The Paradox of Romania’s Renewable Energy Market

We had recently the pleasure of being in a panel on renewable energy at one of Romania’s preeminent energy conferences organized by Ziarul Financiar. The topic of renewable energy Power Purchase Agreements (PPA) came out and stayed with us for a few days afterwards. Romania is again on the cusp of a renewable energy boom that promises a huge start but is slow in delivering it.

Romania’s energy market illiquidity

Romania’s electricity market is known for its illiquidity, heavy handed and misguided regulation and a difficulty in concluding Power Purchase Agreements for renewable energy projects after the instrument, being banned for several years, is allowed again, but with little to show as of now in terms of delivering new projects. 

Power prices on both physical and futures markets have started to increase abruptly in June-July of 2021 following Russia’s start of squeezing out the European continent to check the sensitivity of the European energy markets to supply shocks. Unfortunately, we found out how big this dependence was when the squeeze reached its peak in August 2022 and gas prices surged above EUR 340/MWh. Power prices, as of now, follow closely the gas prices as the merit order is in most of the hours of the year closed by gas power plants.  

The gas squeeze is over after demand destruction, a mild winter and plenty but still expensive Liquified Natural Gas (LNG) has reached the European continent to stave off both a security of supply crisis and high prices. A tamed Asian and outbid demand of LNG helped as well. 

In January and February of 2023, both prices on the Romania’s physical and futures markets have come down abruptly, by almost 50% month over month reflecting the end of the gas squeeze and other market fundamentals.

Figure 1: Monthly Average Day Ahead Power Price on Romania’s Physical Market  

Source: OPCOM

Now, most of the PPA transactions discussions in Romania were started on the back of the high prices in mid-2021 and have continued to gather pace since then. In a more liquid and better regulated market, a flurry of transactions should have followed. 

So where are the deals ? So far, in the making and we look forward to hearing the first (big) ones announced. These are very much needed transactions for a market with such prices. The difficulty stems from the peculiarities of the market, its illiquidity and regulations. 

However, at play is also a paradox and asymmetrical exposures that we will discuss at length with electricity buyers in Romania in the coming months. 

The Three Parts Paradox

  1. Large electricity consumers have rightly seen renewable energy PPAs as a way to secure (lower) prices. The PPA economics looked very appealing from August 2022 to December 2022. As the price climbs down from historical highs, interest in PPAs wanes. At high volatility, the volume drops because of the inability to agree on prices and fairly allocate risks. 
  2. Without these deals and the consequent renewable energy asset buildout, large electricity buyers will be again subjected to the ebbs and flows of a market reliant on expensive fossil fuels. Renewable assets will not be built and prices will not have the pressure of zero marginal cost power to climb down to lower levels. 
  3. If large buyers sign these deals, they will look back in two or three years when prices will have climbed down because of these exact deals with a sense of loss. A large buildout of renewable energy will depress prices in the mid-term causing significant buyer’s remorse. 

The only fair way out for industrials is optionality, flexibility and short(est) possible PPA tenors as retreating is not the wise course of action, independent if some buyer’s remorse will occur in the future. Absent a large buildout of renewable energy assets, Romania’s industrials will be exposed again to the extreme volatility and high prices of 2022 because of the reliance on volatile fossil fuels. 

It is certain that Romania, much as Europe, needs as many renewable energy assets as possible as soon as possible to wean itself off of expensive and volatile fossil fuels.

At, we believe in fair contracts and prices. We developed a sophisticated understanding of price formation in commodities markets through our international exposure on commodities markets. We believe prices should reflect market fundamentals and price and allocate fairly all the risks that have to be taken by both buyers and sellers in a transaction. 

How can help?

Our platform based on artificial intelligence helps buyers of electricity get fair prices from suppliers. Despite this market being currently highly illiquid in Romania, we believe the future is bright for such a platform in a highly complex market such as electricity anywhere where liberalized markets are the norm. 

We are also building an advisory practice to help large buyers of electricity navigate more complex and tailored contracts such as PPAs under the current volatility and a large renewable energy buildout. If you are a large buyer of electricity, please get in touch with us. 

Last but not least, if you are a developer of renewable energy projects, we will be able to help you in the very short future to extract maximum value out of the projects you bring to the market. We are here to help, so please get in touch with us. 

We are three founders, Andrei Ilaș, with deep experience in renewable energy cost analysis and commercial analysis spanning 10 years internationally, Vlad Iliescu a Microsoft MVP on Artificial Intelligence building all our suite of models and Florin Grosu, a fintech entrepreneur with large commercial experience across industries such as insurance and banking. 

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