus in some countries.

* Simon Uzunov is Head of the electricity unit at the Energy Community Secretariat.

Geopolitics of energy Ilin Stanev


BULGARIA’S SECOND GAS FRONT Within a year since the middle of 2015, while still drawing grandiose plans for becoming a European gas hub, Bulgaria has made a number of small steps that will have significant impact on its internal energy market and possibly on the wider South East European region energy outlook. Sofia finally has a plan to diversify its natural gas supplies.

Building a new pipeline to Greece and possibly acquiring a stake in a LNG terminal near the Greek city of Alexandroupoli will give Bulgaria for the first time uninterrupted access to alternative natural gas supplies and access to the global gas market. At the same time, after years of foot dragging and threats of legal action by the European Commission the Bulgarian system operator Bulgartrangas agreed on common transmission codes with its Greek counterpart DESFA, allowing natural gas to flow both from North to the South and vice-versa. As a result, Sofia will finally procure the capability to launch a second front against the current monopoly of Russia’s Gazprom. The southern breakthrough will also open up a new transit route through Bulgaria that could potentially supply countries in Central Europe with natural gas from Azerbaijan and East Mediterranean. Until recently, few steps were taken in Bulgaria to address the security of natural gas supply. The explanation is simple – natural gas is only 12% of the final energy consumption in Bulgaria. Gas’ small importance for the Bulgarian

economy made challenging Gazprom’s supply monopoly not worth the efforts, because the possible gains from diversification would have been scanty, while the wrath of the Russian company is very real. The situation, however, is changing.

Problem and solution

The plans to tear down Bulgaria’s energy isolation are not new; they date back to 2006-2009. But they never proceeded beyond discussions. Bulgaria was even accused of being hidden Gazprom’s supporter for not going on in a full speed with the diversification projects like the gas interconnector between Bulgaria and Greece or the installation of full reverse flow capability of the existing transit pipeline between the two countries. For years, Bulgaria was pressured to open it up (its reserved by Gazprom), the European Commission even brought the country in front of the European Court, but its operator - Bulgartransgas was successful in fighting back. In reality there had been lack of alternative suppliers to justify the construction of expensive infrastructure.



The first market test of the Interconnector Greece-Bulgaria (IGB) in 2015 showed disappointing result – only a third of the planned capacity of the pipeline attracted companies that expressed interest to reserve it. The project seemed to be heading south. This made the US government to urge Bulgaria to commit to longterm LNG supply contract, so that the capacity of the pipeline could be filled. The name mentioned as a prospective supplier was the US Cheniere which is the first company to receive license to export gas from USA. The proposal was debated by the energy team of the Bulgarian government, but eventually the opinion that such a long-term contract is not profitable prevailed. At the current moment. US LNG prices are simply not competitive with Gazprom’s offer. The concerns about the proposed pipeline’s commercial viability made the Bulgarian Energy Holding (BEH), the vertically integrated state own energy champion and shareholder in IGB, to consider additional natural gas suppliers to fill the pipeline. This lead to the idea of

investing in the proposed LNG terminal near the Greek city of Alexadroupoli. A possible BEH’s stake in the Gastrade

SA project will make it more viable and will open new supply gate for new companies to bring gas to the IGB.

The first market test of the Interconnector GreeceBulgaria (IGB) in 2015 showed disappointing result – only a third of the planned capacity of the pipeline attracted companies that expressed interest to reserve it

The first evaluation of the BEH’s southern move was the renewed IGB market test. In late April, as the results were announced, they showed that the capacity of the interconnector was overbooked. The new companies that gave non-binding offers were the Azeri SOCAR, Gastrade SA and Nobel Energy. The last two ones are shareholders in the Alexadroupoli LNG project. If the plan with the new terminal goes ahead, Bulgaria hopes to gain access to the global LNG market, but without long-term contracts. BEH’s share in the project will guarantee it reserved capacity that can be used to shop at will on the LNG spot market. Keeping the terminal operational will have costs, but they are deemed as necessary evil – something like an insurance against future price hikes from Gazprom. According to the Bulgarian newspaper Capital in the period from 2010 to 2016 in only two and half years Russian company supplied gas was cheaper than


the spot prices in Europe. The access to the LNG market will put a threshold on Gazprom’s prices, because the Russian company will need to compete. Bulgarian authorities hope that the LNG terminal near Alexadroupoli will not be that expensive. The tentative project cost is 400 mln Euros, but there is possibility for significant EU grant. The terminal is one of the Projects of Common Interest that were chosen by the European Commission as priorities and could receive up to 75% of free financing for its construction. If EU decides to provide half of the required investments, a possible BEH’s participation would cost the Bulgarian company only 12 mln Euros for a 20% share in the LNG terminal (in case 70% of the remaining investment costs are covered by external financing).

Short term perspective

The agreement between Bulgartransgas and DESFA for the new transmission codes that will be effective by the end of June 2016 will allow for even better perspective. The new codes give the possibility for virtual trade – i.e. without physically transporting the natural gas.

Bulgaria could buy gas from Greece, but instead of moving it through the pipelines it can take the same quantity from the natural gas Bulgaria transits. In practice, the natural gas will be freed to large extent from its physical pipeline constraints and become commodity as every other one. If there are no impediments to the new transmission agreement, it might even make the planed IGB redundant. The recent change of the course is remarkable, especially in light of the historically low prices of the natural gas Gazprom supplies Bulgaria in the current moment. For the first time in a decade Bulgaria could buy gas in comparable terms with Austria or Germany. There are several driving forces that caused the near U-turn of the Bulgarian energy policy. The external pressure by the US and the European Commission which view the increased energy security as a dent in the Russian attempts to increase its influence in Bulgaria was the main impetus. Only a year ago Brendan Devlin, advisor in the Commission’s

DG Energy said that Bulgaria prefers only big projects and lacks the political will to build interconnectors with its neighbours and decrease its energy dependence. Not less important, however, is the final demise of the big Russian energy projects like South Stream. The pipeline was supposed to become the second main Russian gas export route and was regarded in Bulgaria as a serious source of investments, future income from transit fees and a secure channel to grease the local political machine. In the last year it became crystal clear that it will never come back after it was cancel at the end of 2014 personally by the Russian president Vladimir Putin. Thus Bulgaria finally became open to hear European Commission’s advice to liberalize the local energy market, to diversify natural gas supply sources and connect to its neighbours. Of course, the globalization of the gas market facilitated this process by pinpointing the Gazprom’s exploitative monopoly position.

Ilin Stanev is editor in the Bulgarian newspaper Capital.

Geopolitics of energy Kostas Voutsadakis

08 22

NO CONCRETE ENERGY OUTCOME FROM PUTIN’S VISIT TO GREECE Apart from vague references in favor of the diversification policy of Europe’s supply routes regarding natural gas, there were no specific announcements concerning pipelines within the framework of Vladimir Putin, the Russian president’s visit, in Athens.

Rather intense activity has been recorded lately in the field of energy diplomacy, focusing mainly on international gas interconnections. After years of preparation the TAP pipeline went into the construction phase, the Greek-Bulgarian pipeline has large possibilities to be implemented however, the final decision will be made in the fall based on the market’s response to the market test, which will then take place while the plan for the Greek Stream pipeline remains “frozen” - something that was discussed during the recent visit of the Russian president, Vladimir Putin, in Athens with no specific steps forward having been made towards the implementation of the project. The interest of Putin’s visit, at least in the energy sector, ran out in the “key terms Memorandum of Understanding” signed by Greek Petroleum and Rosneft, regarding the possible cooperation between the two companies in the supply of crude and oil products, which is also not expected to have immediate results. In general, the country’s energy (and not only) policy has made significant

strides towards realism recently as expectations were abandoned for a large sum of inputs from Russia against future revenues from a pipeline that is still at the phase of theoretical discussions and has not secured passage from neighboring countries (Turkey, Bulgaria). Furthermore, it is clear that this pipeline is treated with caution - if not hostility from both the EU and the United States who wish to restrict Moscow’s presence in SE Europe as well as the Union’s dependence on Russian gas. Having these data in mind, a realistic forecast for the country’s energy future includes the TAP pipeline, the vertical axes that will interconnect to it (the Greek-Bulgarian, the IGB and the Ionian Sea – Adriatic pipeline, the IAP) and the liquefied natural gas terminal in Alexandroupoli linking to the IGB. From there on, depending on the normalization of Russia’s relations with the EU and Turkey and the ways that shall be selected to distribute the Eastern Mediterranean deposits (Cyprus, Israel, Egypt) to Europe, the plan for the Greek-Italian pipeline is placed back on the discussions’ table.


The construction of the TAP is the most important development for the country, which was achieved despite the rivalry towards the project not only by part of the European institutions and players (who promoted the competing Nabucco project by all means) but also by Greek governments which for reasons difficult to explain, still pose obstacles to the TAP insisting in supporting the Greek-Italian ITGI pipeline. A pipeline that was rejected by the operating consortium of the Shah Deniz gas field in Azerbaijan, which will be the main feeder of the pipeline system ending up at the TAP. The inauguration of the TAP was held on May 17th in Thessaloniki in the presence of representatives from all countries concerned, although for many the representation was rather degraded compared to what was actually anticipated. What matters is that the project is starting, several Greek companies will benefit from it, while the presence and statement of European Commission’s Vice President, Mr. Maros Sefcovic who represented the European Commission at the ceremony was of particular importance. “When completed, the TAP will be an important resource in the European toolkit for energy security. By opening up access to the natural gas of Azerbaijan, the TAP will enable many countries, including those of central and south-eastern Europe, to diversify the sources from which they are supplied

with natural gas. The Southern Natural Gas Corridor is vital to achieve the Energy Union’s goals of diversification of sources, routes and energy security. Therefore, the timely completion is particularly important in order for gas to flow to Europe from new suppliers by 2020” Mr. Sefcovic stated. The EU’s objective to diversify sources and supply routes is fixed, its achievement however is another policy’s issue: according to estimates by Gazprom, 2016 will be a record-year for Russian gas exports to European Union countries which is expected to reach 165 bcm (or approximately one third of European needs) opposed to 159 bcm in 2015. One of the main reasons for the rise in sales is the decline in prices (following the drop in crude prices) as well as the increasingly strong competition for Russian gas from the LNG which will take on new dimensions when natural exports gas from the US to Europe increase. According to Gazprom’s strong man, Alexander Medvedev, the average price paid by European countries for Russian gas this year is 167 - 171 US $ per thousand cubic meters, which, as reported by Reuters, ranges in the levels formed and the prices at hubs of Netherlands and Great Britain. Which is an indication that the Russian company has responded to competitive pressure and - if the Russian policy allows for it – can cope with internal

competition from Novatek and Rosneft companies which are asserting pressure in order to also obtain the right to export gas to Europe through existing pipelines. There were also developments in Thessaloniki, on the sidelines of events regarding the TAP and in relation to the Greek-Bulgarian pipeline and the liquefied natural gas terminal (LNG) in Alexandroupoli. The Minister of Environment and Energy, Mr. Panos Skourletis, met with his counterpart, the Bulgarian Energy Minister Temenuzhka Petkova while a meeting of the two ministers with representatives of the companies DEPA, Gastrade (Kopelouzos group), Cheniere (USA), Bulgartransgaz, Bulgargaz and BulgarianEnergyHolding (BEH ) involved in the LNG project. The two ministers agreed that in conjunction with the TAP, the IGB and the parallel development of the floating LNG terminal in Alexandroupoli, can benefit both countries and the region. “The IGB is within the completion phase of the market tests to assess its viability. In September we will have the final phase of the tests, and that is when the binding proposals of interested companies will be submitted, which will bind gas volumes. The support of both the Greek and the Bulgarian government is a given fact and therefore everything indicates that this project will be completed”, Mr. Skourletis stated.

Oil & gas Emilia Damian

09 24

CHINA IS HERE, TAKING POSITION IN THE ROMANIAN MARKET The Chinese company CEFC bought 51% of Rompetrol, the second oil company in Romania, with 680 million dollars.

