ANALYSIS The new energy price imposed on producers is above market levels / Who wins from a higher price

The prices imposed on the sale of electricity and natural gas by producers have decreased, with the current ceilings being maintained for final consumers, until March 2025. This is, very briefly, the effect of the Ordinance approved on Wednesday in the Government, which modifies the price cap-compensation scheme. However, the new regulated price for electricity producers, of 400 lei/MWh, does not reflect the reality in the market, being far above the average levels.

A free price could have been lower than the regulated one / The producer wins from a higher price, but so does the state

Energy Minister Sebastian Burduja claims that these producer prices have fallen to be aligned with those in the market, which have fallen a lot recently. “We asked for an adjustment of the scheme to reflect the reality of falling prices on the market,” said the minister.

But the new price at the manufacturer is not aligned with those in the market either. If we analyze the evolution of electricity prices, from European markets, including Romania, we notice that they are much lower even than the new regulated price. Thus, if the price had been left free, the level at the producer could have been much lower than 80 euros/MWh.

The ones who gain from a higher regulated price are the producers and the state. The largest producers, Hidroelectrica, Nuclearelectrica, CE Oltenia, are state companies. The higher their profits, the more money is added to the budget through dividends. Hidroelectrica had a record profit of 6.3 billion lei in 2023, which it will distribute entirely to shareholders, through dividends.

We are strictly referring to the prices on the spot markets, which, depending on their evolution, can also influence the bills for final consumers, domestic or non-domestic. Related to this aspect, the minister says that market prices have fallen, which is why the producer ceiling has also been reduced, and further the effects will be felt in lower invoices.

The new price at the producer is 80 euros / MWh, and those on the markets are, on average, below 70 euros

More precisely, the emergency ordinance provides for the reduction of the price at which a producer sells electricity, from 450 lei (90 euros)/MWh to 400 lei (80 euros)/MWh, and gas from 150 lei (30 euros)/MWh to 120 lei (24 euros)/MWh. These are the prices at which producers will be able to sell without being overtaxed. Anything above these levels is overtaxed at 100%.

If for gas, the price is aligned with the markets, the same cannot be said for electricity. According to data from the OPCOM stock exchange, the average prices on the Next Day Market (PZU) were 70 euros/MWh in February, being in line with those in the region.

In the month of March, a downward trend in spot market prices is observed, frequently reaching a daily average of 60 euros/MWh. On Thursday, the average price for PZU was 45 euros/MWh. In most European markets, the average was around 50 euros/MWh, in France it was 17 euros/MWh, and in Spain and Portugal 1 euro/MWh.

Burduja: Prices are very low in Spain and Portugal because they have storage

The energy minister states that Spain and Portugal have very low prices because they produce a lot of green energy and have large storage capacities.

“There are many elements in Spain and Portugal that we don’t have yet. We don’t have that much green energy production, we don’t have pumped storage capacity. You can produce solar and wind cheaply, but if you have a Tarnița-Lăpușteşti, you manage to store that energy for a number of hours”, said the minister.

He claims that Transelectrica’s data show that we need a capacity of 4,000 MW of storage, half of which in pumped storage hydropower plants, such as the Tarnița-Lăpuștești project, which is now in the bidding stage for a new feasibility study.

This statement was made after HotNews.ro wrote how Spain and Portugal sell energy at 1 euro/MWh, while Romania sold for 69 lei/MWh.

Minister: ANRE has done the calculations / If adjustments are necessary, we will make them

Asked why a price was set at the electricity producer above market prices and whether new changes will be made in case they fall even more, Minister Sebastian Burduja said on Thursday that the National Energy Regulatory Authority (ANRE ) is the one who did the calculations.

“These ceilings of 400 lei were determined by ANRE’s extensive analyses. If adjustments are necessary, we will make them at that time,” said the minister.

Related to this subject, two days ago, the minister did not rule out the possibility of new adjustments being made in the event that market prices fall further. “We proposed the establishment of these ceilings by Government Decision in order to have some flexibility to adapt according to the market”, answered Burduja when asked about what the authorities will do in case the prices go down even more compared to current level.