Romania: Transparency in Energy Trading at What Price?
→ Anca Velicu
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As of July 2012, power trading is available only on the power exchange Opcom.
Ban on directly negotiated transactions with electricity
As of 19 July 2012, freely negotiated bilateral transactions with electricity can no longer be entered into. Electricity may thus only be traded on the centralised platforms operated by the Romanian electricity and gas exchange, Opcom SA (Opcom).
This ban came in the context of increasing pressure to put a term to the historic long-term power purchase agreements (PPAs) that had been entered into by the state-owned (hydro and fossil fuels) generators with various private entities. The perception was that such agreements were concluded for prices below market level and were drying up liquidity. The result was an increased need for transparency of electricity wholesale transactions.
But the private sector and the vibrant renewable industry were also affected.
Overview of trading platforms
Opcom reacted to this major change introduced in 2012 by the new electricity and gas law last year by modifying an existing but non-operational platform (the Intraday Market) and proposing a completely new trading platform (the Over-the-Counter Market) in addition to the functioning Centralised Market for Electricity Bilateral Contracts and Day-Ahead Market.
Centralised Market for Electricity Bilateral Contracts (CMBC)
The CMBC is a forward market based on a bidding process. Transactions on this centralised market are entered into monthly based on firm sale and purchase offers submitted to the trading system each month. There is no mandatory standard contract or restriction on the duration of the contract.
Day-Ahead Market (DAM)
This is the spot market in which Opcom acts as counterparty in each transaction. On the DAM, participants close firm hourly transactions with deliveries on the following day. This instrument allows them to balance on an hourly basis the bilateral contracts portfolio, the consumption prognosis, and the technical availability of the generation facilities. The active electricity surplus or deficit may thus be sold or bought on the DAM.
Over-the-counter (OTC) Market
This platform was established in July 2013 and is aimed at offering greater flexibility than the trading options described above. It is not yet operational.
The main features of the OTC Market:
the EFET model contract will become mandatory upon the elapse of a six-month transitory period;
each participant can set up an eligibility list of at least four preferred trading partners;
Opcom does not act as counterparty;
bids may be amended, suspended, or withdrawn during a trading session.
Opcom also operates the Intra-Day Market, which is still under trial. Although initially regulated in 2011, this market’s organisation and functioning were revised on 10 October 2013. The new regulation provides for the rules of registration with the market, organisation of bidding sessions, settlement principles, and monitoring and surveillance.
The intra-day trading is meant to facilitate the balancing of daily portfolio of power transactions performed by market participants.
Balancing Market (BM)
In addition to the markets operated by Opcom, the transmission operator Transelectrica SA (TSO) manages the BM, which is a mandatory market where the TSO buys from and/or sells electricity to holders of dispatching generation/consumption facilities to compensate the deviations from the scheduled electricity generation and consumption.
With a view to trading electricity on the BM, a participant may transfer its balancing responsibility to a balancing responsible party (BRP) or become a BRP. Further, a dispatching producer/consumer will have to register itself with the BM.
Shortcomings of the new trading model
This model might represent a competitive disadvantage for the private energy sector as Romania seems to be one of the few EU member state where electricity would be mandatorily traded only on the power exchange.
Moreover, financing for new generation capacities might be at risk. In the past, PPAs were used as security instruments that allocated project risks to the parties best suited to deal with every risk. PPAs were signed before disbursing the loan, so before the start of the construction of the power plant and implicitly before becoming a licensed market participant.
The trading options currently available do not fully meet all the advantages of PPAs. On all Opcom markets except the Intra-Day, participation is open only to holders of operational licences issued by the regulator. This means that deals cannot be concluded in the development phase when required for financing purposes. The auctioning mechanism of the CMBC does not offer the possibility to select the counterpart (good standing of the counterpart being of the essence in such a long-term relationship) or to negotiate on the contractual terms and conditions. These downsides apply to a certain extent to the OTC market as well.
The renewable energy sector took an additional hit once directly negotiated contracts for green certificates – the market-based incentives mechanism applicable to renewable energy – were also banned as of July 2013.