The price is also close to the low of 2009, the worst year for Romania after the onset of the crisis. Although a low price may look like good news for consumers, the trading low is nowhere near a good thing for investors, but rather a reason not to spend their money.
The price on the day-ahead market (the spot trading platform) of OPCOM reached an average of some EUR34 according to ZF calculations, based on the data published by OPCOM every month. The average price in the first nine months of 2012 was almost EUR51.
The price in the first nine months of 2013 is even lower than the annual average of 2009 when the local economy was reeling from the collapse of the Lehman Brothers and the start of the international al financial crisis and had its worst year as a result.
Although the amount of energy traded was nearly 50% higher in the first nine months, it hardly showed in the overall traded value, about EUR409 million, close to the level in the same time last year.
“Four causes led to this price trend,” says Ion Lungu, chairman of the Association of Electricity Suppliers in Romania (AFEER).
One of the most important was the drop in power consumption by 7% in the first half.
“This may be the full-year decline, which is really a lot. If we take into account that the power consumption goes up 1% or 2% a year under normal circumstances; a 7% drop means a return to four years ago, Lungu says.
If Romania’s electricity consumption goes down by 7%, it will be back where it was in 2009. The price is already there judging by the first nine-month average, which is very close to the 2009 level. Power consumption fell 10% that year.
“There’s a structural change of the economy. Oltchim stopped working, Mechel closed. The economy did not grow too much and temperatures outside were unable to keep consumption growth going.”
The decline in power consumption was not the only factor for that pushed the day-ahead price down.
“Romania had a very good hydropower production year, as did the entire South-eastern Europe. Then there was also the green power as wind farms injected more power into the system as they did last year and the solar park projects boomed.”
Hidroelectrica generated 11.3TWh of electricity in the first nine months, the company said, and its full-year estimate is 14.2TWh, higher than the 13TWh included in the budget.
Wind farms contributed 8.5% of the power generated in Romania in April, according to the energy market regulator ANRE data.
Another reason for the decline in power consumption was the efforts industrial consumers made to improve their energy efficiency.
“The price drop may seem good news but we also need to consider the development of the industry,” Lungu says.
The power price and a country’s power consumption estimates are decisive factors when it comes to make a decision to invest in a power generation project.
Although Romania has production overcapacity, most of the generation facilities in operation now have to be replaced with more efficient facilities.
There are many projects on paper, reactors 3 and 4 of the Cernavoda power plant, Tarnita-Lapusesti hydropower plant, thermoelectric power plants in partnership with foreign investors, but no one is working on them at the moment.
The only investments making some progress are the clean energy projects, but they are backed by a support scheme and are less dependent on the power price on the free market.
“The low power price is jeopardizing investments in production in this sector, where Romania is using rather old facilities. Production is not the only one affected, electricity transmission and distribution are, too,” Lungu explains.
“There has to be a balance and the long-term price outlook is quite unpleasant. There is a danger because there is no more money for investments. The current price is barely sustainable and is a phenomenon seen across most of Europe.”
In the first nine months of the year, some 1,400 MW of new generation facilities became operational, but they were renewable energy investments. On the other hand, no one has invested in the conventional energy sector, after OMV Petrom, the largest local company, inaugurated an 860 MW gas-fired power plant in Brazi following a EUR530 million investment last year.
Most new projects this year have been solar parks, with about EUR800 million worth of investments completed.
The country’s energy system prioritizes renewable energy over other types of power and clean power producers get subsidies via a generous support scheme. Conventional power producers do not and are clearly at a disadvantage because of this, as shown by the following two examples:
Early in May, Complexul Energetic Oltenia (Oltenia Energy Complex), a company that normally contributes 30% of the country’s power production, was working at only 2% of its installed capacity, something that had not happened in the last 15 years.
The halving of power consumption around Orthodox Easter holidays, which overlapped with the May 1st holiday this year, the very good production of Hidroelectrica and the strong wind in Dobrogea (where most wind farms are), sidelined CE Oltenia, which had merely 100 MW of the 4,000 MW installed operational.
Since producers’ access to the market was largely based on price, there was no room for electricity generated by coal-fired plants. Things have somewhat improved now that the Cernavoda power plant shut down one of its reactors and production of hydropower plants fell.
Even Nuclearelectrica, one of the cheapest power producers in Romania had trouble because of the low power prices.
The company that generates 20% of the power in Romania lost 23 electricity supply contracts in the first few months of the year, as buyers terminated long-term agreements going to the spot market to get what they needed.
The company says it managed to sell the power that was supposed to go to them and also collected 45 million lei (EUR10.2 million) in penalties from those who unilaterally terminated the contracts.
However, Lungu says the price signals of the spot market of OPCOM are short-term signals, for which reason they should be taken with a grain of salt.
According to OPCOM data, power transactions on the spot market accounted for about 32% of the projected consumption in September. The traded volume has gone up in the past year after a law was passed requiring all participants to the energy market to trade solely via OPCOM.
(English version by Loredana Fratila-Cristescu)