European Commission presented a Communication called “Making the internal energy market work” assessing the state of play of the internal energy market, to be completed by 2014. The EC encourages Member States to step up efforts, highlighting the benefits of a truly integrated European market for citizens and business. The document also identifies the need for further action in a number of areas including consumer protection, enforcing the existing rules and investing in the modernisation of energy infrastructure. As part of the communication, the EC published as well the staff working document “Energy Markets in the European Union in 2011” which evaluates the performance of all member-states, including Bulgaria.
The communication stresses that despite major advances in recent years in the way the energy market works, more must be done to integrate markets, improve competition and respond to new challenges. It reminds that European Heads of State or Government set a clear deadline of 2014 for completion of the internal energy market. By 2014 the existing legislation needs to be implemented fully, including putting in place the essential technical rules at EU level, and providing regulators with necessary tools and resources to enforce legislation effectively. Cross-border markets for gas and electricity must be up and running in all parts of the EU and the implementation of plans to complete, modernise and smarten EU grids must be well under way. The communication notes that only when this is achieved can consumers start reaping the full benefits of the internal energy market.
Liberalization before 2014 – unlikely
The overall evaluation is that today the EU is not on track to meet this deadline. The Member States are slow in adjusting their national legislation and creating fully competitive markets with consumers’ involvement. Moreover, they also need to move away from, and resist the calls for, inward-looking or nationally inspired policies. These tendencies are preventing the internal market from working effectively. The Commission is pursuing, as a matter of priority, infringement procedures against those Member States that have not yet fully transposed the Third energy package Directives or have failed to do so correctly, including Bulgaria.
One of the important positions in the communication is that Member States should seek to cease regulating electricity and gas prices for all consumers, including households and SMEs, taking into account universal service obligation and effective protection of vulnerable customers. Suppliers should clearly spell out the different cost elements in the final cost for their customers, to encourage well-informed decision-making. The Commission will continue to insist on phase-out timetables for regulated prices being part of Member States’ structural reforms. The Commission will continue to promote market-based price formation in retail markets, including through infringement cases against those Member States maintaining price regulation that is not meeting the conditions laid down by EU law. Currently, SMEs and households are more passive than large industrial customers and are therefore losing out as available price differentials remain unexploited. This may be due in part to inefficient consumer protection or lack of transparency or consumer-friendly information, which all engender low consumer satisfaction and trust.
According to the information published by the EC, consumers rank the electricity and gas markets poorly. In 2012, the electricity market ranks 26th out of 30 services markets, with particularly low scores in Southern European countries (the highest for Luxembourg and the lowest for Bulgaria). The gas market ranks 21st out of 30 services markets (the top ranked country is Slovenia and the bottom ranked country – Belgium, right after Bulgaria). Both electricity and gas markets have poor scores on choice, comparability and switching suppliers and tariffs, suggesting that consumers are not making full use of the saving opportunities created by market liberalisation.
With regard to prices, in absolute terms, households and industries in Bulgaria and Estonia paid the lowest gas prices in 2011, while households and industries in Denmark paid the highest prices. For the same period, Bulgarian households paid the lowest prices for electricity, while households in Denmark paid the highest prices. According to the report, industry in Estonia (2008 and 2009) and Bulgaria (2010 and 2011) paid the lowest industrial prices for energy consumption.
The case of Bulgaria
According to the country report, following the opening of infringement proceedings in September 2011 for non- transposition, Bulgaria has notified only partial transposition of the Third Energy Package Directives. Moreover, one other infringement procedure is still open on the Second Energy Package concerning the lack of transparency in conditions for third-party access to natural gas transmission networks and the lack of an adequate system of penalties in the event of breaches of the Gas Regulation.
The report states, that the State Energy and Water Regulatory Commission (SEWRC), which employed 128 staff in 2011, has an annual budget of BGN 3.6 million which is insufficient to cover oversight of all the sectors it is responsible for (electricity, gas, heating, and water) and there are concerns about the stability of its management. The report reminds, that the government has intervened in regulatory and management matters. As part of the transposition of EU directives, Bulgaria plans to implement the Independent Transmission System Operator (ITO) model for both TSOs, but they have not yet been certified. Regarding distribution and supply businesses, in the electricity sector they are legally unbundled and the 29 gas distribution companies are not legally unbundled because they each have fewer than 100000 customers.
According to the country report, the retail electricity and gas markets are assessed the lowest and second lowest in the EU, respectively. In both markets, the scores for trust and overall satisfaction are within the two lowest ratings in the EU. Bulgaria has the highest number of problems with both gas and electricity — in the latter market, more than twice above the EU average.
The report states, that the most important market player on the Bulgarian electricity market is the state-owned, vertically integrated group, Bulgarian Energy Holding (BEH) which owns the Kozloduy NPP and a the largest lignite-fired power plant, Maritza East II, along with the main hydro producer and wholesaler NEK. Altogether, the BEH group produces around 60 % of total electricity output in Bulgaria. Regulated and free markets coexist at wholesale level, where NEK plays a central role on both. NEK owns the transmission network (high- and medium-level voltage network) and supplies large industrial customers as a supplier of last resort. NEK’s subsidiary ESO operates the network and organises the balancing market, where NEK also plays a key role.
The report reminds that there is no power exchange and no organised day-ahead market in electricity in Bulgaria, even though since 2010 rules for trading in electricity (including day-ahead trading) have been tested. Testing was also started in 2012 for launching a power exchange. According to the report, the level of market integration is low: coordinated bilateral capacity allocations at borders are not offered for all timeframes from Bulgaria to Romania and Greece.
Natural gas market
The country report of the EC states that there is no functioning wholesale market for natural gas in Bulgaria. Bulgargaz EAD is the only importer, conducting wholesale trade at regulated prices. It had a market share of 84.16 % in 2011; the remaining 15.84 % being from domestic extraction (Melrose Resources Sarl and OGEP AD). Bulgargaz is the main retail gas supplier on the market for large industrial customers.
The three largest suppliers control about 72 % of the country’s retail gas market, resulting in a high concentration. Retail prices (both household and industrial) are still regulated. There is no switching.