Free electricity market not an alternative for Bulgarian renewables

20 February 2014 16:16 Source:ICIS
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Entering Bulgaria’s free electricity market to avoid a 20% revenue fee is not an option for Bulgarian renewable power producers, the country’s wind power trade body has said in response to government statements.

According to a Bulgarian Wind Energy Association (BGWEA) spokeswoman, applying the fee would lead to bankruptcy for a number of wind farm operators.

At the beginning of December the Bulgarian parliament voted for the introduction of a 20% fee on the revenues of solar and wind electricity producers. The income from the fee was intended for investments in the Bulgarian electricity system which is facing a big deficit ( see EDEM 5 December 2013 ).But Bulgarian president Rosen Plevneliev asked the country’s constitutional court to rule on the legality of the fee ( see 13 December 2013 ).

Plevneliev’s arguments concerned the fact that only wind and solar producers are affected by the fee, which puts them in an uneven position compared with other renewables producers, according to official case documents published on the court’s website.

Furthermore a fee, unlike a tax, would imply that a certain service is being directly provided, but in this case this was not accurate. The court has been collecting positions on the case from the parties involved.

Positions

On Wednesday, Bulgaria’s council of ministers presented its draft position on the matter stating that by choosing to sign long-term purchase contracts at preferential prices with the state, renewables investors have committed to the regulated market and its rules. Therefore, an alternative for them would have been to go to the free market. The council had not provided ICIS with its final position at the time of writing.

But according to BGWEA, such alternative is not viable firstly because their investment and operating costs would not allow them to offer a competitive enough price on the free market, a spokeswoman said on Wednesday evening.

Furthermore, there is no power exchange in the country. But even if trading on the free market was possible termination of long-term power purchase agreements (PPAs) would lead to default of bank loans which were taken in order for the investments to be made. BGWEA has submitted its position to the court.

“Applying the 20% fee to [wind] projects which were financed and developed under certain financial terms will mean bankruptcy for many if not all wind projects in Bulgaria,” the spokeswoman said.

Challanges

A boom in renewable production has created balancing problems for the country’s grid and accumulated additionally costs for state-owned utility NEK which has the obligation of purchasing all renewable produced energy through the signed PPAs.

As of 2012 installed wind power capacity stood at 677MW with 1GW of solar, according to latest information from grid operator ESO. However, 1.6GW of new wind projects and 753MW of new solar projects were awaiting grid connection last year.

Energy regulator DKER has introduced several feed-in tariff reductions with the latest adopted last July. Grid connections for new renewable electricity generation capacity have also been restricted until 30 June this year ( see EDEM 4 July 2013 ).

A retroactive grid access fee was imposed on renewable producers in September 2012. This was meant to compensate dispatching and balancing expenses but was later overturned by court.

Earlier this month DKER proposed a new grid access fee for wind and solar producers amounting to €1.25/MWh ( see EDEM 7 February 2014 ) but an official decision is yet to be announced. Irina Peltegova

By Irina Peltegova