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BulgariaThe role of gas indecarbonisation

April 2018

Bulgaria The role of gas in decarbonisation

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Copyright © Baringa Partners LLP 2018. All rights reserved. This document issubject to contract and contains confidential and proprietary information.No part of this document may be reproduced without the prior writtenpermission of Baringa Partners LLP.

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BulgariaThe role of gas indecarbonisation


Contents1 Executive summary ................................................................................................................................................................................................................................................................................................... 12 Introduction ................................................................................................................................................................................................................................................................................................................ 33 Bulgaria’s Energy strategy 2020 ........................................................................................................................................................................................................................................................................... 5

3.1 Government energy strategy – update pending .................................................................................................................................................................................................................................. 53.2 2020 objectives were set and reached .................................................................................................................................................................................................................................................. 53.3 Rapid policy evolution has driven decarbonisation, and triggered the issue of affordability .................................................................................................................................................. 63.4 Decarbonisation strategy beyond 2020 ................................................................................................................................................................................................................................................. 7

4 Demand – drivers and barriers for growth ......................................................................................................................................................................................................................................................... 94.1 Gas is currently a small component of the energy mix ..................................................................................................................................................................................................................... 94.2 Prospects for gas demand growth .......................................................................................................................................................................................................................................................... 104.3 Drivers and barriers for the increased role of gas in a decarbonisation pathway to 2030 ........................................................................................................................................................ 11

5 Gas supply .................................................................................................................................................................................................................................................................................................................... 155.1 Existing supply sources .............................................................................................................................................................................................................................................................................. 155.2 Pricing of wholesale gas ............................................................................................................................................................................................................................................................................ 155.3 Infrastructure for new sources being developed since 2009 ........................................................................................................................................................................................................... 165.4 Development of a Bulgarian gas hub ..................................................................................................................................................................................................................................................... 18

6 Unlocking market access ......................................................................................................................................................................................................................................................................................... 216.1 Access to Transmission capacity is present but limited ..................................................................................................................................................................................................................... 216.2 Under EU support access is progressing ................................................................................................................................................................................................................................................ 21

7 Conclusions – ending the silence on a role for gas in the future BG energy mix ................................................................................................................................................................................... 25Appendix A: Bulgarian gas market - overview ..................................................................................................................................................................................................................................................... 27A.1 Overview ........................................................................................................................................................................................................................................................................................................ 27A.2 Gas infrastructure in Bulgaria .................................................................................................................................................................................................................................................................. 27A.3 Energy market structure ........................................................................................................................................................................................................................................................................... 30A.4 Domestic supply options ........................................................................................................................................................................................................................................................................... 33Appendix B: Power markets, and renewables policy support ........................................................................................................................................................................................................................... 34B.1 Key players power market, and status ................................................................................................................................................................................................................................................... 34Appendix C: EC cases – Bulgaria, overview ........................................................................................................................................................................................................................................................... 37C.1 Case COMP/B1/AT 39849 BEH gas ........................................................................................................................................................................................................................................................... 37C.2 Case 39816 Upstream gas supplies in Central and Eastern Europe ................................................................................................................................................................................................ 37C.3 Case 39767 BEH Electricity ....................................................................................................................................................................................................................................................................... 37Appendix D: What if gas did not play a role ......................................................................................................................................................................................................................................................... 38Appendix E: An overview of Baringa ....................................................................................................................................................................................................................................................................... 39Notes .............................................................................................................................................................................................................................................................................................................................. 40


1. Executive summary

This report is intended to be a helpful input tothe preparation of Bulgaria’s national energyand climate plan over the course of 2018. Thekey added value of this analysis and report isan integrated view of the complete energymix and the combination of power and gassectoral issues.

The characteristics of natural gas mean thatit should play a key role in the future energymix of Bulgaria. With global prices projectedto remain relatively low, gas is an affordable,plentiful fuel, which efficiently delivers andstores significant energy content. It caneffectively help address the Energy Trilemma:delivering decarbonisation, maintainingsecurity of supply, and ensuring that energy isaffordable.

For Bulgaria to meet its 2030 climate changetargets, and in particular the reduction ofCO2-emissions, a more detailed plan for thetransition of the existing energy mix isneeded. Gas can play a significant role in theachievement of these targets if its fullpotential is realised.

For gas to contribute its full potential inBulgaria’s energy future, there are two focusareas for action by policy makers in the plansto be set out in the national energy strategyfor 2020-2030:

p Enabling enhanced market access usingthe detailed EU-acquis as guidance, andincluding support for selectiveinfrastructure investment

p Ensuring gas is able to supply the marketon a competitive basis by ensuring it is notdetrimentally treated via regulation andpolicy versus electricity

A key first step is for the Bulgariangovernment, during the course of its strategydefinition, to engage thoroughly with gasindustry participants and stakeholders(including trade bodies and NGOs) to build acomplete picture of the opportunity for gasand the role it can play in Bulgaria’s energyfuture.

If the status quo for gas in Bulgaria isunchanged, the opportunity for furtherdecarbonised, low cost and secure energysupply in Bulgaria will be missed. Bulgaria willcontinue to be a relatively small gas market

with a flat growth outlook, lacking attractionfor competitive suppliers and investors.

The fundamental risk is in Bulgaria notmeeting affordably and securely its 2030European energy and climate targets, andfailing to have an appropriate plan forachieving these targets.

This report – a qualitative analysis of the opportunity for gas to support Bulgaria’s progress towards a decarbonised energy future – isBaringa’s contribution to the debate on the future of gas across Europe. It builds on a key thought leadership event hosted by Baringaon the Role of Gas in the energy mix organised in November 2017 with Eurogas and National Grid, and supported by ENTSOG.

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2. IntroductionIn the last nine years, Bulgaria has taken steps to increase its security of supply in natural gas– reducing the risks of supply shortage as a result of reliance on a single source. Bulgaria hastaken a number of positive actions to support diversification. More recently, the Bulgariangovernment has taken practical steps in signing license agreements for deep offshore BlackSea exploration which could potentially lead to domestic gas production. The government hascommitted to support these exploration campaigns and linked them to energy security, oneimportant aspect of its energy priorities. In parallel, it has been working to implementEuropean Union energy market reforms that would support diversity of supplier, consumerchoice and, ultimately, a reduction in costs via increased competition.

Figure 1 – Bulgaria’s gas transmission network

A number of critical infrastructure projectsare being developed (supply pipelines andinterconnectors with neighbouring states)that will support diversity and security ofsupply. The map below shows the currentstate of the Bulgaria’s gas network (for adescription of gas market and marketstructure please refer to Appendix A).

Bulgaria has done well in its progress towards2020 climate change targets – buoyed as it isby its significant hydro and nuclear powercapacity and, in principle, increasingrenewables development.

Progress has been made, but much remainsto be done. The steps towards marketliberalisation have not been as rapid or aseffective is it could have been and the marketremains highly concentrated (as discussed inmore detail in section 6). Moving beyond the2020 climate change targets towards longerterm goals for 2030 and 2050 will bechallenging and, as yet, there is no clearstrategy for delivering these longer-termgoals. Gas could play a key part in thistransition, but is not being voiced effectively apart of the strategy as yet, nor it appears inrelevant key industry planning. For example,there is no significant role for gas generationas part of the draft grid development plans ofthe state-owned electricity transmissionoperator ESO for 2018-2027 period.1

The relatively minor role which gas plays inthe power generation mix, can be seen from

the data as gathered by EC-reference case,for period 2000-2015. Whilst Bulgaria doesnot have a published detailed plan forgrowing the role of gas in its energy mixbeyond 2020, we note that the EC doesassume a growing role for gas towards 2030and beyond. See Figure 2 overleaf.

Gas is a relatively minor part of the energygeneration mix, as well as of the totalprimary energy supply of the country (seesection 4.1 for more details). An opportunityexists for gas to become increasinglysignificant in support of Bulgaria’ tackling theso-called Energy Trilemma: deliveringdecarbonisation, maintaining security ofsupply, and ensuring that energy isaffordable.

It is an appropriate time to consider thisopportunity as Bulgaria’s governmentcontemplates its strategic energy direction ofthe next 10 and 30 years by working on thenational 2030 energy strategy.

In previous energy strategies and morerecent publications contributing to therecently initiated energy strategy debate, agrowing role for gas has not been a keycharacteristic.2 With a large coal element tothe energy mix of the country, gas can bepart of Bulgaria’s energy future both at thenational level and within an EU context.3

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With Europe including Bulgaria focusing onEnergy Trilemma, the characteristics of gasshould mean that it should play a key role inthe future energy mix. With global pricesprojected to remain relatively low, gas is anaffordable, plentiful fuel, which efficientlydelivers and stores significant energy content.In comparison with other fossil fuels, gas isalso low-carbon. Gas offers tremendouspotential in Europe’s decarbonisationpathways in replacing higher carbon emittingfuels, and working in partnership withrenewables to meet energy demand(baseload) and flexibility (peak) needs. Gas isparticularly effective in the provision of heat;and decarbonising heat is challenging, withfull electrification being very costly. The waygas can meet peak and flexibility needs at arelatively low cost is under-recognised, andperhaps the suitability of doing the samepurely with electricity overstated.4

This report discusses the current energysituation in Bulgaria – opportunities for gasdemand growth, supply, market access aspart of the answer to the energy trilemma,and steps that can be taken to realise theopportunity for gas to play a key enabling rolein decarbonisation. Note that in the report,we discuss both, the power and gas sector inBulgaria, as these are very closely linked. Wenote that the two sectors are also linked bythe state-owned Bulgarian Energy Holding(BEH), which financially controls the key

market participants such as power and gasTSOs, as well as the two key wholesalers NEKand Bulgargaz in power and gas sectors.5

Baringa Partners has undertaken a desktopbased information gathering exercisesupported by a set of stakeholder interviewsto provide the basis for a qualitative analysisand assessment of the current status andfuture potential for gas in Bulgaria.Stakeholders engaged includedrepresentatives of Government institutions,electricity and gas traders, natural gasdistributors, renewables generators andinvestors, infrastructure developers, NGOsactive in the market and on energy issues,associations from the gas and electricitysectors, energy sector advisors and experts(collectively referred to in this report as‘stakeholders’).

Our hypothesis, set out with supportingrationale in this report, is that gas can play acritical role in Bulgaria’s energy future andpathway to decarbonisation, with effectivemarket reforms, followed by some selectiveinfrastructure development, and by creating alevel playing field between gas and power.Gas as a part of the energy mix will helpaddress the energy trilemma – deliveringdecarbonisation affordably and with securityof supply.

Figure 2 – Generation mix Bulgaria – 2000 – 2050 (EC reference case 2016)

50,000.00

40,000.00

30,000.00

20,000.00

10,000.00

0.002000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Gross electricity generation by source (GWh): BG, EC reference scenario 2016

Solar (GWh): BG

Wind (GWh): BG

Hydro (pumping excluded) (GWh): BG

Biomass & waste (GWh): BG

Gas (including derived gases) (GWh): BG

Oil (including refinery gas) (GWh): BG

Solids (GWh): BG

Nuclear energy (GWh): BG

4


3. Bulgaria’s Energy strategy 20203.1. Government energystrategy – update pending

The current National Energy Strategy,adopted in 2011, has a horizon to 2020. Anumber of challenges have arisen which thenext iteration of National Energy Strategy, thedevelopment of which is underway, will needto deal with. They include:

p The need to have a clear vision on how toachieve the 2030 decarbonisation targets6

(and ultimately the 2050 and any interimtargets set by the EU);

p Alignment with the EU Clean EnergyPackage (and other directives) includingmarket liberalization, enhancement ofcompetition and liquidity and reliance onactive prosumers;

p The overall financial situation of theenergy sector and need to find a marketbased mechanism to absorb thecommitments to renewables producersand high efficiency co-generatorsbenefiting under long-term feed-incontracts as well as other existing long-term commitments (see Appendix B forsector description);

p The new tighter limits on thermal powerplants based on EU-legislation regardingLarge Combustion Plants posing a threatto Bulgarian coal fired power plants (i.e.LCP BREF7).

In mid-2017, the Bulgarian governmentclarified its priorities in energy for 2017-21.They are generally in line with the 2011Strategy provisions whilst reflecting somedevelopments in the sector. Particular focuscontinues to be security of gas supplies andthus support is provided to domestic gasextraction and commercial exploitation ofgas interconnectors with neighbouringcountries by 2020. There is no mention of therole for gas in delivering the pathway todecarbonisation, and what needs to be doneto achieve such a role for gas in Bulgaria.

As part of its 2017-21 programme, thegovernment8 is currently developing its newNational Energy Strategy to 2030, with avision to 2050. The intention is to develop thisstrategy in parallel to the national energy andclimate plan (NECP) for the years 2021 to2030. The intention is to benefit fromsynergies, common analytical tools and datasources. Bulgaria also intends to develop alow-carbon development strategy to succeedthe Third National Action Plan on ClimateChange (NAPCC) for 2013-2020.

