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CLAUDIU DUMBRĂVEANU, ANRE:"We hope that the decisions made in the crisis period will not affect the energy industry"

Alina Vasilescu (Translated by Cosmin Ghidoveanu)
English Section /

"We hope that the decisions made in the crisis period will not affect the energy industry"

"Starting with July 1st, the prices of electricity for end users will depend on the competitive market"  

"The state has not created a mechanism to support vulnerable customers"

We are currently going through the crisis generated by the coronavirus pandemic and we hope that the decisions which will be made by the authorities during this time will not affect the future, respectively the subsequent functioning of the economy, but, quite the contrary, will allow a soft exit, and a return to normal of every relationship, according to Mr. Claudiu Dumbrăveanu, managing director of the Energy and Pricing General Department of the National Energy Regulatory Authority (ANRE).

He says: "I wish for this crisis to last as little as possible, and for the decisions that every entity in charge makes not to harm the economy, but rather help in its quick turnaround, and of the energy sector, respectively".

The ANRE official says that the institution he represents supports the deregulation and the operation of the gas and electricity market based on competitive relationships and with as little administrative intervention from the authorities as possible. "Obviously, the free functioning of the market needs to be accompanied by careful monitoring, and we, the ANRE, will be doing that, within the limit of our responsibilities", according to him.

"We have been preparing the liberalization of the electricity market since last year"

Claudiu Dumbrăveanu said that the ANRE has been preparing the liberalization of the electricity market since last year, as in mid-2019, two European documents which are important for regulating this sector appearance: Regulation 943 and Directive 944, and their implementation is mandatory. The ANRE official says: "The European regulation has been and is being applied without transposition, and our role was to prepare its implementation as early as January 1st, as the Romanian primary legislation was and is still currently contradicting many provisions in this regulation. In December 2019, the Authority has committed to the preparation of a program for the liberalization of the electricity market as Ordinance 114/2018 was producing its effects in full. Back then we have devised a deregulation program of one year, with the gradual reduction of the percentage of electricity contracted from producers based on regulated contracts, seeking to ensure price stability throughout 2020, at least in the first quarter, to provide the government the time needed to prepare the regulation for supporting vulnerable customers".

Starting with July 1st, providing electricity to household customers will be based exclusively on the competitive market, as the state authorities will not change the legislation, says Claudiu Dumbrăveanu. "Even though the ANRE has committed to the one-year deregulation schedule, meanwhile the order whereby we have imposed the regulated contracts to producers was suspended in court, and as a result the ANRE is unable to draw up a different order on the same matter.

The result is that, starting with July 1st, the providing of electricity to household customers will need to be based exclusively on the competitive market, if the state authorities do not amend the legislation with other provisions. Under the current circumstances, according to the valid contracts between producers and providers of last resort, the tariffs practiced by the latter to the household customers will be in effect until June 30.

Even if we have imagined a deregulation process for about a year, perhaps July 1st will be the beginning of a deregulation. Unfortunately, so far, the state has not drawn up any mechanism for supporting vulnerable customers, meaning that the prices paid by end users will depend exclusively on the prices charged on the competitive market".

"We are witnessing a drastic drop on the spot energy market, but that could be a trap"

The ANRE official warns that we are currently witnessing a drastic drop in the price of electricity on the spot market, but that could be a trap. He says: "We should not fall into the trap of believing that consumer prices will be the same once the crisis is over. These prices are circumstantial, in our opinion, caused by the drastic drop in consumption in the industrial sector, and in general, in the non-household area. Of course, if these prices were practiced on the forward market, from where the suppliers of last resort buy their electricity, it would be great, it could be a factor that could help ensure, to a degree, price stability for household customers. But I believe that no supplier of last resort would make the mistake of relying on the spot market in its supplier operation because something like that could be a catastrophe. We all know what happened in 2017, when, because of some suppliers who relied on transactions on the spot market - which at some point had very attractive prices - a chain of bankruptcies and losses of hundreds of millions occurred among suppliers of last resort. I think that we should not fall into the trap of 2017, and think things through very carefully when we conduct the analysis of the current and future prices".

New rules of operation of the electricity markets

The ANRE representative states that the authority has drawn up a series of orders at the end of March to implement European Regulation 943, which will bring major changes to the functioning of the electricity markets and will be a challenge, because they bring new operational regulations. "If the making of changes is not prepared ahead of time accordingly and with the contribution of every entity in the market, it can can bring some disruptions", says Claudiu Dumbrăveanu, who added: "We have made significant changes to the balancing market, through five new orders issued on March 31st, concerning the shrinking of the settlement period and the shortening of the dispatch from the current period of one hour down to 15 minutes. We have also introduced the possibility to trade flexibly on the centralized markets the bilateral contracts intermediated by OPCOM (ed. note: the operator of the local electricity market) and we have regulated the aggregated methodology of participation of every market operator and of end customers on the large volume electricity market. Furthermore, we have clarified the notion of long-term contract, which, in the opinion of the ANRE, represents the contract with a maturity of more than one year and which can be negotiated on the markets outside the exchange. Together with the issuing of this order we have notified the European Commission that the specialized documentation and the national and European regulations do not include the notion of long-term contract. Following market analysis and consultations with the market, we have come to the conclusion that these contracts with a duration of more than one year meet this requirement and can be negotiated outside the exchange.

Long-term contracts are beneficial to the market, especially the post-crisis market, because they will create the necessary framework for investors to conclude contracts which will ensure the profitability of their investments, as well as predictability and flexible trading. These also contracts provide insurance to market participants against price volatility. They will have to be supplemented in the future by trading of financial products".

"A turnaround of the economy cannot even considered without investing in new capacities"

A turnaround of the economy and the energy industry after the crisis period cannot even be considered without investments in new capacities, says Claudiu Dumbrăveanu. "We do believe that without investments in the next 7-10 years in at least 3000 installed Megawatts, Romania will not have that energy comfort that we all rely on. Without investments we run the risk of Romania in the future being dependent on whether the wind is blowing, or on its connections to other states".

The ANRE official concludes that any post crisis plan will have to take into account the correct, normal, competitive relationships between the markets, which would favor the investments in the sector, as well as everybody's contribution, of the state in principle, for the building of capacities capable of providing backup to the system.

Claudiu Dumbrăveanu: "The ANRE has put up for public consultation a draft order for the launch of a «gas release program» which will be implemented over a fixed timeframe. That should ensure the creation of accurate benchmark prices on the Romanian market, like the ones that exist in other states, such as Austria or Holland, and should create liquidity on the forward markets, in particular to ensure the flexibility and fluidity of trading on natural gas markets.

We are also working on an order which would allow flexible trading on the natural gas market as well, following the model already implemented in the electricity sector, which involves certain variations of the prices and contracted volumes based on updating formulas".

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