The article was published in the July issue of Utilities magazine
The free market model in Bulgaria differs from the developed European markets. There is a similarity only with the Romanian market, where trading on the power exchange is also mandatory. However, since the beginning of the year, Romania has been moving more and more towards market liberalization, especially after their regulator adopted a decision allowing bilateral transactions outside the energy exchange OPCOM. Thus, Bulgaria will soon remain the only country in Europe with mandatory power exchange trading.
The barriers to trade resulting from this are no other trading platforms or brokerage screens. Prior to the introduction of mandatory trading in early 2018 on the Bulgarian market operated simultaneously the Independent Bulgarian Energy Exchange (IBEX) and the auction platforms of major producers NEK, TPP Maritsa East 2, Kozloduy NPP and various brokerage screens. As a result, there was competition between the various trading platforms. A number of transactions related to bilateral trading and non-standard products were also carried out through brokers. Subsequently, the market was decentralized, through legislative change and the IBEX became the only permitted platform for sale of electricity. Interestingly, despite the monopoly position of the power exchange, it set its own rules and tariffs, which were not subject to approval and control by a regulatory body. A change took place last year, when the EWRC was obliged to approve the rules of the power exchange. As a result, in July 2020 the Regulator published the new operational rules of IBEX. In them the Commission gives significant power to IBEX to continue to determine its own tariffs, the amount of required collaterals and the type of traded products. Despite the EWRC’s intervention, the key decisions on what products are traded at what tariffs are still taken from the power exchange.
Shortly after IBEX announced that only standardized products – base load, peak load, off-peak – will be traded on the Bilateral Contracts platform, and the delivery periods are now limited to week, month, quarter, half a year and one year. Previously, products with deviation and non-standard delivery periods such as a week and a half, one year with an interruption and others could be traded. The products with a deviation allowed producers with different profiles to sell their electricity on a long-term basis. In the period 2018 – 2020, the majority of successful auctions organized on IBEX were for products with deviation or non-standard delivery period (Figure 1).
Figure 1. Types of successful auctions organized at IBEX in the period 2018 – 2020
The electricity market in Bulgaria has always allowed trading of non-standard and flexible products. Initially offered by NEK and TPP Maritsa East 2, and in the recent years by producers of RES and Cogeneration. The elimination of this type of long-term trade will transfer the quantities to another segment – day-ahead market (DAM). It is the most unpredictable and volatile market, where prices vary widely on an hourly, daily, monthly and annual basis. Therefore, producers participating on DAM will undertake daily market risk, which will eventually be transferred to the buyers of their electricity – traders and consumers. It is part of the policy pursued in the recent years to increasingly prioritize short-term trade over long-term trading (Figure 2).
Figure 2. Number of successful auctions for long-term products on IBEX between 2017 and 2020
* In 2017, auctions are still being held on the online platforms of the major power producers
The basis of a stable and predictable electricity market is long-term trading. Only with long-term contracts between producers and traders, and traders and end customers price stability and predictability can be achieved. In this way, everyone part of the supply and demand chain will know the price of electricity and will be able to effectively manage their business. This is the practice on the regulated market, where prices are set on an annual basis and contracts are for one year. Precisely because of this and because of the better price levels on the regulated market, we observe increased migration of low voltage business consumers from the free to the regulated market.
That is why with the latest amendments to the Energy Act all low voltage business consumers are obliged to enter the free market. They will have to concluded a contract with a supplier on the free market by 01.10.2020 or to renew their contracts with the current supplier (end supplier), which will be valid until 30.06.2021. The template of the new contract with the end supplier will be approved by EWRC.
In order to change their supplier, business consumers will only need to conclude a supply contract with an electricity trader. The trader, in return, will make the transfer, concluding a contract on behalf of the customer with the relevant network operator and the supplier of last resort (SoLR), as well as submit an application for initial registration. It is appropriate for the client to conclude the contract with the trader by 10.10.2020, so that the change can take effect from the first day of the next month. More than 300,000 new consumers are expected to join the free market, with an annual consumption of approximately 4,000,000 MWh. This is another step towards full liberalization of the electricity market in Bulgaria. However, in the absence of adequate options for purchasing electricity, providing long-term price stability for free market customers is at risk.
