Wednesday 2 May 2018

A new independent report by Baringa Partners, Europe’s biggest energy consultancy, and co-funded by Shell, has shown a need for Bulgaria to develop an energy strategy for 2030 which incorporates a more prominent role for gas in its energy system. The report reveals that without a new approach recognising the importance of natural gas, the country risks falling behind its neighbours and being unable to meet its 2030 climate change targets.

Baringa’s report is one of the first qualitative comprehensive analyses of the gas and power markets in an Eastern European country. It highlights the potential role of gas in addressing the energy trilemma of delivering decarbonisation, maintaining security of supply and ensuring energy is affordable. It also urges the Bulgarian Government – which currently has the Presidency of the Council of the European Union – to develop a detailed plan for the transition of the existing energy mix towards gas, implement effective market reforms, undertake select infrastructure investments aimed at diversifying supply, and create a level playing field between gas and power.

The report shows that Bulgaria has already taken steps to increase its security of supply in natural gas and encourage domestic gas production over the past decade. It has done well in its progress towards its 2020 climate change targets, driven by its significant hydro and nuclear power capacity and increased renewables development. However, the evidence shows that steps towards market liberalisation have not been as rapid or as effective as they could have been, the market remains highly concentrated and gas plays a relatively minor role in the power generation mix.

Baringa’s analysis highlights the critical role that gas can play in Bulgaria’s energy future and pathway to decarbonisation as an affordable, plentiful fuel that can work in partnership with renewables to provide flexible energy provision. In addition, the report shows that gas can be particularly effective in the decarbonisation of heat, providing a lower-cost alternative to full electrification. However, as Bulgarian policymakers contemplate its strategic energy direction and national 2030 energy strategy, Baringa is concerned that gas is not being fully considered.

Recommendations

Based on its analysis, Baringa’s report makes the following recommendations to the Bulgarian Government:

- Fully engage with gas industry stakeholders (including trade bodies and NGOs) while developing its energy strategy.

- Progress energy market reforms, following the EU-acquis for detailed guidance.

- Use congestion management procedures to unlock market access to key import routes blocked by 90% ship-or-pay contracts.

- Invest in new interconnectors, specifically IGB for access to Southern corridor gas and LNG imports via Greece.

- Campaign for increased capacity in the existing Romanian interconnector through increased compression by the Romanian partners.

- Implement regulatory reforms to ensures gas is able to compete fairly with power for customers in the heat sector, for instance removing or reducing the gas sector (gas TSO) payments to the Security of the Electricity System Fund.