Inadequate Bulgarian electricity cold reserve must be tackled – lobby

27 July 2017 17:53 Source:ICIS

The Bulgarian electricity grid operator ESO should take urgent measures to tackle potential unavailability of cold reserve, the country’s Free Energy Market Association (ASEP) has said in an official letter seen by ICIS.

The issue is pressing because a lack of cold reserve was one of the main reasons that Bulgaria imposed an electricity export ban last winter.

The letter was sent to ESO as well as the Bulgarian energy ministry, and regulator EWRC.

Last January, Bulgaria experienced a spike in demand due to extremely low temperatures. The supply side was also stretched after three out of six plants with contracts to provide cold reserve could not step in due to unplanned outages and fuel shortages.

As a result the energy ministry imposed a ban on Bulgarian-produced electricity exports which lasted almost a month, leading to significant financial losses for cross-border traders and producers on the free market.

ESO held its first auction to secure cold reserve for the period 1 August 2017 to 31 July 2018 earlier this month.

The three producers that failed to honour contracts last winter – the 120MW Maritsa 3, the 600MW Bobov Dol lignite-fired plants and the 400MW Ruse District Heating – were once again among the winners of the auction.

A second auction is due to take place on Friday to secure additional cold reserve capacity for the winter season 1 October 2017 to 31 March 2018, which was not secured in the first tender.

Issues

The auction documentation suggests a lack of transparency, inadequate selection criteria as well as a lack of financial guarantees for the cold reserve contracts, according to ASEP’s letter.

The lobby group has raised the following issues:

• The bid ranking is done by a commission appointed by ESO’s head behind closed doors

• Bids are ranked solely based on price offered

• A lack of control on how the merit order is set on the day when cold reserve is needed

• The contracts are not backed financially and only impose minimal penalties in case of default.

For example, the three cold reserve providers mentioned above were sanctioned to pay a total of leva (Lv) 3.6m (€1.84m) for failing to provide the needed capacity during the winter crisis.

Bulgarian electricity traders and generators were collectively losing up to €1m per day during the ban (click here to read story).

In addition, up to €30m may have been lost due to inefficient use of forward and day-ahead cross-border capacity in the region as a result of the Bulgarian export ban, according to the Energy Community (click here to read story).

At the same time, traders are penalised much more severely when they default on a contract with ESO:

• A defaulted trader has to pay 25% of the contract’s full price including all guarantees

• ESO does not allow electricity exports unless 100% of the transmission and access fees are secured

• ESO does not allow traders to take part in cross-border auctions if they have broken or defaulted on a contract once before.

New measures

ESO should make sure that the cold reserve contracts are backed by adequate financial sanctions and the TSO should be as strict with cold reserve providers as it is with other market participants, ASEP said.

In addition, traders should also have access to those auctions in order to improve competition.

ESO and the energy ministry were not available for immediate comment at the time of writing.

However, a spokesman for regulator EWRC pointed to a recent interview with the head of state-owned Bulgarian Energy Holding Petyo Ivanov in which he mentioned the following measures as being under consideration:

• Call to big industrial consumers to reduce consumption if needed

• Contracts to share tertiary reserve with a neighbouring country such as Romania

• Special incentives for plants which can answer a cold reserve call quicker than others. This should also attract investments in new gas-fired capacity

• Stricter control of lignite reserves and installation of more meteorological stations

• The amount of cold reserve auctioned to vary depending on seasonality.

Indeed, ESO was looking to buy 700MW of cold reserve for winter season 2017-18, compared with only 550MW for the previous winter. irina.peltegova@icis.com

By Irina Peltegova