Traders perspective on the World Bank Report for development of the Bulgarian power market. En.Trading 017 Seminar Sofia, Bulgaria

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1 Traders perspective on the World Bank Report for development of the Bulgarian power market En.Trading 017 Seminar Sofia, Bulgaria

2 Association of traders with electricity in Bulgaria ATEB is an association uniting leading international and Bulgarian electricity trading companies. ATEB s main goal is to promote and facilitate the development of competitive electricity market in the country. Founded: 2006 Members: Markets: Main Partners: 20 international and local companies European markets in South East Europe, Central and Western Europe EFET European Federation of the Energy Traders, Trading Associations from CSEE region 2

3 Member companies Kimpex Energy Energy Power 3

4 Bulgarian system data Installed capacities, MW RES TPP HPP NPP Generation and consumption, GWh RES TPP HPP NPP Consumption Source: ENTSO-E 4

5 Bulgarian market overview Partial market opening (2016) 29.3 TWh local consumption, 15.5 TWh traded on the open market (53%), 6.5 TWh export Obligation of generators towards the tariff market in form of obligatory quotas Dominant position of the state-owned generators -> 85% - 90% of the volumes on the open market Electricity exchange (IBEX) with DAM and OTC platform Intraday trading planned as of the beginning of 2018 Export fee of 4.72 EUR/MWh Obligation to society fee of the amount EUR/ MWh charged to the consumers covering the costs for subsidies for RES, Co-gen, LT PPS 5% energy tax on the revenue of all generators and imported electricity; Developing market with increasing trading opportunities 5

6 Development of the liberalized market Open market model for bilateral contracts and balancing Weekly schedule notification Switch from weekly notification schedules to daily, limited to working days Extension of the daily notification of schedules to non working days Introduction of balancing groups Medium voltage consumers enter the open market Launch of the balancing market Launch of IBEX-DAM Introduction of Synthetic Profiles 6

7 Development of the electricity market Traded volumes on the open market (export included) [TWh] 0,18 2,61 4,14 7,30 13,73 9,81 11,28 15,66 13,52 13,16 20,79 24,81 24, Licenced traders Consumers Power plants Source: Energy and water regulatory commission, Electricity system operator 7

8 Average monthly prices of balancing energy ,000 0,000 50, , , ,000 м м м м м м м м м м м м м м м м м м м м м м м м м м м м м м м м м EUR/MWh Excess Shortage

9 IBEX General information IBEX DAM was launched in Jan 16 as result of settlement agreement between Bulgaria and the EU Commission The state-owned NEK, TPP Maritsa East 2 and NPP Kozloduy are obliged to provide liquidity: 300 MW in 2016, 100 MW increase in each of the next 4 years Ownership by the state-owned Bulgarian Energy Holding, to be transferred to the Ministry of Finance (Bulgarian Stock Exchange) Nord-pool trading platform Launch of OTC trading platform in Q Planned launch of intraday organised market as of 2018 Late gate closing (12:00 CET) and publishing of results (12:55 CET) limits the integration in the regional market and increases the price volatility 9

10 Average weekly prices, EUR/MWh EUR/MWh HUPX OPCOM IBEX LAGIE 100,00 90,00 50 HUPX IBEX 80,00 70,00 60,00 50, High price volatility 20,09 21,09 22,09 23,09 24,09 25,09 Export ban 40,00 30,00 20,00 10,00 0,00 10

11 WB key proposals for market liberalization in Bulgaria State-owned generators selling exclusively via IBEX s (OTC or DAM) Purchases of grid losses via IBEX Market integration of generators with long-term PPAs and feed-in tariffs via Contracts for Difference, selling of the electricity via IBEX DAM Key role of the Security of the Electricity System Fund counterparty to CfDs and responsible for securing the necessary funds Coupling with the EU electricity market An increase in the Obligation to Society fee for all consumers by about five percent per year until 2019 Government support to reduce the cost of the repayment of the accumulated debt Market-based regulated pricing for households Social tariff for low-income households Increase of the capacity, independence and transparency at the relevant stakeholders 11

