Atanas Georgiev and Ivaylo Naidenov: We will all pay higher electricity prices

We cannot expect that with the unification of the market and high emission prices the prices of electricity will remain at the current levels, commented in an interview with BNR Assoc. Prof. Atanas Georgiev, Dean of the Faculty of Economics at Sofia University "St. Kliment Ohridski ”. We all pay the price of energy, because when it increases, so do the production costs and, accordingly, the prices of raw materials. From there we have a general picture of increase, added Ivaylo Naidenov, Executive Director of the Bulgarian Federation of Industrial Energy Consumers (BFIEK).

By 2030, we have quite serious goals. If we want to achieve them, this is done through economic measures. We have chosen to achieve them and we have to pay the price, concluded Atanas Georgiev

The current increase in electricity prices is another cycle of change and is due to factors that are internal and external. Although the liberalization of the electricity market started in 2004, it has not been completed, explained the dean of the Faculty of Economics at Sofia University "St. Kliment Ohridski ”Atanas Georgiev. He reminded that at the moment the small business consumers are already on the market of low voltage, while "there is still some intermediate model for households, ie liberalization is not over there. Which means that when we have regulated prices, they can exercise some control over the change of pricing factors.

"It is always an effort to keep household prices as small as possible. When all other market segments are already on the free market, the tools for this are reduced”, he added.

He drew attention to general factors for the rise in prices - on the one hand, our entry into the United Electricity Market and on the other - the rise in carbon prices.

"We know that we are already part of the United Market in the “Day-ahead” segment, although not quite - united at the Greek border. We also see that emissions prices have risen a lot this year, and electricity in Bulgaria and neighboring countries is highly dependent on coal-fired power plants. So we can't expect that when emissions rise, when the market is unified, what we do as price regulation can stop growth up or down.

Asked if this meant that this "control" was transferred to electricity prices for businesses, he explained that "we need to know what we are comparing". "If we talk about a 3 percent increase in the total cost of living, we must keep in mind that when traders and their customers negotiate on the free market, they only negotiate the energy component. So, yes, the energy component is rising by a large percentage, and when we talk about household prices, we have a large percentage of network services.”

"Such increases - 40-50%, we are talking about the energy component, are quite shocking, especially for small businesses that are not yet accustomed to being on the free market," said the executive director of the Bulgarian Federation of Industrial Energy Consumers (BFIEK). ) Ivaylo Naidenov.

"As there is currently a grace period, low voltage consumers are a kind of free market, but at the moment, according to my information, most consumers are still on a contract that has been approved by the EWRC. From July 1 this year, however, they will have to sign a contract for the purchase and sale of electricity with one trader - it may be the current one, it may be another. It is important that if they want to change their provider from July 1, they must have made their choice by June 10. If they do not choose a supplier and the contract under which electricity is supplied expires at the moment, they will go to the so-called TED. Their electricity will not be cut off, but they will go to an official supplier who sells electricity at a much higher price than the market price. The purpose of this provider is firstly to encourage consumers to look for a trader, secondly - if for some reason the contract is broken through the fault of one of the parties, the consumer will not be left without power. This is the common part. Another thing I would like to advise consumers is to read their contracts very carefully. To look and compare not only the price, but also the clauses, Naidenov noted. He recalled that consumers must also be proactive and learn to monitor the market.

Naidenov pointed out as an internal factor for the increase in the price levels of electricity in Bulgaria the lack of long-term products on the market.

"In terms of price levels, as has already been said throughout Europe, electricity prices are rising, but in Bulgaria there is another internal factor that contributes to this uncertainty, to this price uncertainty and this is not only for small consumers, it is also for large consumers - from 2018 almost all wholesale transactions on the electricity market, ie for sale by producers to traders must be concluded through IBEX platforms in different segments.

But currently only short-term segments work. "Long-term segments, long-term product has not been offered for a long time," he said.

According to Atanas Georgiev, however, one of the tasks for market participation is to monitor what the future levels will be. "If the seller expects prices to rise, he will not want to sell a large quantity now," he explained, noting the excessive involvement of state-owned companies in free market processes.

"It's not just that no one wants to take risks. We must not forget that two thirds (of the current free market) are held by state-owned companies. There is still a special way of making decisions. There is always this fear that if any action is taken and it does not lead to a better financial condition of the company, it may even be subject to jurisdiction.

The market is concentrated, there is a concentration of one of the participants in it, which largely determines what is offered by a producer in this market, "said Georgiev.

According to him, "there are various reasons for not offering quantities in the long run." "Let's remember, however, that one of the reasons for this is that the business itself did not want to have so many long-term quantities. He wanted to have more quantities in the market "Day ahead", because it is the most liquid, the easiest to set prices, etc., "he added.

"In my opinion, the solution is for each user to balance their portfolio. Especially if it is a bigger consumer ", Ivaylo Naidenov commented. According to him, this "will give traders a greater opportunity to give greater security to smaller customers, because if they buy a package of energy with a long-term contract, they will be less exposed to short-term changes."

Atanas Georgiev, in a comment on cases of traders who warn their customers about changes in the contracts with small customers, reminded that they (the contracts) are for energy supply and not for guaranteeing a low price. "The trader has no interest in terminating the contract. It is also not good for him when the dynamics are high and he cannot cover it through the hedging he has made. "Every trader wants to sell more, to more customers, and accordingly, such contracts, which leave a loophole for termination, are not profitable for the trader," he said.

In response to a question about how the current increase in price levels will affect business, Naidenov, for his part, drew attention to the impact on the chain and the danger of inflation.

"We all pay the price of energy, because when it increases, so do production costs. Accordingly, raw material prices are rising. From there we have a general picture of promotion. Unfortunately, this is the general picture in Europe since the beginning of the year. And not only in the price of electricity, but also in the price of natural gas, the same trends are observed.

More globally, the competitiveness of the European economy is in question. "Signs of inflation and a general rise are beginning to be seen more locally," he said.

In response to the question "Is inflation the word?", Georgiev noted that "We can call ourselves that."

"Because one of the main factors is the rise in emissions prices. We must keep in mind that every policy, every green deal, or another at global or European level, must be covered by consumers. We should not be surprised that the price of electricity jumps when the price of emissions rises with regulatory intervention and when we know that our electricity is still very dependent on coal.