BULGARIA: An Introduction to Energy
Economic and Political Background
The Bulgarian economy has continued its relatively strong growth for the last three years. While foreign direct investments have been on a downward trend for some time now, the economy has held up relatively well with stable domestic demand and increasing public expenditure on account of local COVID-19 induced support measures and European Union funding. Similarly to the situation in Europe, inflation has been decreasing, especially lately. Bulgaria, which entered ERM II in 2022, is on track to join the Eurozone in 2026. The country has been principally approved to join the OECD, subject to satisfying a few remaining requirements. Bulgaria joined the border-free Schengen Area for travel by air and sea on 31 March 2024, and for travel by land on 1 January 2025.
Bulgaria continues to be gripped by political instability resulting from a string of seven inconclusive general elections since 2021. Apart from a nine-month period straddling 2022 and 2023 during which Bulgaria was ruled by a de facto coalition of the two largest centre-right parties (GERB and PPDB) with the critical support of DPS (a predominantly Turkish minority party), the country has been governed by caretaker cabinets appointed by the president. The last inconclusive election was held on 27 October 2024 and the parties are in the process of forming a regular government. If they are unsuccessful, the next general election will be held in the spring of 2025.
Energy Sector Overview
Renewables
The major recent developments in the energy sector are related to the renewable and nuclear power sectors. With respect to renewables, Bulgaria has continued making significant progress in its decarbonisation efforts despite lacking a coherent energy policy. In particular, utility-scale solar capacity has been increasing fast and has currently reached close to 3,000 MW. The number of large solar PV plants (with capacity of 50 MW or more) has increased. This is largely due to the ability of such projects to better bear the grid connection costs and thus improve the overall economics of the projects.
While utility-scale solar has enjoyed a real boom, roof-top solar and wind power have been remarkably slow to take off. While it is not exactly clear why roof-top and wind capacities are much slower to materialise, a reason may be that potential developers find it much more difficult to secure appropriate sites in terms of size and, perhaps more importantly, grid connection suitability.
Battery storage
Related to renewables, battery storage has also recently seen quick development. In August 2024, the Ministry of Energy opened a tender procedure for National Infrastructure for Storage of Renewable Energy for granting a standalone battery energy storage system funded under the EU’s Recovery Resilience Facility. The tender procedure aims to provide funding for the construction and implementation of at least a 3,000 MWh standalone battery storage facility. The total amount of the grant that can be provided under the entire procedure is EUR590 million. Successful bidders are expected to conclude their grant agreements in early 2025.
Nuclear
While the NPP Belene project was long considered a priority by successive past governments, given its Russian reactor technology in 2024, the project was essentially discontinued for geopolitical reasons.
The other nuclear project, known as New Kozloduy, which is in a very early development stage, have recently made some progress with Westinghouse Electric Company having signed an extension to the existing Front-End Engineering and Design Contract with Kozloduy NPP-Newbuild for two AP1000® reactors. Westinghouse was awarded the contract in 2023 to assess the initial readiness of the Bulgarian industry and the existing infrastructure at the Kozloduy site to support the construction of the units.
Coal-fired capacity
Bulgaria’s existing coal-fired plants continue producing energy at a diminishing rate. In 2024, the Maritza East III coal-fired plant, which is majority-owned and operated by KKR, discontinued its operations due to the expiry of its 15-year PPA with NEK.
The AES Galabovo coal-fired plant, solely owned and operated by The AES Corporation, will most likely also discontinue its operations in mid-2026 when the associated PPA will expire.
The Maritza East 2 coal-fired plant, which is indirectly solely owned by the state, does not enjoy the benefit of a PPA and produces energy for sale at the so-called regulated market. The plant is the largest coal-fired energy facility in the country but most of its six units are not in operation.
Financing the energy sector
Local euro-denominated financings dominate energy project financings. The lenders include all second-tier Bulgarian banks, namely DSK Bank, UniCredit, KBC, Eurobank and First Investment Bank.
Multilateral (EBRD, EIB/EIF, IFC) financings have decreased markedly due to the wide availability of commercial bank credit and increasing sophistication of the Bulgarian commercial banks. Notable exceptions are two very large solar PV projects that recently reached financial close, the 199 MW St George project and the 237 Tenevo solar project, which are financed by IFC and EBRD, respectively.
International bank-led syndicates now routinely include first-tier Bulgarian banks.
Trends and Developments
An increasing number of renewable (chiefly solar PV) plants have, or are planning to, install battery storage. This allows them to take advantage of the arbitrage opportunities arising from the daily price differentials and consequentially increase their revenues.
Having battery storage installed as part of renewable plant setup is either required or heavily incentivised by the local lenders financing renewable projects.
In mid-2024, the Association of Issuing Bodies validated the membership of Bulgaria’s Sustainable Energy Development Agency. The country is now preparing for scheme membership and hub connection which is expected to take at least six more months.
Legislative developments
Amendments to the Energy Act 2023 were passed in late 2023 and 2024. These amendments introduced “closed distribution systems” for electricity and gas (CDS). A CDS constitutes a network that distributes electricity or gas within a geographically limited industrial, commercial or shared services site.