At a press conference held in early September at the Ministry of Energy, Minister Bogdan Ivan presented a set of measures aimed at reducing electricity prices for citizens and businesses.

The official pointed out that only 51% of the price paid by consumers is the actual price of active electricity, while 49% is made up of transmission and distribution tariffs, taxes and excise duties. In this context, Minister Ivan presented five measures for the gradual reduction of electricity prices and the development of a mature, functional energy market.

The measures, much debated in the national media and some even contested by energy experts, include:

Operationalization of the Market Maker mechanism: selection of an operator to ensure liquidity in the energy market by stimulating demand and supply, facilitating long-term transactions, and thus causing a steady decline in prices Increasing transparency and reducing risks in the energy market by requiring firm guarantees in all energy transactions Introducing dynamic and differentiated tariffs based on consumption intervals, rewarding responsible consumers who use energy when it is cheapest with lower prices Lowering the purchase prices of energy for distribution operators’ own consumption by creating a single purchase mechanism – this purchase cost for distributors represents almost 25% of the total energy cost for consumers, so implementing the mechanism will result in lower distribution tariffs for all consumers Integrating all energy efficiency programs under a single, efficient coordination, to be provided by the Ministry of Energy.

Starting from two major objectives of his mandate – Romania’s energy independence by increasing production capacities and lowering energy prices below the European average, Minister Bogdan Ivan conducted an analysis of the current situation and how Romania came to have one of the highest energy prices in Europe, relative to the purchasing power of Romanians.

 

Causes of rising energy prices

According to the Ministry of Energy, the main causes identified for the increase in energy prices are:

Russia’s invasion of Ukraine Lack of interconnection with the main energy corridors in Central Europe Elimination of 7000MW of baseload production capacity (gas and coal) over the last 10 years and commissioning of only 1800MW Insufficient pace of investment in national energy infrastructure.

The Energy Minister also announced that he had initiated negotiations at European level to extend the deadline for closing coal-fired power plants, scheduled for 2026, until 2030. This measure aims to reduce pressure on prices by maintaining part of the baseload production capacities, given that Romania has lost 56% of these capacities over the last decade. With this approach, Romania gains time to develop new strategic production projects and to ensure a balanced energy transition without major shocks for consumers.

In view of high electricity prices, the ministry has proposed the implementation of a system of dynamic or differentiated prices, a mechanism through which consumers can benefit from the real price of energy when it is produced.

“We are talking about an extensive process of discussions and negotiations that has taken place over the last two months, through which we have worked together with the regulatory authority, together with the employers’ organizations of producers, suppliers, distributors, and together with members of the Romanian Government to find a solution that would lead to a set of measures agreed upon by everyone, in a form that would lead to a reduction in the price for the end consumer. We reached this government formula two months ago, just as Romania’s electricity price capping and compensation scheme came to an end on July 1, which meant that for end consumers, whether individuals or companies, the price of energy, the final price on the bill, was even double,” the Energy Minister explained.

We note that according to the memorandum adopted by the government, which includes measures for the gradual reduction of electricity prices, Romania has committed to a three-month deadline for the implementation of the Market Maker mechanism.

The measures presented by Minister Bogdan Ivan were agreed in advance with representative energy organizations, whose leaders took part in the press conference: Romanian Energy Center – Corneliu Bodea, President; Federation of Associations of Energy Utility Companies – Daniela Daraban, Executive Director, and Alexandru Chirita – member of the Steering Committee; Association of Electricity Producers – Claudiu Cretu, Vice President; Romanian Photovoltaic Industry Association and Romanian Wind Energy Association – Andrei Manea, Executive Director.

 

Expert opinions

Corina Murafa – Independent energy and climate consultant, member of the European Economic and Social Committee (EESC), turns to economic logic to set the record straight.

“Romania is a net importer of electricity not because it does not have enough coal-fired generation capacity. Only a small portion of the 5,000 MW installed before the commitment to eliminate coal from the energy mix has been decommissioned. Very rarely do more than 1,000 MW of those 5,000 MW operate because the energy produced by those groups is very expensive, so basic market logic tells us to import, as it is cheaper to import. As such, I don’t see how, without decommissioning the installed capacity according to the schedule (we had to decommission about 1,500 by 2032 anyway, which is more than enough because, I repeat, rarely more than 1,000 of what we have enters the market), you could lower prices. Another proposed cure-all for lowering prices is to unblock gas-fired power plant projects. At present, MW from gas is the most expensive, both in terms of the cost of building the power plant (which is why we cannot find contractors within our budget) and in terms of the subsequent production cost for that electricity. How these power plants could lead to lower prices is something that magic, rather than economics, can answer.

In conclusion, at a fundamental level, the expert finds the economic logic of the package questionable. For example – obvious structural solutions such as investing in commercial storage (and storage in general), but energy communities are completely ignored in the proposed package. “Technical measures – such as dynamic electricity tariffs or the Market Maker mechanism – are interesting and I would be happy to see them implemented, because they are already existing legislative measures, nothing new is being invented. For example, the Market Maker was proposed by us at the EESC in an opinion to which we contributed, but it is difficult to implement because it hits the suppliers’ business. That is why I suspect that it has not been applied until now. But I don’t see how this package, in total, could bring prices to minus 25% in six months.”

According to Cosmin Gabriel Pacuraru, an independent energy consultant, Romania’s current energy situation is serious, but there are also opportunities. “Romania is the only country in the region that has significant energy resources, it is located in an important geopolitical hub which gives it a great advantage in building the much dreamed ‘energy hub’. In any situation of the war in Ukraine, Romania is ‘condemned’ to its reconstruction. The problem is for decision-makers to realize this and think about what smart dependency means, the concept that describes the win – win situation in the whole energy relationship in the area. But as long as there is no structure for analysing and mapping out future energy strategies and policies, as long as there is no political will to reorganize markets and remove them from the influence of various interest groups, the same vulnerabilities, risks, dangers, and threats remain, from which opportunities could have been extracted.”

Analysing the announcement of the Ministry of Energy, the expert gives his opinion on one of the measures: “Operationalizing the Market Maker mechanism by selecting an operator to ensure liquidity in the energy market with the current market organization is not possible. Transelectrica oversees the DEN (the national energy dispatch centre that gives orders to producers) and OPCOM (the main electricity market). If the institution really wants to do something, it can decide to have the DEN taken over by the ministry (as would be normal) and transform OPCOM into an independent market.”

Regarding the introduction of dynamic and differentiated tariffs per consumption intervals, Cosmin Gabriel Pacuraru says that this implies the introduction of smart metering by (private) distribution companies.

Therefore, there are feasible solutions to resolve this complex situation. However, vision, viable strategies, and, above all, political will are needed.