Trading of Bulgarian GOs is currently limited with transactions done bilaterally over the phone or via auctions organised by state-owned utility NEK which owns the majority of hydro power assets in the country (2.7GW).

The GOs could be resold later on via a broker but the market remains constrained on a local level with production vintages covering the shorter term.

In the latest auction published on 11 May, NEK was offering 148,811MWh of hydro GOs issued in February 2023 at a minimum bidding price of EUR 4.10/MWh and 73,702MWh of hydro GOs issued in March at a minimum bidding price of EUR 4.70/MWh.

Normally Bulgarian GOs change hands at euro 2-3/MWh discount to EU GO prices, according to a local market participant.

Corporate and industrial GO buyers tend to be entities of foreign European companies, while interest from local businesses is yet to grow.

The new IBEX platform is most likely going to offer GO auctions rather than continuous trading, according to IBEX CEO Konstantin Konstantinov. The details of the trading parameters are yet to be defined. To ensure liquidity, however, Bulgarian GOs will have to be made available for exports. This can happen only after Bulgaria becomes a full AIB member.

The Bulgarian Sustainable Energy Development Agency (SEDA) had applied for an AIB membership in July 2020, only to withdraw it after a few months due to an unstable political situation. SEDA reapplied for membership in September 2021 and has been an observer ever since.

Market sources said that budgeting issues and lack of a stable government have been the main obstacles to the AIB membership so far. The last elections in April failed to produce a clear winner with a new coalition government likely to be formed in the next days.

While Bulgaria remains heavily dependent on nuclear and coal to cover its electricity needs, renewables production has been rising in recent years with solar in particular seeing a steady growth.

Bulgaria produced 3.7TWh of hydro electricity in 2022, followed by 1.9TWh of solar and 1.5TWh of wind, according to SEDA data.

Renewables held 22,8% of the country’s residual mix in 2021, up from 19,3% in 2020, according to AIB data. However, the use of fossil fuels also increased in the same period from 37,7% to 41% amid a drop in the nuclear share.

The country currently operates 700MW of wind and 1.5GW solar capacity, according to SEDA and grid operator ESO has received applications for 40GW worth of renewables projects. The figure points to the untapped potential in the sector. Furthermore, offshore wind projects in the Black Sea are yet to be explored.

Bulgaria’s Wind Energy Association expects that 4GW of new onshore wind capacity could come online by 2030. This is well above the 2GW target set in the last 2023-2053 energy strategy presented in January. The strategy also sets a target of new 7GW solar and 870MW hydro capacity by 2030.

The interim government is currently discussing some long-overdue changes to the country’s Renewable Energy Act which should deal with bottlenecks in the permitting and grid connection processes for new projects.

Bulgaria’s National Energy and Climate Plan (NECP) envisaged the introduction of contracts for difference to stimulate renewables deployment, although auctions are yet to be announced. Bulgaria is expected to submit its revised NECP by 30 June 2023 which could bring more clarity on any planned state support.

In the meantime, new solar producers have been entering the market in the last two years tempted by high wholesale electricity prices. Power Purchase Agreements (PPAs) are still a novelty due to an uncertain long-term price outlook, unstable regulatory environment and credit risk associated with local offtakers.

In the short to medium term, the country may start to rely on electricity imports to meet its energy demand and thus be a net importer within the AIB while it works on expanding and accelerating its energy transition from coal.

Bulgaria recently backtracked on plans for an early phase-out of coal-fired power plants amid demonstrations. However, market forces are likely to push coal plants out of the money as the peak of the bullish wholesale electricity market seems to be over.

The country has the potential of becoming a GO exporter in the long term if the government and regulator set the right conditions for new renewable capacities to be developed faster. Current expected time frame for a new wind project to come online is up to six years, according to investors.

23-05-2023 13:45 CET - A figure was corrected in the11th paragraph. 

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