The Influence Of Energy Markets For The Energy Business

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The influence of Energy Markets for the energy business and
sustainable advantages for participants

This paper aims to objectively present the impact of energy market in the case of a particular case study, the Romanian energy market, analyzing the perspective on energy market as commodity, service or right, as well as the specific strategies adopted by companies to provide higher sustainability. Since Romania is an EU state member, the impact of common European regulations will be also analyzed, in order to present a complete context of the Romanian energetic market evolution.

In contemporary context, the limited energetic resources are subject of a constantly dynamic market worldwide, increasing the level of energy consumption and energetic competition between the types of resources used, as well as between the producers of those resources. Commonly, the evolutionary trend mention can be associated with the image of a progress for both companies and consumers, yet in practice the rapid emergence of alternative energetic resources, as well as their consumption and the consumption of traditional resources suggests the need of adopting the adequate strategies to efficiently use the current resources in terms of global stability. Concretely, coherent energy strategies are required, focusing on both energy supply and demand, as well as on security use of resources, issues related to the development of industry, energy lifecycle, energy conversion or the ecological impact of energy production and energy consumption. Concretely, the aim of companies involved in the production, transmission and consumption of energy is to achieve higher energy efficiency, based on the increased supply form local energy sources or alternative sources. In this context, renewable energy sources are likely to redesign the existing configuration of energetic market, based on their increased availability and the reduction of costs that energy companies can obtain, for instance by replacing fossil fuels with hydrogen.

Basically, for companies nowadays increasing energy efficiency is an essential goal, including the reduction of costs related to exploitation, transportation, distribution infrastructure. The common strategies adopted by energy companies, in order to obtain increased efficiency regardgs:

The decentralization of energy production, including the production or distribution of energetic resources through the means of local small or medium companies, generally using their infrastructure, to support the company's program. In order to reach maximal results, energetic companies tend to adopt strategies focusing on the prevention of losses on the local level, based on a constant communication between central and decentralized level

The adequate association of supply and effective use, both in terms of quantity and quality, mostly applied in the case of new energetic resources as thermal energy, easily exploited and completed by solar thermal or biomass energy. This type of cheap and malleable energetic resource is mostly consumed on small markets as households or medium companies

The reduction of wastes or the ecological impact. In order to obtain an efficient recycling strategy, energy companies tend to use or transform the unused resources from local production, creating innovative savings programs (Barbir, Ulgiati, 2012, 8-10).

Historically, one of the most used resources in the majority economic activities is the oil. For instance, in the case of American economy it is used on an expended range from domestic use for transport to the chemical industry. Starting with 1970, the ration of oil reserves declined, although there was a tremendous amount of producible oil in Asian or African fields, but associated with increasing costs, a situation that generated a final higher price of the oil of the importing markets such as North America, as the capacity of utilization, suggesting an improved consumption, increased from 80% in 1990 to 94% in 1996. A similar evolution can be noticed in the case of uranium, mostly produced by Russia, recently reaching the maximum output in the case of production, associated with the raise of prices that can be accepted by traditional purchasers as Iran or rejected, as potential customers might find more affordable and efficient energetic resources (Banks, 2012, 16).

In the case of electricity and gas production, starting with the 1980s, the impact of alternative resources has been a recurrence, as in the case of combined cycle gas turbines. Basically, hot gases resulted from the conventional power generation are exploited into a complementary turbine, able to generate more electricity, increasing energetic efficiency with 40%. Concretely, these additional installations are used in small production units, based on a local area, counterbalancing the monopoly of a regional or national infrastructure (Banks, 2012, 17).

Debuting with the last decades, renewable energetic or alternative resources become extremely popular on global market of energy, based on their regeneration capacity, as well as their affordable costs of exploitation, distribution and consumption. Water can be considered the most used renewable energetic resource, as it provides extremely inexpensive power, generating as much as 2.5% of the global electric energy supply, in the context of favorable climate and reduced ecologic impact. Secondly, geothermal energy at the beginning of the 2000s became extremely attractive, generating more heat than traditional resources, as well as reducing pollution, but being more expensive than coal exploitation. On the other hand, wind energy, similarly to water energy, apparently expects the estimated potential. For example, the cost of wind energy is somehow similar to the exploitation of coal, yet this type of renewable energy is one of the less polluting, as consequence being an appealing alternative to traditional energetic resources. In a similar perspective, solar energy can be a reliable alternative resource, for the moment being basically expensive and scarcely implemented, but its potential is not to be neglected, as companies find solutions for storing solar electricity and distribute it to affordable costs (Johansson, Patwardhan, Nakicenovic, Gomez-Echeverri, 2012, 49).

