5th International Congress for South-East Europe
ENERGY EFFICIENCY &
RENEWABLE ENERGY SOURCES
Mobilizing Investment in Renewable Energy in Bulgaria
6-8 April 2009
Presentation by Kenneth Lefkowitz
Managing Partner
New Europe Corporate Advisory Ltd.
www.necadvisory.com
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Table of Contents
Section 1 Renewable Energy Sources in Bulgaria
Section 2 Energy Efficiency in Bulgaria
Section 3 Incentives for Investors
Section 4 Challenges
Section 5 Recommendations
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Current state of play in renewables in Bulgaria
Overview (1/3)
Hydro, Wind, Solar, and Biomass
Renewable Energy
3010 MW installed capacity as of the end of 2007 .
Hydro
2792 GWh generated for 2007
2563 MW turbines and 943 MW pumped storage owned by NEK;
80 MW Tzankov Kamak project with expected annual generation 185 GWh is developed by NEK with VA Tech;
25MW HPP Svoge is developed as a PPP between Petrolvilla and Svoge municipalities
NEK with VA Tech Hydro rehabilitates Dolna Arda Cascade – annual output expected to increase with 64 GWh
104 MW controlled by EdF;
Private owners of significant capacity currently not selling;
There is an opportunity to consolidate the numerous micro-hydro development projects;
Greenfield investment in dams for drinking water is also an opportunity
Wind
Bulgaria has potential wind-power capacity of 2200-3400 MW (estimates vary);
3000 MW of new power generation projects as of the beginning of 2009;
Developers incl. AES, Eolica, EVN, Mitsubishi, Raifeissen Energy & Environment, Windkraft Simonsfeld, Wpd
Natura 2000 and Bern convention could block the earliest projects, all of which fall within the Via Pontica bird
migration route.
Solar
Attractive tariff (EUR 420.79/MWh for capacities below 5 kW and EUR 386.02/MWh for capacities above 5 kW);
Only a handful of small projects to date.
Biomass
Dalkia is carrying out a feasibility study in Varna for a biomass facility using straw as a raw material;
15 MW near Nikopol developed by Enemona;
Sviloza operates a facility for burning of wood waste left over from its cellulose plant.
Biomass projects near Bansko and Ihtiman
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Current state of play in renewables in Bulgaria
Overview (2/3)
Wind
At least 3000 MW of wind projects are planned currently.
Four broad categories of project developers are seen on the market:
The permitting cost per MW is currently around 20,000EUR. It is best met by the strong
international developers and most difficult to meet for those wind developers whose
business activity is concentrated in the real estate sector.
We concluded that many investors have spread their resources over a significant number of
projects vying for limited infrastructure and internal financing which should further reduce the
number of projects permitted.
We deem that at least 1500MW of the planned projects will run into significant difficulties
related to the slowdown in the Bulgarian economy and especially to the devaluation of real
estate.
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Current state of play in renewables in Bulgaria
Overview (3/3)
Wind
LEVERAGE TARIFFS
MW
P s = 0.43 Built
Planned P s = 0.33 Permitted
P f =0 Not built
.56
P
f=
Not to be Not to be
0.
66
permitted permitted
Planning Permitting Construction Exploitation
MW planned MW permitted by 2012 MW commissioned by 2012

Energy Efficiency
Overview
Negawatts
Energy efficiency
Consumption reduction incentives are positively correlated with the price of energy
to the end-consumer;
Energy consumption reduction is the cheapest form of “capacity.”
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Energy Efficiency
Energy efficiency in Bulgaria
Current draft energy strategy contains the conflicting goals of promoting energy
efficiency and keeping household electricity prices artificially low;
Reduction of energy consumption in peak hours by the least well-off segments of
the Bulgarian population has been induced by higher electricity prices in peak
hours;
Insulation has become a popular vehicle for energy efficiency as a result of high
prices of thermal energy in relative terms.
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Current state of play in renewables in Bulgaria
Potential
High potential for development
Growing demand for renewable energy worldwide and in Bulgaria
• Climate change
• Intensifying pressure on global energy resources (growing demand)
• Competitiveness
Existing and potential future power shortage on the Balkans due to:
• Strong economic growth in the region
• Lack of sufficient generation capacity
EU quota for Bulgaria on renewables:
• renewable energy to account for 11% of gross power consumption in Bulgaria after
2010 and 16% after 2020.
