CRISIS TO REDUCE ENERGY CONSUMPTION SIGNIFICANTLY Drought and heatwaves will keep energy prices steady

• The increase in energy demand by households and companies will not compensate the drop in industrial demand

Alina Toma Vereha

The drought will lower the output of cheap hydroelectric energy, and will increase the demand for electricity of the households and companies (due to air conditioning use), as well as the electricity demand of agriculture (irrigation). Jean Constantinescu, the president of the Romanian Energy institute (IRE), said: "The increase of the price of energy will not be as big as in 2007, because industrial demand will remain low. Industrial energy consumption has been hit so hard, that even increased demand during the summer will not have much of an effect on prices and it won"t make much of a difference in the energy producers" balance sheet at the end of the year".

The spot energy market (editor"s note: the trades on the day-ahead market) will see some price fluctuations this summer, but prices won"t reach the record levels logged in 2007, when demand was at its peak, Jean Constantinescu said. Producers have already cut their ask price, in order to sell their energy, accepting to cut their profit. Suppliers had to accept some end user price cuts as well.

According to the chairman of the IRE, the domestic energy output will be enough to cover the peak demand during the drought and heatwave periods, and energy producers will have the opportunity to continue exporting in neighboring countries, which continue to experience a capacity deficit. Even so, says Jean Constantinescu, the energy consumption is expected to drop 5-7% YOY. The drop in consumption will affect the profitability of energy producers, whereas investments in the modernization and construction of energy production facilities are expected to shrink due to lack of available funding.

In 2003 and 2007, Romania"s energy system faced a high energy deficit due to drought and heatwaves, in particular during certain timeframes. The solution for this problem was the storage of water in reservoirs, the partial freezing of hydroelectric energy exports and the use of the very expensive coal, gas and fuel oil based energy production facilities of the electrothermal plants and of Termoelectrica. Jean Constantinescu said he didn"t believe that this situation would occur again this summer, as the economy has contracted compared to the previous years, meaning the price of energy on the regulated market won"t be affected and there would be no need to resort to expensive energy coming from the abovementioned sources.