Hidroelectrica, the Romanian state-owned hydropower producer, has declared force majeure following a prolonged drought that has depleted reservoirs, the Romanian ministry of energy said on Tuesday.
The company is reportedly cutting production by 30% and will limit deliveries to customers, according to local media.
The clause would come in force within the next 48 hours from Tuesday and would apply to all contracts signed by Hidroelectrica with 41 companies, the media said.
Without the activation of this clause, the company would have been forced to fulfil all contractual obligations to its trading counterparties.
The ministry estimates that Hidroelectrica would cover only 63% of its contractual obligations from its own production.
Under the current circumstances, Hidroelectrica will have to deliver its entire production to pending contracts proportionally, using an hourly formula.
This means that Hidroelectrica will have to comply with all hydro management programmes currently established by the Romanian National Hydro Administration (ANAR).
Grid operator Transelectrica will have to ensure that electricity reserves are operational.
Despite the shortage in the system, prices on local exchange OPCOM were stable. The Tuesday Baseload outturn was Romanian New Lei 214.02/MWh (€49.75/MWh) compared with levels earlier this month when Day-ahead Baseload prices were hovering around the New Lei 300.00/MWh level.
"They [Hidroelectrica] have not really been able to cover 100% of their contracts for a while now," a trading source active in the Romanian electricity market said.
Another trader said the hydro producer had so far been buying electricity on the spot market to cover its production shortfall and fulfil its contractual obligations. "If anything, this will mean that Hidroelectrica will buy less from the market, but I do not see it having a big impact on [prices]," the source said.
As temperatures are expected to fall, some traders pointed out that less water would be needed for cooling.
"If that happens, then we will most likely see Turkey exporting again. It will probably only be around 250MW, but that can make a difference if the market is very tight," one source said.
The region is currently short of electricity as Bulgaria's 1GW unit at Kozloduy is switched off for planned maintenance until the beginning of October.
Romania's 1.4GW Cernavoda nuclear power plant also could be taken off line because of the ongoing drought. The hydro shortage means that the plant may not have enough water to cool its reactors. "If there is not enough water for cooling the reactors, then there would be big problems," one trader said.
However, the plant was fully functional by the time the report went to press.
According to the website of Transelectrica, only 18% of the country's power generation came from hydropower on Tuesday.
One of Hidroelectrica's trading counterparties said on Tuesday that it had not received notification from the company, but added that it would be affected by the cut in deliveries.
Hidroelectrica was unavailable for comment on Tuesday. The local media did not expand on when the force majeure is likely to end. However, no rain is forecasted for the next two weeks. SR