Bulgaria will soon have its first corporate contracts between producers and consumers for the purchase of green energy

Georgi Velev

The first corporate contract for the purchase of electricity is expected to be signed in Bulgaria soon. It is this market for renewable energy contracts that is currently developing in Europe and through such long-term corporate contracts it is expected to stimulate the future development of green energy. This was explained by Miglena Stoilova, Chairman of the Supervisory Board of the Bulgarian Wind Energy Association during an online seminar on corporate contracts for the purchase of electricity. She did not give more details about the contract being prepared in Bulgaria, but shared what are the main advantages of such corporate contracts. According to Stoilova, there are a number of benefits for consumers and producers when concluding such contracts. The main advantage is the supplied cheap electricity with a price of around 50 euros / mWh, which sounds very attractive against the background of the escalation of prices on the free market in Europe.

Such long-term contracts allow consumers to hedge the risk of variable stock market prices. And for companies, this also means predictable electricity costs, which helps create sustainable and competitive production. Of course, through such a treaty, business consumers are also able to reduce their carbon footprint, which works in support of the EU's green transition goals. The conclusion of such a contract in practice will not hinder a company or burden it with unusual activities, because not in every business the owner can devote time and effort to build their own renewable energy project. Through such a contract, in practice, there are benefits for both the company and the investor in green energy.

It is for the RES producer that the predictability and stability of the revenues he has are beneficial, Stoilova explains. She reminded that without signed corporate contracts for the supply of renewable energy sources, the producer can sell electricity on its stock exchange, but there the price is volatile. When concluding a long-term corporate contract, the manufacturer also has guaranteed income for the maintenance of its plant. And the price of 50 euros / MWh seems to be quite tempting for both sides at the moment. Such a contract also gives security to the banks that a project is profitable and will have a return on investment.

Currently, the RES plants put into operation after January 1, 2019 are not obliged to sell their electricity on the Bulgarian Independent Energy Exchange. And this makes it possible to conclude direct deals between producers and consumers, Stoilova explained. Also, consumers and traders with a bilateral contract for the purchase of renewable energy, concluded after November 1, 2019, do not pay the price "Liabilities to society", it became clear during the discussion. And the renewable energy plants put into operation this year are even exempt from a 5% tax on revenues - balancing costs due to the Electricity System Security Fund.

According to RES, the expert is best to conclude such contracts before the start of construction of the green plant itself. It is advisable to conclude this before issuing the building permit. The reason is that after that the construction deadlines become very tight. Ideally, the contract can be concluded after obtaining this permit, explained Nikola Gazdov, chairman of the board of the Association for Production, Storage and Trade in Electricity (APSTE).

Both experts are adamant that different variations are possible in signing such corporate agreements - they can last from 7 to 20 years. There is already news in Europe with the first energy contracts, which are for 25 years, added Stoilova.

With regard to the price, it is possible to fix it for the whole period, or to agree on a maximum and minimum value. Of course, the contract may be tied to the Day Ahead market, or there may be a different price plan in different periods, Stoilova added.

Contracts can be concluded for either physical delivery or financial. The second type is in fact a virtual supply of green energy, using the services of an exchange electricity supplier. In practice, in most businesses it is good to the services of electricity traders are used to bear part of the financial risk for both consumers and producers. Of course, companies also receive guarantees of origin for the green energy produced, which makes them attractive and good companies to shareholders, Europe and most of all - to the bathrooms.

Market leaders

There are a number of similar renewable energy contracts in Europe, with corporations such as Mercedes-Benz, Engie, BASF and a number of others being prime ministers. Insurance companies even offer special packages that can cover some of the risks of concluding such financial contracts.

Currently, the economy is being restructured and sustainable and renewable energy companies are preferred for investment by financial institutions, explained Martin Georgiev, chairman of the Association of Electricity Traders in Bulgaria. According to him, these companies are the market leaders and engines in the market at the moment. He clarified that large corporations such as Google and Microsoft can afford to manage their own energy projects. There are also large business companies in Bulgaria that manage to build their own renewable energy parks. For small and medium-sized businesses, it is advisable to use the services of energy experts and traders to take part of the financial risk for both consumers and producers.

According to Georgiev, if a year ago someone in Bulgaria had signed a long-term contract for the supply of electricity, he would now pay a price for delivery in the range of BGN 100-120 / MWh.

In practice, the electricity trader also assumes part of the risk in the event of a sharp change in electricity prices, which saves financial headaches for both the producer and the consumer. Traders can also sign a contract with a green energy producer before the project is completed. However, the trader needs to have at least two years to find consumers who want to buy this RES product, said the specialist.