The article is published in Utilities magazine, February 2021 issue
As early as the end of last year, the markets for electricity and energy products almost recovered to pre-pandemic price levels, despite the existing restriction in a number of European countries, incl. Bulgaria. In January we have already witnessed record prices on the spot markets of natural gas exceeding 26 euros / MWh, carbon emissions 34.8 euros / ton, and electricity was in the range of 50-80 euros / MWh. In Spain and Portugal during by cold wave the electricity prices in some days exceeded 90 euros / MWh. All this is happening while the consumption in Europe is still declining and the winter is very mild. The sharp price spikes are caused by both the lack of available cheap generation and by the trends on the world energy commodities markets.
In Bulgaria the situation is very similar, but given the warmer weather and lower prices in the region we are in position of one of the cheapest markets. The average price of the Independent Bulgarian Energy Exchange (IBEX) for January is 53.1 EUR / MWh, and the average for Europe is 56.3 EUR / MWh, with two countries – Switzerland and Italy exceeding 60 EUR / MWh.
Figure 1. Average daily electricity prices for January 2021 in Europe (Source: Energylive)
Historically, the load of the electricity system (EES) and spot prices are almost interdependent, 2021 is no exception. When the load increases, the average price also rise. The same is true in the opposite direction – reducing the load lowers the prices. The relation between the two is almost linear in normal condition. On the other hand, for extreme loads prices can rise sharply. In a period of two years 2019 and 2020, the hours with over 6000 MWh consumption are rare 2% – 4%. Such high system loads are typical for the winter months, especially for longer periods with negative temperatures. Most of the time (45%) the hourly load in Bulgaria is in the range between 4000 and 5000 MW.
As mentioned earlier, hourly IBEX spot prices are related to consumption. Extremely high prices are typical for hours with a load of over 6000 MW.
Table 1. Average spot price of IBEX at a certain system load in 2019 (Sources: ENTSO-E and IBEX)
During the months of November, December, January, February, the system load is usually above the average. In this period is common to observe high electricity prices. The reasons are mostly related to the dominant generation from fossil fuels (40-45%) – coal and natural gas. It is typical when the demand increases, TPP to start operating at a higher capacity. TPPs are one of the most expensive producers in Europe due to the high prices of carbon allowances.
Table 2. Main power producers in Bulgaria, generation price and production for 2019 (Source: EWRC Price Decision for 2020/2021, ESO Statistical Book for 2019)
Another very important factor driving the price of electricity in the winter is the reduced production from renewable energy sources, especially HPPs and PVs. In contrast to these two technologies, wind parks in Bulgaria produces above average in wintertime. Given higher levels of hydro reserves in 2021, HPPs managed to compensate for the sharp peaks in consumption in the coldest days.
Electricity production in Bulgaria is mainly dominated by TPPs and NPP Kozloduy, which cover more than 85% of the demand. The remaining 15% is supplied by RES producers, with HPPs having the largest share (Table 2). If we compare the production price of electricity from different sources, it becomes clear that only the state-owned NPP Kozloduy and HPPs owned by NEK can generate electricity at a price below 100 BGN / MWh. All other technologies in place, with a few exceptions, are subsidized in order to be able to sell at competitive market prices. A major challenge in the coming years will be the construction of new plants that can offer attractive prices and services without state subsidies.
Figure 2. Average daily load of the electricity system and corresponding spot prices on IBEX in January 2021 (Sources: ENTSO-E and IBEX)
