The interview with the chairman of ATEB, Martin Georgiev was published on the energy news portal 3e-news.
Mr. Georgiev, for half a year we have been witnessing constantly rising electricity prices on the free market. What actually happened and continues to happen? What is your analysis?
Prices rise unexpectedly in the spring months of 2021 and head to the current extremes levels. The reasons are complex, but the main ones are a drastic increase in the price of emission allowances, record natural gas prices, colder months of March and April and summer with higher temperatures than average, unexpectedly rapid recovery in demand after the pandemic, reduced production of wind and photovoltaic power plants, repairs of baseload capacities, lack of sufficient investments in new capacities, decommissioning of power plants, etc. The European Commission has noted that in recent months the effect of the increase in the price of natural gas on the price of electricity has been nine times greater than the effect of the increase in the price of emission allowances. In recent days, we have seen a serious increase in the latter, which is reaching new records. That is why, we can with greater certainty consider combined effects that further raises prices.
It is not yet known how long the period with high prices will last. Futures markets, which are used to forecast trends, show that electricity will remain expensive for longer than expected. A decline is likely to come in the second quarter of 2022, but levels are currently in the range of over € 160 / MWh, compared to over € 250 / MWh for the first quarter of 2022.
For a relatively long period, various organizations have been looking for reasons for the price spike in the operation of the IBEX. Various new products are offered, shortcomings in the rules are pointed out, but will a reform there lead to a drop in price and improved market performance?
Energy markets are becoming more interconnected, so that global factors are increasingly affecting prices in Bulgaria. In this case, the reasons are outside the country, but they highlight the shortcomings of the market model present here. I mean the mandatory sale of electricity through IBEX and significant volumes traded short-term on the DAM segment. This is what did not allow traders and consumers to buy the necessary volumes on a long-term basis and to “lock” the price at least until the end of the year or even for part of 2022. In developed markets, the effect of high prices on businesses is not so significant due to bilateral over-the-counter trading and long-term purchase opportunities. Such contracts were missing on the market in our country during the spring and summer months, when prices were affordable.
Of course, the organizations have their reasons for being dissatisfied with the work of the power exchange, but it was not the main driver of the soaring prices. However, it is favorable to take advantage of the situation towards necessary changes in the organization of the IBEX in order to restore confidence and transparency. For example, steps in this direction would be: introduction of a clearing house in order to reduce the financial risks and allow each participant to be able to trade with everyone registered; stricter rules for protection against default in order to avoid situations such as those we observed in 2020, when some companies stopped fulfilling long-term contracts with Kozloduy NPP, and the nuclear power plant was eventually financially deprived; reduction of fees, because at the moment they are a tool for generating profit; control in order to prevent suspicious transactions, as we have seen more than once. Of course, the power exchange should be only one of the trading channels, the market needs to be released from the obligation to trade mainly through the power exchange. In this way, bilateral trading will be strengthened, brokers will again be able to actively support the conclusion of transactions and RES producers will be able to sell their electricity without being bound by their choice of balancing group coordinator.
With regard to the trading rules, the new changes proposed by the EWRC are indeed worrying to say the least and will seriously affect the market. It is all about the proposal that the balancing groups will no longer be able to unite. Most market participants are members of such joint balancing groups and benefit from lower costs for balancing energy. If the change takes effect, the majority of end customers and RES producers can expect a significant increase in these costs. It is the joint groups that allow small and medium-sized coordinators to be competitive on the market, their elimination will lead to the elimination of coordinators and worsening of competition.
The whole interview is available at: 3e-news