Electricity law and regulation in Bulgaria

1.1.1 Since 1 July 2007 the Bulgarian electricity market has been fully liberalised. The restructuring of electricity companies in accordance with the Second Energy Package has been completed and Bulgaria has since seen the entry into its market of a number of foreign energy companies. The Third Energy Package was implemented in the national legislation by means of a major reform of the Energy Act, which was completed in July 2012. At present, Bulgaria does not have an electricity exchange market despite of the fact that in 2014 the first Electricity Exchange owned by the Bulgarian state was licensed by the Regulator.

1.1.2 The Bulgarian Energy Holding (BEH) established in September 2008, is now one of the largest energy companies in the region. In 2011 the 670MW lignite-fired plant Maritsa East 1 (ME 1) started commercial operations thus completing the largest project-financed generation facility in the region, with a value of EUR 1.4bn. 1

1.1.3 As background, reform of the energy sector began in 1999 with the establishment of the State Energy and Water Regulatory Commission (SEWRC). Soon after, the vertically integrated state owned company, national electricity company (NEK), was split into six independent generators, a national transmission system operator (TSO) and seven regional distribution system operators (DSO). Most of the government-owned electricity generation businesses and distribution businesses were privatised between 2002 and 2012.

1.1.4 The Bulgarian Renewable and Alternative Energy Sources and Biofuels Act (the RAESBA), published on 19 June 2007, sets out a framework for the development of the renewable energy sources by way of a feed-in tariff (FIT) support system. Under the Renewable Energy Act 2011, which replaced RAESBA, renewable energy investments in Bulgaria boomed, exceeding EUR 1.5bn between 2011 and 2012. Solar PV plants currently exceed 1000MW of installed capacity and wind generating stations exceed 800MW.

1.1.5 The Bulgarian Energy Strategy 2020, which was adopted in 2011, provided for the need for urgent implementation of the Third Energy Package in Bulgaria and the need for immediate attention of the Bulgarian Parliament was highlighted by two infringement proceedings initiated by the EU Commission against Bulgaria for delayed and partial implementation of the Third Energy Package. In 2014 the Government started the preparation of a new Energy strategy for the country for the period 2014-2030.

1.1.6 In 2012 the Bulgarian legislation adopted the term “supplier of last resort” in line with the EU legislation.

1.1.7 The Bulgarian energy strategy of 2011 purports to fulfil the main priorities of:

1. promoting liquidity of the electricity market by means of an electricity exchange;
2. establishment of equal and non-discriminatory conditions for all players for access to the electricity grids;
3. full unbundling in line with the Third Energy Package requirements and as a further assurance of guaranteed and equal access to the electricity grids; and
4. development of the “smart grid” concept.

These priorities have not yet been fully achieved.

1.1.8 On 18 December 2013 the SEWRC approved the amendment of the licence of the TSO. Its previous licence for management of the electricity system was terminated and instead was issued a new licence for transmission of electricity. This process was finalised on 4 February 2014, when the TSO was reorganised. It was detached from, and became independent from, NEK and acquired all assets of NEK related to the transmission of electricity. Thus unbundling under the Third Energy Package was formally completed.

1.1.9 On 1 June 2014 the TSO gave the start to the electricity balancing market for renewables in Bulgaria on the grounds of the Electricity Trading Rules, as adopted by SERC in 2013.

1.2.1 The electricity market model is based on regulated access of third parties to the grid. There are two markets: the regulated market and the free market. In the period 2009 to 2012 SEWRC licensed a large number of electricity traders, including many international ones. The real start of the balancing market happened in 2014, when coordinators of balancing groups (standard, combined or special balancing groups) were licensed. The TSO officially announced the start of the balancing market for renewables on 1 June 2014.

1.2.2 The transactions are performed through direct bilateral contracts between the generators/traders and consumers on the free market, and also on the regulated market. The two segments work under different conditions but the TSO ensures the interrelation and coordination between them.

1.2.3 The TSO purchases/sells electricity from/to producers and consumers with dispatched production/consumer facilities on the balancing market. The producers and consumers are organised in balancing groups with licensed coordinators of balancing groups.

1.2.4 The sources of balancing energy are all producers of electricity.

1.2.5 For 2012 the gross electric power generation was almost 47TWh, with the commercial export of electricity reaching 8.4TWh (20% of all generated electricity). The share of nuclear, fossil fuel and renewable power generation stood at 33.6%, 53.8% and 12.6% respectively 2 Bulgarian Ministry of economy and energy, Findings and Recommendations of the European Commission related to the Bulgarian energy policy, May 2013.
click here . The statistics for 2013 are not published yet, but over the recent months there has been a decline in electricity generated due to the lower export in 2013.

