EMI on DRAFT NATIONAL RESILIENCE AND RECOVERY PLAN

OPINION ON THE DRAFT OF THE NATIONAL RECOVERY AND RESILIENCE PLAN, PRESENTED FOR PUBLIC DISCUSSION ON 30 OCTOBER 2020

I hereby bring to your attention the comments of the Energy Management Institute on the draft of the National Recovery and Resilience Plan (RRP) of Republic of Bulgaria, presented on 30 October 2020.

However, allow me first to congratulate you on the transparent and innovative manner, in which you have chosen to initiate RRP public discussion, and to express my appreciation of the opportunity offered to stakeholders to share their views on this document bearing a strategic importance for the country.

As you know, the Energy Management Institute (EMI) is a non-governmental organization, which for ten years now has been working towards implementing the principles laid down in its statute, namely, for the benefit of Bulgarian energy sustainability and its integration with the European Union energy. In our capacity as an institution of public policy, we have always strived to offer workable solutions to both energy sector actors and society based on impeccable analytical expertise, an established partner network and a membership in the largest association in electricity industry in Europe, EURELECTRIC, with the Institute being the only Bulgarian representative.

ON THE APPROACH OF EMI

Pursuant to our areas of commitment, the statement below focuses on energy and climate elements, contained in RRP. In addition, we present our views on aspects that are absent and respectively, remain untouched upon in the Plan but are perceived by our assessment as indisputably deserving to be addressed therein. Our approach is guided by the pragmatic purpose of making sure that prioritisation via policies and measures for important sectors and sub-sectors of Bulgarian economy is not missed since this may lead to squandering valuable opportunities for their adequate financing, the framework of which is being created currently.

At the same time, we consider RRP draft in the context of our overall activities on the topic, including after presenting the European Green Deal concept at the end of 2019. As you know from EMI’s public statements and events, post-COVID-19 economic recovery and the challenging and expensive journey the country will have to embark on, in particular as regards the energy sector, so as to achieve the Green Deal objectives, has never ceased to be topical for us. The recently organized by EMI international conference on the European Green Deal post-COVID-19 and the Bulgarian energy transition (15-16 October 2020) offered yet again a broad platform to discuss outstanding issues of an essential practical dimension. Discourse areas included: changes in the energy policy at European and national level; electrification as the backbone of the Green Deal; the need of a just energy transition and transition specifics for Bulgaria, and some other relevant matters. It was not by mere chance that the conference enjoyed an exceptional interest also by senior level participants.

Conference conclusions, which I sent you in a separate letter soon after the event, are available to anyone interested at the Conference webpage: www.emi-bulgaria.com.

On the other hand, we consider RRP in the context of other strategic documents presented so far and related to the Bulgarian energy transition, even though such a consideration has proven to be a rather difficult endeavour because of, in our view, discrepancies in substance encountered in some of them and RRP points of focus, and the realities of the energy sector development. The main arguments on this subject are expressed accordingly.

On this ground, please do take into account our basic comments, indicated below.

COMMENTS ON SUBSTANCE

ON THE ENERGY SECTOR FOCUS IN RRP

We share as a priority the formulated main purpose of the document, which relates to the economic and social recovery from the crisis caused by COVID-19 pandemic as well as to the strategic approach for country’s post-crisis development. That is why we express our consent with the notion that achieving the purpose requires grouping measures and reforms that allow for recovery and subsequent growth of the economy, while developing its potential in balance with resilience to negative external impacts. We also acknowledge the embedded binding of these steps with both achieving economy convergence based on green and digital transformation in the context of the ambitious objectives of the European Green Deal and increasing people’s income. Against this background we find it rather disappointing that RRP clearly underestimates energy as a priority sector, which is a key factor in attaining the aforementioned objectives, more over in a situation suggesting right the opposite political and statehood attitude.

The alarm bells of insufficient attention paid to the energy sector and its issues, from strategic, investment and social perspective, on the part of the state are not set ringing by EMI alone and do not date as of today. Several contradictory policies and/or objectives and their inconsistent or absent implementation, justify the criticism on vital strategic documents that need to beacon energy development in the country.

