The year 2021 is expected to be a long-awaited turning point for the Moldovan electric energy market.
The wholesale electricity market rules, developed with the support of the Energy Community Secretariat, will enter into force on October 2, 2021. According to the Electric Energy Market Rules, approved by the Moldovan National Agency for Energy Regulation (NAER), the new design of the energy market will include the bilateral market, day-after and intra-day markets, and markets for balancing and ancillary services.
Traditionally, the transportation and distribution systems’ operators and universal service suppliers organize their acquisition tenders before April 1, when the annual contracts expire. This year, the tenders were organized according to the new acquisition rules, adapted by the NAER according to the new market design. As several features of this new design are not in place before October, the tenders ran into numerous hurdles, revealing the weaknesses of the Moldovan electricity market. In this respect, the Energy Community Secretariat characterized the Moldovan electricity market as a sector with minimal sources of electricity, few market players, state-owned companies supported by the government, parallel negotiations and dealings, uncompetitive behavior, and lacking in transparency.
Moldova’s electricity sector is characterized by the dependence on one source, a gas-fired power plant (MGRES) in the breakaway eastern region, while not being interconnected with the European Network of Transmission System Operators (ENTSO-E). MGRES holds 84% of the total installed electric energy production capacity in Moldova, making it the only local producer capable of balancing the system.
On the other hand, although Moldovan and Ukrainian transmission infrastructures were originally constructed as parts of a single interconnected system and operate synchronously, differing legislation and the lack of adequate cross-border mechanisms have prevented their full integration. In July 2019, Ukraine launched a new electricity market model, similar to the one to come into force in Moldova in October, as scheduled under the new Ukrainian Electricity Market Law of 2017.
To allow for the market entrance of plentiful baseload energy from Ukrainian nuclear power plants, the leading Moldovan energy supplier, Premier Energy, made use of new rules and invited separate offers for baseload and peak-load (including balancing) power. Unfortunately, the absence of the balancing power market in Moldova and of the metering solutions for it led to the commercial impossibility to import balancing power, without laying unreasonable commercial burden and risks on market operators. NAER not addressing this issue in due time left MGRES as the only competitor able to balance the system.
At the same time, the market rules do not allow the energy suppliers to sell electric energy to customers without having a balancing power arrangement in place. Consequently, MGRES’s dominant position on the balancing energy market automatically gave it a strong bargaining position on the bilateral contracts market. In some observers’ opinion, MGRES abused that bargaining power to strongarm Premier Energy and other market participants into buying energy from it.
The Moldovan competition authority will undoubtedly look into what happened during the tender, and whether the flawed regulation or anticompetitive behavior is to blame. But what is increasingly clear is that no competition policy can be more efficient than actual physical access to the grid for electric energy producers and suppliers.
What is also clear is that significant market access problems will persist beyond 2021. For the reliability of supply and for effective competition to exist on the market, the Moldovan energy grid needs stable infrastructure connections with the European one. An asynchronous interconnection with Romania is planned, as an interim solution, before the final synchronization. From a strategic point of view, considering a common setup, a joint Moldovan-Ukrainian integration into ENTSO-E would be the most desirable outcome for both energy markets.
In the short run, specific urgent transitional mechanisms are needed to enable a smooth transition towards the new market rules and ensure that all local and Ukrainian suppliers of electric energy, including balancing energy, have legal and physical access to the market. Particularly, common rules for managing cross-border flows with Ukraine, that would allow for commercially viable balancing power imports, should be agreed upon. Finally, the national energy market regulator may wish to look into the Procedures for Electric Energy Acquisitions, including lessons learned from the Premier Energy acquisition tender and others.
By Emil Gutu, Competition Manager, ACI Partners