During the corona virus wave in Europe and the subsequent restrictive measures in most European countries, electricity and energy prices plummeted. The reasons were mainly related to the reduced consumption, respectively reduced demand and the uncertainty about the coronavirus situation. During this period in Germany we observed negative prices on certain days, and in Bulgaria a decline in the spot prices to monthly levels of less than 50 BGN/MWh. The pandemic accelerated the decrease in natural gas prices that began in the winter months of 2019. The natural gas was trade for 4-5 € / MWh, and in some days close to 3 € / MWh. Oil prices, emission allowances and coal had a similar trend. The exception was uranium, where prices were rising during this period.
After the restrictions were lift off and due to the gradual recovery of the economic activity, the emissions allowances recovered the fastest to their previous price levels. In July they even set a record reaching 29.56 € / ton. Electricity prices began to rise more steadily, both on the spot markets and for futures contracts. Quotes have not yet reached prepandemic levels, but are approaching them. The trends for both electricity and natural gas are for increase in comparison to the previous months.
In the second half of August 2020, the prices of electricity futures for the last quarter (Q4) of 2020 (Figure 1) rose. Prior to that, the markets fluctuated for that product. Given the volatility, it is difficult to predict the direction of the market prices. The great dynamics are mainly dictated by the uncertainty regarding the pace of economic recovery and the situation with the coronavirus in the autumn and winter months.
Figure 1. Price development of Hungarian electricity futures for Q4 2020
Natural gas is also on the rise, both at the spot level and for long-term contracts. For the winter months, European quotations already exceed 14 €/MWh, at such values were in December 2019.
In the context of the described, what can we expect in Bulgaria next winter? Of course, our country does not remain isolated from what is happening on the European energy markets. Evidence of this is the monthly rise in prices on the Independent Bulgarian Energy Exchange (IBEX). However, they are still significantly lower than in 2019 (Figure 2). It is worth clarifying that last year the spot prices in the period July – October were unusually high, exceeding 101 BGN/MWh.
For any long-term forecasts, we must take into account the foundations that drive energy markets. The main such foundation is the meteorological situation. At the moment, the forecasts (European climate model) until December are for temperatures above the average for the period and precipitations around or below the average. This tells us that we can rather expect normal consumption in the autumn months and early winter. Therefore, it is unlikely that the weather will have a low impact on demand, and hence on electricity prices. Another factor suggesting price stability during these months is the high filling rate of the water reservoirs. Despite these positive expectations, there are also risk factors that can affect the market. For example, if there are long periods with lower temperatures during the winter months, increase in the price of natural gas and the high prices of carbon allowances, which make the production of coal-fired power plants more expensive, and so on. We must not forget also the uncertainty regarding the situation with the coronavirus.
Figure 2. Comparison of IBEX spot prices in 2019 and 2020.
As a result of the simultaneous action of the listed and other factors, the prices on the liberalized market in Bulgaria will move in one or another direction. From October 1, even the smallest business clients such as shops, hairdressers, cafes, law firms, etc. will face this market reality. The latest amendments to the Energy Act oblige them to enter the liberalized market. It is important for them to know the main types of contracts that traders offer. Some have a fixed price of electricity for the contractual period (usually 1 year). The others have a variable (exchange) price, ie. the prices at which the customer buys electricity correspond to the hourly prices achieved on the Day-ahead market of the Independent Bulgarian Energy Exchange (IBEX). In this type of contract, prices are directly affected by the movement of prices on the wholesale electricity market. As the liberalized market is a market at freely negotiated prices, it is possible to negotiate other tariff plans than those described. For example, two tariffs – day and night and others.
All that is required to enter the liberalized market is: first to contact an electricity trader (a list of active traders is published on the EWRC website) and second to conclude the relevant contract for the purchase and sale of electricity with the chosen trader. He will then make the transfer and conclude on your behalf all necessary contracts.