I would like also to note our assessment that RRP is not and cannot be developed as an independent document but in a logical linkage with both the Integrated National Energy and Climate Plan (INECP) and the new (still in draft) Bulgarian Energy Strategy. Unfortunately, the latter two documents look rather unsubstantiated and discrepant on basic elements that bear pertinence to the potential RRP points of focus. The examples in this respect are numerous, with the connecting element being investments – RRP should be bound prima facie to effective absorption of EU target funds provided.

In view of the abovementioned, please, do acknowledge our perception in principle that in drafting RRP in areas associated with energy, the government should be guided first and foremost by EC detailed comments and specific recommendations on the Integrated Energy and Climate Plan, presented officially on 14 October 2020[1]. In addition, RRP has to make reference to the respective urgent legislative and regulatory amendments, which according to us are imperative in several aspects (e.g. as regards proposals made to boost development of industrial parks and the related proposals to amend the Energy Law, the non-implementable Energy Efficiency Obligation Scheme, energy poverty, etc.)

Specific arguments on both aspects mentioned above, including those ensuing from official EC positions, are presented further herein.

ON RRP, THE STRATEGY AND THE INVESTMENTS

It is well-known that EU foresees allocating targeted funds to the energy sector, which are to be linked to certain reforms (e.g. via the Just Transition Fund, the Modernisation Fund), these allocations being different from the funds designated for RRP implementation. However, this does not mean that there is no place for energy projects in RRP, some already being set forth in RRP draft (e.g. energy efficiency, RES, ECO). But others are missing.

In this regard, as an illustration, I would like to emphasise a few points.

First, we find it appropriate to recall that the electricity sector has proven its ability to secure normal operations of the state institutions, the business and the social services while at the same time ensuring citizens’ normal life. This has been made possible mainly by the private companies some of them even operating under economic limitations imposed, other being the object of periodic illegal attacks; notwithstanding all this, the companies have not gone astray, not for an instant, in delivering on their obligations. On the contrary, they have agreed to undertake additional actions for the benefit of citizens and businesses, such as extended payment periods, suspension of repairs planned, suspension of electricity supply cut-off due to outstanding bills, etc.

However, adequate electricity supply services should not be taken for granted.

In this context we believe that all options within RRP have to be used to ensure the necessary additional financing for the permanently underfinanced electricity supply services and for upgrading power networks. From economic perspective, they hold a cross-cutting importance for the entire economy, and receiving fresh financial resource for these areas would support business and energy security, and would raise the standards and comfort of living for citizens.

Second, I would like to underscore our perception that Bulgaria deserves a plan for sustainable recovery through which to stimulate economic growth, create new jobs and achieve structural (rather than situational) greenhouse and anthropogenic gas emission reduction. Such an intention and objective, however, require an analysis to be made so as to outline appropriate energy (and climate) policies and investments needed to shift the country towards cleaner and more sustainable future while ensuring power supply security and grid stability.

Third, it is essential to underline that any of the objectives set forth in RRP and important for the society could not be achieved without adequate and timely changes and investments in the electricity sector. Otherwise, retail market liberalisation ambitions, electrical mobility, community RES-power generation, clean-energy heating options, etc. will remain solely on paper. A clear political framework is needed to create the necessary (and so far missing) link between common national objectives and respective requirements to the electricity sector to enable actual achievability of these objectives. Next, the energy regulator is the body that needs to convert such a political framework into a regulatory one and design suitable mechanisms to promote and finance new requirements.

That is why, apart from the missing linkage with other strategic documents indicated above, we find it strange that the electricity sector and its key role in the forthcoming period by 2030 remain invisible in RRP. This Plan does not treat in any way and under any form the topic of coal, nuclear energy, natural gas, distribution networks etc. For us a comprehensive, systematic and workable approach presupposes existence of such a linkage and rationale. Moreover, the investment needs of the electricity sector in its role of a mediator, accelerator and direct participant in the forthcoming transition would be in a multitude higher than the previous ones. Securing these investments is an urgent and key task.

