New Regulations in the Romanian Energy Market

Romania’s Ministry of energy on January 21 published the draft Emergency Ordinance according to which as of February 1 the final invoiced price of electricity is capped to RON 0.8/kWh, down from the current ceiling of RON 1/kWh. The consumption ceiling increases to 500 kWh/month, from the previous ceiling of 330 kWh. Household customers will receive a unitary compensation of no more than RON 0.291/kWh, for electricity, the value therefore remaining unchanged from the old support measure. Also, the compensation is granted to all those who fall within the consumption ceiling. As for natural gas, the final invoiced price of natural gas is capped to RON 0.31/kWh, from a level of RON 0.37/kWh. The legal act provides for an increase in the consumption threshold for granting the compensation, to 1,500 cubic meters during November 1, 2021 – March 31, 2022 (i.e., 300 cubic meters/month), from 1,000 cubic meters, previously. The new rules provide that a unitary compensation of no more than 40% of the value of the gas price component in the supply contract of the beneficiary customer will be granted. Currently, compensation amounts to 33%. The compensation is granted to all those who fall within the consumption ceiling.

 On September 7, 2021, the Romanian Parliament adopted a law that protects vulnerable consumers from the increase in energy prices as of November 1, 2021, by granting subsidies for heating the homes, for energy consumption, for purchasing products and services for the improvement of the energy performance of buildings or for connection to the energy network.

On October 4, Energy Minister Virgil Popescu announced that compensations would be granted for both electricity and gas bills. The measures apply between November 1, 2021, and March 31, 2022, and they will help 85% of the population of Romania. In addition to households, compensations are also granted to public and private hospitals, schools, nurseries, NGOs, and public social service providers.

On October 31, the Romanian Parliament approved the draft law on the implementation of the measures mentioned above and for charging a tax on the windfall revenues of producers (for revenues exceeding EUR 91/MWh) to finance the support schemes.

On January 11, 2022, the Government announced a new scheme for protecting household consumers with a monthly consumption of up to 300 kWh, including a VAT reduction to 5%, as well as compensation of the green certificate and cogeneration bonus for consumption.

A new Emergency Ordinance entered into force on February 1, setting a new compensation and capping scheme for electricity and natural gas bills. According to the new rules, for household consumers, the price caps will drop, and the consumption ceiling will increase. The Government will also cap energy prices for companies.

 

New rules for companies as well

Prices are also capped as of February 1 for companies, for both the small non-household consumers of SME or institution type, and large consumers. Therefore, during February 1 – March 31, 2022, electricity and natural gas prices are also capped for non-household customers: the final invoiced price of electricity is capped to RON 1/kWh; the final invoiced price of natural gas is capped to RON 0.37/kWh.

Caps represent the final price invoiced of the end-customer, having included: a) for electricity – electricity price component, excise duty, regulated transmission and distribution tariffs, system services, green certificates, contribution to high-efficiency cogeneration, supply costs and VAT; b) for natural gas – gas price component, transmission cost, storage tariff, excise duty, distribution tariff, supply costs and VAT.

Energy Minister Virgil Popescu claims that 90% of the energy consumers and 70-75% of gas consumers will benefit from the new compensation conditions, given that in the old form of the capping and compensation law around 75% of electricity consumers and around 55-60% of gas consumers benefited. However, experts contradict him and say that, in the old form of the law, for natural gas, only 30-40% of consumers benefit from compensation and that the monthly gas ceiling should be increased to 400 cubic meters per month, i.e., 2000 cubic meters for the 5 months of winter to benefit as many Romanians as possible.

 

The shock of incorrect bills, suppliers’ response

Amid the accelerated increase in gas and electricity prices, consumers have been faced with another problem: the wrong calculation of bills by suppliers. Over one million wrong bills had been issued by the middle of last month. Prime Minister Nicolae Ciuca announced that all the wrong bills would be recalculated. At the same time, consumers wouldn’t be disconnected and would pay no penalties. Customers that must recover more than RON 100 can request money back directly from companies.

The Association of Energy Suppliers in Romania (AFEER) rejects the statements according to which suppliers are accused of incorrect practices and claims that the problems occurred due to ambiguities in the legislation. “Suppliers are not thieves! Everywhere, but especially in Europe, energy prices (electricity, heat, natural gas, fuel) have exploded, the causes being multiple: increase in demand, drop in supply, unprecedented increase in the prices of carbon allowances, various geopolitical disputes etc. Also in Romania, a member state of the European Union and of the Energy Union, energy market prices have increased a lot,” it is shown in a press release of AFEER. The representatives of the Association claim that the upward trend of prices observed in the forward markets was announced by AFEER since last summer, and these increases overlap with the low purchasing power of Romanians and their low income. Also, this impressive rise in prices greatly affects the economy, in which there are still energy-intensive companies. “Although the reasons that led to the increase in prices in the energy market have nothing to do with the activity of suppliers, we find that suppliers are listed as the only culprits for the large bills of Romanians. We do not agree, and we strongly contradict the statements circulated in the public space. Energy suppliers are not the cause of rising energy prices in the market. Energy suppliers are as strongly affected by these price increases as end consumers. The proof in this sense is the large number of insolvencies and the cash flow problems they have,” said Laurentiu Urluescu, president of AFEER.