Kazakhstan’s KazMunayGas (KMG), the owner of Rompetrol Group, and China’s CEFC have completed the obligations part of their agreement on a joint venture with 51 per cent Chinese participation, KMG International Senior Vice President Azamat Zhangulov announced in a press conference. Some external factors can still influence the deal, he acknowledged, but a current criminal investigation is not among them. KMGI, however will incur collateral damage following the case opened by Romania’s anti-terrorist and organized crime prosecution office DIICOT, Zhangulov asserted. KMG and CEFC (China Energy Company Limited) have signed the joint venture documents on April 29th; it would leave Kazakhstan’s national oil and gas company with a minority stake of 49 per cent, but with equal decision rights, while the Chinese commit on investments in new projects in the European Union and in countries along Asia’s ‘Silk Road’. The partnership, dubbed ‘Silk Way’, is based on KMG’s platform. Following the work of Kazakh,

Chinese and Romanian experts, a relevant memorandum of understanding was signed on December 14th 2015, and the term sheet of the deal was agreed on January 29th 2016. The final approval of Chinese and European authorities is still needed, and the estimate completion date of the process is October.

The litigation

Meanwhile, the Directorate for Investigating the Organized Crime and Terrorism DIICOT informed KMGI representatives that the company has been included in the Rompetrol case as a liable civil party. Oil Field Business Solutions and Rompetrol Rafinare officials have also been heard. DIICOT prosecutors had sequestrated the Petromidia refinery, in a case against Romanian businessman Dinu Patriciu, who died in 2014. Assets of KMGI, Oilfield Exploration Business Solutions and Rompetrol Rafinare were sequestered to recover more than 1.7 billion lei, nearly 290.8 million dollars and 35 million Euros.


The litigation with the Government of Romania will not affect the sale of 51 percent of the shares of the Rompetrol Company to China’s CEFC, KazMunayGas vice chairman of the Board Daniyar Berlibayev says, according to the Kazakh news website CEFC and state-owned KazMunayGas of Kazakhstan (owner of Rompetrol) agreed in April on the sale of 51 percent of KMG International (fully owned by KazMunayGas) for 680 million dollars. Berlibayev was confident that the deal could be completed by the end of 2016. “The transaction will not be endangered. We have proposed to finalize it in September - October, by the end of the year. Which is why we believe that by then, everything will be solved. Now we are in the final phase of the transaction”, he asserted. In his opinion, Romania’s Government is trying to revive the idea that the privatization of the Rompetrol in 19992003 was unlawful. “We purchased the company in 2007. We had the necessary approvals from Romania’s authorities and from the European Commission, because the decision was taken at an EC level.

“The transaction with the Chinese company will not be endangered. We have proposed to finalize it in September October, by the end of the year. Which is why we believe that by then, everything will be solved. Now we are in the final phase of the transaction” – Daniyar Berlibayev, KazMunayGas vice chairman of the Board

Therefore, we consider ourselves a purchaser in good faith. We did appeal. In reality, we have no right suspended, only that we are having a precautionary attachment on our shares because of that ongoing investigation”, the KazMunayGas official explained.

State guarantees

Upon purchasing Rompetrol, KazMunayGas got guarantees from the Romanian authorities that the company on sale had accomplished all its obligations to the state, KMG International vice chairman Azamat Zhangulov declared. He asserted that the lawsuit in the Rompetrol case should not harm the company’s current activity, but due to the precautionary attachment on the group’s assets, the company cannot make any investments. In 2007, Dinu Patriciu sold Rompetrol Group to the Kazakh company KazMunaiGaz, for 2.7 billion Euros, according to local press, and in May 2016 the Chinese company CEFC announced that it would pay 680 million dollars for the takeover of a 51 per cent stake in KMGI (former Rompetrol Group).

Oil & gas Emilia Damian

10 26

LIBERALIZATION OF THE ROMANIAN GAS MARKET DURING 2016 Romania aims to fully liberalize the natural gas market this year, as the price of international gas is now at the same level as the price of domestic gas.

The Regulatory Authority for Energy (ANRE) has asked the Ministry of Energy to abrogate as of July 1st 2016 the Government Decision that established the agenda for deregulating the market for natural gas for households, ANRE President Niculae Havrilet announced in mid-May. “A few days ago, we had a meeting at the Ministry of Energy, where we presented this situation. We considered it important for the initiator of the Government Decision that established this agenda to know that currently the trend of the natural gas market is favorable for deregulation. It is the best moment to complete the deregulation. Basically, we requested that the Government Decision that imposes increasing prices onto the domestic consumer by 10pct from July 1st to be abrogated and to remain at the price of 60 lei per MWh, as it is today, as a reference price, with the market to establish actusl real price, but not to start from 66 lei or even 72 lei as it is stipulated in the deregulation agenda”, the ANRE official said.

He added that, according to the agenda, regulated prices will go up by 10pct on July 1st, from 60 lei per MWh to 66 lei per MWh, which is more than the free market price, currently around 63 lei per MWh. “Now is a good moment for the early liberalization of the natural gas market. In my opinion, when price convergence is reached, a liberalization agenda is no longer justified where prices are above those of the market”, Havrilet explained.

Technical study needed

On the other hand, the Energy Minister Victor Grigorescu said that the suspension of the gas market liberalization agenda should rely on a technical analysis; otherwise the issue only generates false debate. Asked what the response of the Ministry of Energy is to the request of the National Energy Regulatory Authority (ANRE) to suspend the liberalization agenda according to which the gas price is supposed to grow 10 percent as of July 1st, although the international gas price declined to equal the price of domestic production and is further


decreasing, Victor Grigorescu replied: “Any decision should be grounded on a study. We requested a study to fundament our approach on, otherwise we risk expressing ungrounded opinions and creating false debates”. He reiterated having heard only opinions on the subject that lack solid ground and advised a technical analysis before venturing to express views.

“Now it is a good moment for the early liberalization of the natural gas market. In my opinion, when price convergence is reached, a liberalization agenda is no longer justified where prices are above those of the market” – Niculae Havrilet, president of the National Energy Regulatory Authority

Gas prices should not go up on July 1st from 60 lei per MWh to 66 lei per MWh, as provided for in the liberalization agenda, as prices on the deregulated market are on a falling trend, the Chairman of the Chamber of Deputies’ Industry Committee Iulian Iancu told an Energy Business Summit meeting.

Package of bills

At the end of April, the ANRE Chairman Nicuale Havrilet said that the authority was preparing a package of bills to modify the current natural gas legislation for the market to be deregulated sooner than established in the current agenda. ANRE will suggest these modifications to the Government through the Energy Ministry, which has a right to legislative initiative. The current liberalization agenda for the natural gas market provides for a 10-percent price increase, from 60 lei per MWh to 66 lei per MWh, starting July 1st, 2016, an increase that would not make sense because deregulated market prices are going down, said Havrilet. He added that the Government should amend the special tax of 60 per cent on additional revenues of gas producers and suppliers, because this tax prevents lowering the prices on the market. “The overtax of 60 percent is an element aimed at the budget. This tax should be discussed with the Government again”, said Havrilet.

When the tax was introduced, a gas price of 72 lei per MWh was taken as a reference. Currently, operators do not want to lower the price because of this tax, although the market requires it. In 2013, the Government imposed a special tax on additional revenues obtained by gas producers and suppliers following the deregulation of the market.

Is the market ready?

The natural gas market of Romania is not yet ready for liberalization, because there is no competitive environment and the current prices are conjunctural, said the commercial director of Romgaz (Romania’s biggest producer of natural gas – author’s note) Vasile Ciolpan. “We are not yet ready to experiment this. We don’t have a competitive environment yet. The Romanian gas market is closed, look at it, there is nobody to consume the natural gas. Should we modify the current law depending on conjuncture, when the conjuncture changes, we’ll have to modify it once again”, said Ciolpan. The Romgaz official showed that the current market prices are not determined by supply and demand, as they should be. In addition, he reminded that the OPEC and the large oil and natural gas producers are going to change their prices.

Overview Emilia Damian

11 28

HIDROELECTRICA ON ITS WAY TO THE STOCK EXCHANGE The biggest Romanian energy producer will be listed this year on the Bucharest Stock Exchange, after getting out of insolvency. It will be the largest IPO in Romania’s history and the largest so far this year in Central and Eastern Europe.

The listing of electricity producer Hidroelectrica would be the largest IPO in Romania’s history, but also the largest in Central and Eastern Europe this year, Templeton Emerging Markets Group executive vice president and Fondul Proprietatea portfolio manager, Greg Konieczny said. In connection with the initial public offerings, Hidroelectrica is the strongest candidate and things are moving ahead here. The company was in insolvency for 4 years and a public offer is now scheduled for October-November. If we look at the figures, in terms of offerings based on the value of net assets, this should be by far the largest in Romanian history, but probably also the highest in Central and Eastern Europe this year. We hope this prompts a real change at the Bucharest Stock Exchange and the capital market, hence improving liquidity and contributing to attracting more investors, said Konieczny.

Record gross profit

Hidroelectrica became insolvent in June 2012, after losing $1.4 billion over six years from contracts under which it sold

the bulk of its output below market prices. It underwent restructuring, canceled those contracts and posted record high profits. But contract holders challenged the cancellations and a court ruling pushed the firm back into insolvency, where it has remained a year longer than expected due to lengthy court procedures. It would be the first IPO of a stateowned firm in Romania since the sale of power utility Electrica in 2014. The administrator Remus Borza said Hidroelectrica had already appointed listing and legal advisers. It reiterated that it could list a 15% stake, both on the Bucharest and London stock exchanges. The investment fund Fondul Proprietatea, which is the sole minority shareholder in Hidroelectrica, values its 20% stake at 594 million Euros ($676 mln). That would imply a value for the entire company of 2.97 billion Euros. Borza also said Hidroelectrica expected a record gross profit of 1.3 billion lei ($331.52 million) at the end of this year, up from 1.1 billion lei last year.


A correct decision

The Fondul Proprietatea manager said that one of the investment goals approved by the shareholders is to increase the net asset value per share over a 12-month period from the current level, which is below 7 percent, to higher figures. Konieczny believes that the Fund’s listing, in 2015, on the London Stock Exchange was the correct decision to make. The decision we recommended and which was approved by the shareholders, of getting listed on the London Exchange was the right one. We acquired new shareholders. Over time, the reduction of the discount should continue because an enhanced demand for a fixed offer means higher prices even on the stock exchange. (...) Last year, and the beginning of 2016 was a difficult period in terms of performance, mainly due to the oil price and the performance of OMV Petrom which is in our portfolio. (...) We succeeded in reducing the discount year over year and hopefully this trend will continue so that by the end of the year the average discount is below the 2015 level, said Greg Konieczny.

Emerging market

The listing of state-owned hydro power company Hidroelectrica on the Bucharest Stock Exchange (BVB) is a chance for Romania to promote from frontier status to transition and eventually

emerging market, BVB CEO Ludwik Sobolewski sayd, according to local media. Global deposit receipts at the London Stock Exchange could help, but direct investment in actions is easier than connecting to the Romanian market through GDRs, and the tax on dividends is final in Romania for GDR owners.

According to him, the capital market needs more liquidity and more trading, and mostly relies on individual investors. The good news for them is that the Financial Supervisory Authority has adopted new regulations for short-selling, lending and borrowing operations.

The Romanian postal company Posta Romana would also make a good IPO, which would make it the first East European post operator listed on a stock exchange.

Sobolewski also announced warrants as a new market instrument, entitling investors to shares at a fixed price - a very popular instrument on the advanced markets. BVB will launch warrants based on shares of Banca Transilvania, BRD Groupe Societe Generale, the Electrica energy company, the Proprietatea fund, Petrom and Romgaz.

“The listing of electricity producer Hidroelectrica would be the largest IPO in Romania’s history, but also the largest in Central and Eastern Europe this year” – Greg Konieczny, manager of Fondul Proprietatea

The CEO asserted he is not concerned by possible IPOs on other exchanges than the BVB. GDRs were a good thing for natural gas producer Romgaz in 2013, when the Romanian market was much more closed than today. Romgaz’s offer was one third GDR; Electrica’s just 20 percent, and the Proprietatea Fund finally proved beyond doubt that state companies already listed in Bucharest have no reason to go to London, as it only reduces liquidity, which is bad for investors in these companies and for the capital market as a whole.