12 Traders view on the proposed market model Return to the single buyer model via the limitations to conclude deals predominantly on IBEX Possibility for price influence due the dominant position of BEH subsidiaries Limitation of the freedom for the market participants to choose the most suitable platform for purchasing/selling of electricity and managing positions Reduced opportunities for secondary trading Obligatory payment of fees for all traded volumes Increased credit risks for IBEX by being a central counter party in all deals The market participants in Bulgaria will be in disadvantageous position compared to the other traders in the region 12

13 Traders view on the proposed market model As a final result from the previously mentioned reasons the implementation of mandatory trading through IBEX can halt the market development and be a prerequisite for re-regulation and centralization of the electricity market in Bulgaria. 13

Traders wiev on the proposed market model Implementation of market-based purchase of losses Generally a step in the right direction Relevant volumes should be

14 Traders wiev on the proposed market model Implementation of market-based purchase of losses Generally a step in the right direction Relevant volumes should be allocated by the generators Significant volumes with price independent bids on DAM might lead to market distortions Purchase of losses through tenders, not via DAM 14

Traders view on the proposed market model Contracts for differences Possible solution for market integration of generators with PPAs and feed-in tariffs The reference price must be chosen

15 Traders view on the proposed market model Contracts for differences Possible solution for market integration of generators with PPAs and feed-in tariffs The reference price must be chosen carefully at the moment IBEX cannot provide representative reference price, while additional price independent volumes will not lead to improvement Source: World Bank, based on IBEX Day-Ahead Market 15

16 Traders view on the proposed market model Intraday market Allows market participants to adjust their positions closer to the delivery hours Benefit renewable energy generators and the balancing of the system Expected implementation on national level at the beginning of 2018 Market coupling Export and import zones as temporary solution? Need for binding agreements with neighboring countries about the terms and timeframe for DAM and intra-day market coupling Abolishment of import and export fees in Bulgaria 16

17 Traders concerns on the proposed market model Positive recommendations: Launch of the intraday market and market coupling Ensuring the independence of IBEX through transfer of the ownership Build capacity and ensure the independence of the EWRC Measures for recovery of the financial deficits in the sector Protection of vulnerable consumers 17

18 Unaddressed issues Co-existence of regulated and liberalized market segments, cross-subsidies Export and import fees Uncertain and frequently changing regulatory framework Lack of transparency and language barriers. Data is often published without explanation Possibility for unilateral changes in the IBEX rules Unbundling of NEK by activities/licenses 18

Unaddressed issues Market power of incumbents the BEH subsidiary generators have significant market power Inefficient balancing market REMIT regulations not transposed

19 Unaddressed issues Market power of incumbents the BEH subsidiary generators have significant market power Inefficient balancing market REMIT regulations not transposed in the local legislation Repeated electricity export bans Unrealistic obligations of the energy traders related to the energy efficiency act Additional reporting to FSC 19

20 Jan-Feb 2017 case The very low temperatures and high consumption combined with poor planning led to a tight energy balance of Bulgaria in the beginning of January On 9 th of January the Minister of Energy ordered without warning a redirection of half of the electricity provided to IBEX by the state-owned power plants to NEK (tariff market). The measure lasted for 24 days Discriminatory treatment between the tariff and open market leading to increase by 50% of the prices on IBEX As of 13 January the Minister of Energy imposed a ban on the exports of electricity produced in Bulgaria. The ban lasted for 27 days Discriminatory treatment between the exporters and local suppliers, leading to 45% lower prices on IBEX compared to HUPX The state interventions led to more than 30 mil EUR losses for the electricity traders, as well as induced an investigation by DG Energy and DG Comp 20

21 Thank you for your attention! Martin Georgiev Chairman of the MB ATEB Tel: ;

The current state of the electricity market in Bulgaria

The current state of the electricity market in Bulgaria Towards market liberalization Current state of the market Generation 42 TWh Export - 18% Losses - 9% Regulated market 33% Domestic free market -