The First Interim Report on the energystrategy, dated 31 October 2017, waspublished by the Bulgarian Academy ofScience in January 2018, following publicpressure for transparency. The focus of thereport, according to stakeholders that Baringahas interviewed, is mostly around the role ofnuclear. It is mostly silent on role of gas orother fuels versus nuclear.

The strategy definition process is expected tocontinue during 2018, with the Ministryaiming to release a draft by the end of theyear.9

As with other EU member states, Bulgaria hasagreed to meet decarbonisation targetsconsistent with the COP21 Paris accords. Thismeans that by 2050, the EU should cutgreenhouse gas emissions to 80% below1990 levels, with interim milestones of 40%reduction by 2030 and 60% by 2040.

Bulgaria has committed to the ultimatetarget and is in the process of formulating itsmid-term 2020-2030 path towards the 2050objective. Before discussing the 2030 targets,we briefly take stock of the 2020achievements.

3.2. 2020 objectives were setand reached

The EU 20-20-20 targets were formulated in2009 as the EU-wide targets (to be tailored byMember-States individually), by 2020, toachieve:

p a reduction in greenhouse gas emissionsof at least 20% below 1990 levels;

p sourcing of 20% of final energyconsumption from renewable sources;and

p a 20% reduction in primary energy usecompared with projected business-as-usual levels, to be achieved throughimproved energy efficiency

Via the Act on Climate Change implementedas part of Third National Action Plan onClimate Change (up to 2020), Bulgaria hasmodified versions of these targets:

p Based on the National Renewable EnergyAction Plan (NREAP), Bulgaria aims toachieve a share of 16% of energy fromrenewable sources in final energyconsumption by 2020

p The individual targets per sector are asfollows:

- Heating and Cooling: 24% of heat consumption met by renewable energy sources

- Electricity: 21% of electricity demand met by electricity generated from renewable energy sources

- Transport: 8% of energy demand met by renewable energy sources

Bulgaria is on track to attain its renewableenergy target for 2020. The 2016 level of therenewable energy share in final energyconsumption stood at 18.8%, well above the16% target. Bulgaria's renewables share intransport stood at 6.5% in 2015, still belowthe 2020 target, while the renewables sharein heating and cooling and the renewables

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share in electricity generation reached 28.6%and 19.1% respectively in 2015.

The renewables share in gross electricityconsumption was approximately 15% in2017, estimated to increase to 18-19% by2026.10 This is still short of the target for theelectricity sector of 21% of demand beingmet by electricity generated from renewableenergy sources.

With a significant nuclear load, “carbon free”generation is currently around 50%.

Energy efficiency targets inBulgaria

By 2015, the Bulgarian primary and finalenergy consumption increased for a secondyear in a row, reaching respectively 17.9 Mtoeand 9.5 Mtoe. Both values are about 1 Mtoeabove the national energy efficiency targetfor 2020, with the road transport sector andindustry recording the biggest annualincreases.

Bulgarian primary energy intensity decreasedby more than 25% over the 2005-2015period, and by more than 39% over the last15 years, despite a small uptick in 2015.During the same period the GDP rose by 28%(at 2010 EUR) whereas the primary energyconsumption decreased by about 5%.Bulgaria however remains the most energyintensive economy in the EU by a largemargin.

Greenhouse gas emissions targetsin Bulgaria

Based on proxy values, in 2016 emissionswere estimated at 58.9 mt CO2 equivalent,43.5% below their 1990 levels. The relativedecrease is almost double compared to EUaverage. Based on national projections,Bulgaria will meet its 2020 emissions targetwith a margin of 21.7%.

Note that, whilst the greenhouse gasemissions per capita are below the EUaverage, the greenhouse gas emissionsintensity of Bulgaria’s economy is the highestin EU, i.e. the Bulgarian economy consumesthe greatest amount of energy needed toproduce a unit of GDP.11 This presents anopportunity for the growth of gas in theenergy mix, which we discuss later in thereport in section 4.3, highlighting the blockingrole of relatively cheap power prices versusgas prices.

3.3. Rapid policy evolution hasdriven decarbonisation, andtriggered the issue ofaffordability

A number of policies have been implementedby the Bulgarian government in support onrenewables, and to achieve the 2020 strategy(see for detail Appendix B). These include:

p Feed-in tariffs for renewables and co-generation bonuses. Producers ofelectricity from renewable sources areentitled against the grid operator to thepurchase and payment of electricity at aguaranteed feed-in tariff

p The legal basis for the feed-in tariff is theEnergy from Renewable Sources Act(ERSA), which is the main element of theBulgarian support system. The ERSA alsoestablishes the obligation to purchase anddispatch electricity from renewablesources

p The tariffs are set by the regulatoryauthority every year on 30th June

p The duration of the subsidy had been 20years for plants using geothermal energy,biomass and solar energy, 15 years forplants using biogas and hydro power and12 years for wind power plants.

The costs for the system as a result of thefeed-in tariffs, as well as co-generationbonuses, have created financial stress overthe past few years. A Single Buyer Model wasimplemented, meaning all these obligationswere transferred to national power utility,NEK, a subsidiary of Bulgarian Energy Holding(BEH) and subsequently to the regulatedelectricity market. As a result, a ‘tariff deficit’arose due to a shortfall of revenues in thesystem – a product of tariffs that were belowthe cost borne by the energy companies togenerate, transport, and commercializeelectricity.12

As a result, the government is currentlylooking at options to replace the Single BuyerModel and integrate renewables contractsinto the market environment, via theIndependent Bulgarian Exchange (IBEX).Recent changes in the energy regulatory andlegal framework propose that all producersabove 5 (or 4) MW should sell their generationat the IBEX from mid-2018. For existingrenewables with long term PPAs and feed-intariffs, a new mechanism is being considered– Contracts for Difference (CfD).

All of these changes are now creating anunstable and volatile policy outlook, withmany investors in renewables expressingconcern, according to stakeholdersentiments.

Whilst government strategy on energy mixhas been silent on the role for gas to support

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renewables, it has thus far been clear on thepriority for the development of the nuclearsector and for broad support of the coalsector. This was demonstrated by extensionof the lifetime of units 5 and 6 of NPPKozloduy as well as preservation of the coalcapacities albeit under strict environmentalrequirements and efficiency standards.

Renewables and nuclear are clear low carbonoptions and were prioritized in the existingenergy strategy (up to 2020) and restated inthe Government Programme for 2017-2021.

3.4. Decarbonisation strategybeyond 2020

3.4.1. EU 2030 targets

The EU Commission winter package reinforcesthe targets to be achieved in the period 2020-2030, through the following measures:

p a reduction in greenhouse gas emissionsof at least 40% below 1990 levels13;

p sourcing 27% of final energy consumptionfrom renewable sources by 2030; and

p a 30% reduction in primary energy usecompared with projected business-as-usual levels, to be achieved throughimproved energy efficiency and byphasing out coal power plants

The single binding CO2 reduction target wassubmitted by the EU as Intended NationallyDetermined Contribution within the climateagreement signed in Paris in December 2015.Bulgaria is part of that commitment.

The governance system for the 2030 targetsis seen by energy industry players to focus onthe single binding GHG target, and supportedby a strong EU ETS. This approach can enablea more cost effective approach todecarbonisation allowing technologies tocompete on an equal footing on the basis of arobust carbon market.

3.4.2. Bulgarian strategy to 2030 isnot yet formulated

As described above, the BulgarianGovernment has initiated the process todevelop a strategy up to 2030 with anoutlook to 2050, to support the achievementof the EU 2030 targets (and ensure they areon-track for 2050 targets).

Adding renewables capacity is a choice whichis identified in the currently valid Ten YearNetwork Development Plan 2017-2026,14

developed by ESO (the electricity TSO). Itprovided for commissioning of newrenewables capacities up to 2026 of new1,119 MW capacities (resulting in total PV andwind capacity of over 2,500 MW). Stakeholdersentiment observed in Baringa’s engagementin February 2018 was that, that with volatile

policy support, this growth in renewables wasat risk (see appendix B on incentives torenewables having been scaled back andchanged). The latest draft Ten Year NetworkDevelopment Plan 2018-2027, released inMarch 2018, states in section 3.1 that “in thelast 2 years no new requests for RESconnection were received” from investors.Latest RES growth is strongly adjusteddownwards to be adding only 401 MW by2027 (instead of former 1,119 MW), forcommissioning of new renewablescapacities.15 The drop in projections is mostlyattributable to withdrawal of PV and windprojects.

Nevertheless, renewables capacity willrequire balancing/ancillary services to meetthe challenge of intermittency. Adding gasgeneration capacity is one possible option forbalancing and regulatory system reserves byESO (but subject to further technical andeconomic assessment).

The estimates of generation outlook needs byESO (including the current March 2018draft16) do not take into account the possibleadverse effects of the application of the LCPBREF on thermal (lignite/coal) power plantsoperation. This should represent a furtheropportunity for increased use of gas in thepower mix, supporting inter alia the challengeof intermittency.

A stable policy outlook, including a clearstrategy for 2020-2030, will be needed toattract investors.

3.4.3. Bulgarian strategy indecarbonisation – 2020+challenging period?

In the face of the post-2020 challengesdescribed above, Bulgaria must takeproactive steps to remain on track for2030/50 targets and gas can play a key role –in particular in substituting coal-firedgeneration and providing flexibility in supportof increased renewables capacity, tocontribute to achieving single EU-wide 2030GHG- targets.

For this to be a viable option however, gas inBulgaria needs to meet the test of being asecure and cost-effective way of achievingthese decarbonisation objectives. To assesshow gas can pass these tests, it is necessaryto look at key enablers and barriers for gas inthe supply situation, the downstream market,infrastructure and market structure. Wediscuss these topics in sections 5 and 6.

Prior to turning to market issues, we discussthe drivers for role of gas in more detail. Tohelp meeting the 2030 targets, the role of gasin the Bulgarian energy mix should beconsidered as a key option givencharacteristics of natural gas as a fuel.

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4. Demand – drivers and barriers for growth4.1. Gas is currently a small component of the energy mix

Real GDP growth in Bulgaria was 3.4 % in 2016 with broadly similar growth for 2017 and 2018anticipated showing a very encouraging energy demand growth outlook.17

Coal plays a significant role in Bulgaria’s primary energy mix, driven by indigenous productionof lignite. Oil (in transportation) and nuclear also have significant shares whilst gas remainsrelatively small – at around 15% of gross inland energy consumption in the country.18

Gas is primarily utilized in industrial processes, with a modest role in the power generation mixand very low consumption in the residential and commercial sectors. Some 10% of industrialconsumers represent 80% of demand,19 with the largest individual industrial consumers inchemicals, fertilizers, and glass sectors as well as some large industrial CHPs. From industrialusers, major consumption is in the chemical industry (37% in 2016) and energy sectors (30%in 2016).20

Figure 3 – Bulgaria Primary Energy Consumption in 2016 (in %, total 18.1 Mtoe)

25%

15%

32%

19%

5%

4%

NaturalGas

Oil

Renewables

NuclearEnergy

Hydro-electric

Figure 4 – Gas Consumption in Bulgaria by market sector (million cubic metres)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

4000

3500

3000

2500

2000

1500

1000

500

0

Distribution companies (R&C) Other industries Chemical industry Energy (Power)

Source: EWRC, Annual report to EC

9

Source: BP world outlook 2017 (2016 data)

Coal


Natural gas has a relatively minor share in gross electricity generation, with coal and nucleardominating.

Figure 5 – Gross electricity generation by source (GWh)

2000 2005 2010 2015

60,000

50,000

40,000

30,000

20,000

10,000

0

Source: EU Reference Scenario 2016 based on PRIMES, GAINS

4.2. Prospects for gas demand growth

The Bulgarian government is currently in the midst of a process to define future energystrategy (as discussed in section 3) and the role of gas in this strategy should have a majorimpact on gas demand prospects in Bulgaria.

The most recent projections for gas demand in the next ten years of Bulgaria’s gas TSO,Bulgartransgaz (BTG), are captured in Figure 6 below. This assumes growth based on sustainedeconomic growth (GDP growth between 2 and 3 % per year) and associated increase in finalenergy consumption (a 60% increase by 2024) and an increased market share for gas (19% in2025 against 14 % in 2015).

Figure 6 – Bulgartransgaz gas demand projection

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

4500

4000

3500

3000

2500

2000

1500

1000

500

0

Demand (MMcm/year) Peak demand (MMcm/d)

Source: Bulgartransgaz

25

20

15

10

5

0

Biomass & waste

Oil

Solar

Wind

Gas

Hydro (pumping excluded)

Nuclear

Solids (coal)

10


4.3. Drivers and barriers for theincreased role of gas in adecarbonisation pathway to2030

4.3.1. Opportunities for role of gas

There are a number of opportunities toenhance the role of gas within the Bulgarianenergy mix, utilising the decarbonisingadvantage of gas versus coal/lignite inparticular. In each major consumptioncategory, opportunity exists, as well asfactors inhibiting that opportunity.

