BEFORE ITS SECOND READING IN THE PLENARY HALL OF THE NATIONAL ASSEMBLY OF THE REPUBLIC OF BULGARIA
The current law on Renewable and Alternative Energy Sources and Biofuels, in force since 2007, has proven to be highly lobbyist, leading to huge speculative interest, and from there blocking the process of investment in RES.
Real projects with Class A investor certificates mature in the various instances for months and years - in reality, there is an unwritten moratorium in the Ministry of Interior and in the NEK.
The draft law discussed so far was a very good law, especially as a balance of interests. The changes adopted at the last moment /during the meeting of the Committee on Economic Policy, Energy and Tourism on April 13 of this year/ remove the achieved balance and practically stop investments in RES.
Publicly speaking falsehoods and half-truths about RES creates a distorted image of the sector.
Renewable energy sources are a long-term solution to the world's energy needs, but like anything they have advantages and disadvantages. They are a good alternative because they are an endless resource – the wind and the sun never run out. The general understanding is that RES have two main problems: production volatility and high cost. Fluctuations in production arise from the vagaries of the source - wind, sun, etc. Therefore, there is a need for balance through other capacities. Energy from renewable sources has a high price because of the still expensive production technologies. This means that it is difficult to have investments in RES on a purely market basis, as they would not be economically expedient. That is why it is necessary to stimulate investments and that is why there is a special RES law everywhere. The third problem is "Bulgarian" - a huge volume of projects on paper, most without financial and expert coverage, which blocks real investments in RES.
The new law is expected to solve these three problems, and provide an adequate framework for the development of "green" projects". Overall, we think that the new law project is good and balanced (at least it was until a week ago). The project took into account the interests as investors, consumers and network companies. KRIB made some important proposals already in 2010, which are already included in the law and solve two of the problems: one-year forecasts for the connection of RES and planning of the necessary investments from the network operators, moving to a deep approach in relation to the price of connection and resp. - a partial advance payment. The latter largely guarantees the screening of non-serious investors, since the amount is low enough compared to the investment in a similar project, (below 2% of the project value ), but also high enough for people pretending to be investors to sell a plot of land for much more than they bought it a year ago.
Another important point in the law, which brings order among producers, is the fixing of the energy purchase price for the entire period of the contract. This makes financial parameters and cash flows predictable and creates real interest in financing from banks.
And the most asked question related to RES: the increase in the price of electricity. The new law allows for its decision. The introduction of the possibility and definition of "production of energy for own consumption" and accordingly the possibility of subsidizing such an investment is a novelty in the law and is an alternative to the purchase of electricity at a preferential price. This is exactly how the produced energy from renewable sources can be used smartly, intelligently without burdening the electricity bill of each of us. The additional effects of the consumption of such energy at the place of its production are expressed in reducing CO2 emissions, increasing energy efficiency and avoiding large losses on the network. Through adequate mechanisms and opportunities for grant schemes to promote precisely such projects, Bulgaria could achieve all three 20-20-20 goals (RES, energy efficiency, CO2) and give an impetus to the development of intelligent systems and networks.
For example, solar panel installations may increase over the next two years as the cost of electricity generated by them competes with that generated by coal. By 2020, the cost of building large solar projects is expected to halve to $1.45 per watt, New Energy Finance estimates show.
The main changes since the "last hour" are the following:
1. Reduction of guaranteed redemption period – this is a negative signal to investors. On the other hand, the DKEVR determines the purchase prices based on the investment made, the purchase period (which is expected to be reduced) so as to achieve a normal rate of profit. At the same time, in order to reduce the term, it will be necessary to increase (or decrease less) the purchase prices, which will negatively affect the price for consumers. It is better to spread the investment into smaller parts over a longer period. In this sense, we suggest that the terms should not be reduced, but that the reduced value of the investment should be reflected in the purchase price, which is determined by the SEWRC. It is necessary to have clear rules regarding pricing in order to build successful financial models. With regard to energy objects put into operation, based on renewable energy sources, it should be possible to maintain the previous pricing model.