Electricity Emilia Damian

12 30

BIG IS BETTER IN THE ELECTRICITY PRODUCTION SECTOR Gathering the existing electricity producers in large companies could boost competiveness and modernization of the Romanian energy sector. The Ministry of Energy has put up for public debate all the reports of the working group related to Romania’s Energy Strategy 2016-2030 with an eye to 2050. The final strategy document is expected out around September 15, 2016.

Competitiveness and modernization in Romania’s electricity generation sector could be approached by gathering the current producers that use various primary energy sources, reads a report by an electricity working group related to Romania’s Energy Strategy 2016-2020, posted for public debate on the website of the Ministry of Energy. “A possible approach of securing competitiveness, sustainability and modernization of the generation sector may be gathering in large companies the various producers that use different primary energy sources - coal, natural gas, hydropower, and renewable energy resources. Nevertheless, the producers using just one source of energy should first of all correctly compute their operational and personnel costs to be able to operate efficiently in a limited time slot in a given order of precedence. Efficiency could be improved both inside integrated companies and outside them based on access against an order of precedence”, says the report. The documents adds that the current circumstances, with each producer

using only one kind of primary energy source, the producers using natural gas and coal, both expensive fuels, might not become profitable.

Coal and gas

“The electricity generating facilities that use fire coal and natural gas are necessary in order to ensure energy security. The current mix allowed for difficulties to be overcome. The problem remains that the electricity mix is made up via several companies that use only one kind of fuel in a competitive market. Electricity providers are the ones to do the aggregation, and they obviously seek the least expensive electricity. That makes electricity generated from natural gas and coal to be excluded from their preferences. Given the circumstances, there is a risk of the electricity producers using preponderantly such fuels failing to gain enough working hours in order to become profitable”, the report says. The Ministry of Energy has put up for public debate all the reports of the working group related to Romania’s Energy Strategy 2016-2030 with an eye to 2050. The final strategy


document is expected out around September 15, 2016.

Closing coal mines

Still, the two coal companies (Hunedoara Energy Complex and Oltenia Energy Complex) need massive restructuring plans. Only two of the existing four mines of Hunedoara Energy Complex will still be functioning. The Jiu Valley Lonea and Lupeni coal mines will enter the closing down program until 2018 and only the Livezeni and Vulcan mines will still be part of the Hunedoara Energy Complex, Energy Minister Victor Grigorescu announced in a press conference in April. He added that only an energy-generation group will be maintained at the Paroseni thermal power plant and another group at Mintia-Deva, with the two facilities having an aggregate capacity of 400 MW. The Hunedoara Energy Complex, employing 6,300 people who work at the Lonea, Lupeni, Vulcan and Livezeni coal mines and the Mintia and Paroseni thermal power plants, has been in insolvency since January 7th 2016. The Supervisory Board of the Oltenia Energy Complex has approved a series

of major projects to be implemented at the company in the period immediately ahead, including a mining strategy for 2016-2030, a plan for making Oltenia more efficient and streamlined as well as a plan of redundancies for 20162017, Oltenia Spokesperson Elena Zamfir said in May. “The projects reflect a mining strategy for 2016-2030, which aim is to decrease production costs per tonne of coal and get 2.4 billion lei in savings in 2016-

“The mining strategy for 2016-2030 aims is to decrease production costs per tonne of coal and get 2.4 billion lei in savings in 2016-2020” – Elena Zamfir, Oltenia Spokesperson

2020, taking into account an almost constant energy quota and the closure of some mines as a result of lignite deposits having been depleted, the absence of selling markets for captive quarries or huge operation costs; an efficiency and streamlining plan for the company in 2016-2020 that has been approved by the Supervisory Board, as well as a lay-off plan in 2016-2017 starting on June 1st, 2016, that provides for 2,000 redundancies in 2016, 1,067 of whom are pensionable workers by December 31st, 2019. Oltenia currently has 15,168 workers”, said Zamfir. Zamfir also said that at a meeting of the Oltenia management and trade unions, CEO Manager Laurentiu Ciobotarica unveiled the financial state of the company in the year 2015 and the first quarter of 2016. Because the company reported an aggregate two-year loss of 1,655 million lei and a Q1, 2016 profit of 144 million lei, measures are needed to improve CEO’s efficiency and streamline it. The lignite output stood at 22.405 million tonnes of coal and the losses were standing at 895 million lei, up 30 percent from net losses in 2014 of 693 million lei.

Nuclear energy Emilia Damian

13 32

NEW URANIUM MINES AND NUCLEAR REACTORS IN ROMANIA Romania and the Czech Republic are the only countries in the EU to have uranium reserves. And the government of Bucharest aims at opening new uranium mines, as the existing ones are depleted and the strategy is to build two nuclear reactors in the next ten years.

Romania’s uranium ore is in the process of natural depletion and a new resource is long overdue in order to have constant production, Energy Minister Victor Grigorescu told a press conference. The minister thus answered a question on the situation of the uranium processing plant in Feldioara. “We are contemplating many options as regards this company, strategic to Romania. May I remind you that Romania has a complete nuclear cycle, as we are one of the few European countries who have that; we produce uranium ore and go through the entire cycle, by processing it up to the energy production in the Cernavoda reactors. And yet I believe that before talking of any re-capitalization, merger, absorption, division solutions and so on, we should firstly do what we should have done a long time ago, namely to admit that we have a naturally depleting uranium resource and that we should have opened another long ago, so we had a constant ore production, said Victor Grigorescu. He mentioned that exploiting a new deposit takes several years. “I remind you that the plan of closing the current

exploitations was last updated in 2011, so this is not a situation at the mercy of chance. Which is why, before talking about final solutions, we are obliged to take care of immediate issues, such as starting – actually carrying out, since they were already started – the opening procedures of a new perimeter in order to make sure we shall commence sooner a normal cycle”, said the energy minister. Energy Minister Victor Grigorescu has set up a mining coordination committee tasked with analyzing the current state of the country’s mineral energy resources (coal and uranium) and coming up with measures to increase efficiency and streamline operations in order to meet the demand for energy resources required to achieve Romania’s objectives of energy security, competitiveness and sustainable development. The committee, to be coordinated by State Secretary Corina Popescu, is made up of ministry’s specialists and specialists from each subsector of the mining industry, representatives of mining companies, the academe, employers’ associations and trade unions.


“The mining sector needs the best recovery and reorganization measures to be able to maintain a balanced energy mix in the National Energy System. We need urgent and viable measures in order for the sector to survive, and the specialists of the coordination committee are tasked with identifying the solutions as soon as possible taking into account the reality facing the sector and the international developments”, committee chair Corina Popescu is quoted as having said in the statement. The situation at the Uranium National Corporation (CNU) is one of the most resounding failures in the system on a managerial and public policy level, and solving the problems entails reopening some new blocks and retooling investment, Energy Minister Victor Grigorescu also stated. He added that energy resources not being ensured for the period immediately ahead is out of the question, and the nuclear cycle will be maintained. On the other hand, the minister pointed out that Nuclearelectrica’s initiative to build up reserves to prevent complicated situations, is reasonable, efficient and correct in terms of security”.

Strategic priority

At the beginning of this year the Government approved a support letter that certifies the fact that the project for

reactors 3 and 4 of the Cernavoda nuclear plant is a priority strategic project for Romania and that it can be implemented only with the support of the state, said, on Thursday, Daniela Lulache, CEO of Nuclearelectrica, the state-owned company administrating nuclear energy. “We have a negotiation procedure with the Chinese partner that is taking place. I can swear that they are taking place. Half of our effective time is allotted to this project. We are involved in a negotiation commission, and state representatives are also in this negotiation commission. We are negotiating every day and we are advancing this project, that is now in its last stages”, Lulache said. She showed that the letter also contains the support mechanisms that can be used for this project. “The Government has issued a support letter, as part of this entire mechanism and it mainly says the following: Romania is aware that this project can develop only with the involvement and the support of the Romanian state, the Romanian state considers this project to be a priority strategic project and describes a series of support mechanisms that it will analyze and grant for the development of the project. These mechanisms of support include the implementing of the contract for difference mechanism, and, eventually, a series of fiscal facilities, state

guarantees for the project’s financing”, the Nuclearelectrica official mentioned.

State aid

Lulache also said that part of these support mechanisms are in fact state aid and must be approved by the European Commission. “Obviously, all these mechanisms will be ensured under certain conditions. For example, for the implementation of the contract for difference mechanism, we are aware that we will have to go through a process of negotiation and analysis with the European Commission and that this mechanism must face many tests, including that of state aid. Even so, their granting is conditioned by the successful completion of these steps”, Lulache added. According to her, the support letter was approved by memorandum and represents an addendum to the understanding memorandum signed by Nuclearelectrica and the Chinese Company China General Nuclear Power Corporation. On November 9th 2015, representatives of Nuclearelectrica and China General Nuclear Power Corporation signed a Memorandum of Understanding regarding the development, construction and decommissioning of units 3 and 4 of the Cernavoda Nuclear-Electric Plant.

Electricity Stevan Veljovic

14 34

TIME TO DEAL WITH ELECTRICITY THEFT IN SERBIA In order to reduce the losses in power distribution, currently around 14%, Serbia needs to increase the investment in metering systems and networks. The first test of determination of EPS to achieve this goal will be its ability to tackle the widespread practice of electricity theft.


On the list of chronic problems of Serbia’s power system, losses in the distribution network and widespread practice of electricity theft stand out high on the list, together with lack of investment in new power plants. Losses in the distribution system of EPS, a Serbian power utility, in 2015 amounted to 14.06% of the total electricity produced. Albeit an improvement on losses made in 2014 and 2013 (14.36% and 14.92, respectively), last year’s result leaves a significant gap compared to similar systems in Europe. The utility estimates that 40% of losses are caused by electricity theft and unauthorized connection to the grid, while the remaining 60% are technical losses. Electricity theft is a common and widespread problem in Serbia, which is not limited only to poor households, unable to pay their bills regularly. The unauthorized connecting and using of power caused a damage of €50 million last year, a significant amount that could otherwise be used for improving the production and distribution of electricity.

Turning a blind eye on problems

The EPS told EnergyWorld they are working continuously on discovering illegal connections to the grid and power theft. Their methods including regular control of meters, consumption analysis, anonymous reports and special devices that detect electricity theft. The measures also include replacement and calibration of energy meters, displacement of measuring points, implementation of new technologies for more efficient detection of unauthorized consumption and improved reading of electricity meters. “We also established special teams for the detection of unauthorized consumption of electricity composed of the most experienced electricians”, the company said. In 2015, the company filled more than 11,000 criminal charges for unauthorized consumption of electricity. The amount of illegally consumed electricity which was discovered in last year equals to more than €12.5 million. The space for improvements exists in both technical and non-technical areas, but experts insist that prevention of theft should be the main priority. Slobodan

Ruzic, manager of the Energy Saving Group, a consultancy, believes that lack of will and obstruction within the EPS are the main reasons why the EPS failed in previous years to reduce the nontechnical losses usually below 8% to 9%. “The employees of the EPS are the ones that in many cases allow power theft to take place, by showing the culprits how to manipulate with the meters in order to steal electricity. Often they are the ones who help illegal consumers connect to the grid. This allows them to earn extra money, while they make one hundred or one thousand time greater damage to the EPS”, he warned. He believes that many people are aware of the problem, but the company doesn’t have the strength to cope with it. “To be fair, nobody is forcing them to deal with the problem, including the state as its owner, consumer associations and the public. Concealing the problem sends the message that it is all right to steal from the state enterprises in order to cope with high prices, even though stealing is opposed to basic morals and human decency”, Ruzic argued.


Looking at the problem from the technical side, the losses could certainly be significantly reduced with the implementation of modern “smart meters”, equipped for remote automatic meter reading and managing consumption. It is estimated that more that nearly two million meters are not calibrated as prescribed, leading to potential mistakes in measurements.

Vujasinovic, who is also president of Serbian Chamber of Commerce’s Group of producers of equipment for measuring electricity, said that by substituting approximately three million meters, EPS could reduce the losses 5 or even 10 percent, which is about €75 million to €150 million in savings annually. “In other words, the EPS would return the money invested within five years”.

Ruzic believes that with the actual effort of EPS to solve the problem of theft, the political will for such action and sincere media support, the losses could probably be reduced to 9-10% within a relatively short period of time of one or two years. When it comes to technical losses, significant reductions are impossible without serious investments in modernization and development of the distributive network.

Jovan Vujasinovic, manager of Meter&Control, a manufacturer of systems for remote reading and power management, reminded that induction meters are still broadly used in Serbia, whose accuracy class, due to the age of devices, are to the detriment of EPS. “Many of the problems could be solved by replacing the old meters and better control over the measuring points”, he argued.

He added that all utilities in the region advanced significantly in the implementation of modern “smart meters”. “It is clear that this is the way to go. But although EPS is one of the largest power utilities in the region, the penetration of “smart meters” is almost negligible, compared to the neighbouring countries”, Vujasinovic noted.

“Due to long-term low price of electricity, EPS doesn’t have enough funds to develop the distribution network. Even if they had acted differently in this area, they certainly couldn’t have done much more than they did”, he explained. Despite several price hikes in the last couple of years, current electricity price in Serbia is still among the lowest in the region (€0.065 per kWh).

“In addition to more precise measurement of electricity consumption, modern smart meters have a range of features enabling to detect various forms of theft, such as opening of the lid, interruption of power supply, presence of a magnetic field etc. Smart meters also allow the supplier to connect or disconnect its customers remotely, while simultaneous readings allow accurate analysis of losses”, he explained.

The experts warn that without significant investments in the distribution system, it is not possible to reduce the losses bellow 8%. The EPS will invest around RSD 24.5 billion [about €200 million] in 2015 in modernization and improving the management of the distributive system. “With investments in the distribution network and measuring infrastructure the technical losses will be reduced“, EPS said.

Low prices and hypocrisy

Ruzic blames the Government as EPS’s owner, for the lack of development of the energy system, noting that politicians always preferred populist talk to developing the company. He also blames the selfish attitude in the society, which refuses any discussion about the increase in the price of electricity. “Consumer organizations, quasi-experts, trade unions and especially journalists, they are involved as they support this attitude”, he said.


Troubles with procurement of electric meters For more than ten years, the procurement of new electric meters is high on the EPS agenda, but with symbolic results. The €80 million loan from EBRD and EIB approved six years ago could not be used as intended, as several procurements failed after complaints from domestic producers. The Anti-Corruption Council, a Government advisory body, submitted a report in April 2015, claiming that the rules of EPS’s last procurement of meters restricted competition and imposed unfair eligibility criteria for domestic producers, who could participate only as subcontractors. It is estimated that total investments in modernization of metering of consumption of electricity could reach €700 million within next few years. Jovan Vujasinovic believes that there is still room for domestic producers to be involved in the business of implementation of smart meters, but insists that the rules of tender must allow them to compete as contracting parties,

not as subcontractors to foreign bidders. “Serbian companies have the knowledge and experience to propose the solutions to improve the existing system, and their products are fully competitive and in line with European standards. The benefit of involving domestic companies in this business include acceleration of economic growth, employment of around 1,500 workers and retaining high-skilled professionals in Serbia”, he said. Slobodan Ruzic argued that the number of interested companies is not an excuse for failure to replace electric meters which would reduce the theft drastically. “If everything is done according to the law, professional rules and the needs of EPS, no one could overturn the tender. This requires political will, clear instructions to EPS management, professional knowledge and honesty and knowing the procedures of procurement. All this is not impossible, if we only give up the practice of awarding the job using political criteria”, Ruzic insisted.

He reminds that any mention of the economic price of electricity is quickly dismissed in public, because of the poverty and low wages. “We dismiss it as if our fathers and grandparents, who built all our existing plants, had higher salaries, as if they dined in better restaurants, had better clothes or went on vacation more frequently than we do. On the contrary, they had more difficult lives than us in every aspect, but they still left us our current power system”, he insisted. “The problem is that we became selfish as a society. We only use what we inherited. We can’t maintain it properly, let alone continue to develop it. By doing so, we will leave our children and grandchildren a ruined system”, he lamented.

Overview Penelope Mitroulia

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HELLENIC PETROLEUM, AN INTEGRATED ENERGY GROUP BY YEAR 2025 The gradual transformation of Hellenic Petroleum from a refinery to an energy group by the year 2025, is the strategic goal set by the current administration of the group, further to the completion of significant investments of over 3 billion Euros, made during the previous years in the three refineries, of Elefsina, Aspropyrgos and Thessaloniki.

The new strategy of the Hellenic Petroleum Group, as described by the company’s leadership, is to analyze the consumer/citizen energy needs of 2025, the design of appropriate energy products, their production and distribution. The group adopts European transformation positions of the energy system and seeks to refocus on energy actions and new era products such as renewables, natural gas networks and electricity. The most central role of this new strategy is played by the marketing/ trading field, domestic and international, which now ceases to have liquid fuel as its sole orientation, but as a future view on alternative energy solutions and sales in other products. This sector, with a turnover of approximately 6 billion Euros annually, now on operates uniformly, both on the domestic market, and in five foreign countries (Cyprus, Bulgaria, Serbia, Montenegro and FYROM), where the group operates. Indicative of this choice, is also the fact that in the new organization chart of Hellenic Petroleum, a general marketing directorate was created, that is domestic

and international, led by Mr. Roberto Karachannas. “We are a multinational company. We have our eyes open and we no longer have any restrictions” says Mr. Karachannas in an interview with Energy World and adds: “Investing in foreign markets where we are present, is a way to increase our group’s sales also due to the reduction in the internal market. We have a strong presence in these markets and we can take advantage of it to increase the group’s profitability. Our aim is to place products on the market through the Hellenic Petroleum network, and not only exports. We simultaneously act as ambassadors of Greece abroad and we want to participate in the fight for the good of the country through our work”. Analyzing the new role of Hellenic Petroleum’s commercial activities Mr. Karachannas and Senior Director of International Marketing Costas Mademlis, speaking to Energy World, noted that in a field as difficult as fuel marketing, it is not sufficient for one to have the know-how, the required


partnerships and innovations, but one must also combine all of the above in order to manage to produce a product that will be successful on the market. “We operate horizontally”, Mr. Mademlis points out. “We do not consider Greece and abroad as different markets, but as a common market, with one corporate image, common products and joint marketing. We export what we learned in Greece abroad and vice versa”. At the same time, according to Mr. Karachannas, the group’s aim is to detect and cover the “smart consumer needs” of tomorrow and configure the service station of the future that will be an energy supermarket and sell hydrogen, gasoline, diesel, electricity and who knows what else.... “In 10 years – he points out – a station will be a distribution point. It will sell much less fuel than today which covers 60% of its activity”. It must be noted that in this very direction, Hellenic Petroleum has already concluded a cooperation

agreement with the Masoutis supermarket chain. In fact, in Thessaloniki there is already a refueling station operating within the supermarket area, while the agreement provides that

“In 10 years a station will be a distribution point. It will sell much less fuel than today that currently cover 60% of its activity” soon another seven points of sale will be operating across Northern Greece. This policy extends to the cooperation with the supermarket chains of OK and Marinopoulos in the South, as well as with the fast food chains “Grigoris” in Athens, Thessaloniki and Crete. Soon

it is also anticipated that a cooperation agreement with a courier company for product delivery will be completed. “The prospects in stations abroad that have large areas are similar”, says Mr. Mademlis. “We believe that there is large margin to create stations that offer high quality services. In Bulgaria, for example, there is a lovely station that makes you forget where you are. It offers food, a playground and a mini market. By 2030, fuel will only cover long distance needs and we now focus on the reorganization of our stations in view of these changes”. Thus, the role of the international marketing department of Hellenic Petroleum with EBIDTA of EUR 70 million for 2015 and sales of approximately 2,300 km3 becomes vital to the achievement of the group’s future objectives. As Mr. Karachannas points out, the group’s aim is the full utilization of its assets abroad and the strengthening and expansion of its presence. He adds that while in the past the group had focused on enhancing its production, now, the focus is on marketing.

Mr. Roberto Karachannas

Mr. Kostas Mademlis

The role of the international marketing of Hellenic Petroleum with an EBIDTA of 70 million Euros in 2015 and sales of around 2,300 km3 it becomes vital for the achievement of the group’s future objectives

Let’s take each individual country in which Hellenic Petroleum operates to see what is happening there:



The group operates in Serbia through its 100% subsidiary “EKO SERBIA A.D.” which is based in Belgrade and was founded in 2002. The company has 54 stations and employs 46 workers. The sales volume amounts to approximately 160 km3 and the EBITDA for 2015 was approximately 10 million Euros. For Serbia, Mr. Mademlis says, it was very challenging to make the strategic decision of maintaining the company’s presence. We came very close to withdrawing, but ultimately the decision to stay and instead of limiting our activity, we are now discussing new investments to expand the network and supply sectors such as the industry. A critical issue in this market is finding a solution for supplying Hellenic Petroleum products, either through FYROM, further to discussions on reopening the VARDAX fuel pipeline between Thessaloniki – Fyrom, either through Montenegro and the storage facilities available to the group at Bar, which is designed to be upgraded and will render the supply train viable. In Serbia the main problem is the size, so our aim is to make investments in order to increase the market share, with the aim (at the end five years’ period) of an EBIDTA reaching approximately 20 million Euros.


The group has been operating in Montenegro since October 2002 when it acquired (through HELLENIC PETROLEUM INTERNATIONAL AG) 54.35% of the shares of JUGOPETROL AD. The company is based in Podgorica. It has 41 stations, employs 116 employees, it actually sells approximately 270 km3 and has a market share of 52%. The company’s EBITDA in 2015 amounted to approximately 10 million Euros. The group’s aim is to implement a reconstruction program of gas stations and tanks and the upgrading of storage facilities at Bar. The total investment scheduled for the next five years amounts to 20 million Euros.


OKTA AD Skopje acquired 80% of Hellenic Petroleum in 1999 through privatization. It has 27 stations and employs 421 workers. Its share of the local market is 63% and has a share of around 26% in the Kosovo market. Sales amount to approximately 800 km3 and the EBITDA in 2015 amounted to approximately 7 million Euros, compared to 3 million Euros in 2014. The aim is to reach 10 million Euros in the next five years. The disruption in 2013, of the operation of the VARDAX pipeline connecting the refinery of Hellenic petroleum in Thessaloniki and Fyrom, causes increased supply costs, while simultaneously limits the group’s expansion activities in the Balkans.


It should be noted that legal claims are pending, that arise from the purchase agreement for fuel oil absorption, while due to the corrosion of the pipeline because of its inactivity it is estimated that in 2016 will require additional maintenance costs for its maintenance and naphthalene remediation.


In 2002 the BP Cyprus Ltd company was acquired from HELLENIC PETROLEUM INTERNATIONAL AG (100% subsidiary) and renamed into EKO Cyprus.

It should be noted that the relocation must be carried out by decision of the Cypriot government and without compensation. Indeed, the environmental restoration of the location from which the warehouses will be dismantled is foreseen. At the same time, Hellenic Petroleum is participating in an investment project to build LPG storage areas. The financing of the investment will come from bank loans by 60-70%, while the share of Hellenic Petroleum’s own funds to be invested is estimated at 10 to 15 million Euros.

The company has 91 stations in a market where a total of 204 stations are operating. It employs 55 people and sales amount to approximately 475 km3. The EKO Cyprus turnover in 2015 was 225 million Euros, with an EBITDA of over 20 million Euros. The company controls 33% of the Cyprus market.

As Mr. Karachannas pointed out, Cyprus offers a stable investment environment, while the prospect of a solution to the Cyprus dispute opens new horizons. For these reasons we are examining expansion opportunities in the service station sector.

As noted by Mr. Karachannas, the market in Cyprus functions very differently to the Greek market. The stations have larger volumes and higher margins which render them sustainable.

EKO Bulgaria EAD, a 100% subsidiary company of Hellenic Petroleum, based in Sofia was established in 2002. It has 85 stations, controls about a 9% rather multidiverse market and employs 73 workers. Its sales amount to approximately 560 km3 and the EBITDA of 2015 was approximately 19 million Euros.

