site.btaInadequate Planning of Full Electricity Market Liberalization May Cause Cataclysms, Experts Warn

Inadequate planning of the complete liberalization of the Bulgarian electricity market may cause economic and social cataclysms, the Bulgarian Energy & Mining Forum (BEMF) warns in an analysis published on Tuesday.

The National Assembly is expected to amend the Energy Act to enforce complete liberalization of the Bulgarian wholesale electricity market on January 1, 2024. The amendments will deprive the National Electricity Company of its role as a "public supplier of electricity" and will provide for electricity distributors Electrohold, EVN and Energo-Pro to buy electricity at market prices via the Independent Bulgarian Energy Exchange (IBEX) and to sell it to households under contracts which are yet to be legally regulated. Electricity producers will no longer be required to supply a certain amount of electricity at a regulated price via a regulated market for household consumers. The planned amendments say nothing about the preferential prices of electricity generated by district heating companies, and they will probably remain linked to the public obligation charge, the BEMF says.

In November 2022 the National Assembly resolved that households will remain on a new kind of regulated market, where the Energy and Water Regulatory Commission (EWRC) will set the price of electricity until 2026. Under the amendments, end-suppliers and traders of electricity for households and small and medium-sized enterprises will buy up to 60% of the electricity they need through auctions under long-term contracts supported by financial guarantees.

This means that the government will guarantee a "regulated" (though not necessarily "low") price of electricity for traders for up to 60% of the total amount of the electricity they trade, while the rest will come from various producers via the free market, where the price is higher. This is where the main uncertainty lies, because even the up-to-60% portion will be a mix of electricity from various producers, and the EWRC will no longer be able to set a cap on the price, the BEMF argues.

The difference between market and regulated prices will be offset mainly by an Electricity System Security Fund (ESSF), which, the BEMF believes, will definitely lack the capacity for such a complicated and large-scale scheme to partly offset the expenses of several million individuals.

The power industry has entered a period of stagnation which will last at least two years, the BEMF predicts. In the first half of 2023 electricity production in Bulgaria decreased by 22.07% (or 26.53% from base-load power plants), and electricity exports from the country fell by 70.36%, which implies worsening economic parameters in the sector and a lower potential to meet external expenses. The profits of the base-load producers of electricity went down by more than 60% in 2022.

What the BEMF describes as a "photovoltaic pandemic" in Bulgaria has led, according to the organization, to price imbalances and difficulties in the management of the electricity system. In the first half of 2023 the output of power plants using renewable energy sources (RES) grew by 45%, while the production of base-load plants contracted by 26%. Electricity from RES is bought at double the price of electricity from base-load plants, which creates pressure towards higher IBEX price levels, which is expected to continue in 2024 and 2025.

Structural changes in the production of electricity and IBEX price fluctuations caused contributions to ESSF to shrink by over 40% in the first half of 2023, which has imposed additional limitations on the Fund's capacity to partly offset households' expenses for electricity, the analysis says.

The BEMF proposes that the liberalization of the electricity market for household consumers be postponed by two or three years. The organization insists, however, that the preparations and the drafting of necessary regulations and a communication strategy should begin immediately. The BEMF wants to see new policies and new investment priorities in the National Energy Strategy to mitigate the shock of the transition. According to the organization, the number one priority should be to control the investment boom in photovoltaic solar power projects and to speed up the building of smart electricity distribution networks.