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28 August 2020
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bulgaria

Electricity Production in Bulgaria Affected by the Pandemic

CEE Legal Matters | Bulgaria

This article was first published in the July 2020 issue of CEE Legal Matters 

The main concern in the energy sector in Bulgaria, as in the rest of the EU, has shifted from constantly-increasing electricity prices to a significant drop in those prices during the pandemic. The Independent Bulgarian Energy Exchange (IBEX) reported the lowest prices in Europe – from below EUR 4/MWh to approximately EUR 12/MWh – for the day ahead market during the first weekend of April. Although these record-breaking figures have not stayed constant, the reduction of electricity consumption in the industry sector is still prolonging the trend, which is obviously here to stay. Electricity prices from approximately EUR 14 to EUR 35 for the first week of May are still way below the weighted average price of EUR 48.64/MWh for the day ahead market for 2019.

Such low prices are negatively affecting all market participants, especially electricity producers. It could be disastrous for one of the biggest generators, the state-owned Maritza East II – a 1,620 MW thermal power plant which has been suffering financial loses anyway for the past seven years, and which can hardly sell any electricity under cur-rent market conditions. Even the biggest producer, the state-owned 2,000 MW Kozloduy nuclear power plant, the profit of which has always been used to cover losses in the sec-tor, is being forced to sell electricity below cost.

Renewable energy producers are also starting to feel the impact of the low electricity prices that have been introduced to the free market in the last two years. The main incentives for investment in renewable energy projects in Bulgaria – the feed-in tariff (i.e., a guaranteed preferential price) and long-term power purchase agreements – were cancelled in 2018 for power plants with installed capacity of 4 MW or more and in 2019 for smaller plants. Those producers were obliged to sell their electricity on the IBEX either directly or through the coordinator of the respective balancing group. In addition, they receive a feed-in compensation premium set by the Bulgarian Energy Regulator as the difference between the cancelled feed-in tariff for the power plant and the electricity market forecast price (the price the producers should be able to receive on the IBEX ac-cording to a forecast made by the Regulator). The electricity market forecast price for the regulatory period from July 1, 2019 to June 30, 2020 is set from EUR 42.62 to EUR 49.26 (depending on the energy source, i.e., wind, solar, etc.), which has significantly exceeded the actual market price during the coronavirus pandemic.

If a renewable energy producer is selling its produced electricity directly on the IBEX on the day ahead market platform, it is currently dealing with a significant reduction in income.

Most renewable energy producers have opted for the legal exception and are selling electricity not directly on the IBEX but through their balancing group coordinator. But they have problems too. The market practice is to conclude power purchase agreements for a fixed price for the entire regulatory period (from July 1, 2019 to June 30, 2020). As these power purchase agreements were concluded during better times, the fixed prices significantly exceed the current market price, but the legal requirement is that the balancing group coordinator must sell the electricity on the IBEX. Due to this market situation, some of the balancing group coordinators (also acting as electricity traders) are try-ing to force a renegotiation of the terms of the power purchase agreements.

While renewable energy producers are anxiously waiting for the new regulatory period, which is expected to bring a higher feed-in compensation premium, Bulgaria’s Parliament allowed the Energy Regulator to prolong the current regulatory period by an additional two months (until September 2020).

Such hard times for the sector may have some positive upshot, at least, if the government uses the low price of electricity to pass unpopular legislative amendments to finalize the full liberalization of the market. The energy market in Bulgaria has been fully legally liberalized and all consumers, including households, are considered eligible to purchase electricity from the free market. Still, most households and some businesses connected at the low-voltage level (around a third of consumption in Bulgaria) continue to purchase electricity from end suppliers at regulated prices.

Author: Radoslav Chemshirov

Radoslav
Chemshirov

Attorney at Law

bulgaria