1.2.6 Most generated electricity in 2012 was generated from coal (around 43% of all electricity generated), followed by nuclear power (33%) and renewables (11%). 3 Bulgarian Ministry of economy and energy, Report of the condition and the development of the energy sector of the Republic of Bulgaria in 2013

1.2.7 In 2012 industrial and public consumption of electricity amounted to 63% of the electricity consumed in Bulgaria while the remaining 37% was used by the household sector.

1.3.1 The 100% state-owned company, BEH is the parent company of most generating companies and owns the TSO, Electricity System Operator EAD (ESO EAD). Figure 1 shows the organisation of BEH and its subsidiaries.

Figure 1: BEH structure

1.3.2 Most of the fuel for electricity generation also comes from BEH owned mines through Mini Maritsa East (Maritsa East Mines) EAD. The mines operate the largest lignite coal field in Bulgaria, which supplies coal to four thermal generating stations and a briquettes factory. The total output of the mines represents 90.5% of all coal used for electricity generation in Bulgaria with production of 33m tonnes in 2012.

1.3.3 Kozloduy is the largest generator and only operational nuclear generating station in Bulgaria with 3,760MW installed capacity. However Units 1 to 4 have been shut down and the operation capacity since 2007 is 2,000MW.

1.3.4 NEK, a subsidiary of BEH, operates the hydro generating stations and pumped storage hydro generating stations (2,630MW). NEK also carries out licensed activities of a Public supplier. It is also a party to the long-term Power Purchase Agreements (PPA) with ME 1, Maritsa East 3 (ME 3) and the renewable energy projects exceeding 5MW of installed capacity.

1.3.5 ESO EAD, as the TSO, performs the general operational planning, coordination and control of the Bulgarian electrical power system. The TSO is responsible for the operation, maintenance and reliable functioning of the transmission network. It also keeps and maintains the auxiliary networks, carries out maintenance activities and is responsible for the functioning of the electricity market, including the balancing energy market.

1.3.6 Electricity distribution companies were fully privatised in 2012. Thus EVN (Southwest Bulgaria) and Energo-Pro (Southeast Bulgaria) own 100% of the shares of the respective subsidiary companies and CEZ (Sofia and Western Bulgaria) owns over 90%. In order to meet the requirements of the Second Energy Package the electricity distribution companies have also been restructured to separate the distribution and supply of electricity into separate legal entities.

1.3.7 Due to the unfavourable investment climate in the electricity sector in 2012 E.ON and Mechel sold their distribution and generation assets to smaller regional and local players. This process continued in 2013 with some renewable energy disposals.

Unbundling

1.3.8 Despite the formal implementation of the Third Energy Package in Bulgarian legislation in 2012, the final unbundling was delayed up until 2014.

1.3.9 On 4 February 2014, the unbundling of the TSO from NEK was effected. This was the final step of the process, which was initiated in 2012 with the amendments to the Energy Act.

1.4.1 The new Energy Efficiency Act (EEA) published on 14 November 2008 regulates the implementation of the state policy for promotion of energy end-use efficiency and the provision of energy services. The purpose of the EEA is to promote energy efficiency as a major factor for improving the competitiveness of the economy, the security of energy supply and environmental protection by:

• implementing a system of energy end-use efficiency improvement activities and measures; and
• developing the market for energy services and energy end-use efficiency improvement measures by retail energy sales companies.

1.4.2 This document sets out five main priorities:

1. guaranteeing the security of energy supplies;
2. reaching renewable energy targets;
3. increasing energy efficiency;
4. developing a competitive energy market and policy targeted towards the fulfilment of energy needs; and
5. protecting the interests of consumers.

