Homes and businesses endure gas price hike as market liberalization continues

Newsroom 11/08/2015 | 12:51

The gas price for the public and producers increased on July 1, from RON 53.3/MWh to RON 60/MWh, and will continue to rise annually by RON 6 in 2016 and 2017, according to Mediafax. The issue is due to be discussed again in April 2018, but at the moment the calendar includes a similar annual estimated increase until 2021.


Laura Grigore


The new timetable for the liberalization of the purchase price of natural gas from domestic production for household customers and thermal energy producers – only for the natural gas used to produce heat in cogeneration plants and heating plants for consumption – was approved by the government for July 1, 2015 to June 30, 2021.

“The liberalization timetable is the result of negotiations with the International Monetary Fund, European Union and World Bank, meaning that the period required by foreign partners was extended from three years (2015-2018) to six (2015-2021), and the rate of price increases was distributed evenly throughout the period, a rapid increase in the first period having been rejected. Also, the Romanian side insisted in the negotiations that the alignment of domestic gas prices be done annually and not quarterly or twice a year,” government officials told the press at the beginning of July.

Following the hike to RON 60/MWh, the timetable announced by the government sets out an annual increase until 2017, so on July 1, 2016 the price will rise to RON 66/MWh and in April 2017 to RON 72/MWh.

Commentators say that both the electricity and natural gas markets are experiencing drastic transformations that will entirely change the electricity market in the coming years. Analysts predict that the price liberalization and gradual opening up of access to a large number of potential customers for new players will threaten the positions of traditional leaders. Competition will increase once players outside the traditional market enter the free market.

The liberalization of the energy market is a sensitive issue that experts say is poorly understood by the public, as it is more complex than it seems at first glance. At issue are both an obligation under European regulations and putting the customer at the center. The market is therefore expected to be characterized by two main factors: transparency and competition.

Until January 1 of this year, local gas market liberalization had two different calendars, one for industrial users and another for households. Since 2015 the price of gas for industrial consumers has been liberalized, being maintained on the regulated market only for households and heating producers for the required quantity of gas needed to produce thermal energy for domestic use. For household customers, the gradual elimination of regulated tariffs began on July 1, 2013 and will end on December 31, 2017, marking the abolition of regulated tariffs for households.

When the regulated tariffs are partially removed for consumers without the eligibility right, some of the used electricity is charged at the regulated tariff and the rest at a rate established by the National Regulatory Authority for Energy (ANRE).

Under the timetable for eliminating the regulated tariffs for the supply of electricity to end-users, approved by the government in March 2012, the gradual elimination of regulated tariffs for non-household customers began on September 1, 2012 and ended on December 31, 2013, which marked the completion of the liberalization process for non-household customers.

The final price of energy depends on several factors, including current market supply and demand, domestic and import purchase prices, network costs, environmental costs (green certificates), the level of excise duties and taxes set by the authorities.

Pundits say a liberalized energy market involves higher competition, consumers’ right to freely choose their supplier, transparent pricing and encouragement of investments in the energy sector, all of which improves consumer welfare. In terms of utilities, competitive retail markets may provide new business opportunities that allow them to evolve from being mere commodity sellers into complex service providers.

The short-term outlook suggests that the price could drop, given the increasingly strong competition between providers. According to electricity market operator OPCOM, in April the average trading price was EUR 26/MWh compared to EUR 36/MWh last year. The price decrease continued in May, with energy traded at an average price of EUR 27.5/MWh versus EUR 29.2/MWh in the same period of last year.

“The commissioning of the new generation capacities, especially renewable – provided that a significant increase in domestic demand is not projected and export is limited by the existing capacity – could bring down energy costs. However, the current price of energy is still affected by subsidies and low efficiency in the generation market,” E.ON Romania representatives told Business Review. “Competitive generation is vital, especially now when Romania has connected its market to the neighboring ones. Inefficient capacities remain a problem because they generate increased costs – they must become efficient and competitive if they are to survive in a competitive market.”

CEZ Romania representatives told BR, “In Romania, the gradual market opening for household customers brings about a fluctuation in prices. To explain, currently two amounts of electric energy may be found on customers’ bills, representing consumption according to the indexes on the counters or the mechanism agreed by the parties for the determination of consumption. Each is charged at the regulated price or competitive market value, in proportions corresponding to the degree of market liberalization set by the authorities for that period. For example, since July, 50 percent of the consumption is charged according to the competitive market and 50 percent according to the regulated price. The regulated price has been subject to fluctuations of 1-2 percent, depending on the factors taken into account by the National Regulatory Authority for Energy.”

ANRE organizes electricity purchase session for the competitive market in order to ensure a uniform price across the country.

Aurelian Sideri, marketing director at Enel Energie and Enel Energie Muntenia, told BR, “Lately, prices have been decreasing. Regarding the production capacities installed in Romania, we can be only optimistic. Romania’s production capacity currently exceeds the consumption volume, which naturally leads to price decreases. For a while now, the new production capacities from renewable sources that are supported by the green certificates scheme have been working, some of the initial investments have been recovered and a large proportion of the national consumption has been covered.”

Currently, ANRE Order no. 92/2015 – the methodology for setting the tariffs providers charge end-users – is in force.

The legislation grants all household customers, as well as non-household customers with an average of fewer than 50 employees and an annual turnover or balance sheet asset value of or below EUR 10 million, according to the annual tax reports, the right to the universal service (US).

According to statements by E.ON Romania, market liberalization benefits consumers, who get better quality services and competitive prices. But the rate of liberalization must fit consumers’ ability to adapt to this process, as it was found that a too fast rate creates difficulties for consumers, even up to insolvency. E.ON representatives added that it is for the authorities to decide the timetable for liberalization, but the process should be reasonable and prices sustainable for consumers and accompanied by protective measures for the disadvantaged.

In their turn, representatives of CEZ Romania said that a too strict regulatory framework was not likely to encourage the real liberalization of energy prices. The law of supply and demand shapes fair prices more than any regulation. “A priority for authorized institutions must be the permanent monitoring of energy market participants’ behavior and the punishment of deviations from the correct approach,” CEZ Romania officials told BR.

The risks that may arise, Association of Electricity Suppliers in Romania (AFEER) representatives recently stated, include unfair/incomplete offers from some suppliers that may mislead consumers by eliminating binding components such as, for example, the consideration of green certificates and/or radio-TV license. However, the unsustainable promise to improve the technical performance, including voltage, response time and extent of interruptions, which are the responsibility of the local distributor and not the supplier, should give consumers pause for thought.

“The main players are the customers and we take care to keep them actively informed. We are introducing new products and services, thereby preparing all our clients for the total liberalization of the market. This is not just about the price changes, but an increased quality of the services provided, which is a constant,” said Sideri.

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