Bulgaria Has Made Important Steps Towards a Fully Liberalized, Liquid and Transparent Energy Market

01.08.2019

Liquidity on markets for same-day and day-ahead use is essential for generators, distributors and customers

Across the world, fully liberalized, liquid and transparent electricity markets are essential for all market participants, be they generators, distributors or customers, since they ensure competitive market access. This applies in Bulgaria as much as anywhere else.

Bulgaria has made progress in liberalizing its energy market in recent years. A major step was the launch in 2016 of the Independent Bulgarian Energy Exchange (IBEX). IBEX operates three platforms for buying and selling energy: intra-day (electricity for use on the same day), day ahead and bilateral deals.

Since 2016, liquidity on the Bulgarian energy market has improved as the amount of electricity sold on the open market has increased. From the beginning of 2018 all sales of electricity by generators for the open market have to be carried out on IBEX platforms. From the middle of 2018 renewable energy and co-generation producers with installed capacity of 4 MW or more have been required to sell their electricity via IBEX. Then, in July 2019, renewable and co-generation producers of over 1 MW installed capacity were required to sell their energy on IBEX.

Since July 2018 grid operators have been obliged to purchase energy to cover grid losses from one of IBEX’s platforms.

Now over 60% of all electricity generated in the country is sold on the free market and traded on IBEX platforms.

The largest Bulgarian wind farm – St Nikola  –  in which AES is a majority shareholder, sells its power on the free market. The farm generates around 330 GWh a year, significantly contributing to the country’s renewable electricity production and playing an indispensable role in Bulgaria achieving its target for renewable production.

The other major step the Bulgarian authorities have taken in creating a more liquid market was the removal this year of the charges on electricity exports. These charges, which were around €5 per MW/hour at the time of their abolition, were a disincentive to cross-border trade in electricity and held back efforts to boost regional energy market integration.

Integrating Bulgaria’s energy market with the markets of its neighbours helps to create a deeper, more liquid and less volatile market for energy. This benefits generators, by giving them a larger market for their electricity, as well as distributors, which have a larger market to buy electricity from. Regional market integration thus helps reduce volatility, diversify supply and improve energy security.

Bulgaria has commercially available interconnections capacity of 1 700MW with its neighbours and work is underway to build a new interconnector with Greece.

More work is needed to ensure full market coupling with neighbouring markets, such as harmonizing trading hours and rules for cross-border trade, but important progress towards regional market integration is on its way.

The Ministry of Energy recently announced plans to ensure the coupling of intra-day markets between Bulgaria and Romania by the end of 2019, and the coupling of day-ahead markets between Bulgaria and Serbia, Greece, and North Macedonia by the end of 2020.

Another important step toward a fully functioning market is the development of a wide range of instruments for trading on the forward market, i.e. for energy that is used at a later date, which will further incentivize energy users to enter into forward contracts for energy supply. This will help users to protect themselves against price volatility, which is an inherent component of the free market.

AES Bulgaria welcomes the steps that the Bulgarian authorities have taken in recent years to liberalize the market and to boost regional integration. Achieving a fully functioning and transparent market will require participants being able to buy and sell electricity on the same-day and forwards markets with sufficient liquidity to promote competitive pricing. That is the best way to have an energy market that meets customers’ needs and incentivizes investment.