A. Wholesale electricity trading

1. Background information

The Bulgarian energy market is regulated by the Energy Act 2003 (Закон за Енергетиката ) and several pieces of secondary legislation.

The Energy Act 2003 provides the regulatory regime for trading electricity on the Bulgarian market, which is further regulated in detail by the Electricity Trading Rules ( Правила за търговия с електрическа енергия). ).

The generation market is dominated by the national electricity company - NEK EAD (NEK), a wholly-owned subsidiary of the Bulgarian Energy Holding EAD (BEH). BEH is a 100% state-owned vertically integrated company currently covering the generation and transmission of electricity and gas.

At the beginning of 2007 NEK reorganised its business and operations in order to comply with the provisions of Second Energy Package and the Energy Act 2003. On this occasion the transmission and market operator and balancing services were allocated to a newly established company - ESO EAD (ESO), a fully owned subsidiary of NEK. NEK continues to vertically integrate generation and supply to final customers and is also active in wholesale trading.

The distribution sector has been privatised to several European utilities: E.ON (Germany), ÄREZ (Czech Republic), EVN (Austria). Generation, distribution and supply carried out by these utilities are legally unbundled, although ownership is shared between companies within the same group.

2. Licensing requirements

Under the Energy Act 2003 all Electricity Traders trading in electricity in Bulgaria or cross-border must hold a valid licence.

2.1. Conditions for licensing

Generally, the issuance of a licence is dependent upon numerous technical, organisational and financial criteria.

The licence is issued by the State Energy and Water Regulatory Commission, which is the Bulgarian NRA, for up to 35 years, with an option to be extended for further (up to) 35 years.

An Electricity Trader can be based anywhere in the EU or the Europe an Economic Area, without any requirements to set up a company or branch in Bulgaria.

2.2. Timetable for obtaining the licence

The statutory term for granting a licence is three months as of the submission of a complete set of application documentation.

2.3. Additional requirement

Electricity Traders have a statutory obligation to put aside and deposit 1/24 of their annual turnover derived from domestic electricity trading. The deposit should be a minimum of BGN 150,0001, regardless of the actual turnover.

3. Trading requirements

Currently there is no power or commodity exchange set in place. The wholesale electricity trading is exclusively based on bilateral contracts.

3.1. OTC trading

The Bulgarian electricity market has not yet been fully liberalised and therefore a large share of the market is still driven by regulated prices set by the Bulgarian NRA. Nevertheless, there is a wholesale competitive market set in place, which is liberalised, and pricing and other relevant provisions are based on the principle of contractual freedom and negotiation, without any regulated tariffs.

3.2. Balancing market

The balancing market is organised in balancing groups. A balancing group includes generators, Electricity Traders, suppliers and large final customers.

Currently the rules for participating in balancing groups are not yet fully effective for all participants.

The balancing market is run by the ESO acting as TSO.

Electricity Traders have to register for their participation on the balancing market by submitting a standardised application to the TSO.

4. Cross-border trading

The rules for the allocation of capacities at the interconnectors with other neighbouring countries are in line with the EU legislation and with the bilateral agreements and rules for cross-border exchange and trading with electricity. The latter also applies to the harmonisation of the interconnection between the Bulgarian TSO and the operations of the neighbouring TSOs.

The Bulgarian TSO allocates cross-border transfer capacity as commercial rights for transfer.

Bulgaria has 13 cross-border interconnectors: five with Romania, two with Turkey, two with Macedonia, three with Serbia and one with Greece. A new interconnector with Macedonia is under construction and an additional one with Greece is still in the project development phase.

5. Grid access

The Energy Act 2003 introduces the principle of third-party access to the grid for all users of the transmission and distribution networks. The right to access the grid can only be denied if such access could disrupt the technical conditions and the security of the networks, and trigger the deterioration of the conditions of supply to the final customers and other users of the network.

B. Wholesale gas trading

1. Background information

Bulgaria has a limited market for natural gas and is almost entirely dependent on imports from Russia to meet its domestic demand. Only a small part of Bulgaria's domestic consumption comes from domestic production (the offshore Galata field in the Black Sea operated by UK-based Melrose Resources).

Bulgaria holds an important position in the international gas transit.

The legal framework is the same as the one for electricity, as the Energy Act 2003 and the secondary legislation cover both the gas and electricity markets. The Bulgarian NRA is also in charge of the gas market.

