Contributed by Gugushev & Partners Law Office
The 2020s kicked off with a rather unique all-around interest in Bulgaria’s market for projects in the Renewable Energy Sector. Some saw the opportunity to pull foreign investments, oth-ers – ways to incorporate better use for a property, but all agreed that this sector would be prominent in our future. Soon after, the Ukraine invasion brought perhaps the biggest shock in decades to Europe’s energy security – on the one hand, a gas crisis, on the other, galloping electricity prices in its wake. The crisis, together with the ever-lower installation costs and the need to reduce its carbon footprint, created an opportunity for Bulgaria to expand renewable energies and invest in energy efficiency solutions.
At the start of 2023, Bulgaria is establishing itself as the Balkan country with the largest pho-tovoltaic (PV) capacity (1,186 megawatts for 2021). According to a report by Solar Plaza, over the next three years, 61% of the total growth for the Balkans is expected in Bulgaria, with capacity in the country projected to reach 2784 megawatts in 2024.
Bulgaria is a regional net exporter of electricity. The main power plant (the nuclear plant in Kozloduy) is state-owned, and the profits from electricity exports are used to mitigate higher energy prices. The government is gradually decreasing its coal power capacity to replace it with renewable power capacity.
Furthermore, the legislator continues to create an increasingly favorable regime for develop-ing Renewable Energy projects, especially for self-consumption. This tendency is also influ-enced by the main objective of the Low Carbon Economy component of the Bulgarian National Recovery and Resilience Plan (NRRP), namely reducing the carbon footprint and energy in-tensity of the economy and supporting the green transition. The exploration and construction of geothermal energy sources and storage facilities are also foreseen as a possible way to smooth the decarbonization of the Bulgarian energy sector by reducing emissions. At the same time, for smoother handling with the inconsistency in energy production by RES, flexible and secure operational management of the electric power system shall be ensured. The NRRP foresees several reforms and projects in this respect which are expected to be fulfilled in the coming years. The integration of the Bulgarian electricity market is also among the in-tended goals.
2. OVERVIEW OF THE COUNTRY’S RENEWABLE ENERGY SECTOR
2.1. Legal Framework
The Bulgarian Energy Act (EA) and the Energy from Renewable Sources Act (ERSA) are the primary legal acts that regulate the development, operation, and financing of renewable ener-gy sources (RES) and the sale of electricity as well as the issue of guarantees of origin (GOs). The construction and development of power plants are further regulated by the Ownership Act, the Spatial Development Act, and the Environmental Protection Act, among others. The operation, licensing, and commissioning or sale of electricity is further regulated by vari-ous ordinances and rules that cover the licensing of activities, access and connection to the grid, trading, participation in the Independent Bulgarian Energy Exchange (IBEX), etc.
Over the years, various legislative amendments have been introduced, as well as support schemes and facilitated mechanisms for RES projects. RES policies and incentives in Bulgar-ia are generally established at the national level under the ERSA and the Integrated energy and climate plan of the Republic of Bulgaria 2021-2030, drafted following the main strategic documents at the European and national levels. Further, the NRRP provides for the adoption of numerous amendments and supplements to the existing legislation to boost the share of RES. Those aim is to simplify the RES installation procedure for own consumption and the licensing and permitting procedures; avoiding unnecessary delays; reducing grid connection times, etc.
According to the applicable laws, the respective operator of the grid is obliged to connect each producer of electricity that has fulfilled the relevant requirements. The most common approach in securing the land for the project is either to acquire it or the right of construction (in rem rights) to be established in favor of the investor. Bulgarian regulations do not restrict foreign investors from investing in RES projects. On the contrary, foreign investments are strongly supported by the state. They will play a crucial role then fulfilling the target set in the NRRP to commission 3,500 megawatts of new renewable capacities.
