The article was published in the June issue of Utilities magazine
Despite the state of emergency in the country, the last two months have been full of event concerning the regulatory framework governing the operation on the liberalized market. At the beginning of May, the new Electricity trading rules (ETR) were finally adopted after more than 6 months of discussions. They significantly simplify the procedure for switching electricity supplier and balancing group coordinator. End customers will be able to request their new supplier to carry out the transfer process. The procedure is administered by the transmission operator (ESO) or by the electricity distribution companies (DSOs), depending on which network the customer is connected to. This change is a preparation for the next step in market liberalization, which will be related to the entry of new consumers into the liberalized market.
Another important point in the new ETR, which is expected to have an impact on the free market, is the new formula for calculating the price of balancing energy. In the previous method, the quantities from different balancing sources were multiplied by their individual price. The newly adopted formula combines deliveries from several sources (cold reserve, primary / secondary reserve, quantities ordered by the dispatcher and emergency aid) at the highest price at which ESO buys for the respective settlement period. This means that if ESO has bought energy from a cold reserve for 400 BGN/MWh, from a primary reserve for 200 BGN/MWh, ordered by a dispatcher for 250 BGN/MWh from emergency aid for 280 BGN/MWh, then all these quantities will be charged at the highest price of 400 BGN/MWh. Concerns from market participants are that this change will lead to an increase in the prices for deficit, which will inevitably result in higher balancing costs for end customers. The impact is expected to be most notable during the winter months, when the system load is the highest and more energy is used for balancing, including from cold reserve.
In April, the Energy and Water Regulatory Commission (EWRC) published for consultation draft Operational rules of the energy exchange. In its entirety, the proposed draft does not significantly change the current rules of IBEX. What is interesting is a new requirement, participants on the bilateral trading segment to have at least 5 counterparties. Given that companies participate on the exchange mainly because they are obliged to do so, this new provision imposes additional requirements. Some of the participants who trade in this segment have one or two counterparties because of the specifics of their business or because they do not want to bear the risk of trading with others. Normally, the number of counterparties is a company decision, but with the new rules interfere in the company policies and impose minimum number of counterparties. It is not clear what happens in a situation when a participant cannot have 5 counterparties, because other companies do not want to sign a contract with him.
The proposed changes in the exchange rules do not address the tariffs of the exchange. It is logical, since IBEX is a monopoly company (only one license is issued for a power exchange operator in Bulgaria), the tariffs of this monopoly to be determined by the EWRC. This is the practice with other energy monopolies such as network operators. The financial statements of the power exchange show that in the years from 2016 to 2018 the profits of IBEX increase over 500% to 4,262,000 BGN. It is expected that in 2019 the number to be even higher. The main purpose for which the exchange was established is to provide transparency and trading platforms, not to accumulate profits and distribute dividends. However, the EWRC has not yet come out with its final decision on the rules of IBEX, so we can hope that the mentioned and other controversial points in the rules will be reconsidered.
IBEX continues to not to be a counterparty to the transactions on the segment for bilateral trading. In April, however, the Bulgarian Stock Exchange (BSE), which is the owner of IBEX, announced that it is establishing a clearing house – Clear EX, which is expected to enter as a counterparty on the power and gas exchange. The capital of the company is 100,000 BGN. According to the trading participants, this capital is very insufficient. Sometimes collateral for one-off transactions exceeds tens of millions and it is not reliable a company with such low capital to guarantee their fair execution. The clearing house bears the main risk in trading and in practice works as a bank. The capital requirements for clearing banks on the European power exchanges are many times higher. The issue of the security of transactions through the newly established clearing house is unclear, because it doesn’t meet European standards for provision of clearing services.
As a final set of market changes in the recent months were the introduced plans for further liberalization of the electricity market. On 22.05.2020 on the website of the National Committee of Bulgaria in the World Energy Council, chaired by Valentin Nikolov (Chairman of the Energy Committee of the National Assembly) was published a proposal to amend the Energy Act. It envisages bringing all low voltage business consumers on the free market from October 1, 2020. In the previous proposal from the end of February it was planned to bring only business consumers with installed capacity exceeding 30 kW, as well as households with installed power exceeding 50kW. According to the calculations of the Energy Commission, this is consumption equals 2,081,280 MWh/year, of which the the 30 kW business accounts for 2,053,941 MWh/year. With the new proposal, all low-voltage business consumers will have to enter the free market. Their total annual consumption is about 4.5 TWh. A report shows that there are more than 300,000 new customers who will enter the free market. One of the main concerns is whether distribution companies and traders will be able to handle all applications in such a short time. If the business consumers do not change their supplier by 1.10.2020, they will be supplied by a Supplier of last resort (SoLR), where the prices are higher than those on either the liberalized, or the regulated market.
