Parliament finally adopted the changes to the Energy Act

The National Electric Company will cease to be a public supplier of electricity on the regulated market from July 1, 2024. This eliminates the obligation of the Commission for Energy and Water Regulation (EWRC) to set quotas for the production of electricity, provided mainly by state plants. Accordingly, the electricity distribution companies will buy the electricity on the free wholesale market, or in other words - from the exchange (BNEB). These are generally part of the main changes in the Energy Act, adopted by the deputies in the second reading. The amendments set in motion the liberalization of the wholesale electricity market. At the same time, preparations are being made to release the market for household consumers. The transition, according to the adopted texts, should start from the middle of 2024 (with the elimination of NEC's role as a public supplier) and continue until the beginning of 2026. During this period, EWRC will continue to determine the price of electricity for household consumers. In order to compensate the difference between the price of electricity in the wholesale market and that for households, electricity distribution companies will be compensated according to a mechanism similar to the one that now applies to businesses.

The amendments to the Energy Act also provide a definition of energy poverty. Thus, according to the texts, "Household in a situation of energy poverty" is a household that, at the current prices of energy carriers, has a disposable average monthly income per member of the household for the previous year that is less than or equal to the official poverty line, after it has been reduced with its cost for the typical energy consumption determined in relation to the energy characteristics of the dwelling and, therefore, does not have access to the basic energy services for adequate heating, cooling, lighting and provision of energy for household appliances".

At the same time, according to the amendments, "Vulnerable electricity supply customer" is a household customer who buys electricity for the household needs of a household of which he is a member and he and/or another member of the household is in critical need of electricity. equipment, due to age and/or state of health, and/or receives monthly social benefits, and/or targeted heating support under the Social Assistance Act".

The amendments also provide definitions for a contract for the supply of electricity, a contract with a dynamic price of electricity, a contract for the supply of a fixed term at a fixed price and a number of others.

It is planned that by May 31, 2024, the Commission for Energy and Water Regulation and the Ministry of Energy will conduct information and explanatory campaigns for household end customers, regarding the benefits of market liberalization, the options for choosing an end supplier and the options for price compensation of household end customers.

The texts stipulate that by June 30, 2024, final suppliers should conclude a compensation contract with the Electricity System Security Fund.

At the suggestion of MP Zhecho Stankov, an amendment was also made, which provides for separate deadlines for the entry into force of some of the amended texts in the Energy Act.

During the discussion in the plenary hall, a number of issues arose, which were also discussed in the energy commission. Mainly the MPs from ITN, Vazrazhdane and BSP declared themselves against the amendments to the Energy Act.

Pavela Mitova from ITN defined the legal changes as "paper garbage" that will be processed and accepted to be the funds under the Recovery and Sustainability Plan. This thesis was also developed by Dragomir Stoynev from BSP. He repeated his words, also spoken during an energy committee, that this is being done in order to take "some 750 million euros". "Everybody expects that in two months there will be a review," he said and called for a delay. Stoynev and Pavela Mitova put a number of questions to the Minister of Energy Rumen Radev, who attended the discussion in the plenary hall. Toshko Yordanov from ITN also raised this question, but the Chairman of the National Assembly Rosen Zhelyazkov explained that this was a discussion of a bill, not parliamentary control.

Dragomir Stoynev spoke out against the texts predicting the elimination of NEC as a public supplier and cast doubt on the thesis that this would create competition. "I think that dropping the public provider is a mistake. Its only customers are households. What kind of competition are we talking about?” he asked. In this regard, Stoynev reminded that many mistakes were made when removing non-domestic consumers from the market and gave the example of schools and kindergartens.

Pavela Mitova from ITN, for her part, raised the issue of the accumulated deficit in the NEC and the lack of clear regulation of its settlement. "The imposition of obligations before the full payment of the accumulated deficit creates a risk for the company's activity on the electricity market in the country," Mitova pointed out. The MP from ITN also questioned the dropping of the texts on the commitments of the Minister of Energy for the issuance of permits for hydropower facilities.