Residential

Despite government setting targets of 30% ofBulgarian homes having natural gas by2020,21 at the moment there is a much lowernumber (estimated at 70,000-90,000 of the~3 million homes in the country or 2-3%).Government efforts have inter alia22 centredon the provision of grants to subsidise thecost of installation of gas boilers andassociated switching costs (typically away forelectricity as the source of heat). This schemehas had limited success (2201 householdssuccessful applications as of February 28th2018) but is yet to utilise all available funds (€10 million is available – which could support10,000 installations).

The key inhibitor to the installation of gas inhomes is the relative cost of power – withmost homes being heated via electricity,consumers must be persuaded to switch formthat to gas. This compiles with switchingcosts, connection to network and initialinvestment into gas-home equipment(cooking, gas-boiler).

Natural gas has a very minor role in heating,with electricity, coal, district heatingdominating the heating market.23 Bulgarianheating association calculations show thatusing night electricity tariffs will deliver morecompetitive heat over natural gas.24 Thismarket sentiment was confirmed indiscussions with stakeholders in February2018.

Power prices are regulated and compared toother European countries, inexpensiverelative to gas, making the case for switchingless compelling (as shown in Figure 8 below).

The European Union is less bullish in its demand projections as shown in Figure 7 below.

Figure 7 – EU gas gross inland consumption projection for Bulgaria (ktoe)

2020 2025 2030 2035 2040 2045 2050

4500

4000

3500

3000

2500

2000

1500

1000

500

0

Natural gas


Given the relatively small role natural gas currently plays in the Bulgarian energy mix, thepotential for demand growth is significant. In our stakeholder engagement, we heardsentiments that BTG’s projections were optimistic based on ‘nothing changing’ but could beexceeded with certain policy and market reform changes. And the ways in which gas demandcould grow, are described in the next section.

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Figure 8 – Ratio of Power:Gas prices in Europe (including taxes and levies)There is frustration amongst the gasdistribution companies in Bulgaria thatregulation supports electricity at the expenseof gas (e.g. the Security of the ElectricitySystem Fund25). Since 2017 contributions to theFund are made also by the two TSOs -electricity (ESO) and gas (Bulgartransgaz). Thisrequirement for the gas TSOs to contribute isseen by stakeholders as unfair. The WorldBankhas proposed changes to operation of the Fund.For more details on Funds rationale please seeAppendix B on Bulgaria’s power markets.

Achieving the government target of 30% ofgasification in homes would mean a gasdemand increase of approximately 0.7bcm(24% of total gas demand).26

Power

In the context of decarbonisation, thepower sector offers the greatestopportunity for improvement in Bulgaria –primarily to improve the air quality andreduce CO2 emissions by reducing theshare of coal. While in parallel addingmore flexible capacity needed when theshare of RES in the Power sector grows.

As can be seen from Table 1 belowimplicitly, coal’s role in power generationmeans that coal is by far the largestcontributor to total CO2 in Bulgaria.

Table 1 – CO2 production in Bulgaria

Ukra

ine

Serb

iaSw

eden

FYRO

MBo

snia

and

Her

zego

vina

Liec

hten

stei

nBu

lgar

iaNe

ther

land

sGr

eece

Fran

cePo

rtug

alSl

oven

iaCz

ech

Repu

blic

Lith

uani

aAu

stria

Ital

ySp

ain

Esto

nia

Euro

Are

aM

oldo

vaPo

land

Croa

tiaEu

rope

an U

nion

(28

coun

trie

s)Eu

rope

an U

nion

(27

coun

trie

s)La

tvia

Slov

akia

Hung

ary

Unite

d Ki

ngdo

mLu

xem

bour

gIr

elan

dDe

nmar

kTu

rkey

Belg

ium

Rom

ania

Germ

any

5.00

4.50

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00 (mt of CO2 equivalent) 2000 2005 2010 2015

TOTAL GHG emissions (excl. LULUCF) 64.39 67.04 61.17 55.55

CO2 emissions (energy related) 44.27 49.12 45.86 40.07

Power generation/District heating 24.55 27.86 31.21 25.14

Industry 10.59 9.82 3.70 3.98

Residential 1.35 1.22 0.99 0.96

Tertiary 1.21 1.10 0.81 0.72

Transport 5.73 8.35 8.25 8.43

CO2 emissions (non-energy and non-land use related) 3.45 3.96 2.97 2.96


12

Source: Eurostat, 2017, weighted average prices using the most recent (2015) data for the quantity ofelectricity and gas consumption by households, Baringa analysis.


Within the role of coal across various sectors in Bulgaria, coal plays its biggest role in powergeneration. This is shown in the figure below:

Figure 9 – Coal consumption in Bulgaria

Bulgaria’s coal-fired power supply is undersome pressure via the recently adopted (17August 2017) Best Available Techniques (BAT)Reference Document for Large CombustionPlants (LCP). The so-called LCP BREF sets, forthe first time at the EU level, limits emissionsof mercury, hydrogen chloride and hydrogenfluoride from the combustion of solid fuels inLCPs. In addition, the existing emission limitsfor pollutants including sulphur dioxide (SO2)and nitrogen oxides (NOx) have beentightened.

Existing LCPs have four years to becomecompliant with the new requirements.

The Ministry of Energy has stated itsinstitutional support to the coal-fired powerplants to apply for derogation and set up acoordination unit.27 Further, there are ninepower plants in Bulgaria that already statedtheir intention to apply for derogation (thereis a 6-month period to file the application).The Maritsa-East power plants havecombined efforts in requesting a derogationand have jointly hired Amec Foster Wheelerto support their efforts in the applicationprocess.

Following some initial expert evaluations, ifsuch LCP BREF compliance investments are tobe made, approximately 30% increase inelectricity prices could be expected. Thiscould have the twin impact of supporting gas

as an alternative source of power supply andfor the economic attractiveness of gas in theresidential sector (see above).

Some Bulgarian industry stakeholdersestimate there is a potential for an increaseof 20-30% from current level of gas utilizationin the power sector due to switching fromcoal. Identified options (based on technicalsuitability) include:

p TPP Varna (3 x 210 MW units)

p TPP Bobov Dol (2 x 210 MW)

p TPP Maritsa 3 Dimitrovgrad (120 MW)

Such switching is still dependent on economicattractiveness and thus relative pricingbetween gas (wholesale) and power (sales).28

Natural gas can have a key role to play in thenext phase of Bulgarian power policy. It hasclear decarbonisation advantages over coaland other advantages over nuclear andrenewables. Gas-fired power generation doesnot require price support as for nuclear andavoids overly-fragmented supply andnetwork management challenges implied byrenewables. It further has the advantage ofbeing able to provide flexibility in associationwith renewables.

32518

2468

2191

276273

CHP Plants

Power

Others

IndustryResidential

OtherTransformation

189

13

Source: IEA, 2015 data, units: kt


Industry

Although natural gas is already a majorsource of energy in the industrial sector, thereare significant parts of Bulgaria withoutaccess to natural gas where industrialconsumers rely currently on coal, oil andelectricity. There should be a clear economiccase to switch from oil to gas and if allindustrial consumers currently using oil (in2015 183 ktoe) switched to gas, it wouldrepresent an increase of 0.22 bcm/year. Coal(185 ktoe) and electricity (769 ktoe) offergreater opportunity still. However, as opposedto households, the switching case fromelectricity to gas is economically more robust,which appears from gas playing a major rolein the industrial sector (with opportunity forincreased share of gas for SME-consumption,if electricity and gas level playing field isaddressed).29

Gas network expansion projects areunderway to connect some of thesemunicipalities that are not currentlyconnected to the gas grid (for ex. Svishtov,Pirdop, Panagiurishte, Bansko and Razlog30)which will begin to connect some of thislatent industrial demand to supply, co-fundedby EU.

14


5. Gas supply 5.1. Existing supply sources

The vast majority of Bulgaria’s relatively small ~3 bcm/year gas demand is met by suppliesunder a long-term contract with Gazpromexport, with a very small component of domesticproduction (80 MMcm/year in 2016 or 2.6% of the total).

The EU projects domestic production to remain modest (see Figure 10 below, where we aretaking EU projections for the period from 2020 onwards) although E&P activities underway inthe Bulgarian Black Sea have been described as encouraging by the developers (see AppendixA for further detail on local E&P).

The import of gas is carried out by BulgargazEAD32, with the most recent 10-year supplycontract signed on 15 November 2012 withGazpromexport. Under this contract, thewholesale import price is linked via formula toheavy fuel oil and gasoil and the supplies areunder a take-or-pay obligation.

The transit gas transmission network providesfor transmission of natural gas to Turkey,Greece and FYROM and has technical capacityof 17.8 bcm/year according toBulgartransgas. The transit system istechnically and commercially interconnectedat GMS Ihtiman although only to a verylimited extent (limited access – based onFebruary 2018 data, approx. 0.3 bcm/yearwhich amount to approximately 10% ofBulgaria gas demand) to the nationaltransmission network. Capacity in the transittransmission system has been almost entirelybooked under long-term contract (up to2030) by Gazprom, with a 90% ship or payclause33 (see Appendix A for details onBulgarian gas market overview, includinginfrastructure).

The dependence on a single supply sourceand single gas import route has led toconclusion by the European Commission34

that Bulgaria (together with several otherMember States) might have been subject toan unfair pricing policy due to obstacles tocross-border gas sales, unfair prices charged

and gas supplies conditional on obtainingunrelated commitments from wholesalersconcerning gas transport infrastructure. TheEC’s main concerns are that the Bulgarian gasmarket is isolated and lacks competition andit is thus the subject of excessively high pricescompared to Western European benchmarks,especially liquid traded gas hubs.35 As can beseen in section 5.2 below, Bulgarian bordergas prices are amongst the highest inEurope.36

5.2. Pricing of wholesale gas

The wholesale border price paid by Bulgariafor its gas (via pipeline from Russia) isamongst the highest in Europe (see Figure 11below), alongside other states that arelargely reliant on a single source of gas.

Figure 10 – Bulgarian Gas Supply Sources, EC reference case projections (ktoe)31

3000

2500

2000

1500

1000

500

0

Production (including recovery of products) (ktoe): BG Net imports (ktoe): BG


2020 2025 2030 2035 2040 2045 2050

15


Figure 11 – European average border gas prices Q1 2014-Q3 2017

Source: Quarterly Report on European Gas Markets, Market Observatory for Energy, DG Energy

DK NL UK BE DE CZ AT SK FR HU PL ES IT SE BG RO GR LV SL LT FI EE

25

24

23

22

21

20

19

18

17

16

15

€/M

Wh

5.3. Infrastructure for newsources being developed since2009

During the 2009 Ukrainian crisis, whichinvolved a reduction in Russian gas flowingwest, Bulgaria was among the most affectedEU member-states. When gas supplies weresuspended, one of the emergency measuresemployed was to use three sources ofemergency gas, namely i) gas from gasstorage Chiren, ii) part of the gas normallyused as system line-pack by the gas TSO, andiii) eventually gas via LNG supply (1 MMcm/dof gas, which is about 5% of the maximumdaily gas demand in Bulgaria according to2017 Security of Supply preventive actionplan37) imported via the Revithoussa LNG-terminal in Greece. Another consequence wasthe prioritization of the security of gassupplies via diversification of supply sourcesand routes and a need to quickly increaseimport infrastructure and other measures toreduce dependency on one source and route.Interconnectors with neighbouring countrieswere identified as the most feasible option forquick progress on security of gas supplies aswell as a must for market integration.

In order to increase market integration, andsecurity of supply within the EU, a variety of

projects have been identified by the EU asbeing Projects of Common Interest (PCI).

These include:

p “IGB”, Greece-Bulgaria, compressorstation (Reference EU PCI: 6.8.1.);

p “IBS”, Bulgaria-Serbia, (Reference EU PCI:6.10);

p Infrastructure from Bulgaria to Slovakia(currently known as “Eastring”), and the“ITB”, Turkey-Bulgaria, (6.25.1, 7.4.2));

p Gas storage “Chiren expansion” (6.20.2);and

p The reinforcement of the internalBulgarian network and full integration ofthe transit and domestic system(currently known as “Gas Hub Balkan”)(6.25.4).

Source: EC, PCI Interactive map, http://ec.europa.eu/energy/infrastructure/transparency_platform/map-viewer/main.html

It should be noted that there already existsan interconnection with Romania (Trans-Balkan pipeline at Negru Vodu andInterconnector Romania-Bulgaria) throughwhich Bulgaria could import Romanian gas

16


(especially as further Black Sea developmentis ongoing in Romanian waters). There iscurrently insufficient compression on theRomanian side of the border (InterconnectorRomania-Bulgaria) to facilitate significantflow, although this is understood to berelatively simple to resolve.38

The most advanced of the new projects is the182 km Interconnector Greece-Bulgaria (IGB).It has initial planned capacity of 3 bcm/year(potentially increasing to 5 bcm/year) and willallow flows in both directions. Partly fundedby the European Commission, construction isdue to start in 2018, targeting commercialoperation by 2020. A market test openseason conducted in 2017 resulted in 1.56bcm/year capacity booking by 5 shippers.

No LNG imports are planned directly inBulgarian waters although an FSRU (FloatingStorage and Regasification Unit) in Greece atAlexandropoulos is being discussed as a jointBulgarian and Greek project, with a reportedcapacity of up to 6.1 bcm/year. Its initial planwas to be operational in 2020 although thismay now be a challenging deadline. Givengas demand in Greece, the terminal wouldneed to find market demand in the region,inter alia via IGB.

There are also discussions on a new pipelinefrom Russia, so-called TurkStream. The

development of the TurkStream gas pipeline –for which the precise route has not yet beenconfirmed – could mean an alternativedirection of flow for Russian gas enteringBulgaria. It is anticipated that the cross-BlackSea pipeline will make landfall in Turkey andthus utilise the cross-border Bulgarian/Turkishpipeline in reverse flow versus today’sdirection of travel. This would be consistentwith an ongoing – according to public presssources – objective by Gazprom to minimisethe volume of gas transiting Ukraine after2019.

A number of other major regional and EUinfrastructure projects have also begundevelopment such as Eastring, TANAP/TAP,Eastmed, LNG projects in Greece and Turkey.All have an impact on Bulgaria – primarilywith Bulgaria acting as primarily a transitcountry, with relatively minor gas demand incomparison to Turkey or Romania. Figurebelow shows ongoing regional projects underso-called CESEC-initiative by EC39:

17

Figure 12 – Regional projects

Connection of off-shoreRomanian gas, furtherreinforcement ofRomanian system

Phased Romaniansystem

reinforcement

InterconnectorCroatia Serbia

Evacuationsystem towards

Hungary

PhasedBulgariansystemreinforcement

InterconnectorGreece Bulgaria

(IGB)

LNG Terminal

Trans-AdriaticPipeline (TAP)

InterconnectorBulgaria Serbia

LNG terminal

Source: CESEC 2017, Baringa-analysis


5.4. Development of aBulgarian gas hub

Bulgaria has ambitions to create a liquid gashub40 providing regional and EU-widebenefits. The infrastructure development thatgoes under the name ‘Gas Hub Balkan’ is aflagship project for the Government, and aFeasibility Study (FS) has been launched, co-funded under Connecting Europe Facility.41

Under the FS, at least five options on routesare to be studied (see Figure 14 below) tosupport increased natural gas supply options,and ultimately consumption in the region.

The Balkan Gas Hub project entailsdevelopment of the transmission, storageand trading infrastructure. This is planned toinclude completion of the ongoing upgradeand modernization projects; completion ofthe interconnection projects; andconstruction of large-scale entry/exitinfrastructure.

Whilst the development of a trading hubremains a laudable target, in the short termthere are some key steps that Bulgaria cantake to significantly improve security anddiversity of supply (and with it supportincreased competition). Primary amongstthese is the completion of theimplementation of the Third Package and theintroduction of market mechanisms thatincrease liquidity and competition. As asecond step Bulgaria will have to ensure the

Bulgarian-Romanian interconnector receivesinvestment in compression to allow forRomanian gas to be imported, and thesuccessful development of the IGB to enableLNG from Greece and Shah Deniz gas(eventually) to be imported - see Appendix Afor details on gas network.

Alongside continued support for indigenousgas development, these steps will alter thelandscape of Bulgarian gas supplies – furtherinfrastructure development may notimmediately provide such qualitative returnon investment. The development of a ’true’hub – supporting trading of all sorts – willrequire more than infrastructure build-out

Bulgaria has been keen to position itself within the new developments. A broad number offuture gas supply options are available for Bulgaria, as can be seen on the following figure:

Figure 13 – Gas supply options

Figure 14 – Gas Hub Balkan Feasibility Study:supply routes

Source: EC presentation, Varna, September 201542

Today’s gas market import options EU

We see increasing market integration within Europe and globally (LNG),coupled with ample infrastructure currently, and a trend to short-term

contracting.

In parallel, encouraging conventional gas potential (Shell, OMV, Petrom) isbeing explored in direct vicinity of Bulgarian gas market.

Source: Baringa

Black sea encouraging finds may offeran option (subject to infrastructuredevelopment

Gas developments in Ukraine (Ukrainecapacity to be accessible in long term ifand when transit contracts expire)

Global LNG (via Greece at present, or –once IGB, ISB and ITB active - viaCroatia/KrK, or via North-South route(BRUA, Eastring as options), or via TurkishLNG terminals

African gas, and/or Mediterraneandevelopments (Israel, Cyprus) accessiblecommercially via Southern Corridorand/or LNG

Norwegian gas, accessible via North-South route being developed (Baltic pipewould connect onwards to central-European infrastructure)

Russian gas, via existing or new route

18


after implementing market reforms in linewith EU Energy Package legislation.

Progress has been slow since 2009 in creatingtangible and effective routes for new gas toenter Bulgaria but if IGB begins constructionand the primary ‘low hanging fruit’(Romanian pipeline/compression capacityreinforcement) is forthcoming, significantchange will be achieved. However, at presentmarket access for new sources remainslimited and market structure challengesremain. A well-functioning gas market isrequired to meet the 2030 decarbonozationtarget, we discuss what is lacking, in the nextsection.

19


20


6. Unlocking market access 6.1. Access to Transmissioncapacity is present but limited

Third Party Access (TPA) to transmission andstorage capacities has been introduced (seeAppendix A for detail), though in practiceaccess is limited. Principally this is due to longterm bookings, limited capacities at Ihtiman(TSO data shows in February 2018 that about10% of annual Bulgarian gas volumes can betransferred between national andinternational transit systems at Ihtiman), andlimited storage capacities offered(approximately 25% of technical capacity isavailable after reservations for Security ofSupply).

Capacity on the transit transmission system –which could have been a reverse flow route toe.g. LNG sources from Turkey – has beenbooked under long term contracts asmentioned earlier,43 though some “Non-physical reverse natural gas transport”capacity is being offered at Kulata-Sidirokastro IP (Greece – Bulgaria) and atNegru Voda 1 / Kardam IP (Bulgaria –Romania, Trans-Balkan pipeline).

Capacity at the Romanian-Bulgarian border(Romania-Bulgaria interconnector) isconstrained by a shortage of sufficientcompression on the Romanian side.44

Only 40% of the national transmissionsystem is utilised. Key steps to enablinggreater access to this includes thedevelopment of IGB (which will interconnectwith it) and the interconnection and openingof access to the transmission network (in thelonger term).

6.2. Under EU support access isprogressing

6.2.1. Critical view on role for gas –the link to market reform

Our findings through discussions withstakeholders point us that role for gas canonly grow, if trust in gas, and its security andaffordability is introduced through marketreforms. The share of gas should be higher tomeet the 2030 targets and to supportrenewables.. The current gas market situationis not fully supporting the opportunity of theshare of gas to grow in the energy mix. UnderEU support, market reform is progressing.Security of supply, and particularly access tonew sources of gas and greater competitionare important elements to be exploredfurther in this section.

6.2.2. EU acquis as guidance forchange

Whilst there are many options to increase therole of gas in the Bulgarian gas market, themost effective way could be to create marketconditions such that gas can compete withother energy sources and for greatercompetition and consumer choice to existwithin the gas sector.

The EU’s energy packages provide clearguidance for how markets need to bereformed to work within the EU singlemarket. As demonstrated by the number ofqueries and challenges being raised by the EUin the direction of Bulgaria, it is clear thatthere remains much to be done for Bulgaria’sgas market to be reformed along these lines.

We also note the ongoing Case 39816,Upstream Gas Supplies in Central and EasternEurope, with possible competitive measuresto be implemented for the present Gazpromcontracts. This particularly could concernmaking gas deliveries more competitiveacross the region (see Appendix C).

In 2017 it was noted at the Madrid Forumthat that the Commission has set up and ischairing an implementation group for EU

Network Codes monitoring with theinvolvement of ACER and ENTSOG. A 1stmeeting was held on 2 October 2017. Thisgroup is intended to be complementary toother existing groups. The group will have nodecision-making powers, but whereconsensus emerges on certain points, theintention is to draw up informal guidelines.The group’s activity will be transparent.45 TheCommission will focus on inter alia Bulgaria,Romania, Greece. This focus is not surprising,given the ACER analysis on current state ofmarket development in Bulgaria.

6.2.3. ACER analysis state of play

ACER analysis shows the amount of work stillto be done for the Bulgarian gas market toexhibit the Target Market Health metrics.46

The graph below shows Bulgaria cannot meetits annual demand without its largestsupplier, and its market is extremelyconcentrated.

21


Recent developments have been positive interms of liberalisation and plans for energypolicy – in particular, 2017 has seen theapproval of entry-exit gas transmission tariffmethodology, the implementation of the CAMnetwork code and in general a progressiveengagement of the Government within theCESEC (Central and South-Eastern EuropeEnergy Connectivity) initiative driven by theEuropean commission including Bulgaria.47

The eventual development of a well-functioning gas hub in Bulgaria – as amarketplace for suppliers and buyers to tradegas at prevailing market prices – will be animportant element in supporting marketliberalisation, although as we noted above,there a number of interim steps neededbefore this goal can be achieved.

Bulgaria has begun this process – adevelopment recommended by ACER,although it has also identified a number ofareas for improvement:

1. The Bulgarian gas market has fewer thanthree sources, and a highly monopolisticcharacter

Reliance on few (in Bulgaria’s case, one)supplier/s means typically means high pricesand security of supply issues) and that pricerenegotiation is challenging. Access to analternative source, for example via openingup access to existing underutilisedinfrastructure – with alternative pricing – is ahelpful tool in achieving price reduction.

Figure 15 – ACER assessment of European gas market development

450

400

350

300

250

200

150

100

50

0

UK:6

FR: 7

SE: 2 IE: 2

NE: 9

BELUX: 5

DK: 3DE: 5

IT: 11

LT: 2

SK: 7

RO: 2

ES: 8

PL: 4

CZ: 5

HR: 5

PT: 4

AT: 3

HU: 3

GR: 4

SL: 3

EE: 2

LV: 1

BG: 2 FI: 1

‘Healthy’zone

0 2000 4000 6000 8000 10000

Threshold = 110

Threshold = 2000

RSI i

n %

HHI

The upstream supply situation significantly influences the way in which gas markets perform.

Markets with three or more sourcesMarkets with less than three sourcesMarkets with less than three sources, but connection to liquid hub

A few MSs to improve interconnection. Together with market oriented access rules market functioning will improveA few MSs (eg. BG, RO) lack Third Package basics (eg. entry/exist system) which should be addressed

Note: AGTM recommends min. 3 distinct supply origin sources; HHI <2000 for upstream supply companies and a Residual Supply Index>1110%, ie. market has the capacity to meet yearly demand without its largest upstream supplier.

Source: Agency for the Cooperation of Energy Regulators and the Council of European Energy Regulators, 2017

22


2. The Bulgarian gas market needs toimprove institutionally

ACER identifies “Weak political support for gaswholesale market development is the mostfundamental concern …. Its clearest and mostdramatic expression is the lack of some of themost essential legislative building blocks ofthe Third Package...”

ACER further identifies insufficient regulatorytransparency with too-short consultationperiods, and a desire by stakeholders formore transparency on setting transportationtariffs.

3. The Bulgarian gas market would benefitfrom improving interconnections

Maximising interconnectivity withneighbouring states and thus access to allsources of supply will enhance security ofsupply and competition (and thus drive downcosts).

4. Bulgarian gas storage access is reservedfor security of supply, and not fullyavailable to market.

A more commercial exploitation of gasstorage – supported by increased security ofsupply via better interconnections – shouldenhance the effective functioning of a gasmarket.48

5. The Bulgarian wholesale pricing is not(yet) based on hub-pricing, but rather oil-linked 49

The Bulgarian border price has benefited fromthe reduction in the crude oil price, but priceswill increase in line with the oil price and notwith other European (hub-priced) gas. Asdescribed above, access to alternativesources of supply should create the impetusfor delinking – import infrastructuredevelopment, and the ability to access thatcapacity, is the key development here.

ACER analysis shows that progress towardsmarket liberalisation has not been sufficientlyrapid or effective. The market remains highlyconcentrated with limited competition, asshown by the concerns of EC-cases (seeAppendix B), and ACER analysis above. Effective market reform measures couldcreate an opportunity for diversity of supplyof natural gas. One example of suchmeasures is e.g. using available EU acquistools like strict congestion managementprocedures on key entries and exits to free upmarket access where capacities have beenbooked long term. Such market reforms,following EU acquis guidance in more detail,will support affordability and security ofnatural gas.

23


24


7. Conclusions – ending the silence on a role for gas inthe future BG energy mixGas can play a critical role in Bulgaria’senergy future and pathway todecarbonisation. The key enablers areeffective market reforms and selectiveinfrastructure development aimed atenhancing diversification of supply, and thecreation a level playing field between gasand power. We summarise our rationalebelow.

Gas can grow as a fuel in a decarbonisingBulgarian energy mix, both as baseloadsupply and in meeting the challenge ofintermittency from a growing share ofrenewables

We have identified a number of key drivers ofthe role for gas in Bulgaria, including thesupport to the (moderate) growth ofrenewables, and most notably thesubstitution of coal in power generation, asrecognised by EU reference scenarios (2016reference scenario Primes). Bulgaria has anumber of power plant sites ready for suchconversion.

Market access and selective infrastructureinvestment – a twin-track to support therole of gas

Energy market reforms must be furtherprogressed – at least to the level required bythe EU, and following EU-acquis for detailed

guidance.50 This would be a key step tounlocking market access – something thatwould be supported by and be supportive ofsuccessful development of selective gasinfrastructure needed for supplydiversification and wholesale marketcompetition.

Specifically, use of congestion managementprocedures may be needed in order to unlockmarket access to key import routes blockeduntil 2030 by 90% ship-or-pay contracts.

Selective investments to support security anddiversification of the Bulgarian gas marketmust also be completed. This includes newinterconnectors (specifically IGB51 for accessto Southern corridor gas and LNG imports viaGreece), and campaigning for increasedcapacity in the existing Romanianinterconnector through increasedcompression by the Romanian partners.Combined with the planned interconnectionreinforcement project52, this could be ameans of securing access to import volumesas well as an export opportunity for gasreserves under development in offshoreBulgaria and Romania.

Via these and potentially furtherinfrastructure investment – supported bymarket demand and the EU regulatoryframework – Bulgaria could act to link a

number of markets, the potential of local andregional production could be realized, andallow Bulgaria to benefit from the transit andexport of gas whilst providing a majorstimulus to domestic demand growth.

Opportunities for gas demand growth canbe unlocked via regulatory reform thatensures gas is able to achieve its power-generation potential and compete fairlywith power for customers in the heat sector

Addressing the role for gas will requireconsideration of the link between the gas andpower sectors.

Development of renewable energy sourcesand complementary gas generationcapacities, replacing coal wherecommercially feasible, is an option toconsider for decarbonisation.

An improvement in the economic propositionfor gas-fired power (e.g. through costincreases for coal-fired power due toenvironmental issues) is already taking placethrough EU-supported developments (such asLCP BREF).

Measures such as reform of the relatively lowregulated power price versus gas, andremoving or reducing the gas sector (gasTSO) payments to the Security of the

Electricity System Fund, can help gascompete on a level playing field with powerfor the provision of heat in the residential andcommercial sector, and address the energy-intensity challenge in the SME-part of theIndustry.

Next steps – consultation on nationalstrategy 2020-2030

A key first step is that, during the course ofthe its strategy definition, the Bulgariangovernment should fully engage with gasindustry stakeholders (including trade bodiesand NGOs) to build a complete picture of theopportunity for gas and the role it can play inBulgaria’s energy future.

Gas as a part of the energy mix will helpaddress the energy trilemma – for Bulgaria todeliver decarbonisation affordably and withsecurity of supply. The alternative is thatBulgaria risks, at best, an ineffectiveprogression towards the 2030 and 2050decarbonisation targets and, at worst,missing them altogether.

25


26


Appendix A: Bulgarian gas market – overviewA.1. Overview

The Bulgarian gas market is relatively small,at around 3 bcm/year. The largest demandsector is industry with a low level of use ofnatural gas by households53 in the country(only 3% of gas consumed is in households ,the lowest in the EU).

Bulgaria is virtually entirely dependent onRussian gas under a long-term supplycontract from only one supply route (viaUkraine). Domestically-produced gas makesup the balance, peaking at 10-15% of thetotal but currently only 2.6%54 (see A.4section further). The 2009 gas crisis (in whichRussian supplies to Ukraine and beyond werecurtailed) left Bulgaria among the worstaffected EU Member States and lead to theprioritisation by government of security of gassupplies via diversification of supply sourcesand support for E&P activity in Bulgaria. Someprogress has been achieved recently in thisrespect. The development of gasinterconnections with neighbouring countriesis progressing – reverse flow gasinterconnection with Romania has beencommissioned, and the IGB (Greece-Bulgarianinterconnector) is hopeful of startingconstruction such that it is commerciallyoperational by 2020.

Infrastructure for the transmission of naturalgas to users within the country is ring-shapedand can meet current natural gas demandusing only around 40% of the system’smaximum technical capacity.

Bulgaria is also a key transit country forpipeline gas supplies to Turkey, Greece andFYROM (Russian gas via the Ukrainian route),transiting up to 16 bcm/year. Historically, thetwo networks were developed and operatedseparately but since 2014 have beeninterconnected (physically and commercially)at GMS Ihtiman. This enables the transfer ofgas between the two networks, via technicaland commercial entry and exit points on thetwo networks.

At the European level, Bulgaria is involved inthe implementation of the EU’s strategicinitiatives for building the new infrastructureto support diversification of energy supply,namely – a Southern gas route, access toliquefied natural gas and interconnectionsalong the North-South axis.

Despite some progress in regulatory andmarket reform, Bulgaria lags towards the rearof EU Member States in measures of marketliberalisation with the gas market still highlyconcentrated with limited competition. Theincumbent (Bulgargaz) dominates with 98%on the wholesale market; the retail markethas three major gas distribution companieswith the largest having a 66% market shareand the second largest 13%.

Insufficient market liquidity is a major reasonwhy the TSO (Bulgartransgaz) opted to applyinterim measures under Regulation (�C)312/2014.

A.2. Gas infrastructure in Bulgaria

A.2.1. Existing gas infrastructure

Transmission

Figure 16 – Bulgarian gas transmission infrastructure

Existing cross-border interconnectionpoints and capacities for physical gasflows in 2016

27


The gas transmission system operator inBulgaria is Bulgartransgaz (BTG), part of state-owned Bulgarian Energy Holding EAD. BTGwas certified as an Independent TransmissionSystem Operator in 2015 and owns andoperates the national and transittransmission gas networks as well as theunderground gas storage facility at Chiren.55

The national gas transmission network isring-shaped with a maximum technicalcapacity of 7.5 bcm/year, pressure of 54 barand with 115 exit points (AGRS, GMS).

The transit gas transmission network providesfor transmission of natural gas to Turkey,Greece and FYROM and has technical capacityof 17.8 bcm/year. Both systems aretechnically and commercially interconnectedat GMS Ihtiman. Capacity in the transittransmission system has been booked underlong-term contracts (up to 2030) by Gazprom.The vast majority of transit is for deliveries toTurkey (see Figure 17 below):

Figure 17 – Natural gas transit transmission 2004 - 2016 (bcm/y)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

11.2 13.0 12.4 13.9 13.7 10.2 10.0 12.0 12.4 13.0 12.9 11.4 11.7

2.2 2.4 2.7 3.1 2.9 2.1 2.1 2.9 2.5 2.6 1.8 2.0 2.7

0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.2

13.5 15.5 15.2 17.2 16.7 12.3 12.2 15.1 15.0 15.8 14.8 13.5 14.6

20

18

16

14

12

10

8

6

4

2

0

Turkey

Greece

FYROM

Total

28

Source: Bulgartransgaz, 2017


BTG is responsible for planning andimplementing modernization and upgradeprojects for the network. Examples includedevelopment of “new branches” of thetransmission network within the country.

Storage

The Chiren facility has storage capacity of 550MMcm. Withdrawal capacity is between 1MMcm/day (minimum) and 4.2 MMcm/day(maximum). Injection rates are 1.5MMcm/day to 3.5 MMcm/day. BTG plans toupgrade Chiren capacity including an increasein capacity of up to 1,000 MMcm working gasand an increase of withdrawal / injectioncapacities.

The Chiren UGS facility is an importantflexibility source for Bulgaria, and potentiallyfor neighbours Greece and/or Turkey.However, the facility is predominantly used asa major provider of gas supply security for thecountry (Bulgargaz is obliged to maintain avolume of gas in storage), meaningavailability of the facility for commercialutilization is currently quite limited. Upgradeof the facility as well as improved security ofsupply by other means (e.g. diversification ofsources of supply) should increasecommercial potential for Chiren.

Interconnectors

The network for national gas transmission isconnected to the Romanian network viaInterconnector Bulgaria-Romania (IBR),commissioned in 2016. Planned projects forinterconnection to Greece (IGB), Serbia (IBS)and Turkey (ITB) are at various stage ofdevelopment.

Some of the gas interconnector projects (IBSand IGB for example) have been developedby companies other than BTG (i.e. not asregulated projects)56 although still owned bygovernment owned company (50% shareBEH).

In 2016, interconnection agreements weresigned between:

1) BTG and the Greek gas transmissionoperator DESFA for the existing Kulata /Sidirokastro interconnection point on BTGtransit transmission network; and

2) BTG and Romanian Transgaz AD for theNegru Voda 1 / Kardam interconnectionpoint on BTG network for nationaltransmission.

These enable the implementation of “non-physical reverse natural gas transport”through Kulata-Sidirokastro in the direction

Greece – Bulgaria and through Negru Voda 1 /Kardam in the direction Bulgaria – Romania,thus creating the opportunity for virtualnatural gas trade. The first real deals arealready in place and natural gas quantitiesare delivered to customers in Bulgaria fromGreece.57

BTG’s network development programmeprovides for modernization of the transitpipeline to Turkey with completion expected

by mid-2018. This will result in a capacityupgrade to 15 bcm/year from 14 bcm/year.

BTG’s forecast for the use of cross-bordertransmission capacity, based on the existinglong-term contracts for transit transmissionand the expected new booking of capacityresulting from making new capacitiesavailable and cross-border entry and exitpoints, including from the projects ITB, IGB,IBS and IBR is shown below:58

Figure 18 – Forecast transit transmission capacity (bcm/y)

2017 2018 2019 2020 2021

25

20

15

10

5

0

Transit transmission capacity (bcm/y)

29

Source: Bulgartransgaz, 2017


Management of TransmissionCapacity

Access to the transmission system andstorage is open for third parties under anentry-exit tariff system (which, in 2017,replaced an old postage stamp system) 59.Capacity nomination and allocation at theinterconnection points of the gastransmission network of BTG and the gastransmission networks of Greece andRomania, as well as at all exit points of thenational gas transmission network, areexecuted on the regional booking platform.Capacity can be booked on an annual (up to 5years), quarterly, monthly, daily and intra-daybasis. Balancing is done via a commercialdispatching platform, operated by BTG withdaily imbalance charges applied, approved bythe Regulator and use of the VTP forexchange of non-material goods as part ofinterim measures applied by the Operator byApril 2019, with effects on gas marketliquidity pending.60

Two balancing zones have been defined:national gas transmission network and gastransmission network for transit transmission(we note that this may inhibit efficiency ofthe market liquidity). The balancing zones areconnected at GMS Ihtiman and GMS Lozenets,defined as entry-exit connection pointbetween BTG national gas transmissionnetwork and BTG gas transmission networkfor transit transmission.

Network capacity has thus far proved ample,with no physical overloads registered for thenetwork. The utilization rate of the nationaltransmission network is typically at 40% ofthe maximum technical capacity. Gaspressures, used in system operation, currentlyare relatively low at 54 bar. The systempipelines are relatively mature in some cases.

The interconnection (physically andcommercially) at GMS Ihtiman of the twonetworks – for national and for transittransmission – allows transfer of gas betweenthe two networks, providing technical andcommercial combination of entry and exitpoints on the two networks. Coupled with thepossibility for virtual reverse flows on existingpipelines represents a significant steptowards market liquidity and increasedcompetition.

A.3. Energy market structure

A.3.1. Key market participants

Figure 19 – Governmental institutions and key market players in Bulgarian gas market

Extraction Storage andTransmission

Wholesale Trade Distributionand Retail Sales

Petro Icelandic (up to 2012: Melrose ResourcesSarl)

Oil and GasExpolration andProduction

TransatlanticPetroleum(previously DirectPetroleum Bulgaria)

Bulgargaz

DEXIA

Bulgartranzgaz

Overgas Inc.

Overgaz Mreji AD(66% of market)

Aresgaz (13%)

Sevlievogaz 2000AD (5%)

Companies, part ofBulgarian Energy Holding

Privare Companies

Officialy, the gas market has been liberalized since July 2007Activities

Companies

Authorities Ministry of Economy and Energy

p Energy strategyp Energy policyp Concessions right

State Energy and Water Regulatory Commissioon

p Authorization and licensingp Price regulationp Market monitoring and control

p Activities subject to licensing: Public Supply (Public Provider), Transmission, Distribution,Storage and Supply of last resort

p Open TPA to Bulgartransgaz networks

30


The Ministry of Energy is responsible for thedevelopment and implementation of energysector policy. The Energy and WaterRegulatory Commission (EWRC) is theRegulator for both the electricity and gassectors. Further key participants are:

p Bulgartransgaz EAD – combined gasoperator (licenced activities for naturalgas transmission and storage andoperation of networks) responsible forperforming natural gas transmission andstorage activities. The company is 100%owned by Bulgarian Energy Holding and in2015 was certified as an ITO;

p Bulgargaz EAD – natural gas publicsupplier in Bulgaria, prices for gas suppliesare approved by the Regulator quarterly.It is 100% owned by Bulgarian EnergyHolding;

p Gas distribution companies – licencedactivity for natural gas supply anddistribution activities to end usersconnected to gas distribution networks onlicenced territories; these companies areobliged to build and develop the gasdistribution networks in compliance withthe long-term business plans and termsand conditions as approved by Regulator;

p Natural gas traders – transact for naturalgas supply with the public supplier, endsuppliers, users, other natural gas traders,production companies, natural gasstorage companies and the combinedoperator;

p Industrial natural gas consumersconnected to the gas transmissionnetworks. Around 80% of industrial gasdemand is in the hands of 10% of theconsumers.

