How come high prices are actually low?

How come high prices are actually low?

Despite record high electricity prices on the energy exchange, Bulgarian consumers keep getting a good deal

40 views

© Nadezhda Chipeva


Prices on the Independent Bulgarian Energy Exchange (IBEX) have soared to record heights in recent months, prompting widespread uproar among big industrial consumers. Since the start of 2020, electricity on the main day-ahead market has been cheaper for just one day than the offers on the German market (where prices fell as low as 1.57 euro per MWh on February 9), while most of the time prices were twice as high. Even regional energy exchanges in Hungary and Romania, which traditionally were a little more expensive, are now predominantly cheaper.

At the same time Eurostat, the EU's statistical arm, keeps placing Bulgaria among the cheapest places to power your factory from the grid. How's that possible?

The mismatch is a result mainly of the difference in the organization of the respective markets. In Germany, most of the electricity cost is transferred directly to the consumers with the grid fees (paid for every consumed kilowatt-hour of electricity), while in countries like Bulgaria, those fees are substantially lower. Network cost and all the taxes, fees, levies and charges are six times higher in Germany than in Bulgaria and what is more important, their cost is six times higher than the price of the electricity itself. In practice, German consumers pay predominantly for additional costs, while energy is a marginal expense.

Bulgaria's market organization is a legacy from the times when most of the market was regulated, i.e. the prices for consumers were set by the energy regulator. There was a small segment of market participants who were allowed to freely buy electricity directly from producers. To encourage this process, the regulator kept the grid cost low, making electricity prices for the industry extremely competitive. It is no surprise that as of 2005 a lot of energy-intensive metallurgical companies have arrived in Bulgaria.

Contrary to the German example, in recent years the Bulgarian regulator has been trying to reduce the additional fees on electricity. In the last two years, the Obligation to Society fee (which pays for green energy, long-term power-purchasing contracts and cogeneration facilities) was lowered from 36 levs (18 euro) to 19 levs per MWh, but at the same time, the average electricity price on the IBEX grew from 78 to 93 levs per MWh.

The second reason for the high prices on the IBEX is the traded volume. In Germany, more than 50% of the electricity is traded daily on the two energy exchanges in the country, while in Bulgaria only a quarter of all sales are done on the IBEX. In practice, the Bulgarian market is not for base power, it is used rather cover peak consumption which is naturally more expensive.

All in all, Bulgaria is still a cheap place for household and industrial electricity consumers, but this comfort is achieved to a large extent by a build-up of pressure inside the energy system. For example, the regulator reduces grid cost artificially, while energy producers are required to pay a special fee on their turnover to compensate for the long-term power purchase contracts and renewable support schemes of the underfinanced public supplier. Sooner rather than later the accumulated pressure will shatter the current market environment.

Author: Capital

Prices on the Independent Bulgarian Energy Exchange (IBEX) have soared to record heights in recent months, prompting widespread uproar among big industrial consumers. Since the start of 2020, electricity on the main day-ahead market has been cheaper for just one day than the offers on the German market (where prices fell as low as 1.57 euro per MWh on February 9), while most of the time prices were twice as high. Even regional energy exchanges in Hungary and Romania, which traditionally were a little more expensive, are now predominantly cheaper.

At the same time Eurostat, the EU's statistical arm, keeps placing Bulgaria among the cheapest places to power your factory from the grid. How's that possible?

By using this site you agree to the use of cookies to improve the experience, customize content and ads, and analyze traffic. See our cookie policy and privacy policy. OK