Industrial Energy Consumers’ Association: OUG 114 leads to competitiveness loss for producers and distributors

Aurel Dragan 22/05/2019 | 14:26

The Romanian Big Industrial Energy Consumers’ Association (ABIEC) points out that the Romanian government’s latest decisions regarding the energy sector have the effect of slashing competitiveness or leading to the relocation of the Romanian industry as a result of electricity surplus. Besides the accelerated and continous increase of electricity on PZU (next-day market), there are also contracts for difference (a low carbon energy subsidy scheme), a new support scheme for cogeneration and the overtaxing of energy.

Therefore, total electricity costs, which have already reached an unsustainable level, risk transforming electricity from a raw material into a prohibitive product and eliminating local industrial producers from the international competitive market.

General principles for the implementation of a “CfD” support mechanism for the production of low-carbon electricity

Energy users, be they industrial or retail, may need to support a new scheme for low-emission energy production, which renewable energy users do not deem necessary. Instead, they, along with the ABIEC, demand legislative stability and better functioning and regulation of the market. In practice, the recovery of investment in renewable energy will once again be guaranteed by the state and paid by the final consumer, which will artificially raise electricity prices.

This comes as renewable energy investors themselves argue that such a scheme is not necessary, given that the total cost of projects using solar and wind power has fallen by as much as 80 percent and 30-40 percent in 2009-2015, according to ANRE data.

In addition, major investors in this sector are already investing in renewable energy production without state support. For example, last year, ENGIE France announced investments in a 300 MW wind farm, Vattenfall Sweden announced investments in an offshore wind park with a 700 MW installed capacity, as far back as 2017, Dong Energy , Denmark has undertaken the installation of two offshore wind projects with a total capacity of 480MW in Germany. All these projects were undertaken by investors without state support. Similarly, in the case of wind energy production, projects have been implemented without financing from end-users in countries such as Italy, Portugal, Spain or the United Kingdom.

The impact of CfD implementation will be felt by the entire Romanian industry, and especially by the energy intensive industry, competing in international markets with companies that are not subject to such surcharges (such as those in China, US or CIS countries) and cannot transfer the costs of its customers’ subsidy. The final effect will be the loss of competitiveness of the Romanian industry, the un-industrialization of Romania, its relocation and, finally, the decrease of the number of companies that will buy clean energy in Romania.

Additional surcharges make industrial activity unsustainable

CfDs come in addition to other surcharges expected to be borne by consumers. The implementation of OUG 114/2018, which changes the contribution paid by energy license holders to 2 percent of turnover, already generates effects in the increase of the final energy price. To this increase, the subsidy resulting from a new cogeneration scheme announced by the authorities will be added.

So, the Romanian industry is faced with three new types of taxes, which come in over the sharp increase and without any substantial support of the electricity price on OPCOM in the last year. Specifically, for contracts with delivery in 2019, the electricity price has increased for the final consumer by 80 percent compared to 2016. These include the system services, transport, distribution, cogeneration fee, green certificates, representing 29 percent of the price total electricity.

The same final price also increases as a result of the indirect emission costs imposed on coal energy producers. In fact, the price of an Emission Certificate has increased by about five times over the past 18 months, from EUR 5 to EUR 27.5, with the forecast for 2020 being EUR 40 / certificate. This cost was translated by including RON 70-80 per MWh. The European Union has decided in this case to offset the costs of indirect emissions to energy-intensive end-users with relocation risk.

While these energy costs have drastically diminished the profitability of large energy consumers, the new tax package expected to be implemented runs the risk of making industrial activity unsustainable in Romania and could lead to the relocation of manufacturing companies outside the country, with a negative impact on the state budget and the unemployment rate.

As a consequence, ABIEC supports the need for an impact analysis of CfDs on the final price of electricity and the removal of support measures for renewable energy, given that the technology is already economically sustainable.

The Association also calls for the implementation of the indirect emissions compensation scheme, approved already in 2012 by the European Union and implemented by 10 Member States (France, Germany, Spain, Great Britain, Finland, the Netherlands, Belgium, Slovakia, Greece, Lithuania ) who have applied a policy of protecting local investment and jobs.

In addition, ABIEC supports the regulation and operation of the Romanian energy exchange on a real competitive basis, eliminating the distortions registered in the last year.

ABIEC points out that a rhythm of electricity cost growth, such as that recorded in the last year and expected to occur in the next period, removes Romanian products from the market, may lead to the closure of major production capacities and the stopping of investments of the hundreds of millions of euros.

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