The central theme for the activities of Hellenic Petroleum in Cyprus is the relocation of the warehouse from Larnaca, in a region 40 km west, at Vasiliko. The entire project is implemented in cooperation with companies operating in Cyprus (Petrolina, Exxon etc.). It has a four-year horizon and provides site clearance from Larnaca and new storage facilities at Vasiliko.


The Bulgarian market, like that of Cyprus, are supplied with products from the refineries of Hellenic Petroleum. In Bulgaria, the fuel from the Thessaloniki refinery is transported by road tankers, while that coming from the refineries of Aspropyrgos and Elefsina are transported by sea.

The group’s aim regarding the Bulgarian market is the construction and location of facilities in order to acquire greater independence in terms of supply issues. The group plans to activate LPG storage facilities outside Sofia that will be supplied by rail. Mr. Mademlis believes that this installation will offer the company’s operation independence while he also finds that there is an interesting market for LPG in Bulgaria. The location of reservoirs for increased vertical integration is also one of the group’s targets, as well as sales growth and expansion of business activities if the additional supply is ensured through a possible resumption of operation of the EKO Alexandroupoli installation. Mr. Karachannas says that in Bulgaria, there are significant opportunities. New roads are being constructed where we plan to have presence while we are planning investments of approximately 35 million Euros in the following five years. “With these business moves, Mr. Karachannas concludes, to the marketing sector activity in total, we are trying to build the future. We combine the yields of the funds that have already been invested with an increase in the profitability for the entire group. We must go ahead and do just that. Our goal is to stand out as a Greek company in the Balkans.“

Overview Penelope Mitroulia

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A TURN TOWARDS EMERGING MARKETS FOR METKA Mr Ioannis Mytilineos, the chairman and CEO recently presented the new orientation of METKA while speaking at the company’s general meeting of shareholders, referring to a change in strategy regarding the company’s objectives.

The countries of the so-called subSaharan Africa, as well as Iran, where investment opportunities are created, are targeted by Mytilineos group, which is simultaneously planning a more active presence in the Greek retail power sector through the Protergia company, and follows the developments with great interest regarding the creation of joint ventures between PPC and individuals, without hiding its interest in such cooperations. Addressing the general meeting of shareholders, the chairman and CEO of METKA Mr. Ioannis Mytilineos said that the company is now turning its interest towards emerging markets, such as those of Africa and specifically in Ghana, where it already operates and where METKA’s activities offered a solution to the serious energy shortage problem in the country. On his part, Mr. Evangelos Mytilineos, presenting analysts with the group’s financial results for 2015, revealed that METKA’s unexecuted balance now stands at 1.2 billion Euros and has increased by 170 million Euros with the project in Ghana. In fact, he predicted

announcements for the country of sub-Saharan Africa, which posses a significant interest, as the entire area. It should be noted that this is the reason why the administration recommended the restriction of refunds to shareholders so that available funds will be used to finance projects in Africa. At the same time, METKA is also investing in Iran’s market, as it is Tehran’s intention to modernize its outdated energy infrastructures. Already, it is discussing with one of the largest energy groups in the country, with a major power plant of 900 MW and worth 500 million Euros. However unlike other mature projects in Ghana, the case of Iran, although interesting, is chronologically placed at the end of the year or even for 2017, and despite the agreement for a natural gas plant construction for a large local company, problems to continue exist with the maintenance of sanctions by part of the US, rendering bank financing impossible. Apart from the construction, the interest for collaborations in Iran exists in other sectors such as industry and specifically that of aluminum.


Regarding the domestic retail power market, Mr. Evangelos Mytilineos while speaking to analysts noted that even though the shares of alternative suppliers individuals is small, the growth rate is remarkable and it is anticipated to be emphasized by part of the group during the rest of the year. “We seriously considered entering the retail market, but once we made up our minds about it, the entire group is behind Protergia and supports it” he stated. At the same time, Mr. Mytilineos has advocated the private partnership model with the PPC regarding the exploitations of electricity generation units, announcing indeed the group’s interest for such a cooperation. While talking to reporters on the sidelines of the shareholders’ general meeting, Mr. Mytilineos described the model of partnerships between the PPC-and individuals much better than that of “the Small PPC” and estimated that the market could actually “support” up to three such partnerships also including the PUBLIC POWER CORPORATION. Mr. Mytilineos expressed a general support towards the PPC and pointed out

that the relations in terms of negotiations with “Aluminion” on the price of electricity have improved and clearly appeared optimistic on the signing of the agreement since, as he said, Aluminion is the most important client for the PPC.

METKA’s unexecuted balance now stands at 1.2 billion Euros and has increased by 170 million Euros with the project in Ghana “The PPC should be saved at all costs and the political leadership should support the issue of arrears’ settlement, which is causing suffocation”, he stated, pointing out that the PPC “is paying for” the logic of the “I don’t pay” movement. As regards the IPTO, he noted that it could be sold, while maintaining the

state control over the networks in order to support the PPC. Besides, while speaking at the group’s general shareholders meeting, Mr. Mytilineos after describing the fluid economic situation in the previous year, the multiple political developments and international problems in the commodities market, said that the group’s management did everything humanly possible to struggle all the above, resulting in a turnover of 1.4 billion Euros and one of the largest profitability in Greece. He also condemned the fact of the non-payment of the CAC’s (Capacity Availability Certificate) in 2015 and the delay in the current year, was a sad event that struck private electricity producers, who have invested. The amount of CAC’s for the group is about 38 million Euros for one year. Lastly, when he was asked about whether there are thoughts of changing the group’s seat, said that the group believes, remains and still struggles in Greece against bureaucracy.

Oil & gas Yiannis Pispirigos

17 44

EBRD BACKS ENERGEAN’S INVESTMENT PLAN Energean Oil & Gas, backed by a financing agreement reached with the European Bank for Reconstruction and Development (EBRD), is planning to submit an investment plan to the energy ministry for the development of its “Epsilon” offshore oil field, a source of considerable oil-producing potential, in the Gulf of Kavala.

The move to be taken by Energean Oil & Gas is intended to initiate permit issuance procedures for the exploration and exploitation of the oil field in northern Greece, as the project will require the construction of a new platform, the first to be developed in Greece since 1977. The investment at the “Epsilon” oil field, which holds half of the 30 million barrels of proven reserves in the Gulf of Kavala, according to research conducted by the independent oil and gas reservoir evaluation firm ERC Equipose, is worth 110 million dollars.

began producing. The company has planned to perform a total of 15 drilling projects in the area, seven of which will be staged at Prinos. Energean expects its production to exceed 5,000 bpd (barrels per day) once these seven drilling efforts have been conducted. As for the remaining eight drilling projects, seven will be conducted at the “Epsilon” oil and at Prinos North.

Total production goal

Approximately 50 million dollars will be required to cover the cost of installing the offshore rig at “Epsilon” and pipelines for the connection with Energean’s offshore Prinos facility, while roughly 60 million dollars will cover seven scheduled drilling projects. According to Energean’s schedule, the “Epsilon” oil field may begin producing in the third quarter of 2017.

Once all 15 drilling projects have been completed by Energean’s companyowned drilling barge, it is estimated that the project’s total production may reach 10,000 bpd. Energean also plans to submit a development plan for its Katakolo offshore license in western Greece this coming summer. The company will offer a presentation of the project, at a one-day conference in Pirgos, organized by regional chambers of commerce and industry. Officials believe the Katakolo licence can begin producing by next winter.

Energean is currently conducting the most extensive research program in the Gulf of Kavala since 1981, when Prinos

It was also announced that the EBRD will extend financing worth 75 million dollars to Energean as support for the

James Efstathiou


New Exploration Director Mr. James Efstathiou joins Energy Oil & Gas as its new Exploration Director.

company’s activities in the Gulf of Kavala, an investment budgeted at 200 million dollars in total.

Energean’s competitive edge

The EBRD loan to Energean is the first to be extended by the bank for investments concerning Greece’s energy

sector, which indicates its interest to enter the field. Energean’s extensive research and resulting data, promising both proven and probable reserves, was a key factor in EBRD’s decision to approve the loan.

Prior to Mubadala, Mr. Efstathiou worked with Statoil in UAE (2008-2012) as Middle East New Venture Manager responsible for all exploration and development projects in the region.

More than 4,000 barrels/day Production from the Prinos and Prinos North oil fields offshore northeast Greece has doubled to more than 4,000 b/d, according to operator Energean Oil & Gas. This follows drilling and completion of wells PA-35A and PA-40 and interventions conducted in producing wells. PA-40 was the second of 15 planned wells to develop the 30 MMbbl of 2P reserves in the Prinos, “Epsilon”, and Prinos North oil fields in the Gulf of Kavala. Furthermore, the company is looking to apply EOR/IOR techniques to improve recovery – currently 40% – from Prinos with a view to increasing recoverable resources by around 60 MMbbl of oil.

Mr. Efstathiou is a seasoned Geoscientist with 35 years of oil industry experience, previously working as Global Exploration Manager (2014-2016) and Exploration Manager (2012-2014) at Mubadala Petroleum, responsible for all captured assets and Exploration New Ventures.

Chairman and CEO Mr. Mathios Rigas said: “We are continuing to invest despite the negative climate in the industry. Prinos is a 300-MMbbl asset that still has a lot of potential as proven by the success of our first two wells. The fact that we control infrastructure that can handle up to 30,000 b/d and we own and operate the drilling rig and support equipment provides Energean a very low breakeven cost base and tremendous operating leverage. In addition, the new 3D we shot in 2015 has shown further potential that we will be exploring in the coming years.”

He also worked with Statoil Hydro (2007-2008, as Middle East explorationist responsible for Iraq G&G, licensing rounds and farm-in / farm-out opportunities) and Norsk Hydro (1993-2007 as Senior Geophysicist offshore West Africa, Chief Geophysicist working in Brazil and Gulf of Mexico, Manager of Global Volume and Risk Group, and, finally, as Subsurface Manager). During 1983-1993, Mr. James Efstathiou worked as a Geophysicist with BP (London, Holland, Glasgow) after having started his professional career working as a secondee to Saudi Aramco in London. He holds a BSc (Hons) in Geophysical Science from the Southampton University.

Oil and gas

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GREEK SHIP-OWNERS PUT SAIL TO ALTERNATIVE FUELS Greek ship-owners are at the forefront in adopting alternative energy sources for their fleets, with an increasing proportion of them expressing their commitment to transition to LNG in practice, once the institutional framework is finalized.

The Community Directive on the gradual reduction of sulfur content of shipping fuels (low sulfur diesel fuel), from 3.5% today to 0.5% in January 2020, will inevitably lead many ship-owners, including those of cabotage, to select equivalent compliance methods such as exhaust gas cleaning systems (catalysts) or liquefied natural gas engines. According to propulsion system manufacturers and classification societies, which were among the 1,850 exhibitors this week in Athens for the Posidonia 2016 exhibition, the volatility of oil prices, the constantly changing regulatory environment and the anticipated large increase of the maritime transportation activity, are factors that are likely to determine the future energy requirements for the maritime industry. “Regardless of which geopolitical scenario will prevail, the global capacity is expected to double by 2030 due to the constant growth of the middle class in India and China”, said Nick Brown, Marine Director of Lloyd’s Register Marine, one of the leading classification societies.

G. Teriakidis: Appropriate legislative framework

In order to develop the use of LNG (liquefied gas) as a shipping fuel in our country, the state should create an appropriate legislative framework, setting out the conditions for the storage and supply of LNG to ships, said the regional business development manager of the Norwegian classification society DNV, George Teriakidis to the ANA-MPA, during the shipping exhibition Posidonia. The liquefied gas has also the potential to be used for other purposes (electricity, businesses, hotels). At the moment, many European research programs based on scientific studies are ongoing, which when completed will provide enough information for the implementation of the specific action in our country, adds Mr. Teriakidis. In Norway, 63 ships - including passenger ferries – are fueled with LNG, while another 50 are being built and expected to be delivered by 2018. “According to studies we have carried out, the use of fuel oil will continue to be


the primary fuel for the shipping industry. However, there will be an increase in the diversification of the fuel mixture – with liquefied natural gas (LNG) that is anticipated to represent up to 11% of the offshore marine fuel. Two other key issues that, if resolved, will lead to the adoption of alternative fuels, are the following: Firstly, the legal framework, meaning the compliance with the new regulatory requirements and the resolution of environmental issues, and secondly the availability of oil at the right cost and safely”, he added.

participates in initiatives to expand the use of natural gas in shipping.

