What will be the fair price of MWh produced in Romania? I have been saying for so many years that the best thing a state-owned energy company can do is to enter the stock market, because it is obliged to be transparent here. This is also the reason why we can accurately calculate what Nuclearelectrica’s average cost of production was.

We calculate the production price of MWh at Nuclearelectrica: Operating costs (1,839,064 thousand lei / MWh) / Production (10,294 GWh) = 178,654 lei / MWh

We calculate the average selling price per MWh: Income from the sale of electricity (7,423,898 thousand lei) / Production (10,294 GWh) = 721,478 lei / MWh

Other prices are approximate and based on information received from companies, NARE or the Ministry of Energy.

Fig. 3 – Calculation of the price of MWh in Romania for 2023 (source: Cosmin Pacuraru)

We should make some comments on the table above:

• The reason coal and gas have such high prices is that these capacities are penalized by paying CO2 allowances. Coal will increase in price by 0.91% of the certificate, gas – by 0.43%. As last year, the price of a CO2 certificate is close to EUR 100, which means that approximately 400 lei are added to the price of one MWh for coal and 200 lei for gas.

Fig. 4 – The difference in the price of the CO2 certificate (source: Romanian Commodity Exchange)

• Hidroelectrica has barely gone public, it has made preliminary reports for the past year, from which we cannot extract the cost of production or the sales price. But knowing the approximate price from last year, we increased it by 10%, although the costs did not increase, Hidroelectrica did not clean the lakes or any other big investments.
• For PV and wind, we calculated a price that covers only the APEX of the parks, which we increased (unreasonably) several times. We know that producers have sold energy for less than one euro because they only profit from the green certificates that we all pay for.

A bit of history and a bit of theory

By the 1990s, all states that were or later joined the Union had an electric power mix, each component with moderate average costs based on the production costs of each installation. If we were in the 90’s we would probably calculate it as above. The price of 351 lei/MWh is the real price for 2023 in Romania.

By 2000, some financiers from several banks and investment funds, with nowhere to put their money, targeted the energy sector, organizing an electricity (and gas) market similar to a commodity exchange, although energy is not (yet) stored: consumption occurs simultaneously with production. And this is how the electricity market was financed!

The principles of electricity exchange were built incorrectly. Although there is a standardization of produced and consumed energy (MWh), depending on the fuel used, this energy is actually of two types: that which depends on external factors of the production system, which gives it intermittency, and that which is produced independently of external factors about the production system, which gives it the quality of security.

Energy produced by coal, gas, nuclear and biomass (and agro-biomass) is security energy, which is produced by wind or sun, is intermittent, depending on the environment.

It is necessary to repeat: the existing capacities in Romania cannot produce the amount of energy that consumers need, because in recent years many of them have been withdrawn because they have reached the end of their operational period and are no longer a safe operation or no longer meet environmental requirements.

The production of energy carriers is a generator of pollution, therefore, coal and gas-fired power plants produce certain pollution, releasing various chemical compounds in different concentrations into the atmosphere. It is known that the production of energy from coal pollutes the environment the most (0.91 CO2 certificates / MWh), followed by gas (0.43 CO2 certificates / MWh).

Other factors that must be taken into account in the production of electricity:

• Calorific value of fuel
• Productivity and productivity of technologies
• Investment cost, life and amortization of investments
• The initial cost of the installations after the end of the operational period of the installations

After reading the detailed analysis of production costs by fuel type, made here by Professor Kostiantyn Kranganu, we understand that in fact the production of electricity from renewable sources has a cost price close to production from other types of fuel.

And Romania adopted the “principles of the free energy market”. This was a requirement of the European Union. But Romania made unforgivable mistakes in relation to the EU. The creation of several mono-fuel energy companies has made coal and gas-fired ones, with high production costs per MWh, uncompetitive and unable to invest and renovate.

It follows that companies with a low cost of production were prioritized for sale on the energy exchange, in the ranking order of photovoltaic, wind, hydro and nuclear, followed by those using fossil fuels.

The result of this order is that this standby power capacity has also become intermittent: so when too much power is produced from renewable sources, the standby power has to be turned off, so it also becomes intermittent because there is no storage capacity. Gas and coal generating capacities have thermal inertia. Thus, an additional amount of energy is spent on starting and stopping, reducing productivity. In addition, frequent switching on and off shortens their service life.

In other words, the security features are disadvantageous. And the Romanian state, instead of helping them, created a support system specifically for renewable energy sources through a green certificate scheme, according to which each MWh produced by photovoltaic or wind farms is rewarded with a number of green certificates. They are purchased on the market by suppliers who are obliged to obtain a certain share of renewable energy from the energy sold to consumers. Consumers find this expense in the bill. In the 12 years since this support scheme has been in place, we consumers have paid €20 billion. This is also the reason that renewable energy sources have allowed themselves to sell energy for export (if it is abundant on the Romanian market) at sub-unit prices. This is also the reason why coincidences like “negative prices” began to appear in the stock market. The explanation is simple: there are times when the Romanian market is saturated, there is no demand for exports, and instead of paying large fines for the imbalance in Transelectrica, producers prefer to pay someone else for consumption, which means a much lower cost of overproduction.

The state also intervened in the energy market: it paid and continues to pay direct state aid to CE Oltenia and to the deceased CE Hunedoara. I would not call the cogeneration bonus a state aid, because it is a premium for capacities that produce electricity and heat at the same time. And this bonus appears on consumer accounts, not in the state budget. The problem is that this bonus, instead of going to investments and reconstruction, went to cover the losses that the state had to cover with the introduction of free market rules.

The market, in fact, was not, is not and will not be free due to legislation. Only individual manufacturers, suppliers and large consumers have access to the market. During these years, there were no more than 75 “players”, but always about half were active. The market cannot be free if so few companies have access to the “energy exchange”, this leads to the possibility of collusion between companies and price manipulation.

An international energy crisis is just around the corner. The poor organization of energy markets led to extreme and unjustified price increases, with profits being capitalized to the energy companies of extraction and production and to the state through fees and taxes, i.e. to the one who set the rules of the game.

And we are back to funding!

The European energy market actually includes two markets: the spot market, where real commodities are traded, and the derivatives market, where futures contracts are traded for the commodity, which in our case is energy. Futures contracts are securities and were created as policies to insure the price of a traded commodity for future delivery.

The problem is that the futures ring is a price manipulation market. How is it possible that the derivatives market is 17 times larger than the spot market in which real commodities are traded? The European Commission stated in an official document that if we convert futures transactions into spot transactions (that is, into real energy transactions), the futures market will trade 17 times more energy than is actually traded.

Leaving aside the MACEE (Mechanism for Centralized Procurement of Electricity) introduced in 2022, which represents yet another government intervention in market prices, a mechanism that has proven ineffective and cannot be abandoned as it will create even greater distortions, and we are looking for another government intervention in the market adopted from the EU.

Not so long ago, other smart people invented another derivative for energy: the contract for difference for renewable energy sources.

These CFDs have been introduced by the UK since the 1970s to encourage the construction of nuclear power generation facilities. It is a promise to sell electricity at a state-guaranteed price for a long time to NPP investors. They are typically private, with a guaranteed price, can complete a feasibility study and business plan, and pay back their large investment over an extremely long term. British nuclear power plants were built with such state aid. – Read the entire article and comment on Contributors.ro