In the first nine months of 2023, EBITDA at Electrica Group level recorded a solid increase by 13.5%, or RON 148.8 million, reaching a value of RON 1,252.9 million, compared to the value of RON 1,104.1 million achieved in the first nine months of the previous year, according to figures published by the group.
Also, during this period, the volumes of energy distributed and supplied were lower by 6.2% and 10% respectively compared to the same period in 2022. Operating profit recorded a smaller decrease, by 2.7%, on the back of a 3.2% decrease in operating income (mainly due to the effect of tariff increases), in conjunction with the implementation of CEAM (Centralized Electricity Acquisition Mechanism) and the effort to keep costs under control.
Electricity procurement expenses decreased by RON 873.5 million (or 11.3%) to RON 6,854.0 million from RON 7,727.7 million in the corresponding period, mainly due to the sharp decrease, on average by 47.9%, in the electricity costs for covering own technological consumption for the distribution segment as a result of the implementation of CEAM, plus the unfavourable impact from the increase in the electricity purchase price on the supply segment, on average by 20%.
Interest expenses increased
Operating expenses fell by 3.3% compared to the same period of the previous year and net profit in the first nine months of 2023 recorded a reduction by RON 115.4 million (21.6%), the main cause being the increase in the negative impact of the financial result, from RON 103.3 million in 2022 to RON 216.8 million in 2023 (an increase by 110%). The significant increase in interest costs for the year 2023 compared to 2022 is a direct effect of the failure to collect the amounts from the Ministry of Energy and the National Agency for Payments and Social Inspection within the legally established deadlines, as a result of the application of the price cap mechanism for electricity and natural gas under the applicable legislation.
“Consistently delivering favourable financial performance, even in the context of rapid change in the energy sector, underlines once again the extraordinary resilience and deep strategic vision of our team. The success of the Electrica Group is evidenced by the 13.5% increase in EBITDA, the most convincing sign of our ability to implement effective strategies to increase profitability and optimise operations. The consistent achievements we have recorded since 2022, and which continue into 2023, are the result of constant adaptation, prudent risk management and the successful implementation of our growth strategies, which are reflected in a positive and sustainable development for the Electrica Group,” said Alexandru Chirita, Electrica’s CEO, in the presentation of the report for the first nine months of 2023.
What drove EBITDA growth
EBITDA growth in the first nine months of 2023 was mainly driven by the operational performance of the distribution segment, on the back of a 27.4% increase in revenues (or RON 673.9 million) to RON 3,135.6 million from RON 2,461.6 million recorded in the same period last year, as a result of the following factors:
- Positive impact of approximately RON 348.7 million from the increase in distribution tariffs, on average by 20%, compared to the first nine months of 2022, a positive effect reduced by the decrease in the distributed electricity volumes by approximately 6.2%.
- Positive impact from the evolution of revenues recognised in accordance with IFRIC 12 – revenues from the energy distribution segment are influenced by the recognition of investments in the distribution network in connection with concession agreements, these revenues increasing in the first nine months of 2023 by RON 325.5 million compared to the same period of the previous year.
As a result of ANRE Order 27/2023, as of Q2/2023, distribution tariffs were higher by approximately 20% (26.1% in the North Muntenia area; 21.5% in the North Transylvania area and 10.9% in the South Transylvania area), compared to the same period of the previous year, so that, implicitly, revenues from electricity distribution are higher, with a positive impact on the operating performance in this segment. The tariffs applicable from April 1, 2023, will remain unchanged until December 31, 2023.
Also, at the beginning of the current regulatory period (RP4), ANRE made a total negative closing correction of RP3, amounting to RON -855 million (nominal terms) and RON -665 million (2018 terms), respectively, of which RON -341 million (2018 terms) for meters recognized as investments in RP2 (2008-2013). The meter correction was challenged in court by the distribution subsidiary of the Electrica Group, because in 2013 ANRE recognised the meters in the RAB (regulatory asset base) based on the principle of non-discrimination of all distribution operators, although they were not registered as fixed assets. The total negative correction related to RP3 decreased the regulated return for RP4, the value in 2023 being RON -93 million (nominal terms).
