Bulgaria has become notorious for the failure of many big energy projects in recent years. Yet there is more going on in the Bulgarian energy sector than meets the eye, writes independent energy consultant Valentin Stoyanov. According to Stoyanov, Bulgaria could even become one of Europe’s main energy hubs. The country has strong and diverse energy assets to start with, ranging from coal and nuclear power to hydropower and renewable energies. It is already one of the biggest electricity exporters in the EU and is currently investing heavily in exploration and production of gas in the Black Sea. But to turn Bulgaria into an energy success story, notes Stoyanov, political and industry factions will have to overcome their differences.
Photo: site of the Gorna Arda hydropower project
In the last two decades Bulgaria has had a disillusioning experience with big energy projects. After units V and VI (1000 MW each) of the sole Bulgarian NPP “Kozloduy” were launched in 1987 and 1991. nothing really substantial and strategically new occurred in the country’s energy sector.
First there was a lot of media hype about two big oil pipeline projects to cross Bulgaria: the US-backed AMBO and the Russian backed Bourgas-Alexandroupolis. Both have vanished.
Nabucco was recently declared dead, but the prospects of its rival Gazprom-backed South Stream look quite grim too. At the same time the Bulgarian Parliament issued a moratorium on shale gas development in the beginning of 2012. So no major development occurred on the gas front either.
In the nuclear field the situation may be even less promising than with the hydrocarbons. Four out of six reactors of the NPP “Kozloduy” were shut down in the course of the country’s EU accession and there are signals that the life extension of reactors V and VI may not be unproblematic. There are speculations for a serious delay although a contract with Rosenergoatom and EDF was signed and other steps were undertaken. Another major uncertainty remains the project for a second NPP near the town of Belene on the Danube river since it was blocked by the parliament one and a half years ago. There are speculations that the newly appointed government may revive it, while at the same time canceling the project for unit VII in Kozloduy which was launched by the previous government.
The upshot of this all is that many of the global energy players have left the country in recent years. Eon sold its grid company in the North East (one of the three regional distribution grid companies in Bulgaria) and Enel sold its thermal power plant (TPP) in the Central South keeping only its business in the domestic renewables sector (although these decisions may to some extent also be part of those companies’ global restructuring programs). The nuclear giants Rosatom and Areva had to cancel their plans after the controversial Belene project for a second nuclear power plant (NPP) in Bulgaria was suspended in March 2012. Chevron, another energy colossus, has also been disappointed in the failure of the newly elected National Assembly to lift the ban on shale gas exploration and production.
There seem to be “cycles” of activity in the development of the country’s gas infrastructure
Foreign observers may be confused by these dynamics. What should be understood is that the primary reason for these stalemates in the Bulgarian energy sector is the high degree of political confrontation both on the national and international level.
Nevertheless, although no big energy project was really implemented in Bulgaria for the past two decades, some other smaller projects did evolve over the years. US energy company AES launched a thermal power plant (TPP) with installed capacity of 670 MW in the Central South. Other big TPPs were overhauled and upgraded.
The country’s gas infrastructure was substantially upgraded too between 1998 and 2003 when its capacity was boosted and more than 400 km of pipelines were added. Several domestic gas deposits were developed in the Black Sea shelf which relieved the national economy somewhat from Gazprom’s grip. In the meantime over 1100 MW of photovoltaics and some 700 MW of wind power were installed within a few years. These are more or less the greatest achievements in the Bulgarian energy sector for the past two decades. We can also add the privatization of some assets (grid companies, TPPs, district heating utilities and the oil refinery near Bourgas) but most of these deals are highly controversial.
The big picture
To get an idea of what to expect from the future and what possibilities Bulgaria has, it is necessary to understand the basic structure of the Bulgarian energy sector. From a strategic and geopolitical point of view it is based on four pillars. The first one is the Maritsa basin with deposits of 2 billion tons of lignite and three large TPPs. Two of the latter are owned by US companies (AES and Contur Global) and the third one – the biggest power plant in South Eastern Europe – by the State (the Bulgarian Energy Holding company). The Maritsa basin in the Central South contributes substantially to the country’s relative energy independence. The TPPs provide baseload to the national economy and the state-owned Maritsa East 2 is a substantial exporter of electricity.
The second pillar is the NPP “Kozloduy” which still provides up to 40% of domestic electricity production. The older four units (440 MW each) were shut down in December 2002 and December 2006 respectively. Bulgaria started its nuclear program in the 1960s and unit I of Kozloduy was launched in 1974 so the country has both experience and potential in this field. Public opinion still favors nuclear energy to a very large extent.
Bulgaria is one of biggest net exporters of electricity in the EU (together with France and the Czech Republic which are nuclear countries too
The third pillar is the gas infrastructure of Bulgartransgaz – a state owned company. This includes transit pipelines with a total length of 945 km and 6 compressor stations with total capacity of 214 MW, the internal gas ring and the sole Bulgarian gas storage of Chiren contains which has a capcity of some half a billion cubic meters of gas.
And the fourth pillar of the Bulgarian energy sector is the biggest oil refinery in South East Europe which is owned by the Russian major Lukoil. The refinery has an annual capacity of 9.5 mln tons of oil and underwent several modernizations and reconstructions since the privatization in 1999.
What to expect?