1.4.3 Since 2012, the electricity sector in Bulgaria has faced various challenges:

• Following a series of attempts to continue with the Belene Nuclear Power Plant project since 2002, the government terminated its construction of the second nuclear generating station in March 2012. Currently there is an international dispute over the EPC contract of the project.
• In June 2012 some 300-400MW of PV plants were connected to the grid in parallel with the decline in the overall demand. Despite political assurances of a cap on increases to end-customers electricity prices of up to 10%, the Chairman of SEWRC appeared before the National Parliament and announced an increase of over 13%, which was driven by the growing number of renewable projects.
• Following the renewable energy boom and the changes to the Energy Act, in July 2012 the Regulator lowered the FiT substantially, with a special focus on solar PV plants resulting in a freeze in investments.
• On 14 September 2012, SEWRC uploaded on their website Decision C-33, which imposed “temporary access to the grid price” for all renewable energy generators. The majority of renewable energy projects were required to pay as much as 39% of their income to the respective grid companies. Notwithstanding assurances by SEWRC that this was a temporary measure and the successful court appeal and the abolishment of Decision C-33 with respect to the major part of renewable energy generators, the temporary access to the grid price remains in place for some of them.
• The March 2013 mass street riots in Bulgaria led to the resignation of the entire government and the appointment of a new caretaker government ahead of the general elections on 12 May 2013. Following the elections a coalition between the Socialist and Turkish liberal party was formed thus putting more pressure to SEWRC to reduce the end-customer prices for electricity. This was done twice during the last 12 months and equals more than 10% decrease of the prices for households compared to the period before the elections. Due to these decreases recent calculations show a deficit of circa 3 bn BGN in the Bulgarian electricity market.
• In March and June 2013, EVN and Energo-Pro respectively filed for international arbitration cases against Bulgaria based on an alleged breach of the fair and equitable treatment of their foreign investments in Bulgaria, as established by the Energy Charter Treaty. The cooling-off period for EVN has expired and now the case has been referred to the International Center for Settlement of Investment Disputes (ICSID). 4 EVN AG v. Republic of Bulgaria (ICSID Case No. ARB/13/17. 5 “List of pending cases at ICSID”  
• In December 2013 the Bulgarian government signed an exclusivity agreement with Westinghouse Electric over the construction of Unit 7 of Kozloduy NPP. The Shareholders Agreement was signed on 1 August 2014 and was surrounded by negative reactions due to the lack of any transparency of the process.

1.4.4 The caretaker government in 2013 initiated an international audit of the Bulgarian energy sector by the EU Commission and the World Bank. These studies (referenced in footnote 3 and 5 above) concluded that:

• the public has lost confidence in the management of energy companies and the government’s oversight of the sector;
• the electricity sector has large financial deficits that are increasing contingent liabilities of the state; and
• the declining level and coverage of social assistance benefits have made energy unaffordable for the poor.

1.4.5 The main recommendations of the audit were to:

• enhance the credibility, independence and capacity of SEWRC;
• eliminate incentives that lead to inefficient investments and rent-seeking behaviour;
• address financial liabilities that arise from the off-take of renewable energy, co-generation, long-term PPAs and failed investments in an equitable manner;
• increase budgetary funding to expand the level and scope of targeted benefits for vulnerable consumers; and
• elimination of conflicts of interests between state officials and senior managers in the power sector.

1.4.6 None of the referred measures were taken into consideration by the following socialist government and it was strongly criticised about its incorrect and improvident energy policy. This became one of the reasons for that government’s overthrowing. The new caretaker government of Bulgaria is again meeting representatives of the World Bank in its attempts to minimise the negative impacts from the socialist government.

1.4.7 As some form of a reaction to the inevitable changes in the sector, September 2014 saw the establishment of an Energy Board in Bulgaria, which will be a forum, where the main stakeholders in the power sector will gather and discuss ideas about further reforms in the sector.

Structure of generation sector

2.1.1 Bulgarian generation consists of a mix of thermal, nuclear, large hydro and renewable sources.

2.1.2 The largest generating stations in Bulgaria are coal-fired. In recent years, the substantial investment in new facilities, ME1, and rehabilitation of existing ones (Maritsa East 2 and ME 3) means that thermal generating stations generate more than 50% of the electricity generated in the country. Despite the decline in generation of electricity from the Kozloduy nuclear generating station (and the decommissioning of four units), this plant still generated 33% of total electricity generated in 2012.

2.1.3 For over a decade the Bulgarian government had planned to expand its nuclear generation capacity by building the Belene nuclear generating station, which in 2012 was cancelled. This led to a major international dispute initiated by the EPC contractor, Rosatom. On 1 August 2014 Kozloduy NPP signed the Shareholders Agreement with Westinghouse Electric for the construction of Unit 7 of Kozloduy NPP.

2.1.4 The large hydro generating stations are those that have installed capacity of more than 10MW. Ones with less than 10MW are classified as renewable energy generators (generators with less than 5MW of capacity do not require a generation licence from SEWRC and are eligible for support as set out in paragraph 3.4).

Energy mix

2.1.5 As shown in Figure 2, the structure of the electricity energy mix in Bulgaria over the last years shows a steady increase in the renewable sector (in 2013 it exceeded 16% of the electricity generated domestically) and a decrease in generated from nuclear.

Figure 2: Changes in generation sources 6 Bulgarian Ministry of economy and energy, Report of the condition and the development of the energy sector of the Republic of Bulgaria in 2013  

Structure of transmission sector

2.2.1 Currently the TSO owns the electricity transmission infrastructure of Bulgaria, consisting of 110kV, 220kV and 400kV lines.

2.2.2 The TSO is in charge of the operational regime planning and control of the electrical power system of the Republic of Bulgaria. It is in charge of the synchronisation of the Bulgarian electrical power system operation in parallel with the electrical power systems of the European members of the Union for the Coordination of the Transmission of Electricity (UCTE) and coordination of the joint operation with other electrical power systems. It undertakes the operation, overhaul and maintenance of the transmission network, as well as organisation of the balancing energy market. The National Dispatching Center (NDC) of the TSO acts as the transmission system operator and performs the functions of centralised real time dispatching, control and supervision of the transmission. Its main assignment is to guarantee the reliable and efficient operation of Bulgarian electricity supply and its synchronous operation with the partners in the UCTE. NDC also organises the electricity market. There are four Regional Dispatching Centers (RDC) covering the territory of Bulgaria (as shown in Figure 3). The RDCs are controlled by NDC and follow its instructions at a regional level. The RDCs and the NDC are part of the TSO, which currently just undertakes operation of the electricity transmission system.

Figure 3: National and regional dispatching centres 7
TSO  

Cross-border issues

2.2.3 Bulgaria enjoys strong cross-border links with its neighbouring countries as shown in Figure 5. Bulgaria’s interconnections include two 400kV lines with Turkiye; two 400kV lines with Romania; one 400kV line with Greece; and one 400kV line with Macedonia.

Figure 5: Interconnection lines of the EPS of Bulgaria 8 TSO
www.tso.bg

2.2.4 The TSO allocates inter-connector capacity for cross-border transfers between the Bulgarian system and the UCTE systems and there is no auctioning system. In winter months the Minister of Economy and Energy has in the past signed orders to stop the cross-border sale of electricity to support domestic consumption.

Structure of distribution sector

2.3.1 Figure 6 shows the areas covered by the three electricity distribution companies in Bulgaria: CEZ, EVN, and Energo-Pro. Electricity grids of 20kV and below fall within the definition of distribution network in Bulgaria.

2.3.2 CEZ Bulgaria operates and maintains the electricity distribution grid in Western Bulgaria pursuant to a licence, issued by SEWRC for a period of 30 years. In 2007 CEZ Bulgaria was granted another licence – for public electricity supply. On 3 January 2007, pursuant to the Final Provisions of the Energy Act, the activities, related to distribution and supply, were legally and organisationally unbundled. The electricity supply was taken over by a newly-established company: CEZ Electro Bulgaria AD. In November 2007 CEZ merged with Electricity Distribution Stolichno AD, Electricity Distribution Sofia Oblast AD and Electricity Distribution Pleven AD. Electricity Distribution Stolichno took over all responsibilities and obligations of the other two western Bulgarian companies so as to optimise the activity of the company, to improve its management and to achieve higher efficiency. On 29 January 2008 Electricity Distribution Stolichno was renamed as CEZ Distribution Bulgaria AD. The company operates in West Bulgaria and covers an area of 40,000 sq.km. The area has 2,930,000 residents.

2.3.3 EVN Bulgaria operates and maintains the electricity distribution grid in southern Bulgaria. EVN is a leading, international and publicly listed energy and environmental services company, with headquarters in Lower Austria. Starting from its domestic market in Lower Austria, EVN has been pursuing a dynamic expansion strategy. At the beginning of 2005 EVN entered the Bulgarian market, where it is now serving 1.7m customers.

2.3.4 Energo-Pro Bulgaria operates and maintains the electricity distribution grid in the northeast of the country. Prior to Energo-Pro, until mid-2012, the electricity distribution grid in north-east Bulgaria was operated by E.ON Bulgaria. At the end of June 2012 the Czech company Energo-Pro acquired the business of E.ON in Bulgaria. Energo-Pro was established in the Czech Republic in 1994 and has been present within the Bulgarian market since 2000. With its eight hydroelectric plants, grouped in three cascades, the company is the largest private generator of hydro power in the country.

