The Energy Management Institute: The implementation of anti-crisis measures in the energy sector should balance, not further destabilize the market

Minimal price effect for customers at the expense of serious financial risk for energy companies and introduction of additional instability in the energy sector. This would be the result of the planned by the Energy and Water Regulatory Commission (EWRC) changes in the Methodology for determining the prices of electricity of the supplier of last resort (TED), whose public discussion took place on 08.10.2021.

The reason for the proposed changes are the commitments of the regulator to limit the negative impact of high stock market prices of electricity on non-household consumers. They were announced on October 6, 2021 and submitted for public discussion two days later.

In essence, the approach of the EWRC working group relies on a sharp cut in the revenues of TED licensees, as a key measure to reduce prices for non-residential customers - private, state and municipal companies and budget structures - receiving electricity from TED. Currently, according to official data of the EWRC, 256 thousand non-domestic low voltage consumers, or 41% of all consumers buying from the free electricity market, are supplied by TED. This means that funds will be taken from some companies (such as TED licensees) in order to achieve an effect for other companies - those that have not found a trader on the free market.

The proposed changes in the Methodology change the formula for determining the price of electricity from TED, which according to the regulator "will allow the bills of non-household users of TED to be reduced by BGN 15 to BGN 30 per MWh". The measure will have a short-term character - within 3 months, starting from November 1, 2021, during which time the users of TED should conclude contracts with electricity suppliers from the free market. In this way, they will not pay for electricity at TED prices, where it is significantly higher.

The report of the working group states that the average selling price of electricity of TED is tied to the price of electricity in the market segment "Day Ahead" on the organized electricity exchange market, which in recent months has reached extreme levels. With the change in the Methodology, a temporary ceiling is imposed on the component for the activity “supply of electricity from TED”, independent of the costs of the companies - 5%, but not more than BGN 10 / MW. At the same time, the formula for calculating the price of TED changes as the price ratio on the market day ahead and the price for shortage on the balancing market changes from 80:20 to 90:10. This further impairs the function of the supplier of last resort, as a new segment with regulated prices is created.

As a result, customers will not pay the actual costs of purchasing and balancing energy, and the difference between costs and revenues will be covered by TED licensees, who will already have a limit on their revenues. All this is happening after this summer, TED licensees are forced to incur significantly higher costs for servicing the sharply increased number of small business and budget customers who did not find a supplier from the free market and were officially transferred to TED under the current rules. .

It is important to note that 2/3 of these customers are consumed by the average household and for them the actual result of this change will not be more than 1-2 BGN per month. However, the price for this minimal effect, which does not solve the general problem of high electricity prices, will be a programmed deficit in the revenues of TED companies. This deficit will affect not only their financial stability, but also their role as "emergency aid" in the Bulgarian energy sector. It should be clear that despite the change in the price proposed by the EWRC, the majority of TED customers (especially municipal and water companies) have long had difficulty covering their monthly electricity costs and this also affects the financial condition of TED licensees.

Undoubtedly, mechanisms must be found to reduce the financial burden for non-household customers (especially given the future entry of household consumers into the market and the fact that it may again find itself in a similar situation), but these mechanisms should not be at the expense to any other participant in the energy market - be it a private or public company. And it is probably time for the state to answer the question why there was a lack of a clear, long and targeted information campaign for small businesses, instead of looking for a way to transfer a problem from the sick to the healthy.

The Energy Management Institute (EMI) believes that if the EWRC proposal for reduction of TED prices, discussed on 08.10.2021, is implemented, this may lead to unpredictable consequences for the sector.