Solar Investment in Bulgaria: the Hidden Dangers

With abundant sunshine and significant solar power potential due to its geographical location, as well as with EU renewable energy targets to achieve, Bulgaria should be the perfect solar investment destination. At least in theory. In practice, however, this is not exactly the case, with the most recent impediment to green energy investment in the country being the decision of the Bulgarian energy regulator to impose retroactive cuts to preferential feed-in tariffs for renewable energy. The highly controversial decision, which affects mostly solar-produced electricity, was labelled as “illegal” by investors who have already stated their intention to take Bulgaria to court over the new feed-in tariffs which significantly changed the rules upon which the investments were originally made..

On 16 September 2012, the Bulgarian newspaper Capital reported that Bulgaria’s State Energy and Water Regulatory Commission (SEWRC) imposed new grid access fees, affecting only green energy installations. The new fees cut effectively the preferential feed-in tariffs for wind- and solar-generated electricity, with the “grid access fee” being determined as part of the feed-in tariff.

!m[](/uploads/story/432/thumbs/pic1_inline.png)One particular aspect of the SEWRC decision is that it affects differently the different renewable energy facilities. As reported by Reuters, the move will cut the preferential feed-in tariff for the photovoltaic projects completed by 30 June 2012 by 40 percent, whereas those completed before 31 December 2011 will see a 20 percent cut. Wind power tariffs will be reduced by approximately 10 percent, regardless of whether the installation has come into operation. As a result, it is photovoltaic installations that are mostly affected by the energy regulator’s new fees.

The Financial Times reports that the Bulgarian energy regulator argued that the decision to lower the feed-in tariff was taken due to cost pressure on network operators from the rising amount of expensive renewable energy coming online. In addition, SWERC has estimated that the sector can bear the lower fees, with the capital outlay costs for renewable energy installations being as much as 60 percent lower than when prices were first calculated.

The decision however quickly provoked a heated reaction among renewable energy investors, with Velizar Kiriakov, chairman of the Association of Producers of Ecological Energy, calling it “discriminatory”, as quoted by Capital. In a press release, the Bulgarian Wind Energy Association (BGWEA) qualified the regulator’s actions as illegal and dangerous. “The message to any investor in any sector in Bulgaria is clear: what the law promises you today, can be retroactively revoked tomorrow”, commented BGWEA’s executive director Sebastian Noethlichs.

And while there have been concerns whether the EU’s poorest Member State can indeed afford to pay so much for renewable energy, the consequences of cutting the feed-in tariff may stretch well beyond the green energy sector. Capital reports that banks now have serious concerns about potential defaults from energy companies. In addition, according to the FT, investors are likely to be deterred by the impression that policy can be retroactively reversed. “Investing in Bulgaria no longer means investing in a stable, reliable, European market, but in a wild, chaotic market where every investor is at the mercy of an in-transparent, secretive government,” said Mr Noethlichs.
Green energy investors have already signalled that they are going to take legal action since the SEWRC decision was adopted despite existing legislation guaranteeing the original levels for 12 to 20 years. In addition, investors are arguing that the regulator did not hold a public discussion and did not inform the companies concerned.
As reported by the FT, Mr Noethlichs believes that the Bulgarian authorities are using the green energy sector both in an attempt to cover ongoing losses by the state-owned National Electric Company, and as a scapegoat for this summer’s power price increase of 13 percent. Capital on the other hand quotes Mr Kiriakov as saying that the decision in fact aims to drive working renewable energy installations into bankruptcy so that they can be later purchased by “the right people”. It seems, one of the dangers to solar investment in Bulgaria is not being one of those people.