Unfortunately, RRP draft presented lacks such an approach. Not addressed adequately remain the ever more deepening need of investments in the energy sector, which is ‘suffocating’ under the legal requirements imposed in terms of low-emission and zero-emission development, reliability, smart networks and digitalization, cybersecurity, obligation to provide services to new and satellite businesses (decentralized generation, electrical vehicles, energy storage, demand response, active energy consumers), increasing requirements to energy and market regulators, to energy consumers and society as a whole against the background of permanent pressure on energy price levels.

Finally, I would like to dwell on the topic of industrial parks where the better part of the new business mentioned is expected to be concentrated. RRP focus on them, including in the context of the draft law currently under consideration by Parliament, exacerbates further our perception of a missing efficient prioritisation and a confused approach. The draft law in itself is an example of how, in terms of the energy sector, such a type of relations should NOT be regulated. In a nutshell, the foreseen legislation represents a gross violation of energy regulation principles and may actually lead to not only blocking industrial park operations but also to endless legal disputes on the account of the respective companies and potential investors. Besides, interests of large private foreign investors would be seriously affected, which may become a prerequisite for new legal disputes at national level. An additional problem in substance is employing transitional and final provisions to introduce considerable amendments to a special law such as the Energy Law, thus swaying the entire relationship system without any assessment of the effect gained. ЕMI and its members have submitted they detailed views on the topic to Parliament. These views are made public and you may learn more about them, should you wish to do so.

ON THE OPINION OF EMI AND SOME EXTERNAL ASSESSMENTS

In addition to the abovementioned, I would like to stress again that contradictory and inconsistent policies and objectives in country’s strategic documents, deemed to be vital for energy development will undoubtedly impact effective RRP implementation.

Here are some examples.

Council Recommendation of May 2020 on the 2020 National Reform Programme of Bulgaria containing Council’s opinion on the 2020 Convergence Programme of Bulgaria (COM(2020) 502 final/20 May 2020) states that ‘(25) (…) At the same time, Bulgaria is the most resource, energy, and greenhouse gas emission-intensive economy in the EU, with important investment needs in the fields of energy and decarbonisation to facilitate the transition to climate neutrality, as described in Bulgaria’s National Energy and Climate Plan.’

(26)Transformation efforts for tackling Bulgaria’s high energy intensity, overreliance on fossil fuels, and inefficient use of energy and resources are at a very initial stage. The National Energy and Climate Plan stresses Bulgaria’s commitment to decarbonise its economy by 2050 in the context of the European Green Deal, but also states the intention to keep Bulgaria’s reliance on domestic lignite sources for 2050 and beyond… The programming of the Just Transition Fund for the period 2021-2027 could help Bulgaria to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D (Stara Zagora, Pernik and Kyustendil) to the country report. This would allow Bulgaria to make the best use of that fund’. [2]

As it is known, in March 2020, the state has launched the final version of the 2021-2030 Integrated National Energy and Climate Plan of Republic of Bulgaria.[3]

On 14 October 2020, EC issued the abovementioned assessment of the Bulgarian INECP, commenting that despite the final version being drafted prior to the COVID-19 crisis, ‘its implementation should take this fact fully into account and position it in the context of the Recovery and Resilience Facility, expected to become operational literally from tomorrow – 1 January 2021.’

In support of this opinion, yet again on 14 October 2020, along with the individual assessments of each Member State’s NECP and other documents, the Report on State of the Energy Union was also launched with the words of the Executive Vice President of the European Commission for the European Green Deal, Frans Timmermans, defining the energy sector as playing ‘a crucial role in cutting emissions and achieving the European Green Deal’. At the same event, the Commissioner for Energy, Kadri Simson, defined the national energy and climate plans as ‘an essential tool for our work with Member States to plan the policies and investments for a green and just transition. Now is the time to turn these plans into reality and use them to lead us out of the Covid-19 crisis with new jobs and a more competitive Energy Union.’

