Velizar Kiryakov, Head of Association of Producers of Eco Energy: Bulgaria's Renewable Energy Needs Better Law Enforcement
Interview with Velizar Kiryakov, Chair of the Bulgarian Association of Producers of Ecological Energy (APPE).
The APEE is based in the Black Sea city of Varna and unites a number of the major firms investing in renewable energy in Bulgaria.
Kiryakov has commented for the readers of Novinite.com (Sofia News Agency) on issues that investors in renewable energy are faced with in Bulgaria.
Is it fair to say with respect to the investments in renewable energy in Bulgaria that there is a bubble which might burst?
This is not true, these are just speculations. It is true that currently there are investment inquiries made by firms for a total of 13 000 MW in terms of electricity production capacities.
However, these are just inquiries submitted to the National Electric Company NEK and the regional power utilities in order to get information about the technical conditions for joining the electricity distribution network. That is because in Bulgaria this process is not transparent – people have no way of knowing which power line has free capacities.
Before starting a new project, one needs to know how much the unoccupied capacity of the power lines is, and if it is possible to be connected to the distribution network. So you go to NEK or the power utilities and ask them, “Excuse me, I want to install this thing here, may it be connected to the network?”
At present, the preliminary contracts signed between NEK and companies operating the production of electricity from renewable energy – which are actually legally binding unlike the inquiries – are for a total production capacity of 1 300 MW. And half of these contracts have expired – because they are valid for a two-year period.
The total capacity for electricity production from renewable energy sources of facilities which have already been completed and connected to the power network is 186 MW.
So, you see, there is no actual bubble – somebody is talking about a bubble and wants everybody else to believe there is one. It is true that there are a lot of companies which have initiated the procedure for changing the status of the land they own – but just how many of those are going to actually build electricity plants and parks? This is clear from the percentage of projects that have been finalized.
What about the much talked about “moratorium” on starting new renewable energy projects in order to improve the environment regulations? In December-January, the Ministry of Environment seriously considered imposing such a moratorium.
Well, as it turned out, there is no moratorium, they gave up on that idea but there is actually a tacit decision not to allow the start of new projects.
What the Ministry of Agriculture and the Ministry of Environment are doing right now is that they retain all requests, and don’t give any answers.
Thus, you, or any company applying for a permit to start a renewable energy project, have no reply but there is also no written document that saying there is moratorium. I call this a “tacit moratorium”. Because what the government says is that the legislation is to be amended, and the procedures would restart whenever the new legislation is adopted.
Is this “tacit moratorium” going to lead to a potential loss of foreign investment or jobs?
Well, this situation sends a very bad signal. I recently had a member of our Association come to me saying he had sent requests to the Ministry of Environment and had had no reply for a month. He was wondering what to do – should he continue with the other procedures for starting a renewable energy project?
This is a very bad signal for the investors because it shows that somebody in Bulgaria can decide to do whatever they want in spite of the legislation.
We have argued many times – including with foreign investors – who say, “You have bad legislation on renewable energy.” We say, “No, we have good legislation, the problem is that there is no control over its enforcement.” Even the bureaucrats don’t obey it – there are no punishments for them, they can do whatever they want.
The problem is in the lack of control, follow-up, failure to implement the laws. There is no way to draft a better law. It just has to be enforced. Laws in Bulgaria are not enforced. As one famous Bulgarian politician used to say, “The police capture the criminals, and the courts let them go.”
What policies would you recommend to the government with respect to renewable energy?
Well, the sad truth is that we have no political decision about how the energy sector in Bulgaria should be developed. None of the last three governments made any such political decisions. They do things in bits and pieces but we have no energy strategy. There are only proposals for energy strategies that every new government disregards.
The energy sector is not the textile industry where one day we make clothes, and the next day we don’t. If you build a power line, it will have to be used for at least 30 years. If you make no decision about what you are going to do, there is no way to establish a power grid to be used in the next 50 years.
The current and the previous governments have been discussing a strategy for the development of Bulgaria’s energy sector by 2020. What good is that? We should already know what we will be doing by 2020, and should be talking about Bulgaria’s energy strategy until 2050!