Extremely serious criticism was made by Yordan Todorov, MP from "Vazrazhdane". According to him, the amendments to the Energy Act create two problems that will lead to a spike in electricity prices for domestic consumers - the record costs that electricity distribution companies will have to incur on a daily basis, as well as the impact of the huge amount of electricity that will be transferred on the free market, which also paints a picture of a surge in prices.

According to him, final suppliers will have to pay millions per month for the purchased electricity for consumers in the wholesale market. "No one in the Ministry of Finance has made a calculation that this will increase the financial costs of the electricity distribution companies," he said, adding that they will be paid by consumers.

Todorov also pointed to another problem concerning supplies in case of bankruptcy of a final supplier. He recalled the bankruptcies of electricity traders in the West last year due to the energy crisis and made a distinction between the Western and Bulgarian markets. As well as the structure of the Bulgarian market, which will change after the changes in the law on energy. From this point of view, he recalled that in the west, when traders went bankrupt, customers went to a Supplier of Last Resort (SLR). "In our country, a SLR license is issued to the final supplier. However, in case of bankruptcy, what happens to the customers?" asked the MP.

"The new structure envisages new quantities (of electricity) appearing on the day-ahead segment to be bought. The size of these quantities will depend on the season and temperatures, on the long-term contracts of the traders," he said. According to him, it is about a volume of 35 and 40 thousand MWh per day.

“This currently constitutes in the order of 50% of the total energy traded on the day-ahead market segment at present. Naturally, a supply will appear on the opposite side, which the producers are currently obliged to offer on a regulated market according to the quotas determined by the regulator. These regulated market quotas are removed from this bill. This energy will also come out in this market segment. What is the problem here then? The problem is that the final suppliers do not care about the price at which they will buy energy. They simply distribute energy – they buy it from the wholesale market on the stock exchange and distribute it to all Bulgarian households. In the opposite direction, they manage a cash flow - they collect the money from every single Bulgarian household and pay in bulk on the stock exchange. It's not their job, and they have no incentive to manage this portfolio of clients (they have the expertise). Because the management of such a portfolio is quite an expensive undertaking and, secondly, it carries with it additional risks, which, in the end, there is no need for end suppliers to assume. For this reason, the offers that end suppliers will submit to the day-ahead market segment trading platform will be so-called "price-unlimited offers".

This means that they will bid for the entire quantity they need in each delivery hour at the highest possible price that the trading platform allows. At the moment, this price is BGN 8,000 or EUR 4,000. From July 1, even on the "day-ahead" market segment, trading is only and only in euros.

In other words, 50% more demand for price-unlimited offers will appear on this market segment, and a pattern appears here - under equal conditions of demand and supply, the more price-unlimited offers submitted to the trading platform, the more this shifts the demand curve up and the clearing price moves up accordingly. In other words, in this way we will raise the prices on the stock exchange. Exactly how much this increase in exchange prices will be I cannot say, but my experience shows that it will be a significant increase. How much exactly I cannot say, because the Ministry of Energy, they have not done a simulation together with the exchange operator, together with the end suppliers, to show how exactly this increase will be.

What I can say is that this is not normal. Even nationally irresponsible, because at the moment we are throwing household customers, Bulgarian households into the unknown and, whatever happens to them - such. If they survive, they survive.

Right now, what we're also doing is we're taking the worst of the free market, we're taking the worst of the regulated market, and we're making some mix that we're not going to be able to fix for years. In the energy markets over the past two years, I have often heard the definition that they are sick. They are sick, because energy markets are not the end goal. They are a means to achieve certain goals. The problem is that over the past two years, these goals have simply not been met by free energy markets, and in that regard, we are catching a sick market and making it even worse, because what is going to happen has no name and no definition yet. Let's not forget that commercial customers also buy electricity from this same free market, from this same "day ahead" segment. That is, we will raise prices not only for household consumers, we will also raise prices for business customers. We all saw last year what happened. I wanted to present to you what you will be voting on shortly," said Todorov.

Judging by the debates in the National Assembly and the opinions already expressed, perhaps the actual work on the amendments to the energy law will take place in the coming months.