Moldova: Wholesale Electricity Trading In Moldova: A Basic Primer To Electricity And Gas Wholesale Trading

A. WHOLESALE ELECTRICITY TRADING

1. Background information

In May 2010 Moldova became a fully fledged signatory of the Energy Community Treaty.¹ The general objective of the Energy Community Treaty is to create a stable regulatory framework in the EU neighbouring countries aligned with EU energy policies. Moldova is also a party to the Energy Charte.²

In the process of aligning its regulatory framework to the EU legislation a new electricity law was passed by the Parliament in December 2009, Legea cu privire la energia electrica (the Electricity Act 2009). The aim of this legislation is to transpose the provisions of the Second Electricity Directive.

The Electricity Act 2009 is the primary piece of legislation regulating the electricity market in Moldova. In addition, a set of secondary legislation has also been adopted, which looks in more detail at supply and wholesale trading.

The electricity market is not yet fully liberalised, neither at the wholesale or retail levels. As with the market liberalisation across Europe, for Moldova this is a staggered process, and under the Energy Community legal framework the Government of Moldova committed to finalise the process of full liberalisation by 1 January 2015.

In terms of the licensing process there are no distinctions between wholesale trading and supply to final customers (retail).

From an unbundling perspective there are some distinctions between Electricity Traders supplying power at regulated tariffs and those trading electricity at negotiated prices (competitive market). For the latter category there is a statutory obligation of unbundling the supply, transmission and distribution activities, with the effect that an Electricity Trader active on the competitive market cannot hold a transmission and/or distribution licence. Furthermore, there is an unbundling of the accounts duty imposed on all categories of Electricity Traders for their generation and supply activities.

The table below summarises the status of the retail and wholesale electricity markets in Moldova. This primer focuses on the conditions of the wholesale market and wholesale trading.

2. Licensing requirements

2.1. General aspects

Under the Electricity Act 2009 all Electricity Traders trading in electricity in Moldova and cross-border must hold a valid licence.

The licence is issued by the Moldovan NRA, the National Agency for Energy Regulation of the Republic of Moldova (Agentia Nationala pentru Reglementare in Energetica Republicii Moldova) for a period of 25 years. The licence also covers cross- border trading.

2.2. Conditions for licensing

• corporate seat (or place of residence) in Moldova. Only Moldovan natural persons and/or companies residing/incorporated in Moldova can be licensed as Electricity Traders;
• financial statements for the previous reporting period, alternatively bank account statements, if the applicant is recently incorporated;
• for the Electricity Traders supplying power at regulated tariffs: ownership title over a power plant or over the grid;
• technical capacity and qualified personnel.

A further registration with the state-owned company Moldelectrica (Intreprinderea de Stat "Moldelectrica"- Moldelectrica) acting as MO and TSO is needed once the licence has been issued.

3. Trading requirements

Currently there is no power or commodity exchange in place. Wholesale power trading is exclusively done OTC based on bilateral contracts.

>em>3.1. OTC trading

Electricity Traders on the wholesale competitive market typically conclude the following agreements on the wholesale market:

• supply agreements either with other wholesalers or with retailers;
• agreements for the supply of balancing power; and
• service agreements for the transmission/distribution.

Prior to entering into these agreements an Electricity Trader must coordinate on a preliminary basis with Moldelectrica in its capacity as MO.

3.2. Balancing market

The parties to the balancing market are the DSOs, the Electricity Traders and the eligible consumers. The DSOs and the eligible consumers can further assign their balancing responsibility to those Electricity Traders supplying electricity to end-consumers by entering into a balancing agreement. The annexes of such an agreement need to be disclosed to Moldelectrica.

3.3. Additional requirements

Under the Moldovan NRA regulations a power supply agreement (including those concluded on the wholesale market) shall provide Moldelectrica's right to manage dispatching.

The draft agreement must be disclosed to Moldelectrica, in its capacity of TSO for coordination with the view to technical implementation. Moldelectrica subsequently discloses the draft agreement to ANRE for its approval. The approval of Moldelectrica and ANRE are conditions precedent to closing the agreement.

4. Cross-border trading

Given the capacity shortage in Moldova, outbound cross-border trading (exports) is more heavily regulated and permitted only if the following conditions are met:

• the domestic electricity demand is fully covered by contractual supplies from any sources;
• the additional generated capacities are not demanded on the domestic market;
• the capacities generated by thermal power plants should be first used for the benefit of the domestic market, and only the additional capacities could in theory be exported;
• the outbound trade cannot affect the tariffs for the supply of electricity to the final customers;
• exports of hydro power are banned outright.

These stringent conditions make any outbound trade difficult in practice.

Cross-border trading is based on bilateral agreements. Similar with trading on the domestic market, Moldovan NRA's approval is a condition precedent to closing.

