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Bulgaria (Energy): Record High Electricity Prices Lead to Zero Premium for RES Producers and Moratorium on the Regulated Market

Zero Premium for RES Producers and Moratorium on the Regulated Market

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In December 2021 the Bulgarian Parliament adopted a moratorium on electricity, water supply and heating prices on the regulated market. The moratorium was imposed due to the record high electricity prices on the Independent Bulgarian Electricity Exchange ("IBEX") and the expected adjustments in the prices on the regulated market applicable to household customers. The Bulgarian Energy and Water Regulatory Commission ("Regulator") has been prevented from taking any action regarding these price increases until 31 March 2022 by virtue of the moratorium.

Support for renewables suspended

The Regulator addressed the electricity price issue by adopting a decision on the premium payments received by renewable energy producers with an installed capacity of 500kW and above. The premiums serve as compensation to the producers for the difference between the repealed preferential feed-in tariffs and the price at which the electricity is sold on the free market. Considering that the electricity prices at IBEX reached record levels and exceeded the preferential feed-in tariffs, the Regulator decided to update the forecast market prices which determine the premium payments before the expiry of the current regulatory period (1 July 2021 – 30 June 2022). As per the new decision, most of the premiums have negative values and therefore the renewable energy producers will not get any premiums from 1 January 2022 until the end of the current regulatory period – 30 June 2022.

Legal implications

Good intentions aside, the renewable energy sector is facing a challenge because most of the contracts for sale on the free market are concluded for the same one-year period as the regulatory period. The contracts are generally concluded at fixed prices for the entire one-year regulatory period, guaranteeing that they will get the forecast market prices, which together with the premium will secure the receipt of the initial feed-in tariff. Further, a lot of RES producers have hedged their risk, which is also linked to the forecast market price, the premium and the one-year regulatory period. To benefit from the current higher market prices, many producers will have to renegotiate price adjustments with their buyers. However, if the respective contracts are not flexible, the producers may suffer from a significant drop in revenue. The market participants expected that the moratorium from December 2021 would also cover the forecast market prices and the premiums set by the Regulator, but the latter has a different view. The Regulator's decision is expected to be appealed given the potential impact on the economic interests of investors.

By Stefana Tsekova, Local Partner, and Dimitar Kairakov, Associate, Schoenherr

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.

Firm's website: www.schoenherr.eu

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