Bulgaria to apply retroactive CfD for renewables and CHP producers

During a joint presentation on March 6 in the Bulgarian parliament, the Ministry of Energy (MoE), the Parliamentary Energy Commission (Energy Commission) and the Energy and Water Regulatory Commission (EWRC) revealed its plans to liberalise the nation’s electricity sector and implement the Contracts-for-difference (CfD) scheme for retroactive support of existing investments ahead of a draft bill expected after 12 March 2018.

Suggested amendments to the energy legislation, supported by large industrial associations and the state-owned energy enterprises, will provide for the retroactive application of a CfD-like structure for all renewable energy producers with installed capacity exceeding 4 MW, and CHP producers, from 1 July 2018 onwards.

The suggested changes state that the CfD counter-party will be the existing “Security for electricity system” Fund, and that all renewable and CHP producers will sign CfD contracts within the next four months.

From 1 July 2018, income for these producers will come from the sale of electricity on the free market (Bulgarian Electricity Exchange), and CfD support payments, representing the difference between the “reference price” and the current Feed-In-Tariff (Fit). (Note that the reference price is determined by the EWRC based on the quarterly results of the free-market sales of six to ten energy companies operating in the same price category over the last year, while taking peak and off-peak specifics into consideration.)

In this way, producers will bear part of what the Energy Commission terms “market risk” in case sales on the free market do not reach “reference price” levels. The major challenges identified by decision-makers include what the Ministry of Energy calls the “best approach regarding the re-negotiations of the PPAs.”

In addition, the Electricity System Fund (with only three employees) will need to strengthen its administrative and technical (ie software) capacity to perform its duties as a CfD counter-party. To guarantee the financial stability of the Fund, parliament will channel part of the income from the existing “Obligations to society” surplus to the Fund.

To stimulate demand on the Electricity Exchange after adding over 100 renewable energy producers with an additional 4.5 TWh annual production, the EWRC will implement changes, including obliging the TSO and end-suppliers to purchase electricity so that grid losses from the Electricity Exchange are covered. In this way, the decision-makers expect to create a demand for 4.5 TWh annually.

Last and certainly not least, amendments will aim at including REMIT (EU Regulation No. 1227/2011 on wholesale energy market integrity and transparency) within the Bulgarian legislation.

Given the myriad of changes to this sector, investors are harboring important concerns, which include the methodology for determining the “reference price,” a lack of clarity over the liquidity of the Fund and state support for its operation, and the likelihood these rushed changes can be implemented without notifying the EU Commission.

The draft bill will not affect existing long-term PPAs for lignite-fired capacities, and measures in place to protect vulnerable customers.

For further information, please contact Kostadin Sirleshtov.