The Prime Minister noted that the government pays for energy more than it should. So far, the state has paid out 22.4 billion lei to suppliers and will pay out several billion more by March 2025, amid a state budget deficit. After a series of articles published by Claudia Parvoiu and Dumitru Kiselice, the Prime Minister asked the Ministry of Energy and ANRE to check the suppliers. There is no doubt that the suppliers “poured energy”, but there are many more reasons for the increase in the price of energy carriers.

One question: what is a fair price for energy?

Natural gas is extracted by two large companies, which own more than 95% of the production. It is about OMV and Romgaz. The correct price of a cubic meter of gas (or MW) is the production price. Each well has a price that varies from 10 EUR/MW for mature wells and a long time after commissioning and 30 EUR/MW for new wells (information obtained from university professor, Dr. Dumitru Ciselica).

As two major production companies, each with different well portfolios, this means that they have different prices for each production well, but each company offers an average production price. This is confidential information, but most likely the moderate price cannot exceed 15 EUR/MW, knowing that most production wells are mature and with many years of operation.

To this cost is added a rate of profit (which can be negotiated with the Romanian state), to which are added the costs of transportation (Transgaz) and distribution (two large networks – E.ON and Engie, the rest of the distributors – insignificant). These costs are regulated and established annually by NARE. The chain also includes suppliers (i.e. traders) who buy from producers and resell it to industrial or domestic consumers. This transaction is carried out in accordance with the law through direct bilateral contracts, through the Romanian Commodity Exchange or, if it is a procurement by a public company or public institution, through the public procurement platform SEAP. There are 55 natural gas suppliers.

In the case of electricity, everything is a little more complicated. We have producers that use different types of fuel (coal, gas, nuclear, hydro, wind, solar, biomass…), we have the transporter Transelectrica, several electricity distributors (Electrica, Enel, CEZ, E.ON ) and, finally, a network of 74 suppliers. As in the case of gas, tariffs for transportation and supply are regulated and set by NARE.

Production costs depend on the type of fuel used and the price of CO2 emissions. Knowing that last year the electricity mix looked like the figure below:

Fig. 1 – Electricity balance of Romania in 2022 (source: Cosmin Păcuraru)

… and that it cannot be very different in 2023, in order to calculate the moderate price of a produced MW, we repeat the basket with the above percentages by which we multiply the production price per MW of each fuel type.

I don’t have updated data on the production cost of fuel used, but we can make an estimate knowing that the data hasn’t changed much:

Fig. 2 – Approximation of moderate real price of production of one MWh of electricity (source: Cosmin Păcuraru)

0.4 lei/kW comes out. Shipping and handling charges are added to this. They vary from distributor to distributor, the differences are minor, fixed for each MW transported and distributed depending on the region.

Note that this is more than the capped price (according to GEO 27 / 2022 as amended) for residential consumers with a consumption of less than 100 kW/month, but even more for those who consume more than 100 kW/month and for industrial consumers.

We have a new minister of energy since the summer. His Lordship is trying to solve the pressing legacy problems, but some of them I don’t see being solved immediately because they take a long time.

1. Romania has not had an energy strategy for 15 years, this fact shows that we do not know what the purpose of the national energy industry is. (this problem is solved in a few months)
2. Romania has ceded an important part of its energy sovereignty and has a dependency imposed by other state or non-state actors that can be used to achieve political goals. Higher national energy prices are nothing more than profit maximization of foreign companies operating in Romania, which shows that Romania is a weak state.
3. Romania has gas resources, but national prices are higher than in the rest of Europe.
4. For many years, ANRM did not expose oil and gas resources in the concession, which automatically led to an increase in prices.
5. ANRM illogically linked the price of Romanian gas to the price of gas trading on the Vienna Stock Exchange.
6. Foreign oil production and processing companies suspect the press of evasion. (Remember the Lukoil scandal of 2015, during the Ponta government.)
7. Romgaz withdrew from the association of the LNG terminal in Alexandroupolis (Greece), which would have opened an alternative gas supply. (So ​​far no one has reported!)
8. In power generation, the first mistake was the rejection of RENEL. A few years ago, the organization of the Romanian energy industry looked like it does today in France: all energy is under a single state company – EDF. Romania split production by fuel, forming Hidroelectrica, Nuclearelectrica and Termoelectrica. Various companies have sprung up that generate electricity from the wind and the sun. All this was created to compete in what we call a “free market”, which is wrong: security (in-band) energy is not the same product as intermittent (renewable) energy, security energy has an additional attribute: reliability of supply in any – what time Safety capacity has thus been transformed into intermittent capacity, as the “free market” sells first cheap solar and wind power, followed by gas and coal power. This leads to losses, because repeatedly switching generators off and on (when windy and sunny) means additional energy consumption, not to mention increased wear and tear. In this situation, the “marginal price” rule arises, a factor that increases the price of electricity.
9. Second mistake: Termoelectrica also split into CE Oltenia, CE Hunedoara (i.e. coal), ELCEN and several more small production capacities with cogeneration, parts of centralized heat supply systems – SACET, which went under the administration of territorial administrative units (mayors and/or county councils). Of the more than 100 SACES that operated 15 years ago, 46 ​​remained. No local politician listened to SACES professionals and did not understand the importance of local production of electricity and heat.
10. It follows that Romania has lost a lot of power generation capacity. When demand exceeds supply, the price rises.
11. Closed capacities were not replaced by anything, so that in 2019 Romania became a net importer of energy. – Continue reading the article on Contributors.ro