Electricity prices - it's not RES and the Americans who are to blame, but our anti-market isolation

The Bulgarian Energy Exchange closed at a day-ahead baseload price of BGN 285.10 per MWh. The peak energy price is again close to the shock values of BGN 330 per MWh from a few days ago.

For comparison, the price on Western exchanges is significantly lower – 99 euros in France and 100 euros in Germany. Even the nearby countries in the region, Slovenia, Slovakia and Romania, which are not famous for their powerful energy capacities, achieve better prices – 142, 100 and 106 euros.

On local soil, finger-pointing in the midst of the crisis began almost immediately, with capitalism, the Americans, and, to our pleasant surprise, the half-hearted management of state-owned energy companies being the ones to blame.

And the truth is simple and can be seen from the prices on European stock exchanges - countries (such as Germany, Austria, Hungary, the Czech Republic, France) that have integrated their national markets over the years and liberalized the demand and supply of energy achieve prices around 100 euros, while those (Bulgaria, Greece) that were mired in anti-market isolation and covered their post-socialist state mastodons with umbrellas are today mired in prices of around 150 euros.

It's not the market that's to blame, but the lack of a market.

On paper, any plant in Bulgaria can sign a contract with any electricity supplier in Europe. But in practice, electricity cannot be transferred from the power plant in France to the plant in Bulgaria, and through a chain of swap contracts, the physical electricity is most likely to be supplied from Romania or Austria. Still, Bulgaria must have a connection with neighboring Romania with a sufficiently large capacity for electricity to pass from the Romanian to the Bulgarian system. However, there are no such transmission lines. Bulgarian businesses can sign electricity supply contracts even with Swedish companies and power plants, but the chain of swaps reaches the Romanian-Bulgarian border and gets clogged there.

This is not a market, but quite the opposite – anti-market policies of all governments since our entry into the European Union. For 15 years now, it has been clear that the energy markets in Bulgaria are being consolidated in order to have a quick transfer of surplus electricity and thus balance supply and demand at acceptable prices. But the Bulgarian rulers did almost nothing to integrate the Bulgarian market with the West. On the contrary, they did the biggest stupidity and first integrated Bulgaria with the Greek energy sector – which is just as mired in socialism and corruption as ours (it is hard to forget the 20 salaries of a kalpak in the Greek state energy sector during the debt crisis of 2014).

It's not the Americans who are to blame, but the Bulgarian political lobbies.

The regular argument in recent years has been that the aforementioned absurdities are not the anti-market barriers along the border, but the American power plants in the Maritsa Basin. They have long-term contracts for the purchase of electricity from NEK, mainly to ensure liquidity of energy during times of peak consumption. The absurdity is that the two power plants with American owners are actually selling to the state-owned NEK today at prices of 260 and 215 leva per MWh, compared to 220 leva for the state-owned TPP and free market prices between 280 and 330 leva over the past week. That is, the fixed prices under the contract actually transfer profit to the state-owned NEK as a monopoly intermediary, and do not increase the price of electricity.

Of course, such long-term contracts are not a market solution and in the future they should be replaced with pan-European auctions for available capacities at peak consumption, as our country's interest should be in providing a good business and institutional environment for more such capacities to be created in Bulgaria and to serve not only the domestic, but also other European markets (which, due to green-minded voters, would politically and economically accept electricity imports more easily). But here too, the Bulgarian governments have been taking almost no action for at least 4 years now - negotiations with Brussels on the liberalization of the electricity market and the introduction of capacity mechanisms are hopelessly stuck, and the aforementioned long-term contracts expire in 3 and 5 years anyway, after which Bulgaria will be "hanging" with a shortage of both peak and baseload capacity.

It's not too many renewables, but too few renewables that are to blame

The other clichéd culprit for energy crises is renewable energy plants, which produce “expensive” electricity because of subsidies for low-carbon energy. This may have had some reason in the last years of the “Triple Coalition” and the first years of “GERB”, but for a long time, investors in renewable energy have been driven more by market incentives for decentralized production and consumption and less by guaranteed purchase contracts and guaranteed returns from the state.

In the RES sector, however, the misunderstood Black Sea ecology and the EPR/ESP fuses clash with the incentives of entrepreneurs and households. Among the few market ideas of the so-called "Green Deal" is at least a 20-fold increase in offshore wind energy production in the next 30 years, using the de facto lack of opportunity cost in installing "fins" in offshore sea and ocean areas, as well as the nearly 24-hour wind load there. The expected zonal surpluses of this load are planned to balance peak consumption in different countries through the connection of electricity grids and more eccentric ideas for storage in the form of hydrogen. All this may work on a market principle in Western Europe with the huge offshore wind capacity of the Atlantic and North Seas, but it clashes with the far less suitable Mediterranean and Black Sea coasts. Which, on top of all that, the misunderstood Bulgarian ecology has completely cemented with protected areas or inter-neighboring maritime conflicts, so that our country will not only not benefit from the offshore wind stimulus of European energy, but will also probably have to demolish old wind farms, which are being sued for whether or not they kill birds.

At the other end of the RES philosophy are small RES power plants, mainly for own or local consumption, for the construction of which deliberate and politically erected barriers continue to apply - a requirement that the site has a concluded supply contract, the need to issue a construction permit and connect to the grid, long periods of administrative service, etc. This prevents the electricity market from being decentralized, as the political goal is to maximally strengthen the monopoly of state-owned companies in the production and trade of electricity, at the contact end of which private ERPs and ESPs are installed to collect consumer dissatisfaction and denigrate them as the regular culprit for everything (in fact, less than 10% of the electricity bill remains in private ERPs and ESPs). Promoting the use of RES for own and local consumption would solve a long list of problems in ensuring sufficient baseload energy in Bulgaria from aging and inefficient capacities and would focus public attention on the need for market or at least close to market solutions for providing capital-intensive capacities and connectivity with neighboring countries to meet peak consumption.

The false leap from the needs of society to the needs of the state apparatus

Bulgarian society needs basic and flexible electricity supplies, a huge part of which could be provided through fully market solutions – decentralized RES, cross-border connectivity with developed electricity markets and participation in pan-European capacity mechanisms. If these policies are implemented, then the needs of society for energy supplies in rare peak moments from local sources would focus public attention on the appropriate and transparent transformation of the Maritsa basin with minimized corruption risk. But the needs of society are not the needs of the state apparatus, which has an interest in the concentration of power and finances in state-owned companies, managed at the expense of society in the interests of politicians. And in any energy crisis like the current one, this state apparatus with all the quasi-corporate mutations around it will speak out against market solutions in order to mask its own failure.

Sources

European Commission (2020) An EU Strategy to harness the potential of offshore renewable energy for a climate neutral future. Достъпно от https://ec.europa.eu/energy/sites/ener/files/offshore_renewable_energy_strategy.pdf

European Commission (2020) Boosting Offshore Renewable Energy for a Climate Neutral Europe. Достъпно от https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2096

Latest European Power Markets data. Available from https://www.energylive.cloud/

Rothbard, M. (1982) The Ethics of Liberty. NYU Press

Couture, T., Pavlov, T., Stoyanova, T. (2021) Development of decentralized photovoltaic systems in Bulgaria. Available from https://www.e3analytics.eu/wp-content/uploads/2021/06/E3A_Bulgaria_Analysis_of_Distributed_PV_BG_FINAL.pdf

Panchev, S. (2021) Discovering the potential for decentralization in small RES installations. Available from https://ekipbg.com/wp-content/uploads/2021/04/EKIP_DecentRES-compressed.pdf

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