Traders slam proposal to force Bulgarian power producers to sell on exchange

Author: Irina Peltegova


Electricity traders have slammed proposed changes to Bulgaria’s energy law, which they say will set a monopolistic market model, hit liquidity and turn buyers into price takers.

Last week, a controversial proposal by four members of parliament to force producers with installed capacity above 5MW to sell only via exchange IBEX from 1 January 2018, took the market by surprise (click here to read story).

On Friday the proposal was approved on second reading by the parliament’s energy commission, according to official records. A final parliamentary vote is expected this week, most likely on Wednesday, after which the president would have to give its final seal of approval.

The proposal was motivated by, among others, a need to ensure market transparency – a precondition for liberalisation – as well as a need to boost exchange liquidity to reach a fair market price.

But if approved, the change would effectively make IBEX the dominant trading platform which would have negative implications for the wholesale market, both the Bulgarian traders association ATEB and the European Federation of Energy Traders (EFET) said in separate position letters.

EFET gives Romania as an example where centralising trading onto the exchange has had a harmful impact on liquidity, efficiency and market trust – the exact goals which the proposed changes aim to achieve.

“We are sure that a ban of trading outside IBEX for all licensed generators will lead to poor liquidity in the Bulgarian market and as a consequence traders will be forced to trade on IBEX only,” EFET said.

“We are highly concerned that the result of this development will be similar to the Romanian model.”

Negative impact

According to ATEB, if the amendment comes into force in Bulgaria, it will:

• worsen the sector’s efficiency by mixing different producer categories like nuclear, conventional, renewable into one common energy pool

• enable artificial price setting by the state-owned power plants part of the Bulgarian Energy Holding as they are the dominant sellers

• turn buyers into price takers

• reduce producers’ motivation to optimise their offering and respond to demand for specific products as well as to compete freely between each other

• reduce traders’ and businesses’ choice to freely choose a platform to buy electricity

• put Bulgarian producers, traders and consumers at a discriminating position compared with participants in neighbouring markets who can trade freely

• be a barrier for new market entrants as they will have to register with IBEX which entails significant expenses

• reduce producers’ options to trade with foreign companies for export purposes

• hamper the functioning of the balancing market as IBEX does not have a dedicated balancing platform

• increase expenses for traders and therefore consumers due to the obligation to pay IBEX’s various fees which are set by the exchange itself and are not regulated by energy regulator EWRC

• Increase IBEX’s credit risk since the exchange will be the counterparty to all deals.

Opaque trading

In August, EWRC was urged to investigate allegations of opaque electricity trading on the part of state-owned producer Kozloduy and at least one counterparty on a platform operated by exchange IBEX (click here to read story).

EWRC has subsequently said it suspects that those deals were indeed prearranged but does not have the power to take action against the parties involved due to a gap in the country’s legislation (click here to read story).

One of the motives behind the proposal was that having IBEX as the mandatory trading platform for generators to sell power, would “eliminate suspicions of corruption and prevent producers from arranging deals at below-market prices”. IBEX was also deemed more trustworthy than other trading venues as it is supervised by EWRC.

But the situation since August only proved that as long as EWRC does not receive power to act on such trading practices, the trading platform itself does not matter, ATEB said.

“One cannot use this argument as grounds to restrict the freedom of all market participants,” the letter said.

ATEB also criticised the way the proposal was put forward in between discussions of another unrelated bill and without consulting participants beforehand.

“There is a lack of impact evaluation of this proposal which is intolerable given that the market model is being changed,” the letter said.

Meanwhile, a spokeswoman for the European Commission said the EU body was waiting to see the final law before it could analyse its computability with EU directives.