From today, the electricity price cap-compensation scheme is abolished after more than three years. The scheme was introduced in November 2021 amid the price crisis caused by Russia’s manipulation of the European market in preparation for the launch of the war in Ukraine. Appearing as an exceptional measure, the scheme protected energy consumers and reassured governments, at the cost of severely distorting the national energy market.
The scheme included a compensation mechanism whereby the state undertook to pay back to suppliers the difference between the price at which they bought energy from the market and the administratively capped selling price. From April 1, 2022 to June 30, 2025, all household customers benefited from a maximum capped price ranging from 0.68 lei/kWh to 1.3 lei/kWh, depending on monthly consumption.
However, the supplier compensation mechanism has accumulated major delays, which has further translated into liquidity problems for all suppliers in the market. At the same time, the system has put a significant strain on the public budget, despite the exceptional charges imposed on electricity producers.
As of July 1, 2025, with the removal of the energy price cap, consumption will be billed at the price set in the contract with the electricity supplier. The impact will reach the consumers with the bills invoiced in August, for the consumption made in July.
In preparation for the market liberalization, last week the Romanian Government approved an Emergency Ordinance to introduce a new support mechanism for household electricity consumers in energy poverty. From July 1, 2025 to March 31, 2026, single persons with a monthly net income of maximum RON 1,940 and for families with a monthly net income/family member of maximum RON 1,784, vouchers worth RON 50 will be granted which can be used only for the payment of electricity bills. The vouchers will be granted at the beneficiary’s request, either online, through the EPIDS application, which will is to be developed and technically managed by the Special Telecommunications Service (STS), or through the representatives of the post office or town halls corresponding to the place of consumption declared by the beneficiary.
From March 2026, the cap scheme is also set to be lifted for natural gas.
A scheme that cost us too much comes off the scene
For all the fears, difficulties and challenges that a return to a free electricity market will raise, the design flaws and adverse effects of the cap/compensation scheme are now evident and make its continuation not only unsustainable but also counter-productive.
- Inequity
The cap was applied in a non-discriminatory manner, strictly on the basis of consumption, regardless of ability to pay or consumption behavior. Thus, vulnerable people benefited from the same ceilings as those who would not have needed such support.
- Fiscal (Un)Sustainability
According to official announcements, the scheme involved costs of around 30 billion lei (14 billion in 2022, 10 billion in 2023, 4 billion in 2024). Theoretically, the coverage of these sums from which consumers were exempted should have been fed from the Transition Fund, the solidarity tax, the offshore tax and other taxes and contributions imposed on energy companies. At least 1.5 billion lei would be refunded to electricity producers who won their case in the Constitutional Court. The contribution to the Energy Transition Fund imposed on electricity producers required them to pay to the state 100% of the additional revenues resulting from wholesale sales transactions carried out at prices above 450 lei/MWh, and subsequently 400 lei/MWh.
- Low administrative capacity = massive delays in compensating suppliers
The scheme operated de facto with money provided in advance by the electricity suppliers, which raised serious cash-flow problems for them. The lack of interest of public and regulatory authorities in accelerating compensation payments means that even today suppliers still have to recover imported costs incurred more than 12 months ago.
- Discouraging investment in new generation capacity
By capping the selling price of energy and over-taxing profits, the capitalization of existing generators and the bankability of new generation capacity projects prepared by them have been affected. In addition, abusive and unpredictable behavior (an exceptional measure was extended for more than 3 years) has reduced the attractiveness for investments in new power plants financed through merchant agreements.
- Discouraging energy efficiency efforts
Industrial consumers and businesses, as well as households, have not been incentivized to invest in energy efficiency – which has maintained pockets of unnecessarily high consumption.
- Affecting competition in the supply-trading segment
Comprehensive and unfavorable regulation has pushed a large number of suppliers and traders out of the market, with the effect of reducing liquidity and competition to systemic risks such as reliance on the supplier of last resort (LRS) regime under unpredictable conditions.
- Breach of EU law
At EU level, regulated electricity prices are a derogation from the general principle of market-based supply prices. Such support schemes are to be applied for short durations as exceptional measures, the main requirements being “that prices are above cost and allow effective competition in the market. In all cases, schemes must be justified, proportionate and limited in time.”