The Association of Energy Suppliers of Romania – AFEER states that electricity prices borne by consumers recently reflect the evolution of energy markets, domestic and international, lack of investment in Romania in production capacity in recent years and the high costs of CO2 certificates. One week ago, the Minister of Energy said that prices are higher also due to the speculative game of suppliers.
“We find that energy suppliers are listed as guilty of the problems arising from liberalization, in terms of Romanians’ bills. We do not agree and strongly contradict the statements circulated in the public space, which do not have a justified basis and, especially, cannot be generalized. Energy suppliers are not the cause of energy price increases. We make this statement with a sense of responsibility and come up with arguments and explanations regarding the current situation in the energy market, which is as complex as it is delicate,” said Ion Lungu, AFEER president.
“We have before us a new round of liberalization of the electricity market with the same questions: how much will the electricity or gas bill increase? How do I choose the best supply offer? We all now pay for the lack of investment in new production capacity in recent years and of predictability in legislation. These, alongside with a coupling of European markets – implicitly an alignment of prices – and an alignment with international quotations of emission allowances (with a direct impact on the cost of production of some electricity producers) will continue to generate price fluctuations in the wholesale electricity market and, implicitly, in customer invoices, throughout this year. Therefore, it is recommended that all consumers choose offers on the free energy market, which take into account not only the price, but also the rest of the clauses provided in the supply contract. It is important to make sure, through the contractual clauses, that the supplier fulfills its obligations and to be aware that most of the time the price offered also shows the distribution of risk between the two contractual partners: supplier and consumer,” said Cristian Culea, member in the AFEER Steering Committee.
“The current situation in the energy market is more complicated. Suppliers are not the cause for the current increases in electricity and natural gas prices,” the association claims.
Regarding the prices in the free market, with the resumption of economic activities after the pandemic period, they began to increase, not only in Romania, but throughout Europe. The current situation in the energy market is more complicated: the prices of fuels, coal, natural gas, oil have increased in all European markets and, in addition, due to the EU’s clear commitment to decarbonisation, the price of emission allowances has reached unexpected values, of around 50 euro/ton (compared to a price of 21 euro/ton in June 2020), and, for the future, an upward trend is also expected.
“All these increases are also found in the price of electricity and therefore we can not expect that the prices of electricity and natural gas will be close to those of last year. For example, at the beginning of June last year, on the spot electricity market in Romania, as well as on the spot markets with which we are connected – Hungary, the Czech Republic and Slovakia – the prices were of 20-25 euro/MWh. Now, in all these markets the prices vary between 65 and 90 euro/MWh. Also, according to OPCOM, in May and June 2020, the share of DAM transactions in forecasted net consumption was of 50%, while in May 2021, the share of DAM transactions in forecasted net consumption was of 54%, which represents an almost insignificant increase. In addition, the multi-year experience shows that in the spring, when the production of energy from hydro sources generally increases due to melting snow, spot market prices fall. Which has never happened this year.
”Regarding natural gas, the existing degree of interconnection and the decrease in demand meant that, in the middle of last year, the prices in the wholesale domestic market were of about 55 – 60 lei/MWh, as compared to about 120 – 125 lei/MWh at present,” says AFEER.
“We would like to remind you that the year 2020 was deeply affected by the health crisis, which led to a global economic crisis. Obviously, Romania was also affected, from all points of view, from the health of the population, to the health of the economy. That is why the authorities have taken important steps to support the economy in the context of the pandemic. For example, companies and household customers have had the opportunity to defer payment to utility providers, meaning also electricity and gas bills. Suppliers did not receive facilities, even though they were severely affected by the economic downturn.
”Due to declining consumption, suppliers who prudently purchased energy from long-term markets, to supply their customers, incurred losses because they had to sell unconsumed energy in short-term markets (DAM and intraday market) at prices much smaller than those at which it was purchased in DAM. For example, according to OPCOM, the contracts with delivery in April 2020 concluded on the Centralized Market for Bilateral Contracts (energy purchased in advance by suppliers to deliver to customers in April 2020) had an average price of approximately 257 lei/MWh, while on DAM the average prices in the same month were of about 117 lei/MWh. Thus, the suppliers paid more than double the prices in DAM.”
This difference, practically a loss, was widely affecting the suppliers.
“In Romania, companies in the energy sector are beginning to provide the necessary quantities for the following year in the middle of the current year. In the middle of last year, the economic downturn across the European Union was approaching 15 percent, we were still dealing with lockdowns in many countries, and the outlook was bleak enough, especially as we faced the second and third waves of coronavirus pandemic. The first vaccine was approved in the EU only in December 2020, and the vaccination campaign started only on December 27. I am convinced that many suppliers have taken into account all these risks, of temporary or permanent closure of some economic activities and of a possible change of the customer portfolio, given that the year 2021 began with the return to a fully liberalized market for household customers,” Ion Lungu also said.
“Perhaps the most important aspect is that Romania can no longer cover from its internal sources the necessary electricity consumption, at competitive prices. For natural gas, we almost always resorted to imports. Thus, all these have influenced and will continue to influence prices in the internal market. That is why we need investments in both natural gas and electricity production,” adds AFEER.
“In addition, the biggest competition on the energy market is in the supply segment. There are no less than 58 suppliers to the final customers of electricity and over 70 to the final customers of natural gas in Romania, which makes, practically, almost impossible any agreements or concerted practices, coordinated between them. Incorrect or far too risky practices are fined both by the authorities and by the market itself! Let’s remember the winter of 2017, when there were both insolvencies and bankruptcies, which led to the disappearance of some very important suppliers in the market. Suppliers learned their lessons after the 2017 crisis, when many had heavy losses and difficulties in maintaining customer portfolios. The price of energy in the final consumer’s bill was higher, but the increase was not due to the liberalization of the market or energy suppliers, but to market conditions,” went on to say the AFEER president.
“Today, we are witnessing a return to electricity and natural gas prices with the return of the economy, after 2020. It is a classic pendulum effect: after a sharp decline, an equally spectacular increase follows, and we expect, then, the prices to reach a balance. On DAM, the average price in May 2019 (before the pandemic) was of almost 194 lei/MWh, while in the same month of 2020 (during pandemic) – 120 lei/MWh, and this year (post-pandemic) – 289 lei/MWh. Also, on the Centralized Market for Bilateral Contracts, the average price for contracts traded in May 2019 was of about 278 lei/MWh, and in May 2021 – of 321 lei / MWh.
We are convinced that all these explanations of the current situation are able to demonstrate unequivocally that suppliers are not the cause of the current increases in electricity and natural gas prices. That is why we firmly reject any attempt to blame all providers of dishonest and burdensome practices for their customers,” AFEER officials also said.
