Energy security at the edge — how vulner­able is Moldova?

Victoria Rosa, Senior Asso­ci­ated Expert, Foreign Policy Asso­ci­a­tion, Moldova

The war in Ukraine exac­er­bated one major security dilemma both for the Eastern European region and Europe as a whole – the energy security. Even though it was clear for Moldovan author­i­ties at all times that energy is not only a trading good but also a weapon, there was no rush in securing alter­na­tives to energy imports or develop on a fast-track green energy resources.

According to the IEA, in the Republic of Moldova the total final energy consump­tion in 2019 comprises: 31% oil, 24% natural gas, 20% bioenergy, 14% elec­tricity, 6% heat and 3% coal. Moldova’s energy sector is char­ac­ter­ized majorly by depen­dence on one supplier, the Russian Feder­a­tion and/​or the Russian-owned thermal power plant in the Transnis­trian region[1] — “Moldavskaya GRES”. The energy infra­struc­ture is poorly developed and the legal framework is scarce.

Moldova imports 99% of its gas supply from Russia for domestic, indus­trial consump­tion, and elec­tricity produc­tion. In 2021, Moldova purchased 75% of its elec­tricity supply from MGRES, which is located on the left bank of the Nistru River, the Transnis­trian region. 21% of elec­tricity needs are covered by domestic right-bank produc­tion and the remaining 3% Ukrainian imports.

Gas and Elec­tricity as Elements of Hybrid Warfare 

Gas sector

The energy sector is one of the main vulner­a­bil­i­ties of the Moldovan economy. Since its inde­pen­dence, Moldova faced several gas crises generated by the Russian Feder­a­tion when geopo­lit­ical gains were at stake. The latest, and the major energy crisis unleashed starting 2019 once with the expire of the contrac­tual agree­ments with Gazprom and the unclear­ness with the gas transit through Ukraine. Coin­ci­dence or not, the gas diffi­cul­ties emerged imme­di­ately after the pro-European forces took office and expressed the full speed towards EU membership.

Nonethe­less, after difficult nego­ti­a­tions which presumed, from the Russian part, geopo­lit­ical aspects as well, the Moldovan pro-European govern­ment renewed the gas contract with Gazprom in October 2021. Among the commit­ments taken by the Republic of Moldova could be listed paying back the old gas debts that Gazprom claims against Moldova after completing an inde­pen­dent external audit at MoldovaGaz. The total debt today amounts to approx­i­mately 8 billion USD for the entire territory of the Republic of Moldova, the consti­tu­tional author­i­ties recog­nizing only the debt accu­mu­lated on the right bank of the Nistru River which is over 700 million.  The pecu­liarity of the debt resides including in the fact that Gazprom owns 50% plus 1 share of MoldovaGaz, 13.44% shares are held by the seces­sionist author­i­ties in the Transnis­trian region^[2] while the Moldovan govern­ment owns only 35.33%.

The consuming nego­ti­a­tions with Gazprom over price formula and payment condi­tion­al­i­ties reflected nega­tively in the domestic debate and daily life of the people affecting dras­ti­cally the welfare of the Moldovan people. The gas import price went from USD 458 per 1 000 m³ in December 2021 to USD 687 in January 2022 and reached almost USD 1 200 in April 2022 which is signif­i­cantly higher than the USD 221 in April 2021. Following the increase in inter­na­tional natural gas prices majorly as a result of the sanctions imposed to Russia due to its aggres­sion in Ukraine and the new import contract with Gazprom agreed in 2021, the author­i­ties increased the tariff for natural gas from around MDL 5 per m3 to MDL 11 in November 2021, and then to MDL 15 in January 2022 ending up to MDL 18.6 in June 2022. A different tariff is calcu­lated for the consumers in the Transnis­trian region of the Republic of Moldova as there is a separate agreement signed with Gazprom which regulates the gas delivery. The 300% increase of the natural gas tariffs imposed the Moldovan Govern­ment to come out with solutions thus a subsi­dized tariff was applied to house­holds’ initial 150 m³ of natural gas consump­tion per month between November 2021 and March 2022. The reduced rate covered 70% of household consump­tion, the govern­ment directly subsi­dising the tariff for consumers with MDL 1.1 billion during the cold period.

