Bulgaria needs new deals, law change to cut power costs-regulator

SOFIA Thu May 29, 2014 10:52am EDT

SOFIA May 29 (Reuters) - Bulgaria's state energy regulator has urged the country's public power provider to renegotiate agreements under which it is obliged to buy all the electricity produced by two coal-fired plants owned by U.S. companies.

U.S. power companies AES and ContourGlobal produce about 20 percent of Bulgaria's power at the two plants.

The regulator said in a statement on Thursday the agreements breached EU competition rules and that power provider NEK should renegotiate terms to lower the cost of electricity produced by AES by at least 30 percent and ContourGlobal by a fifth.

The regulator also proposed changing legislation to cut by 50 percent the preferential rates the country is obliged to pay for electricity generated by wind and solar power plants.

Under current legislation the state must buy all renewable energy produced at the preferential rates.

"After the contracts are amended and if the purchase of renewable energy on preferential prices is limited, we can see a reduction of costs by which the regulated prices are set by over 1 billion levs ($695.36 million)," the regulator said.

AES and ContourGlobal declined an immediate comment.

The proposals are the latest attempt by Bulgaria to avoid a spike in regulated power costs, a politically sensitive issue in the European Union's poorest country where power bills swallow up large chunks of household incomes, especially in winter.

The Socialist-led government has vowed to keep electricity prices unchanged after cutting them twice since coming to office last May in a bid to avoid a repeat of mass protests. Street demonstrations against high power prices toppled the previous centre-right government in February 2013.

Energy analysts say Bulgaria should work to amend its inefficient energy sector and increase energy prices, while at the same time offering financial support to poorer citizens to shield them against such increases. That would ensure that foreign investors are not punished by sudden regulatory changes, analysts argue.

AES invested 1.2 billion euros ($1.63 billion) in a 670 megawatt thermal power plant in the Maritsa East coal-mining complex that started operations in 2011 and has a 15-year power purchase contract.

GlobalContour, which acquired a 908 megawatt plant in the same complex, also has such an agreement that expires in 2024.

Bulgaria has already imposed a 20 percent tax on the income of solar energy producers, many of which are foreign-owned, in a bid to rein in a boom in renewable energy that resulted in over 1,600 megawatts of wind farms and photovoltaic installations.

The Bulgarian Photovoltaic Association condemned the proposal to halve the energy which is purchased at lucrative feed-in tariffs, saying the move will bring to bankruptcy all investors in the sector.

($1 = 1.4381 Bulgarian Levs) ($1 = 0.7354 Euros) (Additional reporting by Angel Krasimirov; Editing by Matthias Williams and Susan Thomas)

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