A.3.2. Role of Regulator

EWRC, in compliance with EU acquis, has acentral role in licencing activities for naturalgas transmission and distribution, storage,LNG import facilities and in the provision ofgas supply to consumers. EWRC supervisesthe performance compliance of licensingactivities with the issued licenses’ terms byperforming preventive control and continuousmonitoring.

The Regulator approves the rules for accessto gas transmission and distribution networksas well natural gas storage facilities andrespective technical rules.

EWRC is also responsible for the pricingmethodology for access and transmission ofgas on transmission networks owned by BTGand regulates the price formation of accessand storage of natural gas storage facilities.

On the gas distribution side, prices of “naturalgas distribution” and “natural gas supply byan end supplier” are regulated under the“price cap” method and EWRC approves tariffstructures by customers’ groups, reflectingthe allocated annual revenue requirementsfor the service for each consumer group,based on a submitted cost service study. The

existing tariff structures and prices for endcustomers of the gas distribution companiesare differentiated depending on scale ofconsumption (household and non-household)as well as relative evenness of consumption.

EWRC adopted Rules on natural gas marketbalancing and daily imbalance chargecalculation methodology as part of interimmeasure proposed by BTG to apply interimmeasures under Regulation (ЕC) 312/2014. EWRC is involved in cross-border issues as perthe applicable framework.

A.3.3. Network access

Network access is open to third parties andthere is a regional capacity-booking platformin operation. However, under CaseCOMP/B1/AT 39849 BEH gas, in 2013 the ECopened formal proceedings to investigatewhether Bulgarian Energy Holding (BEH), itsgas supply subsidiary Bulgargaz and its gasinfrastructure subsidiary Bulgartransgazmight be hindering competitors fromaccessing key gas infrastructures in Bulgaria,in breach of EU antitrust rules. EC andBulgarian stakeholders failed so far toachieve understanding on definitecommitments61 and in November 2017 theParliament mandated the BulgarianGovernment not to accept commitments andnot to "plead guilty" in the case.

Capacity on the network for transittransmission is booked under long-termcontracts (up to 2030), however

devepostlopments for reverse flow and newinfrastructures / modernization andexpansion of existing infrastructure, providefor available capacity and trading options.

From October 2017, an entry-exit tariff modelto network access replaced an old postagestamp model. Daily imbalance charge andspecific balancing rules apply as part ofinterim measures proposed by the BTG underRegulation (ЕC) 312/2014.

Access to UGS Chiren is open for TPA underapproved by EWRC price for storage of 2.49BulgariaN/1000 cm/month.

A.3.4. Gas sales – wholesale

Bulgargaz EAD sells natural gas at pricesregulated by EWRC and its share of thenatural gas wholesale market in 2016 was98%. The remaining 2% was realised bytraders.

Bulgargaz offers a standard 3-year contractto its customers (large industrial consumersconnected to BTG network).

In gas distribution, Overgaz Mrezhi AD servesmost of the customers – 66% of alldistribution network natural gas consumersin the country, followed by Aresgas AD with13% and Sevlievogaz - 2000 AD with 5%.

According to data of distribution companies,92% of their natural gas customers in 2016were households and 8% non-household (i.e.

31


small commercial). Much of Bulgaria does nothave gas distribution infrastructure in placeand household consumers connected to thenatural gas distribution network are few.Household consumption is very low – 2.28 %of the total consumption in the country.

The Independent Bulgarian Exchange plansto add a gas trading module and some of thedistribution companies are proposing atrading platform whereby they can manage

their seasonal supply/demand variationthrough trade amongst themselves. For nowhowever all are supplied by Bulgargaz.

A.3.5. Retail

There is a number of licenced distributors toconsumers, however distribution is highlyconcentrated with few players. Largestcompany, Overgas – 66%, second largest –13% market share. See figure below.

Figure 20 – Market shares (CEER, NRA report 2017)

According to Security of Supply emergencyaction plan (updated in 201762) there is a 261million m3 under contract between"Gazpromexport" and Overgas Inc.

The share of household gas supply in thecountry is low compared to other Europeangas markets. Stakeholders did describeimportant efforts on household gasificationincluding the development of 'Virtualpipelines' via truck deliveries of CNG (smallvolumes) for mountainous areas, includingplanned regional involvement for Macedoniaand North Greece.

Natural gas has a very minor role in heating,with electricity, coal, district heatingdominating the heating market.63 Bulgarianheating association calculations show thatusing night electricity tariffs will deliver morecompetitive heat over natural gas.64 Thismarket sentiment was confirmed indiscussions with stakeholders in February2018.

The retail market is not (yet) liberalised withregulated prices are in place for domestic andnon-domestic customers, with maximumprices approved by the NRA (NRA, 201765).

A.3.6. Progress toward EU energymarket directives

Bulgaria has been transposing of EU energyacquis in its legislation. However, the EC hasrecently (25 January 2018) requestedBulgaria to correctly implement the ElectricityDirective (Directive 2009/72/EC) and the GasDirective (Directive 2009/73/EC). According tothe Commission's assessment,66 Bulgaria hasincorrectly transposed several requirementsconcerning the ownership unbundling model,the independent transmission operatorunbundling model and the distributionsystem operator. Bulgaria has not correctlytransposed the rules on connection to thenetwork by allowing the gas transmissionsystem operator to refuse connection basedon lack of system capacity.

Following the formal notice from the EC, theMinistry of Energy proposed, for publicconsultation, amendments to the EnergyAct67 for full compliance and transposition ofthe requirements of Directive 2009/72/EC andDirective 2009/73/EC as well as the provisionsof the Regulation 1227/2011 (REMIT).

3%

8%

5%Balkangaz 2000 AD

Aresgaz AD

Other (under 2%)

Sitigas Bulgaria EAD

Sevlievogas 2000 AD

Overgas Mreji AD

5%

13%

66%

32


A.4. Domestic supply options

Domestic extraction of natural gas isdeclining and there are small proven reserves.Exploration activities are ongoing and thereare currently 15 exploration oil and gasblocks, onshore and offshore. About 10 moreblocks have been identified by thegovernment and could be tendered in thefuture, including some deep and shallowwater offshore blocks.

Any increase in domestic production is notexpected before 2020 and production willremain in the range of max 75-80 MMcm/yearuntil such a time a new reserve arediscovered and developed.

Particular focus in the GovernmentProgramme 2017-2021 is to supportdomestic gas extraction including:

1) Continuation of deep Black Seaexploration and implementation ofprocedure for exploration block Teres68;and

2) Support for the exploration activities inblock Khan Asparuh69 and block KhanKubrat70 to guarantee competitive pricesof energy sources and significant incomefrom concession rights.

The field with the highest potential appearsto be Khan Asparuh. It is in deep water BlackSea, close to the Romanian offshore fieldsand controlled by Total, OMV and Repsol.Lovech A (Direct Petroleum) is another withpotential – reserves are estimated at 13.7bcm, potentially growing to 22 bcm if tied inwith neighbouring resources.71

Despite the strategic imperative ofencouraging domestic gas production toreduce import-dependence, one avenue forincreased gas production has been blocked.There is an indefinite suspension [2012] ofshale gas exploration due to environmentalconcerns.

33


Appendix B: Power markets, and renewables policy supportB.1. Key players in the powermarket, and status

p The state owned Bulgarian Energy HoldingEAD (BEH) and its subsidiary NEK (NationalElectricity Company) hold togethergeneration assets representing 50% of theinstalled capacity, and 60% of generatedelectricity. BEH has a diversifiedgeneration mix with hydro, nuclear (theKozloduy power station, with a licence to2027) and thermal generation. NEK actsas a single buyer from the powergenerators on the high voltage grid andremains the sole electricity supplier atregulated prices for end suppliers.Moreover, NEK is obliged to purchaseelectricity produced by CHP plant,renewables and industrial producers atregulated prices

p BEH also owns the Maritsa Iztok 2 whichoperates one of the three power stationsthat constitute the Maritsa Iztok coalpower plant complex, the main coal-firedpower plant in Bulgaria. The other twopower stations (1 and 3) are owned byAES and Contour Global respectively

p The now idle 1.3 GW Varna power station,formally a coal plant and major providerof balancing energy for the north-eastregion, where most wind plants arelocated, is being considered forconversion to gas. On December 12th2017, Bulgaria’s Commission forProtection of Competition announced ithas allowed Bulgarian logistics companySIGDA to acquire the Varna power stationfor an undisclosed price. Sigda plans torebuild three of the plant’s six 210 MWunits so they can operate on natural gas.

p Bulgaria has approximately 11 GW ofinstalled capacity of which the majority isbased on nuclear, coal/ lignite and gas.Solar experienced strong deploymentrates in 2011 and 2012, exceeding 1 GWof installed capacity, but has notdeveloped much further since. Onshorewind capacity is also at comparable levels(approximately 0.9 GW), and developedstrongly in same period as solar. There isalso significant hydro (2 GW) and hydroPumped Storage capacity (1.4 GW), withsome upside potential (see figure below).

Figure 21 – Gross electricity generation capacity by source (GWh)

2000 2005 2010 2015

60,000

50,000

40,000

30,000

20,000

10,000

0

Biomass & waste

Oil

Solar

Wind

Gas

Hydro (pumping excluded)

Nuclear

Solids (coal)

34

Source: Baringa-analysis


35

The power market faces some issues,particularly as a result of NEK running at adeficit. A range of legislative and regulatorychanges were implemented in 2015 and 2016aimed at stabilising the sector by reducingNEK’s costs and increasing its revenues onthe regulated segment. In detail, thebackground to this is as follows72:

Formation of the tariff deficit

Three key factors led to the accumulationof a tariff deficit in NEK in past regulatoryperiods

p Boom in renewables combined withmandatory purchase by NEK ofrenewables generation at preferentialprices for the quantity fed into the grid

p Mandatory purchase of efficientcogeneration power at preferential priceswithout a mechanism for measuringcompliance with efficiency criteria

p Existing PPAs between NEK and AES andContourGlobal, based on “take or pay”principles with NEK commiting to pay foralmost the entire capacity of the plant,independent of whether this capacity isdispatched or not

Measures implemented to addresstariff deficit

p A range of legislative and regulatorychanges were implemented in 2015 and2016 to reduce NEK’s costs on theregulated segment by limiting NEK’sobligation to purchase electricity fromrenewables and cogeneration plant inorder to eliminate the formation of newtariff deficits

p Moreover, in July 2015 the BulgarianParliament established an ElectricitySystem Security Fund to increase NEK’srevenues from the regulated segment byincreasing existing and creating newrevenue streams. Since 2017, bothelectricity and gas TSOs have also beensubject to contributions to the Fund. Thefund raises 5 per cent contributions on themonthly revenues of all energy producers,as well as revenues from the sale of CO2quotas. Additionally, there has also beenan increase in the amount and scope ofthe “Obligation to Society” fee, with thefee almost doubling (from 19 BulgariaNLEV/MWh to 37 BulgariaN LEV/MWh) andnow applying also for quantities ofelectricity purchased for technologicallosses

p Note that for 2016 it has been reportedthat over BulgariaN LEV 355 million(approximately EUR 180 million) has beencollected as part of the Electricity SystemSecurity Fund. It was also reported thatthe costs of the fund's maintenance in2016 amounted to BulgariaN LEV 131,900.The document was adopted by theManaging Board of the Fund in March thisyear and audited by the National AuditOffice

Renewable support schemes

p Electricity from renewables hashistorically been promoted in Bulgariathrough feed-in tariffs (FiTs) under long-term contracts, paid out by NEK or by oneof the three end-suppliers and affiliates ofthe electricity distribution companies. Theregulator (EWRC) has regulated theelectricity selling price at the wholesalemarket and the tariff at which therenewables producers sell electricity tosuppliers, with tariffs set every year on30th June. In August 2016 the EuropeanCommission approved that Bulgarianstate aid supporting the generation ofenergy from renewables from 2011 iscompatible with the internal market

p The principal energy laws that governrenewable energy projects are the EnergyAct and the Energy from RenewableSources Act (ERSA). The Energy Act servesas the general law regulating theelectricity, gas and thermal power sectors,while the ERSA regulates the renewablessector

p FiTs are compensated through end userbills and taxes (the ‘Social ResponsibilityTax’) covering renewables powerpurchased by the regulated marketsupplier, NEK

Reforms in the renewable sector

p The renewable energy sector hasundergone extensive reforms in recentyears to the detriment of investors in thesector. FiT support for new renewableswas withdrawn for new wind and PVcapacities in 2015, with annual hourlylimit on mandatory purchases of allgenerated power from renewables alsointroduced in 2015. Allowed rates ofreturn for renewable projects have alsobeen limited to the Weighted AverageCost of Capital (WACC) – 9% in 2011 downto 7% in 2014. Following these changes,investments in new wind and PVinstallations have declined dramaticallysince 2015


p Additional measures adopted in the pastfew years included:

- Introduction of grid access fees, which were only imposed on electricity produced by wind and PV installations

- Introduction of a 20% revenue tax (repealed by the Constitutional court)

- Introduction of balancing responsibility in the day-ahead market without considering the ability of renewable producers to predict their production

- Retroactive reduction of renewables FiT based on reevaluation of the additional EU financing the projects had received

p On 23rd December 2015 Bulgaria’sSupreme Court of Cassation (VKS) ruledthat the regional electricity distributiongrid operators as well as the stateoperator of the transmission grid ESOmust repay grid access fees that they hadcharged developers of renewable energysources

p Despite the fact that the Supreme Courtrepealed the initial decision forintroduction of the grid access fees, theregulator issued a new decision thatincreased the amount of the fees by morethan 200% compared with 2014. TheGovernment also imposed a limit on theannual amount of electricity permitted to

be purchased by the off-takers under thepreferential tariffs for renewableproducers

p Going forward, Bulgaria has not yetintroduced an auctioning system for newrenewables support with the 2030renewables share expected to be pursuedusing the European Commission's 2014State Aid Guidelines on RES-E support

Future market operation

p Full market liberalisation within theelectricity sector is a strategic objectivefor the government in order to achieve fullcompliance with the 3rd energy packageof EU Directives, and to contribute tofinancial health improvement of theenergy sector. It is therefore intendedthat the current single buyer model underregulated prices and generation quotaswill be replaced with a fully competitivewholesale market

p The World Bank presented its suggestedapproach with respect to the ElectricitySystem Security Fund in January 2017.The model proposed by the World Banklargely follows the actions taken in Spainwith a transfer of the system deficit to aspecial purpose Government-owned andguaranteed fund (in Spain this is calledFADE – Fondo de Amortizacion del DeficitElectrico)

The Bulgarian government is yet to announcetheir proposed course of action regarding theenduring financial stabilisation of theelectricity sector.73 The proposals will then beopen to public discussion and legislativechanges may also be required.

36


37

Appendix C: EC cases – Bulgaria, overviewRecently, Bulgaria has been part to severalEC cases for breach of competition onelectricity and gas markets. We describebriefly the cases below for backgroundusing press sources.

C.1. Case COMP/B1/AT 39849BEH gas74

In 2013, the EC opened formal proceedings toinvestigate whether Bulgarian Energy Holding(BEH), its gas supply subsidiary Bulgargaz andits gas infrastructure subsidiaryBulgartransgaz might be hinderingcompetitors from accessing key gasinfrastructures in Bulgaria, in breach of EUantitrust rules. EC and Bulgarian stakeholdersfailed so far to achieve understanding ondefinite commitments75 and November lastyear (2017) the Parliament mandatedBulgaria Government not to acceptcommitments and not to "state guilty" in thecase.

C.2. Case 39816 Upstream gassupplies in Central and EasternEurope76

Under this case, EC main concerns are thatGazprom isolated the Bulgarian gas marketand may have been charging excessively highprices in Bulgaria compared to WesternEuropean benchmarks, especially liquid gashubs. Certain commitments from Gazpromwere opened for public consultation [2017]and they provide for gas from other parts ofCentral and Eastern Europe to be brought toBulgaria under swap-like operations,commitment Gazprom not to seek damagesfrom its Bulgarian partners following thetermination of the South Stream project,option for price revision under Gazpromsupply contract benchmarked to WesternEuropean price, including prices atcompetitive gas hubs and free flow acrossBulgarian borders [that so far has beenhindered by certain provisions underGazprom supply contracts].

C.3. Case 39767 BEH Electricity77

The case has been closed [end 2015] with ECdecision that renders legally binding thecommitments offered by Bulgarian EnergyHolding (BEH) to end competition restrictionson Bulgaria's wholesale electricity market.BEH has committed to offer certain volumesof electricity on an independently-operatedday-ahead market on a newly-created powerexchange78 in Bulgaria for a period of fiveyears. These volumes will be put for sale inthe day-ahead market, with a maximumprice based on the marginal costs of BEH'sproduction subsidiaries. Further BEHcommitted to set up a power exchange withthe assistance of an independent third partywith expertise in the area, and transfercontrol of the ownership of the new powerexchange to the Bulgarian Ministry ofFinance.79 Monitoring Trustee has beenappointed to follow the implementation ofBEH Commitments.


38

Appendix D: What if gas did not play a roleIntroduction

There are different pathways for proceedingtowards the 2030 goals, given the currentBulgarian energy mix build up includingparticularly coal focus. In the report weextensively focused on the opportunity forgrowing role for gas in decarbonisation inBulgaria.

Arriving at a sustained 2030 mix, and full2050 decarbonisation will require a concertedpush across the Bulgaria’ energy mix,including a key role for gas to supportdecarbonisation. Renewables alone won’t beable to deliver the further decarbonisation.Gas, with its characteristics as a fuel, is a keyenabler to support further renewablesdeployment. Energy efficiency – thoughpotentially costly – will also contribute tomeeting the 2030 targets.

It is important to note that there are factors,which could make such key enabling role forgas less likely, these factors are:

Residential

In the Residential sector, continuation ofrelatively low power prices could makeswitching to gas in the domestic sectorrelatively rare – increased reliability of powersupply would support this.

Power generation

Part of growing energy demand, may be metby other sources:

p Gas’s opportunity to replace existingpower generation capacity may bereplaced by continued role for coal andlignite in particular. Both would be used askey fuel in Bulgaria energy mix throughwinning of continued derogation from theEuropean regulations, and/or e.g. if andwhen carbon capture storage (CCS) wouldbecome a commercially viabletechnology. This is not seen as likely bystakeholder sentiment. Though, lignite isthe only substantial local energy sourceso far, and thus viewed as key to securityof supply and socially (jobs).

p Requirement for new generation could bealternatively satisfied by growth of:

- Renewables (including PV, Wind, Hydro), through stabilisation of support schemes bringing back international investor confidence, and finding of scale through regional electricity market integration and/or rising power prices, which both may attract investors (again)

- Nuclear through finding financial and commercial support for continued build-out

- Technological solutions for large scale storage being available, removing the need for flexible power generation, and the need for expanding large scale hydro storage.

- Technological solutions for hydrogen.- Progress in other technologies (e.g.

improvements in affordability and efficiency of electric heat pumps)

Conclusion

All the above inhibitors to role for gas, werenot seen as likely by stakeholder sentiment,or at least not likely in the timeframe for the2020-2030 strategy. However, it does applyfor all (residential, power and Industry)market segments, that failure or delay offurther active policy support for role of gas inthe future energy mix, will deter role of gas.


39

Appendix E: An overview of BaringaBaringa Partners is an award-winningmanagement consultancy specialising inenergy, financial services, telecoms andtechnology sectors. It partners withorganisations when they are developingand delivering key elements of theirbusiness strategy, as well as workingextensively with government andregulators providing policy and advisoryservices.

Figure 22 – Overview Baringa

Our people join from industry,tier 1 consultancies and SIs.We engage with our clients ina range of models, fromtaking accountability fordeliverables and outcomes toclient side advisory andassurance.

We help clients using ourdeep industry insight to:

p Run more effectivebusinesses

p Launch new businesses andreach new markets

p Understand and navigateindustry change

We are international, workingjointly with US-based Energyand Environmental Economics

p Founded in 1989 and basedin San Francisco

p E3 has 45 professionalsfocusing on electricitysector economics,regulation, planning andanalysis

We bringValuable, deep

industryexperience

We have anaward-winning

culture thatattracts the

brightest people

Our independencemeans we give

you the bestadvice for your

business

Collaboration runs through

everything we do

We roll up our sleeves and

deliver value from Day 1

Our reputation is hard won and we’re determined to keep it growing.Ranked #1 Advisory firm in the UK&I for Energy, Utilities and Environment sector

592Employees

Baringa was founded in 2000 and now has:

62Partners 7 Offices worldwide

UK, Germany, Ireland, UAE, USA (New York, San Francisco) andAustralia


40

8 EC, November 2017, https://ec.europa.eu/commission/sites/beta-political/files/annex-3-progress-national-energy-climate-plans_en.pdf

9 Baringa notes that the still to be released strategyreport may consider the wider scale of energy sourcesand not focus on nuclear only.

10 ESO TYNDP 2017-2026, http://www.eso.bg/fileObj.php?oid=703

11 According to 2015 study, particularly the SME sectorcontributes significantly to the formation of the profileof the Bulgarian economy as the highest resource-and-energy-intensive economy per unit of GDP-outputamong the economies of the EU. The high energyintensity of the industry is quoted to be due tophysically outdated and obsolete technologies, limitedaccess to new best practices, systems and models forenergy and efficiency production. The need forreplacement of large production facilities and systemsis indispensable, but it lags behind because of theinsufficient financial resources, and the relatively slowreturn of investment in such, with the price ofelectricity in the country being relatively low. Seehttp://www.opcompetitiveness.bg/images/filerepository/3733_OPIC_2014_2020_adopted_by_EC_16.03.2015_EN.pdf

12 For further information, please consider Appendix A,and the WB summary report:https://www.me.government.bg/files/useruploads/files/wb_ras_i__summary_report_en.pdf

13 In 2014 a final agreement was reached to have asingle binding greenhouse gas (GHG) target of 40% by2030 compared to 1990.

14 http://www.eso.bg/fileObj.php?oid=703

15 Please see the draft TYNDP 2018-2027, as released inMarch 2018, for consultation, available at:http://www.eso.bg/fileObj.php?oid=1088. Thedocument assumes continued role for coal-firedgeneration, some (more versus previous plan) limitedRES-growth, and the use and build-out of hydrocapacities (see sections 3, 5.3 and conclusions of thedraft TYNDP).

16 The latest draft Ten Year Network Development Plan2018-2027 states in section 3 that “As regards the[LCP Bref] based on investment intentions expressedby generation companies using coal as a primaryenergy source, it was declared that they intend toremain online within the forecast period [to 2027]. Inthe event of a future change of investment intentions,it will be reflected in the next ten year plan”. Pleasesee the draft TYNDP 2018-2027, as released in March2018, for consultation, available at:http://www.eso.bg/fileObj.php?oid=1088.

17 IMF Country Report

18 Source: EU Reference Scenario 2016 based on PRIMES,GAINS

19 Expert estimation

20 EWRC Annual Report to EC, 2017,http://www.dker.bg/PDOCS/EWRC-Report-EC-ACER-2017-%D0%B5n.pdf

21 In stakeholder discussions, Baringa noted that thismay have been driven inter alia by householdscurrently relying on more carbon-polluting fuels, withair quality being a factor.

22 Some financially minor grants, co-funded by EU, havebeen provided for example to the gas TSO for “highpressure”-network to municipalities.

23 Source: https://www.euroheat.org/knowledge-centre/country-profiles/district-energy-bulgaria/

24 Source: http://atdb.bg/bg/pages/read/централизираното-топлоснабдяване/основни-ползи

25 In July 2015 the Bulgarian Parliament established anElectricity System Security Fund to increase NEK’srevenues from the regulated segment by increasingexisting and creating new revenue streams. The fundraises 5 per cent contributions on the monthlyrevenues of all (thermal and renewables) energyproducers, as well as revenues from the sale of CO2quotas. Source further information: the officialwebpage of the Fund, including the list of all obligedto Fund contributions parties: https://www.fses.bg/

Notes1 Please see the draft TYNDP 2018-2027, as released in

March 2018, for consultation, available at:http://www.eso.bg/fileObj.php?oid=1088. Thedocument assumes continued role for coal-firedgeneration, some limited RES-growth, and the use andbuild-out of hydro capacities (see sections 3, 5.3 andconclusions of the draft TYNDP). In section 3, a role ofgas-fired power plant TPP Varna is dismissed given‘uncertainty’. In section 5.3 the document suggeststhat gas-fired generation could be considered tosupport the growth of RES by 2027, subject toeconomic evaluation and affordability of natural gas.The document suggests two other alternatives as well:demand side response and investment in hydro,subject to cost benefits analysis of national andregional energy market situation. In current draftconclusions, the document does not mention role forgas.

2 The First Interim Report on the energy strategy withfocus on nuclear electricity, dated 31 October 2017,was published by the Bulgarian Academy of Science inJanuary 2018, following public pressure fortransparency. The focus of the report is according tostakeholders Baringa spoke to, primarily role ofnuclear. It is mostly silent on role of gas or other fuelsversus nuclear.

3 This qualitative case study is a Baringa contribution tothe debate across Europe, as initiated by ‘role of gas’-event co-organised in November 2017, with Eurogas,National Grid, and support of ENTSOG. This case study– made in part possible by commercial funding byShell – can be a helpful input to the preparation ofnational energy and climate plans in course of 2018.As a strong believer in the critical role that natural gaswill play in addressing the energy transition, Shell ishighly motivated to lead the dialogue and supportothers, such as Baringa, who contribute to it withanalyses and recommendations.

