Energy security at the edge — how vulnerable is Moldova?
The second series of input papers for the project “Eastern Partnership Plus” deals with the question of the dependence of the three associated countries on energy imports and a better integration into the European energy market.
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.
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