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08/12/2016

Bulgaria’s energy sector reform to start with the regulator

Energy

Bulgaria’s energy sector reform to start with the regulator

Bulgaria's electricity utilities have split the country in three, each acting as monopoly.

[Bulgarian Wind Energy Association]

The only candidate for the post of head of Bulgaria’s energy regulator has presented his vision for the refurbishing of the country’s energy sector, marred by cronyism, monopolies, wasteful practices and the siphoning of public funds.

Ivan Ivanov, a politician supported by the small centre-right party the Reformist Bloc, was auditioned Tuesday (31 March) during five hours in the Bulgarian parliament. He is widely expected to obtain the job of Head of the new Commission for Energy and Water Regulation (CEWR), as he is also backed by the leading party in parliament, Prime Minister Boyko Borissov’s centre-right GERB.

So far, Bulgaria’s energy regulator was perceived as a body independent only in theory, rendering services either to the government or to large companies, but never acting in the public interest.

According to reports, Ivanov has outlined as his priorities as the overcoming of the huge deficits of the National Electricity Company NEC by the end of the year, putting in place an energy exchange trade, to be operational by the beginning of 2016, and keeping under the control of CEWR network services where utilities have a dominant position.

Electricity: monopolies and distorted price elements

NEC’s deficit is currently of BGN 3.3 billion (€1.68 billion). The Bulgarian energy sector has a bizarre structure, with Bulgarian Energy Holding (BEH), a state holding firm, being the owner of NEC.

The deficit is largely due to the long term purchase contracts between NEK and the private coal-fired producers operating the coal stations Maritsa East 1 and Maritsa East 3. The two power stations were awarded with special high prices for their electricity. In return, their owners, American companies AES and ContourGlobal, have upgraded the plants and made them more efficient and compliant with environmental standards.

Another issue is that solar and wind power plants have benefited from preferential prices for many years. Last February, the Bulgarian parliament scrapped preferential prices for new, renewable energy installations, but the existing ones still benefit from the scheme.

>> Read: Bulgaria scraps incentives for new renewable energy installations

Many Bulgarians assume that the preferential prices benefit projects of those close to the political elite. Reportedly, NEC is procuring electricity from power plants at prices ranging from €21/MWh to more than €350/MWh, privileging the expensive sources, while the cheap capacities often stay idle.

Bulgarians also complain about the monopoly of the electric utilities. Indeed, the country is divided into three regions, with monopoly over distribution networks respectively in the West by the Czech firm ?EZ, in the northeast by the Czech Energo-Pro, and in the south by the Austrian EVN [see map].

According to Ivanov, next year, competition could become possible for energy supply, with the liberalisation of the market allowing retaining electricity prices at their current prices, or at least the price increase to be minimal.

A previous government asked the European Commission in 2013 to conduct a study, with recommendations on how to refurbish the country’s energy sector. This happened in the aftermath of massive street rallies that ousted the previous cabinet led by Borissov, over what people saw as hiked electricity bills.

>> Read: Bulgarian prime minister quits following mass protests over electricity bills

The Commission soon produced its report, but little has been implemented since.

The report speaks of “complex and non-transparent structures”, of “distrust among system users”, of “concerns of mismanagement, abuses and widespread allegations of corruption”.

To improve the system, the Commission recommended measures to facilitate exports, market liberalisation, more transparency, and the possible decommissioning of inefficient plants, as well as the independence of the price regulatory commission.

It also advised Bulgarian authorities to seek ways to make production more efficient, improve building insulation, and develop well-targeted, adequate and effective support for vulnerable customers.

Gas: Wasteful practices

In the gas sector, Bulgaria has been tempted by several big pipeline projects, all of them now defunct. The country abandoned plans for an oil pipeline linking the Bulgarian port city of Burgas to the Greek port city of Alexandroupolis in March 2013. Then, plans to build the Nabucco gas pipeline were scrapped in June 2013. Finally, Russia abandoned plans to build the South Stream gas pipeline last December.

At the same time, Bulgaria has done little to improve its connections with neighbouring countries, as the Commission recently pointed out. Bulgaria is thus fully dependent on imports of Russian gas.

>> Read: Bulgaria lacks political will to build interconnectors, says Commission

According to the EU executive, natural gas plays a modest role in Bulgaria’s energy mix. Currently, less than 2% of the households are connected to gas, which is far below the EU average, which stands between 27-50%.

Moreover, according to the Commission, Bulgaria’s energy intensity remains the highest in the EU, at four times the EU average if GDP at real prices is used. The main reason is that energy prices have been kept artificially low during the Communist period, which led to the construction of inefficient industry, district heating and of wasteful practices.

Nuclear: uncertain future

Bulgaria has a Soviet-built nuclear central in Kozlodui with two functioning units (5 and 6) which provide 30 to 40% of the country’s electricity. Units 1 to 4 have been decommissioned as part of Bulgaria’s EU accession deal, but units 5 and 6, of a more modern design, could continue to function for many years, provided that they are rehabilitated.

On a recent visit to Brussels, Borissov warned of an “energy catastrophe” if Russia drags its feet over the rehabilitation of units 5 and 6.

>> Read: Borissov warns of Bulgarian energy ‘catastrophe’

Bulgaria turned to Westinghouse, offering it a 49% stake in a new nuclear reactor (unit 7) the US multinational would build on the site of the Kozlodui nuclear power plant.

>> Read: Bulgaria offers Westinghouse stake in new nuclear unit

However, according to latest information, Westinghouse is not interested in being an investor. Dnevnik, the EurActiv partner in Bulgaria, quoted Borissov as saying that the country has no financial resources to build unit 7 on its own.

Further Reading