Given that the restrictions on electricity and natural gas no longer have anything to do with the market reality, as HotNews.ro has demonstrated countless times, the Ministry of Energy has submitted for public discussion a draft amendment to GEO 27/2022 regarding the price subsidy scheme. At first glance, changes have been made to the ceilings aimed at reducing them. On the other hand, the period of application of the compensation limitation scheme is extended, which in short means: smaller subsidies, but applied for a longer period for operators in the energy market.

• From April 1, 2024, some new legislation regarding the electricity and gas market will come into effect.
• At the end of January, HotNews.ro announced that several options were being analyzed to amend GEO 27/2022 regarding the compensation cap scheme, given that the current cap levels are too high for the extent to which electricity and gas market prices have fallen.

How the solar tax is reduced and how the limits are reduced for electricity and gas producers

Some key changes:

• The provisions of Decree 163/2022 regarding the introduction of the so-called “sun tax” will be repealed.
• The obligation of the supplier to break down the final price into identical components in the supply offer, in the supply contract and in the price list has been introduced.
• finally billed to the final consumer in accordance with European regulations on European statistics. This applies to natural gas and electricity prices, where the price charged to end-users for a tranche of consumption is the sum of three main components: an energy and supply-related component, a system/network-related component (transport and distribution) ) and a component that includes taxes, fees, charges and tariffs.
• It is proposed to reduce the price of natural gas, which producers are obliged to supply, starting from April 1, 2024, to suppliers of domestic consumers and CET from 150 lei/MWh to 120 lei/MWh.
• Also, taking into account the drop in prices on the electricity markets, the ceiling up to which the solidarity contribution is paid
• electricity producers at the level of 400 lei/MWh in order to provide the source of financing necessary to sustain the support scheme.
• The transaction cost through the centralized procurement mechanism (MACCE) will also be reduced from 450 lei/MWh to 400 lei/MWh.
• The application deadline for MACCE has been reduced from 31 March 2025 to 31 March 2024, voluntary participation in the mechanism begins on 1 April 2024, and the opportunity for all electricity producers to participate voluntarily in the mechanism. According to the Ministry of Energy, this is an attempt to resume operations under competitive mechanisms. At the moment, the market is almost completely blocked due to price regulation along the entire line, from the manufacturer to the supplier.
• It is proposed to increase the margin from 2% to 10% “in order to stimulate the recovery of buying and selling in the wholesale market.”

The application of the restriction scheme may be delayed until March 2026

The Ministry of Energy believes that the provisions regarding the price of electricity/natural gas supply-type proposals developed and published by suppliers have been clarified in the sense that it cannot exceed the value of the final invoice price only for the period of application of the maximum capped prices, respectively, from January 1, 2023 to March 31, 2025.

It would also clarify the provisions on the method of setting the final invoice price in the sense that it applies to all final consumers until 31 March 2025, including the contributions related to the support scheme for the promotion of high-efficiency cogeneration based on the demand for useful thermal energy, and as well as the counter value of green certificates.

The National Energy Regulatory Authority (ANRE) has proposed a phased exit from the support scheme, i.e. to introduce a transition period lasting 1 year, starting on April 1, 2025 and ending on March 31, 2026.

What will be the gradual transition to the free market, according to NARE:

The maximum value of the electricity/natural gas purchase component of the price associated with supply offers applicable during the transition period is established based on a formula, taking into account the weighted average price obtained from all medium-term standardized products of contracts and longs traded in the futures markets, and the weighted average value of PZU closing prices, to which a factor of 1.1 is applied, covering possible imbalances/profiles.

From the analysis of the available data, for electricity, for example, in 2021, when the market was fully liberalized, the share of PZU was approx. 46%, and thus to stimulate trading in the futures markets, a weight of 40% is proposed, and for natural gas, a PZU weight of 5-10%.

• the maximum value of the electricity/natural gas supply component is established from the price associated with the supply offers applied during the transition period and from realized prices;
• the obligation of electricity/natural gas suppliers to prepare offers for the following periods of at least 3 months is established;
• electricity/natural gas prices under contracts with end consumers for each subsequent period for the period 04/01/2025 – 03/31/2025
• 2026 is set as the sum of the purchase and supply component;
• the price of electricity/natural gas sold for each month of the transition period is defined as the sum of the supply component and the purchase component of electricity/natural gas, determined on the basis of purchased volumes and prices associated with these operations;
• the minimum between the price of electricity/natural gas in the contract and the price of realized electricity/natural gas will be taken into account when calculating the final set price for consumption achieved during the transition period.

From April 1, 2024, operators of centralized markets are obliged to publish these prices/volumes.

Suppliers will be required to inform consumers about subsidy schemes

ANRE will issue regulations that will impose certain obligations on electricity/natural gas suppliers to inform end-users of the cancellation of the support scheme and how to set supply prices from offers/contracts after its cancellation, as well as obligations to submit new offers developed in accordance with the provisions that apply during the transition period.

Taking into account the events recorded regarding electricity prices in recent months, it will be proposed to reduce the maximum value of the weighted average price for

electricity, for which ANRE calculates the amounts to be paid from the state budget, from 900 lei/MWh to 700 lei/MWh.

As suppliers are selling at a maximum level that is well above pre-energy crisis prices

At the moment, the limits are perceived and used by market players more as price guides, rather than restrictions. Therefore, despite the fact that stock exchange prices have returned to pre-energy crisis levels, tariffs are still too high for the Romanian end-user.

Suppliers are selling to end users, residential and industrial, at maximum levels, but these prices are significantly higher than before the energy crisis.

Quotations in the spot markets fell significantly, even reaching the level of limits set by the Government for producers. Gas prices on European stock exchanges are trending lower, reaching a level of 24 EUR/MWh, with expectations of further declines, as was the case before the crisis. In 2022, when the cap-compensation scheme was developed, at the height of the energy crisis, gas prices rose to around €300/MWh.

Prices are well below the level of 150 lei/MWh (30 EUR/MWh) that Romanian producers are required to sell to cover domestic consumption. In the coming months, especially after the end of the cold season, when consumption will decrease, prices on the exchange may fall well below 20 EUR/MWh.

As for electricity, spot market prices are also trending lower, reaching levels of 50-60 EUR/MWh on Western exchanges, just like before the energy crisis. In 2022, at the peak of the energy crisis, prices were around €550/MWh. In this context, Romanian producers must sell at a price of 450 lei/MWh (90 EUR/MWh) in the centralized MACCE system.

Regarding the price for the electricity consumer, three years ago, in January 2021, before the energy crisis, one-year contracts could be concluded for 0.25 lei/kWh, i.e. at a much lower price than the current limits, which are 0, 68 lei/kWh, 0.80 lei/kWh and 1.30 lei/kWh depending on consumption.

As for gas, in November 2020 it would be possible to conclude a contract with a certain supplier for a period of one year at a price of 0.09368 lei/kWh, including transport services. Another contract, with another supplier, was concluded in January 2021, also for one year, a contract for 0.06 lei / kWh. Now the ceiling is 0.31 lei/kWh, and that is how much the suppliers sell to the final consumer.

• Government failure to manage gas and electricity prices: Caps are too high and no longer justified, but lifting them could create even more chaos in the energy market