In view of the energy crisis, the significant importance of having an accessible, reliable, and sustainable form of energy come out on top. The interest of the business in investments in the RES sector (mostly PV) for their own consumption is rising, especially for facilities with a total installed capacity of up to 30 kilowats hour. This is related to the desire of the owners of the energy facilities to satisfy their own energy needs close to the place of production, which is inevitably related to the reduction of losses from the transformation and transmission of ener-gy. It is expected that in the coming years, the interest in the construction of similar energy facilities will remain, with a tendency for their multiple to increase. A great amount of the fi-nancing under the NRRP is designated for RES projects. In this respect, there are proce-dures taking place encouraging the transition of the private sector to eco-friendly activities, such as a scheme to support the construction of a minimum of 1.4 gigawatts of RES and bat-teries and providing grants to households for the construction of new PV systems up to 10 kilowatts hour for own consumption, as well as for solar water heaters.
In line with the above, a bill for amendment of ERSA is recently submitted to the National As-semblyfor the purposes of fulfilling the objectives related to the transposition of the harmoniza-tion of Directive 2018/2001, the term for which expired in 2021. The draft proposals aim at regulating the energy communities, defining “producing end-consumer,” and providing incen-tives applicable to them. On a separate note, the amendments aim to create the conditions for implementing the reforms provided in the NRRP. A subsequent easing of the connection pro-cedures for RES projects is also planned. The draft proposals shall be firstly discussed, as a result of which they may be amended. They can enter into force only after adoption by an active National Assembly.
2.2. Domestic Sales and Imports/Exports
In compliance with the goals of the European Union (EU), Bulgaria will strive to achieve at least a 27.09% share of energy from RES in gross final energy consumption by 2030. This national target should be achieved by increasing the consumption of RES in all three sectors: electricity, heat, and energy for refrigeration and transportation. Bulgaria is a major producer and exporter of electricity in the region, which is expected to continue in the following years. A crucial role will play in the planned investments in the electricity transmission grid, which will increase energy efficiency, reduce technological costs and improve trading conditions. The increased grid transmission capacity will enable the connection of generating modules of sys-temic importance and installations for decentralized electricity generation. The NRRP also invests in the digital transformation and development of information systems and real-time systems of the Bulgarian Electricity System Operator EAD (ESO) in the conditions of the low-carbon energy sector.
Suppose the set goals need to be achieved after 2025. In that case, the Ministry of Energy (ME) plans the possibility of conducting auctions for additional capacity for energy from RES, taking into account market conditions. Conducting auctions for the provision of capacity for the production of electricity from RES and the provision of a premium to the market price for the electricity sold on the electricity market is regarded as an appropriate form of support to reach the binding target for 2030.
2.3. Foreign Investment and Participation
Bulgarian regulations do not prohibit or restrict foreign investors or companies with foreign ownership from investing in RES projects. Many investors still see Bulgaria as an attractive destination that provides government incentives for new investments. Due to its strategic lo-cation and low tax rates, Bulgaria is highly suitable for foreign investments in RES. In addition, Bulgaria offers some of the least expensive labor in the EU and low, flat corporate and income tax rates. There are no legal limits on foreign ownership or control of firms. Foreign entities are given the same treatment as national firms and their investments are not screened or restricted. As a practice, foreign investors incorporate a local entity to run the project.
2.4. Protection of Investment
The Energy Charter Treaty is the main international treaty in the energy sector that Bulgaria is a party to. It provides a multilateral framework for energy cooperation. In due course, Bulgaria also implements the relevant to the energy sector EU Directives.
3. DEVELOPMENT OF RENEWABLE ENERGY PROJECTS
3.1. Granting of Grid Connection Rights
Grid connection is regulated by the EA, ERSA, and Ordinance 6 on the connection of produc-ers and customers of electricity to the transmission or distribution networks. The operator of the transmission grid (when the total installed generator capacity exceeds 5 megawatts), re-spectively the operator of the distribution grid (when the total installed generation capacity is less or equal to 5 megawatts) are obliged to connect each producer of electricity that:
- has signed a written agreement for a grid connection.
- has performed the obligations under the grid connection agreement and the legal re-quirements for connection to the grid.
- has constructed electricity installations that comply with the technical specifications and safety operation provisions and
- has signed a contract for access to the grid.
The operator of the respective grid determines the technically possible connection point upon observation of the safe electricity grid operation and the approved plans for developing the electricity grid. The legislation provides general and simplified grid connection procedures. The general grid connection procedure includes:
- written statement of the terms and conditions for grid connection performed by the transmission grid operator, i.e., ESO for power generators with a capacity exceeding 5 megawatts or by the respective regional grid distribution operator as per the location of the power generator when its capacity is less or equal or 5 megawatts.
