LONDON (ICIS)--Bulgaria’s 1.26GW Varna thermal power plant (TPP) will compete on the wholesale market as both producer and trader after failing to secure a supply contract for the regulated market.
This is likely to have a positive effect on liquidity on exchange IBEX.
The plant plans to trade 42GWh this year and gradually increase the traded volume to 164GWh by 2022, according to Varna’s business plan submitted to energy regulator EWRC as part of its trading licence application.
The plant so far holds only a production licence.
Varna TPP is already an IBEX member. As of 1 January all producers with installed capacity above 5MW are obliged to sell their output on the exchange. From 1 July, the obligation also covers plants with installed capacity of 4MW and over.
Varna’s new owner Bulgarian logistics company SIGDA recently brought one of the six dormant 210MW units online by switching from coal to gas. The unit has secured a temporary cold reserve contract with grid operator ESO until 31 July.
Two more units are expected to start operations soon. The remaining three blocks have been decommissioned.
Traders have previously expected that Varna TPP will not be profitable on the free market and was most likely going to provide balancing and cold reserve services as well as potentially supplying the regulated market.
Bulgaria’s free market share is currently estimated at 55%. The majority of customers still supplied under regulated tariffs are households.
However, EWRC did not deem the plant suitable for the regulated market due to a high asking price.
Varna TPP estimates its average sell price for 2018 at leva (Lv) 81.10/MWh (€41.47/MWh) and average buy price at Lv77.10 (€39.42/MWh).
To compare, the average Day-ahead Baseload price on IBEX so far stood at €33.36/MWh, while the Bulgarian H2’18 Baseload was recently sold at an average Lv75.92 (€38.82/MWh) at an IBEX auction.
The producer expects a gradual price increase over the next four years with its average sell price going from Lv82.72/MWh in 2019 to Lv87.79/MWh in 2022, while the average buy price would move from Lv78.64/MWh to Lv83.46/MWh in the same period.
EWRC will be discussing its trading licence application on 5 June. The preliminary reports suggests that the licence will be granted.
State-owned plants to remain dominant
While competition on Bulgaria’s wholesale market is set to improve with the entrance of Varna TPP and renewable producers, state-owned plants are still likely to remain the dominant sellers and price setters at least for the mid-term.
For the new regulatory period running between 1 July 2018 – 30 June 2019, regulator EWRC expects that 1GW Kozloduy nuclear plant will sell around 12TWh on the free market, followed by 1.6GW Maritsa East 2 with 6TWh, an EWRC spokesperson said.
Utility NEK is also expected to offer 4.85TWh on the free market, which is around 0.9TWh less than in the current regulatory period, according to EWRC documents. This is most likely because of the expectation that renewable producers with 4MW capacity and over will start selling directly by 1 January 2019 the latest.
Another two big private producers – the 670MW AES Maritsa East 1 and 908MW ContourGlobal Maritsa East 3 coal-fired plants, dubbed “the American plants” – will remain outside of the free market for now.
The two plants have long-term purchase contracts with NEK. The government is in the process of renegotiating these contracts in a bid to bring these producers to the market.
But the process is likely to be long and painful as Bulgaria may have to pay Lv3bn compensation to investors in the plants.