Romanian Government to Spend RON 5 bln for Capping Electricity and Gas Prices

Measures taken by the Romanian Government to protect household consumers against electricity and gas price increases will cost the state budget RON 5 billion by the end of this year. According to the Emergency Ordinance adopted in this respect by the Government, as of April 1 electricity prices continue to be capped and gas prices will be regulated. The structure of the regulated price implies the fixing by ANRE of all its components, including the supply price.

According to regulations that enter into force as of April 1, gas prices will be RON 0.31/kWh for household customers and RON 0.37/kWh for non-household customers with a consumption of up to 28,000 MWh per year. As far as electricity consumption is concerned, during April 1, 2022 – March 31, 2023, the final price invoiced by electricity suppliers/electricity distribution operators that ensure electricity resale is:

• a) maximum RON 0.68/kWh, VAT included, for household customers whose monthly average consumption at the place of consumption in 2021 is lower than or equal to 30-100 kWh;
• b) maximum RON 0.8/kWh, VAT included, for household customers whose monthly average consumption at the place of consumption in 2021 is between 100 kWh and 300 kWh inclusively;
• c) maximum RON 1/kWh, VAT included, for non-household customers.

Government mentions that the provisions of the ordinance could be extended and updated after December 31.

 

Capped gas price without consumption limit for the population

Household gas consumers will pay as of April 1, 2022, and until March 31, 2023, a final price with all tariffs and taxes included of no more than RON 0.31/kWh, and the novelty is that the capped price will be applied without consumption limit. “For consumption realized during April 1, 2022 – March 31, 2023, the final price invoiced by gas suppliers is maximum RON 0.31/kWh, VAT included, for household customers,” the legal act stipulates. For non-household customers, the final price cap will be RON 0.37/kWh and will apply to legal persons that had in 2021 an annual consumption of no more than 28,000 MWh. The limit is generous, given that, according to the official regulated classification, the largest industrial gas consumers are considered those with an annual consumption between 28,000.01 and 280,000 MWh.

 

Electricity price capping continues

For electricity, final price caps will be RON 0.68/kWh for household customers with an average monthly consumption of no more than 100 kWh in 2021, RON 0.8/kWh for households that consumed last year on average between 100 and maximum 300 kWh per month and RON 1/kWh for all non-household customers, except for large industrial consumers such as Alro Slatina or Liberty Galati, which benefit from state aid for the cost of CO2 allowances included in the price of electricity. The list of large energy consumers who benefit from this state aid with CO2 costs will be published for the first time by the Ministry of Energy after the entry into force of the ordinance. The price caps, as well as the consumption limits that entitle them, will be able to be amended by Government decision, “depending on the evolutions registered on the domestic and international markets of electricity and natural gas and the geopolitical evolution in Romania’s neighbourhood,” it is also mentioned in the legal act.

 

Over-taxation of all electricity producers

As of April 1, all electricity producers, not only those producing from non-fossil sources, as it is currently valid, will be overtaxed with 80% of windfall revenues consisting of the positive difference between the effective monthly average price at which electricity is sold and the price of RON 450/MWh, multiplied by the monthly quantities sold.

“In the period of application of the provisions of this emergency ordinance, the windfall revenue obtained by electricity producers calculated according to the methodology presented in Annex No. 6 shall be taxed with 80%,” the draft legal act stipulates.

However, only energy production capacities commissioned after the entry into force of the GEO would be exempt from the over-taxation of profits. Unlike the version in force of the over-taxation, the new legal act provides that financial expenses and expenses for the acquisition of electricity for transactions with physical delivery, as well as expenses on access to energy markets, i.e. the network injection tariff, the market management expenses, the trading tariff and the cost of CO2 allowances will be deducted from the tax base.

 

Increase in network tariffs, a new postponement

The Emergency Ordinance adopted by the Government also provides for the postponement of the increase in network tariffs, to avoid an additional increase in bills. The additional expenses that will emerge can be financed by Enel, E.ON, CEZ and Electrica by new bank loans, for which government guarantees will be provided.

Only from March 2023 will these expenses be recovered by companies, indexed with 3%, through tariffs, but within five years, the legal act provides. Specifically, energy for own technological consumption (OTC) is purchased at the market price, but the distribution operator has a capped price when it transfers it to the consumer in the bill, because the current distribution tariffs will be maintained at this level as of April 1.

Currently, the cost recognized in bills of energy for OTC is RON 450/MWh for the distribution companies (RON 418/MWh for Transelectrica), while the distribution operators buy energy at prices more than double for the networks to operate. For this reason, the distribution companies have complained about losses of about RON 1 billion last year, and for 2022 they are estimated to increase to RON 3.5 billion.

 

What happens to gas producers?

According to the Emergency Ordinance, gas producers in Romania will be forced to sell part of the gas from domestic production at RON 150/MWh (RON 0.15/kWh) for household consumption, and for the consumption of thermal energy producers the price will be RON 250/MWh.

The measure targets companies Romgaz and OMV Petrom. As concerns royalties for the gas quantities intended for household consumers and thermal energy producers, they are calculated at the prices of RON 150 and RON 250/MWh respectively. Also, for the same quantities, the companies will not pay the windfall tax, of 85% for prices higher than RON 85/MWh. An advantage for the company, especially since taxes were paid not at the selling prices in Romania, but at the monthly average of spot prices in Vienna, much higher than the selling prices.