Business consumers who do not choose a supplier by 30th June 2021 to expect 50% more expensive electricity

What is happening on the free electricity market, do small companies benefit from the opportunities provided by liberalization in the sector, explains Pavlin Pavlov, sales manager at Grand Energy Distribution ”- a company with many years of experience and a solid portfolio in electricity transactions.

Mr. Pavlov, how does the electricity market function now?

Yes, I will explain briefly. In connection with the amendment to the law that has entered into force, part of the actions for liberalization of the electricity market, all business subscribers with an open electricity account must switch to the free market by 30.06.2021. They have to choose which electricity trader to sign a contract with.

What does "free market" mean?

The free electricity market allows the conclusion of transactions at freely negotiated prices between electricity traders and end users. Consumers have the opportunity to choose their electricity supplier, to negotiate terms of the contract and invoicing, as well as additional services related to servicing. This creates an opportunity for competition, and the competitive environment in electricity trade leads to a reduction in the price of electricity and increase of the quality of service.

If at the moment, the customers have remained with the electricity supply company, signing a standard contract for purchase and sale of electricity with a deadline of 30.06.2021, this definitely does not mean that they have entered the free market. It is as if they have entered the waiting room of the "free market" and will be supplied at certain official prices by the electricity supply company itself, until June 30, 2021, when they will have to choose an electricity trader, concluding a purchase-sale contract for electricity. sale. So I advise everyone who has not yet chosen their electricity trader not to wait until the deadline, but to do so as soon as possible. The advantage for all customers is the opportunity to negotiate a lower price and receive better service.

And what happens to consumers who do not sign a contract by 30.06.2021?

From 01.07.2021 they will be supplied with electricity from the supplier of last resort. These are companies that are obliged to be on standby at any time in the event of an accident, or simply put, the supplier of last resort is the "emergency department" of energy and its role is to supply electricity in unforeseen circumstances. But I do not recommend customers to get there, because the prices to end customers are 50% higher than the average in the sector offered by electricity traders such as Grand Energy Distribution.

You mentioned liberalization earlier. Tell us about it.

Full market liberalization must happen. It is set as a plan and requirement of the EU, as the Bulgarian electricity market is part of the European and in this regard follows the implementation of the European strategy for expansion and gradual opening of the market to more and more consumers in order to build an integrated European energy market. On paper, the Bulgarian electricity market has been fully liberalized since July 1, 2007, which means that every consumer has the legal right to choose a supplier and free and equal access to the electricity transmission network to the place of consumption. In reality, however, the market was opened in stages, after the relevant procedures were outlined. In fact, the first step towards liberalization was taken as early as 2004, when only the largest business consumers could enter the free market, and by August 2013 all high-voltage consumers were obliged to enter the free market. From August 2013, all medium voltage business customers were obliged to take steps to enter the free market, and from 2016 all low voltage business customers can change their electricity supplier to a free market supplier with which they can freely they can negotiate prices lower than they can get by staying on the regulated market. The establishment of the energy exchange in 2016 was one of the key stages for the gradual liberalization. Currently, the Bulgarian Electricity Exchange offers markets on which Day-ahead, Intraday and Bilateral Contracts are traded. The next step is the mandatory transition of all low voltage companies to the free market by June 30, 2021. After that, a deadline will be announced in which all households will also be obliged to enter the free market, which will finally complete the process of full liberalization of the electricity market.

Is it currently cheaper on the regulated or free market?

The truth is that traders buy electricity from different places and in several ways and through diversification they manage to achieve lower prices. While the official prices at which the companies remained with their current suppliers are determined by them without the possibility of negotiation. I can say for sure that at the moment the difference is that the bill of customers who have chosen a free market trader is 15%-20% lower than those who have not yet done so.

How do electricity traders buy energy?

I can start from the fact that we at Grand Energy Distribution are among the few traders in Bulgaria where most of the purchased electricity comes directly from Bulgarian producers. This is one of our competitive advantages, because it reduces the cost. Electricity on a daily basis and / or for a longer period of time is also purchased through the Independent Bulgarian Energy Exchange, which I have already explained. Electricity is sold to large nuclear, conventional and renewable energy producers through auctions organized on the stock exchange platform. Most often in this form sell the electricity produced by them large producers such as Kozloduy NPP, TPP Maritsa East 2, NEK and others. In order to be able to offer various profile products to our contractors and end customers, we take the opportunity to trade on European energy exchanges. Through diversification, we manage to optimize the final price we offer to consumers, because the use of a larger number of sources allows us to hedge (minimize) the risk.

Customers are also interested in how their price is formed?

In addition to the value of electricity, which I just explained to you, the final price also includes balancing costs. They are included in the price to the energy, so in practice they remain at the expense of the trader and the customer does not even understand about them.

Consumers additionally pay a price for Liabilities to society, excise duty and network services, which are defined by law and do not depend on the trader. These costs are currently paid and are shown on the individual lines of the invoice.

The value of the price "Liabilities to society" is determined by the EWRC for each regulatory period. At present it amounts to BGN 21.47 / MWh. It includes commitments to purchase electricity from renewable energy sources at preferential prices, to purchase energy from combined heat and power generation, as well as under long-term contracts with US plants. The price of the excise tax is BGN 2.00 / MWh and is paid only by business users.

The value of the "Network Services" fee includes costs for access and transmission to the electricity transmission network, which are fixed and paid to the Electricity System Operator. Costs for transmission and access to the distribution network on the basis of provided capacity are also included, which are paid to the respective ERP. Finally, VAT is charged on these costs.

You mentioned earlier that households are yet to be allowed to choose an electricity trader. When will this happen?

To be quite precise, they still have the opportunity to leave the regulated market and choose an electricity trader whose services to use. At the moment, they have the RIGHT to enter the free market, but they do not have the financial benefit to do so, and we expect a deadline to be announced next year in which they will be OBLIGED to enter the free market.