ROUND TABLE

on THE DEVELOPMENT OF ELECTRICITY NETWORKS – EUROPEAN AND NATIONAL TRENDS AND PROBLEMS

23 February 2023, Sofia

CONCLUSIONS AND COMMENTS OF THE MODERATOR

I. THE EVENT

1. The round table was organized by the Energy Management Institute. The complete agenda and interventions presented at the forum are accessible at EMI website (www.emi-bg.com[1]).
2. The total number of participants registered exceeded 90 with representatives of: state institutions, the diplomatic corps, trade unions, business associations, corporations, academia, national and regional nongovernmental organization, experts, and media.

II. TOP HIGHLIGHTS

1. Examples from the European Union – good practices, barriers and issues identified – were presented through the lens of connecting renewable energy capacities to the electricity grid. The topic was considered also in the context of regional electricity market development.
2. National dimensions pertaining to network development encompassed a critical review of the National Recovery and Resilience Plan (NRRP) and the Integrated National Energy and Climate Plan (INECP).
3. Focal points referred to:

• Trends, and necessary amendments to the European energy policy as regards electricity network development, especially in view of the targets and plans for an accelerated decarbonization of economy;
• Role of network investments in light of national, regional and European energy security;
• Required legislative and regulatory amendments to foster such investments.

6. Participants emphasised the need of the National Recovery and Resilience Plan revision and effective reallocation of national and European resource in the context of both the Plan and other current European and national provisioning mechanisms. It was underlined that in Bulgaria, national financing still remained focused on the electricity transmission network and the national Electricity System Operator (ESO) while neglecting persistently the role of Electricity Distribution System Operators (DSOs) in national energy security and sustainability of low-carbon transition.

Special attention was paid to legislative amendments, perceived to be introduced erratically, without accounting for the realities and the Green Deal transition framework associated with electricity market development, without consulting stakeholders and most often, without an actual evaluation of amendments’ impact on networks and market operators.

Electricity distribution network operators noted explicitly that their activity could not and should not be regarded as obstructive to the transition, but on the contrary. However, the legislator and EWRC should acknowledge DSOs role for the success of the green transformation processes in parallel with respecting network infrastructure specifics and operators’ commitments and responsibilities under licences issued.

7. The absence of a comprehensive up-to-date concept for electricity market development was also pointed out as a crucial problem. Drafting such a concept presupposed accounting for not only the specifics of market development in the context of new technologies but also the funds required to secure network adequacy at state level so that network operators could deliver on their tasks.
8. Examples from Greece were given to illustrate the problem. One of the main challenges faced by Greece referred to constructing a network infrastructure to reach the Greek islands so that the capacities and networks operating there could be connected to the common European network and electricity market; for instance, the project dedicated to connecting Crete island’s own capacity of about 1000 MWh amounted[2] to about EUR 500-600 million.
9. In Greece, RES energy generation represented about 35% of the electricity mix and 20% of the overall energy mix. Just like the other SEE countries, Greece continued to foster RES capacity increase but remained short in providing relevant technological time and financial resources for a reciprocal network development to make sure new capacities were connected and, respectively, managed as part of the common electricity system. This was illustrated by the 1000 MWh generated from PVs but still unconnected to the grid.
10. Bulgarian green transition faced several difficulties. A considerable problem was posed by speculative applications for connection to the grid which reserved or exhausted available capacity by means of fictitious projects and booked network investments. This in turn contributed to rise in network tariffs and blocked opportunities for actual network customers to connect to the grid. The Electricity Distribution System Operators noted that a dramatic increase in applications for new RES capacity connection was observed compared to previous years and as regards new applications submitted by customers. Furthermore, many of these applications for new capacities pertained to locations situated remotely to the point of consumption. This gave reason to consider that it was about investment projects rather than projects designated essentially to ensuring self-consumption.

Participants brought attention to the historic experience, namely, that only some 10% of investment intentions claimed were in fact realized. This created real problems when it came to connecting new RES capacities. On the one hand, network operators were expected to ensure connection availability, i.e. to increase investment costs which, however, were subject to regulation and affected regulated prices. On the other hand, applications blocked available capacity because of the ‘first come, first served’ principle applied which in turn limited actual investment opportunities at such locations.