Structure of supply sector

2.4.1 Bulgaria has adopted a regulated third party access regime. All eligible customers may enter into supply contracts and are entitled to transmission services. NEK and the regional distribution companies each have a statutory and licence obligation to provide such services on a non-discriminatory basis. The connection and use of system charges are approved by the SEWRC.

2.4.2 The Bulgarian electricity supply market was fully liberalised on 1 July 2007. Captive customers and those who have not decided to change their supplier buy their electricity from NEK (if they are connected to a high voltage grid) or the distribution companies (if they are connected to a medium or low voltage grid). Customers can buy electricity directly from generators or from holders of trading licences, through bilateral contracts.

Competition and price control issues

2.4.3 The Commission for Protection of Competition (CPC) is the regulatory body dealing with competition matters in the electricity sector of Bulgaria (see paragraph 3.1.11 below). Price control issues fall within the competence of the SEWRC. SEWRC is obliged to refer to the CPC if the respective matter is related to competition.

2.5.1 In Bulgaria, ESO EAD issues and manages the list with Bulgaria’s Energy Identification Coding (EIC) for trading in the European wide electricity exchange. All electricity market participants willing to participate in cross-border electricity exchanges must obtain an EIC code.

2.5.2 All market participants wishing to apply for an EIC code to participate in cross-border exchanges shall meet the criteria laid down in the Rules for Electricity Trading, issued by SWERC.

Structure of trading market

2.5.3 The electricity market in Bulgaria is made up of:

• trades based on bilateral agreements (PPAs) which have regulated prices;
• an organised day-ahead market;
• a market for balancing energy;
• a market of reserves and additional services; and
• inter-connectors transfer capabilities (“capacity”).

2.5.4 Agreements on regulated prices may be entered between:

• generators and public suppliers;
• public suppliers and end-suppliers / transmission company (for technological use) / distribution companies (for technological use);
• end-suppliers and their customers; and
• renewable energy generators and end-suppliers / public supplier.

2.5.5 Agreements on free prices can be concluded between:

• generators and electricity traders / consumers that are registered on the market for free prices / public suppliers / other generators of electricity (long-term PPAs); and
• electricity traders and consumers, which are registered on the market for free prices / other electricity traders.

Bulgaria-Turkey

2.5.6 Although there is a provision in the Energy Strategy 2020 that Bulgaria will have its Electricity Exchange operational no later than December 2011, this project was delayed until 2014 and the start of the trading is still to come.

Data on traded volumes

2.5.7 In accordance with article 7 of Regulation 838/2010, the scheduled import and export flows of electricity over Bulgarian–Turkish interconnection is charged with a Perimeter Fee, calculated in advance by ENTSO-E. The Perimeter Fee for 2013 has been set at EUR 0.70 MWh, and is collected by ESO EAD from market participants with registered schedules for deliveries on the Bulgarian-Turkish border.

2.5.8 The data on the traded volumes is available on the TSO’s website (see section 5).

3.1.1 The regulation of the electricity sector is distributed principally amongst:

• the Ministry of Economy and Energy;
• SEWRC; and
• the Nuclear Regulator Agency (NRA) and the Agency for Sustainable Energy Development (ASED).

The Ministry of Economy and Energy

3.1.2 The national energy policy is implemented by the Minister of Economy and Energy. The government and Parliament adopts the Energy Strategy. This strategy states the basic objectives, stages, means and methods for the development of the energy sector.

3.1.3 The Minister of Economy and Energy performs, inter alia, the following functions:

• elaborates the Energy Strategy and other strategies and restructuring programmes;
• adopts the overall national forecast energy balances;
• produces a list of energy works of strategic national importance;
• defines the mandatory parameters of the level of reliability of electricity supply;
• determines the overall annual share of mandatory acquisition of electricity from generators;
• prepares an analysis of the national potential for high efficiency combined cycle generated;
• makes proposals for establishment and maintenance of national and wartime energy reserves;
• approves standard levels for the stocks of fuels necessary for security of the energy supply;
• lays before the government a proposal for grant of state aid to certain entities;
• issues permits for exploration of underground resources;
• conducts the concession procedures for production of underground resources for the construction of hydro energy facilities; and
• issues secondary legislation in the energy sector.

