Ecotechnology 1

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3. Competition in key sectors

3.1. Electricity sector

The electricity sector is regulated byLaw on electricity and natural gas no.123/2012 transposingDirective EC/2009/72

of the European Parliament and of the Council concerning the common rules of the internal market of electricity.

The main types of the activities forming the electricity sector are the following:

(1) the production of electricityin power plants, including cogeneration power plants ( theproduction);

(2) the transport of electricityon high-voltage lines from energy production capacities up to distribution

installations or to consumers facilities connected directly to the electrical transport networks (the

transport);

(3) the transport of electricitythrough lines of average and low voltage up to nal consumers (thedistri-

bution);

(4) the sale and purchase of electricity on wholesale markets (thetrading) and

(5) the sale of electricity to nal consumers(the supply).


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Compeon developments in key sectors

In addition to the main activities, in this sector a number of other secondary activities are carried out, such as

system services, the marketing of green certicates, of greenhouse gases emission certicates, maintenance ser-

vices, etc.

The main activities listed above and the administration of the centralized electricity markets is conducted on the

basis of a license granted by the National Regulatory Authority in the eld of Energy (A.N.R.E.).

The production activities and the trading of electricity are conducted within a competitive regime. The transport-

ing activities of the electricity through electrical networks of high, medium and low voltage constitute natural

monopolies and are carried out within a regulated regime.

The energy mix in Romania

At the national level, there is a diverse range of sources for the production of electricity ( hydro, nuclear, coal, fuel

oil, natural gas, wind, biomass, solar sources etc.), which contributes signicantly to increasing the safety in the pow-

er supply. The most notable existing resources are the coal and the water(the hydro source), while the natural gas

has a low weight.

From the data provided by the national carrier operator, it appears that the total installed power of electric power

stations of the National Energy System (S.E.N.) was in 2011 of 21.405 MW, out of which 30 % in hydroelectric power

stations, 7% in nuclear power stations and 59% in 4 in wind and biomass plants. The share of the energy produced

from renewable sources (particularly, the wind) recorded signicant increases in the last period.

The structure of the energy mix in Romania is quite balanced, but, as a rule, the electricity producers have in port -

folio technologies that mainly use a single source of fuel, which exposes them to risks requiring a management

which prevents the optimal operation of the power plants.

The competition between the companies operating in the Romanian energy sector is manifesting at the national

level, both as a result of the dierences in the regulation and in the operating rules on the market, and of the pres -

ent level of interconnection capacities between our country and the neighboring countries.

In order to enforce the competition legislation, the Competition Council denes relevant markets in the electric -

ity sector starting from the categories of the activities carried out in this sector, each of which being able to repre-

sent a distinct relevant market5. Thus, the main relevant markets in the electricity sector can be considered the

following:

The market of electricity production and trade;

The electricity supply market;

The market of electricity transport;

The electricity distribution market.

The production of electricity

5 It should be noted that this division is only a starti ng point in dening the relevant markets in the cases investigated by the Competi-tion Council and that, depending on the circumstances specic to each case, a dierent denition of the relevant market can be reached.

The manner the Competition Council uses the concepts of the relevant product market and of the relevant geographic market in the appli-cation of competition legislation is detailed by the Instructions of the Competition Council concerning the denition of the relevant market,published in the Ocial Gazette of Romania, Part I, no.553 of 5 August 2010.


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The market of electricity production and trade mainly includes the production of electricity in power plants for the

purpose of marketing it through other economic operators on the wholesale market. The quantity of the energy

imported through physical interconnections is also contained by the market of production and sale of electric-

ity6

.

On this market, the electricity producers and the companies that make imports represent the supply-sideand the

other participants on the market (electricity suppliers, distribution and transport operators, industrial consumer,

etc.) acquiring the electricity from the wholesale market represent the demand.

Taking into account the interaction between the supply and the demand, dening the relevant product market

may involve a segmentation of the market of production and sale of electricity. Thus, the transactions with electric-

ity can be made both in the competitive and inthe regulated regime (in accordance with the provisions of A.N.R.E.),

the two categories of transactions constituting two distinct market segments, whose size depends on the degree

of liberalization of the electricity market.

According to the data presented by the regulatory authority, currently, around 170 companies hold the license for

the production of electricity on the Romanian electricity market. Out of them, only a part is eectively pursuing

the activity for which they have obtained license, the rest of the companies representing potential competitors.

