Bulgaria adopts lower renewable electricity purchase tariffs

04 July 2013 18:24 Source:ICIS

Renewable energy projects in southeast Europe carry the highest downgrade risk because of the possibility of negative regulatory intervention, finance rating agency Fitch said on Thursday, with Bulgaria the latest to lower subsidies supporting new projects.

Bulgarian energy regulator DKER officially adopted new lower purchase tariffs on 1 July for electricity generated by renewable installations, according to official documents that were published on the regulator's website on Friday, 28 June.

The initial purchase tariff reduction proposal had an average 27% year-on-year decrease for biomass-generated energy and an average 5% reduction for solar-generated energy (see EDEM 17 June 2013).

According to the final document the tariffs for biomass-produced electricity will be reduced by a minimum of 3% and maximum of 10% year on year depending on the type of biomass fuel and installed capacity.

Solar purchase tariffs have dropped by an average of 4.25% year on year depending on installed capacity.

Last year the solar purchase tariff decreased 28% year on year (see EDEM 3 September 2012).

The improved purchase tariffs from the initial proposal is probably the result of better dialogue between the new management of the regulator and the renewable producers, according to the Bulgarian Association for Biomass's (BAB) operations coordinator Lyubomir Damyanov.

However, he pointed out that the boom in Bulgarian wind and solar capacity was leaving biomass and small hydropower plants behind in terms of targets for installed capacity, as the energy law did not differentiate between various types of renewable power plants when assigning grid connection contracts.

Renewable boom

Bulgaria will exceed its annual renewable installed capacity targets by 347MW in 2014 because of the expected connection of new solar and wind capacity that already have grid contracts, according to DKER's document.

The share of renewable resources in consumption has also exceeded the medium-term indicative targets. In 2011 alone the share reached 14%, whereas the indicative target for 2013-2014 stood at 11%.

On the other hand there is an expected shortage of 70.51MW hydro capacity and 19.51MW biomass capacity in 2020, according to the same document.

Transmission system operator (TSO) ESO expects installed wind capacity will reach 2.26GW and solar capacity will reach 1.63GW, which is likely to cause system balancing problems, the document said.

Connection restrictions

For that reason the regulator has restricted the grid connection of new renewable electricity generation capacity until 30 June 2014.

At the end of June ESO said it was expecting to connect 1.6GW worth of wind capacity, 753MW new solar capacity, 214MW small hydro power plants and 93MW of biomass capacity to the grid this year (see EDEM 21 June 2013).

These plants, however, had most likely signed their connection contracts well before that decision was made, according to Damyanov and to Bulgarian Wind Energy Association (BGWEA) board member Kenneth Lefkowitz.

"Ironically, there are investors who want to cancel their contracts, but who face difficulty getting their deposits back," Lefkowitz told ICIS on Wednesday.

"In other words, the numbers claimed by ESO are somewhat inflated if we look at real demands on the grid."

According to the grid development plan for 2013-2022, the TSO needs to increase the 110kV lines in northeast Bulgaria in order to be able to connect new renewable capacity.

ESO calculated that it needs more back-up reserve and more biomass and hydro capacity, to help with the system balancing.

Production capacity at wind and solar power plants has been restricted by 40% throughout most of April, May and June as low demand and a lack of export demand left the Bulgarian system in a critical imbalance (see EDEM 7 June 2013).

Emissions revenues

One of the newly adopted changes in the energy law voted on for a second time in parliament last week says that state-owned utility NEK will be using revenues from the sale of emissions allowances in the EU Emissions Trading System to cover the costs for the purchase of electricity from renewable sources.

While this is definitely going to help NEK with its purchase obligations, renewable investors still do not feel secure, according to Lefkowitz.

"The money from greenhouse gas emissions sales is a small pot relative to the overall feed-in tariff obligations of NEK," Lefkowitz said.

At the end of June it was announced that ESO was officially no longer a daughter company of NEK, but the full unbundling of the grid operator is expected by the end of the year, when assets will be fully transferred from NEK to ESO (see EDEM 21 June 2013). Irina Peltegova

By Irina Peltegova