Economic Policy Review ISSN 1313 - 0544

The New Energy Strategy

19.07.2010
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Preliminary statement of the IME

 

This week a new draft of Bulgaria’s 2020 energy strategy was published. It is available on the web page of the Ministry of Economy, Energy and Tourism.[i] Those interested can send their suggestions and comments within a month.[ii]

IME suggests economic commentators, Bulgarian business organizations, the main energy players and energy consumers should learn more about the project and to express their views. Time is limited, (there are many related materials [iii]), and the Bulgarian experience in energy strategy from 2002 has shown that the proper timeframe for discussion should be at least two or three years.

Here we discuss only issues and approaches, which perplex and which, we believe, can create problems in the future. 

 

About the so called “priorities”

Ø      According to the document, priority is everything: energy itself,  the production of electricity from national and renewable energy sources (RES), the protection of “Bulgarian consumers”, diversification of energy sources as a whole and natural gas in particular, local gasification, development of solar, wind, biomass and hydro power, as well as the “challenges of climate change" [iv], etc., etc.

Ø      The word “Priority” is mentioned twenty-seven times in different contexts.

Ø      This word should mean that certain energy subsections or parts of the energy policy are more important than others, and that the government will propose a mechanism by which these priorities will be achieved until 2020.

Ø      Such a mechanism does not exist, except the mentioned large EU programs and a vaguely formulated "need" for revision of contracts with two of the foreign companies investing in “Maritza East”.

Ø      Some of the priority subtopics of the project contradict current energy policy.

This drives us to focus the commentators’ attention to the things that have not been mentioned in the draft strategy.

 

What is not mentioned

The authors of the document are not named. But there is the impression that they follow Ludwig Wittgenstein’s famous advice: "that, which can not be explained clearly, should not be mentioned”. Unfortunately, they follow the saying only on selected occasions, due to unconstructive reasons, and on subjects, which, it is more than evident, are essential for the energy sector of the economy, as well as for industrial policies and investments economic development in general. Here are some of these topics:

Ø      The draft strategy neither evaluates the expenditures and the benefits of energy projects nor the policies and legislation. Not only does the Bulgarian law require such analysis, but also the recommendations of the EU and our common sense.  

Ø      For example, on several places in the document the authors mention “maximum use of the waters” of the Mesta and Arda rivers and their “redirection". A special qualification is not necessary in order to assume that the effects of these projects on the environment, water, forests and agriculture are not negligible. But there is also no proposal for the future assessment of those projects.

Ø      "Priority" RES are a similar story. They are considered both priority, and yet are not to be assessed in terms of environmental impact or prices; combined they are declared major projects, but at the same time the current energy legislation, is not mentioned at all, let alone to be assessed. However, for instance, the amendments to the law on protection of agricultural land, adopted by the Bulgarian parliament, investments in solar energy for about 200 million leva (almost one third of 2010 solar energy GDP) are blocked, while direct losses for investors in this "priority" energy sub-section are probably around 70 million leva.   

Ø      The document also mentions that the main challenge for RES was financing the projects. But it does not clarify that the cost of these projects for the end consumer, due to cross subsidies for the energy tariffs, is with 0.5 percent off his monthly electricity bill. In the absence of information, it is easy to make general statements and to express concern for consumers, and subsidies for RES, which are actually suspended.

Ø      There is also no evaluation of how much the EU policy for prevention of carbon dioxide emissions will cost the country. Among the document sources there are no independent studies. It is known, for instance, that according to Citibank, the fight against climate changes will cost the biggest European economies about one trillion euros for a period of ten years (if you evaluate the costs for renovation and the pursuit of environmental objectives from the heat and power systems). [ v] In addition there is some research concerning the costs of reducing these emissions, which shows effective methods for reducing greenhouse gases, among which there is a place for electricity coming from renewable wind power. [vi] But all strategic RES have equal priority, regardless of their effectiveness.  

Ø      One topic is missing completely in the strategy – the nuclear power plant “Belene”. One reason may be the economic analysis of this project, which does not show any benefits at all. (But, it seems, because of “Belene”, in general, the issue of costs and benefits from energy undertakings has been omitted.)

Ø      Another topic that is discussed one-sidedly, is nuclear energy, which is also a priority. Nuclear power itself raises issues with systematic nature, problems of linking the parts of the country's energy system. These are costs, which together with other nuclear issues, are not discussed. Moreover, the mere presence of the “Belene” project in the development perspective of the Bulgarian energy sector implies limiting the production of energy from other sources, including those that reduce dependency from imported energy resources from the Russian Federation - ie from lignite coal, water, wind and sun. 

Ø      Despite recurrent problems with the price of gas, the subject had passed over only with few common phrases. Instead a goal for a fifteen-time increase in household consumption of gas has been set.  

Ø      Efficiency - one of the three main challenges for Bulgaria – has been considered as independent from pricing and market structure.

Ø      Interestingly, the project lacks discussion of privatization. Although trade liberalization and access to electricity transmission system are at the heart of Directive 2009/72, those topics are mentioned only briefly in several sentences.

 

Some curious specifics

Ø      On four or five occasions, the challenge (one of three fundamental for Bulgaria) of Bulgarian dependency on Russian energy is discussed. In contrast with previous strategies and projects in the energy sector, the language and the context are far from shy.

Ø      However, it is curious that there is nothing in the strategy on how this dependence can be reduced. On the other hand, the contracts for the “undoubted” (according to the document, and in general) alternative - electricity production from lignite coal from the Maritsa East basin – are said to be reviewed.

Ø      This is justified by Directive 2009/72, which deals with the competitive power of the market, the security of the supply and the protection of the “helpless, defenseless" (this is the language of the Directive) consumers. The draft strategy for investment in the Maritza East will be revised to protect all Bulgarian consumers (not clear against what), while the text of this passage contradicts the spirit and the content of the Directive and Bulgarian priority to fight the energy dependence on Russia. (In fact, foreign investors in Maritza East are the only specifically mentioned private players in the Bulgarian energy sector in the entire text of the draft.)

Ø      Central heating is defined as “an indisputable achievement of the Bulgarian energy sector”. This assertion is not only as incorrect as a newspaper article claiming that nuclear power is an object of "national pride", but it is also offensive to the consumers of centralized heating companies.

Ø       There are also unnecessary specifics in the description of pricing, in the absence of an assessment of how effective the current system was and what can be done.

 

[I] See: http://www.mee.government.bg/iko/Proekt_En_Strategy.pdf 

[Ii] Ibid: http://www.mi.government.bg/bids.html?id=319199 

[Iii] These first to that Directive 2009/72, which will be implemented in Bulgaria and see.: (Http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:211:0055:0093:EN:PDF) and forecast document to comply with this Directive, which was published on the eve of the wash of the new year (see: http://www.mee.government. bg/doc_vop/RESforecast291209.doc) and against which the project has some innovations. 

[Iv] This is one of the three challenges of the project. We will not comment on this challenge, as these and the main opinion of the IME on the subject are well known. See. article and references on the pages of this edition: http://ime.bg/bg/articles/kraqt-na-sweta-se-otlaga/. 

[V] See.: Citigroup Global Markets, Pan European Utilities: The € 1,000,000,000,000 (trillion) Decade, Citigroup, 22 October 2009, p. 3-4. 

[Vi] See. example: What Works? How to cut emissions at lowest costs, London, Open Europe, March 2008, at: http://www.openeurope.org.uk/research/whatworks.pdf.