AFEER: More flexible the wholesale market, less distortions in electricity trading

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The Association of Electricity Suppliers in Romania – AFEER asks ANRE to expedite the analysis announced, in order to identify the causes and to inform the public as required by law, if there were distortions and culprits responsible for the large increases in electricity prices on the OPCOM spot exchange market.

CONTEXT

The AFEER president, Ion Lungu, recalled that there were several reasons for the price increases on the Day Ahead Market (DAM): frost, high consumption, water shortages and high prices on the other markets in the region. “However, energy prices increased in January at completely unusual values, in my opinion unbearable by the Romanian market”, said Ion Lungu. Another reason for price increases could be “the alarmist information [which]create panic in the market; they are completely useless and it is recommended that they are avoided in these critical moments, especially when they come from the authorities.”

DISTORTION

AFEER considers that an analysis conducted by the National Authority for Energy Regulation (ANRE) is necessary to identify if there were distortions created deliberately by certain participants in the energy market – traders, suppliers, manufacturers. “Let’s not blame an entire category of market participants without first having all the information. We requested ANRE to expedite the announced analysis in order to identify the causes and to inform the public as required by law, if there were any <culprits>, who, through their behavior have created distortions in the market”, said Ion Lungu.

MARKET IMPERFECTIONS

AFEER considers it is necessary to analyze the reasons why on the DAM the offer is in many dayparts, with 1.500-2.000 MW under the demand, although there are enough resources to cover all consumption in the balancing market. During this period, the energy suppliers and traders were fully hit by the increases of the energy prices on the exchange market. A great trader and electricity supplier has applied for insolvency and other participants in the energy market are in a difficult situation. It is significant that most of the times when a supplier becomes unable to pay its obligations, it creates chain dysfunctions and other market participants suffer, explains Ion Lungu.

REGULATIONS

According to AFEER one of the reasons that led to the current situation in the market is the difference between the wholesale energy market regulations, very rigid, and the retail market, which is very flexible. “From our point of view, the retail market is the most competitive area in the Romanian economy. It is a competitive, solid market. It is essential to maintain these high standards of competitiveness, to ensure predictability and stability of the legal framework”, said the Lungu, exemplifying that in most cases, at auctions there are more bids, the winner is designated at differences of under 1 Leu against the runner up.

Meanwhile, on the wholesale energy market all the products that are traded are standardized, which encouraged a migration of suppliers on the spot market (DAM) and on the balancing market (PE), two markets which have recorded very high volumes of trading during this period.

POSSIBLE SOLUTIONS

AFEER submitted its proposals to the authorities, and on short-term the Association requests an urgent reintroduction of the flexible agreements on PCCB-LE, which will immediately result in a visible optimization of the wholesale market.

On the long term, AFEER proposes:

  • the reintroduction of the directly negotiated bilateral agreements, which will solve the problem of flexibility;
  • introducing the possibility to refuse certain counterparties under the PCCB-NC, within a 15 minutes timeframe, which would help eliminate those market participants who had a history of inappropriate behavior;
  • revaluation of the bank guarantees system necessary for trading, with the aim of preserving and strengthening discipline in trading; by preserving the confidentiality, a solution must be found for the guarantee of performance, in order to ensure that market players cannot have open positions that exceed their financial capacity;
  • revaluation of the agreements in the PCSU, in order to include clear trading and penalty conditions.

AFEER is a professional non-profit, independent, non-governmental association, founded in late 2006 and currently includes a total of 47 members, providers which are licensed and active on the electricity market in Romania, suppliers whose client portfolio covers over 90% of the energy consumption of the country.

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