BFIEC insists for urgent measures for the transparent functioning of the free energy market

The Bulgarian Federation of Industrial Energy Consumers (BFIEC) insists that urgent measures be taken on the electricity market to ensure its functioning. Currently, the bulk of trading takes place in day-ahead and intraday markets, which are generally intended for short-term trading and clearing open market positions. Transactions for purchase and sale of standardized block products (base, peak and sub-peak load) with a maturity of one month, quarter, six months and one year are rare. And in many cases, with these rare deals, pre-arrangements remain in doubt.

Such an example is the deal concluded on July 16, 2020 on the centralized market segment "Bilateral contracts", the screen "Continuous trading", the purchase of a base load of 50 MW for the fourth quarter of 2020. The price of the transaction is BGN 78.10 / MWh, which is significantly lower - by BGN 14.30 / MWh, than the weighted average price of the market segment "day-ahead" for the fourth quarter of 2019 (BGN 92.40 / MWh ). The price at which the Bulgarian futures for delivery of a basic product for the fourth quarter of 2020 of EEX were traded on the same day is 48.95 EUR / MWh (95.74 BGN / MWh). In addition, on the same date (16.07.2020) the Hungarian and Romanian futures contracts for the supply of a basic product for the fourth quarter of 2020 are traded at a price of EUR 49.08 / MWh, respectively. / MWh, HUDX data) and BGN 96.36 / MWh (OPCOM data).

The differences in price levels are obvious.

Numerous signals were sent to the Energy and Water Regulatory Commission (EWRC) regarding this transaction. Subsequently, it was announced in the public space that the seller was Toplofikacia Sofia EAD.

At the same time, on 25.09.2020, also on the centralized market segment "Bilateral contracts", a transaction was concluded for the purchase of a base load of 100 MW for the fourth quarter of 2020 at a price of BGN 92 / MWh. The price of this transaction is comparable to the quotations of the Bulgarian futures for delivery of a basic product for the fourth quarter of 2020 of EEX from the middle of July this year.

This is another proof of the non-market nature of the transaction concluded on July 16, 2020. We continue to believe that this transaction distorts market relations for several reasons:

- The difference in price levels between the transactions concluded on July 16, 2020 and September 25, 2020 is BGN 13.90 / MWh (17.9%) for the same product - base load for the fourth quarter of 2020. The damage received for the seller from the difference in price is BGN 1.5 million. Thus, the buyer who concluded the transaction on July 16 is significantly favored compared to the buyer who concluded the transaction on September 25. Please note that the price of BGN 78.10 / MWh is significantly below market quotations both at the time of its conclusion and at the present time.

- The lack of standardized products (base, peak and sub-peak energy for fixed periods of time) also contributes to market distortions. The limited supply of basic products that are in demand by the industry carries the risk of price increases and resale at speculative prices.

- At the same time, the seller collects damages in the form of lost profits. With a difference in the price levels of BGN 13.90 / MWh and for the product "quarterly base load 50 MW", it amounts to BGN 1.54 million. The fact that the seller is Toplofikacia Sofia EAD, which is owned by Sofia Municipality, is worrying. The company has liabilities to its natural gas supplier, which according to media publications from the beginning of 2020 amount to about BGN 200 million. At the same time, the company receives a preferential price for the electricity produced by it in a highly efficient way (currently 168.73 BGN / MWh, according to Decision N C-28 / 01.07.2020 of EWRC). Thus, the paradoxical situation is that the company is subsidized by other market participants, as the premium for electricity produced in a highly efficient way is paid by the Electricity System Security Fund, and on the exchange platforms the electricity is sold at prices, which are significantly below market levels. In this way, both the Sofia Municipality as the owner and the customers of Toplofikacia Sofia EAD have been damaged.

Although the EWRC announced the start of an inspection of the specific transaction on 16 July 2020, there is no information on its progress and whether any violations of market rules have been identified.

We believe that the transparency of the electricity market in our country is a guarantee for its proper functioning and for maintaining the equality of all market participants, which is why we would like to encourage EWRC to establish all the circumstances surrounding the above transaction. Achieving a fair price on the electricity exchange market should be carried out only under the influence of market forces, so that there are no favored and disadvantaged participants.

In view of the above, we insist on the introduction of mechanisms to eliminate the possibility of pre-negotiation between market participants and formal execution of the transaction through the exchange platform of the segment "centralized market of bilateral contracts".

Therefore, we insist on a thorough inspection by the EWRC of each transaction in which there is a suspicion of non-market behavior, with subsequent disclosure of the facts and circumstances established by the regulator.