The government has come to the point where it has to decide whether or not to change the scheme of limiting and compensating electricity and natural gas prices. It is becoming increasingly difficult to support this financially, as it is about billions of lei that the Ministry of Energy and the Ministry of Labor have to cover, given that the state budget deficit is growing and the Government plans to overburden the business environment to cover them. Providers would not be opposed to changing the scheme by removing some beneficiaries, but they want the predictability of a decision being made at least six months before it is applied. Since the market is no longer free, it is not possible to predict prices in the event of a pattern correction.

Brief information:

• Power between the hammer and the anvil. On the one hand, the pressure on public money is huge. On the other hand, it is an election year in which unpopular measures are avoided. The government does not know which solution is best. In addition, an adjustment could mean new price increases and inflation.
• Due to the lack of open market transactions in 2-3 years, there is currently no signal for electricity and natural gas prices. It is virtually impossible to make any predictions about the impact on prices if the cap compensation scheme is changed or even abolished.
• Suppliers still need to repay about 3 billion lei to reach the June level with payments. Market operators complain that in anticipation of unpaid amounts, they are forced to take loans from banks, and “money costs money”
• The operators demand that these billions to be returned be included in the next budget revision
• To continue the funding scheme in its current form, the government must find ways to finance it, i.e. many billions of lei
• Most of the compensation funds go to finance the energy consumed by non-households, i.e. companies.
• In the event that the Government refuses to help some consumers, suppliers would like to know in advance of such a decision to be able to make their plans and market calculations.
• Market players prefer a gradual adjustment of the scheme if the Government decides to change it

Scenarios for changing the support scheme are analyzed, but a solution does not appear

The Minister of Energy, Sebastien Bourduilla, recently admitted that there will be a need to change the scheme because there is a lot of pressure on the public budget, and that it is necessary to hold discussions with specialists to reduce the number of beneficiaries, so that the support measures are aimed at vulnerable consumers. The statement, however, does not seem to have gone down well with the entire executive, for the next day the minister returned to say that there was no question of a refusal of aid, and that in winter “the Romanians will neither tremble from the cold nor from the fear of bills.”

Discussions are underway with the participation of market participants, suppliers, and authorities regarding a possible change in the limitation-compensation scheme, scenarios are being analyzed, but no decision has been made.

Daniela Dărăban, executive director of the Federation of Associations of Energy Companies (ACUE), said in a discussion with the press that suppliers require pre-announced decisions, at least six months in advance. Simply put, I am asking that if the scheme continues as it is, the Government will ensure timely funding because late payments cost market operators dearly through bank loans. If the scheme is to be adjusted, predictability in decision-making is needed, ACUE representatives say. They do not put pressure on the Government in one way or another, but only demand clarification of the situation.

There are no forecasts for energy prices

At the moment, taking into account that almost all volumes of electricity and gas are included in this restriction scheme and in the absence of free transactions, the market dynamics in case of adjustment of support cannot be predicted. Perhaps, when individual consumers are removed from the scheme, and volumes of energy and gas are released to the free market, there will be some “chic” in transactions, which means an increase in prices. But it all depends on the demand, the number of items for sale, etc.

Daniela Dărăban says that day-ahead (PZU) market prices are not a price signal. In this sense, a futures market is needed, which at the moment is practically absent due to the lack of deals. During this period, PZU prices fluctuate around 500 lei/MWh, but they are not important for assessing market dynamics.

If the Government were to change the size of the scheme, the question would arise as to which of the consumers would be left without support. According to the National Energy Regulatory Authority (ANRE), most of the money does not go to households, that is, to companies. At this stage, everyone, rich and poor, is a beneficiary.

More precisely, by May 2023, the amounts to be paid have reached the level of 18.7 billion lei. For the period from April 2022 to May 2023, the amount transferred for non-household consumers was 9.7 billion lei, and for household consumers – 6.2 billion lei. The amounts sent for the period November 2021-March 2022 are added to them.

If the scheme will be adjusted by non-household consumers, the question arises as to which of the beneficiaries will drop out. All or just some of them? Does the state abandon such beneficiaries as a shopping center or a restaurant, leaving, for example, producers of bread or milk? If they refuse all of them, then we can expect a further increase in the price of products, which means that inflation will rise again.

Regardless of what calculations the Government will make and what decisions it will make, market operators want predictability and avoidance of situations similar to last year, when 19 changes were made to primary and secondary legislation.

What prices are consumers paying now?

Household electricity consumers until 31.03.2025:

• A maximum of 0.68 lei/kWh, based on the monthly tariff from 0 to 100 kWh inclusive
• Maximum 0.80 lei/kWh, for monthly consumption from 100.01 to 255 kWh inclusive
• From 0.8 lei/kWh to 1.3 lei/kWh, with a monthly consumption of more than 255 kWh but less than 300 kWh, the first 255 will be billed at 0.8 lei/kWh and the rest – 1.3 lei/kWh.
• A maximum of 1.30 lei/kWh, with a monthly consumption of more than 300 kWh

For non-household electricity consumers until 31.03.2025:

• A maximum of 1 lei/kWh for 85% of the monthly consumption at the point of consumption, the difference in consumption is charged to a maximum of 1.3 lei/kWh.
• A maximum of 1 lei/kWh for hospitals, schools, kindergartens, nurseries, social service centers

Household consumers of natural gas until March 31, 2025:

• The price is limited to 0.31 lei/kWh

For non-household consumers of natural gas until March 31, 2023:

• A maximum of 0.37 lei/kWh, with an annual consumption of no more than 50,000 MWh and for thermal energy producers.

Read also: More than 18.7 billion lei from the state budget goes to the accounts of energy and gas suppliers