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    Romania Power Market Overview


    January 20, 2022 - Fitch Solutions Sector Intelligence

     

      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Romania Power Market Overview

      • 20 Jan 2022
      • Romania
      • Power
      Regulation And Competition

      The government continues to deregulate its energy markets and has outlined a calendar for selling off large government stakes in the country's state-owned power companies. A USD6.5bn aid deal awarded by the IMF and European Commission will align Romanian power prices with the rest of Europe. In November 2014, Romania also joined the 4M Market Coupling project, which will incorporate the country into the common Czech-Hungarian-Slovak electricity market.

      Formally, the regulation of the Romanian energy sector aligns with that of the rest of the EU. Around 83.5% of the electricity market was liberalised in 2005 in the run-up to EU accession, and households became free to choose their supplier in July 2007. The various parts of the energy system were unbundled, creating separate companies for the generation, transmission, import and supply of energy. Five of the eight distribution/supply companies were privatised, with majority shares being sold to European utilities Enel, CEZ and E.ON. Romania has also implemented the EU's Third Package Directives, designed to fully liberalise the electricity and gas markets as well as improve consumer rights.

      Progress was further made in 2016 when the government approved the Emergency Ordinance no. 64/2016 Directives, which, as of April 1 2017, requires the price of gas sold by domestic producers in Romania to be determined as a result of free market supply and demand factors, as decided by the Romanian government. The liberalisation process, which started in late 2007, was completed for non-households in 2014 and aims to create a competitive, transparent and non-discriminatory mechanism for the sale of natural gas in the Romanian market.

      In theory, the government is committed to further deregulation of the energy market. It is withdrawing subsidies and aligning prices with the rest of the EU and has set out a timetable for selling off large government stakes in the country's state-owned power companies. In practice, however, competition is still limited. In March 2014, for example, the European Commission fined OPCOM just over EUR1mn for preventing foreign companies from participating in electricity spot trading, by insisting that they had to have a Romanian VAT registration. This limitation on competition had the effect of obscuring the real price of electricity and reduced liquidity on the wholesale electricity market.

      Sustainable Energy Policies

      Romania had been shifting its policy on renewable energy such as wind and solar power, having already met its production targets. According to the government, the proportion of electricity produced from renewable sources was 41% in 2013, comfortably above the 38% it predicted by 2020. However, this had consequences for policy. Tthe government had offered generous cross-subsidies to producers of green energy in the form of green certificates per MWh of electricity produced, worth EUR420mn in January-November 2013. These certificates could be traded on a spot market at a floor of EUR27 per MWh and a ceiling of EUR55. Foreign companies entered the Romanian market en masse, attracted by returns that were no longer available in more mature European markets.

      In response, the government announced a cut from six green certificates per MWh to three on any project completed after January 1 2014. This shift in policy brings the country in line with many other EU states that are scaling back their subsidies for green energy projects. Over the forecast period, the government is unlikely to reintroduce incentive programmes for large-scale renewables projects, resulting in a sharp cut in additional megawatts of green energy.

      In January 2015, the government said that it was considering changes to a support programme for renewable energy. Then-energy minister Andrei Gerea said that the cabinet in Bucharest was talking with companies and the energy market regulator about a solution that would make investments in renewable energy profitable again.

      In October 2016, the Ministry of Energy published the draft of an emergency government ordinance to amend Renewable law no. 220/2008. Among the envisaged changes are new price limits and transaction changes for green certificates, which will be valid from the date they are issued to December 31 2031. The changes were made to give reassurance to the renewables sector after three years of uncertainty.

      Energy Policy Post 2020

      Romania has committed before the European Commission (EC) to a renewable energy target of 30.7% for the year 2030, up from 27.9% targeted previously. The goal is part of the country's National Integrated Climate Change-Energy Plan (NECPs), which was published by the EC in April 2020. NECPs were introduced by the Regulation on the governance of the energy union and climate action (EU)2018/1999, agreed as part of the Clean energy for all Europeans package which was adopted in 2019. The national plans outline how the EU countries intend to address energy efficiency; renewables; greenhouse gas; emissions reductions; interconnections; and research and innovation. Furthermore, EUR15bn of Covid-19 recovery funding allocated by the EC will be targeted at Romania’s ‘green transition’. The government’s plans to increase low carbon generating capacity have been expanded and the market is now targeting 7 gigawatts (GW) of new renewable capacity by 2030, with an estimated 3.7GW to come from solar projects.

      Over 2020 the government announced its intentions to re-introduce long-term bilateral power purchase agreements (PPA). The changes enables contracts for between 15-20-year PPA’s to be signed and this benefits developers seeking low cost projects in the region with assured payment processes. This regulatory shift is regarded as one of the major steps towards market deregulation in line with the European Commissions goals on electricity market reform.

      After three years of uncertainty, in October 2016, the Ministry of Energy published an emergency government ordinance to amend Renewable law no. 220/2008 in an attempt to give reassurance to the renewables sector. Under the new ordinance, the new package of measures eliminated the validity period of only 12 months for the green certificates, extending it for the entire period of the support scheme operation, until 2032. Furthermore, the new rules imposed power plant operators to pay the profit tax at the time of the green certificate trading. Prior to this new legislation, they had to pay it when they registered the installations on their accounts.

      Romania has committed before the European Commission (EC) to a renewable energy target of 30.7% for the year 2030, up from 27.9% targeted previously. The goal is part of the country's National Integrated Climate Change-Energy Plan (NECPs), which was published by the EC in April 2020. NECPs were introduced by the Regulation on the governance of the energy union and climate action (EU)2018/1999, agreed as part of the Clean energy for all Europeans package which was adopted in 2019. The national plans outline how the EU countries intend to address energy efficiency; renewables; greenhouse gas; emissions reductions; interconnections; and research and innovation.

      Pricing

      Prices in Romania have been rising in the recent years, as the country steadily liberalises the electricity market. Progress was temporarily halted in February 2019, when the Romanian Energy Regulatory Authority approved proposals in a Government decree to cap electricity prices for households and some industrial consumers for the next three years. The caps were eventually removed by Prime Minister Ludovic Orban - who replaced Viorica Dancila’ in October 2019, following the fall of her government - just before being toppled in February 2020. Specifically, the current price cap for gas sold to households was expected to be lifted from July 1 2020, while electricity prices were fully liberalised as of January 1 2021.

      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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