Turn on the Light: Supply to End Consumers

20 August 2019

 

Romania finds itself towards the end of a long and rather arduous liberalization process. The electricity market has been fully liberalized starting with January 1st 2018, and the gas market caught its moment of freedom under the sun, if only just temporarily, starting with April 1st 2017.

Liberalization was a great opportunity for energy consumers to negotiate both price and quality, and also a big challenge for companies to transform into entities that proactively work to attract customers. Ondrej Safar, CEZ Group commented: “The biggest challenge we faced was changing the mentality inside our own company: we went through a process of mixing the teams, for instance, we brought in people from telecommunications to give a flavor of what the change entails; we had to invest in new IT systems and generally to develop a mentality that is more customer oriented.” The market is today a competitive one, holding 93 gas suppliers and 91 electricity suppliers, according to ANRE.

 

“The challenges were plenty in the beginning. On the one side we needed to attract customers into the free market, and at the same time we needed to ensure that we could source the entire amount of energy we needed. There were very few sources available at the time, we were mainly relying on state owned companies, but things slowly changed as renewable energy producers started to appear.” Aurel ARION, CEO, Renovatio Trading

 

Direct bilateral trading of electricity is not presently allowed in Romania, by virtue of the Electricity and Natural Gas Law, which is in contrast with the practice in any other European country. All electricity trading takes place on one of the trading platforms operated by OPCOM which has a legal monopoly on this segment. For natural gas, a quite stringent obligation has been introduced regarding the obligatory trading quota on the Romanian centralized market, namely the Centralized Market Obligation (CMO).

 

A Growing Appetite for Diversification

 

Recent volatility in legislation has impacted the supply sector in the sense that it raised the risk of increased imports, and also limited the predictability of their supply. For instance, no gas transactions were made in the first trimester of 2019 on the BRM (The Romanian Commodities Exchange) - keeping in mind that BRM transacts approximately 70% of the total national gas market and consumption. Gabriel Purice, President of BRM further explained: “We noticed a slight recovery after the publication of GEO 19/2019 which abolished the capping of gas prices for industrial consumers, but the volumes remained very low. [...] The biggest problem that has come out of this situation is that everybody is in a state of confusion and distrust. We expect it will take at least one year until the market will return to a normal pace.”

 

 

In this context, many suppliers have turned their attention towards developing their own production capabilities, and renewable energy has caught the most attention. This move is also based on a slow, albeit noticeable increase in the public’s appetite for clean energy. For instance, MET Romania Energy is in the process of building a wind park and is developing capabilities in the field of charging stations for electric cars: “While this is not a strategic direction for the company at present, we do recognize the potential of this field going forward and we want to be a part of it once it gains traction” explained Petre Stroe, the company’s CEO.

Likewise, Renovatio Trading has developed solid production capabilities and created a set up where they overlap certain productions and alternate between hydro, wind and solar power, to ensure constant availability of renewable energy.

 

Protecting Vulnerable Consumers

 

Energy poverty is a relatively common problem across the EU, and European laws have deferred to members the responsibility to identify and set in place appropriate mechanisms to protect vulnerable consumers.

The progress has been very slow in Romania as public authorities are still struggling to take basic steps such as defining and identifying vulnerable consumers. Zoltan Nagy-Bege, Vice President of ANRE: ““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.”

 

In terms of protection mechanisms, several proposals have been put forward for instance through the recent impact study commissioned by FPPG. The study assessed the situation of vulnerable consumers in Romania and explored options to overcome the issues surrounding energy poverty.

Sébastien Zimmer, Emerton, author of the study: “One obvious proposal is to subsidize the cost of energy for them. Others could be more long term and focus on improving energy efficiency, such as subsidizing efficient boilers and insulating homes. Another idea is to forbid the disruption of gas and energy supply in the case of non payment of bills, particularly in winter me when vulnerable consumers need it the most. Many of these methods have been successfully implemented across the EU.”

The issue of vulnerable consumer has not been treated with priority so far by the government, although is was a critical element that led to legislative changes such as GEO 114/2018. The problem is becoming ever more pressing and the government needs to decide on the appropriate framework as fast as possible, ideally while the RON 68 price cap can still be maintained.

 

 

 

  • Share on: