Bulgarian regulator sets new reference prices in expectation for a Contract for premium reform

Bulgaria

On 30 June 2023, the Energy and Water Regulatory Commission (EWRC) published a Decision regarding the determination of Feed-In Tariffs for electricity produced by renewable energy sources, which updates Feed-In Tariffs to include electricity produced by biomass and determines the premiums for renewable energy producers with an overall installed capacity of 500 kW and exceeding 500 kW for the regulatory period from 1 July 2023 to 30 June 2024.

Through this Decision, the EWRC has determined the estimated market price (i.e. reference price) for producers of electricity from solar energy to be BGN 250.27/MWh.

Based on the reference price, this Decision enables the EWRC to determine the premiums that producers receive from the Electricity System Security Fund (ESSF) as a top-up up to the respective Feed-in-Tariff. The determined reference price for solar producers for the new regulatory period is a concern to investors since for the first half of 2023 the realised price from solar energy producers has been between BGN 160/MWh and BGN 170/MWh.

Before the Decision and within the current legal framework, the only statutory mechanism that the EWRC could apply within its powers has been to amend the determined premiums, but no more than once in six months, provided that there has been a significant change in the electricity exchange market between the specified estimated market price for the base load for this period and the achieved and estimate price for the remainder of the period.

More changes are expected in Bulgarian legislation in the field of renewable energy. The Draft Act for amendment and supplementation of the Renewable Energy Source Act by the Council of Ministers (the Draft Act) envisages а change in the EWRC's powers, which allows for amending determined premiums once every three months where there is a change of more than 5% in the amount between the determined estimated market price for the relevant period compared to the achieved and estimated price for the remaining term.

Once adopted, the proposed amendments would allow the EWRC to change the premiums more frequently reflecting the electricity market price (i.e. once every three months) and allow the EWRC to apply a quantitative criterion (i.e. a more than 5% difference).

In addition, producers will receive compensation if during the previous calendar year the total amount of their revenue from energy sold and premiums did not reach the value calculated on the basis of their determined net specific production and the Feed-in-Tariff determined on this basis.

The compensation will be the difference between the value calculated on the basis of the annual amount of electricity sold by the relevant producer (up to the amount calculated on determined net specific production of electricity at its determined Feed-in-Tariff) and the annual revenues calculated as the sum of the value of the annual revenues from premiums and the value of the annual revenues from sold quantities of electricity (but not less than the sum of the values of the sold quantities of electricity, calculated at the relevant average monthly price for base load on the day-ahead IBEX market as determined in the current price decision of the EWRC group ratio).

This top-up compensatory mechanism would benefit investors and encourage producers to seek an offtake price for their produced electricity that is close to the exchange market levels.

The Draft Act was accepted at first voting in the National Assembly, which is expected to pass the Draft Act into law at second voting before the end of July when lawmakers begin summer vacation.

Once adopted, the amendments to the Draft Act will introduce possible solutions, which could positively affect not only the mechanisms for change of the determined premiums by the EWRC but protect renewable energy producers by ensuring that income remains at the closest levels to the determined Feed-in-Tariffs through the premiums paid by the ESSF.

For more information on the regulation of the renewable energy electricity sector in Bulgaria, contact your CMS client partner or these CMS experts: Kostadin Sirleshtov, Borislava Piperkova, and Dian Boev.