May 2019 – Market design – Release of the Emerton report
Emerton has been appointed in November 2018 by FPPG in order to proceed with an in-depth analysis of the Romanian gas market and propose some structured actions to be put in place in order to improve the global efficiency and attractiveness of the gas sector along the whole value chain.
The Romanian gas sector is not functional, its development towards a fair and balanced liberalized market is impeded by major hurdles.
Despite the substantial steps made towards the gas market liberalization within the recent years up to late 2018, some major hurdles are still impeding the emergence of a mature and attractive gas market in Romania.
These hurdles have been identified along the whole value chain from upstream to downstream and affect both the wholesale and retail gas markets. On the one hand, the poor liquidity of the wholesale gas market negatively impacts the whole Romanian gas sector by limiting the attractiveness of investments in gas production and generating low competitive intensity on the retail market.
On the other hand, in the absence of a reliable wholesale market price, the mechanisms put in place to cover the cost of gas supply in the regulated sale tariffs are lacking transparency and predictability.
These uncertainties strongly limit the attractiveness of the segment for potential new entrants. Moreover, the absence of an efficient scheme to protect the vulnerable energy consumers is strongly undermining the political acceptability of the household retail market deregulation.
The recent introduction of the 68 RON/MWh price cap is expected to exacerbate most of the existing hurdles and generate harmful longterm impacts on the Romanian gas sector.
The Emergency Ordinance GEO 114/2018 introduced by the Romanian Government at the end of 2018 (and amended late March 2019) imposed a 68 RON/MWh price cap on a substantial part of the volumes traded on the wholesale gas market.
Although such a measure mechanically prevents the Romanian household consumers from being exposed to potential price increase in the near future, the application of GEO 114/2018 will clearly exacerbate the illiquidity of the wholesale gas market and generate harmful medium to long-term impacts on the security of supply and gas affordability for end users.
As a matter of fact, the GEO 114/2018 is not addressing the disfunctions of the Romanian gas market at its roots but will furthermore amplify the hurdles impeding the efficient and balanced development of the sector. The mere introduction of a price cap is structurally inconsistent with the conditions which would allow the development of an attractive and competitive market for producers, retailers and consumers.
In order to overcome these hurdles, a comprehensive roadmap is being proposed to improve the attractiveness and competitiveness of the gas sector along the whole value chain
The main objectives of the roadmap are the following ones: