The Bulgarian energy strategy to 2020 and the investment opportunities in the energy sector
The energy sector has always been a main priority of the Bulgarian Government. The Bulgarian Energy Strategy to 2020 (the “Energy Strategy”), a fundamental document of the national energy policy, was brought into force on 1 June 2011 and will, to a great extent, determine the investment opportunities in the Bulgarian energy sector.
Sustainable energy development is a cornerstone of the energy policy, related to the following long-term quantitative goals:
- greenhouse gas emissions to be reduced by 20% (compared to 1990’s rates);
- renewable energy sources to account for 16% of total energy usage and 10 % share in transport usage; and
- energy efficiency to be improved by 20%.
The Energy Strategy aims to overcome the main challenges currently faced by the Bulgarian energy sector, namely:
- high per capita energy usage in Bulgaria: currently 89% higher than the average EU rate, the aim is to reduce it to 50%;
- Bulgaria’s dependency on imported energy sources: most of the energy sources are imported (natural and crude oil, and nuclear fuel are almost entirely imported from the Russian Federation); and
- the need for eco-friendly development.
The main priorities are:guaranteeing the safety of the energy supplies;
- achieving renewable energy sources targets;
- increasing energy efficiency;
- developing the competitive energy market;
- meeting energy demands and protecting consumers’ interests.
In this context, in all fields of the energy sector, new public private partnerships are expected and indeed have been encouraged by granting more power in this respect to local governmental authorities.
A general feature of the Bulgarian energy sector is the need for modernisation. This brings opportunities for new investment and an increase in market share as a result of innovation. At the same time, the Energy Strategy emphasises the need for both development of green power plants and the rehabilitation of the existing ones.
The development of the internal energy market is a main political priority of the Bulgarian Government. Its principles include: free choice of end supplier; fair prices; clean energy; and free access to the electricity and gas grids. To this end, energy interconnections with neighbouring countries are to be improved and cross-border trade increased.
The Energy Strategy focuses on the following industries:
The coal potential of the state will be used to its maximum. The state will support the utilisation of coal power plants subject, however, to their renovation and technological improvement to reach minimum ecological standards. Schedules will be prepared for modernisation or closure of existing coal power plants that are not compliant with environmental legislation.
Part of the income from the trade of emission units will be used for the introduction of pure coal technologies. The state will support the construction of plants with the technology to capture and preserve carbon dioxide.
The Energy Strategy provides for the development of centralised heating systems through the modernisation and financial stabilisation of heat-supply companies. The privatisation of state-owned local central heating companies will be an investment opportunity.
The New Renewable Energy Act, adopted in May 2011 (“RES”) sets forth the supporting mechanisms in the renewable energy sector.
Both the state and local authorities will support private initiatives which increase the energy efficiency of public and private buildings using photovoltaic installations, biomass, thermal or geothermal heating systems, and maximum utilisation of hydro energy sources in Bulgaria (mainly rivers) by the construction of hydro energy complexes.
Special attention is paid to the development potential of marketing electrical vehicles that are powered by energy from renewable sources.
Despite the uneasy global attitude towards nuclear energy, the Bulgarian government has retained a positive attitude towards the nuclear energy sector in the Energy Strategy.
The aim is to install at least 2,000 MWt of new nuclear production capacity. In this context, the opportunities are: (i) the construction of the green field Belene Nuclear Power Plant; or (ii) investment in new blocks in the existing Kozlodiu Nuclear Power Plant. At the same time, the life of the existing two blocks of Kozlodui Nuclear Power Plant will be maintained as long as possible.
The construction of new nuclear waste storages facilities (mainly for waste of low to middling radioactivity) is also an imminent necessity. Bulgaria should also diversify its supply of nuclear combustible.
Oil and gas
Upstream: Bulgaria aims to decrease its high dependency on Russian supply. At an upstream level, this means that domestic capabilities must be explored (gas is currently being produced off-shore in the Black Sea). New tenders to grant exploration rights both onshore and offshore in relation to oil, conventional and shale gas are to be launched.
Midstream and downstream: One of the main aims of the Energy Strategy is to diversify supply sources: the most significant projects include the Nabucco, South Stream gas pipelines and Burgas to Alexandroupoli oil pipeline.
In addition to these large-scale projects, the construction of new liquid natural gas terminals (for delivery of liquefied gas from Azerbaijan through the Black Sea) and compressed natural gas terminals (supplied with compressed gas from Qatar, Oman and Nigeria) is a great opportunity for investment.
Extremely high importance is given to the construction of regional gas transportation interconnections with Turkey, Greece, Romania, and Serbia. Such interconnections will enable Bulgaria to participate in broader gas markets, including delivering gas inter alia from Turkmenistan, Iraq, and Egypt.
Gas storage operation is another priority for the country, where such opportunities already exist.
At the end supply level, currently only 1.5% of the Bulgarian households are supplied with natural gas. The aim is to increase this number to 30% by 2020. In 2011 a programme to connect households to the gas network will be adopted, which will also specify the various investment opportunities available.
The Bulgarian electricity grid requires both renovation and construction of new grid capacity. Although currently operated by natural monopolists, the electricity grid’s improvement offers broad investment and collaboration opportunities.
The Energy Strategy pays a special attention to the improvement of the interconnections with the neighbouring countries. Bulgaria’s aim is to be a main exporter of electricity in the region, with a target of at least 1,500 MWt export capacity by 2020.
The electricity market in Bulgaria was fully liberalised as of 1 July 2007. The next significant step is the government’s aim to launch the energy exchange by the end of 2011. Although this may be too optimistic a timescale, this aim has nevertheless been articulated and is likely to be achieved in the near future.
Energy efficiency is seen as the cheapest and most efficient way to improve the entire energy sector. The Energy Efficiency Law was adopted in Bulgaria in 2008 and in 2011 a specific Energy Efficiency Strategy will be adopted by the Bulgarian Parliament, with an emphasis on the energy efficiency of residential and public buildings, transport and industry. Financing opportunities include EU operative programmes, resources from the sale of emission units, the International Fund “Kozlodui” and so on.
Kostadin Sirleshtov is a partner at Petkova & Sirleshtov Law Office in cooperation with CMS Cameron McKenna in Sofia. He heads the Energy, Projects and Construction (EPC) practice of the office.
His particular area of expertise is in energy and utility law, having worked as Chief of Minister’s cabinet with the Ministry of Energy and Energy Resources. Kostadin also served as board member to the North East Electricity Distribution Company (prior to the acquisition by E-on), Puzzle Consulting and Financing JSCo and Energy Traders JSCo. He was recently appointed as Chairman of the National Energy Efficiency Chamber in Bulgaria and as a member of the Board of the National Association for Renovation of Buildings.
Kostadin graduated with a L.L.M from the Sofia University Faculty of Law in 2000 and is pursuing a Ph.D. in Private International Law in a Sofia University joint program with Sasakava Foundation Japan. Kostadin also has a diploma from Cambridge University in EU Law and Contemporary English Law (2000). He has been a member of the Bulgarian Bar Association since 1999. Konstadin can be contacted on +359 2921 9942 or by email at email@example.com
Borislava Pokrass joined CMS Sofia in November 2010 and is part of the energy, projects and construction (EPC) practice group of the office, where she focuses on renewable projects. In addition to working on EPC projects, Borislava works on real estate and construction and corporate matters.
Before joining CMS Borislava worked for a local law firm where she was actively involved in the real estate and construction practice.
Borislava obtained her LL.M. from Sofia University “St. Kliment Ohridski” in Bulgaria in 2006 and a Practice Diploma in International Capital Markets and Loans from the College of Law of England and Wales and the International Bar Association in 2009. She has been a member of the Bulgarian Bar Association since 2007.
She is fluent in Bulgarian and English and has very good knowledge of Russian. Borislava can be contacted at Borislava.Pokrass@cms-cmck.com
Pavlin Stoyanoff joined CMS Sofia in early 2008, immediately after obtaining his LL.M. from Sofia University “St. Kliment Ohridski” in Bulgaria. He is very actively involved in the energy, projects and construction (EPC) practice of the office. In addition to working on EPC projects, Pavlin works on dispute resolution, enforcement and insolvency matters.
He obtained a Diploma in “Introduction to English and European Union Law” from the University of Cambridge in 2008 and has been a member of the Bulgarian Bar Association since 2009.
He is fluent in Bulgarian and English and has good knowledge of Polish and French. Pavlin can be contacted at Pavlin.Stoyanoff@cms-cmck.com