This is not happening, and this is not happening because there is no political decision for that. Whenever there is a political decision, there will also be an economic solution.
In your view, what should be the main focus of Bulgaria’s energy strategy?
The aim of our Association is to allow all household consumers to become household producers, to turn the energy sector to the ordinary people so that every single household could produce its own energy rather than be dependent on the monopolies regardless of whether these are state-owned or private ones.
So the strategy of the Bulgarian government should be directed at how to increase the living standards of the Bulgarians rather than to come up with mega projects such as building two hydro power plants on the Danube together with Romania of 800 MW each, or building the Belene Nuclear Power Plant of 2 000 MW. It should focus on making the Bulgarians independent people.
What percentage of the projects for renewable energy in Bulgaria are in actual violation of the environmental regulations?
There are a lot of speculations on this issue as well. There is a park owned by Inos 1 which is on the territory of NATURA 2000. But this park was started before 2000 when there was no mention of NATURA 2000 in Bulgaria. So this park was under construction, and had all necessary permits when the protected areas network, NATURA 2000, was adopted in Bulgaria.
There is another wind power park, also located close to the town of Kavarna, which is also in violation of NATURA 2000; it was also started before NATURA 2000 was in place but it did not have all necessary documents – so let’s accept it is OK to stop that project.
However, the view of our association is that none of our members will ever execute any projects within the protected areas because there are plenty of other areas where this could be done. We have had a framework agreement with the Bulgarian Society for Protection of Birds for five years now.
But the fact that some bureaucrat somewhere issued a permit for a project in a protected area is not a problem of the business sector. It is the problem of the state because it allowed somebody to be bribed.
We do not have any members of our Association involved in such dealings because our position is clear – all sorts of renewable energy projects – wind, solar, biomass – can stay out of NATURA 2000.
During our last meeting with the Environment Ministry, I think it was in January, the Ministry said it was going to draft a new, environmental map showing where renewable energy projects are allowed.
This is unacceptable to us because 35% of Bulgaria’s territory already falls within the NATURA 2000 network, and now they want to introduce new restrictions. What is more, it is not clear what methodology they will use in order to determine which areas are allowed.
What percentage of the renewable energy companies in Bulgaria are members of your Association?
Not all are included but we have companies such as AES, ENEL, Global Wind Power, Vestas. Not everybody can become a member – we have a code, and everybody has to abide by it.
Are there foreign investors in Bulgaria which flee from the strict regulations in Western countries?
No, the thing that brought many renewable energy investors to Bulgaria after 2007 when the Renewable Energy Act was adopted is that we have a fit-in tariff which provides a guarantee, and we have very competitive prices.
They were not attracted by the lack of regulation. I will say this again – we have a very good law. The problems come from that fact that some bureaucrat somewhere did not do their job, they are not because we have fewer regulations.
Actually, I claim that if in Bulgaria the regulations were really followed by the administration, they would be better than in many Western countries.
One thing we don’t have in Bulgaria about wind power parks, for examples, is a problem they have in many Western European countries.
In England the big problem is that if you want to build a wind park, you have to get the agreement of those living in the area. But unlike England or Germany, which are packed with farms and outer settlements, in Bulgaria we do not have this problem.
If you go to Dobrudhza (Northeastern Bulgaria) and pick a rectangle formed by any four villages, you can very well build a wind park in the middle, and it won’t be even visible.
If you are in Denmark or Austria, wherever you go, there are homes all over the place. Bulgaria is not densely populated and we have a lot of unoccupied areas, and it will be a pity if we fail to utilize this potential because we have the potential to develop all renewable energy sources.
How realistic is the commitment made by the Bulgarian government to the EU that by 2020, 16% of its energy will come from renewable sources?
The important thing here is that this commitment does not refer only to electricity. 16% of all energy consumed in Bulgaria will have to come from renewable sources by 2020. This includes heating, cooling, air conditioning, etc. Many people say that we can make those 16%.
However, if we calculate the recent energy Bulgaria consumes in kilotons of oil equivalent – our electricity consumption amounts to 2338 kilotons, whereas the total amount of energy we use for heating and cooling is about 4500 kilotons.
