23 February 2022
Romanian price measures undermine the country’s electricity market
The Romanian Government introduced a set of three measures to tackle high energy prices. The underlying thought behind these new rules is to support consumers who would struggle otherwise. But they are simultaneously putting excessive pressure on power generators and distributors.
First, domestic and corporate consumers receive financial compensation for their elevated power bills. This compensation is paid for by a levy on electricity suppliers. This levy is a pure added cost for them. The Government promised to provide compensation as suppliers are not making any extra money. Most of them have hedged their power sales in long-term contracts. But the Government has not provided any support yet.
The Government also imposed an 80% tax on renewable energy producers’ gross revenues above 450 lei/MWh (€91). However, most of them have hedged their power sales based on long-term contracts. This was not taken into account. Nor were balancing costs which are particularly high in Romania.
The tax on the additional income does not consider the producers’ extra expenses. Again, most of the renewable energy generators are hedging their sales from price fluctuations. Net revenues are fixed and generators do not benefit from spikes in electricity prices. So they are being taxed for a benefit they did not accrue on their production leading to negative earnings
It is especially unfair that those generating renewable electricity are hit so hard. The high power prices are a direct result of high gas prices after all. And the one sector earning big money right now is the gas sector. Romania should reconsider who it’s getting the funds for the compensations from. It could use the higher incomes it’s getting through its national gas producers to finance these measures instead of going after renewables.
Secondly, domestic and corporate consumers receive financial compensation for their elevated power bills. This compensation is paid for by a levy on electricity suppliers. This levy is a pure added cost for them. The Government promised to provide compensation as suppliers are not making any extra money. Most of them have hedged their power sales in long-term contracts. But the Government has not provided any support yet.
And on top of it, generators have to finance a cap on retail power prices. This benefits about 90% of consumers. So consumers get both a cap and a compensation for high prices. Once again the Government has not given compensation to suppliers for this measure.
These three measures combined put a heavy financial strain on the entire (non-hydro) electricity supply chain in Romania. Power generators, distributors and utilities are losing a lot of money this way. If this situation continues it is not unlikely that some of them will default and future investment might come at risk.
Meanwhile and more encouragingly, the Government is planning to start its first CfD auctions for onshore wind. It hopes to run a first auction by the end of this year. Still, all these measures are generating mistrust and undermine the financial ability of companies to continue investing in new wind farms. They are already postponing or cancelling investments which are necessary for the energy transition in Romania.
WindEurope CEO Giles Dickson said: “It is commendable that the Romanian Government is giving financial support to those who need it in these times of high power prices. The European Commission’s toolbox clearly allows them to do so. But the current measures form a threat to the electricity supply chain in Romania. The Government should fulfil its promises soon and provide companies with the compensation they were said to receive.”