The Romanian Energy Regulatory Authority (ANRE) is an autonomous administrative body under Parliamentary control, entirely self-financed and independent with regards to its decision-making process, organization and functioning. The Authority is responsible to create and implement the appropriate regulatory system to ensure the proper functioning of the electricity and natural gas markets.
GEO 114/2018 and the subsequent modifications brought through GEO 19/2019 have imposed a price cap for natural gas in Romania, despite the market being liberalized. What were the reasons behind this decision?
When Romania started on the liberalization process we developed a calendar that involved a gradual increase in price, in order to reach a level similar to that of imported gas. However, in 2016 we noticed that the import prices started decreasing, and it became apparent that if we continued with the initial plan the domestic prices would soon surpass them. Under the circumstances, the Government (after long consultations with the European Commission), decided to liberalize the wholesale market ahead of time, starting with April 2017.
Although we had in place an obligation to trade gas on centralized markets, these were not mature or liquid enough yet. We were also missing essential mechanisms such as the day-ahead or intra-day market. In 2017 the import pricing started increasing, and in parallel Romania reached a historical low in terms of production, extremely challenging especially during winter time.
Because there is little competition locally among producers (Romania is dominated by two big producers which hold 95% of the market) it was easy for their prices to follow the trend of imports. All these elements combined led to a situation in which the gas price effectively doubled (from RON 64 to RON 130 in December 2018). GEO 114/2018 came as a response to this drastic increase which made it difficult for vulnerable consumers to cover their energy costs.
This measure has been implemented for a limited period of three years. What actions will be taken during this time to address the remaining problems?
There is already an infringement against Romania at European Commission level so it is uncertain whether this measure can be maintained for the full three year period. It is therefore essential that we implement all the necessary market mechanisms as soon as possible.
In 2018 we put great efforts into implementing the day-ahead and intra-day markets. Now we need to maintain them and ensure they are functioning correctly. Starting with May 1st 2019 we also have a balancing market in place.
We have also initiated the modification of various trading methodologies - for instance, we will allow transactions to take place in EUR and USD which will provide additional protection against currency fluctuations. In addition, for contracts with a duration longer than one year, we will allow some flexibility for both prices and quantities - this will broaden supplier options and trading opportunities in wholesale markets. The only thing missing at the moment to have a market comparable to other European ones are derivatives - as the market matures, these instruments will also appear.
Protection of vulnerable consumers has been a founding element for this change. What measures are being considered by public authorities to address this pressing issue?
During this time in which we can still apply the RON 68 price cap it is important that the Government identifies the appropriate means to ensure protection of vulnerable consumers. For the time being the price cap acts to the benefit of all residential consumers, including those that are not actually in need of subsidies.
What is proving to be extremely difficult is the process of actually identifying these vulnerable consumers. The initial estimates show that approximately 20% of the population is in this situation, and to identify everybody entails a tremendous workload for local authorities. We have not yet seen concrete actions in this direction from the Government but we hope this will start being treated as a priority. ANRE is willing to offer all the support and expertize that it has available in the process.
ANRE is presently working on an initiative to make PPAs (Power Purchase Agreements) available in Romania - one of the key issues renewable energy producers are facing. What progress has been made so far?
The issue is rooted in Law 123/2012 which changed many rules in the wholesale market. One of its articles mentions that wholesale transactions need to take place on centralized markets, with a few exceptions (for instance renewable production capacities lower than 3 MW). Given that only companies that are already producing and hold a license are able to trade on OPCOM, this obligation made it impossible for renewable energy producers to close PPAs and secure financing for their projects. This is one of the reasons why Romania has not seen new capacities developed in recent years.
Since last year we have been working on a solution for this, namely we plan to create a platform within OPCOM where companies can trade energy even if they have not reached production phase yet. We still have some small hurdles to overcome but most likely the platform will be available during the summer of 2019.
Another improvement we are working on has to do with the fact that quantities and prices are currently fixed for OPCOM transactions - this is a great disadvantage for renewable energy which is by nature variable. We initiated an amendment to the regulation that allows some flexibility in terms of quantities, and also the use of price formulas. The project is 90% ready and we are certain that it will go live by the end of 2019.
Lack of a stable regulatory framework is the problem most often remarked by industry members. What causes this lack of stability and what do you see as a possible solution?
Lack of stability in legislation is just as much a challenge for us. Since 2010, Law 220/2008 which deals with renewable energy has been modified at least once or twice every year and it is easy to understand why an investor would be reluctant to enter the market. Similarly, GEO 114/2018 has kept us busy for the past four months, time that I trust could have been used much better, for instance to couple the day-ahead market with Austria and Germany.
One solution going forward is to tackle issues step by step - last year, when we started rolling out the new market mechanisms, industry players had a tough time keeping up with all the changes unfolding at once. It is also important to be thorough in our work and communicate openly - FPPG has recently commissioned an in-depth study regarding the gas market which I see as a great starting point to address some of the challenges. Producers and distributors will each look at the data based on their own interests, but I hope it will also stimulate cooperation and set a good example for working together in other areas as well.
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