“Consumers will fiercely fight to have the end price down as much as possible, which will put pressure on producers to supply electricity at very low prices. I think Complexul Oltenia (which uses coal to generate electricity i.e.) will see the price drop below generation costs.”
The decline in power consumption and the entry of the renewable power producers on the market led to a 20% decline in the electricity price on the energy exchange. Those to have felt the pressure at its worst were the companies using coal or gas to generate power, where fuel accounts for most of the generation costs, unlike hydropower, solar of wind power producers, which get both free fuel and subsidies for their production.
The trend on the energy exchange did not go unnoticed, with consumers terminating their contracts with the existing suppliers and demanding lower prices. To stay competitive, suppliers started to buy more and more power from the spot market, where delivery is made right away and energy is often cheaper than sold via long-term contracts.
On the other hand, a trader relying too heavily on the spot market, risks taking a loss due to the market fluctuations, as prices may vary by 50 lei (EUR11.2) to RON100 per MWh overnight.
However, the spot market came to account for 40% of the total consumption by the end of 2013, according OPCOM energy exchange data.
“We lost some consumers because of the cutthroat competition among traders in the second half of 2013, offering sale prices which they can’t possibly justify commercially,” George Nita said.
“A number of new companies entered the market that could afford to offer prices below the market estimates and did not even think about the imbalances in the system, all it mattered to them was gaining as many consumers as possible. Some were companies that had financial backing from abroad and some were new Romanian companies, which took some risks.”
The market continues along the same lines this year, as well. The average price on the long-term contract market fell 10% to 20% in the first quarter, compared with the same time in 2013 and the spot market reached 43% share of consumption in March, according to OPCOM.
The OET chief executive says that the decline in the prices of electricity per se will come with an increase in the regulated distribution tariffs so the final price consumers pay is likely to remain the same.
OET is part of a Bulgarian-held group operating in the Balkan countries, Central and Eastern Europe, yet the Romanian division is its most valuable, with almost RON200 million revenue.
The company plans to expand westward this year, and is already trading on the German and Italian energy markets.
“We are especially interested in Serbia, where deregulation is taking place fast, as the country wants to join the EU. We are not ruling out Moldova, given the prospects of interconnection with Romania.”
(English version by Loredana Fratila-Cristescu)