Cosmin Gabriel Păcuraru, PhD
Abstract: There are a small number of companies for the extraction of coal and gas, for producing electric energy, and for transport and distribution. On a market where companies hold only monopoly and oligopoly positions, we cannot discuss about a liberalization, only about a stultification if it. The model imposed by the European Union retains its validity on the energy markets that have been interconnected since the 1960s by binding national energy systems in a greater number of nods, where there are more producers, where the stock market culture and various stock market instruments existed, inclusively for energy. The E.U. Directives have imposed over Romania a few large companies that fix the prices for the consumers and endanger the strategic industry under the banner of the “free market”.
The Configuration of the electric energy market
Electric energy cannot be stored. The new technologies of the Tesla company are not the subject of this discussion, because they have only recently appeared on the market and haven’t reached even 0.01% of the market potential. Electric energy is produced from:
- Extracting the heat resulted from burning fossil fuels
- Extracting energy from moving water
- Extracting heat from nuclear reaction
- Extracting wind energy
- Extracting solar energy
- Extracting heat resulted from burning biofuels
- Extracting energy from waves
- Extracting geothermal energy
The last two procedures are insignificant, since they necessitate either an advanced technology, or favourable geographical conditions.
In Romania we have 23 producers and importers of this kind, by which five of them hold over 85% of production: the gas power plants held by OMV, Petrom, LukOil, and Romgaz, the coal power plants held by CE Oltenia, Hidroelectrica, and Nuclearelectrica.
Fig 1 – The production structure of electric energy in 2016 (source: Hidroelectrica report 2016)
A forte point that is worth mentioning is that over 70% of the nuclear energy production is still under the control of the Romanian state through its stocks held at Nuclearelectrica, Hidroelectrica, CE Oltenia, and a large number of electric and thermal power-plants (ETP).
The energy produced must be transported to the utilizers. The transport is realised through special high voltage networks. The monopolistic transporter of such energy is Transelectrica, which owns close to 10,000 kilometers of high voltage networks, administers and operates the electric transport system and assures imports and exports of electric energy in between Central and East European countries, is responsible for the functioning and safety of the National Electroenergetic System (NES) by adjusting the supply and demand of electric energy.
From Transelectrica, the electric energy is then secured by distributors, i.e. those who own the local distribution infrastructure, having a regional monopoly position. They, according to the legislation, are named “Immediate Utility Providers – IUP”, and are the only ones that have the necessary infrastructure within a certain geographic zone; other possibilities of construction being impeded.
Let us remember what this infrastructure represents: the transformation stations that bring the electric energy to the standards of consumption, given by tension and frequency (in Europe, these represent 230V and 60Hz).
According to the legislation, the distributors – the IUPs designated by the Romanian Energy Regulatory Authority, are at the moment five in number:
- Electrica Furnizare S.A. – for northern Muntenia, northern and southern Transylvania
- CEZ Vânzare S.A. – for the Oltenia zone
- ON Energie România S.A. – for the Moldova zone
- Enel Energie S.A. – for the Banat and Dobrogea zones
- Enel Energie Muntenia S.A. – for southern Muntenia
Fig. 2 IUP geographic distribution
On the market there are also 78 electric energy providers, the number being given by the Romanian Energy Regulatory Authority (RERA) for July 2017. The majority are small firms with small turnovers.
Turnovers and profit
According to the data provided by RERA, the National Agency for Fiscal Administration (NAFA), the websites of the small energy providers, and the online media, we can formulate some conclusions.
The computation methodology of the numbers have been:
- The RERA website provided the firms that could have participated on the electric energy market in June 2017 .
- The NAFA website provided the turnovers and profits obtained by these firms in 2016.
- The number of employees was provided by Risco Business Intelligence.
- The numbers have been estimated up or down for the companies, according to the order of magnitude of the turnovers and the profits.