• According to NECs forecasts, estimated need for additional renewables-based capacities of 893
MW till 2010.
• Hydropower:
o large-scale hydro – almost fully exploited technical and economic potential;
o > 300 small hydro projects licensed in the past several years – little space left for
development;
Favorable regulatory framework (in the EU and Bulgaria)
Unexploited opportunities:
Limited hydro and solar opportunities make wind, biomass, and biogas projects crucial
for Bulgaria to fulfill its renewable energy quota:
o Only several small wind farms currently operating in the country;
o Abundance of agricultural waste can contribute to Biogas production.
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Incentives for Investors
Tariffs (1/4)
Feed-in tariffs & wind developers
Special tariff for wind generated electricity set by SEWRC
Feed-in tariff for wind is made up of two components:
base component equal to BGN 64.40 (EUR 32.88) per MWh calculated as 80% of the average electricity end-
user sales price for 2008
average electricity end-user sales price for 2008 = BGN 80,50 (EUR 41.10) per MWh
a premium which depends on the capacity of each generator and the number of full effective annual operating
hours; a lower premium applies for the increment above 2,250 hours;
96.51
87.83
74.04
63.62
54.94
41.15
32.88 32.88 32.88
≥ 800 kW ≥ 800 kW < 800 kW
≤ 2250h ≥ 2250h
Comparison with EU price levels:
Compatible with EU prices for electricity produced from new wind turbines
In the very low range of EU prices for electricity produced from older turbines
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Incentives for Investors
Tariffs (2/4)
Feed-in tariffs & wind developers: likely evolution
Based on the end-user price
NECA has developed a forecast of end-user electricity prices based on supply,
forecast, a likely evolution of wind
demand, and the regulatory framework
power feed-in tariffs is developed
under three scenarios:
• The premium in each
subsequent year is unchanged.
• The whole tariff is adjusted for
inflation.
• The premium is adjusted for
inflation.
• By law, the maximum decrease
in the premium is 5% p.a.
The proposed substitution of
preferential tariffs with a system
of guarantees of origin starting
2015 will affect generators
commissioned after that date.
• renewable energy commitments
to EU will force Bulgaria to offer
investors adequate ROI.
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Challenges
Tariffs (3/4)
Tariffs
• Tariff visibility is crucial now that banks are very cautious.
Cost of Debt
min. DSCR
Assumptions:
P90 capacity factor: 20%
Installed cost per MW: 1.7 million euro
Note: Average end-user prices may be depressed due to weak demand and continuing populist policies.
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Challenges
Tariffs (4/4)
30% Devaluation of the Lev
Cost of Debt
min. DSCR
• 30% Devaluation of the Lev will make cash inflows denominated in domestic currency insufficient to
obtain Euro-denominated debt financing.
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Challenges
Grid Connection
Grid connection
• SEWRC estimates that to connect renewable energy in the next 4-5 years, 100-
120 million euro will be needed.
• The grid connection costs should be equitably shared between distributors
operating in renewable energy rich and renewable energy poor regions on the
basis of final customers served.
• Grid connection should be a win-win story rather than a mandate imposed on
NEC/distributors to provide incentives for much-needed infrastructure creation for
renewables.
• NEC should be more transparent about its plans for infrastructure creation to
enable investors to plan accordingly.
Distinguishing among investors
• NEC’s frequent use of the term lie investors (лъжеинвеститори) is not
constructive;
• Professional developers have a valid role to play in the value chain by assuming
development risks that institutional investors and utilities would not assume –
resale of projects is therefore not to be looked up necessarily as speculation;
• We propose several mechanisms to regulate the grid connection market better:
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Recommendations
Grid Connection
• Construction permits and grid connection studies that expire if not used within a
reasonable period – this will force sales of projects by speculators that don’t have the
necessary technical/financial resources;
• NEK to require increasing proof of financing and/or technical capability to make
progress on grid connection applications – this will screen out the speculators;
• To give NEK enhanced IRRs on mandated infrastructure upgrades to
accommodate renewables.
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Recommendations
Selected Policy Prescriptions to Mobilize Investment
SEWRC should embrace the EU’s move to really implement the electricity market. Energy
efficiency will not occur as long as electricity prices are artificially low and kill households’
economic incentives for energy efficiency.
Focused targeting and direct income assistance should be provided to low-income families
and replace the very inefficient universal scheme of price subsidies presently in place.
In the next NAP, carbon credit allocation to renewable energy should be introduced.
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