Bulgaria presented to the European Commission (EC) and subsequently to the participants in the electricity market in the country a detailed plan for power market reform. It aims to remove regulatory distortions so that the European Commission allows Bulgaria to introduce a capacity mechanism. According to the EC, capacity mechanisms should be introduced only to solve problems that cannot be solved by removing existing market distortions and barriers.
The plan also includes a time horizon for the implementation of the proposed reforms (Figure 1). The reforms themselves are aimed at continuing the liberalization process, improving the functioning of the balancing market and market coupling with neighboring countries:
Reforms for liberalization of the electricity market
– Termination of long-term contracts with thermal power plants (TPP)- Maritza East 1 (ME1) and Maritza East 3 (ME3)
– Abolition of quotas for a regulated market and the role of the public supplier (NEK)
– Defining and identifying the number of vulnerable consumers (energy poor), as well as implementing price protection measures
– Household consumers obliged to enter the liberalized market
Improving the functioning of the balancing market
– Publishing the system balance close to real time as well as the estimated prices of balancing energy
– Creating a day-ahead balancing market
– Creating an intraday balancing market
– Eliminating the cap prices of the providers of balancing services
– Single balancing price for periods with no activation of balancing capacities
– Introduction of a 15-minute imbalance settlement period
Planned market couplings
– Day-ahead market (DAM) coupling with Romania and Greece in 2021
– DAM coupling with Northern Macedonia and Serbia after 2021
– Intraday market (IDM) coupling with Greece in 2021
* The date is indicative. The plan does not specify a conrete date. The given deadline for implementation is immediately after the termination of the contracts with ME 1 and ME 3
Figure 1. Time horizon of the proposed market reforms
Although this is the most detailed reform plan in the last few years, it does not completely address the existing inefficiencies in the electricity market. An important point that has been missed is the mandatory selling of electricity only through the Independent Bulgarian Energy Exchange (IBEX). Such centralization of trade exists only in Bulgaria and Romania. In Romania, however, negotiations are under way to eliminate mandatory trading through the power exchange for transactions with a delivery period exceeding one month. Experience shows that the obligation of Bulgarian electricity producers with an installed capacity equal to or greater than 1MW to sell only through the IBEX limits trade opportunities, imposes additional fees, centralizes wholesale trade in Bulgaria through only one channel, limits export opportunities, creates monopoly trading platform – IBEX and generally disrupts the operation of the electricity market in the country.
In addition, in 2020, RES producers were effectively prevented from selling their generation via the bilateral trading segments on IBEX and were forced to use only the IBEX’s short-term trading options (DAM & IDM). At the same time, state-owned power plants withdrew from the bilateral trading segments and traded exclusively on DAM. Thus, at the moment significant percentage of the electricity in Bulgaria is sold and bought only on a daily basis. This implies high volatility and price uncertainty and inhibits the long-term planning. The achieved prices on DAM in 2020 varied in a very wide range between 4.50 BGN and 183.57 BGN / MWh.
Another important step not foreseen in the plan is creating competition in the balancing energy market. Only 6 – 7 balancing energy providers were active on the market in 2020. They offered exactly the same price for up-regulation for every month of 2020, which equaled the cap price. The lack of competition was obvious on the balancing market in Bulgaria in 2020.
On the other hand, some of the proposed reforms have not been fully implemented, such as the publication of estimated balancing energy prices. Since the end of January, ESO has started publishing an estimated price for up and down regulation, but it actually publishes the cop price for concluding transactions on the balancing market. As a result, in some hours the real prices of balancing energy are more than 2 times higher than those published by ESO.
On the other hand, some of the proposed reforms seemed unrealistic within the given deadlines. An example this is the termination of the PPAs with TPPs – ME 1 and ME 3 planned to be completed on June 30, 2021. The discussions have been going for several years without obvious progress. This deadline seems unrealistic, given the complications of the negotiations and the strength of the contracts (PPAs).
In summary, the current reform plan will address important issues, but there are still barriers remaining to efficient electricity trading in Bulgaria.