In the classification given, the first category is reserved for eolic electric energy producers that hold a little over 10% of the total production of Romania with undepreciated investment costs, so for another short time they would be in loss until being able to cover the investments. The turnover is infinitesimal in contrast to the total on the energy market as is normal, because this resource is cheap and does not necessitate much costs for workforce, raw materials, and materials. Being considered renewable energy producers, the receive grants through a development assistance scheme, which lowers the production threshold.
|1||Alpha Wind||Bucharest||v||12||9,000,000||– 17,500,000|
|2||CAS Regenerabile||Bucharest||v||0||9,000,000||– 12,000,000|
|5||OMV Petrom Wind Power SRL||Bucharest||v||2||5,000,000||– 1750,000|
|6||Ovidiu Development (cez)||Bucharest||v||1||38,000,000||– 15,000,000|
|7||WDP Development RO SRL||Bucharest||v||6||7,500,000||– 2,000,000|
|8||Ventus Renew România||Bucharest||v||1||7,500,000||– 21,000,000|
|Total eolian||32||79,000,000||– 69,250,000|
Table 1. Eolic electric energy producers (Cosmin Păcuraru)
The second category is reserved for electric and thermal power-plants (ETP). These are in the highest majority owned by local councils, with the notable exception of ETP Govora, which is owned by the Vâlcea county council. Their role is to provide thermal energy to the urban zones. Throughout the years, they have been improved to also provide electric energy through the process of cogeneration. Only five of these are privatized, the two from Brașov, and those from Buzău, Vrancea, and Botoșani. In these cases, the press raises suspicions of corruption, the patronate being suspected of having close ties with the leaders of the local administrations. Two of these companies are in the process of insolvency, one of them having private stockholders. Also, we can observe that only three out of the eight ETPs have reported profits at the end of 2016, the rest being in financial loss. According to the local authorities, these losses in the provincial towns, are the result of many citizens decoupling from the heating network, and in Bucharest, the financial losses are the result of damages and losses in the network administered by RADET. In other words, in the case of IUPs, the profit does not have to be quantified because the majority of the local councils offer grants for heat, in Bucharest such grants even reaching 54%.
|9||CET Arad||Arad||c||300||16,000,000||– 7,000.000|
|10||CET Govora SA||Rm. Valcea||c||2000||84,000,000||– 420,000|
|11||Ecogen Energy SA||Buzau||g||6||6,100,000||640,000|
|13||Enet SA||Focsani||g||250||12,000,000||– 400,000|
|14||Gas Energy Ecotherm||Brasov||g||15||1,800,000||– 4,800,000|
|15||Modern Calor SA||Botosani||g||200||8,000,000||200,000|
|16||Veolia Energie Prahova||Ploiesti||g||300||40,000,000||– 3,400,000|
|17||BEPCO||Ghimbav Bv||g||60||12,000,000||– 1,300,000|
Table 2. Producers of thermal and electric energy – ETP (Cosmin Păcuraru)
Another category is that of the large producers. They are only six in number, three of them having gas as raw material, another coal, another nuclear fuel, and finally Hidroelectrica transforms the gravitational energy of water into work, and then into electric energy.
OMV and LukOil relies on the secondary product obtained with the extraction of petrol and natural gas. Romgaz relies on the extraction of gas from a region that is not tied to its distribution system.
Besides the two ETPs, Arad and Govora, that have no significant contribution to the production of electric energy from coal, the largest producer is the Oltenia Energy Plant. It has three components: extraction and production of electric energy, as well as production of thermic agent for heating the entire Craiova Municipality, and a small cogeneration installation that also functions on gas.
It is known that obtaining electric energy from fossil fuels causes pollution. The owners of the plants are sanctioned by the State for being polluting factors, by imposing a payment system of the emissions, according to the quantity of emissions released into the atmosphere. The cost is included in the price of energy.
Nuclearelectrica has two production reactors, which alternatively have to enter long periods of reparations at certain intervals of time. Additionally, the first reactor has to enter the reconditioning period for a year and a half so its lifespan can be prolonged. In other words, the National Electric System (NES) has, for long periods, only half of the total contribution of Nuclearelectrica. Also, Nuclearelectrica has two taxes included in its final price: one for depositing radioactive waste and and the other for nuclear reactor reparations.
