Balancing market prices, totally out of control

Due to the existence of an oligopoly in the energy balancing market, which imposes ever higher prices, a significant part of the energy suppliers could close their doors in the next three months, if the Government, the Ministry of Energy or the regulatory authority - ANRE - they will not immediately take a series of measures aimed at mitigating the explosion of prices in this market, the representatives of the Association of Energy Suppliers in Romania (AFEER) claimed, during an informal meeting they had yesterday with media representatives.

Laurenţiu Urluescu, the president of AFEER, said: "I want to specify that the suppliers have no role in the transactions with balancing products on the balancing market; they are not providers of balancing services in this market, they do not transmit any kind of offers. Only the operator of the balancing market, namely Transelectrica S.A., some of the electricity producers and holders of qualified storage capacities trade on this market. The suppliers only transmit the forecasted consumptions to the operator of this market and finally settle the costs with balancing the system. According to the most recent data published by Transelectrica, the energy traded on the balancing market decreased, for example, in March 2024 as a percentage of total consumption to 3%, compared to 3.7% in the same month of 2023. In terms of volume, the decrease is from 172 MWh to 142 MWh. This drop of more than 20% shows that there was a significant improvement in the forecasts of all market participants. Worryingly, although the volume decreased, the prices paid increased from an average of approximately 400 lei/MWh in 2023, to over 2000 lei/MWh in 2024, with highs exceeding 15,000 lei/MWh. Thus, although their forecasts had a higher degree of accuracy this year, it is the suppliers who bear the losses caused by the exorbitant price increases. The causes of these price increases on the balancing market must be clarified by the authorities together with the electricity producers participating in this market and with Transelectrica".

His Lordship stated that, from July 1, the situation is getting worse because, based on the new qualification criteria, the number of price-setting companies in the balancing market is considerably reduced, and he warned that if the authorities do not quickly take action on the prices of balancing, many suppliers may disappear from the energy market.

The President of AFEER pointed out: "ANRE refused to cap these prices and sent us to Transelectrica to declare a state of alert and cap, which is difficult to do when we are talking about a company listed on the stock exchange. We, as suppliers, cannot pay balancing prices of 7000 lei or 5000 lei per MWh. For now, we are obliged by the provisions of GEO 27/2022 to pay. But, when the respective normative act will no longer be applied, the losses resulting from the respective balancing prices will end up in the final bill".

The situation is dramatic considering the fact that the last balancing price dates from July 1, 2024, and suppliers do not know what balancing bills they will have to pay for the current month and, above all, at what prices those bills will be calculated. Even if they have an idea of the volumes they had until July 1st, in the absence of the price for each day, they have to wait for the invoices from August 15th to find out what new losses have to be paid.

Cristian Culea, member of the Board of Directors of AFEER, stated: "In July we are flying the plane without radar regarding these prices, because Transelectrica has not yet published any data regarding the estimated prices of imbalances, nor the marginal prices at which system closed. What I can say is that the price explosion of the last few days has an impact, because a price of 3500 lei MWH is not really kosher for us. (...) We will probably find out the balancing in August, because for now from July 1st at 7 am until now we have no figures: neither quantities, nor balancing prices. We will find out on August 15 what we pay for June imbalances. Until August 15, we are totally blind".

• Preparations for the re-liberalization of the energy market

AFEER representatives also request the authorities to urgently start preparations for the re-liberalization of energy prices. Laurenţiu Urluescu declared: "The global crises, which started with the coronavirus pandemic - health, economic, energy and geo-political - led the Romanian authorities to take exceptional measures. In the energy field, these measures had the effect of capping/compensating electricity and natural gas bills. The legislation in this regard applies until 31 March 2025. Which means that, in just a few months, this restriction in the energy sector will be lifted. In order not to create chaos in the market, we ask the authorities to start the preparations regarding the re-liberalization of electricity and natural gas prices, so that it unfolds smoothly, calmly, giving the opportunity to the economy, but also to the people, to re-adapt. Only in this way will we all be able to benefit from fair prices for energy and gas".

According to the legislation, domestic and industrial consumers benefit from electricity at prices of a maximum of 1,300 lei/MWh, which include all components (network tariffs, green certificates, cogeneration bonus, excise taxes, VAT). The ceiling/compensation of invoices from the state budget is carried out in two stages: in the first stage, suppliers pay from their own money to producers, transporters, distributors and the state budget (VAT and excise duties) the difference between the final price paid by consumers and the market price . In the second stage, the suppliers are settled from the budget for the amounts spent for the Romanian state.

The president of AFEER stated: "All these provisions create additional concerns for suppliers! On the one hand, we have unpaid amounts since last year, and on the other GEO 32/2024 sets at 700 lei/MWh the maximum value of the weighted average price of electricity at which ANRE calculates the amounts to be settled from the state budget; an artificial cap introduced without proper analysis of market price volatility. In addition, we fear that the Solidarity fund and the Energy Transition fund, which was fueled by over-taxing producers when prices were very high and from which reimbursements have been made so far, will no longer be fueled enough for the settlement the amounts spent by suppliers to support the capping/compensation schemes introduced by the authorities. All this creates high exposures to the risk of not being able to recover on time the amounts with which the suppliers support the consumer aid scheme", says the president of AFEER.

Currently, due to the weather conditions, with red heat codes, electricity consumption has reached very high levels, not only in Romania, but in the whole area, which has led to an increase in prices on the spot markets. The extension of this subpoena may have effects on consumer bills, on suppliers and on the state budget, through the application of bill capping/compensation legislation.

• AFEER calls for the creation of a market for guarantees of origin

Instead, producers, at least renewable ones, could recoup their investments by establishing a voluntary market for guarantees of origin, given the growing demand due to the expansion of ESG policies of industrial end-users. ESG (Environmental, Social and Governance) represents the application of sustainable business practices in the context of Environmental, Social and Governance criteria, which are also recognized internationally.

ANRE issues a guarantee of origin for each megawatt hour produced from renewable energy sources. In Romania, at present, these guarantees of origin are transferred by the supplier, to his final customer, at his request, together with the electricity sold. The supplier cannot transfer only the guarantee of origin to a final customer, without supplying the electricity related to it.

Laurentiu Urluescu said: "If a consumer does not, for now, need guarantees of origin, they are lost. Basically, they are issued for nothing! Conversely, other consumers, who need such guarantees, cannot purchase them. We point out that although there is increasing demand, the current transfer method is inefficient and causes bottlenecks and shortages. That is why we request the creation of a functional market for these guarantees of origin, so that they can be transferred independently of electricity, just as it exists in the other EU countries".