We publish an interview of the chairman of ATEB – Martin Georgiev for Investor.bg:
1. The decline in electricity production marked the whole 2020. A particular decline is observed in baseload capacities, while renewables are growing. The decline in production from coal-fired power plants in 2020 is nearly 17%, and it is mainly due to the limited activity of TPP “Maritsa East 2″. How can this situation be evaluated – as a consequence of the damage that the pandemic causes to the economy and consumption or lack of attractiveness of Bulgarian power prices?
The country’s electricity production was definitely affected by the coronavirus pandemic. The most critical months were March and April, when we saw a serious decline in consumption on the liberalized market. Traders reported about 15% reduced electricity consumption by customers on that market. All of this affected the production, which in this period was 10% lower than in the previous year.
Apart from the situation with the coronavirus, the decrease in production is also dictated by the reduced exports. For the second year in a row, electricity exports decline. Given the high cost of electricity produced by coal-fired power plants and the limited supply of large HPPs owned by NEK, the result is less exports. On the other hand, we are increasingly observing days and even weeks in which our country is becoming a net importer of electricity from neighboring markets. This was the case in January and October 2020.
2. More and more private businesses are turning to green energy in our country. New solar capacities are being built, and the surplus of this energy is sold to DSOs. Can we talk about the beginning of a complete change towards cleaner energy sources for businesses or is this more a reaction related to the volatile prices on IBEX?
Industry, especially large consumers, are price sensitive and therefore active in finding solutions to reduce and stabilize their energy costs. Due to the rise in electricity and carbon prices in recent years and at the same time the reduction in the cost of photovoltaics, investments in such systems for self-consumption have a relatively short payback period. In 2019 and 2020, there were many consumers’ investments in PV plants.
Photovoltaic plants produce at peak hours of the day, when electricity is usually most expensive. Owning a PV, the consumer gets a fixed price of certain amount of electricity for a period of about 20 years. It is the long-term price predictability that is currently a significant advantage, as electricity trading in Bulgaria is concentrated in the IBEX Day-ahead market, where prices are different every day and can vary widely. PVs are a kind of partial insurance against price volatility on the power exchange.
3. Is there any ground in Bulgaria for the development of energy communities? How can such a scheme support the national energy transition?
The development of such energy cooperatives will be a novelty for our country. I do not think that at the moment the main part of society is ready to make efforts and contribute financially to the establishment of energy communities. We see how difficult it is for groups of people to come together for a common goal. A good example of this is the retrofitting program, which was initially funded by grants for about 70-80% of the costs and very few building owners applied. It needed to be 100% funded in order to make significant progress. So, we can conclude that people in Bulgaria find it difficult to invest their own money in joint initiatives. Our society does not seem ready on large scale for formation of energy communities.
I expect such energy communities to start from the business owners, and more precisely in the industrial zones, where companies unite for the construction of common infrastructure and production facilities. It is the business that has the necessary capital and can more easily take steps to cooperate for common benefits.
Another significant shortcoming is that there is no legislative framework on how such energy communities will be established and treated. This is very important for potential investors. Like anything new, it will be crucial how the first energy communities develop and what example they will set for subsequent similar projects.
4. According to ESO’s data, in 2020 electricity production decreased by 7.5 percent due to lower consumption and reduced exports. What are the forecasts for electricity consumption in Bulgaria for the current year? Can any recovery of production or consumption be expected?
It is expected that if the situation with the coronavirus is controlled, consumption will begin to return to the levels of 2017 – 2019, which are relatively stable and in the range between 37.5 – 39.0 TWh / year. It should be noted that despite the significant reduction in production, the decline in consumption in 2020 was only about 2.5%.
Growth in production can be expected in the winter months, when temperatures remain low over a long period of time. Then the consumption in the power system increases and there is a need to activate units of coal-fired power plants. These units remain in reserve at normal temperatures, as their production cost of electricity is high and if sold on the market they will be at a loss. On the other hand, in case of shortage (increased consumption), electricity prices rise and it is already profitable for them to be put in operation.
The long-term forecasts of ESO and the Ministry of Energy show that in the next 5 years the consumption in the country will remain at the current levels. I also don’t see a reason for significant growth in production and consumption of electricity in the near future, unless low-cost power plants are built / renovated.
5. Will be an increase of the imported quantities traded on IBEX this year?
Given the expected market coupling initiatives, it is normal to witness exchange between the countries in the region and convergence of electricity prices. We have the biggest technical capacity for cross-border trading with Romania and it is possible to observe real competition between Bulgarian and Romanian producers. Therefore, periods of increased imports from Romania will not be excluded. At the Greek border, the situation is slightly different, there the transmission capacity is smaller and probability there will price differences between the Greek and Bulgarian electricity exchanges. It is likely to import electricity from Greece, especially when weather conditions favor generation from RES.
6. How will the price on IBEX be affected by a prolonged decline in production, as observed in the past year?
A decline in production dictated by a decline in consumption would again lead to low prices on the Bulgarian power market. There is a consumption value below 4000 MW, which is often reached in the spring and summer months, when we see surpluses of electricity and low price levels. We must not forget, however, that even with low consumption it is possible that prices on European power exchanges will affect prices in Bulgaria. If there are higher prices in the region in the second and third quarters, we will see an increase in the rates of IBEX, respectively.
On the other hand, a decrease in production without a change in consumption will not have an effect on prices or will have the opposite effect – an increase in prices. The reason is that additional imported electricity will be needed to compensate for the shortage. Then the price of electricity on the European and regional market will be dictating the levels on our market and power exchange.