The majority of the national consumption is ensured by power plants belonging to majority State owned compa-

nies. In respect to this situation, over time, an issue has been raised concerning their belonging to the same group

and regarding the existence of a monopoly on the Romania market of production and sale of electricity.

On this matter, the Competition Council appreciates that the Romanian producers of electricity, where the State

is a direct major shareholder, are not part of the same group to the extent that they are able to make independent

decisions in relation to the others. At the same time, if the enterprises where the State is the major shareholder

hold branches in their portfolio, these branches are part of the State-owned enterprise group, and the undertak-ing concerned is the parent company for the respective branches.

Graph no. 2.Evolution of the concentration of the market of production and sale of electricity

SOURCE: Data processed by the Competition Council

6 However, the amount of electricity imported annually in the period 20082011 is insignicant and cannot thus exert a signicant compe-titive pressure on the electricity manufacturers holding production sources on the Romanian territory.


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Following the competitive assessment of the market in terms of the production and sale of electricity was con-

cluded that there is an increase of the market concentration, as it was measured through HHI in 2010 compared

to 2009, and a signicant decrease in 2011 compared with the previous year. However, CR5 and CR10 indicators

maintained at relatively constant values.

The market concentration increased signicantly during early 2012, as a result of the establishment of S.C. Com -

plexul Energetic Oltenia S.A. However, the analysis carried out by the Competition Council when S.C. Complexul

Energetic Oltenia S.A was established revealed that this increase of the market concentration was to be countered

by the imminent entry into the market of the new generation capacity belonging to S.C. OMV Petrom S.A., as well

as of certain production capacities based on renewable sources.

The concentration of the Romanian market of production and sale of electricity records a medium lev-

el compared with other EU Member States. For example, while in Romania the value of the CR1indicator

is about 30, in countries such as Portugal, Denmark, Sweden and Hungary, it has values between 40 and

50, and in countries such as Belgium, the Czech Republic, France, Greece, the CR1 is between 70 and 90 7

.

The supply of electricity

The electricity supply market includes the trade of electricity performed by undertakings not owning produc-

tion capacities.

The supply involves buying electricity from companies operating on the wholesale marketand selling it to other

holders of licenses and/or to the nal consumers.

The electricity supply market is segmented according to the category of customers: companies reselling electric-

ity and the consumers of electricity.

The customers purchasing electricity for the purpose of resealing it are active in the trading segment, and those

purchasing electricity for the purpose of consumption are active on thenal consumers supply segment.

The electricity supply to nal consumers can be achieved both in competitive and regulated regimes.

According to the data presented by A.N.R.E. currently, around 180 companies holding electricity supply licenses

are active on the Romanian electricity market. However, almost half of the companies holding supply licenses

are activating as suppliers/traders on the electricity supply market, the other companies representing potential

competitors.

7 Source: Eurostat.


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Graph no. 3.Evolution of the concentration of the electricity supply market


The analysis of the evolution of the concentration on the electricity supply market reveals a trend of decrease in

the last three years, both of the HHI and of the combined market shares of the rst 5 competitors. At the same time,

one can notice a low level of concentration of this market.

Graph no.4.Evolution of the concentration of the electricity supply market to nal consumersi



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In the past 3 years, the segment of supply to nal consumers registered uctuations of its concentration degree, as

it was measured by HHI, but its level reects a low degree of market concentration. At the same time, CR5 and the

concentration indicators CR10 registered a slight decrease, indicating an erosion of the share of the main market

participants.

The distribution of electricity

The electricity distribution market includes the transport of electricity through the networks of low and medi-

um voltage (cables with nominal line voltage up to 110 kV inclusive). In the case of the electricity distribution, the

relevant geographical market is represented by the geographical area in which a distributor operates according to

the license granted by A.N.R.E.

In Romania, 8 distribution areas are regulated, corresponding to the eight areas of natural monopoly, for which

concession contracts were entrusted. Among the companies that operate the distribution networks is no compe-

tition, their activity being performed within a regulated regime.

The tari charged by the distribution network operator is set by A.N.R.E. based on three levels of tension, for each

of the 8 zones, the highest rates being set for the consumers connected to the low voltage network.

The transport of electricity

The electricity transport market includes the transport of electricity through high-voltage electric networks

(cables with nominal line voltage of 110 kV). The relevant geographic market in the transport of electricity is the

territory of Romania, since the transportation network is covering the entire national territory.

