At a recent meeting of the Energy Committee (5.02.2025) in the National Assembly, it was once again heard how national institutions responsible for energy policy, regulation and lawmaking will promote the development and investment in security and climate resilience of electricity networks through penalties, heavier fines and coercive administrative measures.

And, of course, through nationalisation! Because it is a notorious fact that the state is a great manager and knows best how to manage business structures – an obvious testimony to this is the fact that in 2005 the then state-owned utilities were handed over to their new “inept” private owners with technological losses of 26-31%, and today they report 7-8%. Or that the network companies over this period have improved tenfold the standardised quality indicators, reported as average number and average duration of unplanned outages per customer per year.

In other words, they have achieved above EU average levels of service quality at consistently among the lowest prices for distribution network services over the last decade.

Source: Eurostat, EMI calculations based on transmission/distribution ratio in network prices

Let us recall some basic principles. Network companies are natural monopolies whose activities are 100% regulated. Their revenues are generated through regulated prices paid by end-users and their maintenance and investment costs are approved by the EWRC so as to maintain a fair balance between the quality of services provided and socially acceptable prices for them.

More than half of the approved investment expenditure is prioritised for the development and expansion of the network to connect new customers or renewable installations for which there are statutory shortened administrative and permitting regimes, priority connection requirements and penalties for non-compliance. The scarce EU grant or cheaper loan funds available for distribution grid projects are priority targeted in smart grid, automation and digitalisation, distributed generation, flexibility and batteries. And they are delivered through significantly complicated requirements and inadequately sluggish procedures. In addition to this, the Energy and Water Regulatory Commission does not recognise interest costs for regulatory purposes, i.e. they remain at the expense of companies’ returns, which discourages the use of this financial instrument as well.

However, maintenance and repairs of the existing network are normally paid for through prices, for which no grants are provided. That is to say, for a few tens of billions of leva, probably all the 40-60 year old overhead power lines in Bulgaria could be replaced in a reasonable time, backup power lines could be provided to every high mountain hamlet, underground cables could be laid instead of the regularly icing overhead power lines on the mountain hills, and the “brittle as sticks” 40 year old poles could be replaced. If the politicians decide this is a priority and if the society thinks its cost-benefit analysis works and will foot the bill and if the regulator translates this public consensus into appropriate tariff structures for the next price periods.

In the meantime, as this does not seem very likely, it could, for example, be made easier for network operators to meet their obligations to ensure security and continuity of public service more quickly and more easily. For years, companies have been proposing concrete measures to:

• improved interaction with the institutions,
• regulatory changes (e.g. in the Territory Planning Act, Public Procurement Act, etc.) to facilitate networks investments and repairs,
• minimising serious delays and difficulties in the timely and quality implementation of repairs,
• the need for active involvement and responsibility of regional and municipal authorities in spatial development planning, etc.

It is customary for all institutions to publicly and readily commit that they will actively support and propose such measures.

And usually there are no changes.

The results of every grid emergency every winter in Bulgaria are identical – checks and inspections by the energy ministry, the energy regulator, public procurement and state financial inspection agencies and the other state and local control bodies directly or indirectly involved, complete with parliamentary hearings, coercive administrative measures, urgent legislative changes to increase penalties and compensations.

Generally speaking, in Bulgaria it is easiest and most convenient to encourage investment through sanctions.

What is Europe saying about networks?

In the meantime, MEPs are hard at work preparing an own-initiative report on Europe’s electricity networks, in active dialogue with the European associations of distribution system operators. The report is expected to be voted in the European Parliament in July 2025:

1. Dedicated funding and resources for Distribution Network Operators (DSOs) – including a call for the creation of a financial mechanism for decentralised networks, which would specifically earmark existing and upcoming EU funds for the expansion, modernisation, renewal and sustainability of distribution networks.
2. Faster and streamlined permitting processes for distribution network operators – including the introduction of a 6-month cap on permitting timescales for priority projects.
3. Facilitated access to critical raw materials and supplies to maintain and build key network assets and strengthen supply chains by using Distribution Network Development Plan (DNDP) forecasts to define and address upcoming increased demand for specific components.
4. Ensure a physically and digitally resilient grid – a grid that is protected against the two biggest threats – climate change and cyber attacks – is more reliable for its customers. To ensure this resilience, investments in climate adaptation and strengthening cybersecurity should be recognized and accounted for in regulatory approaches and tariff methodology.