Depending on the features of national economy, energy supply can be perceived on three complementary levels, as commodity, a service, as well as a right. In the case of USA's energetic evolution, it can be noticed the basic commodity level, as petroleum or copper exist in American fields, they are exploited in order to satisfy a national or sometimes international demand, being easily substituted by similar resources imported from the global market, it is required. Petroleum, for instance, can be also considered a service in USA, as authorities and companies are interested in providing a satisfactory exploitation, distribution and consumption, similarly to a common service as education. Naturally, the image of petroleum as service is different from the example proposed, yet petroleum industry is based on a particular infrastructure, constantly improved, in order to create positive results for both producers and consumers. For example, in the case of American market, there is an increased interest to create new power stations of petroleum and gas, its number quadrupling in the last decade, the investments being estimated at $80 billion. The perspective of energy as a right is controversial, since a national economy can't possibly impose its own prices on the market or the quantity of resource that will be traded, but it can be analyzed as the image of a symbolic right, the responsibility for next generations to rationally provide and use energetic resources. In the current context of an extremely competition market, it is unlikely for a country or area to consider a particular resource as its right, as the same or similar resource can be promoted on the market by a competitor, for example the Asian producers as China or India produce at least twice as much generating capacity as North America in the case of some resources, as consequence the respective resources can't be exclusive right of a particular state, but the symbolic right of different countries (Banks, 2012, 18).

Additionally to their historic evolution, old types of energy were also end-use energy efficient, creating a necessity in the case of many consumers and suppliers, as in the case of fuels or electricity. Nowadays, type of energy that can be democratically accessed and used, creating an accelerated rhythm of development and consumption are preferred. Although governments and companies are interested in preserving a particular strategic advantage of old resources on the market, the impact of renewable energies, as well as the interest of consumers in using more affordable and environmental-friendly resources is dramatically influencing the evolution of energy market. Concretely, new energy resources as wind or solar energy are able to reduce by 16% the cumulative CO² emissions, which is an essential results in the context of increasing pollution worldwide, as old types of energy as coal or nuclear tend to be polluting. For example, Sweden adopted an electricity market reform based on more customer and service oriented position of the energy companies. In practice, in the area of electricity the Swedish companies on the market adopted decentralized strategies, in combination with government intervention. The results are an increased environmental awareness on the market, as well as among consumers, an improved perspective comparing with the previous monopoly position on the market, focusing on the exclusive achieve of sales goals. Generally, the replacement strategy in the case of energy resources is a long-term, sensitive process, companies being interested in obtaining as many benefices of the change, comparing with previous results. In practice, the environmental and financial benefits of an energetic replacement should be supported by the analysis of the impact per additional year of the old product's life with a similar analysis of energy savings assured by the new product. Mostly, major economies as China or USA are interested in the implementation of renewable energies, in order to reduce costs and increase profitability, but new energy solutions can be also used by local authorities or companies, interested in the same purposes of 10%-20% increased profitability, but on a reduced scale (Meyer-Krahmer, 2011, p. 24).

The current perspective in energy market is to adjust old production or distribution strategies with new directions, able to create higher sustainability and an improved customer satisfaction. For example, in 2007, Iberdrola, a Spanish wind power company obtained revenues estimated at $7.2 billion, based on improved renewable wind resource. In the European Union, central and national authorities are interested in the evolution of renewable energy as an alternative for more affordable costs and less polluting impact, as consequence European companies tend to finance their renewable energy operations as part of a larger parent company, focusing on achieving the maximal performance of new energies instead of the old types, as suggested in the figure 1:

Figure . The increasing evolution of renewable energy resources (Report United Nations Environment Programme and New Energy Finance, 2012, p. 31)

During 2002 – 2004, the use of renewable energetic solutions was moderate, but since 2005 their implementation in Europe, mostly in the European Union case is exponential, suggesting a new perspective in creating supply energy for business and domestic use. Statistically analyzed, solar, wind, biofuels and partially geothermal energy as noticed in 2007 are among the most used renewable energy. As adopted, as in the case of the Portuguese producer EDP, renewable resources increase by 25% the profit of the company, generating the required funds for further investment in the area, as suggested in the case of the example mentioned, EDP expanding its renewable energy sections (Report United Nations Environment Programme and New Energy Finance, 2012, p. 31).