There is only one electricity carrier in Romania, and its activity is conducted within the regulated regime. The

freight tari charged by the network operator is set by the A.N.R.E. and has two components, namely the tari forintroducing the electricity into the grid (TG) and the tari for extracting the electricity from the network (TL). At

the national level, the existing transport network is divided into 6 areas of injection and 8 zones of extraction, for

each of these geographical areas the regulatory authority establishing dierentiated taris.

From the competitive perspective, such a dierentiated regulation is admissible to the extent that it aims to opti -

mize the functioning of the transport network, by encouraging investments in new production capacity or, where

appropriate, the electricity consumption in predetermined areas.

* *

The impossibility of storing the electricity and the need to ensure the balance between the consumption and

the production of electricity requires ancillary activities necessary for the safe operation of the National Energy

System (S.E.N.).

Based on these activities, the following markets can be identied:

The technological services market the market that provides S.E.N with production capacities.

The balancing market the market where the electricity is traded in order to compensate for the devia-

tions from the scheduled values of the production and consumption.


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At the same time, the measures promoted at the European Union level in order to reduce the greenhouse emis -

sions led to the development of new markets, as follows:

The green certicates market - the market where the producers of electricity from renewable energysources and the suppliers trade green certicates;

The market of carbon dioxide emissions certicates the market where the companies which recorded a

decit/excess of emission certicates in relation to the reporting obligations can buy/sell the certicates.

Graph no.5.Number of petitions concerning the electricity supply services submitted to the National

Authority for Consumers Protection

SOURCE:The National Authority for Consumers Protection

The petitions concerning the electricity supply services that were submitted the National Authority for Consum-

ers Protection are not presented in relation to the causes that generated consumer complaints and do not reect

the extent to which these complaints are justied. However, the evolution in time of the number of petitions and

the share of the petitions relating to an economic sector in the total petitions recorded are relevant for assessing

the indicators of the competitive environment in this sector.

Market entry barriers

The barriers to entry in the electricity sector can be structural, legal and administrative.

In general, the electricity sector is characterized by a high level of barriers to entry, due to the very high cost relat -

ed to the initial investments, to the duration of the implementation and amortization of the investment projects.

However, the architecture of the Romanian electricity production sector can be assessed as being quite permis-

sive for the new businesses wanting to enter the market. In this sense, the following are being envisaged: the mod -

erate degree of the market concentration, the mono-fuel structure of the main producers or the existence of the

obsolete capacities, the latter having a fairly limited eect.

The main barriers invoked by the market participants are the legislative instability, the lack of predictability re -garding the evolution of the Romanian electricity market, as well as the existence of the long-term, non-transpar -


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ent and discriminatory acquisition contracts. Currently, the number of the long term purchasing contracts

has signicantly reduced and it is likely that in the future they may no longer draw a signicant barrier.

The relatively low liquidity on certain market segments are another barrier to entry, as they are generated bythe long-term contracts signed as well as by the non-transparent transactions made by market participants.

In comparison with other countries, certain market segments, especially those that are deploying new tech-

nologies (wind, micro-hydro) reveal an auence of newly entered companies, in parallel with a decrease of

the investments made in the other segments (with production sources of oil, coal mines, and nuclear).

Box no. 3

Actions of the Competition Council in the electricity sector:

Investigation on the long-term contracts concluded by S.C. Hidroelectrica S.A. with its clients;

Investigation on the possible abuse of dominant position of S.C. CEZ Distribution S.A. on the electricity

distribution market;

Sector inquiry on the market functioning mechanisms of the Romanian electricity sector;

The analysis on the restructuring of the electricity production sector proposed by the Ministry of Economy,

Commerce and Business Environment, i.e. the authorisation of the establishment of S.C. Complex Energetic

Oltenia S.A. and of S.C. Complex Energetic Hunedoara S.A.

Conclusions on the electricity sector

The concentration of the Romanian electricity market has a medium level compared with the otherMember States of the European Union.

The amount of the electricity imported/exported annually is insignicant, meaning that, from the geo-

graphical perspective, the electricity market would continue to be dened at a national level. This is

due to the limited interconnection facilities, which generate a certain level of market power for the ac-

tive enterprises.

The diversied range of electricity sources provides Romania with a high degree of safety in the power

supply.

The structure of the electricity production sector, based on mono-source manufacturers, is atypical

compared with other countries of the European Union.

The size of the competitive segment is reduced compared with the degree of the legal liberalization

attained in Romania.

The regulation of the transport tari aects the competition on various segments of the electricity sec-

tor.

The energy trading in a non-transparent mode aects the establishment of reference prices.

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