15 Years of a Liberalized Electricity Market –
the Way Forward
22 November 2019, Sofia
MODERATOR’S CONCLUSIONS
ON PARTICIPANTS AND TOPICS DISCUSSED
- The Event was organized by UTILITIES journal under the auspices of the Energy and Water Regulatory Commission(EWRC).
- Participants registered exceeded 100 and represented state institutions, non-governmental organizations, business associations, academia, and the media. Yet another illustration of the vast interest the event attracted were the agile discussions on presentations delivered[1].
- Quite regretfully, the event was not honoured by government institutions holding competences in the energy sector, such as the National Assemblyof Republic of Bulgaria neither by the Ministry of Energy and the Sustainable Energy Development Agency, irrespective of the designated invitations sent to them. The only government body pertinent to the forum topic was EWRC, represented by its Chairperson, Assoc.Prof. Ivan Ivanov, who delivered the introductory presentation.
- In the context of forum topic, some milestones identifying the fifteen-year course of electricity market liberalization were emphasised (EWRC established as an independent body; energy legislation development; Bulgarian energy exchange set up, etc.).The focus fell on the regulatory framework being reviewed from the perspective of regulatory practice evolution and further steps towards a complete opening-up of the market. Discussions acknowledged legislative amendments introduced and pinpointed additional amendments necessary in view of European policies associated with electricity market, regional connectivity and ancillary service market.
Against this background, discussions evolved in three interrelated stands:
- Vision about the liberalization process at government level;
- Communication to consumers; and
- Efficient government control.
Debates and positions expressed on these strands are summarised below.
ON GOVERNMENT VISION ABOUT LIBERALIZATION
- The flagshipquestions raised was whether a clear government vision about the electricity market development existed, if any at all, and what would be the framework of such a vision.
Regretfully, it was ascertained that institutions could not provide a comprehensive answer to these questions.
It was explicitly underlined that such a vision should outline next steps for at least 3 to 5 years ahead. The approach of having a short-term action planning outside a comprehensive development concept (namely, up to 1 July 2020) applied by institutions thus far was deemed to be definitely unacceptable.
Furthermore, there were no workable drafts of fundamental documents for a broader expert and public review:
- Not submitted remained to be the draft of Sustainable Energy Development Strategy (regardless of the legal requirements to have it prepared by January 2020; apparently, the deadline could not be met); it was noted that while such a document was still missing, considerations on some particularly important energy topics (potential big projects such as BELENE NPP, reforms in the coal mining sector, etc.) continued to be regarded as extremely abstract and inadequate;
- Not presented remained to be a final version of the Integrated National Energy and Climate Plan (INECP), regardless of the closely approaching deadline for its submission to the European Commission. It was recalled that discussions on INECP were not a matter of good-will on the part of government institutions but a regulatory requirement.
- A special focus was placed on the absence of a clarified and publicly announced electricity market liberalization model and its implementation roadmap.
Government institutions were called upon an urgent expression of views regarding electricity market liberalization model, if any.
As pointed out, this required well-thought through steps rather than sporadic ones based on ‘trial-and-error’ approach. Moreover, other countries had gained sufficient experience, both positive and negative, and Bulgaria could learn from them. The audience was reminded that from market perspective, a gradual phasing out of regulated energy prices and providing consumers with a genuine opportunity to change electricity supplier, held clear practical benefits. At the same time, the route to achieving these objectives was perceived to be of crucial importance. However, the latter was considered a principle question that still awaited a clear and definitive institutional response.
In this context, there was a series of specific issues also requiring clarity.
Such an issue was whether there was readiness to undertake further steps regarding the retail electricity market and could such steps be attempted at all, having in mind the numerous gaps still existing in the wholesale electricity market, to name a few: lack of competition, lack of market products, and suspected manipulations (a topic raised on numerous occasions, including by employer organizations, trade associations, etc.).
- Another discussion point was the role long-term agreements with the so-called American power stations(CONTROURGLOBAL MARITSA EAST 3 and AES GALABOVO) have in the context of liberalization process. The topic was touched upon by ERWC Chairperson in his introductory remarks where he contemplated the eventual need to have them reviewed.
Government decision to set up a working group to negotiate the issue with CONTOURGLOBAL MARITSA EAST 3 was also mentioned. It was recalled that any changes proposed should be carefully analysed in advance and should be within the law. It was also noted that these long-term agreements should be considered as an integral part of the capacity mechanisms that the government was looking into introducing. In view of the latter, the need for an objective account for the role of the huge foreign investments in these power stations in order to secure coal-fired power generation meeting environmental requirements was also emphasised. It was highlighted explicitly that both companies had an operational capacity that guaranteed national energy security while using local energy resources. All arguments held direct relevance to the market liberalization process.
ON COMMUNICATION TO CONSUMERS
- An underlying issue discussed was the end–consumer need for clarity regardingwhat was happening, what was about to happen and what the consequences for customers would be; was the end-consumer given an explanation in an accessible and understandable manner.
These remained open questions because government institutions had not presented a vision on future arrangements concerning electricity market liberalization process. It was underlined that following the drafting, discussion and adoption of the roadmap mentioned above, a broad and effective end-consumer awareness campaign should be organized with the leading role of the state.
- To that end, the following issues were brought up:
- What would be the impact of liberalization on end-consumers? – As indicated, electricity prices would rise gradually. However, such a rise should be considered in conjunction with some other economic factors like growth in GDP, minimum salary, etc.
- What would government policy for the so-called energy poverty be? – It was reminded yet again that this was a sensitive and important issue but social policy should not be conducted by means of the energy sector.
- What should the changes in the regulated and free market be? – It was reminded that there was an acute need of certainty regrading who would be the clients to enter the free market, when and how would low voltage electricity prices for industry and households be aligned, etc.
ON EFFICIENT (MISSING) GOVERNTMENT CONTROL
- Discussions evolved around government control mechanisms regarding market development, their availability and government’s capacity to employ them.
It was reminded explicitly that the Regulation on wholesale energy market integrity and transparency[2], the so-called REMIT regulation, was not implemented in full regardless of concrete data on energy exchange speculations. No investigations had been conducted on the latter. It was noted that timely and effective investigations would be most beneficial because the ongoing and most visible problems of the energy market were associated with the purchase and sale of electricity. Government institutions had not presented any view on actions to exercise their control functions.
The root causes were brought down to:
– Absence of rules
– Failure to apply existing rules
– Lack of administrative capacity.
- In addition to the missing significant elements of liberalization (strategic framework, regulations and rules) as well as failure to apply existing ones, discussions focused also on administrative capacity.
EWRC Chairperson raised the issue of insufficient staff capable of implementing Regulator’s obligations associated with REMIT provisions implementation in a competent manner. The Chairperson even addressed the audience with a request to support EWRC in remedying this administrative gap.
As established with regret, administrative capacity setbacks were also relevant to the executive power. The example given was the vacant Deputy-Minister positions at the Ministry of Energy, not filled in for over eight months. Irrespective of Deputy-Ministers holding the status of members of the Minister’s political cabinet, absence of appointees affected directly proper functioning of the administration.
Considering the outcomes of National Assembly’s work, undoubtedly this issue also held pertinence to it.
It was pointed out that recent years had witnessed more pro-change business and non-governmental sectors than government institutions, and this proactive stance would held firmly in the future.
Moderator:
Slavtcho Neykov
Chair of MB of the Energy Management Institute
[1] All presentations delivered at the event can be found at https://events.utilities.bg/events/forum9-2019/
[2] Regulation (EU) No 1227/2011 on wholesale energy market integrity and transparency – https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32011R1227