“We are working with designers, shipowners and equipment manufacturers, in order to ensure that the specific projects they have undertaken will examine all different alternatives such as, among others, LNG as a viable alternative for the shipping trade and in enclosed seas such as the Baltic or Mediterranean”, said Mr. Brown.

This is a European design program of the legal framework and conditions for the use of LNG as a marine fuel in the eastern Mediterranean. Through the design of targeted and sustainable infrastructures, the program contributes to the development of the supply chain with LNG. It is thus anticipated to activate the LNG demand for marine use in order to meet modern international environmental requirements.

Initiatives and investments

Thanks to DEPA’s development policy gas has become easily accessible to businesses, industries, households, institutions and services. The company

The POSEIDON MED II linked to the company’s broader strategy for the development of a small scale LNG supply chain (Small Scale LNG). The goal is to enable the supply of NG to remote regions, including the islands. The aim is to also promote the availability of LNG as a marine fuel in the Mediterranean region, and other unconventional uses of LNG such as its use as road fuel.

The POSEIDON MED II is co-financed by the “Connecting Europe” mechanism and will last five years. It is an

international project involving 26 partners from three Member States (Greece, Italy, Cyprus) and the ultimate goal of the project is the availability of LNG in five main ports (Piraeus, Patras, Heraklion, Igoumenitsa, Limassol).

D. Antonopoulos: LNG will prove to be an economical alternative Mr. Dionysios Antonopoulos, Director General of Marine Solutions for Wartsila,

The Community Directive on the gradual reduction of sulfur content of shipping fuels will inevitably lead many shipowners to select equivalent compliance methods


Increasing demand for engines that run on alternative fuels Engine manufacturers that are participating in this year’s Posidonia exhibition seem to agree that the demand for engines that run on alternative fuels is increasing. Michael Jeppesen, a mechanical engineer at MAN Diesel & Turbo, a leading manufacturing company of propulsion systems for ships, said that LNG is emerging slowly but steadily. “The infrastructure has improved significantly, the global network of refueling stations is spreading rapidly and the oil companies finally see the sustainability market prospect of alternative fuels in the shipping industry”, said Mr. Jeppesen. “These positive developments have stimulated the interest of shipowners, which is now more open to the idea of adopting alternative fuel as a main driving power source of their fleets. We currently have 150 engine orders for two-stroke engines that run on alternative fuels. These are mainly from Greek ship-owners and concern LNG tanker fleets, which are two-thirds of the new orders,

and container ships, which are the remaining third respectively. We have also developed the basic concept of designing new types of propulsion systems that will work with other types of fuel such as methanol, LPG and ethane, while we are already working in order to deliver nine engines that run on methanol and five on ethane. 10% of our total orders, concerning orders for ships that run on nonfossil fuels, Mr. Jeppesen added. There are currently approximately 500 ships powered by LNG – basically LNG tankers that use their own load to meet their energy needs – and a few dozen other ship types which have undergone special conversion to use this fuel in their propulsion systems. However, according to Mr. Jeppesen if the infrastructure development continues at the same rate, it is estimated that within the next decade, the proportion of conventional and new fuels, mainly liquefied natural gas and liquefied petroleum gas, will be equally shared.

another leading manufacturers of propulsion systems, is on the same wavelength saying that LNG is the future. “LNG is the most environmentally friendly fuel compared to conventional fuel oils, and together with the revolution of extracting gas from shale rock, it seems that it will prove to be an economical alternative. Wartsila has dealt with the development of dual fuel engines early on, and we believe that the additional capital expenditures required for the conversion of conventional fuel tanks to LNG, will easily offset by the most competitive price of LNG. We have 1,500 two fuel engines with more than 16 million accumulated operating hours in all activity sectors including LNG tankers, merchant vessels and offshore installations. This trend appears as to ongo. We are therefore very optimistic regarding the use of LNG in the cruising industry, which has increased its investments in this shipbuilding sector”.

Renewables Penelope Mitroulia


NEW INSTITUTIONAL FRAMEWORK FOR RES IN GREECE Changing the institutional framework regarding the operation of renewable energy in the country is a Memorandum obligation and further to several months of delay - and as the market is in a state of hibernation - it appears to be finally adopted in July and will take effect from September.

The Ministry of Energy and Environment is seeking to form a rational energy pay system produced from renewable sources, with a view to the end of 2017 to have a zero deficit of the specific RES account. At the same time, the political leadership of the ministry, has turned its interest towards renewable energy sources’ technologies that have not yet been sufficiently developed, such as geothermal, and wants to increase the total installed capacity of RES by 2,5 GW by 2020. However, the market is currently in hibernation mode, while the special RES’s account deficit is increasing. The new institutional framework will support investments in renewables through a remuneration system that will arise through competitive procedures and not the administrative appointment, as it is done today. In particular, it provides for the abolition of guaranteed prices and fees based on the wholesale price of electricity (System Marginal Price – SMP) plus a premium to be determined depending on the type, technology, return on the invested capital and whether bank lending has been received or not.

All new electricity generation projects from RES that sign a Purchase Agreement after 1st January 2016 fall under the new system. However at a first phase, facilities with a capacity of up to 500kW for all RES technologies other than wind and up to 3MW for wind, could be included in the fixed guaranteed price scheme (Feed in Tariff). Another important innovation of the new system is that at least for solar, the new capacity will be installed after a competition process. Specifically, the new solar modules, larger than an installed power limit, the shape of competitive bidding procedures will apply universally with the legislative implementation of the new scheme. At an early stage, however, and in order to evaluate the new procedure, although originally scheduled to take place in June, the pilot tender bidding for at least 5% of the estimated new installed capacity RES units for the period 20152016 will be held in September. Latest reports indicate that in this first contest for new power from solar panels, 50 MW will be offered. The bidding process will



be “broken” into two parts, that is 35 MW will concern photovoltaics of over 1 MW, while the 15 MW photovoltaics from 500 KW to 1 MW. The desire of the political leadership of the ministry is both to encourage the strengthening of small projects, and simultaneously to enhance investments in new photovoltaic power. According to information, the highest tender prices are expected to reach near 105 Euros / MWh for projects of 500 KW to 1 MW and about 95 Euros for the larger ones. The opportunity to return the letter of guarantee for investors who do not manage to win the contest is also foreseen.

The fees

More specifically the new support scheme for energy production from renewables, is based on the development of a new mechanism supporting the operation of these units (operating aid). This mechanism provides a premium, in addition to the price as it is formed on the wholesale electricity market. This increase will be guaranteed for the period of validity of the support of each RES unit, in terms of technology and will have the form of

a differential value (Feed in Premium), whereas revenue from participation in the electricity market will be taken into consideration. This means that the form of floating increase in RES technology level (sliding premium) is adopted and not that of a steady accretion (fixed premium).

At least 5% of the estimated new installed capacity RES units for the period 2015-2016 will be held in September Also, for the calculation of the operating aid, the total levelized costs of producing energy (TLCPE) from this technology must first be determined, in the calculation of which the fair return on capital is taken into consideration. The Levelized Cost will be exported

from specific formulas (equations) for investments made with and without bank lending respectively. Finally it is noted that the NonInterconnected Islands, the RES producers will be compensated with the system of fixed prices, as a daily market does not operate, to form the wholesale price.

OEM (Operator of the Electricity Market) Data on new RES and deficit In the meanwhile, the increase in the specific RES account deficit continued in the first quarter of 2016, while at the same time the installed capacity of all renewable energy technologies remains stable. It is characteristic that in March the special account deficit increased to 58.11 million Euros, against a deficit of 45.03 million in February and 43,41 million in January. In fact, the OEM (ΛΑΓΗΕ) foresees that the 2016 deficit will reach 249.30 million Euros. Similar is the image of the special RES account for 20172018 as well. As predicted by OEM, 2017 will begin with a deficit of 221.22 million, to close the year at 384.87 million Euros, against the balancing of the account requested by the Memorandum.


As for the installation of new RES units according to data of the OEM no RES technology increased the power from

Regarding high temperature geothermal, Mr. Verroiopoulos noted that there is no need to change the legal framework, but trust with local communities must be built and the development of the potential of exploiting this form of renewable energy must be enhanced

the beginning of 2016. So the wind producing units remain at 2.180 MW, the F/V’s at 2.229 MW, the roof F/V’s at 374 MW, small hydropower at 224 MW, the biomass/biogas plants at 52 MW and the cogeneration at 230 MW.

Changing the institutional framework for geothermal energy Alongside the above, the Ministry of Environment and Energy plans to shift to renewable energy technologies that are not sufficiently developed and aims to create a new institutional framework for geothermal energy. Ongoing changes consist of how to exploit lowtemperature geothermal fields. The General Secretary of Energy Mr. Michalis Verroiopoulos recently referred to the issue noting that the aim of the ministry is to enhance the production and distribution of thermal energy from RES through the new investment law. Indeed he emphasized that unlike the past that the aid went to photovoltaic and wind farms now the resources are directed mainly to RES such as geothermal, which result in higher leverage local scale productive activities. Mr. Verroiopoulos announced the amendment of Law. 3175/2003

concerning the geothermal energy in areas such as: • Categorization of the geothermal potential where the scale to which it refers (national or local) will be taken into account. • The simplification of licensing procedures in low temperature geothermal fields on the basis of specific rules and limits. • The introduction of flexible procedures that liberalize the geothermal potential to local producing capacity. • The decentralized management of geothermal fields with the support of the IGME and the country’s Universities Regarding high temperature geothermal, Mr. Verroiopoulos noted that there is no need to change the legal framework, but trust with local communities must be built and the development of the potential of exploiting this form of renewable energy must be enhanced. “We believe, Mr. Verroiopoulos concluded, that a first successful example through a possible cooperation of the PPC with experienced companies from countries where geothermal energy is developed will act as a catalyst for investment in all our geothermal fields”.

Overview Andrei Covatariu and Radu Rauta*



AND ROMANIA’S DISTRIBUTION NETWORK “Natural monopolies” made the subject of numerous academic analyses, with numerous scholarly perspectives touching upon the subject. Policy makers have also been concerned with this issue, especially to optimally organize critical industries. In Romania, a number of industrial sectors that serve the public interest are strictly regulated – natural gas, railroad or electricity systems, to name a few. As such, for the local energy sector, and particularly for electricity, the transmission and distribution services are regulated as “natural monopolies”. Conceptually, this is explained through reasons of public interest: assuming a context of fragile and inefficient markets, the regulatory body represents society’s interest. In this approach, natural monopolies, as single suppliers, are seen as lowering product costs. In other words, a company that is alone in a sector can focus its investment on the long term, which will lower the costs, while competition in such a sector would generate wasteful investment.

Simply put, “in some industries, average costs are minimized when production is concentrated within a single firm”.

they are regulated by us to protect consumers from potential abuse of power monopoly” (OFGEM).

Academically, natural monopolies are analyzed as excludable but not rival goods. The underlying logic is that without competition only one competitor would survive and thus generate a monopoly over that particular good. Furthermore, the state regulates the existence of natural monopolies in order to prevent private entities from going into limiting supply under the incentive of charging a price that is much higher than its costs.

Expanding on the above mentioned reasons, it is worth looking into them in further detail from the perspective of the energy system. Under the assumption of a parallel electrical grid for distribution or transport, customers’ bills will not be lowered – on the contrary. If two high-cost investments, the old and the new distribution systems, are to be split between fewer paying customers per system (some may choose to remain with the former distributor, while others may switch to the new one), both bills will increase dramatically.

In the particular case, where privately owned companies were granted specific licenses to operate a distribution network, this is legally defined as a public franchise: “a right granted to a firm by a government that allowa the firm to provide a particular good or service and that excludes all others from doing the same”.