EC assessment from mid-October this year on the final INECP reconfirms in a more categorical and peremptory tone the persistent EC critics and remarks on the initial version of the document, pointing out, quite reasonably so, that adjustments are unsatisfactory.

I would like once again to stress that understanding of EMI on INECP role coincides with EC’s one. That is why our focus on INECP, including in the context of INECP preparation, has concrete and pragmatic dimensions: it is clear that this national document constitutes a fundament for Bulgaria to develop the climate and energy aspects of its national recovery and resilience plan and to deliver on the broader objectives of the European Green Deal.

As already pointed out, Bulgaria has been urged to complement and adjust its INECP investment and reform priorities, and to (re)consider EC recommendations on climate and energy investments to be addressed via RRP.

The draft of RRP published does not pursue this approach: INECP is not subject of attention in RRP and is not used as a document to build on, as per the explicit instructions of EC, in both short-term and mid-term perspective up to 2030.

This is unacceptable for us. The absence of a systematically and incrementally built-on national vision based on every successive political document dooms subsequent efforts to fragmentation, contradiction and failure.

On the grounds of the abovementioned, we recommend for INECP to be integrated in RRP draft. Our concrete proposal is to consider, analyse and reflect EC recommendations as regards INECP assessment, including Section 5 and Annex 2, which will contribute to facilitating energy transition by 2030, including access to finances for its implementation. We would like to recall some specific recommendations to be reflected in RRP.

ON SOME EC RECOMMENDATIONS

a) On promoting renewable energy sources (RES)

National RES objectives by 2030 have been assessed by EC as being in conformity with the requirements. Nonetheless, EC expresses concern that due to the low energy efficiency targets, the country would suffer from difficulties in achieving the necessary greenhouse gas emission reduction in the mid- and long-run, and for this reason, EC recommends reconsidering both objectives, for RES and energy efficiency, so as to have a comprehensive evaluation of the expected impact on carbon emission decrease. In addition to the political measures described in INECP, EC holds the view that the country would benefit by devising more specific sectoral policies and more specific measures and actions, such as:

Increase the role of RES and promote the use of waste heat in the heating and cooling sector;
Facilitate the penetration of renewable electricity via carefully assessing the regulatory and administrative system to remove any barriers and cumbersome procedures;
Ensure level-playing field for RES-E generation in the electricity market.

b) On energy efficiency

In all foreseen financial instruments and operational programmes, including those presented on 30 October 2020 at www.nextgeneration.bg, the energy efficiency topic appears in diverse forms. It is impossible to ignore that Bulgarian energy efficiency objectives by 2030 formulated in INECP and consistently repeated in other related documents, have been assessed by EC as being poorly ambitious in terms of primary energy consumption and very poorly ambitious in terms of final energy consumption.

As per the assessment, in case additional energy efficiency policies and measures are not adopted and applied, the country would face challenges in attaining low-carbon transition objectives by 2030 and beyond.

In the context of energy efficiency, there are a few issues that are particularly important and sensitive, and bear pertinence to effective spending of BGN 3 billion foreseen in RRP. These issues need to be adequately reflected in the Plan.

First, the issue of accountability: this is a matter of principle, irrespective of financing sources (national budget or European funds).