The key market player is BEH EAD. As a result of restructuring, Bulgargaz EAD (one of the subsidiaries of BEH EAD) was transformed into Bulgargaz Holding EAD through a spin-off into newly established companies - Bulgartransgaz EAD and Bulgargaz EAD. Bulgartransgaz EAD is now licensed as TSO, and in this capacity enjoys a legal monopoly over the transmission, transit and storage of natural gas. Bulgargaz EAD enjoys a legal monopoly over the activity of supply to final customers.

There are 42 Gas Traders active on the market. Most of them are privately or municipality owned. The Bulgarian company Overgas AD (the biggest private company active on the natural gas market) is co-owned by Gazprom and controls 26 Gas Traders, and is the biggest private gas retailer in the country.

In 2005 Bulgaria signed a joint-venture agreement for the Nabucco project, which is designed to ensure gas supply from the Caspian region to Western Europe through Turkey, Bulgaria, Romania and Austria.

The projects for regional gas pipelines and LNG terminals have proved to be catalysts for the process of liberalisation of the Bulgarian gas sector.

As the main applicable legislation, the Energy Act 2003 regulates the generation, supply, cross-border trading, transmission and distribution of natural gas. Wholesale gas trading is further regulated by the Natural Gas Trading Rules (NGR).

2. Licensing requirements

Wholesale gas trading is not a licensed activity in Bulgaria. If a Gas Trader wants to engage in supplying gas to final customers (retail trading) licensing becomes mandatory, regardless of whether that Gas Trader is also active on the wholesale gas trading market.

Under the current Energy Act 2003, a legal monopoly for transmission and supply to final customers is applicable for the entire territory of Bulgaria.

This regulatory regime is expected to change soon, as a new bill is currently being debated in the Bulgarian Parliament, and is expected to be passed into law within the following months.

3. Trading requirements

There is currently no commodity exchange or gas hub in Bulgaria. Wholesale gas trading is exclusively OTC via bilateral contracts.

3.1. OTC trading

Like the electricity market, the Bulgarian gas market has not yet been fully liberalised. A large share of the market is still driven by regulated prices set by the Bulgarian NRA. Nevertheless, there is a wholesale competitive market set in place, which is liberalised, and pricing and other relevant provisions are based on the principle of contractual freedom and negotiation, without any regulated tariffs.

3.2. Balancing market

The balancing market is run by Bulgartransgasz EAD, which is also the licensed TSO.

There is a 5% deviation threshold (between the nominated and the actual delivered capacities) beyond which the balancing penalty is mandatory.

Nominations sent to the TSO depend on the terms of the bilateral contract, but the gate closing time is 24 hours prior to delivery.

4. Cross-border trading

Natural gas is transited through the territory of Bulgaria to Turkey, Greece and Macedonia. Bulgaria has interconnectors with Romania, Turkey, Macedonia and Greece.

There are several projects for transmission and transit of natural gas to/via Bulgaria, SEE and EU which are under implementation or subject to negotiations:

  • Project "Nabucco" - Nabucco is the new gas bridge from Asia to Europe and the flagship project in the Southern Corridor. It will be a pipeline to connect the world's richest gas regions - the Caspian region, the Middle East and Egypt - to the European consumer markets.
  • The Bulgarian Parliament has ratified the original multilateral "Agreement among the Republic of Austria, the Republic of Bulgaria, the Republic of Hungary, Romania and the Republic of Turkey regarding the Nabucco Project" in February 2010. Furthermore, the Bulgarian Minister of Economy, Energy and Tourism signed the Bulgarian Project Support Agreement with the Nabucco International Company and Nabucco National Company on 8 June 2011.
  • Construction of Dupnica-Dimitrovgrad-Nis gas pipeline between Bulgaria and Serbia.
  • Trans-Adriatic gas pipeline project from Bulgaria via Macedonia and Albania to Italy.
  • Construction of national liquid natural gas (LNG) degasification terminal on the Bulgarian Black Sea coast;
  • Construction of the South Stream gas pipeline;
  • Construction of a gas pipeline connecting Bulgaria and Greece.

5. Grid access

The Energy Act 2003 introduces the principle of third-party access to the grid for all users of the transmission and distribution networks for gas as well. This right can only be denied if such access could disrupt the technical conditions and the security of the networks, and would prevent operators from fulfilling their public service obligations

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.