- preliminary contract for grid connection concluded between the transmission operator, or the respective distribution operator and the company-owner of the power genera-tor, and
- contract (final) for grid connection concluded between the transmission operator, or the respective distribution operator and the company-owner of the power plant.
Facilitated procedures shall apply to small power generators as defined in art. 24 ERSA, pow-er generators for which, when applying for grid connection, it is declared that the produced electricity shall not be purchased at a preferential price (art. 25 ERSA), and installation of PV panels with a capacity of up to 5 megawatts for own consumption (art. 25a ERSA).
Ownership by Foreign Companies
No specific regulation concerning the development rights granted/transferred to foreign inves-tors exists. Bulgarian law does not prohibit or restrict foreign investors or companies with for-eign ownership from investing in RES projects, including any development rights.
3.2. Stages of the Development Process
A RES project goes through various development stages and phases till starting real opera-tion, mainly:
- Acquisition of legal titles to the lands where the project shall be located considering the main principle of the Bulgarian law that the construction, development, and operation of RES projects and connection facilities shall be carried out on land/s owned by the com-pany-investor or on which the right of construction (in rem rights) has been established from their owner in favor to the company-investor.
- Environmental Assessment and Environmental Impact Assessment Decision. The main aim of the proceedings is to assess the environmental impact of the project and to con-duct a compatibility assessment. The Environmental Assessment sets forth the ex-pected changes that will occur in the environment due to the project, and Environmental Impact Assessment Decision specifies environmental conditions for implementing the project. The competent authority is the Ministry of Environment and Water or the Region-al Inspection of Environment and Water. The proceedings could take approximately 3-4 months (excluding preparation of the Environmental Impact Assessment Report).
- Detailed Development Plan, including Detailed Development Plan – Parcel Plan for the elements of the technical infrastructure – traces of cable lines. Both procedures concern the zoning of the project and its approval for inclusion in the zoning plans of the relevant territory. A Detailed Development Plan – Parcel Plan is required for the construction of elements of the technical infrastructure outside of urbanized zones. The process takes approximately three months.
- Grid connection (See Section 3.1.).
- Building design and Building Permit. Construction works concerning PV or onshore wind farms may commence only after a Building Permit has been obtained unless the excep-tions are explicitly provided in the law. Eligible to apply for a Building permit is the owner of the land and person holding established in rem rights, including construction rights set under specific law. Competent to enact a Building permit is the Chief Architect of the re-spective Municipality as per the location of the installation or the Minister of Regional De-velopment and Public Works in case of installation involving more than one district area. Before applying for a Building Permit, the investor is obliged to obtain all required opin-ions, permits, and arrangements from various authorities – fire safety and protection of the population authorities, the decision on exclusion from agricultural production, Biologi-cal Diversity, Cultural Heritage, and Water Permits, among others.
- Access and Transmission Agreement regulates the use of the grid network following the commissioning of the project and putting it in operational work in parallel with the grid, i.e., the relations between the company-investor and the respective grid operator regarding the use of the electricity grid. The scope of the grid access agreement is to regulate the rights and obligations of the parties in connection with the dispatching, including the con-ditions for the implementation of the prognosis schedules for the production quantities of electricity and the compensation payable by the operator in case of limitation in the pro-duction mode of the plant, etc. Appendixes to the grid access agreement could be annual and monthly production programs, evaluation of the potential of the resource used for the production of electricity, repair programs, technical and regime requirements for the work of the plant, telecommunication, and telemechanic means, dispatching conditions, etc.
- Use Permit. As soon as the RES project, including the grid connection facilities, is fully built, a special commission checks their compliance with the construction documentation and whether they are ready for putting into exploitation. Use Permit is the final act of the completion of the construction process. A special commission is appointed by the Na-tional Construction Control Department to check and test the suitability of use of the in-stallation before enacting the Use Permit. Following the report of the commission, the Na-tional Construction Control Department to the Ministry of Regional Development and Pub-lic Works enacts the Use Permit. The process takes approx. a month.
- Generation Licence (See Section 4.2.).
