The government must insist that the EC limits the carbon emissions’ impact on the market in Europe by withdrawing the markets’ free emission quotas says expert Ivan Hinovski
Mr. Hinovski, in a situation of global pandemic and the resulting emergency situation in Bulgaria in the recent months, what are the risks the Bulgarian energy sector faces? What measures are needed during the crisis?
The Bulgarian energy sector has been subjected to two severe negative impacts in the recent months: first, a reduction in energy and natural gas consumption due to suspended or limited production capacity in the industry, tourism and trade, and second, impending difficulties and delays in the energy payments and of natural gas. The price of the electricity on the stock exchanges in Bulgaria and in Europe collapsed to unprecedented levels of less than EUR 40 per megawatt-hour, the state-owned Maritsa East-2 TPP stopped working due to reduced consumption, and as a result coal production was reduced by Maritsa East mines which will further aggravate the already difficult economic situation of this company. To overcome the crisis in the industry, we have proposed several sets of measures, such as developing a plan to support energy companies experiencing current difficulties and rescheduling their obligations. It is appropriate at this critical moment for the energy of the entire European Union, the Bulgarian Government (together with other European countries with a large TPP share) to insist before the European Commission to limit the carbon emission’s impact on the market by withdrawing the markets’ free emission allowances.
The first step of liberalization of the electricity market in Bulgaria, planned for July 1, 2020, expressed in the obligatory withdrawal from the regulated market of a group of non-household consumers connected to low voltage to be postponed for next year. The decision to extend the term for payments of utility bills by 20 days should apply only to subscribers who pay their bills at cash registers and not via payment accounts, due to the assumption that latter second group is not energy vulnerable and it is logical for it not to be experiencing serious financial problems.
Unfortunately, neither BEH nor the Ministry of Energy responded to these proposals.
What is the place of the base capacities of coal energy in the general mix, guaranteeing the stability of our energy system?
Conventional condensing power plants, especially those in Maritsa East, are critical to the stability of the electricity system, not only because their share in the country’s energy balance is the highest of all generating capacity in the country – over 40% of total electricity production but also because of their functional characteristics – they are the main providers of energy security through their role in maintaining the so- called “hot” rotating reserve of the system. They are also the main capacities operating in the sub-peak segment of the system’s load schedule. Very often in Bulgaria’s energy system the base coal-fired power plants are on the so-called “first line” of the system, I use the analogue of the well-known recently popular term for the critical role of a group of medics whom we applauded every night „.
Is it possible at the moment to guarantee the adequate functioning of the Bulgarian energy sector without the presence of the two “American” power plants?
It is impossible. Not only because of the above arguments but also because of the fact that these power plants are modern, highly efficient and have some of the highest reliability characteristics. Without them, energy will not only lose the quality of the electricity mix but its economic characteristics will deteriorate. The other important system argument is that with the open distribution systems of these power plants, especially that of Contour Global Maritsa East 3 TPP, the Bulgarian electricity system is connected to the neighboring energy systems via the newly built high-voltage power lines.
The “Green Deal” in Brussels provides for accelerated decarbonization, involving the decommissioning of coal-based capacities. Will the epidemic change the European Commission’s intentions and will it postpone the use of coal-based capacity in the coming years?
There are two hypotheses. The first, which we consider to be the most probable and least costly for the Member States, is to postpone the effective launch of the Green Deal by at least 2 years. Such is our proposal to the Government. And the second, which also has supporters, is that right now, the time of overcoming the crisis, would be the right moment for an intensive start of the implementation of the measures in this package. And the faster they are realized, the more painless the transition will be. However, we at BEMF are pessimistic that today’s energy management understands and has the potential to organize the implementation of new energy policies.
The legal framework during a state of emergency introduces special rules on ensuring the continuity of electricity supply, as well as regulations on the payment of energy consumption by household consumers. These measures are in their interest but delayed payments to final suppliers could affect NEK’s liquidity which will also have an effect on its suppliers. How serious are these risks for power plants such as ContourGlobal Maritsa East 3 and AES – Galabovo, for example, which sell electricity at strictly defined prices in order to pay off their investment?
The decision to extend the term for payments of household bills by 20 days generally creates risks for the cash flow in the system and it should apply only to subscribers who pay their bills at cash registers and not via payment accounts. The hypothesis for this is that this latter group of consumers has a steady income and should not be energy vulnerable, so it is logical that they do not experience serious financial difficulties. We also suggested that consideration be given to whether this extension of payment deadlines should apply to consumers who receive energy subsidies from the budget, because in this way they receive an unequal double advantage.
And a new extension of these deadlines could further worsen the system’s liquidity and create a risk to the normal energy supplies.
However, I would like to emphasize that the deferred payment of household bills means that they still remain due, and adding them to bills for future periods can seriously hamper family budgets. And the risk for energy companies continues to exist, but it remains the same for everyone, regardless of the system of payment for the energy produced, because public supplier model still exists in the country.
What is the risk to the energy security in the event of intercompany indebtedness along the supply chain?
BEMF forecasts that due to limited energy consumption, the collapse of energy market prices and, as a result, the potential liquidity crisis in the chain in all energy companies caused by intercompany indebtedness may also jeopardize security of supply. Against the background of this picture, the invigorating statements of representatives of the state administration that energy companies work stably is populist and should not reassure anyone. An energy crisis in the context of deteriorating liquidity of energy companies is very likely and needs to be managed.
Both power plants, Maritsa Iztok 1 and Maritsa Iztok 3, are the result of large private investments and by transparent international companies that follow the state policy in times of crisis, despite serious difficulties. Doesn’t this prove the readiness of these companies to participate as a reliable and well-meaning partner in the Bulgarian energy transition?
Contour Global Maritsa East 3 and AES Maritsa East 1 are successful examples of successful modern policies of some of the Bulgarian governments in the past to attract reputable foreign investors in the Bulgarian energy sector. As a result, Bulgaria has new highly efficient and reliable generating capacities operating in accordance with the latest environmental standards. These large global companies have more than once proved their cooperation in resolving a number of current operational issues related to their work and development. They must also be the future partners of the state in the energy transition as knowing and having experience in applying the most modern world energy technologies for low-emission electricity production. And Bulgaria must offer such a partnership to these companies right now, on the eve of the preparation of the country’s new energy strategy.