SEWRC

3.1.4 The SEWRC is the utility regulator in Bulgaria. Its primary functions are to:

• issue, modify, supplement, suspend, terminate and withdraw licences under the Energy Law;
• approve the general conditions of the contracts provided for in the Energy Law;
• implement the price regulation in accordance with the Energy Law;
• adopt the rules for trade in electricity (Market Rules) and the technical rules for the networks (System Code), and control their compliance;
• adopt rules for the supply of electricity by end-suppliers;
• adopt and control the implementation of a methodology for setting of prices for balancing electricity;
• establish the rules for access to the electricity transmission and distribution networks;
• conduct the tendering procedures for new generation capacity;
• consider the requests of energy companies for reimbursement of any stranded costs or any costs resulting from public obligations under the Energy Law; and
• address requests and notices to the competent institutions of the European Union for granting temporary exemption from the application of provisions of EU law and transitional periods in the energy sector.

NRA

3.1.5 The NRA is responsible for regulation of nuclear installations in relation to safety and radiation protection and also the management of radioactive wastes. It also undertakes nuclear functions related to Bulgaria’s EU accession.

3.1.6 State regulation of the safe use of nuclear energy and ionising radiation, the safety of radioactive waste management and the safety of spent fuel management is implemented by the Chairman of the NRA. The Chairman is an independent specialist authority of the executive power and is vested with competencies.

3.1.7 In accordance with the Act on the Safe Use of Nuclear Energy and Rules of Procedure of the NRA, the Chairman of the NRA carried out an interaction process. This was undertaken with the executive authorities who are granted regulatory and control functions relating to the use of nuclear energy and ionising radiation and the safe management of radioactive waste and spent fuel. Proposals were made to the Council of Ministers detailing measures to coordinate these activities. Such coordination is intended to be continuous and is a commonly expressed in activities administrated by the Ministry of Health, Ministry of Interior, Ministry of Environment and Water, Ministry of Defence, Civil Protection National Service, Customs, State Agency for metrological and technical control and others.

ASED

3.1.8 ASED was created by the amendments to the EEA in 2011 to perform energy efficiency and renewable energy management functions. ASED is a legal successor of the executive Energy Efficiency Agency.

3.1.9 ASED is a legal entity, with state budget support, headquartered in Sofia and has the status of an executive agency within the Ministry of Economy and Energy.

Competition authorities

3.1.10 EU competition law applies in Bulgaria.

3.1.11 The CPC is empowered to enforce the Law on Protection of Competition
(LPC).
The CPC scope of activity covers:

• all requests on ascertaining infringements of free market competition;
• enforcement of EU competition rules;
• cooperation with the European Commission and other EC Member States;
• conducting sector analysis and competition advocacy.
• competition authorities in conformity to Regulation 1/200 and Regulation 139/2004; and

Anti-Cartel

3.1.12 LPC contains a general prohibition for all types of agreements between undertakings, decisions by associations of undertakings as well as concerted practices of two or more undertakings having as their object or effect the prevention, restriction or distortion of competition on the relevant market. The prohibition specifies a list of the most common forms of the prohibited conduct which is not exhaustive.

Anti-abuse of dominance

3.1.13 LPC prohibits the conduct of undertakings enjoying a monopoly or dominant position, as well as the conduct of two or more undertakings enjoying a collective dominant position that may prevent, restrict or distort competition and impair customers’ interests.

Merger control

3.1.14 Concentrations are subject to mandatory prior notification to the CPC where the aggregate combined turnover of all undertakings participating in the concentration in the territory of the Republic of Bulgaria, in the preceding year, exceeds the threshold of BGN 25m. The turnover of each of at least two of the undertakings participating in the concentration or the turnover of the undertaking – subject to new acquisitions in the territory of the Republic of Bulgaria during the preceding fiscal year – exceeds BGN 3m.

The Energy Act

3.2.1 The Energy Act regulates activities connected with the generation, export and import, transmission, transit transmission, distribution of electrical and thermal power and natural gas and the use of renewable energy sources. It additionally regulates the rights of the state authorities in defining the energy policy, regulation and control.

3.2.2 The secondary legislation for the implementation of the Energy Act in the field of electricity includes:

• licensing activities in the energy sector;
• servitudes of the energy sites;
• technical exploitation of electricity equipment;
• connection of generators and consumers to the transmission and distribution electrical networks;
• terms and conditions for operation of the transmission and distribution networks;
• technical exploitation of the power stations and grids;
• institution of restrictive regimes, temporary suspension or limitation of the generation or delivery of electrical power, thermal power and natural gas;
• design, erection and exploitation of electrical equipment in buildings;
• management of the electricity system;
• terms and conditions of access to the electricity transmission and distribution networks;
• electricity trading; and
• metering of electrical power.

