General information and legal
framework
(in view of final draft of the new
renewable energy act).
Bulgaria (BG) is one of the European countries that have
attractive incentives in place, in order to support the development of renewable
energy sources (RES) investment projects.
A)
EU policy and
targets
The development of the RES sector is to be seen in the
broader context of the European Union (EU) membership of Bulgaria. With the plan
20/20/20 the EU wants to reduce its CO2 emissions and to increase the share of
RES in the energy mix by 20% until 2020. In order to do so, several Directives
have been drafted that have to be transposed into the national legislation by
EU-Member states.
B)
RES in BG
Different member states have to achieve different goals. In
the case of Bulgaria the RES share to be achieved is 16% of the final energy
consumption by 2020. There are also certain benchmarks (11% RES share in 2011
for BG) to be achieved and the European Commission (EC) is the watchdog for
this. Currently this share is around 10% for BG. Most of it is related to big
hydro energy power stations. Since 2006 wind energy generators and photovoltaic
(PV) systems started to be introduced. Currently in BG the total installed
capacity from wind energy generators amounts to apprx. 350 MW. The total
installed capacity for PV is apprx. 20 MWp.
In order to achieve its target of 16% RES share Bulgaria has
to put much more effort in developing the RES sector, e.g. in giving the right
incentives to investors in RES systems. Wind and especially PV are the most
promising technologies due to certain natural, technical or environmental
restrictions related to other RES sources.
C)
Development of RES market in
BG
Together with Greece, Bulgaria has one of the best track
records for a sustainable development of RES investment projects in the
Southeast European region. Currently it is the PV sector that is highly
attractive to foreign and local investors. Bulgaria has a good solar irradiation
and according to the legal framework there is a very promising normative basis
for investments: a feed-in tariff (FIT) for a period of 25 years, grid operators
are obliged to interconnect PV/RES power stations to the grid and buy the whole
amount of electricity produced, legal-administrative procedures are neither too
short nor too long.
After the first Renewable energy act (REA) was adopted in
2006 investors started developing RES projects. Wind energy projects were the
first to be developed as they were favored in terms of early development by
local developers, as well as by a favorable FIT conditions and price of
technology. PV followed in 2007 but with a slower pace, due primarily to the
higher price levels of the technology as well as the short duration of the FIT
at that time (12 years). Still, some small projects (under 1 MWp) were
implemented until 2008.
D)
Legal framework
With the introduction of some amendments in the REA in late
2008 the FIT for PV was increased to 25 years. This led to enthusiasm and
hundreds of local and international companies started to develop PV projects.
This led to the staggering 4000 MWp of applications for grid access (not to be
confused with
a contract for grid access) and grid operators declared
there is a (virtual) grid overload. Many of the developers that had received a
preliminary contract for grid interconnection failed to develop their project
further and tried to sell them at a secondary market for ‘project wrights’. On
the other hand, developers and investors with serious intentions had to fight
with another problem that seemed to be much more serious. Due to the structure
of the FIT PV projects turned out to be hardly bankable. The FIT might be
adapted on a yearly basis by the State commission for energy and water
regulation (SCEWR). The Commission is capable of reducing the FIT with up to 5%
and this would also influence operating PV power plants. Investors and banks
alaike do not feel comfortable with this possibility because it makes the
prediction of project related cash flows hardly projectable and thus brings an
inherent financial risk for PV projects. Combined with the world financial
crisis of 2009 this led to a slow-down of investment projects in the PV
sector.
E)
Perspectives for 2011 and
beyond
The problems related to the floating FIT, the uncertain grid
interconnection and the problems of acquiring a project financing for PV
projects didn’t stop investments. Quite the opposite thing happened – the first
power plant over 1 MWp was installed in early 2009. It was followed by several
other PV plants in the range of 2 to 3,5 MWp in 2009 and 2010. The total
installed capacity at the end of 2010 is apprx. 20 MWp, while several PV systems
between 2 and 5 MWp are currently over construction so the total installed
capacity is expected to increase.
By the end of 2010 the Bulgarian government has to introduce
some amandments to the REA in order to transpose the stipulations of Directive
2009/28/EC. In the course of this process several changes are expected that are
written down in the final draft of the new REA.
1. FIT is most probably going to be fixed for 25
years
2. Most of the speculative projects are expected to
expire. In addition to that an interconnection tax of 25.000 Euro/MWp is going
to be introduced which will disqualify developers that do not have access to
investors/banks due to lack of experience/technical knowledge/proper
documentation etc.
3. Grid interconnection is expected to become more
transparent and manageable for investors.
4. Small scale PV systems, especially rooftop PV
systems, are going to benefit from preferential legal administrative conditions.
They will have fast-track grid in terms of grid interconnection and
administrative procedures (construction permits etc.)
F)
Possible
Problems:
1. The role of SCEWR
According to the draft of the new
REA, SCEWR is going to be screening all PV projects. In case there are more
projects than the grid operators have foreseen for a certain area, SCEWR is
going to select the ones that qualify for grid access in the particular time
period (year). Thus SCEWR’s role will be decisive in terms of time of
interconnection and FIT received for projects that are situated in the most
attractive areas. The risk inherent to this approach is that it will be hard to
put in place truly objective criteria for selection of PV projects to qualify
for grid access. The possibility exists that this approach might lead to
subjective screening and possibly even corrupt practices.
2. FIT development over time
The good news about the draft of
the new REA is that the FIT is going to be fixed for 25 years. Still, it is
rather disappointing there is no scheme for the development of the FIT over time
in the text body of the REA. This topic is left to an ordinance, regulated by
SCEWR. An ordinance might be easily changed than a law can. That might happen
without the involvement of all interested parties, which is not the case of REA
had to be changed. SCEWR’s role gets even more central than it already is.
Investors do not have a clear idea of how the dynamics of FIT change is going to
be over time. This is a crucial issue, if there is to be a transparent
investment framework in the PV sector in Bulgaria
3. Overheating
The draft of REA is very positive
to the current state (projects already developed to a certain extent) but
doesn’t give a clear idea of the development of FIT over time. This might lead
to an investor rush for acquiring existing projects in order to benefit from the
current attractive financial conditions. Theoretically, that might lead to a
situation where a lot of investors have managed to secure a high FIT for their
projects, which - in turn – might be interpreted by policymakers as
‘overheating’ of the market and might eventually lead to a change of the
incentive’s scheme.
Overall the perspectives for 2011 and beyond look rather
positive for investments in PV in Bulgaria. Total installed capacity is expected
to exceed 100 MWp in 2011 and to continue to grow in a sustainable way over
time.