Supply revenues plunged
As regards the supply segment, revenues from the supply of electricity and natural gas decreased by RON 608.8 million (or 10.2%) to RON 5,343.8 million from RON 5,952.6 million in the same period last year, mainly due to the net effect of a 5% increase in retail prices and a 10% reduction in the amount of energy supplied to the retail market. As at September 30, 2023, the subsidies receivable from the supply segment were approximately RON 2,264.1 million (of which RON 2,254.3 million from the Ministry of Energy), increasing by RON 983.3 million (from RON 1,280.8 million as at December 31, 2022). Out of the total of RON 2,254.3 million, RON 1,198.6 million represent uncollected claims submitted to the state authorities by the date of submission of the financial results for the first nine months of 2023.
Operational performance improved
Worth noting for evolution in terms of financial performance 2023 vs 2022 is that during the first nine months of 2023, capitalised own technological consumption was approximately RON 66 million compared to the same period in 2022, when a value of RON 780 million was recorded, as the Group managed to reduce additional costs related to the purchase of electricity for own technological consumption in the distribution segment. Thus, eliminating capitalised own technological consumption from operating profit, there is an improvement from RON 99 million in 2022 to RON 367 million in 2023, which has a favourable impact on the Group’s performance, which can be seen in (current) operating revenues and subsequently in their receipts, Electrica points out.
Operational performance was supported by lower own technological consumption costs, lower other operational costs, and higher reactive power revenues. It should also be noted that the intangible assets built up together with the revenues from the capitalisation of own technological consumption costs are non-monetary. These revenues are recovered in monetary terms (through invoicing and subsequently receipts) now and in subsequent periods, the first year being 2023, starting April 1, 2023. The Group stresses that it will continue the process of adapting its activities and strategy to market conditions, based on sustainable growth of the Group’s companies, so as to ensure financial stability and efficiency of all business lines in the portfolio. Thus, the positive evolution of the financial performance evidenced by the significant increase in the net result reflects the company’s ability to adapt to the dynamic economic environment and to implement effective strategies to increase profitability and operational efficiency.
Other important operational data:
- Volume of electricity distributed – 12.55 TWh in the first nine months of 2023, down 6.2% from the first nine months of 2022, but up 3% in Q3/2023 compared to Q2/2023. DEER serves about 3.9 million users, covering about 40% of the surface of Romania.
- Volume of electricity supplied to the retail market – 5.7 TWh, down 10% compared to the first nine months of 2022, amid the general trend of decreasing electricity consumption; Electrica Furnizare supplies electricity to approximately 3.5 million places of consumption on the competitive market, as well as in the universal service and last resort regime.
- Market share on electricity supply – Electrica Furnizare is one of the largest suppliers, with a total market share of 16.66% and 9.98% under competitive regime, according to the latest ANRE report available, for July 2023.
- The Electrica Group continues to expand its portfolio in the field of electricity generation, especially from renewable sources, with projects in various stages of execution with a capacity of approximately 300 MW.
- The Regulated Asset Base (RAB), in nominal terms, with inflation 13.69% for the year 2023, estimated at the end of the third quarter of 2023, is RON 6.9 billion, without inflation being RON 6 billion, with the caveat that the assets in RAB will be revalued at the end of the year.
- At the end of the first nine months of 2023, the operator Distributie Energie Electrica România (DEER), has made and commissioned investments (Commissioning CAPEX) amounting to RON 324.9 million, representing 42.5% of the commissioning program planned for 2023 (i.e. RON 764.1 million, of which RON 628.4 million from the 2023 plan and RON 135.6 million from the 2022 carry-over); RON 162.4 million were realised from the 2023 plan, RON 95.2 million from the 2022 recovery and RON 67.2 million additional works to the 2023 plan due to legislative changes on connection.
“Before the end of the year, we will present the Group’s new medium and long-term strategy, which will include the same high dose of resilience and flexibility, focusing not only on adapting our core business areas to the complex environment in which we operate, but also on exploiting renewable sources and on the principles of sustainability. In this way, we want to strengthen our leading position on the market and achieve results that meet the expectations of our investors,” said Alexandru Chirita.
In April 2023, Electrica’s Board of Directors approved an investment plan for 2023 totalling RON 1.08 billion. Of this amount, RON 825 million represented the financial plan for 2023 of the distribution subsidiary Distributie Energie Electrica Romania in terms of investments, RON 65.2 million was the financial plan for 2023 of Electrica Furnizare, RON 10.5 million was for Electrica Serv, RON 16.3 million was for Electrica Productie Energie, RON 52 million was for Green Energy Consultancy & Investments, and RON 94.8 million was to be granted to Sunwind Energy.