Electricity

Romanian energy suppliers warn compensation for price caps is drying up their liquidity

Romanian energy suppliers compensation price caps is liquidity

Photo: AFEER

Published

June 2, 2022

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Published:

June 2, 2022

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Suppliers have been suffering from the power and gas price cap in Romania for seven months, their association AFEER warned the government and said it expects several members to cease activity soon.

The Romanian Energy Suppliers Association – AFEER said some state institutions are not meeting their obligations from the emergency aid package for consumers of electricity and gas. Prices were capped in November due to the energy crisis and suppliers are entitled to compensation from the budget. The measures are in force through March of next year.

AFEER requested support from Prime Minister Nicolae Ciucă for urgent settlements and payments of amounts due to suppliers, citing financial difficulties and warning that a number of them are set to cease activity soon. The association underscored the rules must be clear, with well-defined deadlines, responsibilities and penalties for all parties involved.

Paying market prices strains suppliers’ financial stability amid capped prices for consumers

Suppliers buy electricity and natural gas from producers at market prices and issue invoices to consumers, while the government is obligated to reimburse them as prices are capped for most consumers. The bills include the costs of transmission and distribution, amounts for programs for the promotion of renewable energy and high-efficiency cogeneration, excise duties and value-added tax, the association explained.

AFEER accused state institutions of not meeting their obligations from the emergency aid package for consumers

The final price of electricity is limited to ​​between 13.8 and 20.2 eurocents per kilowatt-hour, compared to 6.3 to 7.5 cents per kilowatt-hour for natural gas.

The amounts necessary to cover the differences related to the application of price caps are very large, and suppliers have been using own funds or they turned to their shareholders and bank loans, AFEER’s President Laurențiu Urluescu said.

“Delaying the payment to suppliers will have a significant impact on the entire energy system, with major consequences for the entire electricity and gas market, due to the impossibility of suppliers to make payments upstream to producers and transmission and distribution operators, but also to the state budget,” he stressed. Banks are increasingly reluctant to lend so the association expects a number of suppliers to cease their activity in the near future, according to Urluescu.

Threat of domino effect

If any supplier leaves the market, it could disturb the chain of payments, AFEER pointed out. The outgoing supplier’s customers would be taken over by the providers of last resort. If several suppliers cease their activity in a short period of time, such entities face a domino effect with a risk of not being able to cover the entire consumption needs of new customers, the statement adds.

AFEER, established in 2006, said it has 37 members with a market share of 90% in final electricity consumption and 65% in final gas consumption.

The energy crisis has made the business unsustainable for numerous suppliers across Europe as they were bound by price caps or fixed tariffs in contracts with consumers while facing a surge in market prices that they needed to pay for electricity and gas. The issue may affect energy security in the European Union and beyond.

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