Some buyers on the electricity market were willing to pay as much as 2,000 lei (about EUR450) per MWh on the spot market of the OPCOM energy exchange since the beginning of the year, while last year’s trading average was EUR33.
The rise in demand was due to the very cold weather and many traders that had previously signed supply contracts for a certain price thinking they would buy the power from the market had to take hundreds of thousands of euros in losses to be able to meet their contractual obligations. Others simply backed out of the contracts.
“Demand to buy has been higher than supply available to sell since the beginning of the year. It’s like there’s this hunger for power, while consumers are covered. This hunger is a hunger for covering commercial positions. The market is reacting like there’s no more power available,” an expert in the field says.
OPCOM market data show there were days when the gap between demand and supply was 60%. In addition, the spot price in Romania was higher than on any other European energy exchange in two days between January 1-27, that is January 15 and 23.
Demand for electricity was 45% and 60% higher than the supply for sale on the day-ahead platform. The two days were not working days, when electricity consumption is usually lower.
“Everything is happening amid previous very low margins in the electricity supply business. It is a very hard competition in this business, they are fighting over every leu and at the end of the day you have no way of keeping your margins,” says Ion Lungu, chairman of the Association of Electricity Suppliers in Romania (AFEER).
“We’re in the early stages of a problem induced by the participants to the market. Buyers are willing to pay anything to balance their commercial positions,” people in the industry say.
How did this happen?
Spot trading has become the new religion of the companies in this business, with many traders and suppliers backing out of long-term bilateral contracts to try their luck on the day ahead market.
The figures show almost half of the power consumption of the country was traded on the day-ahead platform of the OPCOM energy exchange, which is huge, since this particular market should be only help fine tune some imbalances.
“The market is not over the quarterly thinking yet. We’ve got big traders on the international markets who plan ahead for five years even,” people in the industry say.
Some companies terminated their supply contracts, took the penalties that came with it in order to resell the power on the market, they add. “Why would I sell it under a contract for RON170/MWh when I can sell it for RON500/MWh on the spot market?”
Some have been less lucky and had to file for insolvency. Experts say this is just beginning. The smaller electricity suppliers are simply taking their client portfolios to the big suppliers because they can no longer fulfil their contracts. How this will end is very much up to the structure of the contracts between suppliers/traders and their clients, the people in the industry say.
When will these record power prices show in electricity bills? That is hard to say. At the moment, 80% of the power household consumers use is bought from the competitive market, while the rest of the electricity is supplied at a price calculated by the energy market watchdog ANRE. Industrial consumers do have the protection of regulated prices. Electricity only accounts for about one third of a power bill, while the rest are taxes and tariffs, so the doubling of the power price compared with last year will not be entirely felt.
“I believe ANRE will be cautious on the household consumer segment, but will definitely make some adjustments,” Lungu said.
(English version by Loredana Fratila-Cristescu)