The entry of non-household electricity consumers on the free market will bring them long-term benefits

Ms. Dilovska, how can the development of the Bulgarian energy sector and in particular the liberalization of the electricity market in recent years be characterized from an expert point of view and what is the role of your organization in the formation and implementation of energy policies?

In recent years, some missing pieces of the liberalization puzzle have been sorted. I will outline the three most important in chronological order. First, the separation of ESO from NEK and its certification as an independent transmission operator gave a guarantee to the market participants for unimpeded and equal implementation of their electricity transactions using the transmission network. Second - with the certification of the IBEX as an independent market operator in 2015, the standard meeting place for market participants and conditions for transparency of free trade were created. Third, there has been some financial easing of the electricity sector and an end to cross-subsidization. The huge tariff deficits of NEK, accumulated during the performance of its role as a Public Supplier, were gradually reduced. Cross-subsidization of households by raising the price component for energy to the level of costs was stopped, which is a merit of the current composition of the EWRC. And financial stability, respectively confidence in the sector, as well as cost-oriented tariffs are two initially necessary conditions, without which it is not even worth talking about liberalization.

Otherwise, an earlier historical reference will show us that the national market model still remains the one regulated by the Energy Act in 2001 – a heterogeneous model with a regulated and market segment based on bilateral agreements, free access to network and organized market. Concise and clear as a definition, voluminous and complex as a performance. Over the next decade, many more pieces of both the national and the regional and pan-European liberalization puzzle will be sought and re-arranged.

As for the role of the Institute of Energy Management. Our aim was and is not to broadcast, but to sift the information, to separate and inform about the important, to train, motivate and offer solutions. In order not to be annoying, I will give two examples. For example, the concept of the Institute for the use of national revenues from trade in CO2 emissions to reduce supplements to electricity prices was adopted and regulated. As a result, about BGN 2.5 billion were redirected from the state budget to the Energy System Security Fund and were used to reduce by 40% the green supplement as part of the price "liabilities to society" for businesses and households for the period 2013-2019.

And here is another example. "Energy highways are no less important than roads" is the title of the Institute's website in 2011. There is an unconditional understanding that energy transformation is unthinkable without modernization and transformation of the network and this understanding is expressed in successful practice. Over the past decade, if we look at the investment process in the electricity sector worldwide, the share of grid investment has consistently been in second place, just after investment in renewables, in the range of $ 250-300 billion per year.

For this reason, our aim was to create in our country an institutional and public understanding of the importance of the network and the need for its increased funding and modernization.

The establishment of the Institute of Energy Management in 2010 was a small change in the energy landscape. But, we know about the butterfly effect - a small change in the initial parameters can lead to dramatic differences in development in the long run. This is part of the joke, of course, but it's really hard to see the impact of a single effort on the overall dynamic picture. In general, they remain invisible.

What are the prospects for non-household consumers after October 1? With their entry into the free market, do you expect any difficulties related to the choice of a trader and the short deadlines for adaptation to the new conditions? What will be the long-term benefits for them of going public?

Although non-household consumers connected to a low-voltage network must choose a trader and leave the regulated market from October 1, they may still prefer a softer option for a limited transition period - we know that the law gave them the right to at the end of June 2021 to remain with their current final supplier, but in his capacity as a trader.

This, let's call it an official trader, will supply them with electricity according to a standard contract under general conditions, which was recently approved by the EWRC at the end of August. The official traders will announce no later than three working days before the end of the month preceding the month from which the respective prices come into force, prices and tariffs for the next month, against which no regulatory interventions are envisaged.

Non-household consumers are not tied to the official trader until the end of June 2021. They can change their trader monthly and free of charge, as long as they declare this by the tenth day of the previous month.

Of course, there will be difficulties. An updated list of traders appeared on the EWRC website, but information on whether they offer energy to non-domestic low-voltage consumers, at what prices and tariff plans is almost not publicly available. In other EU Member States, bid comparison platforms / tools have been introduced, certified by national regulatory authorities. And this is nothing new - back in 2012, CEER published Guidelines for good practice in this regard.

The presence of such a platform would greatly facilitate the selection of a new trader, an appropriate tariff plan, respectively the signing of a contract. Bulgaria will also have a platform for comparing offers by the end of the year. It is likely that new entrants to the free market will at least initially prefer security - they will be looking for fixed-price electricity prices for a longer period of time.

By the way, a significant share of EU retail market participants (households and businesses) also still prefer fixed prices, but this share is rapidly declining. Over time, and after receiving the necessary information and adapting to their new role, non-household consumers are likely to take an interest in dynamic prices, in particular those linked to spot prices. This is what will bring them long-term benefits, as dynamic prices lead to lower bills given the lower risk that the retailer takes in this case.

For non-household consumers, the question above all is what energy prices await them on the free market and hence - what will be their bills. The moment, at least for now, seems auspicious. The reference market price set by the EWRC for the period July 2020 - June 2021 is BGN 90 / MWh. The regulated price for non-household consumers is in the range from BGN 95 to BGN 110 / MWh at a standard day / night energy ratio. Therefore, if the EWRC forecast comes true, non-household consumers should not face higher than current energy prices on the free market for the period until June 2021.

However, if their contracts with traders are based on monthly prices, it is possible that their bills in the winter will be higher due to the typical for Bulgaria and the region higher exchange prices in the fourth and first quarters. However, this will be offset in the spring, when exchange prices fall to their lowest level.

What difficulties and obstacles could arise in the course of full liberalization of the electricity market with the elimination of the regulated segment, which should happen by the end of 2025. What measures should be included in the strategy for the implementation of this process in order to will household consumers be protected when they move to the free market?

Households will remain in the regulated segment after October 1. Their consumption is about 1/3 of the domestic final consumption. But in number they represent 80-90% of all users. This predetermines serious differences compared to the current liberalization process. To avoid obstacles, there must be a sufficient number of retailers with a new profile - ready to attract and serve a large number of low-consumption customers (less than 3 MWh per year), to bear the considerable administrative, organizational and logistical costs of negotiation, invoicing, reporting, payments, communication. Also, to have the capacity and knowledge to be able to develop and offer households appropriate tariff plans.

On the other hand, the reliability of retailers is a function of the reliability of the wholesale market. No matter how prepared and responsible a retailer is, he would not be able to fulfill his obligations to his customers for secure energy supplies at agreed prices if the wholesale market is unpredictable and hides surprises. In fact, if the wholesale market bears these flaws, it is unlikely that there will be any interest in retail at all. From this point of view, the planned steps in the integrated National Energy and Climate Plan, and what ESO and IBEX are doing to unite the national electricity market with neighboring markets is a priority.

In the process of retail market liberalization, the role of distribution system operators will be critical. To their traditional obligations to maintain and develop the network are added more and more market functions, incl. and switching suppliers. With such a massive entry of a huge number of participants in the free market and against the background of the requirements for ever shorter deadlines for switching suppliers (up to 24 hours), they will face a serious challenge to cope with both tasks. As figuratively expressed in European documents, to become the backbone of the free retail market.

Let's not forget the need to change consumer behavior. If households remain passive, then the goals of liberalization will be achieved unilaterally - only on the supply side. The overall effect also requires a change on the part of consumption, through active behavior, taking responsibilities and risks.