Experts: New IBEX products and long-term contracts will provide a more stable and promising vision of the energy market

Marinela Arabadzhieva

The new market design of the electricity market, the role of the regulator, the transmission operator, market participants and the opportunities offered by the Bulgarian Independent Energy Exchange (IBEX, IBEX) were some of the topics discussed by experts within the framework of the "Market and Regulations" conference, organized by "Manager" magazine. The topics of REMIT, compensation for high electricity prices and the future of the energy market were also discussed within the framework of the conference.

There are at least three principles of market design that must be relevant. The first is to maximize the correspondence between the mechanism that determines prices and the way in which the transmission network is managed in real time. The second principle of market design is that there should be a combination of regulatory and market mechanisms that ensure the possibility of adequate transmission and transfer capacities. The third is that active participation of consumers and all market participants should be achieved. With these words, moderator Viktor Avramov, lecturer in the Department of Administration and Management of the New Bulgarian University, kicked off the panel entitled "The Renewed Market Design - Challenges and Opportunities" within the framework of the energy conference "Market and Regulations", organized by the magazine "Manager".

The discussion started with one of the main topics on which, as it turned out, there are still expectations for development - balancing energy. As is known, after the new methodology of the Energy and Water Regulatory Commission, it entered the agenda of all market participants and caused a series of exchanges of opinions.

"Indeed, balancing the energy system is an extremely important indicator, especially in the period when Bulgaria is already a member of the Continental Europe synchronous zone," commented the Chairman of the Energy and Water Regulatory Commission (EWRC) Ivan Ivanov. He recalled how the events on the market in April and May of this year practically led to a change in the regulatory framework and, in particular, the removal of the methodology for the balancing market from the Energy Act.

The Chairman of the EWRC also reminded the regulator of the proposals for correction of the methodology and the decision that an analysis would be made six months after its implementation. Now, in his words, after analyzing what happened, "the results are very encouraging." “The energy used for balancing purposes has decreased by two to three times,” he said, describing the trend as “more than positive.”

In this regard, he was categorical that there would be no change. “There is no reason, when a regulatory act gives positive results, to start changing it,” said Ivanov, noting the size of the coefficients with which companies that are far from the trading schedule are sanctioned, as well as the disciplinary effect.

We are about to join the two European platforms for balancing energy successively – the Platform for International Coordination of Automatic Frequency Restoration and Stable System Operation (PICASSO) and the European Initiative for Manually Activated Reserves (MARI),” Ivanov reminded.

The Chief Commercial Officer of Electrohold Bulgaria, Vladimir Dichev, for his part, defined the situation on the balancing energy market on May 19 as a “state of the system,” which, however, also gave a “signal for new trends and requirements for suppliers.” “There was also a disciplinary effect. Many of the coordinators realized that the market is changing and trading – as we knew it ten years ago – is no longer like that,” he noted. Dichev expressed his expectation that the new platforms will lead to increased competition between balancing energy suppliers, as happened on the exchange in the “within-day” segment with a view and access to the entire European market.

According to ESO Executive Director Angelin Tsachev, however, there is still something to clean up in the methodology. He also commented that there are imperfections in both the PICASSO and MARI platforms. In this regard, Tsachev gave an example and details with the exit of some of the countries that previously joined the PICASSO platform, and in particular the Italian regulator. At the same time, he was categorical that it is "important that these platforms start to work actively".

"The effect is already visible in the pilot project between Germany and Austria. For German operators, the model works very well, since they benefit from Austrian hydroelectric power plants and cheap balancing energy. On the other hand, the Austrian operator suffers to a certain extent, because when it has to use balancing capacities, it has to use expensive German plants. It is here that there are discrepancies between what part of the generating capacities or the reserve of each country should be offered to the European platforms", Tsachev gave an example.

The Chairman of the EWRC Ivan Ivanov was also categorical that their introduction by the Bulgarian side also means that the energy produced in our country will enter competition at the European level.

The balancing market is closely related to the products offered by the Bulgarian Independent Energy Exchange (IBEX, IBEX) in the market segments. This was emphasized by the head of "Business Development" at IBEX, Nikola Gabrovski, who also presented the projects being worked on, which will open up new opportunities for market participants in the near future. In particular, he focused on the introduction of 15-minute products in the "day-ahead" segment. In his words, it is "the most significant in Bulgaria from a liquidity point of view". As Gabrovski explained, this project is being implemented in a coordinated manner between all exchange market operators on the one hand, and all transmission operators on the other". The expectations are that the introduction of the 15-minute products will occur simultaneously in all market areas in Europe at the end of the second quarter of 2025 (the completion of the project is planned for June).

Gabrovski also emphasized the other products that are about to become a reality soon. “We are about to introduce a ‘weekend’ product with the corresponding profile, as well as two new profiles that will cover evening peaks. This is a decision that is based on information that we have from our participants. We strive to act reactively and proactively, consulting our participants and using their feedback, we strive to adapt our product portfolio,” he said, and his words about the ‘weekend’ product met with particular approval.