Energy distribution as a natural monopoly “Since the DNOs are natural monopolies,

Firstly, a distribution operator develops and maintains the equipment that transforms the power supply to the type that meets customers’ needs. Secondly, the distribution operator meters the amount of energy the customer uses. For all these activities, the national regulator sets the price through specific orders, with distribution costs accounting to about 30% of the bill. Thirdly, distribution operators make a long-term, strategic


investment commitment when bidding for distribution licenses, investments that are monitored annually. To avoid monopolistic behavior, industries such as energy distribution are highly regulated, so as to maintain a balance between the incentives granted to DSOs for efficiency and the costs reduction for customers. In order to do that, the regulator must fully understand the DSOs’ costs, their structure and the mechanisms attached to this business. The highly regulated environment is, basically, an economic instrument that can generate “quasi-competition” in regional natural monopolies, to determine them to aim for efficiency and quality. To sum up, the main arguments why competition in the energy sector is only possible in the generation and supply segments of the value chain, and not in transmission and distribution ones (which continue to remain regulated) are the following: • Efficiency – Two or more electrical grids will be less efficient than having just one, mostly due to high upfront costs, this being the reason why no significant case of such competition has been recorded in the industrialized world. Competition drives prices down in any market, except for those that are defined as “natural monopolies.” For this precise reason, these activities are fully regulated and government authorities establish the incentives for an efficient operation. • Public service – A natural monopoly in this sector comes with high obligations

and requirements. Since the distribution of electricity is a public service, it is mandatory for this service to be available to virtually all those who need it. Therefore, a distribution operator cannot choose between a customer in a densely populated city, for which costs of maintenance are low and consumption is high, and one that lives in a remote area, and whom it makes little business sense to serve. Thus, cherry-picking the regions in which it is profitable to provide the distribution service is neither desirable, nor sustainable from an economic and social point of view. • Affordability – If investments are made to duplicate grids, consumers will ultimately pay more for the same service. In Romania, the cost of energy (electricity or gas) represents a high share of people’s income. This renders such investments neither affordable, nor reasonable for consumers. Moreover, if an alternative distribution service can, indeed, be provided at lower costs to customers in densely populated areas, it means that investments already in place, made by the incumbent distribution operator, will have to be borne by those clients that are more disadvantaged, thus increasing inequity. • Technology – The world is changing at a fast pace, set by the technological evolution. Not far from now the role of distribution will change dramatically. The new trends involving digital networks (smart grids, prosumers, storage etc.) or other disruptive technologies are part of the Energy Union’s agenda. These are the main objectives that the authorities have

to promote and incentivize, and they require major investments. Thus, resources should be well directed towards the modernization of existing grids which, in conjunction with smart and rigorous regulation, can ensure a smooth transition to the new energy model. • Reliability – When the privatization of distribution systems took place, the criteria for choosing the right companies were set by the Government, so as to ensure a high degree of reliability. Electricity distribution and transportation require advanced technical specialization for efficient operation, while maintaining a high standard of safety. This is the reason why reputable international companies did join the tender auction for regional distribution systems, as well as the reason why this sector should continue to be highly regulated, ensuring an adequate level of specialization. As a conclusion, we could suggest that taking into consideration the aforementioned issues regarding efficiency, affordability, reliability, analyzing the technological progress, and also considering the need to avoid cherry-picking practices when it comes to electrical networks, the construction of parallel grids in the energy sector is not at all an efficient and productive scenario.

* Andrei Covatariu is Affiliated Expert EPG and Radu Rauta, Public Affairs Consultant, Serban & Musneci Associates

Legal insight Loredana Mihailescu*

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THE (IN)EFFICIENCY OF THE ROMANIAN ELECTRICITY GRIDS The cost of the electricity for the end-consumer has been a hot topic on the agenda given that Europe is more costly than North America and not investor friendly. In Romania, the topic is populist as the cost of electricity, although not as high as in Western countries.

In Romania, the cost of electricity weighs a lot on the budget of end-consumers especially low income household consumers. The majority of such cost is due partially to the grid losses as well as the bad management of the old inefficient power generation systems. According to the report of the Romanian Court of Accounts published on April 20th 2016 regarding an audit conducted on the electricity market for the period of 2010-2014 (the “Report”), during 2010 – 2014, the average of the losses recorded in the electricity transportation and distribution networks was of 7.8 TWh/year, which generated estimated costs of EUR 1,880,930 thousands for the transportation and distribution operators. The value of the grid losses caused the increase in the distribution and transportation tariffs. For example, the average annually electricity distribution tariff approved by the ANRE increased by 17.12% from 2008 to 2014 (i.e. RON 169,97/MWh in 2008 compared to RON 199,07/MWh in 2014) while the major distribution operators obtained profit rates between 15% and 25% in 2013.

The Romanian System and Transport Operator (“Transelectrica”) administrates 8.761,82 km overhead electric lines, 81 electric substations and transformer units, representing the national transmission system. The electricity lines and substations were built over 40 years ago, in most cases using the equipment available in the period 1960 – 1980 and and the level of grid losses is quite high; therefore there is an urgent need for investment. During 2010-2014, only 2.42 km from the total of 8.761,82 km of overhead electricity lines were refurbished (representing 0.03% of the total electric lines), only 8 electric substations were refurbished (9.87% from the total of 81 electric substations) and no new electric substations were build. The number of incidents increased from 59 in 2005 to 72 in 2012. The same Report acknowledges that the value of the investments performed by Transelectrica in 2011 and 2012 decrease as follows: i) in 2011 the value of the proposed investments was of RON 394,098 thousands,


but only RON 206,481 thousands were performed and accepted by the National Energy Regulatory Authority (“ANRE”) (resulting an execution rate of 52%); and ii) in 2012 the value of the proposed investments was of RON 380,513 thousands, but only RON 87,650 thousands were performed and accepted by ANRE (resulting an execution rate of 23%). The same problems have also been acknowledged for the distribution sector where due to lack of investments the grid losses have increased: during 2010 – 2013, the electricity distribution grids registered losses estimated to EUR 1,301,680 thousands, caused mainly by the precarious state of these grids, which requires investments. However, the value of investment in the distribution grid decreased by 43% in 2013 (EUR 211,441 thousands) compared to 2011 (EUR 371,408 thousands). Both Transelectrica and the distribution grids operators are incentivized to make investments in the grids they operate and the depreciation of such investments is recognized as a cost element in the formula for establishing their regulated tariffs by ANRE. Therefore, the operators usually report quire high investments which as a rule have been taken into account by ANRE as a cost element (i.e. depreciation) in establishing the tariffs. If such investments were made, normally the grid losses should have decreased. However, the Report states that the grid losses became higher and higher

every year. For example during 2010 – 2013, the electricity distribution grids registered losses estimated to EUR 1.301.680 thousands, caused mainly by the precarious state of these grids. However ANRE accepted in the distribution tariff (as cost) losses amounting to EUR 1,069,180 thousands, which means that such losses, were covered in proportion of 82% by the distribution tariff (component of the electricity invoice paid by the consumers). In the case of the transportation grid, the losses decreased by 14.95% during 2010 – 2012, but increased by 7.69% in 2013 (1031.7 GWh in 2013 compared to 1.018 GWh in 2012). Consequently the consumers finally covered the losses of the grids, as well as the depreciation of the investments

The electricity lines and substations were built over 40 years ago, in most cases using the equipment available in the period 1960 – 1980

made in the grid to cover such losses, investments which proved to be inefficient. In addition to the transmission and distribution tariffs the auxiliary services also have their weight on the invoice paid by the end-consumer. While the market for such services should in theory be competitive and the prices shall be a result of market offer and demand, the State has frequently interfered by means of legislation granting guarantee access to the grid (i.e. production at full capacity although inefficient cost wise) or the facility to sell auxiliary service to Transelectrica at fixed prices in favour of conventional (coal fuelled) state owned power plants. Such “intrusions” by part of the state have caused additional burden to the end-consumer invoice, which is covering the losses of an inefficient and poorly managed coal mining industry. In order to be cost effective whether for the purpose of reducing the cost of household end –consumers or attracting foreign investments an in-depth analysis of the sector has to be undertaken and only real investments in the grid efficiency have to be incentives by part of the ANRE. Moreover, the inefficient capacities should be supported by investments in upgrades not by intrusion of the State on a free market that is supposed to operate based on market offer and demand.

* Loredana Mihailescu is partner in CMS law office, with expertise in energy issues.

Legal insight Kostadin Sirleshtov

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THE FUTURE OF NUCLEAR ENERGY IN CENTRAL AND EASTERN EUROPE There has hardly been any participant in projects related to nuclear energy in Central and Eastern Europe over the past 10-15 years who is was not disappointed with what has been achieved. Countries like Bulgaria, Romania, the Czech Republic and others started and terminated several nuclear power projects losing billions as a result. Successful projects are just a limited number and failures are indeed indicating the difficulties that the industry is about to face.

Today, especially after the COP21 Agreement reached in Paris and the success of the United Kingdom in structuring of long-term project financing of carbon-free projects in accordance with the requirements of the European legislation, the countries of Central and Eastern Europe almost with no exception are once again looking at nuclear energy as the main long-term source of CO2free electricity. Unfortunately, the failures during the past years were predictable in most cases. The successful financing of projects for new nuclear capacities, even those related to the extension of the lifetime and to increase the electrical performance of existing reactors depend on a number of conditions and national support and pride are only necessary but not a sufficient precondition for this. It is important to bear in mind that in a liberalized electricity market the possibility of successfully structuring the financing of a project to build a new nuclear power is practically not available. Today reactors under construction around the world range between 60 and 70, where only 1-2 of them are built in

a liberalized environment, and moreover - with numerous difficulties on the way. The very fact that after 30 years the construction, of new capacities in the United States started only recently and some of the older reactors should stop production of electricity clearly shows the huge challenges the sector is facing. Central and Eastern Europe has enormous experience in the field of nuclear energy, unlike other regions of the world who have recently looked at that option. There is almost no major country in our region without a functioning nuclear plant with the sole exception of Poland. It is sufficient, though, to name the failed projects in the recent years - for the terminated construction of NPP Belene, the expired Shareholders Agreement for unit 7 of NPP Kozloduy, the delayed and restructured completion of units No 3 and 4 of NPP Cherna voda in Romania, the terminated tender for the selection of contractor for units No 3 and 4 of NPP Temelin in the Czech Republic and others, to conclude that the experience gained in the region regarding the operation of nuclear power plants does


not directly lead to success in structuring and building new capacities. Hereinafter I would like to point out a few approaches that could be used in the decision making process related to starting nuclear projects in Central and Eastern Europe aiming at increasing the chances for successful realization of the projects.

The feasible projects

Before the countries of Central and Eastern Europe begin to think about starting the structuring of projects to build new units, which as it became clear, is virtually impossible in the current state of the liberalized market, they should focus on efforts to extend the lifetime and increase the production of energy from existing units and these on their own are projects with huge challenges. The presence of national consensus concerning the activities of life extension of units No 5 and 6 of NPP Kozloduy practically create the prerequisites for Bulgaria to continue to be a country developing nuclear energy. Such projects should be supplemented with related activities to

increase energy production, where in the case of units No 5 and 6 of NPP Kozloduy this is possible and should be carried out in parallel with the work on the main project. The detailed feasibility study as conducted jointly by Toshiba Corporation and the Bulgarian Energy

New built projects in Central and Eastern Europe should not go into investment phase before the practical structuring and the investment decision of Hinkley point C project in the United Kingdom

Holding / NPP Kozloduy has shown that the increase in units No 5 and 6 in NPP Kozloduy with additional 200 MW has an unprecedented rate of return, which after decades could lay the financial foundation for the eventual construction of a new nuclear unit. The feasibility study shows that the clear and direct profit for the state-owned NPP Kozloduy at the current prices of the electricity prices could reach 2 billion Euros. Furthermore, any alternative projects for partial rehabilitation of these units are indeed loss-making and therefore the project is the only feasible alternative for the Bulgarian Government. Similarly, and in parallel with the desire of Romania to continue with the completion of units No 3 and 4 of NPP Cherna voda, the Government of the country should focus its efforts also towards the direction of extending the lifetime of unit No 1. This facility started its operations some 20 years ago and certainly (based on the similar experience with heavy water reactors in Canada and in South Korea) it could continue its operations with additional 20 years following the necessary technical upgrade.


