Bulgarian Electricity Market Restructuring

The electric power system of the Republic of Bulgaria is part of the united system of mainland Europe (UCTE) composed of the electric power systems of 23 countries as well as parts of Denmark and Ukraine. Their annual electricity consumption reached 2,530 TWh at 2.5% average annual demand growth in the period 2003–2006 (following the accession of Bulgaria and Romania to UCTE). Bulgaria and Romania are the largest electricity producers among the South East European countries. Bulgaria produced 45 billion kilowatt hours (Bkwh) of electricity in 2005. Bulgaria's nuclear facility, Kozloduy NPP, has allowed the country to become one of the major energy exporters in Europe, with the Bulgarian national electric company, Natsionalna Elektricheska Kompania EAD (NEK), exporting 7.5 billion kilowatts (Bkw) of electricity in 2005. Kozlodoy produced more than 40% of Bulgaria's electricity in 2005. Reactors No. 1 and No. 2 were decommissioned in December 2002, and Bulgaria's melectricity export potential shrank after it shut down reactors No.3 and No.4 in the beginning of 2007 due to EU safety concerns. After the closure of those units, only reactors No.5 and No.6 remained operational, generating an electricity shortage for the country and forcing it to significantly reduce electricity exports. In April 2006, the Bulgarian economy and energy minister announced that the cost of direct losses to Bulgaria is estimated to reach over $2 billion with the closure of the two units (No. 3 and No. 4). Bulgaria received $688 million from the EU as compensation for the closures. In January 2005, Bulgaria officially announced plans to have its second nuclear plant, Belene, operational by 2011 to offset the loss of the two reactors at the Kozloduy facility. In November 2006 the preliminary agreement was signed with the Russian company Atomstroyexport for engineering, procurement, and commissioning of Belene Nuclear Power Plants, Units 1 and 2 – two 1,000MW light water reactors. Design and construction will be supervised by Parsons Europe Ltd, while Italian energy utility Enel plans to hold a majority stake in the 2,000MW nuclear power station. It is estimated to cost between $3-5 billion and will be built along the Danube. Bulgaria fully liberalised its electricity market in July 2007, adhering to EU standards. The Government had already privatised seven power distribution companies, selling them to the Czech Republic's CEZ, Germany's E.ON, and Austria' s EVN in 2005 for a total of $827 million. In 2006, Bulgaria's Privatisation Agency (PA) signed a draft contract to sell the 1,260MW Varna power plant to Czech utility CEZ for $250 million, after Russian utility company UES withdrew its $689 million offer earlier in the year over regulatory and environmental issues. CEZ has also pledged to invest another $140 million in the power plant. Bulgaria has the lowest electricity prices (in absolute terms) in EU-27. Household electricity prices have risen 13.6% over the last three years and are about 49% below the European averages. Similarly, industrial user prices have risen by 12.5% over the last three years and remain about 39% lower than the European averages. Prices for industrial users are lower in absolute terms than for households.