Amendments to the Energy Act

The latest amendments to Bulgarian Energy Act (“EA”) entered into force as at 24 July 2015. The announced purpose of the amendments is to improve the financial status of Bulgarian energy system by applying new measures for compensation of financial deficits in the National Electricity Company (“NEC”).

Setting up of “Security of the Energy System” Fund

The first newly adopted measure is the setting up of a special Fund – “Security of the Energy System” that shall cover NEC’s losses accumulated as a result of the purchase of electricity at preferential prices. The amounts in the Fund shall be raised by: monthly installments due by producers and traders importing electricity and their amount shall be 5% over the income from electricity sales, net of VAT; income realized by auctions for sale of quotas under the Restriction of Climatic Changes Act; income formed by accrued interests including such due over the abovementioned installments; donations and income formed by statistical transfers of renewable energy.

The monthly installments due by the producers and traders shall represent public obligations and shall be collected by the National Revenue Agency following the procedure arranged by the Tax and Social Security Procedure Code. Payments shall become due as at the 15-th day of the month following the month the income was realized, whereas by the 5-th day of each month producers and traders shall be obliged to declare their income for the preceding month. Those installments are acknowledges as current expenses for the purpose of taxation. However, such expenses shall not be considered by the Energy and Water Regulatory Commission (“EWRC”) for the purpose of price regulation.

Transactions at freely negotiated prices

The amendments explicitly provide the possibility for renewable energy producers to sell the amounts exceeding the net specific production of electricity on the free market. On the other hand NEC shall be able to sell at freely negotiated prices the energy produced from high efficient cogeneration, as well as renewable energy purchased from the end suppliers.

The Act for amendments also provides additional obligations for the transmission system operator and the distribution system operators. They shall also be obliged to pay the non-recoverable expenses and community obligations under the prices determined by the EWRC.

Amendments to the Renewable Energy Act

The Act for amendments to the Energy Act introduces also certain amendments to the Renewable Energy Act.

Amendments concerning biomass power plants

In order to benefit from the priority regime of work incentive, plants with combined cycle and indirect use of biomass 60% of whose overall weight shall be animal manure, shall prove the registration of stock-breeding farm under the meaning of the Veterinary Practice Act at least three years prior to filing the application for connection of the plant to the grid. They shall also prove that they own a specific minimum number of registered animals and birds and produce 1 kWH electricity form their manure.

The law amends the parameters of biomass plants which shall be put into operation in the future and which could benefit from the compulsory purchase of electricity under preferential price. Those incentives shall remain open for: (a) plants with installed capacity up to 1,5 MW for production of energy with combined cycle and indirect use of biomass, whereas 60% of the overall weight of the biomass is animal manure, constructed in urbanized territories, agricultural sites and production areas, under the abovementioned requirements for registration of stock – breeding site, and (b) plants having installed capacity of up to 500 kW for production of energy from biomass of vegetable waste from own production.

The incentives (mandatory purchase of electricity produced at preferential prices) for biomass power plants covering the abovementioned requirements shall remain until 30 June 2016. Power plants commissioned after the abovementioned date shall not benefit from such preferences.

New restrictions on purchase of renewable electricity at preferential prices

Additional restrictions were introduced with regard to the quantities of electricity produced from renewable energy sources, which shall be subject to purchase at preferential price. Preferential price shall be paid only for the renewable electricity produced up to the net specific production rate of electricity. The net specific production rate of electricity is defined as an average energy production from 1 kW installed capacity according to EWRC’s decision for determination of the preferential prices after deduction of own costs.

Net specific production rate of electricity shall not apply for biomass power plants corresponding to the requirements described above. In other words, their entire amount of electricity produced by such biomass power plants shall be purchased at preferential prices.

The purchase price for electricity exceeding the amount purchased at preferential prices is also changed. Those quantities shall be purchased by NEC and the end suppliers under the price for excess electricity on the balancing market, unless the producer uses the electricity for its own needs or sells the electricity on the free market.