Bulgarian regulator asks for lower electricity price from US-owned power plants

Bulgarian regulator asks for lower electricity price from US-owned power plants

 

By Clive Leviev – Sawyer of The Sofia Globe

Bulgaria’s State Energy and Water Regulatory Commission (SEWRC) has asked state-owned electricity utility NEK to begin talks with two coal-powered plants, owned by US private investors, to renegotiate the terms of long-term electricity purchase contracts.

The regulator said late on May 29 that NEK should ask the two power plants to agree to lower electricity purchase prices and also a reduction in the quantity of electricity that NEK is required to buy from them.

To be precise, NEK should target a 30 per cent reduction in the price of electricity bought from AES Gulubovo, owned by US energy firm AES and also sometimes referred to AES Maritsa Iztok 1, and a 20 per cent cut in the price of electricity bought from ContourGlobal Maritsa Iztok 3, owned by US-based firm ContourGlobal. NEK should also ask to reduce the amount of electricity it buys from the power plants in half.

SEWRC said that the “positive effect” from such changes would be 5.4 billion leva (about 2.76 billion euro) – meaning that the two power plants would be asked to forego this much revenue over the remaining duration of the contract. In the short term, NEK would save 424 million leva between July 2014 and June 2015.

Bulgaria signed the 25-year contract with the two power plants in June 2001 as an investment incentive with AES and US firm Entergy (which sold its majority stake in Maritsa Iztok 3 to Italy’s Enel in 2003, which in turn sold the plant to ContourGlobal in 2011), which took on the costs of modernising the power plants.

Although increasingly often blamed for the high price of electricity in Bulgaria in recent years, the contract is reportedly iron-clad, giving NEK no leverage to negotiate a lower price.

The regulator said that the existing contract is “incompatible with new European requirements for competitive market conditions and do not meet the standard electricity purchase contracts signed on European markets, putting ContourGlobal Maritsa Iztok 3 and AES Maritsa Iztok 1 in a more favourable position that other electricity producers and potential new entrants to the market.”

SEWRC said that its conclusions are backed by EU institutions, which qualified the contract as breaching the regulations in the Third Energy Package and as illegal state aid.

Such a renegotiated contract would, without doubt, help NEK’s financial situation – the company’s financial results are yet to be made public, but reports in Bulgarian media have claimed that the state utility is on the verge of bankruptcy (because, as critics of the current government allege, the company has borne the brunt of the costs from three electricity price cuts in 2013, which were justified less by economic reasons and more by political ones.)

To further help NEK, SEWRC asked the Economy Ministry to table amendments to the Renewable Energy Act that would allow the regulator to set annual caps on the amounts of electricity that NEK has to buy from renewable energy producers using the generous state feed-in tariff.

According to SEWRC’s calculations, halving the amount of electricity NEK has to buy from solar and wind power producers alone would save the company 541 million leva between July 2014 and June 2015.

 

(AES Gulubovo power-plant. Photo: Gonzosft/Wikimedia Commons)