The EEA

3.2.3 The EEA regulates activities connected with the implementation of state policy on increasing energy efficiency and executes energy efficient services.

3.2.4 The purpose of the EEA is to:

• make energy efficiency a national priority;
• more clearly define the commitments and state support for the development of energy efficiency; and
• establish institutional, legislative and financial conditions for the realisation of national policy as a pre-requisite for successful integration with the European Union.

3.2.5 National action plans on energy efficiency have been developed based on Directive 2006/32 and the EEA. In these plans Bulgaria has adopted a national indicative target for energy savings by 2016 in an amount not less than 9% of final energy consumption for nine years (average 1% per year).

3.2.6 The Energy Efficiency Fund has followed from the EEA. After the adoption of the new Energy from Renewable Sources Act it was renamed the Energy Efficiency and Renewable Sources Fund. The main objective of the Fund is managing the funds available for investment projects for energy efficiency, according to the priorities set out in the annual energy efficiency programs was adopted by the Council of Ministers.

The Renewable Energy Act

3.2.7 The Renewable Energy Act regulates public relations connected with the stimulation of the generation and consumption of electricity from renewable sources.

Safe Use of Nuclear Power Act

3.2.8 The Safe Use of Nuclear Power Act, regulates public relations connected with the state regulation of the safety use of nuclear power and ionising radiation and with the safe management of the radioactive waste and spent fuel. It also regulates the rights and obligation of the parties, who implement the activities for ensuring nuclear safety and radiation protection.

3.2.9 The secondary legislation for the implementation of the Safe Use of Nuclear Power Act includes regulation for:

• the procedure of issuing licences and permits for the safe use of nuclear energy;
• ensuring the safety of nuclear generating stations and research installations;
• the terms and procedure for obtaining vocational qualifications and the procedure for issuing licences for specialised training and individual licences for the use of nuclear power;
• the physical protection of nuclear facilities, nuclear material and radioactive substances;
• the conditions for notification to the NRA of events in nuclear facilities and sites with sources of ionising radiation;
• emergency preparation in case of nuclear disaster;
• the conditions and procedure for establishing special-statutory areas around nuclear facilities and facilities with sources of ionising radiation;
• the conditions and procedure for transport of radioactive material; and
• the safety of spent fuel management.

Licences

3.3.1 Participants in the energy sector in Bulgaria must obtain the appropriate licence to operate generation facilities of above 5MW installed capacity.

3.3.2 The SEWRC issues the following categories of licences:

• generation of electricity;
• generation of electricity and heating power;
• transmission of electricity;
• distribution of electricity;
• public supply of electricity;
• supply of electricity to end buyers;
• operation of the electricity grid (transmission network);
• distribution of electricity over the railroad transportation distribution network;
• trade in electricity; and
• organisation of an electricity market.

Permits and Consents

3.3.3 In addition to the above, an operator proposing to establish a new generation plant must obtain other consents and authorisations, including:

• an environmental impact assessment (EIA), which is coordinated between the Ministry of Environment and Waters and its relevant regional offices;
• construction design approval, which is coordinated with the Ministry of Regional Development and Public Works; and
• construction permit which, depending on the site, might require the involvement of the Ministry of Regional Development and Public Works.

Tariffs

3.3.4 The SEWRC sets tariffs across the sector. In setting the maximum tariff, the SEWRC considers the following, based on the principle of “upper level income” (i.e. that prices may fluctuate up to the maximum tariff):

• the annual income that the generator presents and justifies to the SEWRC;
• the value of the power generated assets; and
• the rate of return capital prior to taxation.

3.3.5 The price of electricity sold by generators to the public supplier(s), the end-suppliers or the transmission company (sales to the latter are to compensate it for the technological costs of transmission), are determined according to adopted predictions for the necessary annual income and net annual energy generated. The price may include the capacity price and energy price.

3.3.6 The prices of renewable energy and CHP energy are preferential (Feed-In Tariff), as described above (see Renewable Energy).

3.3.7 The prices of the energy sold by the public supplier to the final suppliers or distribution companies are also set out according to predictions of necessary annual income and volume of net energy generation. The same criteria are used for determining the prices paid by all grid users for the transmission of energy and prices paid by the consumers to the suppliers.

