The Association of Electricity Traders in Bulgaria: Due to the proposed changes in the balancing market, higher electricity prices are expected

The proposed changes in the Electricity Trading Rules (ETR) change the operation and organization of the balancing electricity market. This change will result in an increase in balancing energy costs and a corresponding increase in the final price of electricity. All this is happening in a situation with record wholesale electricity prices, in which a number of businesses are experiencing difficulties and even stopping or limiting their work. This is what the Association of Electricity Traders in Bulgaria (AETB) is warning about in its letter to the responsible institutions.

They add that any additional price increase in this period will have an even stronger negative effect on Bulgarian business.

What is changing?

First, the possibility of balancing groups coming together is eliminated. Second, the marginal price at which balancing energy suppliers can enter into balancing market transactions is removed.

What will be the effect?

The quantities of imbalances of market participants (producers, traders and especially end users) will increase, because the balancing groups will be forcibly fragmented. As a result, they will have a significantly smaller number of participants, which implies limited opportunities for netting imbalances and increasing the overall imbalance of the group. As a result, the quantities for which electricity will be paid at unbalanced prices and respectively increased costs per unit of electricity consumed are increasing. The change will lead to reduced competition, the elimination of smaller suppliers and the concentration of participants in several balancing groups.

Balancing energy suppliers, which are only a few plants, will be able to offer their electricity at unlimited prices. Until now, EWRC has set an annual price limit for transactions on the balancing market. This was aimed at preventing shock prices, as we saw in 2014, when the market started and there was no regulatory ceiling.

Simplified example: If Coordinator 1 (K1) and Coordinator 2 (K2) are combined with a common financial settlement, with a shortage of 5 MWh in K1 and a surplus of 5 MWh in K2, the quantities will be netted and the total imbalance will be 0 MWh. Respectively, K1 and K2 will not have balancing costs. In case they are separated, the two coordinators will have to pay imbalance prices. As K1 will buy 5 MWh at a price for shortage (higher than the market), and K2 will sell the surplus of 5 MWh at a price for surplus, which is between 0 and 30 BGN / MWh (lower than the market). In both cases, the Electricity System Operator (ESO) will not need to activate balancing capacities and accordingly incur balancing costs. However, in the second case of ESO, the penalty prices for imbalance will be paid.

How will it affect electricity prices?

Balancing costs are important because they make up 5% - 10% of the final price of electricity, and traditionally and seasonally they are the highest in the winter months. According to expert estimates, the proposed change will lead to a doubling of these costs.

The imposition of additional bans against the amalgamation of balancing groups is a step in the opposite direction of liberalization of the electricity market. The prices of the balancing energy for shortage are tied to the prices on the Day ahead market (PDA) of the Bulgarian Independent Energy Exchange (IBEX). The tendency since the launch of the stock exchange so far is for these prices to rise, and the balancing costs to rise accordingly. The main tool for minimizing this effect is the realization of minimal imbalances, distributed among many participants within the associations of coordinators with common financial settlement. Otherwise, the balancing costs in some months will be prohibitive for small and medium-sized players.

Who will be affected?

The proposed changes will affect RES and WEKP producers, traders and especially end customers. It is proposed to eliminate the possibility of common financial settlement only for standard and combined balancing groups, which cover free market participants.

The changes in ETR are to the detriment of market participants

The proposals for changes in ETR are to the detriment of market participants and we call for their withdrawal. We fully support the idea of ​​reforms in the operation of the balancing market, but they must aim at a real reduction of imbalances in the system and the costs of balancing market participants. From AETB we believe that the model of work on the market should be changed and from two prices for shortage and surplus to move to a model with one price for balancing energy. A similar transition was made in our neighboring countries, Serbia and Romania, and the developed markets also work on this model.