On January 1, 2022, the Regulator (EWRC) adopted and published a decision to reduce the premiums for producers from renewable energy sources. The new estimated market price for renewable energy sources approved by the EWRC is 147% higher than the one reflected in the current price decision, adopted on 01.07.2021. Such increase eliminates the premiums received by producers from wind and hydro and minimizes the premiums for solar. The problem here is that a significant part of the electricity from RES has already been sold under long-term one-year contracts at prices close to those set by the EWRC in July 2021, ie. between 110 – 120 BGN / MWh. These contracts, in turn, are “closed” by traders to end customers, other traders or energy exchanges.
In the new price decision adopted on 01.01.2022, the estimated market price is over 293 BGN/MWh, significantly above the levels at which renewable energy was sold. Therefore, it is expected to lead to a series of lawsuits, the imposition of huge penalties, early repayment of bank loans and potential bankruptcies of renewable energy producers and traders.
Unfortunately, the effect of this decision gave a clear negative signal of market stability and an occasion for investors in new RES plants to reconsider their investments. To get out of the difficult situation, we can take the example of Spain, where a differentiated approach was applied and RES producers, who could prove that they have long-term contracts for sale at low prices, were exempted from paying an additional tax. However, for other producers such a tax was applicable. Similar approach can be applied in Bulgaria as well, as in our country the information on the selling price of each RES producers is available at Security of the Electricity System Fund (SESF). So it is even easier to distinguish the low-priced producers and those who sell electricity at higher spot prices.
The prices adopted annually by the EWRC in the Electricity sector are the basis of the trading decisions of the participants in the electricity market and predetermine the trade commitments between them for a one-year period, thus ensuring revenue stability and predictability of cash flows. These long-term contracts allow electricity traders to fix the price for electricity to end users. The described trade cycle is a function of the EWRC price decision, has established itself on the market in recent years and ensures compliance with trade commitments between all participants for the relevant one-year period, which in turn is a guarantee of stability and security of the electricity sector. On this basis, and in compliance with the requirements of the financing institutions, in the second half of 2021, the vast majority of electricity producers from RES have fixed prices close to the estimated market price set by the EWRC. Information provided by SESF for October and November shows that over 770 RES producers sell their electricity at prices similar to the estimated market price and do not make “excess profits”.
Such an unexpected and destabilizing change in regulatory parameters in the middle of the regulatory period, when long-term trade commitments have already been made, significantly increases the country’s risk assessment as an investment destination and diverts investment interest.