The big issue in Bulgaria is how to produce heating and cooling energy from renewable sources because we cannot use biomass or geothermal sources right now. We have geothermal sources but they are not that great and using them for energy production has high marginal costs.
We have good condition to develop biomass energy production but in order to utilize them we need to have farmers owning at least 10 000-12 000 decares of land. If I have a biomass power plant, I can sign contracts with 20 farmers in order to buy out their straw but they can always change their mind. They can decide to plant sunflower instead of wheat the next year because sunflower is more expensive, for example. Then what do I do?
Countries such as the Netherlands, Austria, Germany have biomass plants but there it is the farmers who own them because the farmers would have about 14 000 decares of land, they would have 100 cows, and can decide on their own whether to use the manure to burn it for energy production, etc. Farms in Bulgaria are small-scale.
A couple of days ago I had this idea – back in the communist days there were first collectivized agricultural units (“TKZS”), and we had the so called agrarian-industrial complexes (“APK”) – tying certain industries to agricultural production in certain plots.
So I am thinking – perhaps it is time to have new APKs in order boost the opportunities for biomass production – we could have the farmers and electric engineers come together and form units – because there doesn’t seem to be any other proper way to have biomass plants.
The other option is to burn wood. However, this is no solution because unfortunately in Bulgaria most of the forest potential that we have is located up in the mountains, and is very hard to access.
Even today we extract about 5.8 million cubic meters of wood per year from which 3,1 is category timber while we actually need to extract about 7 million cubic meters only from sanitary felling, to keep all the forests healthy.
But to do that we need to have roads and lifts all over the country. These are investments that Bulgaria could make within ten or more years if there is a political decision for that but it is impossible to do in recent years.
That is why in Bulgaria we have the so called clear felling – the poachers go to the lower hills and slopes and destroy the forests there because they cannot get to the higher parts of the mountains.
This is also why timber is very cheap in Bulgaria – because it is extracted through clear felling. If they have to extract the timber the proper way – through sanitary felling, its price will go up at least twofold.
In which of the various types of renewable energy sources (solar, wind, biomass, hydro power) does Bulgaria have the greatest potential?
Bulgaria has pretty much stopped developing its hydro power sector. We have a total hydro power capacity of 2563 MW from large water dams without pump storage hydropower stations. Perhaps we could reach 2900 MW by 2020 if some other projects are completed such as “Tsankov Kamak” or the “Gorna Arda” cascade.
Bulgaria’s mini hydro power stations currently have a total capacity of about 205 MW; if we utilize all options here in full, perhaps another 200-300 MW could be added at most.
So we are pretty much done with utilizing our hydro power potential – and this is on the condition that there is no global climate change and that we keep getting the same annual precipitation. If we don’t, the hydro power stations will have a lower productivity. There are investigations pointing reduction of the water resources with 10 %.
You have to keep in mind that as far as the large water reservoirs are concerned, electricity production is only the fourth priority. In the first place, the water is used for water supply to the people, then for irrigation, etc, and electricity production only comes in fourth.
So if you don’t have much water in the reservoirs, nobody is going to let you use it for electricity production. Some 10 years ago Sofia had this problem as the Iskar Reservoir was almost empty. So this is a delicate question.
Bulgaria has a huge technical potential in terms of installed wind power. We have estimated it at about 76 000 MW. Just to compare – the total production mixed capacity we currently use is about 9 000 MW.
We also have about the same estimated technical potential in terms of installed solar power – 71 000 MW. As to biomass, we will need a lot of investments in order to increase our potential there.
We also have about 700 geothermal sources in Bulgaria distributed rather evenly on its territory but they cannot be used for electricity production, only for heating&cooling. This, however, is a matter that has to be decided on by the municipalities.
For example, Varna is located on a sea of geothermal energy which, however, does not have a very high temperature. It is up to the municipality to start using this potential to heat public buildings, for example.
This is a big investment. The drilling alone costs EUR 200 000 but one also needs infrastructure because if a single household cannot do the drilling and then heat only its own house, the entire neighborhood has to be included. For example, the Golden Sands resorts can do that – they can use the geothermal energy for cooling.
