There will be an increase in electricity prices on the free market in the winter, it is good to prepare

By Georgi Velev

The prices on the energy exchange on the Day Ahead market shocked the big business in our country due to their sharp jump in the last two days. The Bulgarian Federation of Industrial and Energy Consumers (BFIEC) came out with a position after the electricity prices in our country were the highest on December 2 in all of Europe. The increase was really drastic - as much as 67 percent compared to the previous day, but it was not unexpected. For several days now, energy exchange experts have been claiming that prices are expected to rise in early December for two main reasons - the cooling in our region is raising consumption and, respectively, the demand for electricity. At the same time, the lack of wind and sun reduced electricity production in Bulgaria by nearly 150 MW. This logically led to a jump in prices, which came as a blow to business. Specifically, BFIEC may be concerned about high prices if the companies in the federation buy electricity mainly from the Day Ahead segment. If they have long-term supply contracts, then such price spikes should not be a problem for the big energy business.

In recent months, there has been a tendency for large businesses to buy electricity mainly from the Day Ahead segment, which is quite risky, Anton Ivanov, a member of the Bulgarian Energy and Mining Forum, told 3eNews. He recalled that in the summer prices on the market "Day Ahead" were significantly lower than long-term contracts. And this business strategy to buy electricity in this segment was profitable. In November, however, we saw a leveling of prices on an average monthly basis between Day Ahead and long-term contracts. And my expectation is that in December, prices on the Day Ahead market will even exceed the prices under long-term contracts. These are trends that can be allowed - in cold weather and increased demand in this market there will be greater fluctuations," said Ivanov. He added that similar sharp changes in prices are observed in neighboring markets. On December 2, the high prices were an exception, it should be noted that on this day there were exports of electricity from our country. And this is indicative that there were no problems in the energy system, Ivanov said. According to him, in this case one of the big energy consumers simply did not do well.

"Bulgaria is no exception to the energy exchanges in the region, we are looking to see if there is a systematic deviation in prices. And since we do not have a deviation systematically on the market, we must accept that in certain days there will be such deviations. And the business must make its strategies in a different way", explained the BEMF expert. "There is always some reason to raise prices - in this case the weather is cold and there was no sun and wind. Electricity consumption also rose. Even with the coronavirus crisis, electricity consumption has increased more in the household sector. And all this distorts the strategies of certain players," Ivanov added.

He added that a large number of consumers, including large industrial consumers, seemed to have given up on long-term contracts and turned more to the Day Ahead market as the main source of energy supply. This is a risky maneuver, but it is quite noticeable, the expert commented. He expects sharp price changes to continue even in January and February, if there are very cold days without wind and sunshine.

How to compensate 150 megawatts of electricity from sun and wind?

On December 2, the lack of sunshine and wind led to a drop in production of about 150 megawatts. This lack was compensated with 50 MW of electricity from NEK and another 100 MW of expensive electricity imports, the business commented to 3eNews.

This has led to prices of 20 euros / MWh above all other exchanges in Europe. In this case, the demand in the Bulgarian power plants was not adequately met. For example, the state-owned TPP Maritza East 2 could include another of its units to cover this demand, as well as generate good revenues from the operation of the unit, explained Rumen Radev of the Industrial Capital Association in Bulgaria. "In this case, the state power plant included another boiler in Unit 3, which operates in parallel and managed to cover demand within their flexibility," Radev added. With the inclusion of another unit, the plant could have made good money from the free electricity market, but the management did not act adequately enough to the situation. This led to a jump in prices for businesses. "If indeed the Bulgarian Energy Holding is operationally trying to manage the energy system well, then they should be aware of the potential deficit of a given power at a given moment. And so they can rationally consider how to cover deficits. My reproach is not to the political leadership of BEH and the Ministry of Energy, but to the operational leadership," Radev said. In the next such peak demand, Radev advised NEK to intervene on the free market, but through the two American plants. "The American power plants themselves are market-oriented and adequately responsive. Their interests suggest that I want to sell electricity on the free market at such times and with such capacity," the expert explained. At the same time, in order not to damage the household market, the load of TPP "Maritsa East 2" can be increased, which will supply electricity to the regulated market.

"It is ridiculous to witness German coal-fired power plants switching on to supply electricity in high demand and our plant not working. Well, at least they reacted with an additional boiler to Unit 3, but that was not enough. They could have made much better money at these prices on the market "within the day", Radev commented.

He added that there will be periods of lack of sun and wind and similar price increases will occur during the winter months. Simply in this case, the demand for electricity on our market was not adequately met, the expert believes.

According to him, the lack of sun and wind is already a predictable event, which is known between 24 and 72 hours before it happens. "Over the years, I have had the opportunity to discuss similar issues with wind and solar operators and I am convinced that they can make very accurate and good forecasts for their production and therefore meet the schedules. These schedules are registered by ESO, which is part of the structure of BEH", Radev reminded. It became clear from his words that the network operator could also offer the state TPP to be more actively involved in the free market, in case of high demand for electricity.

"The inclusion of one unit in TPP "Maritsa East 2" takes time and in order to sell electricity this unit must be played for prices from today to tomorrow. This is a risky strategy for the plant," said Anton Ivanov of the Bulgarian Energy and Mining Forum. Lately, however, the state-owned TPP has been playing extremely conservatively: they have two large units and a small one that are operating, and their strategy is to supply electricity under their commitments to the regulated market. At the same time, they have a buffer in the order of 20% margin with which they play in the market. And they rob the peak searches from it and whatever they win, they win", Ivanov reminded. He still admits that in the next cold days the plant will include another unit to participate in the market. "Their strategy is very conservative and they are guided by the idea of ​​minimizing losses. The plant is still operating at an annual loss and they are very careful not to increase this loss," said Ivanov.

This year is special for the energy markets not only in our country, but also in Europe because of the coronavirus crisis. The crisis and lockdown led to changes in consumption, and consumption and market prices even collapsed in the spring. Future sharp changes in electricity levels can also be expected due to the planned exit from the UK energy markets.

Specifically for the Bulgarian energy market, prices on December 2 were not a single phenomenon. The report shows that in December 2019 there was a registered highest price of BGN 237.37 / MWh on the Day Ahead market. The lowest level was BGN 2.91 / MWh. In January, a jump in the prices of this segment was also observed, when the highest price reached was BGN 220.07 / MWh, and the lowest was BGN 38.28 / MWh.

In all likelihood, during the current winter season it is possible to expect sharp changes in prices, as the factors for this purpose are complex. Unfortunately, they rarely depend only on the Bulgarian energy market, which is still in the process of liberalization.