“You burn coal in a stove. As a result of the heat the water becomes steam and that steam drives the vanes. The vanes move a power generator which produces electricity”, this is how the CEO of “CountourGlobal Maritsa East 3” Krassimir Nenov explains to his son how the thermal power plant located near Stara Zagora he is managing works.
This is the second largest facility in the country that generates electricity by burning lignite coals and its 908 MW represent 7% of the installed energy capacities in Bulgaria. In fact, without ContourGlobal Maritsa East 3 the country could hardly ensure its energy balance, namely to meet its electricity needs. This is one of the power plants on which it depends to secure the light and the warm of the whole country.
Krassimir Nenov, however, has another reason to be proud with his work – TPP “ContourGlobal Maritsa East 3” is one of the most modern coals plants in the region of South-Eastern Europe, which works according to the highest environment protection standards. Furthermore it contributes a lot for the improvement of the region securing employment and with its social investments in different local projects – over BGN 8 million in total for the last 10 years.
It took lots of investments, years of hard work and attracting foreign owners and financing to turn the power centre built in the 1970s into a high-tech complex. Since 2011 the majority share (73%, the other are property of the National Electricity Company) has been controlled by ContourGlobal, an international company operating power plants in 19 countries on three continents.
ContourGlobal is public company and its shares are traded on the London Stock Exchange. It originated from an Investment Fund based in New York and that is the reason TPP ContourGlobal Maritsa East 3 has become popular as one of the “American” power plants in Bulgaria. However, its management could be presented as European – the Bulgarian company is managed by Krassimir Nenov, and director of the TPP itself is the Italian Alessandro Moretto.
Total 450 employees from different municipalities in the region are working in the plant near Stara Zagora. Apart from the town of Galabovo (15 minutes away from the TPP) there are workers that travel two hours a day to their workplace and back convinced that it is worth it. In the office in Sofia there are many employees who serve global-corporative functions in the company around the globe. Like Lora Grigorova who is responsible for financial analysis thanks to which the results and the development of each company asset is forecasted for the next 20-25 years.
What is the forecast for the future of ContourGlobal Maritsa East-3 is a complicated topic. For the coal power plants everywhere around Europe there are restrictive environmental requirements and at the moment they are facing more challenges following the adoption of the latest European standards. The government in Bulgaria promises that the local resources for production of electricity, namely lignite coal, will be after 2030 until 2050.
Executive director of TPP ContourGlobal Maritsa East 3 Krassimir Nenov is an optimist that the plant can work after 2030.
“This is one of the most used power plants for regulating the system (providing energy in a moment of deficiency). After the large-scale refurbishment we continue to make huge investments so that the plant will continue to work reliably”, commented Nenov.
Interview: Krassimir Nenov: ContourGlobal is a Long-Term Investor
Plant with a history
The project for the upgrade of TPP ContourGlobal Maritsa East 3 began in the end of 1990`s, when Bulgaria needed new and modern power generating facilities. In fact, this is the first big private investment in the energy sector of Bulgaria and it was made in a period when it was very difficult to attract foreign investments.
US Entergy Power Development Corporation showed interest to the project and its representatives visited Bulgaria in 1997 to research the possibilities. A year later the company signed a contract with the National Electricity Company for the upgrade and the subsequent managing of the plant, in which Entergy is the majority owner and NEC owns a minority stake.
The Еuropean Bank for Reconstruction and Development was attracted as the main investor, which together with a consortium of international and Bulgarian banks secured financing of 348 million dollars. The remaining $302 million were secured by the shareholders and reinvested profit. In 2006, the loan was refinanced so as to secure additional financing without affecting of the price of the electricity.
For a project of that size guarantees were needed. That is why the contract included a clause under which NEC was obliged to purchase the produced electricity at a price allowing return on the investment for a period of 15 years following the refurbishment of the plant (2009-2024). For this term NEC is committed to purchase and pay the so-called “availability” (maintaining production facilities in readiness for work). That is how investors and lenders can secure predictable incomes which they will use to restore the investment in future. This approach was chosen after a study ordered by EBRD showed that the upgrade of the plant was the only way to secure stability for the electricity system at low costs. Furthermore, thanks to power purchase agreement the provision of state guarantee was avoided.
