The liberalisation of the electricity market in Romania is a blow to consumers

The position of the National Syndical Bloc

Vladimir Mitev

This article was published on 21 August 2021 at the Bulgarian section of the Barricade.

The heat waves in the past weeks have led to a sharp rise in the price of electricity on the free markets across the South East. While in Bulgaria this affected companies directly, in neighbouring Romania, where the consumer market has already been liberalised, the impact was felt by ordinary citizens. This led one of the country’s leading trade unions, the National Trade Union Bloc (BNS), to come out with a position criticising the state’s energy policy.

“What has happened in recent days on the energy market is a lesson that the Romanian authorities refuse to learn, even though they have received it repeatedly over the last 30 years. The liberalisation of the electricity market for domestic consumers is being carried out in the fastest possible way in the absence of functioning and verified market mechanisms. We can therefore see how a combination of factors that are seemingly unrelated can lead to shocks in the budgets of local consumers, as well as in the competitiveness of economic sectors, especially those that consume a lot of energy,” the union points out.

After Romania liberalised natural gas prices for consumers in mid-2020, the electricity market for households was also liberalised from 1 January 2021 and consumers can switch their final supplier. On the eve of liberalisation in December 2020, Romanian analysts warned of a number of problems: the price of electricity for the end consumer could rise by up to 26%, 90% of people were not informed about what was coming and what they had to do to protect their economic interest, etc. Consumers in the country can choose between 60 electricity suppliers. By mid-2021, approximately 50% of households had chosen their electricity supplier. Those who have not done so are receiving electricity at prices higher than the market prices, Digi 24 television specified. But even those who have chosen a supplier are hit by the price hike. In February 2021, Bucharest was the European capital with the highest electricity price increase over a one-year period – 18%. In mid-2021, there was another price hike of between 3% and 13.

BNS points out that the liberalisation of the energy market should be done taking into account the social context and specificities of the energy market. The Syndicate draws attention to the following statistics on consumers and the electricity market in Romania:

• In 2019, approximately 1.1 million households have electricity arrears;
• Approximately 1 million households are in energy poverty with consumption equivalent to a light bulb that works a maximum of 2 hours per day;
• Approximately 10% of Romania’s population cannot provide adequate temperature in their homes, which is well above the European average;
• Around 3 million people today cannot pay their utility bills or current debts on time;
• In 2020, 2.95 million people were in severe material deprivation (lack of access to goods and services considered a minimum for a decent life

BNS noted that after a drop in energy consumption in 2020, it began to recover in 2021, although it has not yet reached 2019 levels. This has led to excessive demand in the market. The increase in domestic energy consumption, especially in industry, but also the increase in energy demand for exports, has caused overconsumption. “The increase in electricity demand, imposed by the liberalisation of the market for domestic consumers, the development of the international context, but also by the special rules imposed by the pandemic, has allowed energy market operators to speculate on the dynamics and impose a rapid increase in market prices, accelerating the alignment with European prices,” BNS points out.

“It seems that the competent authorities have been unable or unwilling to anticipate such behaviour, even though industrial energy output prices have started to show sharper increases since late 2020. The first victory of the pricing policy practised by energy market operators is the abolition of the obligation to ensure continuity of supply during a state of emergency for transmission and distribution network operators, as is also the case for water, sewerage and sanitation operators. The Romanian population is paying and will continue to pay for the authorities’ inability to manage the situation created in the energy market and for the appetite of the energy market operators for huge profits, with the devastating effect being felt by the poorest Romanians, in the context of the deliberate delay in adopting national regulations for vulnerable consumers. It is about the appetite for huge profits on the part of energy operators. In 2020, at the height of the pandemic, when the entire economy was suffering, one of the large operators selling electricity in Romania increased its profits almost four times compared to 2019. It is obvious that the liberalisation of the energy market for household consumers, which was carried out at the beginning of this year, should have been prepared much more carefully. Unfortunately, the preparation was extremely weak and was rather limited to an information campaign for the population to conclude contracts on the competitive market,” the trade union concludes.

BNS forecast that the situation on the energy market is likely to continue to deteriorate, with energy prices expected to rise by 50% by the end of the year as the cold season approaches. According to the trade union, this calls for concrete actions such as the urgent adoption of the Vulnerable Consumers Law; a review of the thresholds for assistance to vulnerable consumers, because currently only about 20 thousand households out of a total of about 1 million households living in energy poverty can benefit from the provisions of the law; a reduction in the VAT rate on electricity for household consumers, and a review of the current policy for distributing profits received by energy companies and reinvesting the profits received.

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