The Institute for market economics (IME) published analysis of the conditions for electricity trading. It reviews the regulatory changes adopted in the end of 2017 and the amendments of the operational rules of Centralized market for bilateral contracts (CMBC) on Independent Bulgarian energy exchange, as well as their influence on the functioning of the liberalized market in Bulgaria. The author of the analysis is Mr. Kaloyan Staykov from IME, editor is Desislava Nikolova.
Only an excerpt of the analysis is published below. The complete document is available only in Bulgarian and can be found at the bottom of the article.
At the end of 2017 serious changes took place related to the operation of liberalized market, because of the adopted amendments in the Energy Act. They impose a new obligation on the liberalized market for electricity producers with installed capacity greater than 5 MW to conclude deals only on the platforms of the energy exchange. This regulation came into force on 01.01.2018. The main argument in favor of it was “it will eliminate the possibilities for sell/purchase through other means (including via telephone), which will provide equality between the market participants and will release a financial resources in the system, because the obligation of maintaining collaterals on several other trading platforms will be abolished as well as will improve the trust in the liberalized market due to removal of suspicions of corruption, unlawful practices and market abuses”.
Taking in mind that the changes are already into force, the analysis reviews the process for amending the legislative framework as well as the operational rules of IBEX in order to evaluate the effect on the market and on the market participants. The focus is on the reasons behind the legislative changes evaluating, if they have achieved the desired results.
Despite the good intentions of providing more trust and transparency on the liberalized electricity market, the legislative changes from the last month of 2017 actually create more problems than they solve. This is due to several specifics related to both the law and the changes of the CMBC’s rules:
Legislative changes:
- The general changes in the Energy Act concerning the liberalized electricity market have been imposed through another bill;
- There is no impact assessment made analysing how the change will affect the liberalized market, the market participants and the economics as a whole. A clear link is missing between the proposed changes and the problem that has led to them;
- The changes are adopted on very short notice right before the Christmas holidays, which made the consultations with the stakeholders practically impossible;
Amendments of the rules of CMBC on IBEX:
- They have been adopted on even shorter notice than the legislative changes, which obstructed the public consultations and increased the risk of mistakes;
- It is observed a strong controversy between the idea of the legislative changes that aim to increase the trust in the liberalized market and the refusal of the exchange operator (IBEX) to be counterparty on the deals concluded on CMBC. This act by itself increases the trading risks and decreases the trust in the liberalized market.
Lack of clear vision regarding the development of the liberalized market:
- There is lack of evaluation of the present resources of IBEX for organizing the trading and managing the risk related to the new regulations obligating all electricity producers with capacity over 5 MW to sell only through the platforms of the exchange;
- This leads to unpredictable consequences for the market and decreases the trust in the liberalized market instead of strengthening it;
- After two years of operation of power exchange market in Bulgaria, the operator continuous to avoid the good European practices related to the implementation of clearing house as a central counterparty on the deals. It is considered important to use a clearing house for better risk management, leading to more effective and smooth operation of the power exchange.
If the law makers have set themselves the goal of eradicating the unregulated trading practices and increase the trust in the liberalized market, such changes should not be made superficially and in hasty. The current legislative amendments are creating only two new paragraphs in the Energy Act, but they fundamentally change the operation of the whole liberalized electricity market. This implies preparation of impact assessment, consultations with the stakeholders and time for other changes of the subordinate legal framework.
Increasing the trust in the open market cannot be done through introducing obligations and restrictions, but should create the necessary market mechanisms that improve its effectiveness. This is normally done through creating proper conditions for fair competition, liquidity and minimization of the trading risks. Introducing obligation to electricity trading only through the platforms of the power exchange in absence of risk management mechanism such as a clearing house would have the opposite effect. The clearing houses are present on the European future markets where electricity and/or other products including financial assets are traded. They facilitate their efficient and smooth functioning and provide secure services for the market participants and the economy as a whole.
The complete analysis is available at:
Source: Institute for market economics
