Although suppliers expected a normalization of market conditions after the period of wide variation in electricity purchase prices this winter, prices have not fallen even to date, fact for which administrative measures are imposed, according to Cătălin Stancu, General Manager of Electrica, the largest supplier in Romania and one of the largest distributors. Prices have increased significantly since the beginning of the year and remain at unexplained high levels on the Day Ahead Market (DAM), where most players are forced to trade due to major imbalances in the other markets segments managed by the monopoly OPCOM.
“It is important that the effect persists and the long-term consequences are significant”, says Stancu. In some cases, the newly offers presented by all suppliers to their clients may be even by 25% more expensive due to market prices, and the old agreements are either renegotiated or terminated; and this appliable for the entire market.
Martin Zmelik, the CEO of CEZ Romania, recently said that prices are abnormal and the whole market expected the situation to “normalize” after the winter energy crisis. But prices remained “up”. “The expectation of the industry was that somewhere in March, things would normalize”, says Stancu, a fact that was also supported by Zmelik a week ago. “The impact on the utility companies is immediate, although we do not immediately transfer costs to our customers”.
Stancu claims that prices will increase in 2018, to incorporate higher costs for suppliers. For example, Electrica had losses of about 50 million lei in the first quarter, after a profit of 150 million in the same period in 2016. But all suppliers have registered losses.
The profit margins are small, and the high energy prices makes profits possible only on the production side, while the other players lose. Consumers will also be at loss.
Stancu suggested a possible measure which would be capping the energy price into a corridor of short-term variation, until the factors that have led to unprecedented and uncontrolled growth of the wholesale markets price would by clarified. Another measure would be a better balancing of demand with supply. Finally, a third measure, which energynomics.ro has already written about, is the introduction of derivative instruments on the OPCOM market, the „lazy monopoly”, as Bogdan Chirițoiu, president of the Competition Council, has recently labelled it.
The introduction of more sophisticated trading instruments would allow some risk limitation transactions over a medium term (hedging) to be concluded, and the establishment of a normal reference price on the long term.
In addition, Stancu says that all distribution and supply companies have significantly increased their costs by investing in risk management after the events in the winter. All decisions are now taken in companies after a strict risk analysis.
The National Energy Regulatory Authority (ANRE) and the government will have to take action as quickly as possible, is what all players in the distribution and supply market are supporting. Because, as Stancu explains, state intervention is necessary only in a dysfunctional market. And the electricity market in Romania has ceased to be a normal one in the winter, and since then the imbalances have manifested repeatedly.
