“Obligations to Society” Price – Two Years Later

Change in price formation components of “Obligations to Society” price for 2015, 2016, and 2017

In accordance with the rules of procedure, an open meeting was held on 06 June 2017(Bulgarian version) and a public consultation on 13 June 2017(Bulgarian version), concerning adopted report for approval of prices in the Electricity Sector, including the components and the method of calculating the “Obligations to Society” price, which is paid by all customers. According to the rules, the final price decision in the sector is adopted after an open meeting and a public consultation.

“Obligations to Society” price reflects the difference between electricity market price and the prices at which the public provider purchases electricity under Art. 93a and Art. 94 of the Energy Act, as well as costs arising from imposed obligations, related to protection of sites, which are identified as critical infrastructure in the energy sector.

With amendments to the Energy Act, effective 24 July 2015, a special “Electricity System Security” Fund (ESSF) was set up to manage the funds to cover the costs incurred by the public provider arising from its obligations to purchase the energy produced from renewable sources, determined by a decision of the EWRC, including also past regulatory periods.

Money in the Fund is raised by means of 5% contributions made by electricity producers, electricity and natural gas network transmission operators, and operators of natural gas storage facilities. For the purposes of price regulation, in the composition of recognised costs, the EWRC does not include the cost of contributions to the Fund.

The Fund also receives the revenues obtained from the allowances sale auctions under Art. 57, para. 1 of the Climate Change Mitigation Act, which are used for the development of renewable energy sources, interest income, including overdue installments, donations, revenues from statistical transfers of energy from renewable sources which are used for the development of renewable energy sources.

Estimated annual revenues, as well as the corresponding costs in determining the price “Obligations to Society” are determined by the EWRC

Since the creation of this fund, other costs have been included in the “Obligations to Society” price, covered by the Fund’s revenue, namely:

compensation of the public provider for costs, not included during past regulatory periods,
compensation of the public provider for the 5% contribution due to the fund by producers with long-term power purchase agreements (LTPPA),
compensation of the public provider for the green energy component rebates provided for in the Ordinance on Reduction of Renewable Energy Costs.
compensation of the public provider for the green energy price component rebates, provided for in the Ordinance on Reduction of the Burden of renewable energy costs.

In its price decisions of 2015, the EWRC provided for funds from the ESSF to be used to offset the difference between the prices that the public provider would pay under LTPPA before and after entry into force of the agreements to change the availability prices to the amount of BGN 89 375 thousand.

EWRC’s forecasts for the three years include an average annual fund revenues of over BGN 463 million and average annual costs amounting over BGN 262 million. Average annual cost reduction for diminishing “Obligations to Society” (“OS”) price increase is over BGN 201 million, as for the first year only, the remainder for decrease of OS is lower, as can be seen in the table:

		in thousand BGN
*ESSF*	*2015*	*2016*	*2017*
Estimated annual revenues	434 984	479 206	477 275
Estimated annual costs	318 586	233 971	234 122
Remainder for decreasing of “OS” price	-116 398	-245 235	-243 153

Thus, through the revenues gained by the EESF, EWRC has the opportunity to reduce the price “Obligations to Society” annually.

The amount of the costs that will be refunded by all customers through “OS” depends to a large extent on the average market price – the higher it is, the less the share of the annual costs for mandatory purchase will be included in the “Obligations to Society” price. For the three-year period, the EWRC sets an average market price of 73 BGN / MWh for 2015 and 70 BGN / MWh for 2016 and 2017 respectively.

Total energy quantity subject to mandatory purchase is slightly higher for 2015 – 15 091 GWh, as for the next two years it is set at 14 244 GWh in 2016 and 14 289 GWh in 2017, or the reduction for 2017 is about 5% compared to 2015.

The change in the total quantity in these years is dependent on the change in the quantities of “ES-3C Maritza East 1” EOOD and of the CHP plants, as the other types of power plants participate with equal amounts of electricity for the period under consideration .

Cogeneration plants that sell electricity under feed-in tariff are included with 3 163 GWh in 2015, 2 813 GWh in 2016, and 2 796 GWh I 2017, or there is 12% reduction in the last year, compared to 2015.

Mandatory purchase of electricity costs, involved in “OS” price formation change in the period, as follows:

№	Types of Producers	Measure	1 August 2015	1 July 2016	1 July 2017
1	„AES-3C Maritza East 1“ EOOD	thousand BGN	492 913	535 720	542 815
2	„ContourGlobal Maritsa East 3“ AD	thousand BGN	442 400	492 001	490 450
3	Renewable sources	thousand BGN	1 005 333	1 019 434	1 022 934
4	CHP plants	thousand BGN	479 279	370 420	419 987
5	Critical infrastructure costs	thousand BGN	3 521
6	Total costs:	thousand BGN	2 423 446	2 417 575	2 476 186

The costs of electricity from renewable sources are with the highest average annual share for the three years analysed – about 42% of the total costs, followed by the two plants with LTPPAs having 41%. The electricity costs of both plants with LTPPAs vary depending on the terms of the agreements, while feed-in tariffs of the renewable sources have a negligible annual change due to the structure of production and annually adjusted biomass prices.

The average annual share of electricity costs from CHP plants is 17%. Costs that result from the feed-in tariff set by the EWRC for CHP plants are most affected by natural gas price, including the approved individual price formation components and the surcharge added to the individual price.

Average annual prices for the three years from 2015 up until now included in price formation are: 130.58 BGN/MWh for the two coal-fired power plants with long-term agreement, 275.96 BGN/MWh for the renewable energy plants and 144.49 BGN/MWh for the electricity of CHP plants respectively.

The change of the different price formation components, which affect the final level of “Obligations to Society” price, are summarised in the following table:

№	Price Formation Components	Measure	1 August 2015	1 July 2016	1 July 2017
1	Energy purchased under Art.93а and Art.94 of EA	MWh	15 090 835	14 244 443	14 289 448
2	Annual energy value purchased under Art. 93a and Art. 94	thousand BGN	2 419 925	2 417 575	2 476 186
3	Average price of the energy purchased under Art. 93a and Art. 94 of EA	BGN/MWh	160,36	169,72	173,29
4	Average market price	BGN/MWh	73,00	70,00	70,00
5	Value of the energy purchased at average market price	thousand BGN	1 101 631	997 111	1 000 261
6	Value of the energy that cannot be covered by average market price	thousand BGN	1 318 294	1 420 464	1 475 925
7	“Obligations to Society” price with no SESF offsetting	BGN/MWh	40,28	43,11	44,53
8	Amount for offsetting of “Obligations to Society” costs from SESF	thousand BGN	-116 398	-245 235	-243 153
9	Value of the energy that cannot be covered by average market price decreased with SESF revenues	thousand BGN	1 201 896	1 175 229	1 232 772
10	Estimated annual energy quantities in the country and imports	MWh	32 726 000	32 949 489	33 141 348
11	Critical infrastructure costs	thousand BGN	3 521	0	0
12	“Obligations to Society” price	BGN/MWh	36,83	35,67	37,20