Publisher: EPG, Energy Policy Group (www.enpg.ro)

Achieving the goal of decarbonizing power production requires established benchmarks, appropriate incentives, and maintaining balance in security in electric power supply and affordability. Romania’s National Recovery and Resilience Plan commits to eliminating coal from the energy grid by the end of 2032. The Energy Policy Group evaluates the governance instruments of Law 334/2022. It identifies potential improvements that could be made to achieve the goal, considering the current coal-fired power capacity in Romania.

Original Executive Summary

Phasing out coal represents a cornerstone of decarbonizing power production. Most European countries have committed to phasing out coal within the next decade, with Romania joining the list this year. This represents a remarkable development given the context in which legislation for retiring Romania’s lignite and hard coal power plants was passed – the fossil gas crisis triggered by Russia spilled over in the entire energy sector, leading to skyrocketing prices. As a response, some EU countries have delayed phaseout plans, which can provide much-needed relief in times of crisis despite the temporary increase in emissions. Nonetheless, it must be understood that such emergency measures are temporary and should not affect the long-term commitments to phase out coal capacities. These developments offer the opportunity to accelerate the deployment of renewable energy to ensure a coal-to-clean transition that would no longer rely on an intermediary transition to gas. The current energy crisis has laid bare the risks associated with the EU’s dependence on fossil gas imports.

In this context, the main challenge is to sustain a coal phaseout that is as swift as possible while also ensuring the security of supply, affordable electricity, and a just transition in coal-dependent regions. A coherent phaseout calendar remains just as necessary for avoiding a disorderly crash of the sector and for allowing sufficient time to build realistic plans for economic redevelopment. Romania did just that by passing legislation to fulfill the commitment in its National Recovery and Resilience Plan to eliminate coal from the electricity mix by the end of 2032. Despite some flaws and being less ambitious than the initial legislative proposal, Law 334/2022 sets a precise coal exit date, includes power plant closure benchmarks, introduces social protection measures, establishes governmental and advisory bodies to manage the implementation process, and sets sanctions for non–compliance with the calendar. Some issues that remain to be addressed are more transparency on how technical reserves will be created and how they will be reimbursed, elaborating more comprehensive just transition measures, better ensuring public participation and adequately enforcing the legislation. The Commission has also approved Romania’s Territorial Just Transition Plans, creating the framework for economically redeveloping coal regions such as Gorj and Hunedoara.

While coal has been a crucial component of Romania’s economic development over the past century, its contribution to the energy mix has declined rapidly over the last decade, given the imperative to reduce GHG emissions and deploy renewable energy sources. Most of the remaining coal-fired power plants are owned by Complexul Energetic Oltenia (CEO), which is restructuring following years of financial difficulties. The company will retire its coal fleet, mainly replacing it with new gas CCGTs and solar PV capacities. Despite experiencing windfall profits in 2022, the CEO will receive (potentially double) subsidies for covering the CO2 costs incurred by the ETS. The plans for the retirement of the other coal capacities in the country similarly revolve around investments in new fossil gas capacities, which raise questions of sustainability and potentially create stranded assets.

Based on an assessment of best practices and other European experiences with phasing out coal, this report highlights the importance of setting into law an ambitious target for a coal exit calendar. Different policy instruments can be used to implement this, such as minimum CO2 price floors or scheduled retirements of individual power plants. The latter is most effective in a country like Romania. Still, it should be further analyzed whether a calendar of decreasing GHG emissions standards for power production could be more suitable for phasing out all fossil fuels from the electricity mix in the long run. Besides, ensuring a just transition from coal does not stop at mitigating the immediate impact on job losses, as it also entails investing in the economic redevelopment of the coal regions. Funding the transition should not stop at accessing European finance – synergies between EU funds and national or private financing streams are also significant. Stakeholder and community engagement also need to be ensured to foster public acceptance.

The governance framework for phasing out coal in Romania can be improved by:

  • Clarifying the issues related to the coal phaseout legislation, such as how technical reserves will be remunerated.
  • Running dedicated modeling for phasing out coal in Romania to understand better the most feasible coal phaseout calendar in the current market conditions and considering the climate ambitions in REPowerEU and the Fit for 55 package.
  • Implementing the polluter pays principle by eliminating subsidies for CO2 costs incurred by coal-fired power plants.
  • Ensuring a coal-to-clean transition based on the urgent deployment of renewable energy sources combined with flexibility technologies such as batteries and other forms of storage.
  • Avoid large-scale investments in oversized fossil gas-fired capacities that risk becoming stranded assets. CCGT projects should be scaled at capacities suitable for a future renewable-dominated electricity mix.
  • Further empowering the Advisory Committee in the decision-making process to increase transparency and public participation in implementing the coal phaseout process.
  • Leveraging all available state aid instruments for attracting key value chains in coal regions, such as batteries, electrolyzers, renewable technologies, and electric vehicles.
  • Considering the creation of a specialized transition institution with dedicated funding and staff that can coordinate the transition process in coal regions, the implementation of the TJTPS, and help better deploy national financial resources in the carbon-intensive areas.
  • Engaging with transnational organizations and coalitions working on global coal phaseout commitments such as the PPCA.

To download the report, please access: https://www.enpg.ro/wp-content/uploads/2022/12/EPG-Report_Coal-phaseout-in-Romania.pdf