The study is targeted at EU-wide energy expertaudience, as well as offered to Bulgarian stakeholders.Key added value – in addition to other studies (e.g.Worldbank, Academy of Science report) – is theintegrated view of power and gas sectoral issues. Thisstudy assumes that integrated state-ownership by

BEH of mining, key power and gas participants willcontinue, and offers opportunity to address the role ofgas question, in synchronicity with the power sectorissues in Bulgaria.

We also note that the Gas hub feasibility study,discussed in section 5.4 of the report, launched inMarch 2018, will raise the role of gas going forward inBulgaria.

4 See http://futureofgas.uk/wp-content/uploads/2017/12/Baringa-Future-of-Gas-Postcard-A4-v3.pdf

5 See BEH 2016 detailed presentation on the ownershipof key market players in Bulgaria, their respectivemarket shares and BEH recognition of the advantageof working closely with the public sector in Bulgaria,available here: http://bgenh.com/OBIAVI/2017/BEH%202016%20Financial%20Results.pdf

6 In 2014 a final agreement was reached to have asingle binding greenhouse gas (GHG) target of 40% by2030 compared to 1990. The governance system forthe 2030 targets is seen by energy industry to focuson the single binding GHG target and a strong EU ETS(Emissions Trading System). This approach can enablea more cost effective approach to decarbonisationallowing technologies to compete on an equal footingon the basis of a robust carbon market.

7 Bulgaria’s coal-fired power supply is under somepressure via the recently adopted (17 August 2017)Best Available Techniques (BAT) Reference Documentfor Large Combustion Plants (LCP). The so-called LCPBREF sets, for the first time at the EU level, limitsemissions of mercury, hydrogen chloride andhydrogen fluoride from the combustion of solid fuelsin LCPs. In addition, the existing emission limits forpollutants including sulphur dioxide (SO2) andnitrogen oxides (NOx) have been tightened. ExistingLCPs have four years to become compliant with thenew requirements. Bulgaria has joined Poland in itsappeal against the rules, seehttps://uk.reuters.com/article/uk-bulgaria-coal/bulgaria-joins-poland-in-appeal-against-eu-pollution-crackdown-idUKKBN1EZ20T


41

40 A “hub” is a wholesale gas trading point at which gascan be delivered to and taken from, either virtual orphysical. See footnote 35 for further discussion onliquidity.

41 We note that the media reported in March 2018 thatstudy commenced, and will be concluded by summer2018. See https://uk.reuters.com/article/bulgaria-gas-hub/bulgaria-launches-gas-hub-feasibility-study-idUKL8N1QW5VE

42 See http://epicenter.bg/upfiles/docs/Presentation%20Borchardt.pdf

43 Source: Gazprom.

44 Source: Bulgarian stakeholder discussions. Seehttp://new.transgaz.ro/sites/default/files/tgn_release_on_the_statements_of_the_bulgarian_minister_of_energy-13.12.2016.eng_.pdf

In February 2018, EBRD announced to support furtherBRUA development. Seehttp://www.ebrd.com/news/2018/ebrd-finances-romanias-section-of-regional-gas-pipeline-.htmlHence we assume the resolution is being worked on.

45 See further the TOR document athttps://www.entsog.eu/publications/network-code-implementation-monitoring-group#REFERENCE-PAPER-FOR-THE-NC-IMG

46 The performance of wholesale markets is assessed byACER via the ACER Gas Target Model (AGTM1) metrics:(i) the market health metrics look at whether marketsare structurally competitive, resilient and exhibit ahigh degree of diversity of supply and (ii) the marketparticipants needs metrics measure to what extentthe state of gas hubs allow for effective marketfunctioning. For more details see ACER report 2017, athttps://acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%20Market%20Monitoring%20Report%202016%20-%20GAS.pdf

47 See https://ec.europa.eu/energy/en/topics/infrastructure/central-and-south-eastern-europe-energy-connectivity

48 Stakeholder sentiment showed that no demandmaterialised for current products offered at Chiren.

49 Whilst ACER notes this, Baringa notes that theindustry practice in liquid gas markets, is generally isto come to a transparent, market based, pricediscovery mechanism that enables buyers and sellersto supply/take gas at competitive conditions. The(partial) oil-linked price can be acceptable, ifnegotiated at competitive conditions.

50 The example to be investigated could concern mergerof the two balancing zones to increase relative size ofthe markets, and attractiveness for gas trading (seeAppendix A for detailed gas market description).Another example could concern more detailedimplementation of strict congestion managementprocedures on the main gas transit routes, to assuremarket access to any undertutilised capacities.

51 See http://www.icgb.eu/about/igb_project

52 See http://new.transgaz.ro/sites/default/files/tgn_release_on_the_statements_of_the_bulgarian_minister_of_energy-13.12.2016.eng_.pdf

53 2017 Energy and Water Regulatory CommissionReport to EC, http://www.dker.bg/PDOCS/EWRC-Report-EC-ACER-2017-%D0%B5n.pdf

54 2017 Energy and Water Regulatory CommissionReport to EC, http://www.dker.bg/PDOCS/EWRC-Report-EC-ACER-2017-%D0%B5n.pdf

55 https://www.bulgartransgaz.bg/en/pages/about-us-1.html

56 IBS has been developed so far by the Ministry ofEnergy with financial support under EU CohesionFunds. IGB is developed by special project companyestablished with 50/50 shareholding of BulgarianEnergy Holding and IGI Poseidon (in turn 50/50%shareholding of DEPA, Greece and EDISON, Italy).

57 2017 EWRC report to EC http://www.dker.bg/PDOCS/EWRC-Report-EC-ACER-2017-%D0%B5n.pdf

dependancies The annual reports on the Fundfunctioning can be found under:https://www.fses.bg/news

26 Another driver for gas demand growth in theresidential sector could be the modernisation andstabilisation of the district heating sector, leading toCHPs using gas for centralised heat production,according to stakeholders sentiment.

27 Source: https://www.investor.bg/energetika/472/a/britanskata-amec-foster-wheeler-konsultira-vyglishtnite-ni-centrali-za-derogaciiata-248789/

28 According to industry literature there may be a minorloss of efficiency. See https://www.power-eng.com/articles/print/volume-119/issue-11/features/de-bunking-the-myths-of-coal-to-gas-conversions.html

29 As discussed in section 3.2 SME-sector is seen tosuffer from highest energy-intensity in Europe.

30 http://www.ebrd.com/work-with-us/procurement/p-pn-20180205a.html. These are also for example grant

31 For conversion to other units, please usehttps://www.iea.org/statistics/resources/unitconverter/or please use https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review-2017/bp-statistical-review-of%20world%20energy-2017-approximate-conversion-factors.pdf.Illustrative conversion factors to convert toe to m3: 1toe = 11.63 MWh; 1 m3 = 10.64 kWh (Bulgarian NRAEWRC decision 2017; Decision NNG-1 of 01.08.2017 ofthe EWRC -http://www.dker.bg/uploads/documents/res-ngp1-2017.pdf; calorific value of 10.64 kWh per 1 m3,metered at 20C, pressure 0.101325 MPa and referenceburning temperature 25C). co-funded under KIDSF.

32 See Appendix A for more detailed overview of theBulgarian gas market, and its structure.

33 See slide 19 of BEH 2016 detailed presentation,available here: http://bgenh.com/OBIAVI/2017/BEH%202016%20Financial%20Results.pdf

34 Case 39816, Upstream Gas Supplies in Central andEastern Europe. See Appendix B.

35 Hubs can range from the simple to the complex;fundamentally, a “hub” is a wholesale gas tradingpoint at which gas can be delivered to and taken from,either virtual (EU) or physical. A well-functioning,liquid wholesale gas market trading point will enablecompetition. Liquidity is the functioning of a marketthat provides participants with the ability to contractwith confidence to buy or sell gas for a future deliveryperiod for the volume they require, at a fair marketprice, without causing undue change in the marketpricing level, and at a reasonable cost for transacting.Source: The benefits of TTF liquidity, Baringa report forACM, 2015.

36 Further we note, that with ongoing implementation ofthe newly introduced in 2017 Security of SupplyRegulation, there is an increasing EU-support todevelop gas deliveries from multiple sources. Thiscould be a forceful influence on the Bulgarian statusquo of strong reliance on a single source of supply.See https://ec.europa.eu/energy/en/topics/imports-and-secure-supplies/secure-gas-supplies

37 For the Security of Supply plans including import,supply and demand data, please consulthttps://www.me.government.bg/bg/themes/me-podgotvi-aktualizirani-proekti-na-prevantiven-plan-i-plan-za-deistvie-pri-izvanredni-situacii-1779-0.htm

38 See http://new.transgaz.ro/sites/default/files/tgn_release_on_the_statements_of_the_bulgarian_minister_of_energy-13.12.2016.eng_.pdf

In February 2018, EBRD announced to support furtherBRUA development. See http://www.ebrd.com/news/2018/ebrd-finances-romanias-section-of-regional-gas-pipeline-.html Hence we assume the resolution isbeing worked on.

39 See https://ec.europa.eu/energy/en/topics/infrastructure/central-and-south-eastern-europe-energy-connectivity


42

case_details.cfm?proc_code=1_39816, accessed 3 Feb2018

77 http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39767, accessed 3 Feb2018

78 Independent Bulgarian Energy Exchange wasestablished as BEH subsidiary in January 2014. IBEX isa full member of the MRC and an associated memberof the PCR. Since January 2016, IBEX EAD has been afull member of the association of EUROPEX. Currentlyare functional bilateral contracts and DAM modulesfor electricity. ID module is to be functional Feb 2018.Bulgaria is stream country in XBID project. IBEX plansto add natural gas trading to its portfolio.

79 On 1 Feb 2018 EC cleared a deal of transfer (purchase)of the Independent Bulgarian Energy Exchange byBulgarian Stock Exchange

58 BTG draft TYNDP 2017 -2016,https://www.bulgartransgaz.bg/en/news/publichna_konsultaciya_na_desetgodishen_plan_za_razvitie_na_mrejite_na_bulgartransgaz_ead_za_perioda_-284-c15.html

59 With large part of storage reserved for Security ofSupply, and access to parts of transmission systemcontracted long-term.

60 This includes implementation of an alternative to abalancing platform (to be applied up to Oct 2018)which comprises provision of balancing services by theTSO and a VTP. It has also implemented an interimimbalance charge (to be applied not later than 15April 2019) and a tolerance of +/- 5% from thereserved daily capacity at network user exit pointportfolios (to be reduced to 3% Oct 2018 and removedby April 2019)

BTG report on interim measures:https://www.bulgartransgaz.bg/en/news/publichna_konsultaciya_na_proekt_na_vtori_doklad_za_prilagane_na_vremenni_merki_po_reglament_na_es_za_-343-c15.html

61 From media publications seems the disagreement wason the views of ownership and sale of stakes in TSO.

62 See https://www.me.government.bg/bg/themes/me-podgotvi-aktualizirani-proekti-na-prevantiven-plan-i-plan-za-deistvie-pri-izvanredni-situacii-1779-0.html

63 Source: https://www.euroheat.org/knowledge-centre/country-profiles/district-energy-bulgaria/

64 Source: http://atdb.bg/bg/pages/read/централизираното-топлоснабдяване/основни-ползи

65 Quote NRA report rationale for not having liberalisedretail gas prices: “Household consumers connected tothe natural gas distribution network are few.Household consumption is very low - 2.28 % of thetotal consumption in the country. EWRC (NRA) appliesa regulatory mechanism, which ensures incentives forthe natural gas distribution enterprises to continuethe development of the networks and the connection

of new consumers aiming the increase ofconsumption. One of the incentives enhancing marketcompetition is that EWRC approves marginal prices forthe gas sale and the gas distribution companies havethe right to sell to consumers at prices lower than theapproved, which promotes market competition.”

66 http://europa.eu/rapid/press-release_MEMO-18-349_en.htm, accessed 3 Feb 2018

67 https://me.government.bg/bg/discussion-news/s-promeni-v-ze-se-transponirat-iziskvaniya-na-es-otnosno-obshtite-pravila-za-vatreshniya-pazar-na-energiya-2538-m0-a0-1.html, accessed 3 Feb 2018

68 Procedures 2013 and 2017 – cancelled due to lack ofinterest

69 Total, OMV, Repsol

70 Before Silistar; 2017 rights transferred to ShellInternational Exploration and Development Italy

71 TYNDP BTG 2017-2026 quote: “A number of naturalgas exploration licenses have also been issued in thecountry, whereas the best studied and with possibilityfor real production in the coming years is the gascondensate field Koynare of Direct Petroleum(acquired by the company Trans-Atlantic), block �-Lovech.”

72 Sources used: stakeholder discussions, World Bankand BEH reports and presentations.

73 Some new proposals are being discussed (statusMarch 2018). See http://www.wec-bulgaria.org/download_file/view/130/

74 http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39849, accessed 3 Feb2018

75 From media publications seems the disagreementwas on the views of ownership and sale of stakes inTSO.

76 http://ec.europa.eu/competition/elojade/isef/

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