As follows, the research will focus on a particular market, the Romanian energy market in the Eastern Europe, in order to suggest the influence of energetic strategies on businesses, communities and state as well. Comparing with other member states of EU, Romanian is a recent one, currently adhering to the European energetic market, by assuming a reforming infrastructure named the Third Energy Package Electricity and Gas Directives. As inheriting a communist infrastructure, based on the control of state of the market and the inefficient exploitation of resources, Romania is required by the EU to adopt limited corporate governance of state-owned companies, in order to allow external investors to enter the local energetic market that was particularly a monopoly of local energetic companies (Dahl, 2014, p. 257).

Lately, European energetic companies as the Polish company CEZ in the case of electricity and the French company GDF in the case of gas production became visible on the local market, creating a competition perspective. In terms of contemporary modernization, the Romanian market evolved from the phase of "right", as the national providers of electricity and gas unilaterally established the prices of their products, as well as the terms of exploitation and distribution, to the phase of "service", as new companies entered the market, proposing alternative packages for both companies and individuals. A potential development of the Romanian market could be the "commodity" phase, as the local market will continue the liberalization trend and current services could be interchangeable as in the case of the global market. For the moment, the reforms implementing to regulate gas and electricity prices establishes the context of improved retail competition and energy efficiency for businesses and households, as categories of services as electricity are provided by increasing companies, not only the traditional one or the European investors as CEZ, but also local businesses focusing on complementary activity as RCS-RDS, generally known as television and internet provider (Report Quarterly Report on European Markets, 2015, 5).

Since its acceptance to the European Union, Romania has implemented essential market structures, based on local and European efficient practices, in order to obtain higher sustainability. In the case of gas production, distribution and consumption, starting with 2004 multiple transit pipelines were implemented in Romania, as well as local stations, transforming the country into an essential point of energy supply and energetic security. A similar perspective can be noticed in the case of electricity, renewable solutions being applied to create more energy, at efficient costs. Additionally, in order to obtain higher sustainability, Romania is determined to fulfill its 2020 renewable energy target, as suggested in Figure 2, becoming a "green" producer and consumer of alternative resources (Report Quarterly Report on European Markets, 2015, 7).

Figure . Report Quarterly Report on European Markets, 2015, p. 7

Since its acceptance to EU, Romanian is tributary to old energetic resources as nuclear, crude oil or gas, as their evolution in terms of exploitation and consumption is practically constant. For instance, crude oil or natural gas, between 2008-2012 represented 25% and respectively 30% of the global energetic production and consumption on the Romanian market. The debut of renewable sources started from 2008, facing a peak in 2010, followed by a decline since their implementation is expensive and somehow limited by the local mentality related to their efficiency. Analyzed on an evolutionary scale, the proportion of renewable energy on the Romanian market is estimated at 22.9%, approaching to the target assumed in the EU common energetic strategy to be adopted by 2020.

In practice, Romanian energetic market focuses on internal consumption, imports being reduced, used for the completion of the national stocks. For example, in the case of natural gas, in 2012 individuals and companies used 109 TWh (75.68% of total consumption), while imports were estimated at 35 TWh. In 2013, the gas consumption registered an increase of 8.4%, which generated the 58% reduction of imports in the case of business needs, while individuals needs were satisfied in a similar perspective. Primarily analyzed, the Romanian market on natural gas area is dedicated to a self-defensive strategy, the local providers being interested to sell mostly to internal customers, but the opportunity of focusing on external customers has to be also analyzed, in order to generate more profit for the energetic companies, as long as the internal demand is satisfied (Report Quarterly Report on European Markets, 2015, 14).

In the case of electricity evolution, the internal consumption prevails as well, but this energetic sector was marked since 2013 by an essential orientation through renewable solutions, generating 4.348 MW installed capacity, estimated at 22.9% of gross final energy consumption. Renewable solutions are not efficient only for providers, being more flexible to be obtained, transported or promoted, but also to consumers both companies and individuals, as are obtained through reduced ecological impact and sold to a more affordable price, comparing with traditional energetic services. Statistically, thermal energy is the most used renewable form of energy estimated at 46.2%, followed by hydro energy estimated at 25.9% (Report Quarterly Report on European Markets, 2015, 15).

The influence of the EU in terms of obtaining higher sustainability is not only supported by adopting successful strategies for the internal market, but also through regulations or even infringements. For instance, in 2012, Romania was subject to an infringement related to the national restrictions on the export gas, as local authorities feared that by the intention of providers to increase exports local consumers would be affected. Although the national interest is justified, the EU considered that Romanian authorities affected the competition on the energetic market, violating the providers' right to seek for profit on external markets (Report Quarterly Report on European Markets, 2015, 18).

