Bulgaria agrees lower electricity price with US-owned power plants

Written by on April 8, 2015 in Business - Comments Off on Bulgaria agrees lower electricity price with US-owned power plants

Bulgaria’s state-owned power utility NEK signed an agreement on April 8 to buy cheaper electricity from two thermal power plants owned by US investors, in exchange for paying the arrears owed to the two plants in full.

NEK’s deal with AES Maritsa Iztok 1 and ContourGlobal Maritsa Iztok 3 will save the state utility an estimated one billion leva (about 511 million euro) over the remainder of the contracts, which expire in 2026, but NEK also agreed to pay in full the amount owed to the two power plants, which was 700 million leva.

Last year, Bulgaria’s utilities regulator asked NEK to begin talks with the two coal-powered plants to renegotiate the terms of their long-term electricity purchase contracts. To strengthen NEK’s bargaining position, the State Energy and Water Regulatory Commission (SEWRC) later lodged formal complaints with the European Commission, arguing that the fixed electricity purchase price in the contracts represented illegal state aid.

Bulgaria signed the 25-year contract with the two power plants in June 2001 as an investment incentive with AES and US firm Entergy (which sold its majority stake in Maritsa Iztok 3 to Italy’s Enel in 2003, which in turn sold the plant to ContourGlobal in 2011), which took on the costs of modernising the power plants. In recent years, the two contracts have been increasingly often blamed for the high price of electricity in Bulgaria, which prompted SEWRC’s intervention.

The regulator suggested that NEK should target a 30 per cent reduction in the price of electricity bought from AES Maritsa Iztok 1 and a 20 per cent cut in the price of electricity bought from ContourGlobal Maritsa Iztok 3, as well as reducing the amount of electricity bought from the power plants in half. According to SEWRC’s calculations, that would have resulted in savings of 5.4 billion leva for NEK for the remainder of the contract.

The agreement signed on April 8, however, envisions smaller reductions – 17 per cent in the price of bought from ContourGlobal Maritsa Iztok 3 and 14 per cent in the price of electricity bought from AES Maritsa Iztok 1. It would not affect the length of the contract and a binding agreement was expected to be signed in the third quarter of 2015, subject to approval by project lenders, AES said in statement.

The agreement was signed at the Government building, with Prime Minister Boiko Borissov, Energy Minister Temenouzhka Petkova and US ambassador Marcie Ries in attendance, all of them describing the deal as a good compromise.

Petkova said that the agreement would have no immediate impact on Bulgarian electricity prices, but the 100 million leva in annual savings for NEK would help “stabilise” the cash-strapped state utility. The amounts owed to AES and ContourGlobal were expected to be paid using a loan that would be taken by NEK’s parent company, Bulgarian Energy Holding, she was quoted as saying.

(AES Maritsa Iztok 1 power plant, also known as AES Gulubovo. Photo: Gonzosft/Wikimedia Commons)

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