Power policy

EU members were required to develop a 10-year National Energy and Climate Plan (NECP) to help address the bloc’s transition goals. Under Bulgaria’s NECP, the country is aiming for renewables to account for 27% of gross final energy consumption by 2030, up from 20% in 2020.

As of July 2018, feed-in tariff contracts for renewable energy producers with at least 4 megawatts (MW) of capacity are no longer being offered. Other renewable energy producers that were getting feed-in tariffs have been offered feed-in premium contracts instead which, unlike feed-in tariffs, are based on market prices. In 2021, record-high electricity prices led to a zero premium for renewable energy producers and a moratorium on the regulated market.

Renewable electricity producers with a capacity below 4MW and feed-in tariff contracts in place prior to July 2018 – as well as new rooftop or facade photovoltaic installations with a maximum installed capacity of 30 kilowatts, and certain installations using combined cycle and indirect use of biomass – are still eligible for a feed-in tariff.

As part of the ongoing reform of Bulgaria’s energy sector, the parliament’s Energy Commission filed a new bill for amending and supplementing the Energy Act in November 2020. It continues the policy of pursuing full liberalization of the wholesale energy market and integration of the national market into the common European energy market. The bill proposes two main changes: the replacement of cold reserve transactions with auctions, and the conclusion of feed-in premium agreements for renewable producers with a total installed capacity of between 0.5MW and 1MW. However, the bill has yet to come into force.

Power prices and costs

Bulgaria is among the last markets in Europe to liberalize its power sector, with state-owned generators continuing to sell electricity on a regulated basis directly to some of the country’s largest consumers.

In 2021, for the first time in a while, residential customers paid higher electricity tariffs, seeing an increase to an average of €207 per megawatt-hour ($206/MWh), from €194/MWh in 2020. There is a taxation scheme applied to the revenue of renewables generation in Bulgaria, with 5% of producers’ revenues being directed toward subsidizing energy prices for end users.

Bulgaria’s wholesale power exchange went live in 2016, but sales volumes have remained below 25% of final electricity consumption. Since October 2020, all non-residential customers have been purchasing their electricity through the free market but state utility NEK is still the industry's default supplier.

The government's decision to switch existing renewables and other regulated generation to a contract-for-difference remuneration system aims to increase liquidity in the market.

Power market

The share of renewables in Bulgaria’s total power mix has doubled over the past decade and currently sits at 20%. This reflects a generous feed-in tariff that fueled a solar investment boom. At the end of 2021, the country had around 2.5 gigawatts of renewables capacity installed, excluding large hydro.

Bulgaria’s energy market is dominated by state-owned players. Liberalization and unbundling reforms rolled out since 2010 have opened up the generation, distribution and retail sector to only limited levels of competition.

Despite the legal unbundling of the three distribution system operators, there is no real competition in the distribution market. There is only one licensed supplier in each geographical region. Meanwhile, investment company Bulgaria Energy Holding (BEH) owns both transmission and generation capacity.

The Independent Bulgarian Energy Exchange (IBEX) was sold by BEH to the Bulgarian Stock Exchange in 2018. All electricity produced in the country is sold through IBEX. The wholesale market operates on a non-discriminatory basis, but the transmission system operator, known as the Electricity System Operator (ESO), can refuse to purchase or transmit renewable electricity if there is no grid capacity, or if it could compromise grid stability.

Corporate power purchase agreements are allowed in Bulgaria, but a small and fragmented market means it is not easy to find large offtakers. The electricity distribution companies and the transmission system operator are not obliged to buy back renewables.

The Bulgarian electricity market is currently in transition with the support of the EU Commission and development banks, but nuclear power is expected to remain dominant. Construction of the Kozloduy nuclear power plant could provide a significant opportunity for investment, although the government is gradually decreasing its coal power capacity to replace it with renewables.

This has put pressure on retail prices and attracted international investors such as CEZ from the Czech Republic. In 2021, CEZ won regulatory approval to sell its Bulgarian assets to local financial group Eurohold in a long-delayed €335 million ($328 million) deal.

Doing business and barriers

The rules for connecting new projects to the grid were standardized and simplified in 2019. The ESO has developed an electronic map with up-to-date information on the operational opportunities to connect producers and consumers of electricity.

However, there remain a number of major challenges for Bulgaria’s energy market: frequent changes in the legislative and regulatory environment; battles with the government across transmission and generation due to the low capacity of the ESO to take care of connections; lengthy permitting processes; energy poverty; and political uncertainty.

Confidence in the renewables space remains fragile due to a retroactive cut to subsidies in 2012. The country has not recorded any significant volumes of clean energy asset finance since this intervention. Meanwhile, changes to the feed-in tariff scheme through the addition of fees also damaged investor confidence. In addition, Bulgaria lacks strong national, commercial and industrial offtakers for renewables projects.

Domestic policy has focused on adding new small hydro capacity, but Bulgaria’s damaged ecosystem is unlikely to be able to support the volume of small hydro projects that have already received permits. Backing for small-scale solar could restore some of the lost faith in the Bulgarian renewables sector.

EV market

The electric vehicle (EV) market in Bulgaria remains small, with sales growing by around 50% year-on-year in 2021 to 821.

EV policy

The country’s Deputy Prime Minister for Climate Policy and Minister of Environment and Water, Borislav Sandov, announced in April 2022 that a law to promote electric mobility in Bulgaria will be drafted. He also said the country would target having at least 30,000 EVs on the road by 2026, up from 3,000 in 2020, and build 10,000 charging stations.

The main sources of financing for “green” public transport projects in Bulgaria are the EU Structural Funds and the Cohesion Fund disbursed via different operational programs.

Buildings market

Much of Bulgaria’s multi-apartment housing stock was built across the 1960s to 1980s and comprises prefabricated panel buildings. These are low energy efficiency buildings that have been poorly maintained are in severe need of an upgrade.

Buildings policy

Bulgaria’s NECP aims for renewables to account for almost 43% of the energy used for heating and cooling by 2030, up from 31% in 2020. This is based on increasing the role of biomass and solar, as well as geothermal power and heat pumps to a lesser degree. The plan also envisages energy efficiency improvements decreasing the amount of energy used for heating and cooling by 2% across 2020-2030.

Renovating the building stock is a key element of the country’s strategy to boost energy efficiency. Bulgaria’s NECP lays out an objective for 8% of the residential and non-residential building stock to be upgraded from 2021-2030, rising to a 20% share from 2041-2050. Priority will be given to introducing more efficient heating and cooling systems.

The country says that both EU and other funding programs will be used to finance its energy efficiency initiatives. For example, the Energy Efficiency and Renewable Sources Fund is the Bulgarian government’s soft loan program for fossil-fuel powered and renewable energy heating systems. It covers new high-efficiency boilers, separate domestic hot water heaters for summer usage, and high-efficiency fossil-fuel or electric-powered heat pumps – among other things. There is also a local-level grant scheme for renewable energy heating systems as part of the “Bulgarian Municipalities Working Together to Improve Air Quality” project, which runs to 2024.

There are also tax breaks on offer. Energy performance standards are directly connected to tax credit incentives. Improving the use of renewable energy in buildings is promoted through a tax rebate granted for those with a class A or B energy performance certificate. In addition, machinery and equipment acquired that increases energy efficiency is eligible for an accelerated tax depreciation benefit.