Gas prices will explode in Romanians’ bills after the capping period

Opinion by Dumitru Chisalita, president of the Intelligent Energy Association

The Intelligent Energy Association requests the urgent development of a Post-Capping Price Strategy, in order to avoid the increase in gas prices in Romanians’ bills, after the capping period.

The protection of natural gas consumers in 2022 determined the approval in Romania of a law suspending the price in contracts and the application of a capped price of 0.31 lei/kWh for domestic consumers, with the payment from the state budget of the difference between the purchase costs of suppliers and the capped price, if the costs are higher than 0.31 lei/kWh. If the suppliers’ costs were lower than 0.31 lei/kWh, then the supplier calculated every month a sales price composed of the purchase costs to which a regulated margin is added.

This situation has determined multiple and fundamental changes in the natural gas sector, many of which are very difficult to fix and there is certainly a need for important post-cap strategies that should be quickly realized and put into practice.

Changes in the natural gas sector driven by price caps and supplier compensation:

– the suspension of the operation of the natural gas market caused the total disappearance of competition and the maintenance of high prices for purchased natural gas. The maintenance of prices was also determined by the fact that the compensation scheme for the difference between the capped prices and the purchase costs accepted any prices for the purchased gases. This situation will be difficult to remove and will require a time in which the reappearance of competition could rebalance things. We assume that this situation cannot last for less than 1 year.

– the failure of the liberalization of the gas market in 2020 (as a result of the lack of proper preparation of consumers), on top of which the abusive behavior of some suppliers was superimposed (as a result of the lack of actions of the “watch dogs” of a liberalized market – ANRE, the Competition Council, ANPC – and especially the lack of an Alternative Dispute Resolution entity on the energy market), followed by the gas crisis and the record price increase, culminating in an inadequate consumer protection model during the crisis, led to the erosion of trust in the notion of free choice on the energy market.

– the lesson learned by the authorities, free market means less money to the state budget and more criticism, regulated market means the lack of reference price in the market, i.e. the acceptance by consumers of the “normality” of the high price on the invoice, but also high incomes the state budget.

– The EU accepted the modification of the principle that was the basis of its birth, the free movement of goods – the free market – an aspect that could allow a semi-regulated market system, as it exists today in Romania, to be perpetuated in the future.

Taking into account these changes, an analysis is required to identify what solutions Romania has and how they should be prepared to avoid a doubling of the gas price in the following year:

a) The option of doing nothing

The gas price in the gas sales contracts, which are suspended until March 31, 2025, are at a level of approx. 0.55 lei/kWh, a price that will most likely remain valid at least until the summer of 2025. Thus, starting from in April 2025, the prices on the invoices will be double. Probably in the summer of 2025, competition will timidly reappear on the gas market, but which will bring slightly lower prices, in the best case scenario starting in 2026. This variant will bring all the risks that existed in the market before the capping of gas prices (some abusive clauses, price increases following some clauses in the contract, etc.).

b) Variant of the preparation of the reliberalization of the gas market

In order to avoid that the gas price in gas sales contracts, which are double at the moment, becomes the actual price paid by consumers after March 31, 2025, the following activities are necessary:

– a massive campaign to inform and prepare consumers for the reliberalization of the gas market

– the professionalization of the “watchdogs” of a free market – ANRE, the Competition Council, ANPC and the replacement in their working mode as the main actions of reactive elements – fining those who violate the law after reporting abuses, with preventive actions and to reduce abuses on consumers and preventing infringement of the law.

– the establishment of an entity for Alternative Resolution of disputes on the energy market

– the suspension for a period of 3 years of the provisions of the Civil Code regarding the energy market through which suppliers can extend a supply contract without the customer actually signing an additional contract/act

– the organization by ANRE (directly and indirectly) of some sessions/actions for the competitive bidding of natural gas starting from April 1, 2024, in order to restore competition

– the development of transparent mechanisms for suspending the free market under certain clearly established conditions and the mechanisms applied for this period

c) The option of maintaining a semi-regulated market

In the situation where the existing normative act is extended at the moment, the current system will remain in force, a system in which the price in contracts is suspended and the application of a capped price in invoices for consumers, with the payment from the state budget of the difference between suppliers’ acquisition costs and the capped price, if the costs are higher than the capped price. If the suppliers’ costs are lower than the capped price then the supplier will calculate each month a selling price composed of the purchase costs plus a regulated commercial margin.

d) Variant of market regulation

If the option of semi-regulation was and probably can remain an accepted option at the EU level, the regulation of the gas market is a very likely option taking into account the European regulations. This option will bring prices that are based on the cost plus method, which does not predict lower gas prices in the future.

Among the 4 options analyzed, the one that would bring the lowest prices is the free market option (only if we have informed and prepared customers, “watchdogs” of the performing market, a SALENERG – entity for alternative settlement of disputes on the energy market functional).

Price regulation does not encourage efficiency in the natural gas sector and hence cannot bring about cost reductions and lower gas prices.

The option of semi-regulating the price is an option that will not bring the lowest prices, but also does not require major changes (Romania is changing very hard) – the professionalization of ANRE, the Competition Council and ANPC, and above all the establishment of a super-efficient Alternative Resolution of disputes on the energy market.