A big part of the subsidies was covered by grants and loans offered by foreign stake­holders, the EU playing a crucial role. Brussels made available €60 million in funds to help Moldova cope with rising fuel costs and pledges further support by adopting a Strategy for an EU external energy engage­ment. Looking ahead to the next winter as no gas subsidy is envisaged for the period April-October, nego­ti­a­tions were held and 300 million loan with the EBRD was secured which, among other measures, will allow buying and storing one winter month worth of natural gas consump­tion in Romania. Moldova does not hold in-country gas storage facil­i­ties thus Romania becomes a strategic partner for Moldova in alle­vi­ating immediate energy security threats. The EU has also provided Romania with support to increase its gas storage capacity from 3 bcm to 4 bcm so that assis­tance to Moldova could be offered.

The Romanian system operator Transgaz built a new 120-kilometer pipeline connecting Moldova’s key consump­tion centres to the Romanian system, thus providing alter­na­tive infra­struc­ture. Theo­ret­i­cally, the pipeline is capable of carrying up to 1.5 bcm of gas — more than a third of Moldova’s peak needs. The gas flows via the new pipeline are operated by the newly certified trans­mis­sion system operator, Vest­mold­transgaz, though due to lack of unbundling of the gas incumbent MoldovaGaz and non-imple­men­ta­tion of the current regu­la­tory framework, this is still not reality.Never­the­less, the new gas infra­struc­ture is providing a much-needed buffer to Moldova’s natural gas supply.

A major short­coming repre­sents the fact that the retail market is still heavily regulated under a public service oblig­a­tion scheme, under which MoldovaGaz is respon­sible for the supply of house­holds, appointed by an act of ANRE (National Agency for Energy Regu­la­tion) without trans­parent or compet­i­tive proce­dures. Provi­sions on supply of last resort univer­sally apply to all customers without adequate eligi­bility criteria for such gas supply.

Elec­tricity sector 

The elec­tricity sector is also regarded as a vulner­able domain. According to the Energy Community 2021 Country Report on Moldova none of the Third Energy Package unbundling models can be imple­mented under the current legisla­tive framework as unbundling of the trans­mis­sion system operator still needs to be achieved. The devel­op­ment of the inter­con­nec­tion project with Romania is pending, synchro­nous inter­con­nec­tion (through back-to-back stations) is expected to be completed by 2024. Unfor­tu­nately, the energy sector critical infra­struc­ture was never a priority for the previous Govern­ments even though it was clear that depen­dence on one source which is in the hands of a seces­sionist regime is a real threat. The current war in the region revealed even more the imper­a­tive­ness to speed up the construc­tion of the power inter­con­nec­tion with Romania Vulcănești — Chișinău high voltage line and Vulcănești back-to-back station, the national author­i­ties declaring it public utility of national interest. 

Purchasing elec­tricity from the Cuci­ur­gani — Moldavskaya GRES gas-fired power plant owned by the Russian company Inter-RAO and located in theTransnis­trian region of the Republic of Moldova is a topic of contin­uous debate as it touches upon two important aspects: the settle­ment process of the transnis­trian conflict and the energy security of the country. The acqui­si­tion agreement is seen as unwill­ingly supporting the seces­sionist regime offering the local author­i­ties leverages over national author­i­ties. The leverage consists mainly in the fact that having the infra­struc­ture under control, the seces­sions author­i­ties can, at any time hinder the energy flow coming from Ukraine.

The created situation asks for immediate actions taken in order to ensure proper infra­struc­ture and connec­tivity that would allow passing off the Transnis­trian region, thus ensuring for the right bank of the Nistru River a more solid position in nego­ti­a­tions. An important step forward repre­sents the recent inte­gra­tion of Ukraine and Moldova into the European Elec­tricity market. The synchro­ni­sa­tion of the Ukrainian and Moldovan elec­tricity grid with the conti­nental ENTSO‑E grid ensures the security of emergency supplies for the two inter­con­nected power systems. This also opens an oppor­tu­nity to TSOs (Trans­mis­sion System Operators) from Conti­nental Europe to open elec­tricity trading with Ukraine, thus ensuring energy security for the region.

