Romania’s hydro electricity deals renewed at discount rate

Aura Sabadus

05-Jul-2011

Romania’s Hidroelectrica is to sell nearly 80% of its remaining production under long-term bilateral contracts which they have extended until 2018, a senior source at one of Romania’s largest trade union groupings told ICIS Heren.

The state-owned company reportedly signed a number of deals with clients seven years ago. These contracts were expected to end in 2010 and 2011, the source from trade union federation BNS said.

After their expiry date, Hidroelectrica had two options: either to sell the production on Opcom, as required by law; or to renegotiate bilateral deals on an annual basis after their end date, as stipulated in the clauses of the initial contracts.

“Instead of renegotiating these contracts on a yearly basis, they [Hidroelectrica] had renewed the deals which cover an estimated 12TWh until 2018, at a low selling price,” the source said.

He said the quantity represents nearly 80% of the production after the company had honoured its obligations on the regulated market.

He explained clients who had renewed their contracts with Hidroelectrica are now buying electricity at prices below Romania New Lei 110.00/MWh (€26.00/MWh). However, the average daily Baseload price on the local exchange Opcom has been nearly New Lei 100.00/MWh higher since the beginning of the year.

“[Hidroelectrica] negotiated prices for the new contracts some 20% higher on the price levels included in the previous contracts. Even so, they are still low compared with the Opcom average,” he said.

A trader active on the Romanian market said the news highlighted the importance of encouraging private production which would follow the logic of free trading and transparency.

Neither Hidroelectrica, a state-owned company, nor the Romanian energy ministry could make any comments regarding the renewal of contracts by the time the report went to press.

Spot spikes

Traders have repeatedly questioned the causes behind the ongoing spikes on Opcom where the daily Baseload average since the beginning of the year has been hovering around the New Lei 198.00/MWh mark. Comparatively, last year’s average was pegged at New Lei 153.00/MWh, while the year before was New Lei 145.00/MWh.

Some suspected the spikes were caused by a lack of cheap energy on the market as Hidroelectrica had sold most of the capacity as part of long-term contracts, leaving very small amounts to sell on Opcom. The situation was compounded by hydro levels dropping below the seasonal average in Romania earlier this year.

A few traders interviewed by ICIS Heren in June said Hidroelectrica had also bought energy on Opcom to comply with the terms of its contracts.

Dragoş Zachia, operations manager at Hidroelectrica, told ICIS Heren in June that the company was committed to honouring all its contracts, as well as to buying and selling electricity on the market (see EDEM 10 June 2011).

“There is no secret that the region is suffering from a hydrological deficit, but as far as Romania is concerned, this deficit is being compensated by production from other companies such as Termoelectrica,” he added. AS

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