Sustainable Growth in Renewable Energy

The renewable energy sources (RES) sector in Bulgaria has undergone rapid development in the past few years. Renewable energy share in gross electricity consumption reached 7.3% in 2008. Large-scale hydro power is currently the main source of renewable energy, however; investment in wind, solar and biomass has increased steadily. International players, green energy arms of the international utility companies and private equity (PE) green energy funds have started to play an important role in the market.

As an EU-Member State, Bulgaria has committed to reach certain levels of energy generated by RES, including 16% share of RES and 10% share of biofuels in the gross electricity consumption by 2020.

In addition, the indicative target set for Bulgaria is to achieve 11% share of RES in gross electricity consumption by 2010.

Investment incentives for RES projects

Government incentives have been among the key drivers of investor interest in the renewable energy market. Predictable regulatory environment, investment incentives and tariffs guaranteed over a longer period of time have been instrumental for both project developers and investors, as they significantly reduce the main market entry barrier – high costs. In Bulgaria, investment in RES is promoted through the following mechanisms:

1. Mandatory purchase at preferential prices of the electricity generated by RES

According to the Bulgarian Renewable and Alternative Energy Sources Act, electricity suppliers are obliged to purchase at preferential prices all renewable electricity from producers, with exception of electricity for own use, electricity for which the producer has contracts to trade at freely negotiated prices, and electricity with which the producer trades on the balancing market.

Electricity suppliers are obliged to purchase the renewable electricity at preferential prices, with the exception of electricity generated from hydro-power plants with capacity exceeding 10 MW.

Mandatory purchase of electricity at preferential prices will be applied until the planned system of issuing and trading Green Certificates comes into force.

The mandatory purchase of energy from renewable energy sources is effected through power purchase agreements with a term of 25 years for electricity generated from geothermal and solar energy, and 15 years for electricity generated by hydro-power plants with capacity of up to 10 MW, as well as for electricity generated from other renewable sources.

The terms of mandatory purchase is starting as follows:

• For existing producers of electricity generated from renewable energy sources, with the exception of hydro power plants with installed capacity exceeding 10 MW – upon re-negotiation, but not later than 31 March 2009;
• For new producers of electricity generated from renewable energy sources, with the exception of hydro power plants with installed capacity exceeding 10 MW – from the start of the generation from renewable energy sources, but not later than 31 December 2015.

Not later than 31 December 2011, the Minister of Economy and Energy will prepare and submit for approval to the Council of Ministers a bill on the market mechanisms for encouraging generation of electricity and heating power from renewable energy sources, which may not necessarily be applicable to producers of energy from renewable energy sources benefiting from the above mechanisms.

2. Feed-in tariffs set by State Energy and Water Regulatory Commission

The State Commission on Energy and Water Regulation (SEWRC) is determining the preferential prices for sale of electricity generated from renewable or alternative energy sources, except for electricity generated by hydro-power plants with installed capacity exceeding 10 MW each year no later than 31 March.

The preferential price of electricity generated from renewable energy sources is set at at 80% of the average sale price for public utilities or end suppliers for the preceding calendar year plus a margin determined by the SEWRC depending to the type of primary energy source. The margin referred for the next calendar year may not be less than 95 % of the margin for the current year.

3. Connection to the electricity grid

The transmission company and/or distribution companies are obliged to connect with priority all facilities for generation of electricity from renewable and alternative energy sources.

4. Certificates of origin

The State Energy and Water Regulatory Committee (SEWRC) issues to the producers “certificates of origin” for the energy generated from renewable energy sources. The State Energy and Water Regulatory Commission is accepting the validity of certificates of origin issued by competent authorities in other EU member states based on the principles of reciprocity. On the grounds of the certificate of origin, the SEWRC is issuing to the producers of energy from renewable energy sources a "green certificate".

5. Incentives under the Investment Promotion Act

According to the Bulgarian Renewable and Alternative Energy Sources Act, the provisions of the Investment Promotion Act will apply to all investment projects for construction, expansion or rehabilitation of facilities for generation of electricity and heat power from renewable and alternative energy sources, as well as the related infrastructure – public or municipal property.

Tariffs for electricity produced from RES

The mandatory purchase prices approved by SEWRC effective 01 April 2009 are as follows: