In the latest issue (June 2018) of Utilities magazine was published the analysis of ATEB regarding the “Challenges towards the liberalization of the electricity market”. The complete article is available below. The other topics in the magazine with focus on the market liberalization are accessible for subscribers at https://events.utilities.bg/utilities-archive/utilities1806/
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In the recent months a number of changes have been made to the regulatory framework and the market model in Bulgaria. Those were amendments of the Energy Act, Electricity trading rules, the rules of the energy exchange and some of the sub-statutory regulations. Despite their significant impact on the market most of them were adopted in a rush and without preliminary impact assessment. Most of the new amendments including those of the Energy act from May 2018 further increase the influence of the Independent Bulgarian energy exchange (IBEX) on the electricity market in Bulgaria. From now on larger volumes will be traded on the exchange while the control over its rules, tariffs and contracts remains insufficient. IBEX is currently the only allowed channel for generators to sell electricity on the liberalized market. This requirement came into force at the beginning of the year and established a new market monopoly in the face of IBEX. As a result the traded volumes increased, but due to the higher costs for collaterals, participation and transaction fees, electricity trading became more expensive. A major difference between the Bulgarian and most of the European energy exchanges is that in Europe it is common the major exchanges to use the services of a clearing house, providing favorable conditions for settlement of the deals. IBEX operates without a clearing house and performs on its own the clearing service.
As a step forward in the market development was the launch of the intraday market providing opportunities for hourly trading. Currently its liquidity is not very high and the market is restricted only to the platform of IBEX, but in the future, when cross border capacities are allocated on an intraday basis and RES generators become active on the liberalized market the liquidity and the importance of this market segment will increase. The development possibilities for IBEX remain vast. The new challenges which IBEX is expected to face in the near future include implementing a clearing house, market coupling with neighboring countries, stricter control and regulations by the institutions.
The legislative changes also set a new framework for the collection of the fee “obligations to society” (OS). From 01.07.2018 the fee will be paid to the fund Security of the electricity system (FSES) unlike before to the National Electric Company (NEK). The new model sets higher collaterals amounting to 150% of the value of the OS in the month with largest sales. Such a guarantee must be paid only by the electricity traders. The new mechanism is expected to significantly increase the costs of financing and servicing the collection of the fee “obligations to society”. This model does not make a distinction between the accurate and inaccurate payers. The significantly increased costs for collaterals for OS may have an impact on the electricity prices on the liberalized market as the traders do not have a mechanism to ensure that their clients will pay fairly the fee “obligations to society”.
The liberalized electricity market unlike the tariff (regulated) market is extremely dynamic. Many factors influence the electricity prices such as: coal, oil and gas prices, prices of the carbon emissions, weather conditions, political factors etc. In 2017 there was an increase of the prices of the main energy derivatives alongside with the cold winter spells at the beginning of the year resulted in 34% increase of electricity prices in Europe compared to the levels of 2016. This affected the region and Bulgaria where on an annual basis the price of the base load increased to 11%, average levels of 76.90 BGN/MWh and for peak load (delivery 8-20 hours) 36% reaching an average annual value of 104 BGN/MWh. At the same time there wasn’t sufficient offering of forward peak products in the country which exerted further pressure on the prices as the traders were fully exposed to the volatility of the day-ahead market on IBEX. As a result the traders accumulated significant financial losses and some of them even went bankrupt. The situation in 2018 is also dynamic. In the first quarter of 2018 the electricity prices were lower than usual, but currently the trend is for increase. This is evident from the latest transaction on the OTC platform of IBEX and the increase of the price for base load for 2019 on the German and Hungarian energy exchanges.
Development of the base load price for 2019 on the German energy exchange 
Development of the base load price for 2019 on the Hungarian energy exchange
A challenge towards the complete liberalization is the integration of the Bulgarian power market into the internal European electricity market. In order this to happen it is necessary IBEX and ESO to initiate procedures for market coupling with the neighboring countries. At the moment this possibility is very limited due to the fact that Bulgaria imposes export and import fees on the electricity. The fees prevent the free flow of electricity, restrict the export potential and obstruct the import of electricity from the neighboring markets. On the other hand the neighboring Romania can be considered as a good example. The country officially abolished the electricity export fees from 1st of July 2014 and since then it exports 6 times more electricity to the entire region. Shortly after that the country was integrated into the 4M Market coupling which includes also the Czech Republic, Slovakia and Hungary.
In conclusion the remaining major challenges to complete the liberalization in the energy sector are many, but the transition must begin by fixing the current imperfection in the market and stimulating the competition and free trade. The next important steps towards market liberalization will be the removal of cross-subsidization between the liberalized and the tariff market, abolishment of the regulated prices for household consumers, mechanism for protection of the vulnerable customers, abolishment of the export and import fees, market coupling on regional level and adoption of a new National Energy strategy in line with the European commission’s package Clean Energy for All Europeans.