With Hidroelectrica, the discussion is of more simplicity: the water flows, the turbines move, and the electric energy is delivered to the NES. This happens only if it rains and water is stored in reservoirs! Of the 18% of the hydro production in Romania, nearly half is provided by the two hydro power-plants on the Danube, at the Iron Gates.
Fig. 3: Hydro power-plants installed capacities and production in 2016
Hydro energy is clean and suffers no over-taxation.
|18||Lukoil Energy & Gas România||Ploiesti||g||150||33,000,000||10,000,000|
|19||OMV Petrom SA||Bucuresti||g||200||400,000,000||40,000,000|
|20||SNGN Romgaz SA||Medias||g||200||400,000,000||20,000,000|
|Total gas (wo ETP)||550||833,000,000||70,000,000|
|21||CE Oltenia SA||Targu Jiu||c||1500||25,000,000||– 15,000,000|
|22||SN Nuclearelectrică SA||Bucuresti||n||2000||359,000,000||25,000,000|
|Total production of electric energy||12513||2,350,900,000||264,270,000|
Table 3. The main producers of electric energy (Cosmin Păcuraru)
The monopoly of transport is held by Transelectrica S.A. and the distribution is also in the position of regional monopoly, as I have mentioned.
We can affirm that the majority of household users have one of the five IUPs as their supplier.
Analyzing the production business and that of the transport and distribution, we can observe the following:
- Production has little over 40% of the employees of the entire energy industry
- Transport has approximately 8% of the employees
- The turnover from production is more that a third of the total energy market (72%)
- The profit that capitalises at the producer is markedly lower than than the profit of the transporter and distributor, i.e. 20% of the total market
|1||CEZ Vanzare SA||Craiova||50||310,000,000||3,500,000|
|2||ENEL Energie SA||Bucuresti||200||377,000,000||8,500,000|
|3||E.ON Energie România SA||Târgu Mureş||200||1,050,000,000||3,800,000|
|4||ENEL Energie Muntenia SA||Bucuresti||200||362,000,000||8,500,000|
|5||Electrică Furnizare SA||Bucuresti||1000||910,000,000||38,000,000|
|total production, transport, distribution||16163||5,944,900,000||386,570,000|
Table 4. The main producers of electric energy (Cosmin Păcuraru)
In Romania’s electric energy equation, we have over 8,000,000 clients and 29 medium and large companies: six large producers, nine EHSs, eight large eolian farms, one transporter, and five distributors. There is also an additional player: the provider.
In Romania, there are over 130 providers of electric energy, from which 68 were functional in July 2017. Who are they? Companies, usually very small ones, that purchase en-gros (some of them even have small solar and eolian farms), through auctions on the market or through bilateral contracts, and resell that energy to the household consumer or other small companies. They have very few employees and irrelevant turnovers. Another category is occupied by the medium sized companies from the energy services domain which have created a separate department in charge of transactions on the energy stock exchange, that do not generate substantial turnovers or profits, and are not worth analyzing in any manner (Electrificare CFR SA, Electromagnetica SA, Luxten Lighting Company, etc.).
The question relating to the circulation of money should be raised. The consumer concludes a contract with the provider which is obliged to buy cheaper energy than that of the distributor. The consumer pays the supplier what he promises to consume. The supplier then pays the distribution commission to the distributor, the transport commission to Transelectrica, and the transaction price to the producer or importer, or if it is the case, to another provider with which it has a sales contract. It is worth mentioning that insignificant quantities of electric energy are still being imported, and the importers are not worth mentioning.
According to the published data, the provider’s activity is not yet profitable. Let us take the example of the most potent company; Digi Energy RCS RDS is a company that relies on CATV, mobile, and internet services, with over 2,700,000 clients. It is worth mentioning that it has not made the number of subscribers for electric energy public. On the other hand, it has announced that this activity is not profitable, generating losses in half a year close to 10,000,000 euros, which led to a restriction of activity.
We can observe that we have another type of player: the organizer of the electric energy transaction market: Romanian Gas and Electricity Operator (RoGEO), and the Romanian Commodities Exchange (RCE).
