Mr. Georgiev, with the amendments to energy law, all non-household consumers are obliged to enter the liberalized market. What has changed for electricity traders?
Currently, about 75% – 80% of small non-domestic consumers who were obliged to enter the free (liberalized) market have not yet changed their electricity supplier. This means that they are supplied under a standard contract or have signed a supply contract at freely negotiated prices with their existing supplier. Most of the customers who changed their supplier did so in the summer and autumn months of 2020. From July, 2021 the consumers supplied under a standard contract will have to switch to a supplier on the free market, so we expect some of them to make this step in the upcoming summer monthes.
A number of retailers had various campaigns aimed at informing and attracting small business customers, while others remained uninterested in this customer segment. However, all retailers have registered in the price comparison tool, which was designed by the Regulator to facilitate switching the supplier for consumers with annual consumption of 100 MWh. Offers are uploaded by suppliers on this platform so that customers can compare and choose the ones most suitable for them.
From a wholesale market perspective, the changes for traders were mainly due to the coronavirus situation. Traders had to adapt to the plummeting prices and consumption levels and the high volatility on the energy markets. However, there were also regulatory changes with substantial effect on the market. Trading long-term flexible products was banned on the Independent Bulgarian energy exchange (IBEX), which forced RES producers and some of the state-owned plants to sell only on a short-term basis, mostly on the day-ahead market (DAM). As a result, 2020 is a record year in terms of the lack of long-term offering from Bulgarian power producers. It further increased unpredictability and made long-term pricing for retailers and end customers almost impossible.
How has the market itself changed? Do you have data on the liberalization rate and how the market will look like in the second half of 2021?
New traders registered on the electricity market, and some of the existing ones focused on attracting small customers. Regarding the opening of the market, I expect after the end of July 2021 consumption to look like this – free market (business + exports) about 75%, regulated market (household customers) about 25%.
The wholesale market, on the other hand, is still centralized and concentrated mainly in the day-ahead segment of IBEX, where at the end of the year more than 70% of electricity was offered.
By 2025, household consumers must also enter the free market. In any case, this will change the role of electricity traders. What steps do you envisage in this direction and how do you think this process should happen?
Retailers who have focused on the small customer segment will need to adapt their systems and practices so that they can service a wide range of customers. In order for the household consumers to enter the market without problems the procedures for switching a supplier must be standardized and simplified. All issues that we currently encounter for business customers must be fixed so that retailers can easily take on a large number of new customers.
Of course, we must keep in mind that part of the households will remain on the regulated market. These will be the so-called energy vulnerable consumers with electricity costs comprising a significant part of the household costs. The group of these consumers is not small at all and according to the report of the World Bank from 2016 it is about 400,000 households in Bulgaria.
What changes do you expect to happen in the wholesale market, ie. on the power exchange, given the market coupling on one hand and on the other hand the change in the status of NEK?
Bulgarian producers, traders and consumers will have access to offers from neighboring market areas. However, flows between markets will be limited to the amount of cross-border capacity allocated to the specific coupling. For example, we expect trade opportunities with Romania to be greater, due to better network connectivity, in contrast to Greece, where cross-border capacity is smaller.
In general, the effect on the market will be increased competition, bring prices closer to those in neighboring countries and reducing volatility.
There are no clear deadlines for removing the role of the public provider, nor details on how this will happen. In such a scenario, we expect the quotas for power plants on the regulated market to be abolished. As a result, quantities for the free market will increase and the price differences that currently exist between the regulated and the free segment will be reduced.
When do you see the introduction of a clearing house?
Unfortunately, there are no indications that a clearing house will be introduced soon. The key to the successful introduction of a clearing house is to gain the trust of the market participants, who are its future clients. In order for this to happen, it is necessary to approach in a very open and transparent way, which unfortunately has not happened so far and accordingly raises concerns and mistrust. Market participants learned about the clearing house project (Clear X) from a minor announcement of the financial regulator not from the power exchange itself.
Mr. Georgiev, do you expect changes in the balancing energy market? Can you predict how this will affect prices for both business and household consumers?
According to the commitment made in Bulgarian market reform plan, sent to the European Commission, a number of changes in the operation of the balancing market are about to happen. By the end of 2021, we will have a balancing market operating on a daily basis and within the day. ESO has recently started publishing the system imbalance for the previous hour, which is a step towards increasing the transparency of the balancing market. However, the parameters that most concerns traders, the estimated balancing energy prices, are still not published by ESO. Such an attempt is made, but instead of ESO publishing the estimated prices of balancing energy, the operator publishes the cap prices for concluding transactions on the balancing energy market. The later are often misleading and can differ significantly (more than 2 times) from the actual hourly balancing energy prices.
The balancing market has a relatively low level of competition. For 2020, all submitted bids for upregulation, for each month by every participant are identical and equal the cap price. Another important change, in my opinion, which is being ignored, is the introduction of a model with single price for imbalances. In this way, market participants will be encouraged to help the system when it is in surplus or shortage. This means that if the system is in surplus and the market participant is in shortage, it actually helps the system by taking some of the surplus. Therefore, in such a situation the participant should not be sanctioned with a high balancing price, but receive the market price. Conversely, if another participant is in surplus while the system is also in surplus, he should be penalized through the balancing prices because he contributes to the overall systemic imbalance.
A third main factor for reforming the balancing market in Bulgaria is its integration with neighboring balancing markets. The three main changes listed above are not clearly defined in the Bulgarian market reform plan, but are considered to have the greatest impact on the balancing prices.
A priority should be also the increase of transparency of the balancing market, as well as the quality of the information published by ESO.
What is the path of the Bulgarian power market towards the energy transition and what will be the role of electricity traders?
To a mix of technologies that can offer a competitive price and option for additional services, such as flexibility, ancillary services, balancing and more.
The role of retailers will be to provide diverse services that best match the preferences of their customers. More and more companies offer electricity supply from renewable sources, services for increasing energy efficiency, energy monitoring, installation of renewable energy technologies etc. In other words, retailers are constantly expanding their range of services in order to meet the needs of the end consumers, as well as to follow the steps towards energy transition.