Bulgaria is just a stone’s throw away from completing the electricity market liberalization that has been in progress in recent years. The main goal of the Bulgarian Government is to gradually eliminate regulated electricity prices by the end of 2025 and to fully transition to market conditions by promoting market competition.
As a result of the legislative amendments adopted in early 2018, the electricity generated for the free market is now traded exclusively via IBEX (Independent Bulgarian Energy Exchange) segments. In 2018, access to the organized free electricity market was granted to renewable energy and hydropower producers with a total installed capacity in the range of one to four megawatts.
As of July 1, 2021, RES producers and cogeneration facilities with an installed capacity in the range of 500 to 1000 kilowatts are also integrated into the wholesale market, at freely negotiated prices. As a result, the liquidity of the organized free electricity market has increased, as have its stability and transparency.
The liberalization process also encompasses all types of business consumers. This step was launched in 2020, in two phases.
The first phase, or “grace period”, of their free-market entry provided that business customers had to conclude a contract with an electricity trader by October 1, 2020. They would otherwise stay with their current supplier, also acting in an electricity trader capacity, but no later than June 2021. This first phase was expected to encourage business consumers to select a free-market supplier, which would accelerate the liberalization. In practice, most of the businesses stayed with their original supplier, and electricity supply diversification did not occur.
The second phase of business customer integration on the free market has expired at the end of June 2021. Those who had not entered into an individual contract with a free market trader by that time were automatically transferred to a “Supplier of Last Resort”, which will, however, supply them with electricity at significantly above the market prices. The higher and non-market prices should have served as an incentive for business consumers to join the free market sooner, but as this reorganization is fairly recent the aftermath is yet to be seen.
The other aspect of the liberalization process is the integration of the Bulgarian electricity market with the regional and pan-European electricity markets. The first step was completed in November 2019, with the pilot market coupling on the Intraday segment with Romania. The Bulgarian-Greek Day Ahead segment market coupling was launched in May 2021, with a significant impact on the national electricity market, as it provides interconnection to the Italian electricity market. The focus is now firmly set on other coupling projects with Romania, Serbia, and North Macedonia, though these are expected to be implemented at a later stage. The Bulgarian-Romanian Day Ahead segment market coupling is expected to launch at the end of September 2021, following the successful implementation of the Interim Coupling Project for the connection of the regional 4MMC coupling (Czech Republic, Hungary, Romania, and Slovakia) to the common European electricity trading system, in June this year.
The immediate effect of the market coupling will be a significant decrease in market concertation, especially on supply. Another crucial effect will be the increase in competition, as the adjacent market areas will bring additional participants to the national market. Those would act as sellers in case of higher prices, and buyers in case of lower prices. The market coupling will also act as a serious buffer to tackle electricity oversupply and deficits. The increasingly good integration and correlation between the markets shall introduce global factors as decisive for the national markets, with a view to stabilizing prices and balancing them on a long-term basis.
In line with the Third Liberalization Package of the EU, Bulgaria will continue to accelerate the liberalization of its energy market. The end of the liberalization process and the signing of electricity purchase-sale transactions on entirely market-driven principles will contribute to the achievement of fair prices and equal treatment of all market participants.
The Bulgarian electricity market will become fully integrated with the European markets, with the advantages of this market coupling, including automatic real-time direct access to supply offers and purchasing from market participants from all EU members, benefitting all Bulgarian producers, consumers, and traders.
By Kostadinka Deleva, Head of Energy, Capital Markets, and Foreign Investments, Gugushev & Partners