Bulgaria’s RES dilemma
What went wrong in RES in Bulgaria
The ongoing discussion for the cost of RES electricity in Bulgaria and the frequently changing regulatory framework shows that something is not quite right with the system for compensating costs arising from RES production. While RES producers have their own worries about the recently introduced by the regulator ‘’access price’’, a bigger risk for Bulgaria’s energy security that concerns everybody in the country is hiding just behind the corner.
Bulgaria has transposed the EU Directive on promotion of use of RES 2009/28/ЕО into its national law and has introduced a mechanism with preferential prices for such installations. According to this mechanism the end suppliers (in Bulgaria’s case CEZ, EVN and Energo-Pro) are obliged to purchase energy from RES connected to the distribution grid, while the public provider NEK is obliged to purchase energy from RES connected to the transmission grid.
As part of this mechanism all grid users pay a surcharge on the energy price whose idea is to cover the additional costs caused by RES production. In principle all surcharges on the energy price are a part of the transmission fee and are therefore collected from NEK in its capacity as transmission grid owner. NEK has to use these funds to compensate itself in its capacity as public provider and to compensate the end supply companies for their respective purchase cost from RES.
Following this mechanism guarantees the stability of the system, leads to fair distribution of costs and equal share (by producers, grid companies, suppliers and consumers) of the obligation which Bulgaria has to achieve 16% of RES energy in its energy mix by 2020, including – 20,8% in electricity mix. Part of this balance was the different preferential tariffs for RES provided in the legislation as a way to motivate investors to invest in the RES sector.
What is the problem
Already in the past there were speculations that NEK does not receive enough from the green surcharge to cover the full cost. But the situation became clear on 28.06.2012 when DKEVR introduced the new end consumer prices including the “green surcharge”. It did not take long to see that the new level of the green surcharge doesn’t cover the current costs of production from RES connected to the various grid levels.
The main reason was that in the period of April to June 2012 a connection boom mainly in the area of photovoltaic plants has occurred which was provoked by announcements of both governmental sources and DKEVR that as of 1.7.2012 also the preferential prices for RES will drop sharply.
Another factor was the sharp decrease of costs for solar panels which eased the quick construction of such plants.
The end result of all these processes was that creation of misbalance in the system for stimulation, production and compensation of RES energy,
The national legislation clearly says that DKEVR has to develop a methodology for equitable allocation of the costs for RES among all end consumers (RESA Article 6). But DKEVR’s first answer to this was another decision on 16.07.2012 which introduced a quick modification of the mechanism of compensation which says that NEK has to compensate the end suppliers only to the extend which was the base of the calculation of the end consumer prices.
Unfortunately instead of restoring the balance this decision only shifted the expected loss from one market participant to another: From NEK to the end supply companies – CEZ Electro AD, EVN Elektrosnabdiavane EAD and Energo-pro Prodazhbi AD. risking to contradict both European and Bulgarian legislation.
What is the reality
Of the total expected additional costs of around 765 m BGN for the period July 2012-June 2013 resulting from preferential prices for purchase of RES – by the way appr. 1% of the GDP of the Republic of Bulgaria – the end suppliers have to bear an amount of about 312 m BGN.
This financial burden alone leads to serious financial problems to a situation where the loss from the new introduction of this methodology.
Having in mind the importance of Bulgaria as a net exporting country of electric power in the region it is obvious that such a heavy blow and the possible destabilization of a main part of the country’s energy sector – the end supply companies that serve all 4,5 m end customers at the distribution grid level – may also have an impact on the neighbouring countries and its security of energy supply.
From the public statements of RES producers associations it is clear that this destabilization of the end suppliers may not only affect the end consumers but also the RES producers connected to the distribution grids.
The initial DKEVR price decision Z-17 from 28.06.2012 gives 466 m BGN compensation for the production from RES, of which 120 m BGN are reserved for NEK’s losses from the past. The real situation however, now that enough time has passed since this decision, show a total need of 765 m BGN for the compensation for the period 07/12-06/13.
Addressing this extremely risky situation DKVER made another attempt to bring back things to normal with a move this time directed at RES producers. On 14.09.2012 DKEVR took decision Z-33 which introduced a new access fee for RES producers based on different percentages of the feed-in tariffs (e.g.: 20% for older PV, 39% for new PV, 10% for wind, 5% for biomass and hydro).
Unfortunately this controversial step again was not enough to solve the problem cаused by the new compensatory mechanism because assuming that a new access fee for RES producers is valid as of 18.9.2012 the overall estimation for Bulgaria is a sum of 200 m BGN.
This sum could partially compensate the loss incurred from the difference caused by the decision Z-17. The simple calculation shows that for the three end supply companies the burden is still here. It has only decreased from an initial 312 m BGN to 183 m BGN.
This comes to show that there is a need for further adjustment of the sector as the danger of a destabilization of the energy system still exists, which may have a corresponding effect on the security of supply in Bulgaria as well as in the region.
The danger of not adjusting the system will also reflect in further twisting the market making it even more difficult for the introduction of the liberalized market rules.
But in order to achieve the best results for every market participant the compensation mechanism should be carefully judged and calculated on the base of exact and transparent data following the old Bulgarian saying “Three time measuring, one time cutting”.