In 2002 it became clear that Entergy could not deal with the investment alone and Italian energy company Enel was attracted to the project. Enel initially acquired 10% of the shares but later in 2006 Entergy withdrew completely and Enel became the owner of 73% of the project company.
The actual work on the upgrade started in 2003 and was successfully completed in 2009 when the last power unit were put into operation. A year later, Enel decided to sell its Bulgarian asset as part of the company plan to reduce liabilities of the group (totalling 44.9 billion euros at that moment). As a result, ContourGlobal became majority shareholder acquiring the stake of Enel for 230 million EUR.
New challenges
Over the next years the new owner invested additional BGN 50 million in different projects, one of the most significant among them the renovation of the fuel systems of the boilers in fulfilment of environmental requirements that entered into force in 2016. The rest of the investments were allocated to secure continuous and reliable operation of the plant, healthy and safe working conditions, upgrade of the environmental standards etc.
Ten years after the completion of the upgrade of TPP ContourGlobal Maritsa East 3, the plant faces new environmental challenges. In the spring of 2018 EU adopted new standards for the emissions of the big combustion installations which would enter into force in August 2021.
These standards require that TPP ContourGlobal Maritsa East 3 and the other coal plants in the country should either make serious investments to meet the new standards or they will have to stop work.
“We can make these investments but an external expert analysis shows that would not be socially acceptable to do so for most of the requirements”, Nenov commented. Therefore the management hopes that the plant will receive the so-called derogation (it required together with the rest of the lignite power plants) – delay in the implementation of the new requirements.
The response of the Ministry of the Environment and Waters is expected soon and the forecast is that it will be positive for all three plants in the Maritsa region – TPP “ContourGlobal Maritsa East 3”, TPP “Maritsa East 2” and TPP “AES Galabovo”.
“These plants secure 50% of the electricity in the country. Until we find another way to secure our energy balance, they must continue to work”, said Nenov.
Although the project for the upgrade of TPP “ContourGlobal Maritsa East 3” can be successful example of attracting private investments, it becomes a topic of political disputes because of the long-term contract for purchase of electricity. Similar contract also has TPP “AES Galabovo”.
According to Krassimir Nenov the contract is balancing well the interests of the two sides. The terms of the contract and the prices are fixed so the investor can return its investment for the period of duration of the agreement. In his opinion the price for “availability” covers the investment component – the return of the investment, the cost of the maintenance, operation and exploitation and the price for the electricity covers the cost of buying carbon emissions, coals and other supplies. In fact, the TPP receives the expected revenues on condition it provides the “availability” which is guaranteed under the contract. The presence of predictable revenues is a must requirement by the institutions which finance big projects especially on reforming markets such as the one of electricity.
In 2016 NEC and TPP ContourGlobal Maritsa East 3 reached an agreement to reduce the price for “availability” by 15%, which resulted in BGN 40 million of annual savings for the state-owned company.
As a result of the agreement NEC paid its overdues to the plant and take responsibility to pay for the investments made from ContourGlobal for implementation of environmental legislation.
Recently the prices of “Maritsa East 3” seemed higher than the prices of the state-owned TTP “Maritsa East 2”. However, the latest report of KEVR for the following regulatory period showed that the prices of the state TTP needed to cover its costs should be similar to the prices of ContourGlobal Maritsa East 3. These coal plants are very important for the energy system of Bulgaria. Without them Bulgaria could not guarantee in the long-term the supplies of electricity, neither the stability of the electricity system. So, the future of the coal plants should be planned very carefully considering the European experience and practices and the local Bulgarian specifics. “Electricity market should develops itself predictably and stable”, Krassimir Nenov said.
Source: Capital Special, June 2019