Therefore, the liberalization of the market in Romania means to introduce on the client’s invoice more companies, meaning the suppliers, which can cash in commission from the stock exchange operations by buying cheap energy and selling it at a higher price, while the number of producers remains the same and the transport monopoly is still being held by Transelectrica. To these operations, one should also add the two main operators, RoGeo and RCE, which win transaction commissions. The numbers announced by the Ministry of Finance reveals that RoGEO SA had a turnover a little over six million euros and a profit of 110,000 euros, being made from the transaction of all the products.
Energy Security and the Free Market
The liberalization of the energy market has been made possible with the EU Directives, transposed in the Romanian legislation in 2007 (Law nr. 13/2007), and then through the Energy Law nr. 123/2012. Also in that period, the Romanian Energy Strategy had been elaborated. Evidently, the geopolitical situation in the Black Sea region has evolved and there are many points in said strategy that are anachronic. Also, in the Energy Law of 2012, it is clearly specified that a new energy strategy needs to be elaborated. In the following five years, it was scarcely drawn up and is presently in the state of public consultation.
An exact definition of the concept of “energy security” is “assurance of energy resources that are secure, abundant, diverse in hydrocarbons and its alternatives, at an accessible price, and of a proper infrastructure for safe production and transport of these resources.” It is worth underlining that “energy resources that are secure” refers to access to resources insusceptible to interruptions.
If in the 2007 strategy it was clearly specified what the energy mixture of production of electric energy would be, in the one “announced” for public consultation in 2016, there is no path traced that needs to be followed until 2030. “To ensure a balanced energy mix, priority will be given to investments in sectors of electric energy production that utilizes:
- Renewable energy sources
- Coal from clean technologies
- Nuclear energy through safe technology and with a reduced impact on the environment.”
Knowing that the installed power of Hidroelectrica is close to 6.500 MW, meaning more that half of the national consumption during wintertime, we can affirm that Romania has fulfilled the EU conditions, i.e. to have 20% of the energy already consumed by 2020. We can observe that it is not necessary to continue the policies of grants for production of solar and wind energy.
It is evident that thermal power plants have to be improved to reduce the CO2 emissions and probably finishing another energy group at Nuclearelectrica.
What the core of the problem is: even though the thermal power-plants on gas and coal, the power plant in Cernavodă, Hidroelectrica, and the small solar and wind farms give the same product, i.e. electric energy, in standardized parameters or brought to those standards by Transelectrica, they are not similar.
The unsimilarity comes from the importance of every branch of energy production. We know that solar electric energy can only be produced in the daytime, that wind energy can only be produced under certain weather conditions, that hydro energy is variable in relation to precipitation and that the the Cernavodă power-plant can only function above a certain flow level of the Danube, we can conclude that in cases of force majeure, electric energy obtained from fossil fuels is vital and strategic.
We also know that any thermal power-plant or any nuclear reactor has a certain period when it does not function, which could reach two weeks. Knowing that large consumption variations exist throughout the day, the minimum being at night, that there are consumption variations according to the season, the minimum being in the summertime, we can affirm that the only energy resources that we can always rely on are those which result from fossil fuels, i.e. coal, naphtha, and gas. The installed power of thermal power-plants is close to 12,000 MW, more than the national consumption in the wintertime.
It is worth remembering that this data is not included in the new energy strategy proposed in 2016, only in its preliminary documents, hard to find on the Energy Ministry’s website, in the dedicated section which has not been updated since the summer of 2016.
Fig 4 The total brute installed power in NES. Source: Hotnews
It is known that the most expensive electric energy is obtained from thermal power-plants, having a return between 30% from those built before 1989, and 56% form that put into function by Petrom la Brazi, in 2012. Also, the cheapest energy is that obtained from solar farms, and then wind farms.
Also, it is uncontested that there has to exist an energy mix that would ensure a balance between cheap renewable energy, but which depends on very clear factors: night-day, and favourable meteorologic conditions, and those obtained from fossil and nuclear fuels, much more expensive, with many pauses from function caused by the putting into function of renewables in favourable meteorologic conditions, on which NES can always trust.
