ICIS (LONDON)--The Bulgarian electricity market is at a standstill due to a lack of clarity on the impact of upcoming energy law changes.
Traders contacted by ICIS expressed concerns about the future of the market, based mainly on the lack of an impact assessment related to the reforms.
Participants have been solely operating on the day-ahead market so far in April as state-owned producers have not offered any forward volumes on exchange IBEX since the end of March.
At the end of last year, a last-minute energy law change obliged power generators with installed capacity above 5MW to sell all their output on IBEX as of 1 January. For renewable and co-generation producers who have long-term purchase contracts with utility NEK, the obligation was to apply only for the extra volume outside those contracts.
The change caught the market off-guard and led to a temporary liquidity blockage .
Yet the government is now in the process of approving another set of changes likely to come into effect from 1 July. These include:
• Renewable producers with installed capacity of 4MW and over being obliged to sell on exchange IBEX
• Long-term purchase contracts between renewables/co-generators and NEK being replaced by premium contracts. Regulator EWRC will be tasked with coming up with the methodology which will include forecasting wholesale market prices 12 months ahead
• Electricity traders and producers that collect a regulated fee from end-users will have to pay a deposit into a system security fund to cover potential late payments of the fee by consumers or risk being expelled from the market
• Grid operator ESO and distribution system operators (DSOs) will have to cover technological losses via IBEX.
No impact assessment
On the surface these changes seem positive given that more sellers and buyers will enter the free market.
The MPs who put the proposal forward estimated that the free market share will grow above 65% as a result of the changes, from the current 55%. Most households remain on the regulated market, although they have the right to choose their supplier if they wish to.
However, the proposal lacks any assessment of impact on the wholesale market and this is the main concern of market participants, according to a source close to the matter:
“We don’t dare make any forecasts. We don’t know what to expect,” the source said.
The concern is that prices on IBEX will become more volatile once renewable production becomes available on the market.
This is not only because of the volatile nature of the energy sources, but also because some volumes currently offered by the state-owned Kozloduy nuclear plant and the Maritsa East 2 coal-fired plant are likely to be diverted to the regulated market.
Kozloduy and Maritsa East 2 have a mandatory production quota to supply the regulated market.
NEK as a public provider also uses the renewable electricity it buys under long-term contracts to supply the regulated market.
Therefore, if the renewable generation is no longer available, NEK would need to compensate at least some of it with volumes from the state-owned producers, according to the source.
The parliament’s energy commission has previously estimated that an extra 4.5TWh annually will be sold on IBEX from 1 July as a result of the changes but this was unlikely to have a bearish price impact as the volume will be absorbed by the DSOs and ESO.
However, the delivery profiles they will be looking to buy to cover the technological losses cannot be matched with the renewable producers’ profiles, the source said.
Lobby groups have put forward official statements pointing to this particular issue, among others, but law makers were not convinced it was an issue at all, the source added.
Furthermore, Kozloduy and Maritsa East 2 are the two main sellers on IBEX’s forward trading platforms. If they scale down their offering due to regulated market obligations, then liquidity will shift to the day-ahead market, increasing the trading risk for participants. email@example.com