According to him, in the public space the idea was induced that suppliers did not apply at all or incorrectly applied the legislation regarding the capping and compensation of the electricity and natural gas bills, but the legislation was finalized only on December 18, 2021. However, many suppliers have made great efforts to implement the new provisions in the billing software, and some have anticipated and publicly announced that there would be delays in issuing invoices or applying the capping/compensation scheme, caused precisely by the delays and the ambiguities in the legislation, it is also shown in the message sent by AFEER.

The energy supplier buys what is available on the wholesale market and sells it to direct customers (household and non-household). “Suppliers are not the cause of the increase in energy prices during this period and we welcome the openness expressed by the authorities to discuss and identify sustainable solutions for the market and a package of medium-term measures, which could be adopted starting with April 2022,” the Federation of the Associations of Energy Utility Companies (ACUE) mentions.

The recommendations of ACUE Federation are in line with the solutions identified by the European Commission to allow Member States to keep energy prices at a bearable level. “We want a real dialogue with national authorities. The consultation and involvement of stakeholders represents the guarantee of decisions based on concrete data that will offer real solutions to the challenges in the energy market,” said Dana Daraban, executive director of ACUE.

In a time of severe crisis, increasing risks through ad hoc regulations, without real assessments and consultations, can have an immediate effect on the ability of companies to ensure energy supply for the end-consumer in optimal conditions, ACUE states.

 

Suppliers disappear from the market

Although suppliers have been blamed several times as the cause of price increases, they defend themselves and say that they are also victims of price increases. The proof is that, in recent months, over 60,000 end customers of natural gas have been taken over by SLRs, and three quarters of natural gas suppliers have requested withdrawal/suspension of licenses. “We consider this a very worrying thing: if we look at the offer comparator published by ANRE, there is a significant decrease in the number of offers compared to previous years, which proves the decrease in competition. If this phenomenon is maintained in the long term, it can lead to the deterioration of services,” the AFEER representatives mention. “Every case of willful or involuntary violation of the legislation must be treated punctually, without accusing an entire field of activity,” says the president of AFEER. The association also complained about the fact that suppliers should have received the first money from the state budget, for the consumption of household customers related to November 2021, in the middle of January 2022, but this did not happen.

 

Energy minister relies on warming weather and supplementation of gas production

The Energy minister believes that, after April 1, gas prices will decrease, generated especially by a warmer weather. “After April 1, the weather is practically starting to warm up, and the geopolitical games on the gas market will probably no longer be so obvious. I think we will see a drop in the price of natural gas, natural after all: a decrease in consumption, heating of the weather, which will bring a correction in the price of electricity, but not at the level of last year or two years ago. We are monitoring the market very closely to know what we will do after April 1,” said Virgil Popescu. On the other hand, the minister hopes that Romania will no longer be in this situation next winter and announced that in the following cold season we would have a surplus of one billion cubic meters of natural gas, which will come from the Black Sea, from the block operated by Black Sea Oil & Gas. He also claimed that Romgaz would also start investments at the Caragele field in Buzau County, from where the first gas will most likely come in 2023. The Caragele field is estimated at around 30bcm, and the reserves estimated in Midia block, where the operator is Black Sea Oil & Gas, amount to around 20-30bcm.

 

Suppliers could be subject to surcharge

Finance minister Adrian Caciu announced that the surcharge applied to energy suppliers was being analysed, after the surcharge applied to producers had been introduced. “Everyone should understand that you cannot come and ask for money from the Romanian state as long as you failed to fulfil your obligations under the law. Surcharging the suppliers is being analysed. We will have discussions with representatives from the entire energy chain and solutions will be presented in the Government,” the Finance Minister said. In his opinion, a return to regulated prices can be discussed, but Romania, being a member state of the European Union, must consider the European energy policy, including the treatment recommended by the European Commission to the states. Regarding the settlement to suppliers of the difference between the capped price and the acquisition price for energy, it will be done taking into account suppliers’ behaviour, which must prove that they had an adequate commercial conduct and were not penalized for violating the legislation on capping and compensation, the Finance minister mentioned. The impact of the aid scheme on energy prices is estimated at RON 3bn-3.5bn, according to the Ministry of Energy. We recall that the National Agency for Fiscal Administration (ANAF) published on January 17 the order on how the 80% tax applied on the windfall gains of electricity producers, other than those using fossil sources, will be collected. The surcharge was introduced under the Law on price capping and bill compensation (Law 259/2021) and an ANAF order was needed for it to be collected. The new tax is applied on revenues from the sale of electricity at prices of over RON 450/MWh. The new tax will be paid in the month following that when the revenues are obtained.