As TSO Moldelectrica operates the transmission grid and is in charge of dispatching and cross-border interconnections. A statutory non-discrimination obligation is imposed on Moldelectrica in this respect.

There is an additional statutory requirement that the agreements on transmission and dispatch of electricity for cross-border trading should be concluded in accordance with the Energy Charter Treaty. The Energy Charter Treaty is generally aimed at protecting foreign investments in the energy sector of developing countries.

5. Grid access

Access to the grid is based on regulated published tariffs applicable to all users and is ensured by Moldelectrica as TSO on a non-discriminatory basis. Moldelectrica can refuse access to the grid only in case of a lack of capacity, based on motivated and justified refusal, which is to be communicated and disclosed also to the Moldovan NRA.

The Electricity Act 2009 also allows for the supply of electric energy by means of direct lines. A direct line would not require access to the grid to supply energy; nevertheless, the monitoring and dispatching would still need to be managed by Moldelectrica.

B. WHOLESALE GAS TRADING

1. Background information

In the process of aligning its regulatory framework to the EU legislation, a new law on gas was passed by the Parliament in December 2009 Legea nr. 123-XVIII din data de 23 decembrie 2009 "cu privire la gazele natural" (the Gas Act 2009). The aim of this legislation is to transpose the provisions of the Second Gas Directive.

The Gas Act is the primary piece of legislation regulating the gas market in Moldova. In addition to this, a set of secondary legislation was also adopted, which looks in more detail at supply and wholesale trading. There is little if any legislation on cross-border trading so far.

The gas market is not yet fully liberalised, neither at the wholesale or retail levels.

In terms of the licensing process there are no distinctions between wholesale trading and retail (supply to final customers). Wholesale trading is done at both negotiated and regulated prices. The statutory obligation of unbundling gas supply from transmission, distribution and storage is already set in place. Furthermore, there is an unbundling of the accounts duty imposed on all Gas Traders for their generation and supply activities.

The table below summarises the status of the retail and wholesale gas market in Moldova. This primer focuses on the conditions of the wholesale market and wholesale trading.

2. Licensing requirements

2.1. General aspects

Under the Gas Act 2009 all Gas Traders must hold a valid licence for trading gas in Moldova and cross-border.

The licence is issued by the Moldovan NRA for a period of 25 years. The licence also covers cross-border trading.

2.2. Conditions for licensing

• corporate seat (or place of residence) in Moldova. Only Moldovan natural persons and/or companies residing/incorporated in Moldova can be licensed as Gas Traders;
• financial statements for the previous reporting period or bank account statements, if the applicant is recently incorporated;
• technical capacity and qualified personnel.

Further registration with the Moldovan TSO (currently the state-owned company Moldovatransgaz) is needed once the licence has been issued.

3. Trading requirements

Currently there is no commodity exchange or gas hub set in place in Moldova. Wholesale gas trading is exclusively based on bilateral contracts. There are, however, certain technical aspects and formalities that need to be fulfilled for such trading.

3.1. OTC trading

In addition to the gas trading contract, the Gas Traders at negotiated prices typically conclude agreements to cover transmission, distribution and system services.

The conclusion of these agreements must be coordinated on a preliminary basis with the TSO. The coordination requirement stems mainly from the necessity to check the technical possibility to implement the provisions of the agreements. Commercially sensitive information does not need to be disclosed. The agreements on acquisition/supply of natural gas are to be presented to the Moldovan NRA before entering into force.

A draft gas sale agreement will also be disclosed to the TSO with a view to the technical implementation. Further on, the TSO discloses the draft agreement to the Moldovan NRA for its approval. The approvals of the TSO and of the NRA are treated as conditions precedent to closing.

4. Cross-border trading

There is little legislation on cross-border trading of gas.

Under the Gas Act 2009 the NRA supervises and monitors inbound cross-border trade (import) of natural gas into Moldova and sets the conditions for its outbound cross-border trade (export); nevertheless, there is currently no secondary legislation adopted bwy the NRA on these matters.

As with electricity, cross-border trade of gas is based on bilateral agreements. The agreements have to be disclosed to the NRA and the TSO. The reasoning behind this is security of the system and keeping the system balanced.

In practice, inbound cross-border trading is based on the wholesale agreements concluded with the Russian company Gazprom OJSC, and guaranteed by the Moldovan state.

5. Grid access

Access to the grid is based on agreements concluded with the TSO and/or the DSOs on a non-discriminatory basis. The TSO or the DSO can refuse access to the grid only in case of a lack of capacity, based on motivated and justified refusal, which needs to be notified to the NRA.

Footnotes

1 Treaty establishing the Energy Community was signed in October 2005 in Athens, Greece. It entered into force on 1 July 2006.

2 The Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects were signed in December 1994 and entered into legal force in April 1998. To date, the Treaty has been signed or acceded to by 51 states, the European Community and Euratom (the total number of its signatories is therefore 53).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.