Renewables in Bulgaria

A blog by Andrew MacDowall in the Financial Times explains the dilemma facing Bulgaria as the government cut support for renewable energy retroactively.

Bulgaria: renewables price cut dispute could spook investors

Drastic retroactive cuts in the fees paid to renewable energy producers in Bulgaria has prompted a furious reaction from what was a fast-growing sector.

While the changes may reflect Bulgaria’s harsh economic realities, the unilateral retroactive change sends an unfortunate message to investors that the country can ill afford.

From Tuesday, network access prices for all existing renewable projects have been reduced by between 10 per cent and 39 per cent, despite legislation guaranteeing the original levels for 12 to 20 years. Access prices are the fees paid to power generating companies by distribution companies (discos, or network operators).

The Bulgarian renewables industry has attracted considerable investment, much of it from foreign sources, in recent years. Some investors turned to the sector after Bulgaria’s property market crashed in 2009.

Renewables appealed thanks in part to active government policy (including generous tariffs) as Bulgaria moved towards its target of obtaining 16 per cent of its energy from green sources by 2020. The figure now is around 12 per cent, respectable by European Union standards. But more recently, the government has become more sceptical, introducing less attractive tariff terms for wind projects in April 2011, and slashing FITs for upcoming wind and solar plants in June.

Tuesday’s cuts to access fees were imposed after a meeting of the power and water regulator DKVER. They see network access fees for all wind projects reduced by 10 per cent, for solar projects completed before 2012 by 20 per cent and for those launched in the first half of this year by 39 per cent.

DKVER (also known by its English abbreviation SEWRC) said that its decision to lower fees was taken due to the cost pressure on discos from the rising amount of expensive renewable energy coming on stream.

“At the request of network operators, temporary prices of access to electricity networks have been implemented,” DKVER said in a statement emailed to beyondbrics. “The reason the companies asked for the change in network access price was, that provided the great number of new renewable energy sources generators entering into operation, especially PV [photovoltaic solar] (for example, in a couple of months only, about 600 MW of new capacity was put into operation), and bearing in mind the expected future capacity, their
expenditures are rising considerably and they needed to be covered.”

DKVER argues that the sector can bear the lower fees, as the capital costs of renewables projects are now as much as 60 per cent lower than when prices were first calculated.

Bulgaria is undertaking a tough austerity programme, and questions have clearly been asked about whether the country can afford to pay so much for renewable power. A 13 per cent hike in electricity prices this summer proved predictably unpopular in what remains, by EU standards, a relatively poor country.

But the renewables sector has reacted with fury. According to a statement issued by the Bulgarian Wind Energy Association (BGWEA), the changes mean that “most projects will not able to make their loan repayments anymore…this means that several billion leva [the Bulgarian currency, worth around €0.50] worth of domestic and foreign investment along with hundreds of newly-created jobs have been destroyed overnight.”

BGWEA executive director Sebastian Noethlichs told beyondbrics that the reductions would lead to “a fight to survival starting today” for renewables investors. He argues that the authorities are using the green energy segment both in an attempt to cover ongoing losses by the state-owned National Electricity Company (NEK), and as a scapegoat for this summer’s power price rise.

Noethlichs argues that the repercussions of the changes could reach well beyond the green energy segment, with banks facing defaults from energy companies and investors deterred by the impression that policy can be retroactively reversed. He says that Bulgarian banks now have serious concerns about loans to the renewables industry turning bad.

This is not the first time that the government of prime minister Boyko Borisov has been accused of a volte-face; critics accuse his administration of chaotic policy-making on the hoof.

“The government should ask itself who the investors in these projects are,” Noethlichs said. “They are the same pension funds, insurance companies and banks that invest in real estate and infrastructure; that build shopping malls and business parks. It’s the same investors that the government wants to sell its bonds and state companies to. Beyond renewable energy for any current and potential investor, this change means that the laws of Bulgaria and the rules and promises of its government are no longer bankable for they aren’t worth the paper they are written – and so often rewritten – on.”