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de Razvan Diaconu 14.8.2017

The price of electricity has come last week close to an inexplicable maximum, as the authorities are not just spectators, but they seem to be part of the price increase mechanism.

The price at which the electricity has been traded on August 3 was three times higher than a year ago when the conditions needed for production were similar, thus reaching 570 lei/MWh.

The authorities’ explanation is that this is the price on the spot market (DAM – the day-ahead market – secondary market), and not on the direct contracts market.

From this reality start the explanations of ill omen for the fall and the winter to come:

In June, ANRE, the regulator, postponed the tenders on the centralized market for universal service. Electricity is thus acquired, in full heatwave (that is, at full consumption) on the spot market – where prices are generally much higher and with a faster price impact.

It is for the first time when in a secondary market we have almost 45% of the energy consumed traded on the DAM. I understand this is where the problem comes from. We hope that ANRE will start this tender procedure as soon as possible so that all these suppliers to have bilateral contracts without any additional quantities traded on DAM,” said the Minister of Energy Toma Petcu at a press conference on Friday.

“We were already looking very carefully into this problem four weeks ago. We had discussions with both ANRE and the Competition Council because potential competition or non-competition issues have been reported. I have asked Mr. Havrilet (president of ANRE – editor’s note) to make an analysis and say if there are any decisions that we should take. We had discussions with the OPCOM Director and analysed the issues to see from where the prices and price anomalies come. We noticed that in June, for all contracts with suppliers of last resort, ANRE decided to postpone this tender for reasons that I do not know,” the minister explained in a press conference, quoted by Agerpres.

On the other hand, ANRE says it has notified the Competition Council about some non-competitive agreements and is expecting a reaction.

The problem seems, though, to be not just a summer accident, but will have long-lasting consequences – according to the head of ANRE:

Electricity price growth above the liberalization schedule

ANRE announced the tenders on the centralized market for August 10. But some expectations are likely to cause some worries, especially as they are expressed before the tenders.

Niculae Havrilet, the president of ANRE, predicted last week in a statement for Digi24 that the price of electricity will increase even this autumn by an additional 5% above the liberalization schedule, after the 8% increase in July.

It is difficult to tell though to what extent the authorities’ intervention pushes the price of electricity:

On the one hand, there is almost a visible influence from the members of the Parliament’s Industry Committee – who sometimes behave like genuine players in the market – and on the other hand, the statements of the line ministry are causing turbulences – as it happened last winter, when, following Minister Toma Petcu’s statement according to which there are supply problems, the price of electricity reached the highest level in Europe for one day. Obviously, traders reacted.

As we can see in statements, notifications, and committees in charge of “finding measures”, authorities work as hard as speculators and suspects of non-competitive agreements.

One thing is certain: the electricity will be more expensive than the market anticipates, it will be paid by the final consumer, and unless the authorities would release the market from the toxic pressure, the gain will come to the traders and producers: some of them, yes, state-owned companies.

Mugur Isarescu: attention to the price of energy!

“It is a slightly mean statement, but I have to make it,” said Governor Mugur Isarescu on Friday afternoon, referring to the issue of electricity prices:

“When the figure will be issued in the next period for the July inflation, it will show that much of the increases in the consumer price index will come from electricity. We are concerned and I must come back: I have often said that in a country where we have a lot of uncertainties, the biggest one has become the evolution of the administered prices, which we can not predict. (…) We are definitely concerned about the evolution of administered prices, in this context the evolution of electricity prices and, as far as we know, the authorities in charge of managing these prices will make the necessary communication in the next period, which will also help us in the new inflation forecast. For now, the evolution of prices in Romania is controlled and inflation is one of the lowest in Europe.” (highlights belonging to the newsroom).

Besides the optimistic tone from the end – which the BNR Governor is forced to adopt, it is worth mentioning that the electricity price has an influence not only on inflation but also on the companies’ competitiveness.

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