Mr. Konstantinov, the second half of 2021 and the beginning of 2022 and again the summer are characterized by an unusual rise in prices on the European electricity exchanges. How did this affect the work of BNEB (IBEX)?
Electricity prices do not depend on and are not determined by the exchange itself and its operational activity. I hope that more and more people are starting to understand that prices are a function of the bids that are placed by the trading participants - be it 'buy' bids or 'sell' bids. The exchange in no way influences the parameters of these offers. Of course, as long as they comply with the rules and meet the collateral requirements. The only thing that affects the work of the exchange at these higher prices is increased control by various institutions. Last summer, we commented on the inspections that were posted in the public space by various authorities, and then I said that they are normal for the work of the exchange, we work with these institutions and are in constant contact with them. When there are inflated prices, this activity becomes much more intense. Then the team is more administratively burdened. I don't think there is any other reflection on the work of the stock exchange. In terms of liquidity, in terms of quantities traded, I don't think there has been any significant change in the last six months.
Offers remain in the same range. We are delighted with the large number of participants at the Day Ahead Market. Their number is already over 100. More of them are daily active, both in the Bulgarian market area and in the entire region - from Central Europe to the South-Eastern part of the continent. And yes, when prices go up, there is even more increased trading activity and dynamism.
Have high electricity prices changed the European electricity exchanges' working model? What are your observations?
Absolutely not. Moreover, high prices are not a local, local phenomenon. They are observed throughout Europe. This, of course, generated a lot of discussion about the way "Day Forward" works, which is good, because when something is discussed it means that there is a drive to improve. In any case, at the European level, it was concluded that the market was working well. High prices are not rooted in the functioning of the market, for which there are quite specific opinions, both from the European Commission and from the Association of European Energy Regulators (ACER), which clearly state that the market is not to blame for price levels. The market is not a problem and does not give rise to problems leading to high prices and therefore the instruction to all EU member states is not to make the mistake of changing the way the market works. Figuratively speaking - not to try to influence the market by force.
What is the result of the merger in the "Day Ahead" segment with the markets of Greece and Romania?
If you remember, we were almost accused of making these mergers on our head and thus contributing to the increase in prices.
I would like to share something important. This year marked the 20th anniversary of the creation of the Europex organization, in which absolutely all exchange operators in Europe are members, including us. I say this because 20 years ago, the reason for the creation of this association was the idea of market associations, first made public in 2002. At the time, it was considered genius. Now we take it for granted, because market associations, in addition to naturally dealing with the concentration of local markets by connecting them, also increase competition many times over. With these market associations, Bulgarian participants have access to buyers and sellers from all over Europe and the transparency of flows between countries increases. As immodest as it sounds, the Bulgarian Independent Energy Exchange (BNEB) has the outstanding merit of seeing what flows are exchanged between Bulgaria and Romania and Bulgaria and Greece, which is clearly published on our website. Every morning, the cross-border transmission rights - the so-called capacities, in MW for each hour - are announced. It is visible what is free for trade according to the information of the electricity transmission operators of Bulgaria, Romania and Greece. Then, when the auction session is over, you can see what part of these free capacities have been used and in what direction. Until recently, there was no such information, although even before the market unification there were also large exchanges. For example, the connectivity between Bulgaria and Romania is extremely good. Over 2000 MW of energy can be exchanged every hour, both in the direction of export from Bulgaria to Romania, and in the direction of import from Romania to Bulgaria. This was not seen until now it is very clearly understood. So, as a direct answer to your question, I would say that the balance sheet is extremely positive, because in this way we automatically fought the concentration. You know that the Bulgarian market is extremely concentrated, especially in the supply side, so competition has increased, as well as transparency. This is extremely important for this type of market - to have almost real-time information for the participants so that they are aware of what is happening.
Are there specific areas that have an impact on trade?
Such is the Bulgarian market area, because we are a serious producer and definitely influence the entire market, the entire region. I can give an example of the reaction when the "Kozloduy NPP" went into repair - prices in the entire region rose. The very fact that the exchange with Romania and Greece reaches a total of 3000 MW in some hours speaks to the fact that Bulgaria certainly influences the market in the whole of South-Eastern Europe. I am sure that the production and maintenance programs of all our generating facilities are being monitored.
Mr. Konstantinov, there is again talk of changing the Rules for trading electricity on the organized stock market. In your opinion, if there are changes, in what direction should they be?
We certainly have meetings with the regulator and discuss a wide range of issues. From our point of view, we find a need to change the Rules for Trading in Electric Energy on an Organized Exchange Market. Back in April, we submitted an application to the Commission for Energy and Water Regulation (EWRC). It is the regulator who approves such Rules, but this is done through a procedure accompanied by public consultation. We are waiting for a meeting to be scheduled.
