subsidies for TPPs

Тази статия за субсидиите на ТЕЦ-овете е публикувана в Икономически Живот на 20.09.2020 г. Автор е Димитър Събев. Тук публикуваме нашия превод на английски на оригиналната статия.

„Prepare to spend BGN 20 billion on subsidies for TPPs“ by Dimitar Sabev

The project for energy strategy until 2030 with a horizon until 2050 hints for a large distribution of money starting right from next year…

Admirable success was recently reported by the state-owned TPP Maritza East 2. It lost „only“ BGN 129 million in the first half of 2020, compared to a loss of BGN 170 million for the same period a year earlier. However, the explanation for this improvement is not very pleasing: the reduced loss is due to 50% lower electricity production. That is, the less the TPP works, the less money the Bulgarian Energy Holding will lose, ie. the Bulgarian taxpayer.

An army of politicians and energy experts swears that this TPP is crucial for the security of Bulgaria’s electricity system. Therefore, they say, the public should not worry about the 1 billion losses accumulated in the state-owned enterprise after 2014, but should continue to subsidise the coal-fired power plant.

Right, lignite coal is national, and the enterprise is state-owned?! „Everything Bulgarian and national, I love, respect and long for …“ Behind this slogan are hidden chronic huge losses, unattended state feeder, and a dirty production, already passing away in the EU, which directly contributes to the shorter life expectancy of Bulgarians.

With respect to the truth, it is not only „Maritsa East 2“ that comes out smoky-salty to us. A recent report by the Center for the Study of Democracy estimated the state subsidies for the three Maritza Basin TPPs (Maritza East 2 and the two power plants controlled by the US companies AES and ContourGlobal) at a total of EUR 450 million. To the state-owned TPP goes a little less than half of this amount.

The bulk of these subsidies is in the form of carbon emission quotas: under the 2001 (still secret) contracts for the privatisation of Maritza East 1 and Maritza East 3, the state is responsible for any change in the regulatory environment that affects their target profit. That is why Bulgaria pays the carbon emission quotas of the two American power plants, separately from the capacity payments. If we add the CO2 emission quotas of the crushed state-owned  thermal power plant, the public expenditures for emissions climb near BGN 1 billion.

How did this round sum come about? Since the beginning of 2020 only, the CO2 emission quotas in the EU have risen by more than 15%, and compared to the levels in mid-2017, the price has jumped by as much as 480%. Most likely that the price of the mission quotas will continue to rise, as since 2021 their total volume will be reduced by 2.2% per year. Accordingly, the amount of subsidies that Bulgaria pays to the coal sector will increase.

1 BGN billion a year is not a small amount of money and maybe the state should do something after all. Indeed there are intentions, but there will be no rush – we understand from the draft Strategy for Sustainable Energy Development of Bulgaria until 2030 with a horizon until 2050. This document, which leaked in the public space in mid-September, shows that at least until 2025 a change in the production of electricity from lignite-fired power plants is not foreseen. Apparently, the state has prepared at least BGN 5 billion to subsidise coal-fired power plants over the next five years.

The Strategy envisions a decline in the production of electricity from lignite power plants by 22% to a total of 16.3 thousand GWh by 2030. This corresponds to the decommissioning of one of the two smaller „American“ TPPs – but may also come from the downsizing of Maritza East 2. By 2035, electricity production from lignite is projected to decline to 8.4 thousand GWh: by 60% below current levels. According to the strategy document, by 2040 lignite capacity will be almost shut down.

When talking about the future, let alone the horizon beyond the next 1-2 governments, the proverb „Either the camel, or the camel owner“ has become established in the native practice. As we know, Bulgaria is a country of unrealised strategies, but the case of the energy strategy is more special, because on the basis of this inconspicuous document will be made huge transfers of public funds and long-term policies that will affect almost every household and business. 

Documents of this type should be read between the lines: government officials who write them and know what is actually being prepared are carefully fleeing from any specifics, flooding the reader with banal phrases and hollow slogans – but still leave some traces of the real intentions of the government. 

These are found on page 16 of the draft energy strategy. After a sentence of 67 words, which generally says that because of the expensive CO2 quotas there will be no capacity left to cover the peaks in electricity demand, there is a hint that by July 1, 2021 a „common market capacity mechanism“ will be introduced.

The red light flashes on with the dates: the officials are supposedly preparing an energy strategy with a horizon until 2050, but in practice are sweeping the path for new mechanisms for redistribution of state money in the coming months – both to the private TPPs and to the crushed state-owned power plant.

Perhaps it is useful to remind that a 2016 World Bank report on the state of the Bulgarian energy sector emphasised on the excessive share of capacity contracts in the energy system. And also the fact that capacity payments arranged with inexperienced or corrupt governments of the emerging markets allow the hedge fund Reservoir Capital Group, which is the ultimate owner of the Bulgarian ContourGlobal Maritza East 3, to distribute bulky dividends.

We can expect that with this „common market capacity mechanism“, the government will provide the powerful coal lobby with additional cash flow – in addition to the already discussed compensation of hundreds of millions for the common European climate policy. Thus, the inevitable for the EU countries closure of the coal sector will be „sweetened“ for the big players – while, by delaying for electoral reasons the programs for a fair energy transition in coal-mining areas, the government is gambling with the livelihood of more than ten thousand families.

This new capacity mechanism is coming just in time: the contracts signed in the last days of Ivan Kostov’s government with the new owners of TPP Maritza East 1 and TPP Maritza East 3 expire in 2026 and February 2024, respectively. Presumably right from next year, massive transfers are planned for accelerated compensation of the investors.

Even if we put aside the scandalous new plans of the government in the energy sector, maintaining the status quo, in which Bulgaria spends BGN 1 billion a year to subsidise an obsolete production, is unacceptable.

Are we rich enough to turn a blind eye to this annual gifts worth 1 billion leva in exchange for dirty air? This amount, for example, is sufficient for the right away increase of all pensions by BGN 40 each month. BGN 1 billion covers all public payments for people with disabilities and for families and children.

In the end, with 1 billion leva a year a large-scale investment program for renewable energy can be undertaken, which within about five years will radically change the face of the Bulgarian energy sector.

Yes, but these billions from the public pocket have another purpose: 1) to provide revenue and profit to important reserved interests and 2) to postpone the inevitable, at least as far as Bulgaria remains a member of the EU, transition to a carbon-free economy.

The era of coal and oil is not just knocking on the door, it has already arrived. Against this background, in the conditions of rising CO2 quotas and cheaper energy from renewable sources, the Bulgarian government plans to keep the coal sector alive in the next 15-20 years. Surely there is a plan where the necessary funds for this purpose will come from? Yes, you guessed it right – we’re still talking about public money.