In this regard, a sound assessment of the impact and expected savings is necessary so as to guarantee effective contribution towards the objectives. Such an assessment needs to be not only detailed in terms of timeline, criteria, demographics, etc., but also to be launched publicly. Its framework may be incorporated in RRP. Furthermore, we propose to have the control mechanism outlined, albeit schematically, in RRP. However, in doing so, it is necessary to go beyond the topic generalities, which we are currently witnessing. In this context, please note that in practice, the public space is still deprived of a thorough and itemized report on the BGN 2 billion spent so far for rehabilitation of multi-family residential buildings. Indicated are only figures about the number of buildings but the economic effect of the endeavour and the beneficiaries, remain an enigma. And here, it is about the money of the Bulgarian taxpayer. Unfortunately, the limited pubic information substantiates suspicions whether the funds have been spent mainly for the benefit of, for instance, companies supplying Styrofoam and companies cladding it. Rough estimations, using highly inflated baseline data on the funds spent, show that only about 3% of country’s population have enjoyed the effect. Such type of ‘efficiency’ results in huge public mistrust in handling people’s money. Yet again, we emphasise that these estimations are based on the modest publicly available information, making it impossible to draw specific conclusions, let alone, having the responsibility personalized. Therefore, to dispel such suspicions about the foreseen European financing, there have to be accountability arrangements for past spending as well as a clear vision for the effect of future spending.

Secondly, there is the huge issue with the Energy Efficiency Obligation Scheme in Bulgaria, which failed to become effectively workable in the country for various reasons. This is an issue of both conceptual and legal dimensions. We believe that it is important for RRP to consider both dimensions, including the aspect of regulatory provisions as a step forward to achieving the objectives.

I take this opportunity to recall the analyses, which EMI has drawn up and disseminated repeatedly on the issue, including by way of official letters to the National Assembly, Ministry of Energy, EWRC, etc. In summary, the main reasons for scheme implementation failure are rooted in the contradiction between the indicated two principles of scheme operations and Bulgarian understanding of the scheme. They are brought down to the following:

On the one hand, obligated parties have to implement energy efficiency measures for third parties (usually the end clients) but they do not have to finance these measures with their own funds, which continues to be case expected by the institutions and the public in the country; in fact, it is for the state rather than the obligated parties that has to provide adequate scheme financing, with a possibility to attract additional public funding (including grants, low-interest loans and state-backed loans, European funds and programmes, etc.);

Second, there lacks a sustainable political and institutional vision, coordinated with the obligated parties in a timely manner so as to make it clear who, what measures , when and where to implement them in order to reach an optimal contribution, in terms of effect and costs, towards the savings targeted in the final energy consumption. The lack of an integrated institutional approach and a clear plan, have led to a situation where measures applied by obligated parties have not resonated in consumer prices via a regulatory response.

c) On the energy market

Bulgaria has to maintain a steady course towards energy reforms and market liberalisation, including a phasing out regulated prices and integrating closer natural gas and electricity sectors with those of its neighbours.

That is why it is imperative for the country to step up its efforts in improving operational independence of the national regulatory authority and increasing its funding and professional capacity to better apply market rules. This relates directly to restraining strongly the political dependency observed over the years and expressed even today on the occasion of EWRC staffing.

It is also of essence to design and apply measures to improve wholesale market liquidity and transparency for the benefit of all market participants and to allow for a seamless integration with regional and European markets.

Retail markets (connected to the electricity distribution network) deserve special attention in view of empowering consumers in order to create true competition and enhance service quality. To this end, needed are comprehensive and systematic political and regulatory measures to:

Devise a schedule with clear parameters for replacing existing measuring devices with smart ones (Bulgarian is one the few country that does not have such a schedule);
Implement energy storage facilities as part of the distribution networks;
Digitise distribution networks (smart distribution networks);
Introduce charging devices for electrical vehicles;
Introduce consumption management/response;
Apply contemporary methods in price regulation, dynamic pricing, etc.;
Foster proactive consumers: decentralised generation, demand response, energy communities.

Against the background of EC recommendations, constant neglect and striking out distribution networks from strategic, normative and regulatory documents seems puzzling and dramatically contradictory to the proclaimed intentions for consumer empowerment, green transformation of economy and society, liberalisation and market integration.

All these aspects could find their specific place in RRP.

d) On investment needs

Since the main financing would be sourced predominantly from EU, EC has recommended strongly clarifying the role and scope of various financing sources that are to meet the investment needs, indicated in INECP and the amount of investment financing already secured.

Financing structure also requires further elucidation as regards the shares of European funds, national budget and private funds intended to satisfying investment needs identified.

