Bulgaria's renewables market goes from boom to bust
The government's efforts to cool down the overheated photovoltaic (PV) market in Bulgaria are threatening to halt all investment in renewable energy production in the country, reports Mariyana Yaneva from SeeNews Renewables in Sofia. Yet some observers remain optimistic about the long-term opportunities of the Bulgarian renewable energy markets. "Even the most populist and reactionary government will eventually have to face realities."
|The 60.4-megawatt Karadzhalovo solar park in southern Bulgaria was put into operation in March 2009 (c) Bulgarian Photovoltaic Association|
Over the past year the Bulgarian government has made drastic changes in the regulatory framework for renewable energy production. The law was revised twice. In addition, feed-in tariffs (FiTs) were slashed by more than 50% for solar power and 20% for wind power at the start of July. These measures will no doubt discourage investors. To make matters worse, the Bulgarian energy regulator announced that there will be no capacity available on the grid for renewable energy projects until June 2013, ensuring that no new players will enter the market for at least one more year.
According to a statement from the regulator, Bulgaria's grid currently has the capacity to safely connect no more than 1,800 MW of wind and 600 MW of PV power plants, while there are some 4,000 MW of renewable energy projects with grid-connection contracts in the pipeline. Thus, only small-scale projects of up to 200 kW for wind and solar power and 1.5 MW for biomass will be allowed to request grid connection in the year to come and maybe even longer.
Meanwhile, Energy Minister Delian Dobrev has blamed the 13% increase in the retail power price that became effective on July 1 on the development of green energy. Dobrev even said that the government had avoided a larger increase by taking action to slow down renewable energy growth. He also said the government was considering cancelling FiTs for PV projects above 30 kW.
No wonder both the wind and PV industry associations have grim expectations for the short-term prospects of the renewable energy market in Bulgaria. "What is happening now is a political chaos which will have grave consequences for the sector," Nikola Gazdov, chairman of the Bulgarian Photovoltaic Association (BPVA) told a news conference recently.
"The 20% reduction in FiT for wind power in June 2012 was unexpected and baseless", Sebastian Noethlichs, executive director of the Bulgarian Wind Energy Association told SeeNews. "Bankability of
|The unreasonably low tariff just makes it self-evident that there is no political support for renewables at the government level|
In less than three years the renewable energy market in Bulgaria went from boom to bust. How did that happen? The market took off in 2007 with the adoption of a law on renewable energy sources. The establishment of a FiT support mechanism quickly attracted investor interest and the number of projects grew fast. At some point in 2010, government officials were talking about 12,000 MW-14,000 MW of prospective green capacity, mostly wind and solar.
This figure, even though it was not based on realistic technological and financial data, was pretty scary for a country with a total installed power producing capacity of 12,000 MW, a maximum load of 7,000 MW and the lowest power purchasing parity index and lowest electricity prices in the EU. That's when the political backlash on renewable energy started.
In May 2011 the Renewable Energy Sources law was changed, reducing the term of the power purchasing agreements (PPA) for wind power plants from 15 to 12 years and determining completion of construction works for the point in time when the FiT gets fixed. FiT levels are determined by the energy regulator - the State Energy and Water Regulatory Commission (SEWRC) - in June for a 12-month period and there is no predetermined annual degression rate for the tariffs. Since it is impossible for a wind project development to fit into one tariff window, there can be no certainty over the tariff level at which it will obtain its PPA. The result was that wind projects were no longer bankable, at least not on a non-recourse project financing basis.
As a result of these restrictive regulatory measures, PV remained the only attractive investment option for renewable energy investors in Bulgaria. Conveniently, this coincided with a plunge in PV module prices. Hence the market exploded. Investors rushed to take advantage of the lucrative tariff level for solar power before the annual revision of tariffs in June. Installed PV power capacity skyrocketed from 25 MW at the end of 2010 to 125 MW at end 2011 and 265 MW at the end of May 2012, according to official figures. In June it is estimated that yet another 200 MW was installed, although this figure still has to be confirmed.
Driven by fears of grid safety and electricity price spikes, the controversial restrictive measures of the government actually managed to achieve just the opposite of what was desired: the most expensive mix of renewable energy sources and an inevitable increase in power prices. That in turn provoked new restrictive measures this year - a severe slashing of FiTs and even talks about altogether scrapping renewables subsidies.
So what can be expected to happen now? Industry associations say the current regulatory framework is
|Even in Bulgaria, the EU's country with the lowest electricity prices, wind energy now produces below retail costs|
Which is closer to the truth, we'll know better at the end of the summer. The grid connection schedules introduced with the latest changes in the law on renewable energy should be publicly announced sometime in August and it will become clearer how many of these 4,000 MW of projects will continue development. In general, those schedules, prepared in accordance with the plans for development of the grid, are supposed to allow for a more gradual and sustainable development of the renewable energy sector in Bulgaria.
"Long term, I remain fundamentally optimistic for the future", says Noethlichs. "Even in Bulgaria, the EU's country with the lowest electricity prices, wind energy now produces below retail costs. Renewables are and will remain the one and only source of energy that keeps on getting cheaper from year to year. Combine this fundamental advantage with the desire for energy independence, decentralization of the grid and the environmental benefits and you will see that even the most populist and reactionary government will eventually have to admit to simple realities and get on board with renewables."
About the author
Mariyana Yaneva has been keeping track of the renewable energy market development in Bulgaria and worldwide for over six years now. She is currently serving as deputy executive director at a Bulgaria-based NGO, and is actively involved in analysing trends and preparing market reviews and development forecasts for the Bulgarian renewable energy market. She is part of a dedicated team of specialists at SeeNews Renewables, a provider of business news and intelligence for the renewable energy industry worldwide. She can be reached at firstname.lastname@example.org.
This article was reprinted from SeeNews Renewables with permission from the author and the company. All rights reserved.