3.3. Obligatory State/Public Participation
Bulgaria’s energy market is dominated by Bulgarian Energy Holding JSC (owned by the state through the ME). It manages the most important companies in the energy sector such as the Kozloduy Nuclear Power Plant, the National Electricity Company, the ESO, and most of the conventional hydro and pumped storage plants. In general, the state benefits from foreign participation in the renewable energy sector mostly through the initial and annual license fees and taxes which shall be paid by the energy participants. An example of a fee due by RES produces is the obligation to contribute 5% of their income to the Fund for Security of the Electricity System (FSES) (a release from this obligation is provided to new RES projects or green hydrogen entered into exploitation after January 1, 2021).
Currently, for companies, operating in the electricity sector measures are introduced to ad-dress the high energy prices under Council Regulation (EU) 2022/1854 (Regulation). The electricity producers with facilities for the production of electricity with an installed capacity of more than 1 megawatt, whose market revenues are obtained from the sale of electricity pro-duced from sources under Art. 7, par. 1 of the Regulation and for energy produced from coal and hydroelectric plants, make targeted contributions to the FSES, representing the positive difference between market revenues without value-added tax and the specified revenue cap, calculated by applying the values for the relevant type of producer, with a delivery period from December 1, 2022 to June 30, 2023, with the exception of transactions with balancing energy required for the balancing needs. The target contribution amount is calculated for each trans-action. The values used to calculate the revenue cap for the relevant type of producer were determined by an act of the Council of Ministers.
3.4. Risks to be Considered
It is our understanding that the applicable legislation is in line with European tendencies and regulations to stimulate investors. Bulgarian legislation is compliant with EU legislation and the Bulgarian government is open to foreign investment and collaboration.
4. RENEWABLE ENERGY CONSTRUCTION AND PRODUCTION
4.1. RTB Status
Prior to the construction of a RES project, the investor must obtain certain government au-thorizations that include:
- approval of the change of the designation of the land to be used for the project con-struction or for electricity purposes.
- approval of detailed development plans for the project and for the grid connection equipment.
- establishment of easement rights for the laying of the technical infrastructure.
- carrying out an environmental impact assessment of the investment intention for the construction of power plants and an ecological assessment of the detailed develop-ment plans.
- approval of investment projects.
- obtaining confirmation from the grid operator on the terms and conditions of the project for grid connection, and
- acquisition of a construction permit.
The regulatory risk has been considered the main risk related to the construction of new re-newable energy projects. Due to the gradual elimination of state aid for renewable projects, the risk is considered to be significantly reduced.
4.2. Granting of Renewable Energy Production Licenses
The main legislation regulating the production license is provided in the EA and the Ordinance on licensing activities in the energy sector. The Energy and Water Regulatory Commission (EWRC) being the only authority to monitor all activities in the energy sector is the competent body to issue licenses for the RES projects. According to amendments in the EA effective as of February 2023, producing electricity through a power generator of 20 megawatts or more megawatts requires a valid license granted by the EWRC (before the amendments, the ca-pacity of the generator was 5 megawatts). Such a license may be applied for and obtained as early as before the commencement of the power generator’s construction, but should, in any case, be available and effective before the actual electricity production starts. A license is not required if the produced electricity is only for own consumption. A license is granted to an entity registered in the Bulgarian Commercial Register or in a Register of a member state of the EU, that has (i) technical and financial capabilities, material and human resources, and organizational structure to fulfill the regulatory requirements for carrying out the electricity production activity, (ii) ownership or in rem rights over the land/s and the electricity objects through which the electricity production activity shall be carried out, and (iii) the electricity equipment meets the requirements for safe operation and environmental protection. A produc-tion license shall be issued for a term of validity from one year up to 35 years. It depends on the used resource and the financial capability. In the practice, usually, the EWRC grants a production license valid for 20-25 years. The term of validity of a license may be extended for a new period not exceeding 35 years, provided that the licensee has met the conditions es-tablished by the law and has fulfilled all obligations and requirements under the previously is-sued license. Early termination of the license, before the expiration of its term, is applicable in the cases where the licensee is in breach of the legislation, the terms of the granted license, or acts of the EWRC.
4.3. Renewable Energy Production by Foreign Investors
Bulgarian law does not forbid or restrict foreign investors or companies with foreign ownership from investing in RES projects. For granting a production license it is required only an entity registered in the Bulgarian Commercial Register or in a Register of a member state of the EU. This means that foreign investors should have a Bulgarian or EU company established for special purposes of developing the RES project and obtaining of production license on the territory of Bulgaria. Entities with foreign ownership are given the same treatment as national firms and their investments are not screened or restricted. The granted production license is non-transferable, including the given rights and obligations under the license.
4.4. Operation and Maintenance of Renewable Energy Projects
There are no specific Bulgarian regulations on the operation and maintenance of renewable energy projects.
4.5. Decommissioning Process
A RES project – the holder of a production license can be decommissioned upon approval by the EWRC. The licensee shall notify the EWRC of the need to decommission at least one year before the license expires. In case the power plant must be decommissioned for technical reasons (after the expiration of the license), the EWRC must prolong the license term up to the term for final decommissioning. In all cases, the EWRC considers if the decommissioning might lead to a breach of security of supply or endanger national security and public order. Decommissioning might occur upon expiry of the technologically determined term for safety exploitation, unused main equipment, loss of energy site, etc. The ESO should be informed of all decommissioning activities and all subsequent actions for suspension of the activity of pro-ducing electricity should be coordinated with the ESO. Decommissioning of RES projects that do not hold a production license should be completed in cooperation with the distribution grid operator and the ESO.
4.6. Risks to be Considered
We may not identify high risks related to the construction, production, operation, maintenance, and decommissioning of renewable energy projects in Bulgaria.
5. BALANCING OF RENEWABLE ENERGY PROJECTS, STORAGE, SALES
5.1. Balancing of Renewable Energy Projects
In Bulgaria, there is a balancing market operating to mitigate the imbalance costs of market participants that occurred from the deviation between the prognosis and reported electricity production and consumption. The main acts where the balancing market is regulated are the EA and the Electricity Trading Rules (ETR). The prices of the imbalance costs are determined by the ESO for each settlement. Participants in the balancing market are the coordinators of balancing groups (standard, special, and combined), and the producers and consumers of electricity. The coordinators are private companies licensed by the EWRC for performing ac-tivities as electricity traders with included rights and obligations of coordinators of balancing groups.
The possibility for the coordinators of standard and combined balancing groups to transfer their balancing responsibility to other balancing group coordinators were banned with amend-ments in the ETR. In this respect, the joint financial settlement of imbalances is not possible anymore. In addition, a 15-minute imbalance settlement period was introduced as required by Regulation (EU) 2019/943 on the internal electricity market. As a result of the introduction of the new rules on the balancing energy market, a fairer distribution of the costs of imbalances between commercial participants in the electricity market shall be achieved, which in turn will lead to energy supplies at minimum costs.
The existing legal gap regarding the regulation of energy storage has been filled by the adopt-ed amendments in the EA effective as of February 2023. Energy storage is qualified among the other energy activities. The activity of energy storage will be carried out freely in the mar-ket, i.e., no license shall be required (with exception for the cases where the storage facility is a stand-alone facility and its operator concludes electricity transactions). The energy storage will be carried out by the operator of a storage facility which, on its end, can be built either at a new or existing site for the production or consumption of energy or as a standalone facility.
At present, pumped-storage hydropower plants are the most widespread method for storing renewable energy. Although the losses from the pumping process generally turn the power plant into a net consumer of electricity, the system increases its revenue by selling more electricity during periods of peak consumption, when electricity prices are highest. In Bulgaria, there are currently three pumping and accumulating hydroelectric power plants with a total generating capacity of 1.4 gigawatts.
The Bulgarian energy market despite being under a liberalization process, still, includes a regulated market (where the prices are regulated by the EWRC), a free market organized by IBEX, and a balancing market (imbalance costs). The completion of the reform of the electrici-ty market in the direction of full liberalization is set as an aim under the NRRP. IBEX is an electricity trading platform that enables participants to enter into transactions at market prices through a variety of products. IBEX offers exchange segments Intraday, Day-Ahead, and Centralized Market under bilateral agreements. As of February 2021, all RES producers with plants equal to or up to 500 kilowatts hour must trade their electricity on IBEX. This rule shall not apply to:
- transactions concluded by producers which supply electricity to their branches, en-terprises, and works thereof located within the national territory through the grid or own direct electric power lines.
