EKIP– Expert Club for Economics and Politics A Different Opinion
In the weeks following the referendum on the Belene NPP, a very interesting trend emerged in Bulgarian society. The increase in utility bills, sometimes real, sometimes manipulated, brought the public to its feet. And as in most epic poems, the messenger (the electricity distribution companies) was fiercely attacked. This is another example in which the problem is recognized by the people, but their anger is directed at the wrong side.
Nikolay Vassilev
While most analysts have commented that the price of electricity is not the problem, as much as the low incomes of the population, here we can focus on another statement. Namely, that the price of electricity can be lower, and the quality of electricity for both households and industry can be higher, by achieving greater transparency of the system.
The electricity sector has two peculiarities. First, electricity cannot be stored in large quantities, which leads to the need for demand and supply along the chain to be constantly balanced. Second, with flat-rates, such as the system in Bulgaria, demand is extremely inelastic. This means that even in the most peak periods (excessively hot or cold days), the price is the same, which leads to the creation of capacities only to satisfy this demand and gives rise to the accumulation of inefficiency in the electricity market, due to the fact that households consuming electricity during off-peak hours indirectly subsidize consumers consuming mainly during peak hours. This situation, coupled with the central pricing by the State Energy and Water Regulatory Commission (SEWR), gives rise to the need for constant changes in the price of electricity. If the structure remains the same, the 8% decrease in electricity in March will be offset by a subsequent increase in electricity due to the accumulation of losses in the final accounts of the power plants. The plants satisfying peak demand operate with higher production costs than the price set by the State Electricity Regulatory Commission (SERC).
The structure of production and distribution in our country is also very susceptible to corruption schemes and changes in the country's political apparatus. The State Electricity Regulatory Commission (SEWR) is "carrying out orders", and the three regional monopolists have many loopholes through which they can influence the final consumption of electricity and, accordingly, the electricity bills of households and industry - be it by reducing the voltage or through other non-market methods. These are incentives entirely caused by the fact that the final consumer is trapped in the "trap" of the monopolist and state regulation. Therefore, the solution should not be to change the "puppets" (electricity distribution companies through nationalization) in the play, but rather to change the "scenario".
To begin with, access to the electricity distribution market should be free. This way, each company will have incentives to attract more customers and will offer a better quality service, stimulated by its competitors. Dissatisfied customers will be able to easily switch to another electricity supplier. It is important to clarify here that the state in this part of the structure has the sole task of monitoring compliance with the rights and obligations arising from the concluded contracts. The distribution of licenses also creates the potential for corruption schemes and obstruction of free access to the market. An example of the negative impact of licensing regimes is the mobile services market, where the three operating companies are protected from the entry of a new participant precisely through the licensing system.
NEK should limit its role to maintaining the electricity distribution network. The functions of the State Electricity Regulatory Commission (SEWR) related to price formation should be taken away. Thus, one of the tools of politicians seeking approval will be neutralized. It is no secret that artificially lowering the price before elections is indirect vote buying. With the abolition of centralized price determination, electricity will be traded through bilateral contracts between power plants and electricity distribution companies. Thus, with competition in this market, prices will be reduced to the potential minimum of production costs.
These structural changes are not new and have already been tested. They were implemented in California in 1994, and in the UK shortly after. The effect in both cases is a decrease in the price and higher confidence in the electricity market[1]. Deregulation also offers opportunities to solve the problem of flat electricity prices by introducing so-called individual prices in real time[2]. Thus, from a possible deregulation, the end user will benefit not only from lower prices, but also from greater transparency. As for the supporters of nationalization, I would say to them: We have already seen this movie and I did not like the ending very much... And why not liberalization?!
The market has been liberalized in Belgium too. Ask any Belgian for their opinion on when it was better. I have already done it...
It may be so, but at least we know what we are paying for and how much. Under the current system in Bulgaria, electricity is used as a tool for political propaganda and indirect vote buying.
"you know what you are paying for and how much"
Then it should surprise us that everyone is staring at the 6 cents in each lev, and no one even makes an attempt to ask who collects the remaining 94 cents?!
These are the President's words, not mine. But even after them, there is complete confusion on the issue...
I have nothing against it, as long as the situation doesn't become like that of telecoms or cable operators. At first glance, we have a choice, but in practice, it's a hawthorn situation.
I will try to write an article specifically about the dangers that lie behind an incomplete bill on the restructuring of the electricity market. There really are not one or two, and in this aspect we should learn from the mistakes of other countries. But looking at the political class, it does not have the slightest intention of dealing with liberalization...