12.11.2018 Members of the National energy chamber participated in expert discussion on the revised EU ETS funding mechanisms for modernizing the energy sector, including Modernisation Fund. The discussion, organized by the European Commission representative office in Sofia, aimed to promote a debate on the revised ETS Directive and how it can be used by Bulgaria to support the country’s energy transformation. Representatives of the energy sector were invited to provide input and suggestions. Based on this and other relevant discussions, it is the government’s responsibility to draft the national plan in this regard and to notify the EC of the intended use of the funds by 30.09.2019.

Ivan Tzankov, executive director of AES Bulgaria, emphasized that the expected allowance for Bulgaria which is about EUR 450m for the period 2021-2030 is not sufficient to make a huge investment in a single big project but could support projects increasing the stability of the energy system such as a combination of energy storage facilities and new RES capacities.  Batteries would decrease the factor uncertainty of the renewable resources and a combination of the two can be considered as having the characteristics of a base capacity. Tzankov quoted the latest Mid-term Adequacy Forecast by ENSTO-E where Bulgaria is mentioned in its conclusion for year 2020 “…the risk of resource scarcity appears for only a few countries, including Bulgaria and some islands – e.g., Cyprus, Malta, Corsica and Crete”. With this in mind, it seems the current allocation for Bulgaria is not sufficient and should be increased. Mr. Tzankov also stressed that during the transitional period one of Bulgaria’s main goals should be to ensure the security of electricity supply and the system’s stability for which the TPPs in Maritza East basin are critical. Therefore, transferring all quotas under 10c mechanism to the Modernisation fund would not be advisable.

Meglena Russenova, president of the Bulgarian Photovoltaic Association, offered three ways of using the Modernisation fund resources to support a clean and cost-saving energy system:

1. Buying guarantees of origin from newly-built renewable energy plants and purchasing the “white certificates” of energy efficiency projects.

Guarantees of origin and white certificates are a standardized and regulated instrument within the EU. An exemplary cost of 2-3 euro/MWh would significantly encourage the development of renewable energy projects and energy efficiency because:

1. a) it would take a significant part of the cost of the capital invested in it and would make more projects financially more stable over time;

(b) the contract for the purchase of guarantees of origin and white certificates with the Modernisation Fund would rapidly improve their risk profile, the cost of capital and their access to finance;

(c) the transaction costs of this instrument will be very low, because in each EU country there are already accredited agencies with the relevant registry issuing guarantees of origin and white certificates.

2. Financing priority areas:
3. a) off-set programs targeting current mining and coal-fired power plants investors to support the transition to new technologies and new energy sources that are sustainable in the long term;

(b) energy cooperatives, labour unions or other forms of association to be used as instruments for direct financial compensation of the workers and employees concerned;

(c) development of the network and the facilities for joining and providing land (or rights of use) under preferential terms to interested in new energy capacities investors in the affected areas subject to obligatory recultivation.

3. Removing national barriers to investment in new energy capacities.

(a) a 5% income tax on all energy producers – this measure was part of the stabilization package but approach must be found at least for new investments to restore that tax.

(b) the abolition of charges on the export of electricity.

Antoaneta Stoyanova, EVN Bulgaria, proposed organizing a roundtable or a technical working group to discuss the amended Directive and the ways in which Bulgaria should take the most advantage of it. This discussion with representatives of the business, the regulator, municipalities, the Ministry of energy, the Ministry of environment and water and the Ministry of labor and social work and other interested parties should be organized in the nearest future to ensure timely preparation of the necessary implementation documents at national level. By 30.06.2019 each Member State shall publish a detailed national framework setting out the competitive bidding process and a list of investments under 12.5 million Euro under art. 10c. By 30.09.2019 each Member State shall notify the Commission of the respective amounts of allowances to be used under Article 10(2)(b), Article 10 (c) and Article 10 (d), while the deadline for transposing the Directive into the national legislation is 09.10.2019.

Mrs. Stoyanova also suggested the following funding priority areas:

а) Construction of replacement capacities and modernisation of thermal power plants and heating plants, which are outdated do not meet the IED emission limit values;

1. b) Development and modernisation of district heating grids;
2. c) Repurposing and repowering of decommissioned TPP and HP installations;
3. d) Public-private partnerships with Municipalities for introduction of district-heating in areas with single family houses in order to improve air quality;

Having in mind the high prices for European Union allowances (EUAs) for CO2 emissions and the limited quantity of allowances, which will be freely allocated during 2021-2030, it is not recommended to transfer all allowances under 10c mechanism to the Modernisation fund. Using the 10c mechanism for modernisation of the district heating sector to receive free allocation of allowances will relieve the energy prices from additional EUAs cost burden.

The priority funding areas under the Modernisation fund should be aligned with the National integrated energy and climate plans that Member States will have to submit by December 31^st 2019 under the governance of the Energy Union Regulation.