(Corrects paragraph 24 to show that the Maritsa 3 coal plant is
not owned by ContourGlobal. ContourGlobal owns a different plant
called Maritsa East 3 TPP)
By Gerard Wynn
LONDON, Feb 26 (Reuters) – Bulgarian street protests over
electricity prices illustrate the problems with a regulated
approach where several European countries are preparing to step
back from fully liberalised markets.
Protesters have complained about a lack of transparency in
the way Bulgarian power prices have been set, questioning the
logic of stinging rises in household electricity prices as coal
costs fall but power companies try to pay themselves more.
The European Commission last November reported that both
Bulgaria’s electricity and gas markets ranked in the bottom two
across the EU for trust and overall satisfaction.
Bulgaria may also be rewarding solar power too generously, a
problem where many European countries have intervened too
open-handedly and where Germany, for example, is struggling to
shield consumers from spiralling costs.
Foremost, however, the Bulgarian protests are a warning
against regulated power markets where bilateral, negotiated
tariffs for fossil fuel power appear poor value for money.
Three of the country’s four large coal-fired power plants
are presently earning more than their counterparts in power
sales on liberalised wholesale power markets in Scandinavia and
central Europe.
Britain, Germany and other EU countries are considering
introducing a planning mechanism where they would set future
generating capacity through auctions or bilateral negotiations
with utilities, in a partial break with liberalised markets.
Such central planning is intended to overcome concerns over
capacity shortages and blackouts, but runs the risk of actual or
perceived over-compensation of power generators.
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Chart 1: http://www.dker.bg/NPDOCS/prices_bitovi_12.pdf
Chart 2: http://www.dker.bg/pagebg.php?P=401&SP;=402
Chart 3: http://goo.gl/d3NRH
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REGULATED
Bulgaria’s regulator, the Bulgarian National Regulatory
Authority, the State Energy and Water Regulatory Commission
(SEWRC), last July approved hikes in consumer bills of 9.84
percent to 10.84 percent. (Chart 1)
That sparked a violent reaction only in the past few weeks
as temperatures fell and power consumption rose.
The regulator last week said it was now exploring options to
cut national residential power bills from March and would revoke
the Bulgarian licence of Prague-based Cez, one of four
electricity suppliers.
Bulgaria has a highly regulated power market where
generators have to negotiate directly with the regulator over
the tariff they receive, or else engage in long-term contracts
with the transmission operator Natsionalna Elektricheska
Kompania (NEK).
The fully state-owned power firm Bulgarian Energy Holding
appears to have excessive control, owning most of the country’s
power generation assets as well as its only electricity
transmission operator NEK.
The European Commission has also expressed concerns over the
independence of the regulator.
“Its budget is insufficient to cover oversight of all the
sectors it is responsible for and there are concerns about the
stability of its management. The government has intervened in
regulatory and management matters,” it said in a report on EU
energy markets last November.
The country has no power exchange, one of just six such
countries in the EU as of 2011, and it has some of the lowest
electricity imports in the EU, at just 3.1 percent of
consumption in 2010, despite bordering five countries.
The result seems bad value for money.
In the latest round of price agreements approved last July,
three out of four of Bulgaria’s main coal-fired power plants
were awarded more than 84 leva ($56.53) per megawatt hour (MWh).
(Chart 2)
That is more than power plants are earning at present on
wholesale markets in far wealthier European countries, where the
benchmark German year-ahead contract, for example, was trading
at 42.4 euros ($55.81) on Monday, and year-ahead Nordic
power was 36.9 euros ($48.57).
Bulgaria’s three main hydropower producers were awarded far
more, at more than 100 leva ($67.57) per MWh.
Bulgaria still has the lowest retail power prices in Europe,
reflecting exceptionally low network costs, taxes and charges.
TRANSPARENT?
Tariffs are agreed between the regulator and individual
power plant in a negotiation where inevitably there is an
information asymmetry between the private sector operator and
government bureaucrats.
That could be a warning for countries embarking on similar
negotiations, where Britain is in negotiations with French
utility EDF for a long-term tariff for nuclear power,
and with power plants to fit carbon capture and storage.
In one Bulgarian example, the Maritsa 3 coal plant last year
demanded a massive increase in its regulated tariff to 123.5
leva per MWh from 69.5 leva the previous year, shortly after
acquiring the power plant.
The Bulgarian state regulator accepted higher charges to
reflect the company’s investment in sulphur scrubbing
technology.
But it complained that a projected 17 percent hike in fixed
costs in part reflected an “unjustifiable increase in salaries,
insurance, maintenance and rent”, while an expected increase in
variable costs it concluded was partly founded on an
unreasonable projection of coal prices.
The regulator eventually awarded 84.1 leva per MWh.
Details here:
Click to access rep-ceni-electro-2012.pdf
RENEWABLE ENERGY
Like most other European countries, the Bulgarian government
also intervenes to subsidise renewable energy.
That is passed on to consumers through a green energy charge
of 0.011 leva per kilowatt hour, or about 7 percent of
residential bills.
Given Bulgaria is already near its mandatory 2020 renewable
energy target, it seems unnecessary to offer generous subsidies.
Nevertheless, under the latest pricing round last July,
consumers ultimately pay for a solar tariff worth 0.4 leva
($0.27) per kWh for smaller roof-top installations. (see Chart 2
above)
That is more than Germany’s corresponding tariff of 0.18
euros ($0.24).
It makes no sense for Bulgaria to support solar more than
Germany, when it has about a third more sun at around 1,400
kilowatt hours per square metre annually. (See Chart 3)
There is no escaping higher bills to pay for upgrading
ageing assets, as Bulgarian energy companies are doing, but the
country has options to limit such hikes where the first
priorities might be to establish a power exchange and enable
greater electricity imports from its neighbours.
($1 = 1.4801 Bulgarian levs)
($1 = 0.7567 euros)
(Editing by Keiron Henderson)