Further on it is important to focus on the devel­op­ment of a Wholesale Market Design. The 2020 Wholesale Elec­tricity Market Rules (including a func­tioning balancing mechanism for elec­tricity exchanges) entered into pilot phase on January 1, 2022, and the window for testing was extended to April 30, 2022, due to the emergency situation.

Renewable energy

According to an analysis of technical potential for RE gener­a­tion (Inter­na­tional Renewable Energy Agency conducted in 2019) Moldova is in excess of 27 GW of potential renewable gener­a­tion capacity, including 20.9 GW and 4.6 GW of wind and solar potential respec­tively, in addition to both biomass and hydro potential. Despite the large potential for wind and solar power, its deploy­ment has been very modest, the devel­op­ment of renewable energy being stag­nating and there has been almost no progress to date. The renewable capac­i­ties remain the same as reported in 2020, namely one hydropower plant (Costești, 16 MW) constructed in the late 1970s, 37 MW of wind, 5 MW of solar PV and around 6 MW of biogas. It is important to note that an increase of variable renewable energy in the elec­tricity system requires suffi­cient balancing capacity. Currently, only MGRES can provide balancing for right-bank Moldova, which is difficult to implement due to insuf­fi­cient enforce­ment capacity of ANRE in the Transnis­trian region. Therefore, Moldova is also exploring alter­na­tive options for balancing capacity, such as combined-cycle gas turbines.

Moldova over­reached its 17% target for the share of renewable energy in gross final energy consump­tion by 2020 due to the revision of biomass data and increasing the use of biomass in the heating sector. The use of bioenergy, as the main renewable energy source, remains a national priority. Nonethe­less, the biomass, mostly firewood, is used still in inef­fi­cient boilers and stoves. As positive examples could serve the instal­la­tion of several solar water heaters in public insti­tu­tions turning out to be a cost-effective and envi­ron­men­tally friendly solution for high hot water demand.

In order to exploit its renewable energy capac­i­ties, the Inter­na­tional Energy Agency and the Energy Community came up with some recom­men­da­tion to Moldovan authorities:

• the prepa­ra­tion of a market-based support mechanism and adoption of the needed enabling secondary legis­la­tion (Moldova adopted the Law on the Promotion of Renewable Energy on February 26, 2016);
• trans-position of provi­sions related to the sustain­ability of biofuels and implement an elec­tronic system for guar­an­tees of origin;
• removal of regu­la­tory and fiscal barriers to the devel­op­ment of renew­ables which involves clear and trans­parent guide­lines for technical require­ments for connec­tion to the grid, long-term off-take agree­ments, consis­tent customs or tax breaks with other specialised imports and reason­able policies for rezoning or sharing land and the building of necessary shared infra­struc­ture (e.g., access roads);
• reinforce the public-private dialogue on energy policy matters, and develop a commu­ni­ca­tion strategy for sector stake­holders, as well as the popu­la­tion at large on renewable energy strate­gies and the chal­lenges, benefits, oppor­tu­ni­ties, and costs of the ongoing reforms.

Conclu­sions

The energy security is now undoubtable consid­ered one of the most important branches of the national security of Moldova. Not only energy sector became vital for the everyday life, but it also empha­sised the strategic impor­tance of the energy infra­struc­ture and existence of alter­na­tive routes of imports. Ensuring gas and elec­tricity to Moldovan citizens repre­sents an issue of human security as much as of national security.

The regional and global energy devel­op­ments impose rapid and system­atic adjust­ments, while the war in Ukraine increases consid­er­ably the risk of energy supply shutdowns. In times of contin­uous pressure, the Moldovan author­i­ties are devel­oping both short and long-term strate­gies which include infra­struc­ture and policy devel­op­ment. Such crises as the energy crisis, require the mobi­liza­tion and under­standing of the entire society. Subse­quently, it is important to develop compre­hen­sive and holistic commu­ni­ca­tion campaigns to fight disin­for­ma­tion and propa­ganda and support societal cohesion in difficult times.

[1] Breakaway region of the Republic of Moldova.

[2] In 2006 the seces­sionist author­i­ties in the Transnis­trian region handed over their shares to be managed by Gazprom.