“State-owned power producers should not participate in auctions for purchase. Without market coupling with neighboring countries, we will continue to observe fluctuations in the electricity prices on DAM”, says ATEB’s chairman Martin Georgiev in an interview for Iconomist magazine.
– Mr. Georgiev, the liberalized electricity market has again become notable for achieving record highs for delivery day July 3 and for quetionable auctions where buyers were the initiators of the deals. What led to this situation?
– The high prices on the “Day-ahead” segment of IBEX from the beginning of the month are directly related to the significant increase in traded volumes. Compared to the end of June, on the first days of July was traded between 42% and 53% more electricity. This, on one hand, happened because some long-term contracts between market participants and power generators ended on 30th of June and buyers had to purchase the missing quantities from the spot market. Another reason is the increased electricity consumption in the country during the first week of July as a result of the higher temperatures. In addition to these factors, I believe that the market is still adjusting to the latest legislative changes. In such times, we see large price differences in consecutive days that gradually smooth out and reach a range of values that is equivalent or close to the real market price.
– Can we talk about market manipulations?
– It is entirely in the responsibilities of the Energy and Water Regulatory Commission to assess whether the auctions from the last week of June raise suspicions of insider trading and market manipulation. ATEB has notified the EWRC with a reasoned assumption of potentially committed infringements within the meaning of the European Regulation REMIT on wholesale energy market integrity and transparency. From now on, the case is in the hands of the Regulator, and I expect them to carry out the appropriate investigation. It is of utmost importance that such cases are fully resolved in order not to undermine the trust in the liberalized market and not to prioritize certain market participants at the expense of others. I believe that, in order to prevent similar auctions in the future, state-owned generators should not take part in auctions for purchase, but rather organize auctions for sale, which everyone can access on equal terms.
– What is your comment on the energy minister Temenujka Petkova’s advice from last Thursday that the business should be oriented towards bilateral contracts and not rely so much on the “Day ahead” market segment?
– It is quite normal for the businesses consumers to seek long-term bilateral contracts to secure enough electricity for their consumption. Thus, for a sufficient period of time, business consumers will have a predictable and stable price for electricity. The problem is that auctions for long-term delivery are becoming increasingly rare on the Independent Bulgarian energy exchange. This forces retailers and business consumers to purchase large amounts of the electricity they require from the Day-ahead market.
With the launch of the liberalized market long-term contracts were offered to end consumers for a period of 6 months, a year or more at a fixed price. However, in recent years, due to the lack of sufficient offering of long-term products (auctions by state-owned power plants), the market participants are offered contracts referencing the DAM prices. In this case buyers participating on the energy exchange, including end consumers, are exposed to high price risk, as the prices on DAM are extremely volatile and unpredictable. Precisely because of this volatility and the electricity price increase over the last 2 years more than 17 traders have withdrawn from the market while others have suffered considerable losses.
– Such fluctuations do not happen for the first time, but there seems to be no effective solution from the Regulator. What do you think?
– The EWRC has very limited tools to directly influence the market. The Regulator’s role is to monitor market operation and to take action when there are suspicions of violations such as market abuse, insider information, non-compliance with licenses, etc. Under the current model of a tariff and liberalized market, without market coupling, substantial differences in supply and demand will lead to price fluctuations. That’s what we were observing in the first week of July.
Over the last 7 months, we have been witnessing 3 cases when prices on IBEX go beyond the regional levels. The first time was in the winter months with an increase of the consumption in the country, second time in May with the annual overhaul of the 6th reactor of NPP Kozloduy leading to a decrease in supply from the plant by 1040 MW and now when the demand on DAM increased and there wasn’t sufficient supply on the platform for bilateral contracts.
The legislative changes from 1st of January, which have constrained the RES generators to sell only via IBEX and the network losses to be purchased only through IBEX, further contribute to the fluctuations. Although in absolute numbers the technological losses and generation from RES are similar, they are very different in hourly and seasonal profiles, resulting in shortages or surplus on the exchange at certain times. In order to prevent such scenario, ATEB has urged for an impact assessment, before the adoption of the law.
– How would you comment on the fact that IBEX itself adopts and changes its operational rules?
– Since its launch in 2016 up until now, the exchange operates with extreme privilege. It defines its tariffs and rules without the need for approval from EWRC or another institution. On the other hand, all participants on the Bulgarian market have to comply with these rules, because IBEX is the mandatory channel for selling electricity in Bulgaria.
Since there are legal obligations and most generators have to sell their electricity through the platforms of the exchange, there should be a strict control over the activities of IBEX. It is fair the rules, tariffs and contracts for participation on the energy exchange to be approved by the EWRC after a public consultation. For example, in Romania where trading on the energy exchange is also mandatory, the tariffs of OPCOM (Romanian Energy Exchange) are set by the Romanian regulator.
Several examples of unilateral changes to IBEX rules are present. The most prominent among them is the withdraw of the energy exchange from being a counterparty on the platform for bilateral trading, eliminating the possibility each participant to trade with each other. This change shifted the counterparty risk entirely to the market participants. Another such action occurred in June 2019 when the energy exchange changed its settlement rules, resulting in an increase of the required collaterals and more expensive trading.
– What can be done to avoid such fluctuations in the future?
– Complete market liberalization, which will cease distortions and eliminate price differences between the liberalized and the tariff market. For example, NPP Kozloduy offers its electricity on the tariff market at a fixed price of BGN 53.90/MWh, while for the liberalized market the price is significantly higher. It is of utmost importance to enter into market coupling on a day-ahead and intraday basis. Such step will provide more opportunities for both export and import of electricity. Market coupling is expected to put a price cap, so that the highest rates do not differ significantly from the regional ones.
* Martin Georgiev is Chairman of the Association of Traders with Electricity in Bulgaria (ATEB), Procurator of Alpiq Energy Bulgaria EOOD, Regional Manager for South Balkans.
The association informed in advance about suspicious auctions on the Independent Bulgarian Energy Exchange (IBEX), where on June 28, a seller, most likely NPP Kozloduy sold to several companies significant volumes at prices considered significantly below the fair market value. According to estimates made by ATEB, the seller loss of earnings is 19 million BGN.
The article is published in Issue 27/2019 of the Iconomist Magazine of July 12.
Source: Iconomist magazine