We foresee specific changes in order to optimize and facilitate the operation of the stock market. They are basically three. First, we propose the introduction of so-called "self-invoicing". That is, for the exchange operator to be able to invoice on behalf of the seller the electricity sold by him through the exchange. In this way, the payment method will be optimized. It will happen automatically and faster. We also offer a direct debit option from net buyers' accounts. That is, when a buyer buys energy from the exchange, he will not need to monitor the payments. Figuratively speaking, the exchange itself will have the right to access the buyer's account and absorb the value of the purchased energy. Thirdly, we envisage the introduction of automated verification of offers at the moment of their entry into the electronic trading systems. The check consists in whether the offer is fully collateralized according to the rules, which will give the trading participants the opportunity to determine their own collateral limit. Currently, the exchange sets a margin limit by referring to historical data on the behavior of trading participants on certain days back in time, which is not always adequate because a trading participant does not always need to buy large quantities as he did in previous days, which makes collateral unnecessarily high. The optimization we envisage will enable the participant to reduce his limit himself so as to free up funds for other activities and at the same time fulfill the rules of the exchange so that he buys corresponding reduced volumes as planned.
In other words, these are technical facilitations for the work of commercial participants. These proposals have been sent by us to EWRC, we are waiting for the public discussion. There will likely be offers from some other commercial players as well.
Will the introduction of 15 minute balancing and 15 minute delivery interval be implemented and what will be the effect?
This is the other important change we have made in the Rules - the introduction of the 15-minute products. We do this in response to the obligation of the Electricity System Operator (ESO) to introduce 15-minute balancing, which is a requirement according to European regulation.
We will introduce a product with a 15-minute delivery interval to the market "Within the day" first on the market union on the Bulgarian-Romanian border, starting from 01.10.2022, according to a joint roadmap of BNEB and ESO, agreed with KEVR.
Now the products are within an hour. It is important to note that they will also be preserved. But there will also be those with a delivery time of 15 minutes. In fact, the registration of schedules in ESO will be only 15 minutes away. Testing is currently underway, both on our system in the Intraday segment of the 15-minute products, and on the ESO test system for logging schedules.
It is planned to introduce a single price for balancing energy. What does this mean?
As far as I am informed, EWRC and ESO are planning to introduce a single price for imbalance. We currently have two prices - a shortage price and another, different surplus price. This is not correct, because the arbitrage between the two prices has no logical explanation, and it is practiced all over Europe with one imbalance price, regardless of whether it is for excess or for deficiency.
We are currently witnessing a highly distorted balancing energy market. It works out that in almost all hours, the shortage price is lower than the market price. This is absurd. The shortage price should be as expensive as possible and incentivize market participants to plan well enough not to be in shortage. And at the moment, the de facto conditions of the balancing market encourage market participants to be in short supply because its price is lower than the Day Ahead price. This problem should be solved with the introduction of this single price for balancing energy.
What are the projects that BNEB is going to implement this year and what will be their effect?
Testing for the introduction of the 15 minutes is currently underway in our “Intraday” market system and in the ESO schedule registration system. I hope that after that the uniform price for balancing energy will be introduced and the methodology by which this price is calculated will be fixed so that the price of balancing energy for a shortage is not allowed to be lower than the market price, which is not normal situation.
The other important project we are looking forward to is the completion of the market unification with Greece on the "Intraday" segment. The merger is planned for next quarter. It is extremely important, because in this way we will end market integration within the European Union.
This means that there will be another border, or to put it another way, another real-time trade channel through Greece and Italy to the whole of Europe, of course according to the trade capacities available. As it is currently through Romania, we will duplicate this channel in the southern part through Greece and the northern borders of Italy. Thus, offers from all countries will be visible. As in Romania, market participants see offers from Spain, Portugal, Norway. This will reduce market concentration, the depth of the market will increase and there will be many more bids that are active and able to be filled. If someone falls into a surplus or deficit, they should have no problem realizing the energy or getting the energy they need, with even greater transparency.
Recently, there have been comments about a very high concentration of primary energy in the stock market, which affects participants. Is it so, and what should be done to break this pattern?
I assume that what is meant is that if, for example, 100 MWh of energy is traded in a given hour, 90 MWh is offered by one participant. In this way, he can also dictate the price of all 100 MWh. In market unification mode, both Day Ahead and Intraday market, as we talked about at the beginning, this problem is solved naturally. Given the drastic increase in the number of participants, respectively the number of active offers, the so-called depth of the market, at the moment, for example, we do not observe such market concentration on the "Intraday" market, where it operates in the mode of market unification with Romania. That's why I don't think it's a problem. Initially, especially in the mode of isolated operation and without market associations, there was indeed concentration, and this was clear to all. Even the EC monitored it, but in the presence of market unification, this issue is resolved naturally.
What will happen with the emergence of a second energy exchange, the intentions of which were announced earlier this year?
It has been talked about for a long time. So far, the law does not allow it, but we look at such an idea with calmness, at least because we have already gained a lot of experience. But, I think it's a matter of state policy. The state must assess whether this will protect its interest. On the one hand, it is good to have competition. On the other hand, we already have an extremely well-developed and integrated market. At this stage, a comparison with the gas market, for example, would not be appropriate. The very fact that no EU country has two local stock exchanges speaks volumes. Nowhere in Europe are there two local electricity exchanges. Where there are two stock exchanges, one is always local, the other is one of the big European ones. The important thing is that we and all other exchange operators work according to exactly the same rules, unified within Europe.