3.3.8 The price for connection to the grid is determined on a case-by-case basis and includes the actual costs of the connection installations.

Mandatory off-take and FIT long term power purchase agreements

3.4.1 The Renewable Energy Act is the main legislative act setting out support mechanisms for renewable energy sources in Bulgaria. The Renewable Energy Act implements the provisions of the RED.

3.4.2 The mechanisms to promote renewables under the Renewable Energy Act currently include a mandatory off-take at preferential prices of the electricity generated from renewable energy sources and a right to priority connection to the grid. Nevertheless since 2012 the Feed-In Tariff is unsustainable for Solar PV and wind producers and therefore most of the planned investments have been abandoned.

3.4.3 The public utility wholesaler (NEK) and the electricity distribution companies are obliged to off-take all electricity generated from renewable sources that is guaranteed by a certificate of origin. The guarantees of origin are issued, transferred and cancelled by the ASED.

3.4.4 A major change is that the FiT for new projects shall be fixed for the entire term of the PPA with the exception of biomass where there is an indexation based on the expenses for the energy sources, transportation and labour. The SEWRC determines the FiT levels annually; the new prices shall be applicable to new projects only.

3.4.5 The Renewable Energy Act specifies the general criteria, which should be considered by the Regulator when determining the FiT. The principles with which the revised draft FiT will be set are:

• the type of renewable source and the type of technology;
• the installed capacity;
• the investment expenses and the rate of return of the investment;
• the structure of the capital of the investment;
• the productivity of the installation with respect to the type of the installation and the technology used; and
• the expenses related to environmental costs, etc.

3.4.6 The terms of the mandatory off-take of electricity are set up as follows:

• from 25 to 20 years – for solar, geothermal and energy generated from biomass;
• from 15 to 12 years – for wind energy; and
• the off-take period for hydro and other renewable energy remains 15 years.

3.4.7 Generators of renewable energy who were operating and had effective PPAs at the date the Renewables Act came into force, maintained their current terms (i.e. 25 years for solar generating stations, 15 years for wind parks, etc.).

Public-Private Partnership (PPP)

3.4.8 PPP is also an available option in accordance with the Public-Private Partnership Act. 9 Published in the State Gazette, issue 45, dated 15 June 2012, effective as of 1 January 2013.  Prior to that, due to the lack of legislation, some municipalities had adopted local PPP Ordinances and provided support for renewable energy projects.

Various sources of funding and grants – EU accession funds

3.4.9 Sources of funding include the European Bank for Reconstruction and Development’s Bulgarian Energy Efficiency and Renewable Energy Credit Line Framework extended to seven local banks for on-lending to private sector companies for industrial energy efficiency and small scale renewable energy projects, supported by the Kozloduy International Decommissioning and Support Fund grant funding.

3.4.10 Pursuant to the EEA, the Bulgarian Energy Efficiency Fund shall finance the implementation of energy efficiency improvement activities and measures, with the exception of those financed from the state budget.

3.4.11 Funding is also available from EU energy funds such as Intelligent Energy – Europe and framework programmes for scientific research and presentations. EU accession funds are also available for mini-hydro generating stations and small-scale projects. Kyoto mechanisms, especially Joint Implementation (JI), are also available. In recent years, Bulgaria completed such JI projects with leading technology providers from Austria, Denmark, Japan and others.

3.5.1 As the main change in the sector is seem the expected increase of the end-customers’ price of electricity due to the populist behaviour of SEWRC in the period March 2013-July 2014. The level of increase will be about 8-20 % over the current price levels.

3.5.2 The new Caretaker government has created the so-called Energy Board, whose responsibilities are revision of the whole sector, identification of mechanism to improve the regulation and proposing the relevant legislative changes. In its work, the board is already meeting representatives of the World Bank and the European Commission to involve their assistance in reforming the energy sector.

• Ministry of Economy and Energy of the Republic of Bulgaria: www.mi.government.bg
• SEWRC: www.dker.bg
• ASED: www.seea.government.bg
• BEH: www.bgenh.com
• NEK: www.nek.bg
• TSO: www.eso.bg
• Kozloduy NPP: www.kznpp.org
• Maritsa East 2: www.tpp2.com
• Mini Maritsa East: www.marica-iztok.com
• CEZ Bulgaria: www.cez.bg
• EVN Bulgaria: www.evn.bg
• Energo – Pro Bulgaria: www.energo-pro.bg