On December 1, Regulation (EU) 2022/1854 of the Council of the European Union on emergency intervention to address high energy prices entered into force. The regulation is mandatory and designed to impose supporting measures for consumers to tackle high energy prices. This regulation has not yet been implemented in Bulgaria, despite being binding and directly applicable in all Member States. The measures provided are focused in three main directions:
- Reduction of gross and peak electricity demand
- Introduction of a mandatory price cap for certain electricity producers
- Taxation of surplus profits of the crude petroleum, natural gas, coal and refinery sectors
Of the three points listed, only the last one was introduced in Bulgaria through amendments in the Law on Corporate Income Taxation. Companies in the fossil fuel sectors will make a solidarity contribution of 33% of their profits if those profits are 20% higher than the average profits for the period 2018-2021. The solidarity contribution is applicable for 2022 and 2023, and the collected funds will be deposited the Fund Security of the electricity system. The money raised will be used to mitigate the effect of high electricity prices on consumers.
However, the remaining two measures are still unset. To reduce the gross and peak consumption of electricity, there are no indications that Bulgaria will introduce any mechanism.
Thus, the measure for setting a price cap of producers is key. This includes both state producers and private ones, such as those from RES. According to the regulation, all revenues above a predefined cap of 180 EUR/MWh must be collected from producers and redistributed in the form of targeted compensations to end customers affected by high energy prices.
The first attempts to introduce such a provision in the Bulgarian regulatory framework began already in mid-October, when the Emergency energy council distributed a bill aiming to implementing the requirements of the regulation. Subsequently, the bill was transformed into a Draft Decree of the Council of Ministers, which was put under public consultation. Almost completely identical texts, this time again in the form of bills, were submitted in the National Assembly, but they never made it to the plenary hall. More than 2 months were lost in this uncoordinated inter-institutional tries to implement of the provisions of Regulation (EU) 2022/1854 and still no measures for capping revenues of producers are adopted. With few exceptions, there was нno dialogue between the institutions and market participants on the mechanisms for taxation of revenues.
In the draft texts, the Bulgarian authorities have proposed optional measures, one such measure being financial contribution by electricity traders. Unfortunately, as we have an example from Romania, it threatens to disrupt the functioning of the wholesale electricity market in our country. Ambiguities over how traders’ revenues will be charged are already having an impact. Companies are gradually withdrawing from the Bulgarian market and limiting their activities.
The result of a poorly formulated and implemented revenues tax measure would result in a loss of interest and incentive for traders to engage in supply and export transactions. Accordingly, it will reduce the income of Bulgarian power producers. The reduction in exports would in turn worsen the energy situation in the region and would contribute to an increase in market prices due to limiting the supply. The segment for long-term trading will be the most affected, which is still significantly lacking behind the spot market in terms of traded volumes.
Countries in Europe by adopting Regulation (EU) 2022/1854 have decided that interventions in the electricity market are necessary, both at national and pan-European level. The main objective of the interventions is to raise funds to help consumers affected by high energy prices. At the same time, the implementation of measures in this direction should not disrupt the normal functioning of the markets or lead to the withdrawal of participants. Unfortunately, we are already seeing such examples, so it is important Bulgaria to implements a model that is fair, both for consumers and for traders and producers.