Although it has gone through many energy transitions in history – when one energy source was replaced by another due to depletion of resources, the emergence of new technologies or the increase of labor costs – humanity was not yet going to go through an energy paradigm shift at such a high rate as it is now. And here comes a huge problem: energy systems have to be transformed in a very short time, because a broad global consensus has been reached that they have become unsustainable. And this extremely ambitious time target creates a “trilemma” for governments and companies to simultaneously achieve: reducing carbon emissions, maintaining affordability and security of supply. So how can consumers be protected while stimulating large-scale transformations in the way energy is produced and distributed, as well as technological, political, economic, institutional, social and labor market changes through the interrelationships between the energy sector and other areas of human life. activity?

The answer, of course, lies in closer cooperation between industry, governments and other institutions, and this answer must be based on two pillars: regulation and funding, which must keep pace and evolve. The regulatory framework in many countries is not yet well structured to ensure the investments urgently needed for the energy transition. New regulations are needed to address: growing demand for transportation capacity, financing and feasibility of future investment, the permitting process, the sustainability of supply chains, and labor availability.

Realistically, in the short term, it is quite possible that traditional energy sources will be used more to ensure a fair and sustainable energy transition, with the consumer at the center. At the same time, it is obvious that there is no single pace and universal model of transformation of the energy system for all countries. The energy transition should take into account a set of parameters – the level of economic development, energy supply and demand, national security interests and the country’s position in energy trade. National energy strategies and public policies play an important role in the transformation of the energy sector due to its importance to the economic development and security of the country.

Although the need to decarbonize energy, industrial and transport systems is almost unanimous, and governments and companies are planning to transition to zero-emission energy systems, an orderly transition to a new energy paradigm will not be easy, requiring a wide range of energy sources. and technology, infrastructure, storage systems, all scalable and commercially viable. So far, the focus has been on the finality of the energy transition – where energy systems should go: zero emissions – and less on understanding the size of the gap between where we are today and the progress that needs to be made. At this stage, the role of governments and companies is important. Together, they need to find solutions to address the current gaps through regulatory norms and very large sources of funding.

In this context, according to the latest version of the draft energy strategy of Romania for 2022-2030 with a perspective of 2050, which was not adopted, there are only the following options, Romania aims to be an energy supplier state, a factor of energy stability in the southern European region. Renewable energy sources, high energy efficiency, natural gas mixed with hydrogen and nuclear energy will play an important role in the decarbonisation of the national energy sector, and the value of the investments that Romania will be able to make using European funds through the National Recovery and Resilience Plan (PNRR) and through the Fund modernization exceeds 20 billion euros. Investments are aimed at areas such as renewable energy, storage, coal replacement, nuclear power, high-efficiency cogeneration, biofuels, and energy infrastructure modernization. The goal is that by 2032, all power generation using solid fossil sources will be conserved or decommissioned. And the energy transition has an impact not only on energy systems and companies in the sector, but also on the buildings, transport, petrochemical and automotive industries, which generate approximately 30% of global greenhouse gas emissions. These are large energy-intensive industries where decarbonization will be even more difficult to achieve. For example, the PNRR is supporting a €3.9 billion green transition of rail transport, including track upgrades and electrification works and the acquisition of environmentally friendly rolling stock. In addition, €1.8 billion will be invested in supporting urban mobility through infrastructure for greener and safer urban transport.

But the path to climate neutrality in 2050 is difficult and very expensive. In 2022, global investment in the energy transition will reach parity with investment in hydrocarbons, both at $1.1 trillion, according to Bloomberg NEF. But the investments needed to meet the energy transition goals worldwide range from $4,000 to $6,000 billion per year.

To achieve global climate neutrality by 2050, global renewable energy production needs to increase eightfold compared to 2021 levels and annual investment in distribution systems needs to triple, concludes a recent PwC analysis based on data from the International Energy Agency (IEA).

According to a country report recently published by the World Bank, in the long term, Romania needs an investment of 356 billion dollars to develop a decarbonized energy sector.

However, in the short term, that is, until 2030, our country must fulfill the commitments made within the framework of the Integrated National Plan in the field of energy and climate change for 2021-2030 (PNIESC), which provides that the share of energy from renewable sources will reach 30 .7%. in gross final energy consumption in 2030 due to an increase in the installed capacity of wind and photovoltaic plants, as well as due to an increase in the number of consumers. According to the version of Romania’s Long-Term Greenhouse Gas (GHG) Reduction Strategy, notified to the European Commission in April 2023, the target for the share of RES in final energy consumption in 2030 becomes even more ambitious (36.2%).

The good news in terms of decarbonisation is that Romania is one of the countries that has taken important steps to transition to renewable resources, reaching its goal of reducing carbon emissions by 55% by 2030 compared to 1990 levels, according to the report mentioned The World Bank.

Overall, according to the PNIESC 2021-2030, Romania proposed to install 6.9 GW of additional renewable energy production capacity by 2030 compared to 2015. Currently, wind energy production capacity is 3 GW, and solar energy is 1.5 GW. , according to the latest data of NARE.

At the same time, there are many problems not only in Romania, but also worldwide, related to the expansion of networks, which means long authorization periods, technical complexity and lack of skilled labor and materials, which can lead to increased costs. Government plays an important role in setting policy and permitting regimes, reducing the time required for project approval and development, and providing investment incentives. All the more so as the degree of interdependence in the energy transition will increase, with policies and speed of implementation in one country directly affecting others through energy prices and availability, and national efforts having to be aligned with regional and global developments. In summary, financing and regulatory decisions in this area will have implications for the success of the energy transition, ultimately resulting in benefits for the economy and population, or, conversely, a waste of resources.

This article is part of PwC Romania’s “Agenda for Tomorrow” editorial project, which will run until the end of this year and aims to discuss the context and perspectives that can guide companies to make informed decisions in the midst of change. Previous articles can be read here.

Article signed by Dina Bumbacea, Country Managing Partner, Andrea Mitirice, Partner, and Sorin Petre, Partner

Article supported by PwC Romania