At the end of October 2020 the European Federation of Energy Traders (EFET) issued its annual report identifying market inefficiencies on the member states of the European union. The analysis focuses on the countries in Central and Eastern Europe.
The key barriers recognized in the Bulgarian power market include:
- Mandatory sales of electricity on the power exchange for producers with capacity ≥ 1MW
- Inefficient and not transparent balancing market
- License requirement and license fees
- Lack of transparency and language barriers
- Burdensome reporting requirements
The main proposed solutions of EFET to tackle those inefficiencies are:
- Change in the Energy Act to cancel the mandatory sales on the power exchange
- Abolish the requirement for a wholesale trading license
- Fees and obtaining a license for electricity trading should be reconsidered
- Frequent updates and translation in English of the main documents
- Harmonised and simplified reporting requirements on an annual basis
Below is published a complete extract from the report for Bulgaria:
| Trading Barrier/Market Inefficiency | Responsible Institution or Body | Impact on Market | Proposed Solution of EFET |
| Requirement for obtaining a licence. | Regulator | Unnecessary bureaucracy. Administrative entry barrier that hinders the development of the market and liquidity. Time consuming requirement. | Abolish the requirement for a wholesale trading licence.
Wholesale traders will in any case have all contractual arrangements with TSOs etc. |
| Users of the Transmission System (TS) must be licence holders. | Regulator, TSO | To use TS, market participants must have a licence. TS should be available for commercial transit as well, and market participants should be allowed to participate in the auction even if they are not licensed. It also affects cross-border trade liquidity. | The requirement for obtaining a licence should be abolished, but even in the presence of such a requirement, market participants should be able to get contractual arrangements with TSOs for using the system and for participating in capacity auctions. |
| Annual supervision fee based on turnover (value of sales). | Regulator | Unnecessary administrative requirement that charges market participants based on their sales transactions. Market participants should not be charged based on the transactions they make. This might create disincentives. Such fees artificially influence wholesale prices. | Fees should not be charged to wholesale traders as they have the role of resellers. Harmonisation of the funding of NRAs. Fees by each NRA should be charged on G (generation) and L (load) of their jurisdiction, which is more predictable than the participation of traders and their purchasing and selling activities. |
| Burdensome reporting requirement: separate accounting for licence activities and financial statements | Regulator | Time consuming requirement. Uncertainty preparation of a large number of financial statements for activities in specific countries. This requires many simplified assumptions and makes the report an unreliable source. | Harmonised and simplified reporting requirements on an annual basis. All the information can be obtained by the TSO. Regulator should accept Audited Financial Statements of the companies and should not require additional financial statements for activities in specific countries. Requirement for financial statements in a single country for companies active in wholesale cross-border trading is an unfeasible exercise. |
| Additional Reporting to the Financial Supervision Commission. | Financial Supervision Commission | Time consuming requirement with duplication of reporting to Energy and Financial regulators. | Better coordination between Bulgarian institutions and removing duplicated reporting obligations. |
| Lack of transparency and language barriers.
Published data without explanation. |
Regulator, TSO | It is difficult for market participants to follow market developments. Not sufficient information regarding market operation, demand forecast, plans for operation of generation and transmission. | Frequent updates and translation in English of the main documents. Harmonised platform for data publication and data consistency also known as power market transparency web- page. English language as an alternative possibility for formal communication. Publication of all relevant market operation information – historical and forecast. |
| Inefficient and not transparent balancing market | Regulator, TSO | Balancing market prices do not reflect the real conditions of the power system. No incentives for market participants (mainly GenCos) to place bids and offers for balancing services. Balancing prices are published with more than one month delay. No information about the balance of the system is published. Market participants do not know when the power system is in surplus or In shortage. | Introducing a real balancing market with competition between balancing service providers. Considering a fair balancing mechanism, a one-price system would be a better solution. Publishing the balancing prices as close as possible to the delivery hour. Provision of information about the state of the system (surplus or shortage). |
| Market power of incumbents. | Regulator | NEK has significant market power, combining many functions: hydro producer; public supplier (formal single buyer function), trader, supplier of last resort, balancing group coordinator. | Implement unbundling and efficient restructuring of the BG power sector. |
| Use-it-or-lose-it principles of allocated interconnection capacity. Current rules do not foresee market-based compensation at the border with Turkey. | Regulator, TSO | The entire risk rests with market participants. No flexibility. | Use-it-or-get-paid principle should be applied for all borders. Transmission rights should be options. There is a secondary market. |
| All electricity trades involving electricity generators having a total installed capacity in BG over 1 MW must be concluded exclusively through IBEX. | Article 100(3) BG Energy Act | Provides for monopoly platform and enables IBEX to abuse is dominant position. By preventing market participants from choosing the most appropriate platform for their electricity deals, mandatory trading on IBEX restricts freedom to decide whether to sell the purchased electricity in the territory of BG or to export that electricity to other
Member States. |
Change is the Energy Act to be repealed. |
| Hybrid market model with tariff market and liberalized market | Ministry of Energy, Parliament | The price differences on the tariff and the liberalized market are significant. Prices on the tariff market are not directly influenced by the market prices. | Complete market liberalization and establishment of a single market model. Electricity prices determined by the market. |
| Regulatory period starts in the middle of the year | Regulator | Market tariffs (network tariffs, fees, premiums, regulated market tariffs, etc.) are changed every year on 1st of July. Hence for the trading companies is hard to make strategic planning on annual basis, because they do not know the tariffs for the second half of the year. | Regulatory period starts at the beginning of the year. |
The full report is available at: https://efet.org/Files/CEE_EU%20Market%20Distortions_2020.pdf
