At the beginning of the year (2021) Bulgaria sent to the European Commission (EC) its electricity market reform plan: https://ec.europa.eu/energy/consultations/consultation-bulgarian-market-reform-plan_en
The plan includes a detailed timetable for adopting market reform measures. The European Commission within 4 months has prepared and published an opinion on whether the measures are sufficient to eliminate the identified regulatory distortions and market inefficiencies.
The Commission’s main comments and recommendations include:
- Maintaining the quota model for prolonged periods of time will prolong the distortions caused between the liberalized market and the regulated market. Regarding the termination of the long-term purchase agreements of ME1 and ME3, the Commission notes the commitment of Bulgaria to terminate these contracts. Such termination together with the elimination of quota obligations and the role of NEK is expected to increase supply competition and liquidity in the day-ahead and forward markets. The Commission strongly recommends that the quotas’ elimination be synchronised with the termination of the long-term power purchase agreements of ME1 and ME3, i.e. by 30 June 2021 at the latest.
- It seems that the forward market organised in IBEX (auctions and continuous trading) has very limited liquidity and limited products. The hedging opportunities are further limited due to the recent suspension of the continuous trading platform. At the same time, based on information submitted to the Commission, the market for Bulgarian financial future products operated by EEX has very little liquidity. Restrictions to players to trade over the counter (OTC), having equivalent effect to a quantitative restriction on exports or not allowing other organised markets to offer forward services in the territory of Bulgaria need to be assessed considering their impact to the free movement of goods in line with Article 35 of the TFEU and Article 9 of the Electricity Regulation, taking due account of recent case law of the Court of Justice, as well as their impact on competition.
- Bulgaria should set up a transparent system of primary offerings of electricity through which those power plants would be obliged to offer their expected electricity production. The delivery periods should comprise of at least day-ahead and different maturities of forward deliveries up to two years ahead. The offering of forward products should take place through transparent and dedicated auctions, organized at a rolling basis (at least four times per calendar year). The forward products should include different maturities, including at least quarter-ahead and year-ahead products, for the firm delivery of both base and peak-loads. The terms of the auctions should be non-discriminatory and provide equal access to all market participants. There should be no use restrictions on the electricity offered including any restrictions on re-sell or exports.
- Due to the monopoly nature of IBEX, the exact terms of the auctions, including the conditions of participation, products offered and characteristics of the auctions should be approved by the Bulgarian national regulatory authority after properly consulting with market participants. The Commission strongly recommends both the quota obligation elimination and the set-up of dedicated forward auctions as soon as possible and no later than 30 June 2021.
- Decisions having an important impact on market participants should not be left to the discretion of IBEX alone, such as definition or abolishment of forward products. Further, the Commission invites Bulgaria to introduce rules in line with Article 5(1) and (2) of CACM Guideline according to which, the competent national authority shall fix or approve the NEMO fees for trading in the day-ahead and intraday markets, sufficiently in advance of their entry into force, or specify the methodologies used to calculate them.
- Bulgaria states that the current price caps for the balancing energy providers’ prices are a regulatory solution, made on the basis of analysis carried out by the regulatory authority, appeals by the market participants, and some bad practices and price disturbances in 2014, when the balancing market was introduced. The Commission invites therefore Bulgaria to take measures to eliminate the reasons for such alleged bad practices.
- Bulgaria to take measures to include more balancing service providers by reviewing prequalification and monitoring requirements allowing participation of as many technologies as possible as demand response and storage. Increase of competition will ease the shift to other required reforms as the elimination of balancing price caps.
- During the public consultation, the Commission received numerous requests for increased transparency and publication of additional data. We encourage Bulgaria to engage with market participants and where appropriate increase transparency in the balancing timeframe.
- Regarding the imbalance settlement measures, the Commission welcomes the introduction of a 15 minute imbalance settlement period as per Article 8 of the Electricity Regulation by no later than 31 December 2022.
- The Commission invites Bulgaria to consider introducing a scarcity pricing function as soon as possible but no later than 31 December 2022. Alternatively, Bulgaria should set out another timeline in its final plan including explaining its reasons why the chosen timeline would be more appropriate.
- It is the Commission’s view that a minimum bid size of 5MW is too high to allow smaller installations’ participation in providing replacement reserve services. The Commission invites Bulgaria to decrease such minimum size and recommends 1MW as applied in many other Member States (e.g. France, Germany for FRR, Italy, Greece, Spain, Slovenia) or 500 kW (as set out for day-ahead and intraday markets in Article 8 the Electricity Regulation).
- In line with Article 19 (5) of the Electricity Directive, the Commission considers that Bulgaria should commit to undertaking a comprehensive cost-benefit analysis considering recent developments and market requirements to identify if deployment of smart meters would be cost effective for all or a subset of consumers and provide a timeline for such analysis. Such a cost-benefit assessment should be undertaken in accordance with the principles laid down in Annex II of the Electricity Directive.
- The Commission wishes to remind Bulgaria that, in accordance with Article 21 (1) of the Electricity Directive, all types of final customers, not only industrial clients, are entitled on request, while bearing the associated costs, to have a smart meter installed.
- However, in the Commission’s view, in order to provide clear signals and path for such transition, Bulgaria should include a concrete timeline for this stepwise approach in the draft plan. In the Commission’s view, such a stepwise approach could include the following steps:
- A 50% of households based on certain criteria, by end 2022;
- Full retail price deregulation, by end 2024.
- Bulgaria should also assess the number of households in energy poverty and set indicative target for the reduction of energy poverty. Data available with the EU Energy Poverty Observatory suggests that Bulgaria faces particular challenges as regards energy poverty, with reportedly 33.7% of the population experiencing difficulties to keep their homes adequately warm and 30.1% of the population being unable to pay their utility bills on time.
- The Commission reminds, however, that technical limitations and underinvestment into transmission infrastructure cannot be considered valid reasons for a derogation from offering at least 70% of capacity available for cross-border trade.
In conclusion the Commission states that Bulgaria shall amend its implementation plan to take utmost account of the above comments of the Commission. Bulgaria is invited to publish its amended plan within 2 months and inform the Commission. So far there is no information that Bulgaria has complied with EC recommendations.
The complete opinion of the European Commission on the implementation plan of Bulgaria can be found at: https://ec.europa.eu/energy/sites/default/files/documents/bg_plan_adopted_opinion_en.pdf
Source: European Commission