AmCham Bulgaria presented today its brand-new “Power Sector Decarbonization Study”. This large-scale report includes three scenarios for decarbonization and a policy recommendation package which to shape more favorable to the green transition investment framework. The analysis was presented by Krassimir Nenov, Co-Chair of the Energy and Mineral Resources Committee. The event at InterContinental Sofia was attended by Petar T. Ivanov, CEO, AmCham and Ivan Tzankov, member of the Energy and Mineral Resources Committee. They both joined the discussion.
The Report has several goals: decarbonization of the electrical system of Bulgaria, smooth introduction of new technologies for decarbonization which are inline with the market and regulatory requirements, smooth and fair energy transition, maintaining the the sustainability and viability of the electrical system of the country, as well as protecting the competitiveness of the local economy, guarantee of power supply for the businesses and households.
- AmCham Power Sector Decarbonization Study – Executive Summary in Bulgarian, March 01, 2022
- AmCham Power Sector Decarbonization Study – Executive Summary in English, January 26, 2022
- AmCham Power Sector Decarbonization Study – Full Report in Bulgarian, January 26, 2022
- AmCham Power Sector Decarbonization Study – Full Report in English, January 26, 2022
The report analyses those KPIs: capacity, generation, flexibility, emissions, investment, cost. As a result, the consultant has developed three scenarios with potential to realize the decarobonization goals. They also have five sensitivities sub-scenarios as well.
The study is result of six-month joint work of the leading consulting company – Compass Lexecon. Since the beginning of the project, AmCham’s Energy and Mineral Resources Committee engaged identified stakeholders, institutions to define best the potential scenarios, key assumptions, as well as in selection of the data sources and input.
The report is supported by AmCham members, including: AES Bulgaria, ContourGlobal Maritsa East 3, America for Bulgaria Foundation, Asarel-Medet, Dundee Precious Metals Bulgaria, Enery, EVN Bulgaria, GEOTECHMIN AD, Glavbolgarstroy Holding, ING Bank Bulgaria, Schneider Electric Bulgaria, Westinghouse Bulgaria.
The report was developed in two main phases. First it identifies and models all possible pathways for a carbon-neutral power sector. The consultant used their own dispatching model of the power sector, utilizing the computing capability of the Plexos tool.
As a result they have presented recommendations for the needed investment framework which to attract the needed investments to guarantee smooth energy transformation.
Three Decarbonization Scenarios
The report develops three potential scenarios for decarbonization of the power sector:
- The “2020 Commitment Scenario” (‘2020 CS’) is based on 2020 NECP and the Bulgarian Energy Strategy and acts as a counterfactual scenario to compare decarbonization scenarios. This scenario uses commodity prices projections including EU ETS price and technology cost assumptions of the EU 2020 Reference scenario completed with Bulgarian specific inputs from AmCham Energy and Mineral Resources Committee. This scenario reflects the generation mix evolution to meet the energy sector 40% CO2 emissions reduction target by 2030, implied by the economy wide 49% CO2 emissions reduction target relative to 1990.
- A second scenario “EU Increased Ambition scenario” (‘EU IAS’) explores the set of options available to fully decarbonize by 2050 while being compliant with the European “Fit for 55 package” in 2030.
This scenario uses commodity prices projections and technology cost assumptions of the EU 2020 Reference scenario completed with Bulgarian specific inputs from AmCham Energy and Mineral Resources Committee. It also uses EU ETS price projections of the EU Ff55 MIX scenario, combining a cost-efficient development of generation capacities under a set of Bulgarian technical and environmental constraints defined by AmCham Energy and Mineral Resources Committee and European CO2 emission reduction constraint.
- A third scenario “Alternative transition pathway” (‘ATP’) tests the options that would minimize the costs to achieve the transitory 2030 overall 55% CO2 emissions reduction for Bulgaria (and therefore would not overachieve the emission reduction target contrary to the “EU Increased Ambition scenario” but still going beyond the “2020 Commitment scenario”), and full decarbonization by 2050.
- The scenario is based on the “2020 Commitment scenario” using commodity, EU ETS and technology price projections of the EU 2020 Reference scenario, as well as projected capacity of the 2020 Energy Strategy but allowing for additional renewables to be built. Contrary to the 2020 Commitment scenario, the model optimises dispatch and implicit carbon price to achieve an overall 55% CO2 emission reduction in Bulgaria by 2030 at least cost.
- The approach followed is such that it allows an optimal dispatch while identifying the implicit carbon price on top of the EU Reference scenario price that would allow a smooth transition – that is a carbon price that would be sufficient to induce the necessary CO2 emission reduction to reach overall 55% CO2 emission reduction by 2030 in Bulgaria.
Capacity and generation outlook
- Across both ATP and EU IAS, variable renewable and low carbon capacity is projected to play a larger role towards decarbonisation both in 2030 and 2050 with a minimum of 7.5GW wind and solar capacity being developed by 2030 in ATP.
- This translates into an increasing share of variable RES generation in both scenario from 7% in 2020 to 23% (resp. 36%) in 2030 in ATP (resp. EU IAS) and 40% (resp. 51%) in 2050 in ATP (resp. EU IAS).
- Along the transition, EU IAS is projected to rely more on new gas investments and accelerate lignite closure from 2025 onwards compared with ATP. Combined with higher EU ETS price in EU IAS, this leads to an accelerated reduction of lignite generation from 2025 onwards replaced temporarily by equivalent gas generation compared with ATP.
- This interdependence between lignite and future flexible requirement capacities points to the critical role of an orderly transition keeping a sizeable base of thermal plants available to ensure security of supply in the transition, through orderly lignite plants closure and new gas or flexible capacities low carbon investments.
- In addition to further decarbonise the Bulgarian power system by 2050, the development of additional low carbon flexible generation in the form of new nuclear capacities or storage would help achieve full decarbonisation while ensuring security of supply.
Carbon emission reduction and power system cost outlook
- While ATP is designed to achieve an overall 55% CO2 emission reduction in Bulgaria by 2030 at least cost and reach full decarbonization by 2050, EU IAS overachieves Bulgaria’s potential new intermediary emission reduction target for 2030, reaching 88% CO2 emission reduction in the energy sector by 2030, equivalent to an economy wide c70% CO2 emissions reduction compared to 1990.
- This increased emission reduction in EU IAS leads to a significant increase in power system costs, particularly over the next decade compared with ATP, bringing forward investments in low carbon technologies and reducing the use of existing capacities as a hedge against rising carbon prices.
- However, EU IAS shows how Bulgaria can put in place an ambitious decarbonization strategy with rapid and deep emission reductions in the power sector thanks to new technologies.
Need for a Transition Mechanism and Investment Framework to Support Decarbonization
In all scenarios, the decarbonization of Bulgaria’s power sector will require significant investments in generation and energy infrastructure
- Some/most of the investments required to decarbonise Bulgaria’s power sector while ensuring security of supply are not profitable based on energy market revenue alone
- The current immature Bulgarian Electricity market exposes market participants to risks and hinders investments
- The EU target model will not provide sufficient coordination and investment incentives to make sure decarbonisation targets are met while ensuring security of supply
Two key market design requirements were identified for a successful transition:
- an investment framework for new capacities (financing & de-risking) including specific investment frameworks for Renewable generation capacities, Nuclear generation capacities, Flexible capacities and Energy grids
- a transition mechanism securing lignite operation in the interim as well as a progressive phase-out.