Energy companies pass on bilateral contracts

The bilateral contracts market (PCCN) of the Romanian power market operator OPCOM hasn't been as unattractive to energy companies since it was created. While in the first two months of last year 11 energy sales contracts were signed, sealed and delivered, now the PCCB has not signed a single one. Just two energy sale offers have been registered, one from Rovinari Energy Complex and one buying offer from Electrica. According to OPCOM, these offers were annulled because the companies did not present any warranties.
In fact, all three OPCOM markets, the spot PCCB and forward contracts market PCCB-NC are reporting changes in the current economic climate.
“Participants' behavior on all three markets is coherent. The watchword is short-term energy trading. Dedicated to large and long-term volumes, the bilateral contracts market reported intensive activity in the last quarter of the year. On the forward contracts market there were offers even in February and March, while last year we didn't have any trading. The interest in this type of contract this year is because the participants have become interested in short-term trading, as consumption diminishes. On the spot market (PZU), the transaction volume is constant, but the energy price is dropping, a trend also registered by the European energy market operators,” Lucian Palade, director of the electricity market surveillance and development division with OPCOM, told Business Review.
In his opinion a series of trends has been generated by the crisis. “The current economic situation is reflected in OPCOM trading in an orientation of market players towards short-term trade: we have registered an increase in PZU trading and the companies have expressed early (since February) their interest in forwards contracts. Of course, the current economic situation also lowers the energy price,” said Palade.
The numbers confirm what is happening on the PCCB. In February this year, 866 MW/h was traded at an average price of EUR 48.19 per MW/h, with transactions carried out particularly in Q4 2008 (77 percent). These transactions represent a 19.55 percent share of the estimated consumption for this month. Compared to the previous month of delivery, the number of contracts stood at 77. Up until now, the share volume traded for delivery this year represents 20.48 percent of the total consumption estimated for this year.

Spot market generates the most trading
With a traded volume of 454,405 MW/h, February became the third consecutive month in which spot transactions have exceeded 10 percent of the forecasted domestic energy consumption.
“The average volume traded remained constant in February this year, from 678 MW/h registered in the same period of last year. This means that the spot market share reached 10.47 percent, compared with 9.75 percent in February 2008. We forecast a 10 percent cut in energy consumption last month compared with February 2008,” said Palade. According to OPCOM information, the average price dropped to EUR 32.02 per MW/h, a 40 percent decrease from last year's results.
The OPCOM official believes that the market price has fluctuated convergently. “Unlike 2006, in 2007 and last year the PZU regression was almost identical to the trend reported by the bilateral contracts market. In January and February the levels were much lower than those registered last year,” said Palade.

Europe's bargain energy
In the past few years there have been discussions on some significant discrepancies between the electricity prices from the energy market operator and those from those signed directly between certain partners. Energy traded on the local market is still at low levels compared with other countries in Europe.
“With an average price of EUR 32.02 per MW/h, the PZU is for the third consecutive month close to the lowest average spot price among European energy market operators. In February this year the average price on spot markets in Europe fluctuated between EUR 32 per MW/h and EUR 77 MW/h, with an average price of EUR 46.32 per MW/h,” said Palade.
In his opinion, the current economic climate will continue to keep the average energy prices traded at low levels compared with other European countries for a while.

Regional goals
It is some years now since OPCOM expressed its goal to become a regional player among the energy market operators. The first step has been taken. “The contract with the Hungarian energy market operator has already been negotiated and will be signed after the license is received, which should happen very soon. We estimate that in Q1 2010, OPCOM will qualify and will be able to unite the energy markets,” said Palade.
According to him, both in Bulgaria and Serbia there are ongoing auctions for projects that include the opportunity to set up energy market operators in these countries.
“If the outcome of this analysis is positive, this will be an opportunity for OPCOM to offer our services as we did in Hungary. Such an integration of the energy market operators would be done through the OPCOM trading platform and by using common rules,” said the official.
It remains to be seen what the results of the cooperation with the Hungarian energy market operator will be and whether OPCOM will prove itself a reliable partner in a market where there is tough competition.

By Dana Ciuraru