Another project that IBEX is working on is the introduction of a ‘guarantees of origin’ market, with the expectation that it will launch early next year. As is known, the exchange is extremely keen on this brand new market, which can open up great opportunities for market participants.

“We are also considering the possibility of increasing the portfolio of products in the ‘Day Ahead’ segment by adding a new block product that aims to meet the needs of energy storage devices that are rapidly entering the market – the so-called ‘batteries’ by everyone,” he added.

In addition, by the end of the year, the possibility of reporting transactions under REMIT is to be launched. Meanwhile, later in a separate panel, experts on the REMIT regulation discussed cases of "misuse of inside information" and "market manipulation". As it became clear, Bulgaria is in fourth place in terms of market violations.

During the discussion, Vladimir Dichev, for his part, drew attention to the need for a stable market for long-term contracts, so that a financial derivatives market can also develop and price volatility can be reduced. "The Day Ahead market will continue to exist, but it will be more of a reference for the current state of the system. The long-term vision will be given by long-term contracts. Long contracts are also necessary from the point of view of the green transition that is underway in Europe. In order to attract RES, we need to offer them long-term solutions for 5 to 10 years ahead," Dichev pointed out, emphasizing the need for them also because of the security required by consumers.

The chairman of the EWRC, Ivan Ivanov, also supported the opinion on the need for long-term contracts. According to him, energy storage systems will help this type of market. "In Bulgaria, the ratio is currently almost 80% of dynamic price transactions and 20% of long-term contracts. The goal is to turn this around. The problem is volatility and it is international," said Ivanov.

ESO Executive Director Angelin Tsachev, for his part, drew attention to the fact that the market and the relevant segments must be in line with production capabilities. "In our country, we do not have a sufficient volume of generating capacities with such maneuverability to meet the specifics of these short-term market segments. This is where the big problems with balancing and the inability of commercial participants to be adequate and improve their portfolios come from. This also creates big problems," he said. "If we have a larger volume of contracts on fixed prices with a long implementation period, this will reduce both imbalances and provide security to market participants, so that they can have predictability and a completely different market behavior in the energy market itself,” Tsachev added.

According to him, it is extremely important for both the exchange and the regulator to give the necessary signals to encourage long-term contracts.

The issue of “bottlenecks” in the energy transmission system was also not ignored. According to Angelin Tsachev, “removing bottlenecks will not only affect balancing energy”. “There are bottlenecks throughout the European transmission network and their removal will have an extremely positive impact on all commercial participants, because it will enable huge amounts of energy from different regions of Europe to be shared in different market areas,” he commented, recalling the projects that are moving in this direction.

According to him, at this stage, Southeastern Europe remains somewhat isolated from Central and Western Europe for the simple reason that there are bottlenecks, such as on the Austro-Hungarian border, the Hungarian-Slovak border and in Romania itself – between the northern and southern parts of the country.

“All these bottlenecks reduce the capacity for electricity transmission. The potential of the two regions – Southeastern Europe and Northwestern Europe, for the production of renewable energy cannot be used to a sufficient extent. It is for this reason that, as a transmission operator, we are developing two projects with our colleagues from the member states. One project is “East-West”, which starts from Turkey and passes through Bulgaria, North Macedonia, Albania, Kosovo, Montenegro and reaches Italy. Its goal is to enable the increase of renewable energy precisely during peak consumption. This project is extremely advanced, with a consultant selected and funding secured for the necessary research,” said Tsachev.

According to him, last week during the Istanbul Energy Forum, as well as at COP29, this issue was raised by both President Radev and Minister Vladimir Malinov.

“The other project we are working on is the North-South corridor. It starts in Greece and passes through Bulgaria, Romania, Hungary, Slovakia, the Czech Republic, Poland and Germany. The goal here is for us as consumers in Southeast Europe to be able to take advantage of the large wind potential of the North Sea and the Baltic Sea and to expand the volume of renewable energy in the entire energy mix,” Tsachev added.

Nikola Gabrovski, for his part, added that in order to improve planning and optimize costs, the implementation of new technologies is essential.

“Two things are needed for more efficient use and better forecasting. The first is better quality data and forecasts. The second is the implementation of technologies – algorithmic trading, which makes it so that the moment of decision-making is not the moment when the change in the market occurs, but it is shifted back. Based on a forecast, an algorithm is trained, which begins to trade in the way set by the one who manages it,” he explained.

Regarding the process of liberalization of the electricity market, the Chairman of the Energy Regulatory Commission Ivan Ivanov was categorical about the need for an energy strategy and a roadmap that should be followed and not depend on political events and talk.

It is impossible not to note that later, within the framework of a discussion on infrastructure, the former Minister of Ecology Julian Popov drew attention to the fact that it is not clear what the market will be like in ten years. As well as that decisions are now made by people who know a much older and different energy market.