According to the market deregulation calendar, as of January 1st, 2021, electricity prices for household consumers will not be governed by the ANRE (The Romanian Energy Regulatory Authority) anymore. Business Review sat down with Corina Popescu, CEO Electrica S.A., to find out how the liberalization will affect the electricity market, with both consumers and suppliers in mind. Electrica’s sustainability and CSR strategies, its 2020 financial results, and the impact of the COVID-19 pandemic on the electricity sector were also on the interview’s agenda.
How is this going to affect consumers and Electrica alike?
The liberalization represents an opportunity for companies to improve their products and services, while consumers will have the chance to do a thorough analysis before choosing their new energy supplier. With the freedom to change their supplier, one thing consumers will pay closer attention to is getting a better deal than the current one, which leads to the biggest challenge for the companies – creating customized and competitive offers, that address the client’s different needs, depending on household consumption patterns, complemented by added value services.
We see the liberalization as having a positive impact amongst household customers: as they will be able to switch their provider easily, companies will pay closer attention both to improving their services and to developing competitively priced solutions. For instance, the packages comprising new services, like technical or administrative services, complementary to the electricity supply service, will become more attractive.
Electrica Furnizare has a strong business profile and we thoroughly prepared for this shift. Our Group has a new consumer-centric strategic approach, that relies on several key pillars: the degree of price competitiveness, the quality of services for customers, new and attractive payment terms (for example, the option of invoicing at 45 days versus the classic 30-day period) as well as flexibility in the decisions of gradual or rapid migration of Electrica Furnizare customers in the free market.
In this respect, we designed new products, like “Împreună” (the dual gas and electricity supply package, through which we are offering fixed prices for 18 months) or “Electrica 3in1” (comprising, as well, technical emergency assistance and good insurance).
What are the main challenges for a truly liberalized market?
The main challenge is related to the legislation: we need to define the vulnerable energy consumers and develop the adequate mechanisms for protecting them. Within the EU, Romania is considered a country with a high degree of energy poverty, thus this category of consumers should be identified, and it should receive the appropriate support.
Are there any vulnerabilities and risks involving the market liberalization?
We definitely need a new legal framework to define the vulnerable energy consumers, as well as developing a comprehensive set of measures to ensure their protection and thus make energy accessible for everyone.
However, if we are to analyze it from the consumers’ perspective , there is also the risk that they might make bad decisions if they do not pay close attention to the new contractual agreement and if they are not properly informed. The price is very important, but it should not be the only indicator that a consumer analyzes before signing a new contract: the consumer should verify whether the price which draws his attention is offered just for a limited period of time, or during a season when the consumption might be lower. Moreover, another contractual trap can be related to the terms and conditions for changing the supplier – for instance, some suppliers might charge a compensation fee if the consumer decides to terminate the contract after identifying a better offer.
What new opportunities will arise from this market liberalization?
The liberalization of the electricity market is an opportunity for each player to enhance its products and services. For us, it is an opportunity to strengthen ties with our customers and, as well, gain new ones, as we have all the resources and expertise which are helping us remain competitive and offer good services and products, which match the constantly changing needs and lifestyle of our consumers.
The fight for gaining the trust and loyalty of the consumers is going to be fierce, and this will be reflected by a better quality of services and products, thus more satisfied consumers.
What should consumers consider when choosing a product or a supplier on the newly liberalized market?
There is, in our opinion, a mix of elements that should be considered when choosing a supplier or a product on the newly liberalized market: simplicity and accessibility, transparent costs (maintained throughout the period mentioned in the offer), with a flexible payment term, performant post-sales services, focused on the efficiency of the direct interaction with the client, a balanced presence of the new commercial offices or a vivid presence with our partners in the country. When it comes to this, Electrica Furnizare has the largest network of customer centers, spread throughout the country, and we are also considering expanding to new areas within the territory as well, where we were not traditional suppliers before. Of course, another relevant aspect is related to the reputation and expertise of the supplier. The energy market undergoes a transformation process, and new challenges which could have a direct impact over the activity of a supplier arise. Thus, a consumer should choose a partner which has the experience and resources required to tackle the unexpected changes and, as well, absorb the direct impact over the client.
What are the advantages and disadvantages of this liberalization from a consumer’s perspective?
Consumers will benefit from more competitive prices and from more flexibility in changing the supplier. However, there is a category of consumers at risk, the vulnerable consumers, who should be defined and protected accordingly.
How will the prices for electricity evolve after January 1st, 2021, considering the liberalization of the market?
If the mechanisms will work correctly, and given the increased competitivity, the prices should be fair. However, fine print clauses within the contract might bring some traps, thus the consumers should be very careful when choosing their supplier.
Do you think the market liberalization will boost innovation, efficiency, and development in the energy sector?
The current market context will drive innovation: Green Deal comes with several market opportunities, which will contribute to the development of the entire energy market. The liberalization will further stimulate the competitivity and the companies will be forced to develop new products and to become more agile, in order to keep market share.
Will the market liberalization attract new investments in the energy sector?
Currently, Romania has an impressive investment potential through Green Deal, but in order to take advantage of them, we need to adopt Romania’s Energy Strategy and the National Integrated Plan for Energy and Climate Change. When they will be adopted, the companies could come up with specific projects, and ask for funding.
How will the market liberalization impact the renewable energy market?
As mentioned before, the biggest opportunity for the renewable energy market is directly related to Green Deal. We believe in green energy and that is why, this year, we entered the renewable electricity production market, by purchasing a photovoltaic park.
How did this year’s revisions to the Energy and Natural Gas Law affect Electrica’ s activities?
As a listed company, we hope for a more predictable regulatory framework, but the strategy adopted for the next period is one that has facilitated a flexible approach and that has brought us more agility, essential issues for such a period.
Better use and allocation of resources throughout the Group, improving operational performance and integrating the customer orientation mentality, as well as optimizing the business model are the key elements to ensuring a stable balance between the value proposition for customers and maximizing profit for shareholders.
I would like to stress out that, since 2014, Electrica invested in the Grid nearly EUR 1 bln.
In June this year, Electrica released its Sustainability Report for 2019. What can you tell us about Electrica’s current sustainability projects of 2020?
In fact, as it resulted from the stakeholder consultation process, the material indicators analyzed in the Sustainability Report keep the economic, social and environmental aspects in focus. For us, these are not only indicators in terms of topics of interest related to the Company’s activity, but also an element of continuity on which we rely in the constant improvement of sustainability issues.
One of our main objectives at the Group level is to have a positive impact on communities, both at a business level, by developing services and solutions tailored to the increasingly complex needs of the customers, and at a social level, by supporting local initiatives that bring a major change for the better.
Electrica Group launched in 2019 a new strategy, adapted to the changes and the new paradigms of the energy market, and which places sustainability at the center of the business concept. Protecting biodiversity and reducing the harmful effects of its activities or assets represents a priority. Thus, last year Electrica made investments worth RON 3 million in the field of biodiversity protection and RON 11.68 million in the field of environmental protection.
Also, the expansion on the electricity value chain, especially in the production area from renewable sources, is one of the important objectives of Electrica Group’s Strategy for the 2019-2023 period. We are aware of the importance of decarbonizing the energy sector and we are concerned about sustainable business development, especially in the context of the new challenge launched by the European Commission for the member states – the Green Deal or the New Ecological Pact. Of course, sustainable development also means for us that we are concerned that such projects bring added value to the business and investors, consolidating the results of Electrica Group.
What can you tell us about Electrica’s CSR activities?
During the past four years we developed a grant program – Electrica pune Romania intr-o alta lumina, and we funded several local initiatives and community projects related to health, education, culture, sport, or social services. In 2019, we received over 80 proposals, out of which we selected and financed 5, which had a positive impact on over 25.000 beneficiaries.
In 2020, the entire community fights against the Coronavirus and we decided to join this battle as well.
In the current epidemiological context, the companies within Electrica Group donated for the support of the Romanian medical system, starting with March and until now, EUR 340.000. The funds were distributed to hospitals, the Red Cross and other non-profit organizations in Bucharest, Ploiesti, Brasov, Cluj, and Drobeta Turnu Severin, for the purchase of medical equipment, materials, and services.
How did the COVID-19 pandemic affect the electricity sector and Electrica SA in particular?
As the pandemic started, our goal was to ensure the security and health of our clients and customers and to make sure that we will continue to supply with energy our over 3.8 million consumers. As we play a strategic role, some of our employees have been and still are in the front line and thanks to their commitment and professionalism things run smoothly. We are extra-careful, and we have strict safety measures in place, but we have a duty towards the society, and we have to take care of our customers.
Ever since the debut of the pandemic, the Group designed a resilience plan, which comprises of a set of measures which have the purpose of helping us continue our activity. We implemented a set of sanitary measures as well and we limited the meetings and human interactions, where possible. Moreover, we set up a crisis cell, and we are prepared to help our employees, if they have to stay isolated or they get infected. Moreover, we tried to help our peers as well, and we donated towards hospitals and NGOs that are tackling the coronavirus issues.
Did the pandemic crisis affect any of Electrica’s investment plans?
Our investment plans were established for the entire regulatory period and we continued to run investment programs throughout the state of emergency, with some exceptions. However, some maintenance activities were postponed. After the lift of the restrictions related to the state of emergency, we resumed our projects and started implementing them according to the revised execution schedules, while taking an extra set of protection measures, due to the current context. At this moment we estimate that the investment plans will be realized at the assumed level and that we will ensure the sustainability of the performance proven in the last years.
You recently released Electrica’s 9M 2020 Financial results. How do you rate them compared to 9M 2019 and what is your forecast for Q4 2020?
The results recorded by Electrica Group in the first nine months of this year, a complex year for everyone, prove that the business model adopted is working. Electrica Group obtained, in the first nine months of 2020, a consolidated net profit of RON 396 million, recording an increase of RON 235 million, respectively by 146.2%, compared to the same period of the previous year. The total revenues of the Electrica Group, for the first 9 months, reached RON 4,776 million, growing by 3.7% compared to the same period of 2019.
Consolidated EBITDA also increased by RON 280 million after the first 9 months, compared to the same period of last year, reaching RON 829 million. The increase in EBITDA was mainly determined by the cumulative impact on the evolution of the supply segment, which registered an increase of RON 130 million compared to same 9 months period of last year.
We were able to quickly adapt to the unprecedented situation generated by the sanitary crisis, which had a major impact on the global economy’s evolution, and we identified opportunities for a sustainable evolution of the company, beyond the implementation of the necessary measures for business continuity. The current context has not necessarily led to a change in priorities, but rather to a need of focusing efforts, to accelerate their implementation. From this perspective, we managed to accelerate the major transformation projects planned at the Group’s level, in all main business directions: distribution, supply and services. Additionally to internal optimization and cost efficiency, we became the most important investor in electricity distribution infrastructure in Romania, and continued to develop our business portfolio in both the supply and services areas, also by expanding the activity in the field of generation from renewable sources. The merger plans of the three distribution companies within the Group, as well as of the two energy services companies, will generate synergies that will add value to all stakeholders.
As we are a stock listed company, we cannot advance financial forecasts for the following period. However, we are committed to deploying our Group strategy, which is helping us enhance our services and the client experience.