Hydrogen law, regulations & strategy in Bulgaria

Hydrogen projects are in the mid to long-term pipeline of the Bulgarian energy policy. Hydrogen has been recognised as an area to be further developed under the Energy and Climate Integrated Plan of the Republic of Bulgaria for the period of 2021 – 2030 (the “Integrated Plan”). The Integrated Plan highlights significant opportunities for the development of hydrogen projects in transport and power generation, especially in the renewable energy projects sector.

The enthusiasm for the development of hydrogen in Bulgaria can be seen in several strategic documents, for example the Energy Strategy of the Republic of Bulgaria and the Innovation Strategy for Intelligent Specialisation. It is expected that later in 2021, the Bulgarian Ministry of Economy would prepare the updated Innovation Strategy for Smart Specialization 2021-2027 which is to cover some of the hydrogen usage aspects.

In addition to the above, the development of the hydrogen energy technologies on the territory of the Republic of Bulgaria has been analysed and assessed by the Fuel Cells and Hydrogen Joint Undertaking (“JU”) in close cooperation with the European Commission – DG Energy and with the assistance of Trinomics and LBST. As a result of those analysis, the JU has prepared and issued a report on the Opportunities for Hydrogen Energy Technologies considering the National Energy & Climate Plans (the “Hydrogen Strategy”). 1 https://www.fch.europa.eu/sites/default/files/file_attach/Brochure%20FCH%20Bulgaria%20%28ID%209473033%29.pdf The Hydrogen Strategy refers to two scenarios, where it compares the potential development by sectors.

All these documents indicate that most of the planned hydrogen projects are within the electricity and transportation sectors. There are also hydrogen producers operating in Bulgaria, including one in Bourgas which is owned by Lukoil, one of the biggest players in the Bulgarian fuel market. In this example, the hydrogen is produced in an oil refinery and, in time, could be converted to low-carbon hydrogen.

Integrated Plan

With regards to hydrogen, the Integrated Plan provides mainly for the development of the transportation sector in Bulgaria where the target is to introduce 32 GWh of hydrogen fuelled vehicles by 2030. Currently, there are no hydrogen powered vehicles in the sector but the aim is that, by 2030, this figure will increase to 2.7 per cent. Same figures and perspectives are mentioned in the Hydrogen Strategy.

It is expected that some of the projected production shall be by way “of Power to X” installations, where surplus solar and wind power generation will be used for the purposes of hydrogen production. It is forecasted that the consumption from such installations will reach 47GWh by 2030.

The Integrated Plan also states that Bulgaria shall invest approximately €3.5 million into hydrogen projects by 2030. Furthermore, Bulgaria is planning to develop hydrogen refuelling stations that will eventually have a total installed capacity of 20MW.

Hydrogen Strategy

The scenarios of hydrogen deployment in Bulgaria pursuant to the Hydrogen Strategy show a substantial potential.

According to the Hydrogen Strategy, the ‘surplus’ electricity production potential can be utilised by developing hydrogen with electrolysers using renewable electricity since to date Bulgaria has not developed its potential for exporting electricity production surpluses. The existence of nuclear power generation capacity in Bulgaria is also an opportunity for the development of the hydrogen sector since these can convert the surpluses into hydrogen while working at full load.

Currently Bulgaria has no salt cavern gas storage sites to be used for hydrogen storage. However, there is salt deposit in the eastern part that should be further explored whether suitable for hydrogen storage.

The strategy indicates opportunities for hydrogen demand in terms of decarbonisation in the sector of industry (e.g. high-temperature heat generation), heating and cooling and transport (road transport, rail sector).

As part of the positive incentives for the hydrogen development, the Hydrogen Strategy indicates the existence of hydrogen national association and the partial existence of hydrogen roadmap/strategy referring to the Strategy for Smart Specialization. However, the lack of national tax incentives and the lack of substantial greenhouse gas reduction measures play the role of contra-incentives.

The development of the hydrogen market may lead to meeting the GHG reduction targets by 2030 as well as to investments in the range of EUR 1.0 – 1.8 billion.

General

Since the market is still under development, there are no clear private financing options so far. However, given that the Energy from Renewable Sources Act (“ERSA”) provides for certificates of origin to be issued to producers of renewable energy, and obliges energy suppliers to purchase this renewable energy. Given the recent changes under the Energy Act, explicitly stating that the energy to be used for the production of green hydrogen shall be subject to certificate of origin, albeit at preferential prices, private investors may be encouraged into the sector.

Much like in other jurisdictions, commercial banks in Bulgaria are starting to opt out of financing carbon intensive, fossil fuel energy projects, choosing instead to provide debt financing to stakeholders investing in new, low carbon technologies, such as hydrogen projects. This will be important given that the infrastructure needed for the development of low carbon hydrogen projects is likely to involve significant capital expenditure (for example, for new pipelines and electrolysers). 

Low carbon hydrogen production is currently expensive compared to the production of hydrogen from coal or methane gas, having not yet benefitted from the price reductions seen across other more mature low carbon technologies. Developers, therefore, will often need financial assistance beyond their own equity investment to support hydrogen projects. However, smaller developers are not always able to satisfy the conditions attached to bank financing. State support may, therefore, have a crucial role in funding hydrogen projects at least initially, especially for smaller developers. Such support will be needed until the cost of generation reaches market levels and becomes self-sustainable. 