We have to remember the accidents and malfunctions of NES. In the last four years, Romania has confronted with two extremely dry summers. The hydroelectric industry was in the impossibility of providing energy, and Nuclearelectrica closed its reactors due to the lack of water for cooling. In those few weeks, Romania had been put in the situation where it had to import electric energy from Hungary in significant quantities.
Also, in the last two years, the Transelectrica regulator confronted with two moderate accidents due to the over-solicitation by the solar and wind producers.
Even though the declared brute installed power is double over the consumption in Romania, in 2017 there was a crisis generated by the voluntary closing of a number of gas installations. This way, on the main market RoGEO, the price of electric energy had almost doubled: the medium priced in 2016 was 154 RON / Mwh, an in the week of 29.11 – 03.12.17, the medium price was 290 RON / Kwh, with a maximum of 333 RON / Kwh.
Explanations from the authorities or from the producers, transporter, or distributors have not been given. We have to mention that we do not count the declarations of the political class, whose arguments are based on nothing.
We know that in the energy market there are six producers, one monopolist transporter, and five distributors, and that the transporter does not earn profit from the price of the consumer. We can assume that the rise in price is explained by the cartel understanding of the producers, nothing in the market having otherwise changed. The cartel has been created by the main stockholders, in this case the Romanian State through its Government, which has representatives in the administration councils. In other words, the Romanian Government artificially inflated the prices of electric energy to take more money from the consumers, and transform them into higher profits and dividends. Knowing that in 2017, the Romanian Government enacted the anticipated collection of dividends afferent in that year, we can affirm that this action was a premeditated one. In other words, the Romanian Government will, in the future, supply the national budget also from price increase on electric energy.
Another phenomenon that we have to observe is that in the moments of overproduction, Romania exports electric energy at an extremely low price, and that in times of underproduction, it imports at a higher price than the transaction price on the RoGEO stock exchange, which leads to an imbalance of Romanian payments. The only possible explanation is that we export energy produced from wind and solar energy and the we import thermo energy from Hungary.
The profits show that ETPs managed in their vast majority by local councils are subject to political decisions, and all show heavy losses.
Studying the press, we can affirm that commercial societies with State institutions as their prime shareholder have been subject to corruption scandals: Petrom, before its privatization in 2004, Hidroelectrica, Nuclearelectrica, ex Termoelectrica, Oltenia Energy Plant, and Hunedoara Energetic Company – presently in insolvency. We can deduce that the State is not a good administrator, fact which is confirmed by comparing the accounting data with those of private energy societies.
We can also observe that the societies listed on the stock exchange, even though they have a majority of state capital, due to the transparency conditions imposed by the Bucharest Stock Exchange, are less exposed to corruption and devaluation, but even here there are some cases. Making a short analysis of the press on the subject of the cooperative governance law of state institutions, we can conclude that the jobs listed for the administrative councils or supervision or management are accorded based on political corruption.
The solutions are given only on political decision, unanimous in Parliament, materialized into an energy strategy for a minimum of 25 years. It is evident that energy independence is impossible in the present European legislation and the present regional conjecture, but the political class has to understand the “smart dependency” solution in which Romania can impose itself as a regional energetic hub, being that it has substantial coal reserves, and sufficient gas and petrol reserves especially offshore, which have not yet been evaluated.
On the subject of property, the optimal solution for the large companies is to be privatized in proportion of 49% through emissions of shares on the market to be capitalized.
Information has been used from the websites of the following institutions and companies:
Ministry of Energy – energie.gov.ro
Romanian Energy Regulatory Authority – www.anre.ro
Ministry of Finance – www.mfinante.ro
Hidroelectrica SA – www.hidroelectrica.ro
RoGEO SA – www.opcom.ro
RISCO Financial Services SRL – www.risco.ro
And the following online publications:
Romania Libera romanialibera.ro
Ziarul Financiar www.zf.ro
The last time i have accessed these websites was on 21.12.2017.
 Cosmin Gabriel Păcuraru earned his PhD in 2013 in international relations at the Babeș-Bolyai University in Cluj-Napoca, with his thesis on energy security.
 Kalicky&Goldwyn, Energy and Security, 2005