In this sense, the largest market for projects to extend lifetime and increase the energy produced by the existing units is expected to be in Ukraine. With 15 Russian VVER reactors, where most of them were set into operation in the ‘80s, Ukraine should abandon its unrealistic plans for 11 new reactors by 2030 and focus its efforts on structuring projects aimed at maintaining existing capacities. In Central and Eastern Europe alone, there has been quite some experience in extending of the lifetime of Russian design reactors, which could be easily adopted by Ukraine. In practice, the program to extend the lifetime of the four nuclear units at NPP Paksh Hungary is in its final phase of completion, which proves once again that in the next ten years the countries of Central and Eastern Europe should focus their efforts on projects for extending the lifetime and increasing of energy production from the existing units. The nuclear energy in liberalized markets makes it a must for all Governments to focus on the feasible projects for the extension of the lifetime in contrast to the new built ideas, which are impossible to finance at this point of time. By means of the Electricity market reform (‘EMR’) and by the idea of Contracts for differences (‘CfD’) and the price after which the investment can be made (“strike price”), which was approved by the European Commission with corresponding improvements and additions, the United Kingdom actually drew a successful, albeit extremely difficult model for the realization of projects for new nuclear power plants

in the EU. If any structure will mark a success in financing newly built nuclear projects in Europe, it will be the strike price introduced by the CfD under the EMR. In the event that an investment decision in respect of several new plants in the United Kingdom and particularly the first one - Hinkley Point C - would be made and successful construction of the plants would begin, I expect the project for the construction of new plant in Poland to start developing most rapidly. Although the support for the project in the country currently is not unconditional, the structure of energy in Poland and the huge dependence on coal combined with the lack of success in studies of unconventional gas blocks, as well as with domestic demand, determine the eventual success of the project. The company which currently operates the engineer activities of the project owner in Poland (AMEC Foster Wheeler) is at the core of the nuclear program in the United Kingdom and with no doubt it shall implement these best practices in Central and Eastern Europe where this is a fact that should not be underestimated. Furthermore, Poland is unlikely to follow in the footsteps of some other countries in Central and Eastern Europe, where the Governments held tenders where the preferred technology has been pre-determined. Furthermore, the combination of the necessity for security of the electricity supply of the country, combined with the limited CO2-neutral options of the country, determine the potential of such project developing successfully in the future.

Another project that in likely to have future in its current structure and in the presence of European Union precedent is that of the completion of units No3 and 4 of NPP Cherna voda. In the last couple of years Romania did not stay aside the megalomaniac ambitions of other countries in the region and announced plans to construct a new plant in Transylvania (based on a different – pressurized water reactor – technology), although the construction of units 3-5 of NPP Cherna voda is still not complete, despite of the already started construction and the lower initial investment costs of the heavy water reactor technology. Despite being the only country in Europe that invests in the heavy water reactor nuclear technology, which is not particularly popular, by the conclusion of the agreement with China General Nuclear Power (CGN) under which the Chinese company with experience in this technology shall have 51% of the project, the project received a new push. It is very important to emphasize that the new units shall be constructed on the basis of existing, albeit old technology and that the initial investment costs of this technology are significantly lower compared to the ones, which are popular throughout Europe. This, combined with a solid international investor, eliminates several significant obstacles and risks for the project and makes it one of the possible projects that shall develop in the coming years.

The new units of NPP paks in Hungary – the big gamble Unlike Bulgaria, which did not go to the


end in terms of NPP Belene and did not accept the package deal including funding from Russia, Hungary signed a secret contract for financing and construction of the new units Νο 5 and 6 at NPP Paks with Russia. Even in countries with no liberalization of their electricity markets, with increasing demand and high energy prices such transactions are not always successful as evident by the deadlock in the implementation of the NPP Akkuyu in Turkey. On the other hand, Hungary is a country with experience in nuclear energy; it operates substantially the same reactors and has nearly unprecedented public support for nuclear energy. Evident of the initial reactions of the European Commission, which opposed the lack of an alternative to the supply of nuclear fuel and the subsequent start of the procedure in assessing the compatibility of the implementation of the selection process with public procurement rules in the EU, the future of the project is unclear. The deadline for the realization of any nuclear project has an extremely important role in its success given the huge capital costs during design and construction, so my prediction about the future of the project for the construction of new units №5 and 6 NPP Paks in Hungary is that similarly to the South stream project, the legal requirements standing prior its implementation shall fall into a strong contrast to its financial framework and

it shall not be implemented in its current form. It shouldn’t be underestimated that in these days of low oil and gas prices, Russia is no longer in a position to offer generous financial packages to projects, which could be ultimately terminated due to the lack of conformity with the EU policies and regulations.

The units Νο 3 and 4 of NPP Mochovce in Slovakia I had the pleasure to be invited to speak at a nuclear new built conference in London in 2009 where the representatives of the owner of the project for the construction of units Νο 3 and 4 of NPP Mochovce in Slovakia proudly presented a financially optimized theoretical version for the finalization of the project through abandoning the “expensive” idea for using the “turn-key” approach and presenting of a version for management of hundreds separate agreements for completion of the project. The failure of this model was too predictable even back then and it is now an actual fact with delay of more than five years and almost double increased costs. It is indeed essential that Governments and investors throughout Central and Eastern Europe analyse the delayed and terminated projects in the region and to come up with the best practices and the lessons learned.

Conclusions for the next 10 years for nuclear energy projects In order to continue to be a region with

developing nuclear energy in the future, Central and Eastern Europe should learn from the many mistakes made in recent years by individual countries. Above all, the energy of governments and market participants should be focused on extending the lifetime and increasing the electricity produced by the many existing nuclear units, especially in Bulgaria, Ukraine and Romania. If there is a successful funding structure and a money-backed precedent in the EU, there will be an opportunity for a limited number of nuclear projects for new units to be constructed in our region too, possibly in Poland and Romania (units Νο3 and 4 of NPP Cherna voda). After excruciating agony, the project for the construction of units Νο 5 and 6 NPP Paks in Hungary is likely to be terminated and the financial hardships of the unsuccessful projects implemented in the last couple of years shall paralyze to a large extent the large-scale investments in the region which in most cases are led by unjustified ambitions of the separate governments. Inevitably, the country with the strongest fleet of nuclear energy reactors – Ukraine – will need to lead to the right decisions at a Governmental level, where there are already some unrealistic expectations for new built nuclear, where the actual focus should be on the lifetime extension and increase of the electricity output for existing reactors.

Legal insight Dr Lorenc Gordani

23 60

CONSIDERING THE MARKET MODEL AND POWER EXCHANGE FOR ALBANIA What is requested is a more holistic approach in designing and launching the Albanian future energy market, taking the appropriate measures that would guarantee sustainability for the existing investments and would allow their normal operation with a reasonable return of the investments.

The Albanian electricity sector is in its final step towards the development and the approval of the Albanian Market Model (AMM) with the aim of the sector entering into a fully competitive power market in line with the obligations of the Energy Community. The actual AMM is developed according to the requirements of the Energy Community Treaty (EnCT) for the creation of the Regional Market of Electrical Power, as ratified by the Albanian Parliament in 2006. This revise came as part of the reforms taken under the EnCT, to implement the Third Energy Package, as adopted by the Ministerial Council in 2011. Then the country committed to implement a number of short-term goals in the framework of the so-called “Berlin” (Western Balkan 6) process at the Summit in Vienna on 27 August 2015. The present Market Model aims at supporting the implementation of those commitments in the framework of the Power Sector Law and corresonding secondary legislation. The process towards the establishment of an Albanian Power Exchange (APE)

initiative, closely linked to the previous two developments, also requires further alignment of the electrical power market in full compliance with the Energy Community. A new design that is expected to provide a more enduring structure than the previous model. The new model will also allow for further regional integration between Albania and its neighbouring countries. Then the issue of “New Albanian Energy Market Design” has to balance many different interests, amongst others it shall ensure the provision of sustainable, secure, safe and reliable electricity and respect the foreigners and national investments. More specifically, the main concerns focused on the provisions regarding the shift of the support schemes from feed-in to the Contracts for Differences (CfD) and the inclusion as Balance Responsible Parties (BRPs) to the run of rivers renewable energy Producers. In regard, the common policy of the EU and the EnC make aware on the phasing out of feed in tariffs schemes and the intention to make market participants above a threshold BRPs. However, these provisions, clearly reflected in the


European Commission Guidelines ‘On State aid for environmental protection and energy 2014-2020’ (‘Guidelines 2014’), state that the new requirements should not affect the existing support schemes. The ‘Guidelines 2014’ establish that all measures previously undertaken to support renewable energy producers shall be assessed in accordance with the rules in force on the date on which such measures were granted. Therefore, any substantial change to the existing support schemes, including imposing balancing responsibilities, has to be considered as a deep breach of the concessionary agreement, the purchase agreement and renewable energy law in Albania. An intervention that would heavily affect and frustrate investments and commercial operation of existing small hydro-generation projects in Albania, bringing them to default under debt financing agreements or insolvency, especially in the case of energy facilities which have been put into operation or for which a significant part of the construction has been carried out. Instead of having a regard towards

the new installations, the issues of the market design have an overall dimension and need to be considered with a long term and stable mechanism, searching to address first of all, through a predictable regulatory framework as a prerequisite for ensuring low-cost financing for investment in RES-based generation, as it keeps risks to a minimum. In this respect, policies aimed at achieving RES development based solely on market signals should be carefully considered, taking into account the actual level of competitiveness (parity grid) of the RES technologies as well as deployment objectives of the EU policy of 2020 and 2030. The electricity market design performance will encourage the entrance of RES generation into the market. As for the integration of the SHPPs into the market, given their intermittent generation characteristics, this will be achieved when a well-functioning short-term and liquid market will be established. Having short-term electricity markets, is a precondition for the support towards investments in RES-based generation to be increasingly

driven by market signals. Then in the medium/longer-term, the improvement of thr Emission Trading System (ETS) will become the main driver for investments in RES-based generation. In this respect, a full market liberalization and regional integration of RES-based generation is limited by three types of obstacles: a) The lack of a level playing field: some RES technologies cannot bear the same responsibilities as other market participants. In particular, balancing responsibility should apply to the generators in respect to their characteristics (i.e. free run of river SHHP cannot compete with the HPP with reservoir), in order to incentivise all the market participants at an equal level. b) The lack of a functional market: RES-based generation forecasts are only reliable when made very close to realtime. It is, therefore, crucial that RESbased generators can have access once there will be already well-functioning liquid short-term markets in which they can sell their electricity output and

Dr Lorenc Gordani


It requests a more holistic approach in designing and launching the Albanian future energy market, taking the appropriate measures that would guarantee sustainability of the existing investments and would allow their normal operation with a reasonable return of the investments

balance their positions or support the system balancing. c) Financial support must be provided to support RES generators production during the first stage of the return of the investment. This must also be linked to the right of RES for priority dispatch on peak time and the needs to also adjust the other technical problems of the system and its overall efficiency to their absorption. The ways to remove these obstacles and to move towards the full integration of RES generation may include among others: ensure that the balance responsibility applicability takes into consideration the characteristics of each type of generation, maturation of the technology and the market liquidity context of reference; ensure that the short-term markets are efficient and accessible by all types of market participants, and that short-term market gate closures (intraday hub, crossborder intraday, balancing energy bids) are harmonised as close as possible to real time, and all intraday trade (internal and cross-zonal) is harmonised to 15 minutes products; monitor and extent the appropriate financial support scheme in the promotion of RES generation behaviour. However, the above rationale for supporting RES, shall also be kept present, that namely achieving not only 38% of the target but above all to prepare for the upcoming share effort of the EU Policy of 27% in the final energy

consumption by 2030. Hence, making a full integration of RES in the market is at least a mid-term objective for which we must have a caution and progressive exposing of the RES generation to the market signals. In this regard, the latest State Aid Guidelines issued by the European Commission already address the obstacles listed under the points above, requiring to be followed by national enforcement authorities in order to ensure their uniform and homogeneous application. In conclusion, for all the above remarks, it is recommended that the new proposals consider a model that does not affect the provided support schemes but only the new producers. The time limitation of the existing PPAs established in accordance with the applicable legislation and best practice standards, constitutes a droit acquis of the existing small producers. In respect to the above, it requests a more holistic approach in designing and launching the Albanian future energy market, taking the appropriate measures that would guarantee sustainability of the existing investments and would allow their normal operation with a reasonable return of the investments.

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