Liberalization - coercion or opportunity?

This publication of ours was provoked, first of all, by a letter from the Association of Bulgarian Employers' Organizations (AOBR), in which, based on a misinterpretation of facts, it was concluded that the aim was "another postponement of full liberalization" in electricity. Secondly (and more importantly), we believe that the time has come to discuss the consequences of the expiration of June 30, 2021. of the transitional period for selection of a new supplier for low voltage (LV) business customers. On the basis of which we will also assess whether the statement in the letter that "it is scandalous to request a new extension of the transitional period ..." is true.

Let's remember ...

LV's business customers have been on the free market since October 1, 2020, pursuant to a legal amendment from June of the same year. Thus, each of these customers received the right to choose one of the following options:

First, from the date mentioned above, it has taken the necessary steps to supply electricity from a licensed electricity trader of its choice. The provided procedures (in the Trading Rules) allow the change of the supplier to take place without restrictions - at any time, without payment of fees, without preliminary requirements and questions, as the first step in this direction is the signing of a contract with the respective trader.

Second, LV's business customers had the right to take advantage of another opportunity to move from a regulated to a free market, namely to continue their electricity supply from their existing (final) suppliers, but already on the basis of their trader's license. . Their suppliers with a trade license / CEZ, EVN and ENERGO-PRO / buy, like other traders, electricity for their customers at free prices from the platforms of the exchange.

That is, non-domestic customers who have chosen this option are supplied with electricity at market prices by a trader. The only difference compared to the first option is that the relationship in this case is regulated on the basis of a standard contract approved by the EWRC and is the same for all customers.

With the successful and without tremors (so far) implementation of this process, the full liberalization of the electricity market for non-household consumers in Bulgaria is over and is now an indisputable fact - all business customers without exception are supplied with electricity by traders and at market prices.

The discussion we have witnessed in recent days is provoked by the text adopted in the Energy Act for a restrictive transitional / grace period, which eliminates the possibility of using the second option after 30.06.2021, respectively - from information that appeared, that legal changes have been proposed and are being prepared, aimed at extending this grace period by another year - until the end of June 2022.

The requirements of the Law - what should business clients do by June 30?

When the grace period expires (on 30.06.2021, as required by law), the supply of LV's business customers by final suppliers in their capacity as traders must be suspended. Until then, these customers should have entered into an individual contract with a free market trader. If not - these customers will be transferred on 01.07.2021 automatically to a Supplier of last resort - a license reassigned to the same final supplier, but under which electricity prices are significantly higher than market prices.

The reason for this is that the role of the Supplier of last resort is different from that of other suppliers - its task is to provide, and immediately, with electricity consumers left without supply for certain reasons (eg bankrupt supplier) for a certain period of time until these consumers find a free market supplier again. In the context of electricity supply as an indispensable and universal service, the Provider of last resort has its specific and important mission, which is far from serving as a forced mass trader.

Demand profile - who are the business clients of LV to which the grace period applies

According to the Institute, 7 months after the amendments to the Act and 4 months after the abolition of the regulated prices for LV's business customers, over 80% of them have remained with their final suppliers as traders. Given the presence of over 50 licensed electricity traders in Bulgaria, this large percentage shows to some extent the level of interest and willingness to invest in the development of this market segment by traders. And this should not surprise us, as most of these customers have an annual consumption in the range up to 2500 kWh, ie. these are business customers with annual consumption below that of a Bulgarian household and with non-hourly (non-intelligent) electricity meters.

It is obvious that the time for a market "meeting" between LV business customers and traders on a voluntary and mutually beneficial basis has not yet come.

This means that 200-250 thousand entrepreneurs with modest business, for whom participation in the electricity market is certainly not the number one topic, will be "punished" for this passivity and disinterest and from 01.07.2021 will receive energy at higher prices from a Supplier of last resort. And how does this contribute to liberalization? Shouldn't the main idea of ​​liberalization be empowerment and benefits for consumers?

In addition, it should be clear that despite the large number, the market share of these customers is insignificant - approximately 1% of total non-domestic final consumption in the country, which means that they do not pose a threat to creation, respectively. abuse of market power, as expressed in the letter quoted.

Full liberalization - the European understanding

In the UK, a country with a 20-year history and full liberalization of the retail electricity market, a significant proportion of customers have not yet changed their suppliers and continue to supply energy from them at tariffs that reflect market prices and subject (for some price products and at the discretion of the regulator) of specific restrictions.

This type of "default" suppliers (ie historical suppliers from the regulated market) are typical for many European countries and their existence is motivated by the fact that electricity is not a standard product, respectively the electricity market is quite different from standard products. markets. Electricity supply is a universal service and therefore it is mandatory to have protection mechanisms to ensure its accessibility and continuity.

In this regard, it is also important to know that in many jurisdictions, standard classifications of protected customers include those who have not changed their original / historical provider and are reluctant to make such a change. The presumption is that the lack of interest in such a change indicates insufficient attractiveness and maturity of the respective retail market and / or insufficient attractiveness of the respective customer for energy traders. For this reason, the smallest business customers (as well as households) are those who stay in the regulated electricity segment for the longest time (eg France).

So, both in substance and on the basis of European practice and understanding, we again come to the conclusion that the full liberalization of the retail market for non-residential customers has been an indisputable fact since the beginning of October 2020 and that the supply of the smallest and Vulnerable Bulgarian business through the commercial license of final suppliers is entirely in the context of the theory and practice of the processes of opening the electricity markets.

This should allay the expressed fears that the extension of the grace period will delay the full liberalization of business consumers. For the simple reason that it is already over.

Moreover, if so far we are talking about the non-domestic segment of the electricity market, where active, literate and enterprising Bulgarian citizens are expected to operate, let us not forget that the procedure for such forced "release" is forthcoming for household consumers in the next few days. years. And if the total number of small business customers of LV, according to the EWRC report to the European Commission from 2020, is 505,463, then household customers are 4,513,355.

Suggestion

Based on the information and reasons expressed above, we believe that:

- The forced transfer to TED from 01.07.2021 should be abolished, as these clients always have the opportunity and the right to find another supplier on the free market, including - to be actively sought and attracted by such suppliers. Respectively - the necessary changes in the Energy Act must be made, incl. delete the text for the transitional period.

- In view of the forthcoming liberalization of the retail market and for households, to change the current approach, in which significant energy reforms are carried out through direct and fragmentary changes in legislation, without serious analyzes, assessments and discussions at expert level and with stakeholders. countries. The EWRC should initiate the elaboration and discussion of a roadmap for these forthcoming complex processes, through which to support the selection of an optimal and efficient road and the creation of the necessary trust in the market.