Starting with 1 April 2021, the long-term electricity supply contracts will no longer be as long-term as they used to be. Following the entry into force of ANRE Order No. 26/2021(“Order 26/2021”), the concept of „long term electricity supply contract” was redefined as a „supply contract with a delivery period longer than or equal to one month”, compared to the previous definition which referred to „delivery period longer than one year”.
ANRE initially defined the concept of „long term electricity supply contract” in ANRE Order no. 65/2020 with the purpose to clarify the scope of art. 3, letter o) of Regulation (EU) 2019/943 of 5 June 2019 on the internal market for electricity (“Regulation 943/2019”), which requires EU member states to allow for the negotiation over the counter of long term electricity supply contracts, without defining them.
Pursuant to the explanatory note to Order 26/2021, one of the reasons for the adoption of the new definition was the opinion expressed by the European Commission in its letter of 26 January 2021 according to which the definition of a long-term supply contract should not lead to unnecessary market restrictions and should encourage granting permission to the market players to carry out transactions outside the centralized markets with a delivery period shorter than one year.
Given that the long-term electricity supply contracts are negotiable over the counter, this amendment makes wholesale transactions more flexible by expressly validating the application of art. 3 letter o) of Regulation 943/2019 to all contracts with or in excess of 1 (one) month term. However, ANRE does not expressly state that such contracts can be directly negotiated bilaterally outside any organized market, but this should be an implicit consequence under Regulation 943/2019.
Generally speaking, the shortening of the minimum term in the definition of long-term electricity supply contracts may enhance their natural benefits such as increasing security of consumption and supply, reducing price fluctuation risk, accommodating the sometimes diverging needs of electricity producers and their customers, etc. This new amendment should also ensure a better alignment of the domestic legislation with the principles governing the operation of electricity markets as set forth under Regulation 2019/943, especially the protection of market participants against price volatility risks on a market basis and mitigation of the uncertainty of future returns on investments.
Important amendments were also brought under ANRE Order No. 27/2021 (“Order 27/2021”) which also entered into force on 1 April 2021. Order 27/2021 amended several previous ANRE orders regulating trading on centralized electricity markets which contain references to settlement, trading and delivery periods of one hour, in order to align them with the new 15 minute imbalance settlement period imposed by EU Regulation 2017/2195 establishing a guideline on electricity balancing, Regulation 2019/943 and implemented in Romania under ANRE Order No. 230/2020.
Pursuant to Order 27/2021, starting with 1 July 2021, the 15 minute settlement period will be extended to virtually all centralized electricity markets of bilateral contracts operated by OPCOM, replacing the current applicable settlement period of one hour (which however will continue to apply until 1 July 2021). The regulation of the 15 minute settlement period for the voluntary centralized markets was aimed at helping the market participants bearing the balancing responsibility to minimize the imbalances to be settled on the mandatory balancing market, where the same 15 minute imbalance settlement period was implemented as of 1 February 2021. The market participants would potentially be able to trade much closer to the delivery time, with a positive impact on the management of imbalances closer to real time and thus, at least in theory, reduce their imbalance costs.
This should be good news especially for the producers from uncontrollable renewable sources such as wind, which used to incur high imbalance costs above the European average. However, the 15 minute settlement period also comes with the risk for the less agile market players to record an increase in their imbalances in the event they cannot act quickly enough to adjust to the shortened settlement period. It is also a matter of market liquidity since the shortening of the settlement period requires an adequate capacity availability to respond to such demand.
The amendments brought by Order 26/2021 and Order 27/2021 are part of ANRE’s legislative initiatives for the liberalization of the Romanian energy market and reformation of the balancing system in accordance with the European legislation in the field. ANRE has previously repealed the imbalance price caps and floors and implemented the single imbalance price.
Also, Regulation 2019/943 requires the national authorities to adopt certain coordinated measures aimed at harmonizing balancing systems, including a framework for an European platform for the exchange of balancing energy from replacement reserves, standard balancing products, harmonization of the main features of imbalance settlement, methodologies for pricing balancing energy and cross-zonal capacity used for the exchange of balancing energy or operating the imbalance netting process. Therefore, the balancing regulations are being permanently adjusted, and the next period could bring even more changes.
By Cosmin Stavaru, Partner, and Vasile Soltan, Associate, Bondoc si Asociatii