Another recommendation refers to presenting the methodology for estimating investment needs stated, along with the methodology of the model employed and assumptions made.

Investments are perceived to require improvement of business environment: regardless of measures undertaken to remove obstacles to investments, the impact of these measures remains limited due to the absence of subsequent actions and implementation control. These measures could be introduced in RRP in the context of the way to achieving the respective investment objectives.

e) On the just transition

We note this topic with the understanding that EU has a different financial leverage in this particular area. However, we consider it necessary to mention it in view of the principle finding noted at the beginning of this statement, which refers to the neglect of certain topics pertaining to the energy sector. As an example, EC assessment has established that INECP bears a discrepancy between two objectives: the use of lignite coal in power generation up to coal depletion and the low-carbon power generation. Such an observation is undoubtedly related to adequate RRP structuring since it affects directly EC acceptable focuses in the Plan and the projects to be proposed under it.

That is why it is our view that, for instance, an additional financial protection for coal-fired power plants is required in the context of the impact to be sustained by rising carbon emission prices (EUR 60/t СО₂ as per INECP). It would serve as basis for drawing up a schedule to replace such plants with modern dispatchable low-carbon emission capacities while maintaining system adequacy and electricity supply security.

Furthermore, Bulgaria should assess in an exhaustive manner the social impact, impact on employment, requalification needs, etc. This refers mostly to the coal-mining regions and associated industries. For this reason, irrespective of different financing lines envisaged for these activities, it is only logical to link them, for instance, with investments in new technologies and productions, contemplated in RRP.

f) On energy poverty

Bulgaria is encouraged to consult Commission Recommendation dated 14 October 2020 on energy poverty and the accompanying working document, offering guidance to defining and determining quantitatively the number of households in energy poverty. In this context, the Renovation Wave initiative provides an opportunity to tackle energy poverty via improving energy performance of existing buildings.

Assessment of the number of energy-poor households and indicative targets to reduce this number via properly suited policies and measures is still an open question.

Bulgaria needs to undertake clear legislative and regulatory steps and to provide more exhaustive information about the implementation timelines of a schedule for tackling energy poverty between 2021 and 2030. In our opinion, their description deserves a place in RRP.

In conclusion, we would like to remind the most important highlights in the summary of EC assessment of INECP in the context of RRP guidelines and the NextGenerationEU financial support:

“Based on Bulgaria’s final national energy and climate plan, and on the investment and reform priorities identified for Bulgaria in the European Semester, the Commission services invite Bulgaria to consider, while developing its national recovery and resilience plan, the following climate and energy-related investment and reform measures:

Measures supporting a coal phase-out strategy with a clear timeframe commitment and ensuring a just transition of coal and lignite-reliant areas, accompanied by a clear strategy for promoting renewable energy;
Measures to reform the energy market;
Measures promoting investments in buildings renovation, focusing as a matter of priority on worst performing residential buildings;
Measures improving sustainable transport infrastructure and boosting sustainable mobility.”

We believe that addressing EC remarks and recommendations in a timely and conscious manner would provide the foundations needed by the national strategic documents in their capacity as an instrument for attracting European financing and restoring the hesitant investment interest. In numerous areas legislative and regulatory amendments are needed. I would like to stress explicitly that paying due attention and recognizing the role of electricity companies (in a non-discriminatory manner in terms of ownership and area of operations) would provide real support to the challenging transition of Bulgaria towards achieving the Green Deal objectives. This support would be both on the part of the state and on the part of the companies.

While expressing our hope that the current opinion of the Energy Management Institute would be helpful to the institutions responsible of the domain discussed, we remain at your disposal for further information and operational contacts.

[1] https://ec.europa.eu/energy/sites/ener/files/documents/staff_working_document_assessment_necp_bulgaria.pdf

[2] https://nextgeneration.bg/upload/20/spetsifichni-preporaki-bg-2020.pdf

[3] https://ec.europa.eu/energy/sites/ener/files/documents/bg_final_necp_main_bg.pdf