Romanian body calls for lift of trading ban on bilateral power trading

The lift of a ban on bilateral trading outside Romanian market operator OPCOM could be back on the table following recommendations from the national competition authority.

Romania’s reintroduction of bilateral trading outside OPCOM could encourage investment in the electricity sector, head of the Electricity Suppliers Association (AFEER) told ICIS on Thursday.

The shock decision to ban all trading of power outside of OPCOM came in 2012, forcing all trading activity onto the exchange and crippling liquidity in the market until the over-the-counter (OTC) platform was launched in March 2014 (see EDEM 18 September 2012).

The ban was implemented after giant hydro producer Hidroelectrica struck a number of disadvantageous deals with traders labelled “smart guys” by market participants at the time. The transactions drove Hidroelectrica into insolvency in 2012. The state-owned company remains to this day in insolvency, despite exiting for a short period last year.

Reinstating bilateral contracts

In a report published this week by the Romanian Competition Council, the organisation’s analysis indicated that the mandatory use of OPCOM’s platforms for carrying out deals “could be interpreted as a ban on trading electricity for export purposes for power producers”. This would in turn limit the development of market participants on other European markets.

Following the analysis, the authority recommended either the lift of the ban on trading outside OPCOM or the implementation of “a mechanism that would reduce barriers in carrying out deals for electricity exports”. Though it remains unclear how this mechanism would work. The competition council was unavailable for comment as ICIS went to press.

AFEER, market participants and renewable lobby groups have adamantly objected the trading ban. Renewable producers were most affected since any new project would generally require a power purchase agreement (PPA) signed in advance with a fairly long delivery period. The law prohibited this.

Benefits

The competition council said that adjusting the regulations will help strengthen the positions and presence of power producers outside the Romanian borders.

Ion Lungu, head of AFEER said that such a regulatory change would result in encouragement for investors, who without a long term PPA have been in a difficult situation securing funding from a bank. This applies in particular to renewable installations. He also pointed out that a bilateral contract would allow contracts with flexible delivery periods to be signed.

Until last year, the flexible contracts were a vital piece in the trading jigsaw for renewables installations, especially wind and solar generators, for which output volumes are often volatile.

Last year, the delivery period and volume could include variations. For example, a company could hold a tender offering electricity with a volume between 0.001/MWh and 1MWh. Last year the government vetoed all non-standard contracts and limiting delivery hours to Baseload, Peakload and Off-peak hours on all forward trading platforms.

Before the controversial law was introduced, some market participants could use the excuse ‘of not having a market price’ for a disadvantageous trade. Lungu said that the current market indicates a fair value price. This is done through the platforms on OPCOM which are transparent and make public transactions carried out at the end of each session.

Market views

Market participants voiced their doubts over the reinstatement of trading outside the market operator, pointing to swift regulatory changes in the last year that have made it even more difficult for liquidity to evolve. “We haven’t had a positive development there since 2011,” said a trader.

A regional market participant said that the subject was under debate in a meeting at the energy regulator ANRE earlier this week, but discussions indicated a position against lifting the ban. ICIS was unable to confirm this with the regulator or with a second source. It is believed the meeting took place ‘behind closed doors’. Sophie Udubasceanu