2012

3. Competition in key sectors

3.1. Electricity sector

The electricity sector is regulated by Law on electricity and natural gas no.123/2012 transposing Directive 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 electricity in power plants, including cogeneration power plants (the production);
(2) the transport of electricity on 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 electricity through lines of average and low voltage up to final consumers (the distribution);
(4) the sale and purchase of electricity on wholesale markets (the trading) and
(5) the sale of electricity to final consumers (the supply).

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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 certificates, of greenhouse gases emission certificates, maintenance services, 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 field of Energy (A.N.R.E.).
The production activities and the trading of electricity are conducted within a competitive regime. The transporting 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 significantly to increasing the safety in the power 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 significant 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 portfolio 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 differences in the regulation and in the operating rules on the market, and of the present level of interconnection capacities between our country and the neighboring countries.
In order to enforce the competition legislation, the Competition Council defines relevant markets in the electricity sector starting from the categories of the activities carried out in this sector, each of which being able to represent 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 starting point in defining the relevant markets in the cases investigated by the Competition Council and that, depending on the circumstances specific to each case, a different definition 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 application of competition legislation is detailed by the Instructions of the Competition Council concerning the definition of the relevant market,
published in the Official 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 electricity6.
On this market, the electricity producers and the companies that make imports represent the supply-side and 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, defining the relevant product market
may involve a segmentation of the market of production and sale of electricity. Thus, the transactions with electricity can be made both in the competitive and in the 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 effectively 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 companies. 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 undertaking 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 2008-2011 is insignificant and cannot thus exert a significant competitive pressure on the electricity manufacturers holding production sources on the Romanian territory.

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Competition developments in key sectors

Following the competitive assessment of the market in terms of the production and sale of electricity was concluded that there is an increase of the market concentration, as it was measured through HHI in 2010 compared
to 2009, and a significant decrease in 2011 compared with the previous year. However, CR5 and CR10 indicators
maintained at relatively constant values.
The market concentration increased significantly during early 2012, as a result of the establishment of S.C. Complexul 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 level 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 907
.
The supply of electricity
The electricity supply market includes the trade of electricity performed by undertakings not owning production capacities.
The supply involves buying electricity from companies operating on the wholesale market and selling it to other
holders of licenses and/or to the final consumers.
The electricity supply market is segmented according to the category of customers: companies reselling electricity 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 the final consumers supply segment.
The electricity supply to final 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

SOURCE: Data processed by the Competition Council

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 first 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 final consumersi

SOURCE: Data processed by the Competition Council

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Competition developments in key sectors

In the past 3 years, the segment of supply to final consumers registered fluctuations of its concentration degree, as
it was measured by HHI, but its level reflects 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 medium 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 competition, their activity being performed within a regulated regime.
The tariff 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 tariff charged by the network operator is set by the A.N.R.E. and has two components, namely the tariff for
introducing the electricity into the grid (TG) and the tariff 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 differentiated tariffs.
From the competitive perspective, such a differentiated regulation is admissible to the extent that it aims to optimize 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 identified:
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 deviations 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 emissions led to the development of new markets, as follows:
The green certificates market - the market where the producers of electricity from renewable energy
sources and the suppliers trade green certificates;
The market of carbon dioxide emissions certificates the market where the companies which recorded a
deficit/excess of emission certificates in relation to the reporting obligations can buy/sell the certificates.
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 Consumers Protection are not presented in relation to the causes that generated consumer complaints and do not reflect
the extent to which these complaints are justified. 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 related 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 permissive for the new businesses wanting to enter the market. In this sense, the following are being envisaged: the moderate 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 effect.
The main barriers invoked by the market participants are the legislative instability, the lack of predictability regarding 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 significantly reduced and it is likely that in the future they may no longer draw a significant barrier.
The relatively low liquidity on certain market segments are another barrier to entry, as they are generated by
the 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 technologies (wind, micro-hydro) reveal an affluence 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 other
Member States of the European Union.

The amount of the electricity imported/exported annually is insignificant, meaning that, from the geographical perspective, the electricity market would continue to be defined at a national level. This is
due to the limited interconnection facilities, which generate a certain level of market power for the active enterprises.

The diversified 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 tariff affects the competition on various segments of the electricity sector.

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

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