Boyan Rashev: Why did electricity prices explode ... and why won't they normalize?

There are 10 main reasons, some of which are easy to manage with political will, he says

Energy / Bulgaria
3E news
349
article picture alt description

For about a month now, electricity prices on the Bulgarian stock exchange have been maintaining extremely high levels. Some highly energy-intensive industries have stopped, others are reporting huge losses. Small businesses have yet to see this process reflected in the July and August invoices. All employers' organizations came together and asked the state to solve the problem. It reacted relatively quickly, took some measures, but the results did not meet expectations - the current on the stock exchange is still more expensive than that for households, which is not normal and cannot last long.

A lot has been written and said on the issue, but there is still something to be said about the essence of the problem. For me, there are ten main reasons for this phenomenon. The first group are superficial, clearly visible and relatively easy to manage in the presence of political will.

This is written in an extensive commentary on the subject by Boyan Rashev, managing partner at Denkstatt Bulgaria, published on his Facebook profile:

1. The hot weather

Yes, the heat matters. They lead to record high summer consumption. However, we are talking about a little over 5 GW, which is much less than the winter records (over 7.5 GW) and the total installed capacity in the country, which is about 11-12 GW. In addition, this is a normal phenomenon, which in previous years has never led to such prices.

2. The weak supply of the IBEX and the monopoly position of the BEH companies

The Bulgarian National Electricity Exchange (BNEE) suffers from a rather weak supply - there are only 16 significant producers available, and large quantities come from the state headquarters of BEH. They have a habit of selling on the regulated market through long-term contracts and put a very small part of their electricity on the stock exchange.

This allows private TPPs and RES to generate huge profits at certain times. This problem has weight, but it is not from yesterday, that is, it cannot explain the jump in the price from the last month.

3. The sluggish reaction of TPP Maritsa-East 2

TPP Maritsa-East 2 is in an extremely difficult financial situation. In the spring, some employers' organizations even called for its closure. At the end of June, the state saved her by securing a contract on the regulated market, and since then the plant has operated with only 2 units. Even the high prices on the stock exchange failed to force its management to include more capacity faster, which is not adequate market behavior.

On the other hand, it should be borne in mind that TPP Maritsa East 2 is designed to play the role of base power, not balancing - it cannot turn on and off during the day. However, even its inclusion did not provide sufficient liquidity on the stock exchange, nor did it lower prices to completely normal levels. At least it became obvious that our electricity system really can't do without TPP Maritsa-East 2.

4. Many electricity traders have a conflict of interest

There are a huge number of electricity traders, almost all of whom have through connected persons or RES plants or private TPPs. They also play for the high price of electricity, making extreme offers on the one hand as buyers of energy at high prices, and on the other hand because their contracts with smaller businesses guarantee them a profit on sales.

5. Market unification with Greece

Since mid-May, the IBEX has been participating in the operational processes of market integration with Greece, ie all participants in the exchanges on both sides have access to the Day Ahead market.

Greece, on the other hand, is connected to Italy - these are the countries with the highest average stock prices in the EU in 2021. In practice, the cheapest and most expensive electricity market in the EU has merged. Exactly what could have been expected happened - the price rose well above the level of the cheap market (Bulgaria), entirely at the expense of consumers in our country. Electricity producers export and earn well, but the entire Bulgarian economy suffers and some sectors perish.

The map reflects only the prices on the market "Day ahead" for 21.08.2021. All of Europe is in red, which means that everywhere the price is unnaturally high.

In summary, if we have to single out one of the most significant factors for the sharp rise in electricity prices in the last month, it is the semi-inclusion of Bulgaria in the EU electricity markets - unification with Greece, which gives us access to expensive electricity and lack of unification. with Romania (and hence with the whole of Central and Eastern Europe), which would give us access to relatively cheaper electricity.

This decision is not just wrong. It is criminal. Through it, the Bulgarian state (through state power plants) and private electricity producers suck the life force of the producers of everything else.

But that's not all. Even if we unite with Romania and correct the problems of the IBEX, the industrial electricity in Bulgaria will remain more expensive than before and will continue to rise in price. At the heart of this longer-term process are some other reasons that are much more difficult to explain and address.

1. The weak liberalization of the market in our country

Households are not yet on the liberalized market, ie they are protected from market changes in the price of electricity. This means that a huge part of the production of low-cost facilities is reserved for them. As a result, the industry pays much more - Bulgaria is the country with a record high ratio of the price of electricity for industry to that for households in the EU. This is a socio-economic and political problem for which I do not see how a solution will be found.

2. The structure of the Bulgarian economy

The Bulgarian economy is basically a kind of symbiosis between the heavy, energy-intensive industry and our electricity system. The second is designed and sized to serve the first, where the cost is most dependent on the price of energy - to provide it with a competitive advantage in the form of abundant, reliable and cheap electricity. Our inclusion in the single European electricity market automatically destroys this advantage.

The result is catastrophic not only for heavy industry, but also for many other industries that rely on cheap electricity. The market union with Greece shows it particularly clearly - expensive electricity is not a problem for Greeks as long as it fuels a service-based economy - mainly hotel air conditioners. For metallurgy, chemistry and mechanical engineering in Bulgaria, however, it is a matter of life and death.

3. The pressure of climate policies

Carbon quota prices, which have soared from around 20-25 to 55-58 euros / tonne in the last year, are putting upward pressure because we are very dependent on our lignite CHPs. Separately, across Europe, renewables are gaining a huge advantage. However, this cannot solve their main problem - the complete lack of reliability. As a result, both periods of ultra-high and periods of negative electricity prices increase. This is deadly for the entire power system.

4. Our exposure to international fuel markets

With our entry into the European market, the global prices of fuels - natural gas and hard coal - are beginning to increase. And they set a new historical record every month - they have already jumped 3-4 times compared to the lows in the summer of 2020.

In this situation, relatively low electricity prices can only exist where nuclear energy forms a large part of the mix. It is no coincidence that France, Belgium and Switzerland have the lowest prices and export the most electricity in the last few months of 2021.

5. There is no free electricity market and there will not be

The electricity market suffers from a fundamental shortcoming, which makes it impossible to work well without a high level of planning and regulation - the inability to store large quantities.

No matter what is said and promised, the power system practically requires production and consumption to be absolutely the same every second.

The more the level of electrification of final energy consumption and the political pressure in favor of certain technologies increase, the more impossible it becomes for electricity to be traded freely. The February drama in Texas showed why - inadequate planning and control of the system could lead not just to economic problems, but to a total collapse. In severe cold in temperate latitudes, this means death.

We live in the conditions of the European Union and the prevailing utopian energy policies - total penetration of unreliable RES, full electrification, market liberalization and closure of its own sources of fossil fuels. The results are ever higher electricity prices, increasing dependence on imports, growing problems with the reliability of the system. The country with the most energy-intensive industry, energy-inefficient building stock and energy-poor population will pay the heaviest price. Yes, this is Bulgaria!

Tags:

Comments

More from Bulgaria:

Предишна
Следваща