Legal framework

The regulatory framework for hydrogen in Bulgaria is very brief. The February 2021 revision of the Bulgarian Energy Act provides for the very first legal definition of hydrogen as part of the green energy within the definition of “green hydrogen”. The same draft provides that the producers of electricity from green hydrogen (from plants that are operational following 1 January 2021) shall not pay the five per cent fee to the Bulgarian Fund for Security of the Energy System that is due by the other renewable energy sources producers. Other than those general provisions and the draft ruling on charging stations for hydrogen vehicles, there is currently no more detailed and specific legal framework in place. Instead, hydrogen production, transportation, storage and use falls within existing legislation for the production of other gases and general construction.

Since 7 of January 2021, a new ordinance No РД-02-20-2 dated 28 September 2020 on design, construction, exploitation, and control of hydrogen fuelling stations is effective, that also covers the applicable specifics of hydrogen storage in those cases.

Financial support and incentives

At present, there is a general lack of specific financial support for the introduction of hydrogen projects in the market, except for the certificates of origin. This is very much likely to change once the technology develops and with the phasing out of Bulgarian coal-fired baseload capacities.

Research and education:

Except for the research made under the preparation of the Hydrogen Strategy, The Bulgarian Academy of Sciences (“BAS”) and Bulgaria’s Technical University in Sofia have dedicated major efforts into researching the development of hydrogen production and its use in the transportation sector. The main areas of focus are charging stations and the storage of hydrogen. In February 2019, the Bulgarian Ministry of Education and Science announced that they would finance the National Scientific Program Low Carbon Energy for Transport and Households until 2022,. 2
https://www.bas.bg/?p=21134&lang=en  The programme aims to develop innovative methods in the use and storage of clean energy, in anticipation of implementing them across several Bulgarian municipalities, and will focus on:

• Renewable energy storage and transformation;
• Electric vehicles and hydrogen mobility; and
• Effective methods for carbon dioxide capture and utilisation.

Specific legislation/regulation

There is no specific legislation adopted in Bulgaria for the regulation of hydrogen projects, besides the two provisions noted at paragraphs 3.1 above and the specifics in terms of fuelling stations as per the ordinance referred to under paragraph 3.2 above. The Energy Strategy of Bulgaria nor the Integrated Plan provide for the development of a specific framework. It is therefore likely that Bulgaria will follow EU regulations in the sector for any unregulated matters. Until then, existing laws relating to energy regulation will apply, such as the Energy Act, ERSA and the Spatial Development Act, which governs the construction of different types of projects. 

Policy and government programmes

The Integrated Plan envisages the development of hydrogen projects in a strategic context. It is anticipated that practical steps under the Integrated Plan, such as the introduction of specific support mechanisms for financing, will be developed within the planned 10-year period up to 2030. The same is envisaged under the Hydrogen Strategy.

The hydrogen sector development is considered under the draft Development and Sustainability Plan as prepared by the Ministry Council of Bulgaria in February 2021. It is still subject amendment and approval. However, the referred plan provides for the development of hydrogen roadmap and infrastructure for transportation and supply of hydrogen.

Primary legislation

Despite the fact that there is no specific legislation in this area, the Energy Act, RESA, and the Spatial Development Act, as well as certain secondary legislation, will apply as general rules governing the generation, connection and distribution, transportation, financing and the permitting process of hydrogen projects. As a result, under this legislation, hydrogen projects will be provided with priority access to the gas and electricity grids and awarded with certificates of origin for the electricity generated from hydrogen. 

Regulation of hazardous activities

The most relevant acts regulating hazardous activities are: 

• the Environmental Protection Act (“EPA”), together with its secondary legislation; and 
• the Act on Providing Information on the Environment and its Protection, Public Participation in Environmental Protection and on Environmental Impact Assessments (“EIA Act”), which includes an obligation to conduct an environmental impact assessment in respect of a planned hydrogen project. 

Transport, import and export of hydrogen

Since there are no dedicated regulatory solutions for hydrogen, the provisions applicable to gaseous fuels should be taken into account in this respect. Specific rules related to transportation of dangerous goods apply to road and railway transportation as provided for under the general EU legislation:

• the Agreement concerning the International Carriage of Dangerous Goods by Road (“ADR”); and 
• the Regulation concerning the International Carriage of Dangerous Goods by Rail (“RID”). 

As there are no hydrogen-specific provisions, the general provisions concerning the investment process and exploitation of industrial installations and devices will apply to hydrogen.

The key regulatory bodies in relation to power generation projects are:

• The Energy and Water Regulatory Commission (“EWRC”) – the national regulatory agency that governs the licensing of installations for power generation; and 
• Local authorities – governing the building and spatial planning processes in each municipality, which are vital for the installation of electricity or refuelling stations.

A number of regulators would have responsibilities depending on the activity in question.

The Integrated Plan will be the key document in terms of regulating the potential development of the hydrogen sector in Bulgaria.

It is also expected that Bulgaria will adopt a new Sustainable Energy Strategy (a joint document covering both the former Energy and Energy Efficiency Strategies) where the future role of hydrogen will be outlined in a clear way. 

Bulgaria will follow any developments at an EU level following the Green Deal and the overall focus on the transformation of the energy sector towards a carbon-neutral status. 

As Bulgaria exceeded its 2020 targets in relation to developments in the renewable energy sector it is expected that, once hydrogen legislation and incentives are put in place, it could be among the leaders in the field, given Bulgaria’s current dependency on fossil fuels, such as lignite, and its lack of other feasible alternatives.

In order to support the development of the hydrogen market in Bulgaria, the government shall undertake steps to:

• develop and prepare a roadmap;
• develop a strategy on the greenhouse gas reduction measures;
• develop some tax incentives;
• implement a specific regulatory framework to cover the different sector areas, where hydrogen is to be applied.