Focusing on the consumption of electricity, the Romanian market suggests that the regulated prices positively favored an improved consumption, as shown in the figure 3:

Figure . Evolution of electricity consumption between 2008-2013 (Report Quarterly Report on European Markets, 2015, p. 24)

Since 2013 for the business consumers and following to be completed by 2017, the price of electricity is subject to European regulations, in order to create a competitive infrastructure. Basically, individual or business consumers can choose the services of 62 suppliers on the market, promoting different prices on their packages. Comparing with 2012, the ability of complementary suppliers to support customers' needs of consumption estimated at 55% increased in 2013 to 57%, highlighting that competition on the market creates positive effects for both customers, in the search of the better service and cost, as well for the providers, directing their strategies to efficiently obtain more energy to be purchased by increasing customers. In the case of investments, five major suppliers as CEZ and ENEL are required to procure share from the wholesale competitive market, its costs being transferred to end-consumers, which occasionally generated debates related to the need of customers to pay for a service that is fact dedicated to investments, not precisely to their immediate needs, although efficient investments are implemented to provide improved services.

In the case of gas consumption, the process of regulating prices mostly affected the business consumers, as suggested by the increased level of taxes in 2012, as presented in figure 4:

Figure . Evolution of electricity consumption between 2008-2012 (Report Quarterly Report on European Markets, 2015, p. 27)

Comparing with business consumers, the consumption of individuals registered a constant level of 20%, the introduction of taxes being gradual, as a protective measure. On the other hand, in the case of business consumers, the process was globally completed by 2015, while for individuals the process has to end in 2018.

Compared with the EU consumption rates, the Romanian rates on electricity and gas are above the European average, for example in the case of electricity Romania consumes 72.7 points comparing with 72.0 points for average EU rate, while in the case of gas Romanian consumption is estimated at 74.4 compared with the European average of 74.1. This performance highlights the fact the Romanian economy is evolving, energy being necessary to support its activities, but as well an internal dependence on national resources, supported by the protective strategies of authorities. Electricity and gas performance on the energetic market suggested an improvement starting with 2012, as domestic consumption was the highest for both services, yet the Romanian market is tributary to a low consumer satisfaction and slow investment rate.

So that the Romanian energetic market to be effectively free and able to self-regulate, local authorities should avoid interferences able to alter the competition relations, such as protective measures dedicated to consumers or to the support of national economy. One of the social measures that severely affects the evolution of Romanian energetic market is the Ordinance 27/2013, protecting individual consumers with low incomes mostly during the winter period, as the Romanian states provides subsidies, so that the final prices of the service could be tolerated by this type of consumers. In terms of social protection, the measure is a mandatory one, but the state's interference should be minimal, as seen in the example of other member states of EU. At the moment, the Romanian state should invest more resources in the correct informing of consumers on the subject of market liberalization, including a transparent use of services, their metering, their billing, as well as the rights of consumers, its role having to be that of an observer, not an active regulator of competition mechanisms (Report Quarterly Report on European Markets, 2015, 28).

As member state of EU, Romanian is an active partner in European associations regarding the improvement of energy market, such as the Memorandum of Understanding established by the Czech Republic, Slovakia and Hungary, focusing on the expansion of energetic market in Central and Eastern Europe, by including Romania and Poland. (Dahl, 2014, p. 257).

All in all, the major perspective on the energy market is based on competition between providers promoting increasingly efficient services in terms of profit and customer satisfaction. The Romanian energetic market, as selected for analysis, is a structure aiming for modern resources and practices mostly influenced by EU. Focusing on two energetic areas, electricity and gas, Romania adopted a suite of European measures as transparency on the market, the encouragement of external investors, the liberalization of prices and services, yet the presence of the Romanian state is a visible one, affecting the evolution of the market through national protective measures.

Bibliography:

Banks, Ferdinand, 2012, Energy Economics: A Modern Introduction, Boston & London, Kluwer Academic Publishers.

Barbir, Frano; Ulgiati, Sergio, 2012, Sustainable Energy Production and Consumption: Benefits, Strategies and Environmental Costing, New York, Springer.

Johansson, Patwardhan, Nakicenovic, Gomez-Echeverri, 2012, Global Energy Assessment. Toward a Sustainable Future, Cambridge, Cambridge University Press.

Meyer-Krahmer, Frieder, 2011, Innovation and Sustainable Development, New York, Springer.

Report United Nations Environment Programme and New Energy Finance, 2012, Global Trends in Sustainable Energy Investment 2012, New York, United Nations.

Report Quarterly Report on European Markets, 2015, Market Observatory for Energy, volume 8, issue 1.