Moreover, since industrial production accounts for 30% of the local gross domestic product, securing low power prices is essential for Romania.
The problem is that power in itself does not account for even half of the price the end consumer pays, with the rest of it divided among distribution and transmission tariffs and taxes. While producers say they can no longer cope on the market, consumers are unhappy with the higher power bills.
These were some of the conclusions of a ZF conference organized in partnership with OMV Petrom (SNP.RO), Nuclearelectrica (SNN.RO), CEZ, Pachiu si Asociatii, Vodafone, Philips Lighting and Biris Goian.
“We are in favor of the reintegration of energy companies. Big is beautiful,” said Energy Minister Razvan Nicolescu who attended the ZF conference on Wednesday.
Romania has already started an analysis of the integration of the nuclear power industry from uranium ore mining to generation of electricity by the power plant in Cernavoda. At the same time, companies like Nuclearelectrica and Electrica are bidding in Enel’s sale of its electricity distribution and supply companies.
The problem here is that even though the idea of Romania building regionally relevant integrated energy companies is being discussed again, energy producers, which are in competition regardless of the resources they use for power generation (nuclear power, coal, wind and water), are in a delicate situation.
They all blame the legal framework, which limits long-term trading and demand solutions to boost consumption.
“I think that the main warning signal is that all the major producers are in a very difficult situation; coal-fired power producers have been sending warnings for a very long time, the nuclear power producer, the most profitable company of all, has recently sent a warning signal, while Hidroelectrica is insolvent,” said Daniela Lulache, general manager of Nuclearelectrica, which generates 20% of Romania’s electricity.
“Generation accounts for only 30% of the electricity price. I think one can draw only one conclusion, the policies must be revised, the entire regulatory system must be revised for us to reach our goals.”
The energy market regulator ANRE was unable to attend the ZF conference.
“We don’t have a competitive market today, the purpose of an energy exchange is to boost the number of transactions, conducted transparently and competitively. Each company is capable of having its own strategy and position on the market. We just need to compete on equal footing,” Lulache added.
The big problem of energy producers is that they can no longer sign long-term contracts because of the obligation to offer a fixed price for the duration thereof, so most contracts are now closed on the spot market where the renewable energy caused a significant decline in prices.
“You must not expect things to change when it comes to bilateral contracts. But I’m not ruling out certain changes for the new investments, after we go through the normal public consultation process,” Minister Razvan Nicolescu said without elaborating further.
Daniela Lulache in turn said producers do not need support or incentives, they only need a really competitive environment.
“The day-ahead market (the spot market of the OPCOM energy exchange i.e.) should become what it is everywhere else in this world, a marginal market. It is not normal to have 40% of the transactions conducted on the day-ahead market,” Lulache added.
Thermoelectric power producers, whose costs are higher, advocate the need of an energy mix, especially in terms of sharing costs.
“If we drive out some players from the market it will be very hard to bring them back in ten years,” said Ovidiu Demetrescu, member of the board of Complexul Energetic Hunedoara.
“We, the coal-fired power producers have two more components than the nuclear power business: the environment cleaning component and the greenhouse gas emission component, for which we have to pay. We need to include costs in this energy mix.”
The law requires the power producers to trade electricity only on the energy exchange and even though power exports have been a lucrative business for electricity suppliers in 2014, producers have a hard time reaching international markets.
“I’ve been getting questions more and more often especially from producers: Am I allowed to export? Total silence from those that should provide a legal interpretation on this,” said Dana Dunel Stancu, head of Energy & Natural Resources Practice with law firm Biris Goran.
“Producers may export right now if they register on the very market they want to deliver to. The question is whether the competitive market they are allowed to trade on is only the one in Romania. (…) There’s no OPCOM on all the markets in Europe, there are only private platforms.”
The regulation issue is not something only the energy production sector is facing. Romania will have a new oil and natural gas royalty system in place as of next year and the modifications of this system will influence investments.
“Almost all productive fields at the moment are being drilled by Petrom and Romgaz (SNG.RO). We are already in talks with OMV Petrom to take over some marginal fields,” said Tudor Gafton, general manager of gas producer Amromco Energy.
“There’s also a round of auctions for exploration blocks, to which we will participate. Royalties should be differentiated. It’s much more expensive and takes a greater effort to redevelop a marginal field than drill big wells.”
Amromco has a 2% to 3% market share and its business is centered on mature fields.
“The ANRM (National Agency for Mineral Resources) should encourage Romgaz and Petrom to continue the process of outsourcing the fields that are no longer a priority for them, which investors like us could redevelop.”
There a number of investors interested in this particular business, he added.
“The most important thing for any oil and gas investor is that Romania is a NATO and EU member. Production rate per well is extremely low,” said Laurentiu Pachiu, founder and managing partner at Pachiu si Asociatii.
“It’s a challenge but also an opportunity for those operators that possess the capacity to redevelop the fields. All that needs to be done is to attract them.”
(English version by Loredana Fratila-Cristescu)