2. Fixing the redemption price (which in itself is one of the positive achievements in the law) at too late a stage. Until now, it was envisaged to fix the price at the "preliminary contract of accession" stage. The amendments provide for fixing the price at the time of completion of the investment (Act 15). It is contrary to any business logic that the income part is determined after the investment is completed - it is normal that the income can be predicted before investing. An additional absurdity is that investors are expected to pay an advance price for joining in the amount of 50 resp. 000 BGN. per megawatt already at the preliminary contract stage (this is also a KRIB proposal aimed at clearing speculative projects), and this deposit is lost if the price announced at a later stage is such that it makes the project meaningless. The compromise solution is to fix the price not at the "preliminary contract" stage and not at the Act 25 stage, but at the construction permit stage - giving a construction line and level, when the value of the project is clear and before the serious investments begin. At the same time, in the event of a significant change in prices (eg more than 000%), and the investor's refusal, the security deposit must be returned. If retained in its latest version, Art. 15 paragraph 5, at least clear rules must be laid down that the price cannot vary or fall below a certain level.
3. Treatment of the welded projects depending on their development phase. In the previous versions of the law, comprehensively different regimes were provided for in different cases. The general idea (which KRIB supports) is that projects for which there is no preliminary contract are invalidated. In the latest amendments, a "white spot" is left in relation to projects that have submitted a request for a preliminary contract, but such a contract has not yet been concluded. In the last 6-12 months, since there was serious talk about a new law, ERP and especially NEK massively delayed the conclusion of preliminary contracts, for which there were requests, pending the new law and far beyond the statutory deadlines. This is also valid for a number of large projects holding a Class A investor certificate. In the previous editions of the law, these projects were given the opportunity to continue, while at the same time the obligation to pay a guarantee deposit of BGN 50 per megawatt was charged, which he would weed out the speculative projects and leave only the serious ones. In the latest amendments - on the contrary - all such projects are terminated, which will enable everyone (including frivolous projects that have no real chance of realization) to file legal claims against NEK for damages and lost profits due to delays in the procedures for issuing preliminary approval accession agreement by NEK. Such projects are for at least 000 MW. Which means potential claims against NEK for 500-60 million euros, completely real and provable with preliminary contracts for the sale of the projects. We consider it reasonable to remain in force the previous edition, i.e. all investors who have started a procedure and requested the conclusion of a preliminary contract to complete the procedure according to the new order. This will lead to possibly 70% more projects compared to those already available with a preliminary contract, but will protect NEK and ERP from heavy lawsuits and losses. And this will make RES "favorites" of the administration and connect them with court scandals.
As a result of the changes §7, para. 1 and 3 of the Renewable Energy Bill currently provide that, for existing projects in operation, the feed-in tariff (i) will be the feed-in tariff in force at the time the Bill becomes law and (ii) will be applicable for the entire remaining term of the power purchase agreement. We would like to emphasize that fixing a preferential price for electricity as specified in the bill may have a significant adverse economic effect on wind farms that have received financing from multiple financial institutions (EBRD, International Financial corporation and the Japan Bank for International Cooperation as well as numerous commercial banks) under a different legal regime that was applicable at the time the wind farms were put into operation. For this reason, we insist that the restoration of the provision of §7, para. 1 of the draft law in the version submitted to the Parliament by the Council of Ministers. The said option envisaged two options for investors in existing RES to choose between the preferential price fixed for the remaining term of the contracts for the purchase of electricity (which decision they should make within one month from the entry into force of the law) or to continue take advantage of the now existing mechanism setting a preferential price for the remaining term of their electricity purchase contracts. The version of the bill in question will allow existing producers of electricity from renewable sources and their financing banks to assess the impact of a fixed feed-in price compared to a variable feed-in under the mechanism for determining it under the current law in full and make an informed choice.
4. Term for making the guarantee installment. In the draft law (at the proposal of KRIB) an advance guarantee payment of a part of the joining price was introduced as a way to filter out non-serious projects. The stipulated period was three months. With the latest amendments, the deadline for depositing the guarantee has been reduced to one month. No matter how serious investors are, they hardly keep the relevant resource available in a bank account. And the amount of 1-2 million euros (fee for a project of average size 40-80 MW) can hardly be committed so quickly. Moreover, it is serious investors who have their own internal procedures that require time to make decisions. We consider it reasonable to restore the period to 3 months.
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