You mentioned biomass but did not mention energy crops. Bulgaria has seen an increase of the acreage with rapeseed – what is the situation there?
Well, the rapeseed production so far wasn’t doing very well but we have just recently changed the legislation so there is a lot of hope for it.
Until recently, the legal requirement was to have between 0% and 5% biodiesel mixed with the petrol.
And the gas providers and gas station operators used the 0% option. With the new law, the fuel sold at gas stations in Bulgaria has to have at least 2% of biodiesel. So now it seems that Bulgarian-produced rapeseed oil can find a market in Bulgaria; because so far it was only for export. According to the EU directive the share of RES in transport is supposed to be 10% by 2020. This target have to be fulfilled with biofuels (produced or imported) or with electricity from RES.
Are there any rapeseed oil refineries in Bulgaria?
There are a couple of refineries which have had no market for their biodiesel here so they have had to export it.
Take the “Slanchevi Lachi” refinery in Provadia, near Varna, which has a production capacity of 30 000 tons of rapeseed oil. They go to Lukoil, for example, and Lukoil would say, “We don’t need it, the law says the biofuel content has to be from 0% to 5%. Now things should start to work out – especially if the required biodiesel content is increased to 3% and then to 5%.
There is a lot of speculation with the fact that the Bulgarian farmers might start growing energy crops instead of wheat, etc, so there will be no food production.
This will not be exactly the case because everybody has learned in primary school that farmers have to rotate the crops, they cannot grow rapeseed every single year. This production will be regulated by the market.
Take Germany, for example. They introduced favorable prices in order to help the German farmers growing rapeseed but the companies built plants near the ports and started importing palm oil from the Philippines, and did not want to buy the rapeseed oil of the farmers because it was too expensive. So the market regulates everything.
How competitive is Bulgaria in terms of renewable energy compared to other countries in the region? Can it start exporting energy from renewable sources?
Yes, and this is actually in Directive 2009/28 of the EC which says that EU countries that cannot meet the requirements for having a share of their energy come from renewable sources are obliged to make “strategic transfers” from other EU states through the so called “guarantees of origin.”
Bulgaria can make huge profits from that – I can tell you immediately five EU states which will not meet their renewable energy commitments – the UK, the Czech Republic; France is also unlikely to meet its requirement.
That is why I say to the Bulgarian government that it is nice to cut expenditures but we should also try to focus on increasing revenue.
There was a communist saying that “economizing is the mother of the economy” but the Bulgarians used to say that “economizing is the mother of poverty.”
So the Bulgarian state must concentrate on how to increase revenue, the GDP, how to invest in education, new technologies rather than just tightening the belt. Because the belt can be tightened for some time, until the person who wears it dies.
What are the chances that the necessary electricity distribution infrastructure in Bulgaria will be developed to meet the requirements for the new production capacities?
The development of the power distribution network is a political decision. NEK is a state-owned company. It will develop the grid if the head of NEK, who is appointed by the ruling party, is given a plan and is told to build a certain number kilometers of new lines in order to connect to the network a certain number of new plants.
Our state-owned companies don’t have investment plans – or if they have them – no one knows about them. The National Electric Company NEK is currently drafting a ten-year plan for the development of the grid because this is required by the European Commission. Our only hope is that the EU will require some things from our government.
There is actually a fair chance that the infrastructure will be developed because it can be developed. But when we talk to the State Commission for Energy and Water Regulation (DKEVR) we ask them why they don’t allocate money to NEK for development projects – because NEK say they have no money. The DKEVR replies – “They never asked us for money! In order to give them some, they have to present at least one project, and say they need this much for this new line.”
The prices could be increased by BGN 0,01 – and with the recent electricity consumption that is where we can get BGN 270 M for a new power lines. But NEK has not asked for funding. The DKEVR sets the prices accordingly.
If they don’t get asked by NEK for money, they don’t raise the electricity prices. NEK say they got no money but they never ask for any. It’s like that old joke about that man who prayed to God to win the lottery without ever buying any tickets.
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