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Achieving Sustainability and Security of Power Supply Through ESCO Mechanism in Bulgaria

Achieving Sustainability and Security of Power Supply Through ESCO Mechanism in Bulgaria

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Energy consumers in Bulgaria have been facing two major challenges lately. Within the last several years power prices on the Independent Bulgarian Energy Exchange (IBEX) are showing uncanny volatility. At times they reached remarkable peaks, not only for the Balkans, but for the EU as well. Then, the security of supply has been in doubt, due to sometimes poor power connection.

Consumers are in search of solutions to both challenges.

There are already consumers in Bulgaria who have started to operate their own power generation installations, predominantly using the photovoltaic technology for building small to mid-scale solar power plants. While up to now the total power generation of these installations is not so significant compared with the overall generation on the electricity market, it shows a strong and increasing tendence of new capacities being put in operation; the electricity distribution system operators in Bulgaria report over 120 new applications for connection of such solar power plants in 2019 and 2020.

A key additional incentive for the development of own power generation installations is a recent legislative amendment exempting power consumers connected through a direct line to the power generation installation from the so called “obligations to society” fee and from the network connections fees.

This increasing demand for power generation performance calls for a suitable implementation mechanism. Undoubtedly, many options are available, but one, the “ESCO mechanism”, surely must be considered.

This mechanism involves an energy performance contract (EPC). The scope of an EPC is generally the implementation of energy efficiency improvement measures in factories, buildings, etc. Parties to the EPC are energy service company /ESCO/ (as a contractor) and energy consumers as final customers. The performance of an energy efficiency audit prior entering into an EPC is mandatory.

There are basically two types of EPCs, (i) shared savings model and (ii) guaranteed savings model. Both are possible to implement in Bulgaria.

The shared savings model EPC provides that the financing, the project development and the implementation costs are borne by the ESCO. The energy savings accumulated as a result are shared between the ESCO and the client during a certain period. This model requires that the ESCO should have the capacity to borrow funds, i.e. acquire financing from a third-party lender. Thus, the ESCO assumes both the technical and the credit risk.

The guaranteed savings model EPC provides that the ESCO guarantees certain energy savings accrued by the client. The client itself finances the necessary amount through a loan, its own funds, or a combination. Once the client pays the fees to the ESCO it keeps the difference between the fee and the energy savings. The ESCO bears only the technical risk in this model.

Regardless of which model is the most suitable for a certain client, both models promise to increase the demand for financing and the provision of technical services and goods. It is hoped that the end result will be achieving sustainability and security of power supply in the recent future, contributing also to achieving the national targets, set by the “Green Deal”.

By Aleksandar Aleksandrov, Senior Associate, Tsvetkova Bebov Komarevski

Bulgaria Knowledge Partner

Schoenherr is a leading full-service law firm providing local and international companies stellar advice that is straight to the point. With 15 offices and 4 country desks Schoenherr has a firm footprint in Central and Eastern Europe. Our lawyers are recognised leaders in their specialised areas and have a track record of getting deals done with a can-do, solution-oriented approach. Quality, flexibility, innovation and practical problem-solving in complex commercial mandates are at the core of our philosophy.

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