Academy of Economic Studies Faculty of International Business and Economics

Market analysis for electricity on Romanian market

Group 940 Students: Lavinia Grecu Oana Olariu

2. Market structure:

Electric power is the energy with the highest share utilized both in production process of goods and in households. It is considered to become the main source of power in another sector, big consumer of electricity, which is the transportation sector.

Through electricity consumers one can understand every natural and legal person of which the electric plumbing are connected to the distributors network through one or more supplying points, which receives and delivers, if it owns an electricity central, electric power.

Regarding the nature of the consumer, the consumers can be: householders and legal persons. The householders are those that use the electric power for lightening and for the functioning of the appliances from their own homes. As for the legal persons, they use electricity in order to produce goods, to light offices and other activities in order to maintain their professional activity.

3. Market capacity:

The potential consumers refer to those people that, according to their features and capabilities have the ability to use a certain product. In regard to the electric power, we assumed that everyone uses the electricity power, as natural persons, but as legal persons only those who are above 18. Therefore, the number of potential consumers at level of 2011 is around 19.0 million people.

In reality, the entire Romanian population is not able to consume this electricity. From the total number of population, we deducted the number of children under 4 years (3 millions), because they do not personally use electricity. Also, there are about 4 thousand people who do not have electric power in their houses, because of poorness and the regional distribution of their homes. Therefore: No. of population - No. children under 4 years - No. people without electric power = No. of effective consumers.

No. of effective consumers2011 = 19.0 - 3 - 0.4 = 15.6 millions The transaction volume (TV euro) = No. of effective customers*Average Price*Average Purchase Average Price2011 = 0.052/Kwh

Consumption 2011 (units/year) = 39,121.7 million Kwh Average purchase (units/customer/year) = 39,121.7 million Kwh / 15.3 million Kwh= 2,556.97 million Kwh TV euro = 15.6 millions*0.052*2,556.97 million Kwh = 2074.21

4. Market dynamics:

The average variation rhythm (R): In 2011: Sales = 39,121.7 mil KWh In 2010: Sales = 39,121.7-39,121.7*4\100 = 39,121.7-1,564.86 = 37,556.84 mil KWh In 2009: Sales = 37,556.84-37,556.84*3.8\100 = 37,556.84-1,427.15 = 36,129.69 mil KWh

R = [(39121.7\36129.69)-1]*100 = 3.92

Taking in consideration the volume of sales and the average variation rhythm, we can assume that the evolution is a positive one and can be characterized by growth with a good potential for the future.

5. Market evolution:

No. of potential consumers2010 = 21.6 million people No. of effective consumers2010 = 21.6 million people 0.5 million - 3.5 million children = 17.6 millions In 2010: No. of effective consumers = No. of population No. population without electricity- No. children under 3 = 21.1 - 0.5 - 3 = 17.6 millions Sales2010 = 37,556.84 million Kwh Average purchase2010 = 2,133.90 million Kwh/ customer In 2011:

No. of effective customers = 15.3 millions Sales2011= 39,121.7 million Kwh Average purchase = 2,556.97 mil Kwh/ customer

TV 2011 = 15.6*2,556.97= 39,888.73 Kwh

TV 2010 = 17.6*2,133.90 = 37,556.64 Kwh Therefore, the total volume increases from 2010 to 2011 by 2,332.09 million Kwh. Taking in consideration that the no. of consumers decreased and the average purchase increased, we can state that the evolution is intensive.

6. Market Conjuncture:

The Romania energy market was fully liberalized from July 2007. There are no administrative barriers for imports and exports of energy or energy resources. It is an advanced electricity market compared with other countries in the region.

