ENERGY AND WATER REGULATORY COMMISSION Liberalization of the electricity market in Bulgaria in the context of EU requirements Assoc. Prof. Ivan Ivanov Ph.D. EWRC Chairperson Sofia, 16 May 2017

Gross generation in 2016 in MWh Electricity market status 2016 Installed capacity Available capacity Peak Load 4th January Off-peak 24th May 12 701 MW 9 595 MW 7 105 MW 2 662 MW Gross generation in 2016 in MWh Thermo Power Plants Renewable Energy Sources Industrial Power Plants and CHPP 40% HPP Solar Wind Biomass 8% Nuclear Power Plant 17% 35% ENERGY AND WATER REGULATORY COMMISSION 2

Customers, who switched off supplier in 2016 Electricity market status 2016 Liberalized market 2016 Regulated market 2016 54 % 46% National market – 37 % Export – 17 % National market – 37 % Losses – 9 % Customers, who switched off supplier in 2016 85 350 ENERGY AND WATER REGULATORY COMMISSION 3

97 % 3 % Electricity market status 2016 Customers on regulated market Customers on liberalized market 3 % ENERGY AND WATER REGULATORY COMMISSION 4

Electricity market status 2016 Structure Bilateral contract market Day ahead market Intra day market (planned for the beginning of 2018) Ancillary system services market Пазар за разпределение на капацитети Capacity allocation market OTC market ENERGY AND WATER REGULATORY COMMISSION 5

Reforms What was done: ENERGY AND WATER REGULATORY COMMISSION 6 Easing the process to enter the market Standardized load profiles Launching PX Nominated NEMO Fair distribution of the costs for public service obligation between all end clients and launching Security of the power system fund Market Rules Amendment ENERGY AND WATER REGULATORY COMMISSION 6

Market Liberalization Road Map Reforms What has to be done: Market coupling Market liquidity Energy Act Amendment Market Liberalization Road Map New Market Model ENERGY AND WATER REGULATORY COMMISSION 7

Common efforts Parliament Regulator IBEX Market participants Government ENERGY AND WATER REGULATORY COMMISSION 8

European target model The European target model shall ensure the completion of the EU Internal Electricity Market and common standards for each timeframe: Day Ahead (DA), Intra-Day (ID) and Forward Market. A fair and transparent PX price is a key factor for the models success. Price Coupling of Regions (PCR) Multi-Regional Coupling (MRC) The integrated European electricity market is expected to increase liquidity, efficiency, social welfare and transparency of prices and flows. Finland Sweden Russia Norway Estonia Latvia Northern Ireland Denmark Lithuania Ireland Belarus UK Poland Nether- land Germany Ukraine belgium Luxembourg Czech Republic Slovakia Moldova France Austria Hungary Switzerland Romania Slovenia Croatia Bosnien & Herzegovina Serbia Bulgaria Italy Monte- negro Kosovo Makedonia Spain Albania Turkey Portugal GreeCe ENERGY AND WATER REGULATORY COMMISSION 9

Capacity Calculation Regions In May 2016, EWRC approved the proposal of all Transmission System Operators for Capacity Calculation Regions for "day ahead" and “intraday" markets as required by Regulation (EC) 2015/1222. The total number of regions is 11 (eleven) Bulgaria is part of a capacity calculation region: South-East Europe. This region should consist of the boundaries of the bidding zones and should cover the transmission system operators of the Republic of Bulgaria, the Hellenic Republic and the Republic of Romania. Romania Transelectrica ЕSО Bulgaria IPTO Greece ENERGY AND WATER REGULATORY COMMISSION 10

Common price for the two areas Electricity flows in a coupling market Surplus area Deficit area Demand curve Supply curve Demand curve Supply curve PRICE [EUR/MWh] PRICE [EUR/MWh] 50 EUR/MWh Common price for the two areas = 40 EUR/MWh 30 EUR/MWh VOLUME [MWh] VOLUME [MWh] Flow ENERGY AND WATER REGULATORY COMMISSION 11

Main troubles concerning the liberalized market PPAs – obligations of mandatory energy purchase RES support scheme Encouragement top-up to the price of High Efficiency Cogeneration Lack of competition and lack of conditions for liquid trading on the PX Lack of trust and confidence across the energy market Lack of measures to protect vulnerable consumers Existence of a single buyer Regulated retail prices ENERGY AND WATER REGULATORY COMMISSION 12

Challenges - Contracts for Difference Return the difference from the producer to the Fund Ц Е НА В Р Е М Е Payment of difference by the Fund to the generator Market price Agreed price ENERGY AND WATER REGULATORY COMMISSION 13

Energy Strategy 2016 - Need for new, stable and long-term energy strategy The present strategy: Based on unrealistic forecast of electricity consumption growth; Envisages the realization of large energy projects, which due to economic, energy and financial reasons, will not be implemented; Does not take into consideration the new EU targets, set out in the decision for the establishment of the European Energy Union. The set targets should be realistic: With the chronic overgeneration only replacement capacities are needed; 71% of NEK obligations come from megaprojects costs: Belene NPP (1.3 billion leva) and Tsankov Kamak HPP (984 M leva); Focus on energy efficiency enhancement; Energy strategy up to 2030 is needed, with perspective by 2050. ENERGY AND WATER REGULATORY COMMISSION 14

„public service obligations” EWRC's functions in the liberalized market Licensing and supervision of issued licenses; Regulating network tariffs; Setting price for “Pubic Service Obligations”; Market monitoring. Power Generation Transmission and Distribution Supply on the wholesale or retail markets Regulation on network tariffs Competition Competition „public service obligations” ENERGY AND WATER REGULATORY COMMISSION 15

Thank you for your attention! Assoc. Prof. Ivan Ivanov Ph.D. ENERGY AND WATER REGULATORY COMMISSION Thank you for your attention! Assoc. Prof. Ivan Ivanov Ph.D. EWRC Chairperson