This initiative is just one in a series of similar ones in support of grids at the European level over the last three years, identifying grid modernisation and security as a critical challenge. The European Union’s Networks Action Plan, published in 2023, foresees €584 billion of investment in network infrastructure over the next six years. The Commission promises, among other things, to introduce regulatory incentives for upstream investment in networks, to encourage faster authorisation of grid deployment and more effective engagement with stakeholders and communities, and to improve and secure the supply chain relevant to the electricity grid.

In mid-2024, the Council of the European Union engaged in the debate with specific conclusions and recommendations to the EC to make rapid progress on the resilience of electricity network infrastructure. The Council expects a series of actions from the Commission, including:

• A programme to encourage member states to develop measures to develop the grid,
• a simplified and coherent framework of regulatory requirements and procedures in the fields of energy, climate and the environment regarding authorisation regimes for grid infrastructure projects,
• an increase in the funds allocated to network infrastructure in the next multiannual financial framework,
• proactive assessment of climate risks in Europe and targeted planning of investments in climate resilient networks.

Last month, the EU’s Distribution System Operators’ Cooperation Body issued strategic recommendations and guidelines to optimise permitting regimes for network projects. Several priorities have been defined to enable the DSOs to fulfil their responsibilities:

1. Streamline permitting regimes: Reduce delays in project approvals to accelerate grid modernization.
2. Supporting EU funding: Use dedicated EU funding instruments for EDP projects, reducing the financial burden on customers.
3. Regulatory harmonisation: Work with TSOs, ENTSO-E and regulators to align policies and stimulate investment.
4. Empowering customers: Providing tools and resources for customers to actively participate in energy markets by taking advantage of flexibility services.
5. Strengthening stakeholder collaboration: Working with governments, industry and academia to foster innovation and address emerging challenges.

In October, a World Economic Forum briefing paper called on regulators to “increase investment in the grid by rationalising processes, ensuring adequate returns, and anticipating upfront investment in future development needs“ by:

1. Prioritizing simplification and acceleration of permitting procedures, to ensure timely use of capital and faster returns. According to an EC study, authorisation procedures for network investments can take between 4 and 10 years. Extending timeframes can delay commissioning and create uncertainty, which directly affects cash flows and reduces returns.
2. Setting adequate regulated rates of return to ensure long-term financing of the necessary network investments.
3. Enhance the attractiveness of upstream investments by recognising and accounting for the possibility that assets may sometimes remain underutilised for years and, in rare cases, even become frozen assets. According to the Euroelectric Grids for Speedstudy , a forward-looking regulatory environment with proactive strategies for anticipatory grid investment can reduce the total annual investment required from $67 billion to $60 billion, resulting in a 10% improvement in investment efficiency.
4. Adjust the length of regulatory periods or implement other methods to account for the variability of future energy and supply chain scenarios. The rapid pace of development of the energy transition may lead to new insights that influence the amount and type of investment required by the grid operator.
5. Increase the involvement of public financing in investments that are essential for the future energy system to reduce the risk of private debt financing and encourage greater private sector participation.

This is the context of the European debate on networks, and it is becoming increasingly intense. Already this year, changes to European legislation implementing the RES and electricity market directives, state aid rules and public procurement rules are expected to reflect the focus on networks in the mandate of the new European Commission.

Practices from regulators around the world

National energy regulators in Europe and around the world have long been active in strengthening the resilience of networks in the face of crises, extreme weather events and threats.

The German regulator recently published for discussion a further initiative to support distribution networks, according to which the efforts and investments of network operators to meet the challenges of energy transition and climate change will be supported through simplified and accelerated regulation, attractive and stable framework conditions to encourage investment, regulatory incentives to ensure that every euro invested brings maximum benefit to network users.