- transactions concluded by producers of electricity from RES projects commissioned after January 1, 2019, and
- transactions concluded by operators of a storage facility connected to the grid after February 1, 2023.
In the practice, usually, RES producers conclude a general agreement for purchase-sale and balancing of electricity with electricity traders under freely negotiated prices. The trader regis-ters the RES producer in its balancing group and following the registration, the trader starts to sell the electricity of the RES producer on IBEX. Usually, the agreements are one-year.
6. ROOFTOP, OFFSHORE, FLOATING, AND AGRICULTURAL RENEWABLE EN-ERGY PROJECTS
6.1. Offshore Wind and Floating Photovoltaic Projects
There are no Offshore Wind and Floating PV Projects in operation in Bulgaria yet. Currently, discussions are taking place intending to adopt a special regulation on energy from RES in marine spaces (drafts have already been prepared), which would be a basis for attracting investors in offshore wind farms.
6.2. Rooftop Photovoltaic Projects
The legal acts regulating the development and operation of rooftop PV projects are the same as indicated in Section 2.1. There are a lot of regulation incentives related to the deployment of rooftop PV projects. A simplified procedure for grid connection is provided to power plants with a total installed capacity of up to and including 30 kilowatts hour, which are planned to be built on the roof and facade structures of buildings connected to the electricity distribution network and on real estate in urban areas. In addition, a notification regime (to the respective electricity network operator) is introduced in the cases where an end customer installs a power plant with a total installed capacity of 5 megawatts on a roof or facades of structures of buildings and real estate in urban areas, the energy from which will be used only for own con-sumption.
According to amendments in the SDA as of January 2023, approval of development-design projects shall not be required for the issuance of a building permit for RES installations on the roof and facade structures, the adjacent lots, etc. with a total installed capacity of up to 1 megawatt. No detailed plan shall be required in the cases where the RES installations are lo-cated outside the urbanized territories. In addition, no building permit shall be required for construction, major repair, and replacement of installations for the production of energy, ther-mal energy, and/or energy for cooling from RES to the existing single-family residential and villa buildings and in their adjacent land properties, the energy from which will be used only for own consumption, if their total installed power does not exceed 20 kilowatts hour. In those cases, a simplified notification procedure is prescribed by the law.
6.3. Agrivoltaic Projects
It was recently announced that the drafting of a legal regu-lation of the so-called agro photovoltaics is starting, with the aim of reconciling agricultural land and photovoltaics. Currently, there is no legislation in force in this regard.
7. TRADING OF GREEN CER-TIFICATES/CERTIFICATES OF ORIGIN
The regulatory framework for the GOs is provided in the ERSA. Under the ERSA, a GO is an electronic document that serves as proof that a certain share or quantity of delivered energy is produced from RES. The conditions and procedure for the issue, transfer, and cancellation of GOs, as well as recognition of GOs, are further determined in Ordinance No.RD-16-1117/14.10.2011 of the Minister of Economy, Energy, and Tourism. The Sustainable Energy Development Agency (SEDA) is the appointed competent body to issue, transfer and cancel GOs. SEDA organizes a system for the issue, transfer, and cancellation of GOs. SEDA also recognizes GOs issued by the competent authorities of the other EU member states.
A GO is issued to the producer for the produced standard amount of 1 megawatt of electrici-ty, valid for a period of 12 months. The GO is canceled once it has been used or upon its ex-piration date. The GO is used when electricity is transferred to an end customer or when it proves the share of RES in the total energy composition of the supplier. In practice, GOs are used as proof of eligibility for receiving a feed-in tariff or a premium-in tariff paid by the FSES.
No exchange market for GOs is available in Bulgaria. The amendments in the EA, effective as of February 2023, provide that the IBEX shall organize an exchange market of GOs. IBEX has already taken steps towards implementing an objective, transparent, and effective GOs trading platform in accordance with international standards. It is expected this new market segment of IBEX to be in operation very soon.