The electricity market in Bulgaria is in a process of liberalization, which started back in 2004 and still continuous. The market consists of two segments – a segment with regulated prices and a segment with freely negotiated prices or the so called “free market”.
Prices on the regulated segment are set by the regulator – Energy and Water Regulatory Commission (EWRC); consumers are supplied by the end suppliers on a territorial basis. Currently, this segment includes households and small business consumers, connected to the low voltage distribution network. From 1st of October all business consumers are obliged to enter the liberalized market. Hence only the household consumers will be part of the regulated market.
Free (liberalized) market
Customers in the free segment can choose their electricity supplier regardless of their geographical location. They continue to pay fees to the transmission or distribution system operator for transmission and access. On the free market EWRC does not determine the price of electricity. EWRC has only regulatory functions to control and monitor the market. Also EWRC adopts the Electricity trading rules, which are the regulatory framework for electricity trading in the country. The commission defines the amount of the network and other fees. The electricity for the free market is bought by the traders and consumers on freely negotiated prices from the electricity generators or from Independent Bulgarian energy exchange (IBEX). In the beginning of 2018 with the amendments of the Energy Act the conventional electricity generators with installed capacity equal or greater than 4 MW were obliged to sell their electricity only through the platforms of IBEX. Then (with the amendments from 08.05.2018) a mandatory sell through IBEX was imposed to the Combined heat and power plans and renewable energy generators with installed capacity equal or greater than 4 MW. With the latest amendments to the Energy Act in force from May 2019, all RES and Co-generation power plants with installed capacity of 1 MW or more have the obligation to sell their electricity only via the power exchange. These changes, alongside the obligation of the business consumers to enter the free market, significantly altered the market model (Figure 1).
Figure 1. Bulgarian electricity market model from 01.10.2020
In compliance with the liberalization process, the internal electricity market in Bulgaria has been established as a market for bilateral contracts and balancing market. Customers sign contracts with traders for electricity supply and traders purchase the required electricity from the generators to satisfy the needs of their customers. On daily basis generators, traders and coordinators of balancing groups notify Electricity system operator (ESO) of their hourly schedules for generation and consumption for the next day. When there is a mismatch between the declared volumes and the actual consumption or generation, the balancing market steps in. ESO as an operator of the balancing market compensates the difference between the declared and the consumed/generated electricity. The resulting costs are charged to the market participants in the form of prices for balancing energy.
Main players on the free market are the state-owned power plants such as NPP “Kozloduy”,”Maritza East 2″, HPP of NEK, large energy consumers and traders. In 2013 began an active migration of customers, connected to the distribution network medium voltage (6-20 kV), from the regulated to the free market segment. As of August 1, 2013 customers who have not chosen an electricity supplier are supplied by the “supplier of last resort”. At the beginning of 2016 was launched the Independent Bulgarian energy exchange (IBEX) as a result of undertaken commitment by Bulgarian energy holding on the case AT.39767 initiated by the European Commission. During the same year EWRC adopted an instruction allowing customers connected to the low voltage power network who does not own power meter with hourly measurements to join the free market. Another significant shift of the market model which increased the role of the power exchange took place in 2018 and 2019 as a result of several legislative changes. IBEX became a mandatory channel for electricity trading for generators with installed capacity equal or greater than 1 MW. This led to centralization of the free power market and forced traders and consumers to purchase electricity mostly from the platforms of the Bulgarian power exchange.
Table 1. Development of the free electricity market – number of generators, customers and traders during the years
In a liberalized market prices are determined by the market and are directly influenced by the supply and demand. There are factors that affect prices, unlike on the regulated market where a Regulator determines the electricity price. Different factors as well as combinations of them can have diverse effects on the market. Some of the most important factors relevant for the Bulgarian market are related to the electricity prices on the regional market (in Greece, Romania, Hungary). On the other hand, the regional market is influenced by the Western European power markets. Hence the prices achieved in the developed EU markets indirectly affect the price levels on the free market in Bulgaria. Factors directly influencing the electricity prices on the power markets, applicable in Bulgaria as well are: shift of demand and supply, prices of the main energy resources (oil, gas, coal, etc.), carbon emission prices, weather conditions, planed overhauls, outages, accidents, import/export bans, government policies and others.