Under the newly adopted regulatory framework for network development in Italy, introduced by ARERA, distribution system operators (DSOs) can submit investment plans that have specific objectives, such as increasing resilience to extreme weather events and expanding the capacity of the grid for renewable energy sources. These plans should demonstrate positive results in terms of cost-benefit analysis based on a predefined methodology. A wide range of benefits shall be considered, such as the change in the infrastructure risk index before and after the resilience intervention, the economic value of the loss of electricity supply (value of lost load – an estimate in €/MWh of the maximum price of electricity that customers are willing to pay to avoid disconnection), and the number of customers who will benefit from the project. This gives a perspective to assess the investments in the network in terms of the exact value and benefit for the whole system, not only in terms of a strictly financial ROI approach.

Following extreme snow events in central Italy, which caused the prolonged disconnection of over 100,000 customers, a climate resilience requirement is introduced in the regulatory framework – an incentive-based regulation aimed at increasing the resilience of electricity distribution networks and requiring priority three-year plans for investment in:

• (a) designing a grid capable of withstanding extreme events, and
• (b) the ability of the system to restore standard operation following such events.

Each year, DSOs must publish a three-year plan to protect their networks from risk factors such as icing of wires due to snow or wind, heat waves, flooding, and fallen trees due to snow. After submitting a cost-benefit analysis for each project, the corresponding investments are approved by ARERA and included in the rate framework. In case of non-performance of the investments due to the fault of the operators, penalties follow.

Sustainability measures include:

• Preventive actions (aimed at increasing grid connectivity by implementing new power lines),
• restoration actions (aimed at reducing the time to restore power lines after power cuts),
• mitigation actions (aimed at limiting risks to the electricity system and reducing damage), and
• monitoring interventions (to anticipate critical weather events that could have an adverse impact on the grid, using innovative technological solutions).

The new methodology is characterised by the following three main elements:

• The development of climate scenarios allows to identify the areas most exposed to the effects of severe weather events of different nature, linking to them the relative probability of climate hazards. The approach can be adapted and applied to grid areas of different scale and parameters.
• An engineering approach for assessing the vulnerability of different components of overhead power lines to direct and indirect loads caused by severe weather events by identifying specific vulnerability curves defined using real technical and orographic parameters.
• A probabilistic N-k approach to analyse multiple and simultaneous power outages due to weather events, in order to determine the probability of such situations occurring and assess their impact (in terms of expected energy not delivered) on the part of the power system exposed to the severe weather event.

The RIIO (revenue = incentives + innovation + outputs) regulatory framework applied by Ofgem in the UK includes a regulatory period of eight years. This long-term perspective provides utility companies with the stability needed to plan and execute major infrastructure projects, reducing the risk associated with short-term regulatory changes. Ofgem also requires electricity network operators to include aspects of resilience in their business plans: Asset Resilience, Workforce Resilience, Cyber Resilience, Physical Security, Climate Resilience. And accordingly include in their tariffs the cost of measures to ensure this resilience.

By rethinking the approach to setting regulated prices and reviewing the tariff structure, the use and payment for network capacity can be optimised so as to reduce the system cost of the transition and hence the cost to consumers. Example from Belgium – In January 2023, Fluvius, the electricity distribution network operator in the Belgian region of Flanders, together with the regional energy regulator VREG, changed the distribution tariffs in the region from those based on the volume of consumption (kWh or kW) to those based on the capacity (kW or kW). After the first year , a study carried out by the network operator shows that this change in tariffs has not increased household costs and, more importantly, has led to an 8,3 % more efficient use of the network and a reduction in the need for new infrastructure.

In Australia, following the 2021 storms, the Victorian Government established an expert group to undertake a regulatory review focusing ‘on the duty of distribution network operators to: improve distribution network preparedness and response to prolonged power outages resulting from storms and other extreme weather events; and strengthen resilience to prolonged power outages’. The Panel’s final report contains numerous and detailed recommendations for immediate, medium and long-term reform to improve grid resilience. The main long-term recommendation is that “the national legislative and regulatory framework should be amended to incentivise operator investment in resilience over the long term“.

In the US, 28 states have introduced explicit legislation in the last three years related to grid modernization and improving grid resilience to extreme weather and climate events. This includes appropriate regulatory mechanisms and incentive marks for grid investments.