Macroeconomic relevance of energy

IMPORTANCE OF THE ENERGY SECTOR The energy sector showed a high importance in Bulgaria with a share of 4.1% of value added of the sector compared to the total economy in 2012, considerably higher than the EU average. The share of employment of the energy sector in total employment of 0.9% in 2012 was also higher than the EU average, even though the sector has seen its importance in employment decreasing somewhat since 2005.

Source: EUROSTAT – National Accounts

According to EurObserv'ER, in 2013, the share of direct and indirect renewable energy related employment in total employment of the economy in Bulgaria was at about 0.2%, below the EU average of 0.53%. Source: European Commission, based on EurObserv'ER and EUROSTAT TRADE BALANCE OF ENERGY PRODUCTS Bulgaria showed a trade deficit in energy products of 5.8% of GDP in 2014, considerably higher than the EU average. This represents a modest improvement from 2010, when the country reported a deficit of 5.9%. The overall energy deficit is mainly driven by oil and gas, while the coal deficit is close to zero and trade in electricity shows a surplus. The overall energy trade deficit has to be seen in context of an overall current account balance that improved from a deficit of 0.9% in 2010 to a surplus of 0.9% of GDP in 2014.

1. Energy Security, solidarity and trust

ENERGY MIX The energy mix of Bulgaria shows a higher use of solid fuels and nuclear and lower share of petroleum and products and gases than on the EU28 average.

Gross inland energy consumption in 2013 Source: European Commission, based on EUROSTAT

IMPORT DEPENDENCY Due to its domestic production of coal and nuclear electricity production, Bulgaria has a below EU average import dependency when all energy products are considered together. However, Bulgaria imports all its nuclear fuel and nearly all its petroleum products and natural gas. In particular, Bulgaria imports all its gas and nuclear fuel from Russia. In addition to relying on a single supplier and a single route for its gas imports, Bulgaria has limited alternative supplies such as LNG and gas storage. Bulgaria is consequently vulnerable to gas disruptions. Overall, this translates into a high country supplier concentration index. Consequently, Bulgaria experiences a significant energy trade deficit, expressed in percentage of GDP.

Source: European Commission, based on EUROSTAT





2. A fully-integrated internal energy market

INTERCONNECTIONS

Source: European Commission, based on ENTSO-E scenario outlook and adequacy forecast 2014 Note: Reference to 2030 target is based on October 2014 European Council conclusions stating that "the Commission will also report regularly to the European Council with the objective of arriving at a 15% target by 2030" The interconnection capacity for electricity was of 11% in 2014 for Bulgaria, which is above the 2020 target. Implementing Projects of Common Interests (PCIs) would mean that the target of 15% for 2030 can be reached. Regarding gas, several PCIs are to be developed with Greece and Romania to increase the cross-border capacity and open the North-South priority corridor. The construction of the critical infrastructure projects, which would modernize Bulgaria's gas network and reinforce the gas links with its neighbours (Greece, Romania, Serbia and Turkey), incurs delays mainly due to regulatory and financial difficulties.

ELECTRICITY AND GAS MARKETS

Market concentration index for power generation (left) and gas supply (right) (2013) (Herfindahl index – 10000 means monopoly) Sources: European Commission based on ESTAT, CEER and Platts Power Vision Sources:ESTAT and European Commission Calculations A combination of complex problems (expansion of renewable energy power generation capacity based on generous subsidies for solar power and co-generation; long-term purchase power agreements; delays in phasing out power plants being non-compliant with the Large Combustion Plant Directive; weak and politically dependent energy regulator) and inaction in reforming the energy sector have exacerbated the problems in the energy sector and compromised the financial stability of public and private stakeholders. The revenues from the regulated end-consumer-tariffs are not sufficient to match the corresponding costs borne by electricity utilities. The day-ahead market for electricity is not operational. There is no market for natural gas. While market concentration in power generation is below EU average, the potential positive effects are hampered by a single buyer model with a quota system granting priority access to uncompetitive power plants. Market concentration is above EU average in gas supply markets.

Although electricity and gas consumers are allowed to switch, no actual switching is observed, due to the regulated prices in electricity and to DSOs operating exclusively in their licensed areas of operation for gas. The consumer satisfaction in electricity market is the lowest among the EU 28, while in gas is just below the EU average.

VULNERABLE CONSUMERS

Source: European Commission, based on on EUROSTAT SILC survey Based on a Eurostat survey on income and living conditions, three proxy indicators are used to assess fuel poverty. In this context, Bulgaria is considered the most vulnerable EU country in terms of fuel poverty. In particular, within the population at risk of poverty, a majority is unable to keep homes adequately warm. The other two proxy indicators are also above EU average. The measures to reduce fuel poverty and the social protection schemes supporting vulnerable customers should be improved.

ENERGY EFFICIENCY TARGET 2020

(16.9 Mtoe primary energy and 8.6 Mtoe final energy)

Source: European Commission, based on EUROSTAT and on national energy efficiency targets as declared by the MS under the Energy Efficiency Directive Bulgaria updated its 2020 energy efficiency target in 2014. The target is now 16.9 Mtoe expressed in primary energy consumption and 8.6 Mtoe expressed in final energy consumption. If the trend in primary and final energy consumption observed in the period 2005-2013 continues up to 2020, Bulgaria will meet its national target.

ENERGY INTENSITY Primary energy intensity in Bulgaria has decreased at a fast pace (-27.7% between 2005 and 2013), although it remains among the highest in the EU. Across all sectors, the highest energy intensity reduction is recorded in the industrial sector, i.e. almost 48% reduction. However, the energy intensity of the industrial sectors is still more than three times higher than the EU average.

Primary energy intensity of the economy Source: European Commission based on EUROSTAT and European Commission/AMECO Final energy intensity in industry Source: European Commission based on EUROSTAT and European Commission/AMECO