Moldova is making some progress on energy security
Moldova has faced multiple energy crises since October 2021. After a gas crisis brought on by skyrocketing gas import prices at the end of 2021, Gazprom, Moldova’s main supplier of natural gas drastically reduced supplies in October 2022. The limited gas supply plunged the country into an electricity crisis, as electricity generation in the country also relies primarily on natural gas. With substantial financial assistance from international partners, Moldova managed to overcome both crises.
The country has now reached a state of relative stability with resumed electricity sales from the Transnistrian region and somewhat more diversified gas supply than before. Nevertheless, many risks and challenges remain. Moldova thus needs to push forward on the path towards greater energy security by further expanding its own electricity generation from renewable sources, building up more resilient energy infrastructure and reducing demand through energy efficiency measures.
The start of an energy crisis
Moldova suffered its first energy crisis in October 2021, a few months before the full-scale Russian invasion of Ukraine plunged the rest of Europe into an energy crisis. For many years, Moldova had been buying relatively cheap natural gas from Russia on the basis of long-term contracts. This arrangement, from which the Moldovan population and businesses largely benefitted, created a complete dependency in terms of gas imports. In addition, almost all of the electricity consumed in the country is generated using gas.
At the end of September 2021, the last contract between Gazprom and Moldovagaz ended. Negotiations on a new contract proved difficult amid increasing political tensions between the new pro-European Moldovan government and Moscow. After some weeks, in which Moldova bought gas at already significantly increased market prices, a deal was struck, which was to ensure a continuous supply of Russian gas for another five years. However, the import price was pegged to international gas prices, which for Moldova signified an increase of 5 to 6 times compared to previous import prices.
Thanks to considerable financial support from the EU and other international partners, Moldova was able to continue paying for gas as well as compensate a large share of the increase in gas prices for the population, successfully surviving this first crisis. Nevertheless, the increase in energy prices had severe negative implications for the economy and population. Inflation rates started to increase steadily, reaching an all time high of 34.6% in October 2022.
From gas crisis to electricity crisis
Amid the war in Ukraine, international gas prices remained at record levels forcing Moldova to pay much more than expected during both the winter as well as in the summer. Nevertheless, this period remained relatively stable, until October 2022, when Gazprom cut the supply of gas to Moldova by over 50% citing too few transmission quantities booked by Ukraine as a reason, which Ukraine denied to be the case. This supply cut affected not only the gas available for right-bank Moldova, but also for the Transnistrian region, which receives almost twice the amount of gas used by right-bank Moldova from Gazprom. As a result of the reduced gas supply, the Transnistrian region reduced access to gas for several industrial producers and stated that it no longer had sufficient supply for its gas fired power plant, MGRES, which supplies the majority of electricity for both the Transnistrian region and right-bank Moldova. Electricity sales from MGRES to right-bank Moldova were stopped, thus turning the gas crisis into an electricity crisis and multifaceted energy crisis.
Considering the very limited capacities for electricity generation in right-bank Moldova, the country was forced to temporarily import the majority of its electricity from Romania, mostly at very high market prices. This was partly also because Ukraine, another relatively cheap source of electricity imports for Moldova, had stopped exports amid the destruction of its energy infrastructure. The German Economic Team conducted an assessment of the additional cost for electricity that would have accrued if Moldova would have had to continue importing large amounts of electricity from Romania. In a worst case scenario, the additional costs could have reached EUR 349 m or 3% of GDP over the six months from November 2022 to April 2023. This result highlighted the importance of striking a deal with MGRES on renewed electricity deliveries.
In December 2022, the Moldovan government managed to negotiate a deal with the Transnistrian de-facto authorities on continued electricity supplies. Under this deal, right-bank Moldova promised all of the Russian gas supply to the Transnistrian region in exchange for electricity at a price of 73 USD/MWh, which was only slightly above the previous rate. As a result, significant increases in electricity tariffs for consumers in Moldova, which would have invariably driven inflation up further, could be avoided.
Relative stability achieved for the moment
The electricity contract with MGRES was recently revised and a reduced price of 66 USD/MWh has been agreed until the end of October 2023. All Russian gas flows to the Transnistrian region, while right-bank Moldova imports gas for their own needs from other suppliers via Romania. As such, the current situation is stable and prices for electricity remain comparatively low. Concurrently, any disruption or additional reduction of gas supply from Russia could upset this balance. The energy infrastructure represents another potential source of risk. A considerable portion of the cross-border electricity transmission lines run through the MGRES power plant, which means that the Transnistrian region could in theory disrupt transmission flows to right-bank Moldova. Furthermore, the Moldovan electricity system is also connected to the Ukranian electricity grid, where imbalances caused by the destruction of infrastructure have already led to blackouts in Moldova during the past year.
Next steps for Moldova on the path towards resilience
The development of a more resilient energy infrastructure thus remains one of the priorities for Moldovan energy policy. This includes a new cross-border transmission line with Romania already under construction, which would allow Moldova to import electricity from Romania and eventually other EU suppliers without being dependent on the MGRES power plant located in the Transnistrian region. For gas, Moldova is building up storages in Romania and Ukraine, which could help to mitigate additional energy crises if Russia would disrupt or reduce supplies.
In the medium term, Moldova also needs to focus on building up its own electricity generation capacities. Such efforts should focus on renewable sources of electricity generation such as wind and solar. So far, the share of renewable energy sources in electricity generation is only about 4%. One priority for the government should thus be the launching of the planned auctions for large renewable energy projects, which could significantly advance the development of this sector.
Another important issue is energy efficiency in the buildings sector. Both public and residential buildings in Moldova have low energy efficiency and often use gas for heating. Thus, the potential for increasing energy efficiency is large and would relieve not only the financial burden of consumers caused by high gas tariffs, but also reduce the dependence on gas.
Conclusions and outlook
Considering the multiple energy crises Moldova has faced over the previous 20 months, the country has by now managed to achieve a remarkable level of stability within its energy sector, also thanks to considerable support from international partners. Nevertheless, multiple challenges and sources of risk remain that could trigger new crises. Thus, Moldova should advance on the path towards energy resilience and independence, focusing in particular on own generation from renewable energy and reducing demand through energy efficiency.
Picture: ©Miha Creative-stock.adobe.com