11. Network development could be financed in two ways. The first was via network service tariffs defined by the regulator but if all applications for connection to the grid were awarded this would lead to a surge in regulated prices. The second way was via grants from, for instance, European funds. Participants in the discussion joined around the view that for Bulgaria, the most beneficial approach would be a combination of these two mentioned sources in combination with the elimination of problems regarding the regulatory and accounting treatment of assets acquired through grants12. Within EU, the push towards securing finances for development and innovation of network services and energy storage involved various financial instruments, beyond the regulated prices. Such possibilities were offered by, for instance, the European Regional Development Fund, the Cohesion Fund, the NextGenerationEU mechanism, the EU Innovation Fund, the Modernisation Fund, and the revenues gained from auctioning ETS allowances in line with EU Emission Trading Directive, and other traditional and new financial sources. All these funds aimed to strike a balance between the sharp rise in regulated prices and mitigation of economic impact on society caused by the accelerated green transition.
12. Europe, being relatively poor in fossil energy resources such as coal, petrol and natural gas, was strongly dependent on external supply. Shared was a general understanding that a sustainable alternative, in the form of renewable resources, had to be sought which in turn would lead to a sharp acceleration of RES electricity generation. This, however, posed new challenges, namely, networks had to be reorganised to make room for management of new capacities and for limiting or overcoming eventual overload. In several cases the challenge boiled down to mere replacement of existing networks with new-generation networks.
13. Any single euro invested in new RES capacities required a euro for network development. Reciprocal funds were needed for not only setting up additional network capacity capable of granting new power stations’ connection to the grid but also to have smart networks which would lay the foundation for future development of an increasingly decentralised, decarbonised and digitalised energy system. Part of these investments included introduction of devices for smart metering and management of consumption. Given was an example from Greece where a tender was under way to introduce 7 million smart electricity meters at the amount of EUR 1 billion.
14. In addition to the arguments in favour of reorganising the overall electricity system structure and management, participants noted in particular that the system’s current state was capable of providing the customers with a universal service and achieving certain quality indicators. However, with the increase in the share of variable-generation producers, decentralized generation and consumption, depopulation of certain settlements and concentration of household and industrial consumption in just a few economic centres, circumstances had changed. In this context, investments in network infrastructure were needed not only to secure additional connection capacity for RES-generated electricity but also to improve efficiency and efficacy of distribution and transmission networks.
15. Participants joined around the view that network companies were natural economic monopoles which meant that their income and service prices had to be approved by the regulator. To this end, it was up to Member States (via the National Energy Policy) and regulatory authorities (via price regulation approaches) to determine what the electricity networks of tomorrow would look like, and whether the latter would facilitate or obstruct energy transition.  To put it differently, invest ”where, how much, in what and from which source”  would be, by default, the responsibility of politicians and the regulator.
16. Furthermore, amid constant social and economic crises in the last three years, along with economic cycle reversal, access to private and public financing would become even more difficult. This would force companies, and politicians and regulators to seek a maximized social return on investment of every single Bulgarian lev invested in generation capacity and network infrastructure.

III.         NECESSARY CHANGES

18. It was considered imperative to begin the process of comprehension and implementation of Article 32 (3) and (4) of Directive 2019/944, namely:

„(3) The development of a distribution system shall be based on a transparent network development plan that the distribution system operator shall publish at least every two years and shall submit to the regulatory authority. The network development plan shall provide transparency on the medium and long-term flexibility services needed, and shall set out the planned investments for the next five-to-ten years, with particular emphasis on the main distribution infrastructure which is required in order to connect new generation capacity and new loads, including recharging points for electric vehicles. The network development plan shall also include the use of demand response, energy efficiency, energy storage facilities or other resources that the distribution system operator is to use as an alternative to system expansion.

(4) The distribution system operator shall consult all relevant system users and the relevant transmission system operators on the network development plan. The distribution system operator shall publish the results of the consultation process along with the network development plan, and submit the results of the consultation and the network development plan to the regulatory authority. The regulatory authority may request amendments to the plan.

This would create guarantees for all market players. Network development under a plan devised by operators (with the participation of stakeholders) and approved by political and regulatory decision-makers would provide certainty and direction to network companies on where, how much and when to invest in a new network infrastructure, i.e. an infrastructure that would be effective, timely and fit to meet the needs of new producers and consumers. The respective new market players would have at their disposal the much needed preliminary information on network deployment – a basic prerequisite required to initiate and implement projects. Last but not least, the network infrastructure development planned would be also a tool in the hands of politicians, but mostly in the hands of the regulator, to deal with manageable network investments, and respectively, with prices under the terms of balanced interests of all market players.

19. All of the above would mean to apply a systematic approach to evaluating, planning, securing and executing necessary electricity network investments. To date, this had not been observed.

Such an approach may be launched with the forthcoming INECP revision and incorporation of RePowerEU objectives in NRRP as regards electricity transmission and distribution network aiming at a smooth and reliable connection of RES producers, prosumers; the process should account for the strive to strike a balance between electricity supply and demand (including in the context of the so-called demand response).

In any case, the topic of a new approach employed at state level and respectively, the topic of securing targeted European and national financing should be clearly distinguished and directly treated within the framework of the upcoming NRRP reassessment and renegotiation with the EU.

Slavtcho Neykov

Event moderator

[1]  https://www.emi-bg.com/events/%d1%80%d0%b0%d0%b7%d0%b2%d0%b8%d1%82%d0%b8%d0%b5%d1%82%d0%be-%d0%bd%d0%b0-%d0%b5%d0%bb%d0%b5%d0%ba%d1%82%d1%80%d0%be%d0%b5%d0%bd%d0%b5%d1%80%d0%b3%d0%b8%d0%b9%d0%bd%d0%b8%d1%82%d0%b5-%d0%bc/

[2] The Project is part of a larger international project for construction of an interconnection between continental Greece, Crete, Cyprus and Israel; it amounts to EUR 1.5 billion, with close to half of it stemming from European funds