Households can choose on which market to participate – regulated or free market. Entering the free market does not carry risks, associated with additional financial costs or security of supply. Similar to the regulated market the respective distribution system operator (DSO) will continue to be responsible for the maintenance of the infrastructure and quality of electricity, regardless of who is your retailer on the free market, so the customer will continue to pay regulated prices for network fees. The main change when entering the free market is the option for the customer to choose supplier. The supplier will be responsible to supply the electricity required by the customer, offer competitive prices and additional services such as flexible tariffs, various terms and conditions for payments, balancing services, energy consultations, analysis, forecasting and others.
Role of the traders
Electricity traders are the link between the different energy generators and the end consumers on the free market. The role of the trader is to offer attractive financial conditions to the consumers and at the same time to guarantee the reliability of supply. At the moment in Bulgaria there are many active electricity trading companies. Every energy consumer has a specific demand profile, related to its consumption characteristics. This profile has to be well defined and forecasted by the trader, so the electricity supplied fully covers the needs of the consumer. Usually traders’ portfolio includes a mix of generation plants and clients, ensuring resilience regarding the supply and demand. Traders offer forecasting and balancing services and take some of the financial risk for the imbalances (mismatch between the forecasted and the real consumption). The client pays for the electricity and covers a the costs for imbalances while all the other expenses related to trading, balancing, scheduling, additional services and managing the portfolio are covered by the traders.
Selling electricity to end consumers is done on contractual basis through individually negotiated contracts for every customer. The administration and management of the load schedules, balancing, depositing network fees, excise duty and fee “Obligation to society” as well as all administrative procedures related to electricity trading are performed by the traders. To ease their customers most of the companies trading with electricity offer to prepare all the required documentation for registration of the consumer on the free market as well as a detailed analysis of his energy consumption. Based on it traders could offer various electricity consumption profiles, which are individual solutions for the client specific energy needs.
Other important role of the energy traders is to export electricity generated in the country and to ensure itsontribute realization on the foreign markets. Most of the electricity for export is sold abroad through energy traders. They are responsible for contracting clients cross border and secure the required cross border capacities so the generated electricity could flow through the border and reach the customers abroad. By being part of this process the electricity traders contribute to increasing income in the energy sector in the country, due to the fact that most of the revenues from the cross border trading go to the state owned power plants and companies – NPP “Kozloduy”, TPP “Maritza East” 2, NEK, ESO. As an effect of the process local power plants are loaded optimally leading to positive effects on country’s mining industry, increase of the employment rate in the energy sector and strengthens the economy overall. Traders are as well responsible for the import of electricity from neighboring countries. Often this happens when electricity prices there are lower than in Bulgaria. The import contributes to achieve competitive prices for the Bulgarian consumers.
Independent Bulgarian Energy Exchange
Independent Bulgarian energy exchange was established in January 2014 as 100% subsidiary of Bulgarian Energy Holding. The real operation of the exchanges started in January 2016 with the launch of the Day-ahead market. IBEX is currently owned by the Bulgarian Stock Exchange that is a sole owner of the capital.
The Bulgarian power exchange is a monopoly platform operating major part of the power market in the country. According to the Energy Act only one license can be issued for organizing a power exchange in Bulgaria. IBEX is the obligatory channel through which generators with installed capacity of 1 MW or more have to sell their electricity. IBEX operates 3 trading platforms – Day-ahead Market, Intraday Market and Bilateral contracts. On the first two the power exchange is a counterparty on all deals and carries the corresponding risks and responsibilities. On the third segment bilateral deals are concluded. There the role of IBEX is as an intermediary between the trading participants and IBEX is not a counterparty on those deals. From all European countries mandatory trading through the power exchange is present only in Bulgarian and Romania.
Sources: Energy Act, Electricity trading rules, IBEX, EWRC, NEK