1. GDP dynamics (2011 over 2010, Growth rate): 2.5%- favorable; 2. Industrial production (2011 over 2010, Growth rate): 5%- favorable; 3. Wholesale production (2011 over 2010, Growth rate):-2.97- unfavorable; 4. Inflation rate (2011): 3.20%- favorable; 5. Unemployment rate (2011): 7.40%- unfavorable; 6. Exchange rate RON/Euro (end of 2011): 4.32%- so and so;

Grade1:1 Grade2:1 Grade3:-1 Grade4:1 Grade5:-1 Grade6:0

Average Grade: (Grade1+Grade2+Grade3+Grade4+Grade5+Grade6)\6 = (1+1+ (-1) +1+ (-1) +0)\6 = 0.16;

Historically, electricity consumption and economic performance have showed a strong correlation. The development of electricity consumption per capita is positively correlated to the development of GDP per capita. This essentially means that the growth in demand for electricity per capita follows the growth of GDP per capita at a slower pace, starting from dynamic growth, which later slows down.

7. Demand and Offer:

Demand: Electricity consumption patterns in Romania have showed considerable fluctuations

throughout the last two decades. Consumption decreased significantly between 1989 and 2000, largely owing to the collapse of industrial demand after 1989. The situation stabilized in 2000, when electricity consumption rose for the first time in more than a decade, reaching its peak in 2008.

Currently, electricity demand is fully met by domestic electricity production in Romania. Furthermore, Romania is a net exporter of electricity, with an approximate net export total of 2.91TWh in 2010. In 2010 gross consumption in Romania reached 52TWh, a 4.23% increase as compared to 2009. A gradual increase in energy consumption is expected after 2012, as a result of economic recovery. Government energy policy envisages Romania maintaining its current position as a net exporter in the long term.

Offer: Romania has a balanced portfolio of generation capacity comprising hydro, nuclear, coal

and gas-fired power plants, with renewable (other than hydropower) representing a small but rapidly growing subsector of the generation market. Abundant domestic resources exist for coal-fired and hydropower generation, while the share of natural gas in the power generation sector is relatively low because a significant part of natural gas consumption is sourced from imports. In 2010, the gross generation capacity was over 20GW, while the net generation capacity was approximately 17GW (increasing from 16.1GW in 2009), giving Romania the largest generation sector in South East Europe. As at January 2012, Romanias gross installed capacity had risen to approximately 22 GW, an increase mainly driven by the development of wind generation.

The main producers of electricity in Romania are Hidroelectrica, Nuclearelectrica, Electrocentrale Deva, the three power stations in Oltenia (Turceni Energetic Complex, Rovinari Energetic Complex and Craiova Energetic Complex) and Electrocentrale Bucuresti. They account for approximately 89% of total national output of electricity (based on data available as at October 2011). The market leader in the electricity generation sector is Hidroelectrica which holds a market share of 28.5%, while Nuclearelectrica comes second with a 19.3% market share.

TRANSELECTRICA, the transmission system operator (TSO) in Romania, is responsible for the operation of the transmission system and interconnections with the neighboring power systems, including the management of the electricity market and the allocation of green certificates (through its subsidiary, the market operator OPCOM).

Currently there are 78 electricity suppliers operating in Romania. Approximately 41% of the operators (32 suppliers) supply electricity exclusively on the wholesale market, while the majority (59% or 46

suppliers) provides it on both the retail and wholesale markets with the incumbent suppliers included in this category.

8. Prices and Tariffs:

The average price of selling in 2011: 52.13Euro/MWh The variation limits of the average price: Max. Price Min. Price = 55.24Euro\MWh39.58Euro\Mwh=15.66Euro\MWh Average price dynamics during 2009-2011: Price 2009:34.29Euro\MWh; Price 2010:36.44Euro\MWh; Price 2011:52.44Euro\MWh R=[(2011\2009)-1]*100=[(52.44Euro\MWh\34.29Euro\MWh)-1]*100=26.88

9. Imports and exports:

Total volume of imports for the service in 2011: 921 thousand MWh; Dynamics of imports during the period 2009-2011:-354 thousand MWh; The main 5 import markets for the service: Russia, Germany, Italy, Hungary, France; Total volume of exports for the service in 2011: 5.169 thousand MWh; Dynamics of exports during the period 2009-2011: 1.807 thousand MWh; The main 5 export markets for the service: Germany, Italy, France, Turkey, Hungary.