So what new activities are in the pipeline? One energy project will start soon for sure. This is “Gorna Arda” (Upper Arda) – a hydroelectric cascade in the very South that encompasses three hydroelectric power stations with installed capacity of 170 MW. The project will be financed and co-owned by Austrian energy company EVN, which is one of the leading investors in the Bulgarian energy sector.
Other interesting projects can be found in the gas sector. Bulgartransgaz will invest some €120 million in the reconstruction of four compressor stations. There seem to be “cycles” of activity in the development of the country’s gas infrastructure. After the intensive works between 1998 and 2003 no major activities took place until 2011. Since then projects for interconnectors with Romania, Greece and Serbia were started. However, the only realistic project in the foreseeable future is the launching of the interconnector with Romania next year. As to South Stream, its future is questionable as long as Gazprom has not obtained exemption from Third energy package rules. Certainly Gazprom seems to have abandoned the projected southern leg of the pipeline to Greece.
Again in the gas sector a consortium of Total, OMV and Repsol recently started exploration activities in the giant “Han Asparuh” block in the Black Sea shelf. The prospects for commercially viable discoveries seem good. Three ships will explore the 14 thousand km2 field in the next months. This is a very important development with potentially far-reaching strategic and geopolitical effects since Bulgaria is almost entirely dependent on Russian gas.
The big unknown is in the nuclear sector. The Belene project for a second Bulgarian NPP on Danube (2 units of 1000 MW each) was cancelled by the previous Sofia government in March 2012. The newly appointed government which started earlier this year has said numerous times that it intends to revive the project. This however depends to a very large extent on the outcome of arbitration hearings in which the Russian company Atomstroyexport demands compensations from Sofia for suspending the project unilaterally. Crucial is also the financing issue since the new-build nuclear projects are quite capital intensive. Behind the scene there are geopolitical considerations too.
Energy centre on the Balkans?
Could Bulgaria further develop its energy sector and even become an energy hub in Southeast Europe? There are good reasons to think that the country could indeed play an important regional role. In addition to its strategic location as South Eastern “gateway” to Europe, Bulgaria is one of biggest net exporters of electricity in the EU (together with France and the Czech Republic which are nuclear countries too). In recent years exports varied btetween 10 and 12 TWh. Moreover some of the biggest net importers of electricity in Europe, such as Turkey and Greece, can be found in South Eastern Europe. Serbia and the Republic of Macedonia are importers too.
At this moment, the political establishment is reluctant to create a real market environment
Bulgaria has the potential to remain a leading producer and exporter of electricity. With installed capacity of over 13 GW the country’s power sector covers a substantial part of the energy deficit in the region. Eight out of the ten biggest Bulgarian companies operate in the energy sector, which represents 16-20% of GDP. The country has some of the lowest electricity prices in the EU.
Bulgaria is also an important transiting country of natural gas. The annual transit amounts to some 13 bcm to Turkey, 4 bcm to Greece and minor quantities to the Republic of Macedonia. Moreover, projects for gas junctions with Romania, Greece and Serbia are under way, although only the junction with Romania, which will be launched in 2014, looks feasible at this moment.
A major development would be a gas interconnector with Turkey. Furthermore, the capacity of the country’s sole gas storage Chiren could be almost doubled and a second gas storage in the Black Sea shelf could be launched within a year by Irish Petroceltic if green light is given.
Imminent are the aforementioned project “Gorna Arda” and massive investments in the oil refinery near Bourgas. South Stream and the nuclear projects (new build nuclear and life extension of existing facilities) are uncertain but could yet materialise. If this happened, it would put Bulgaria back on the energy map of Europe in a serious way.
But a lot needs to be done to make this vision a reality. Currently one of the major problems is the high indebtedness in the Bulgarian energy sector. The state owned National Electric Company (NEC) seems to be in a very bad financial condition. Some of the state owned companies gathered under the roof of the almighty Bulgarian Energy Holding are in a bad condition too. One of the reasons for this is mismanagement and political influences over the years. These would finally have to be overcome and ideological encumbrances would need to be thrown overboard. At this moment, the political establishment is reluctant to create a real market environment. At this moment electricity prices are still largely regulated. Liberalisation would inevitably push electricity prices upwards – not a very popular move in Bulgaria.
But there are other things that could be done first. There’s still no energy trading platform in Bulgaria. The long awaited unbundling between the TSO and NEC is about to happen next year. There are some prospective areas under exploration where huge quantities of natural gas may be discovered. The renewables sector can be developed further. Even though subsidies for solar and wind power have been cut, it is quite likely that Bulgaria will reach the target of 16% green energy of its gross domestic consumption by 2020. At the same time a number of old and obsolete energy units will be shut down for good in the next few years as a result of the Large Combustion Plants Directive. The TSO talks about a loss of a total installed capacity of 2175 MW by the beginning of 2015 mainly in coal-fired power stations which do not meet environmental criteria and standards. This would inevitably lead to a further decline of the coal industry mostly in the South West of the country but will give an impetus to modernization.
In the old days of COMECON, a quarter of century ago, Bulgaria was specialized in electronics, agriculture, tourism and some other industries. In a modern strongly interconnected Europe Bulgaria could find one of its comparative advantages in the energy sector. Such a goal might even overcome differences and bring various factions in Bulgaria together. But that would require some strategic, long-term thinking on the part of government and industry actors.