While almost every European country built vertically-integrated companies, most of them state-run, as Italy’s Enel is, Romania pitted thermoelectric power plants against hydropower plants, sold the distributors and is now listing state-owned producers one by one, canceling any chance of having an integrated company.
“It’s a difficult market for all power producers, but 2013 was a good year for vertically-integrated companies like Enel,” Luca D’Agnese told ZF in an interview, adding that profits were good for ‘downstream’ (sales and distribution) companies but went down for ‘upstream’ (power generation) companies.
Enel posted EUR971 million in revenue and net profit of EUR196.3 million in 2012, from the sale of electricity in three regions: Dobrogea, Banat and Muntenia Sud (southeastern, western and southern Romania) regions.
The Italian company built its Romanian presence via two privatization processes, buying the former Electrica Banat and Electrica Dobrogea as a package and then Electrica Muntenia Sud.
Enel is an international giant with more than EUR85 billion revenue and 74,000 employees in 40 countries.
In Italy, Enel is the largest electricity company. It operates in the field of electricity generation of thermal and renewable power plants with nearly 40 GW of installed capacity. Furthermore, Enel manages the majority of the Italian electricity distribution network and offers integrated package of electricity and gas products and services for its 31.3 million customers, its corporate website says.
History of a split
Romania has no such company. Since 2000, when the former CONEL broke up into Termoelectrica (thermal power plants operator), Hidroelectrica (hydropower plants operator), Electrica (supply and distribution company) and Transelectrica (national power grid operator), the country has not had any vertically integrated power group.
Power producers are divided by the type of resources they use in the power generation process, five of the eight electricity distribution branches of Electrica were privatized, with stock market listings to follow. Although it did try to create vertically integrated power companies on several occasions, Romania’s efforts met with opposition from the EU or the World Bank.
“I think now’s a good time to privatize distribution companies. Buying minority stakes is not part of our strategy. We are not a private equity firm, we are a strategic investor,” Luca D’Agnese said.
This system structure has negative effects because it does not leave room for compensation between the less profitable parts of the energy sector and those which are less exposed to risks. Electricity generation companies experienced a decline in prices in 2013 because of the decline in consumption and the added pressure from renewable energy.
Distribution companies, on the other hand, which sell electricity to the regulated sector, households or small companies mainly, did not experience a decline in consumption. The decline was seen chiefly among industrial consumers, which most often get their electricity directly from the national power grid operated by Transelectrica. In addition, despite the power price drop, electricity bills increased because of the clean energy costs.
Estimates for 2014
The 2014 forecast largely depends on the 2013 performance of the industry, Enel Romania’s CEO says. “If there won’t be a serious drought that could modify prices, supply and demand will largely remain the same.”
He sees another complicated year for power generation companies because prices will not go up, and a good year for consumers, while Enel expects to distribute the same amount of electricity.
Distribution to major consumers via high voltage lines declined by about 5%, D’Agnese said. Industrial segment accounts for 20% of the electricity Enel distributes. Demand from small consumers, on the other hand, increased so the overall amount of electricity distributed was almost the same as in 2012, he added.
Enel distributes about 14 TWh of power to the three regions it operates in and 2013 was good for Enel Romania’s business, D’Agnese said without providing any figures.
Profit could suffer this year after the government decided to levy a 1.5% tax on special building structures. The enforcement of the tax is still under discussion but Enel Romania expects to pay EUR10 million to EUR15 million, according to its CEO.
Another challenge in Romania is the lack of any strategy for the long-term development of the energy sector. The Economy Ministry (which includes the Department for Energy) and Transelectrica should take care of the planning for the energy sector, says Enel Romania’s CEO.
“The problem is not today, maybe tomorrow.” If problems are expected in the system in five years, action needs to be taken now, if problems are expected in ten years, the sector can manage for the time being but someone has to answer these questions with a strategy, he added.
Enel is currently employing 3,800 people in Romania after 400 left through the voluntary layoff scheme last year. Enel is also a green power investor via its Enel Green Power unit, which invested some EUR750 million in wind farms with a capacity of 500 MW. It also has solar power investments.
(English version by Loredana Fratila-Cristescu)