Bulgaria: The Bulgarian Parliament Marks The First Anniversary Of The Renewable Energy Law Of 2011 With Its First Amendment

The Bulgarian Parliament approved the effective Renewable Energy Law in April 2011. A year later, the regulatory framework introduced by the law underwent its first serious revision, as the amendment of the law, which had been discussed for months, entered into effect on 10 April 2012.

The main amendments of the Renewable Energy Law, which concern renewable energy plants for the generation of electricity, are summarized below.

Applicable price to the power purchase agreement

The price at which the producer will sell the electricity generated by the renewable energy power plant will be determined upon the plant's commissioning.

According to Bulgarian law, the commissioning of a site is documented either with a use permit (разрешение за ползване) or with an operation certificate (удостоверение за въвеждане в експлоатация), depending on the category of the construction (e.g. a power plant with capacity between 25 MW and 100 MW is deemed a second category construction and is to be commissioned with a use permit).

The price that will be applicable to the power purchase agreement of the respective renewable energy power plant is to be fixed at the feed-in tariff effective at the date of the plant's commissioning. Once fixed, the price will remain unchanged for the entire term of the power purchase agreement.

This is a significant change, since under the previous version of the law, the applicable price was to be fixed at the feed-in tariff effective upon the completion of construction, documented with a protocol, signed by the investor, the construction company and the independent construction supervisor (the so-called Act 15). On the other hand, the timing of the plant's commissioning, at which point a use permit is required, is much more difficult to plan, as it depends on the timing of the inspection of a state acceptance committee and the signing of the protocol of the inspection (the so-called Act 16).

This change will be applicable not only to new projects, but also to projects under development that have not yet completed the construction of the site with Act 15 by the date the amendment becomes effective (i.e. 10 April 2012). This applies also to projects built in stages, which are not entirely commissioned by the said date.

Extended term of the final connection agreement

The maximum term of the final connection agreement is extended from two years, as per the previous version of the law, to three years from the signing of the agreement. If the plant is built in stages, the first stage of the project must be commissioned within three years from the signing of the agreement (and not two years, as under the previous text).

The change, however, does not apply to projects with final connection agreements in the process of implementation by the date the amendment becomes effective (i.e. 10 April 2012). For such projects, the maximum term of the final connection agreement remains two years.

Projects built in stages

The most significant changes introduced by the amendment are those concerning the term and the price under the power purchase agreements of projects for renewable energy plants built in stages (на етапи).

The term of the power purchase agreement for such projects will start from the date of the use permit for the first stage. With this explicit provision, the amendment closes a loophole in the previous version of the law which allowed various interpretations of the starting moment of the term.

The price under the power purchase agreement for such projects will be defined for the first stage at the feed-in tariff by the date of its commissioning, later it will be updated upon commissioning of the next stage/s and the final feed-in tariff applicable to the entire project will be estimated as a relative average upon commissioning of the entire project, i.e. of the last stage.

The revision of the applicable price to projects built in stages is one of the most controversial amendments. Under the previous version of the law, the price applicable to the entire project was to be fixed upon completion of construction of the first stage. Later, at first reading of the amendment, the Parliament approved an amendment stating that the price for each stage is to be determined independently from the other stages. The latter would have resulted in very burdensome application in practice, particularly with regard to the measuring of the produced electricity from the different stages of plants with a single metering device.

Deadline for commissioning of the power plants

Another interesting amendment of the law is the provision which requires that the commissioning of a plant is to be completed within 30 days from the date of the application from the producer to the competent authorities, accompanied with the required documents, including those for the performed 72-hour tests.

This provision replaces the previous text of Article 31 paragraph 7, which had stated that if a power plant is not commissioned within two years from the date of the connection agreement, the price under the power purchase agreement applicable to such plant is to be fixed at the feed-in tariff effective at the date of the use permit for the plant. Considering that the completion of the commissioning procedure is generally not within the producer's control (leaving aside intentional delays), it is not clear what the purpose of the legislator might have been and, more importantly, what the consequences of failing to comply with this deadline will be.

Guarantees of origin

One of the positive amendments concerns the guarantees of origin - they are no longer a condition for the obligation of the transmission or distribution company to purchase the produced electricity.

This amendment solves the issue that arose in the beginning of 2012 as a result of the controversial application of the newly-adopted ordinances for the guarantees of origin, when most of the producers were forced to invoice the produced electricity at a much lower price and to re-invoice the difference to the preferential price only after the transfer of the guarantees of origin corresponding to this electricity from the producer to the transmission or distribution company was registered in the Agency for Sustainable Energy Development. However, the problem is not completely solved, as the controversial provisions of the ordinance are yet to be amended to correspond with the amended law.

Another change involves the newly-introduced penalty for producers who fail to request issuing and transferring of the guarantees, corresponding to the electricity, which has already been purchased under the power purchase agreement – the fine for legal entities is BGN 500 - 10,000 (EUR 250 – 5,000).

Transitional provisions for projects with preliminary connection agreements

For producers with projects under development in which the preliminary connection agreements are in the process of implementation, the timing of the connection to the grid is to change under the amendment.

By 10 July 2012, the distribution companies and the transmission company are required to prepare a time schedule for connection according to the planned grid development and the order of the preliminary connection agreements (on a first come, first serve basis). The time schedule is intended to provide feasible deadlines for connection to the grid, particularly in regions where the grid is currently overloaded or its upgrade is behind schedule.

The producers will be notified about the expected time line for connection according to the time schedules and they will have one month from the notice to confirm whether they accept the scheduled time for connection. If they do not accept it or if they fail to respond, the preliminary connection agreements are deemed terminated and the producer will be reimbursed for the advance payment of the connection fee, respectively the guarantee for such payment shall be released within one month.

This amendment does not apply to projects for the development of energy plants operating on biomass – they will be connected to the grid within the terms stipulated in the preliminary connection agreements.

Preferential regime for small-scale projects

The amendment expands the scope of the projects which can benefit from the preferential regime for small-scale projects under Article 24 of the Renewable Energy Law. The threshold capacity for biomass projects has been increased from 1 MW to 1.5 MW. Small hydro plants with a capacity not exceeding 1.5 MW will also be treated under the preferential regime.

The regime for small-scale photovoltaic installations with a capacity not exceeding 200 kW is revised to provide for stricter qualification requirements for the persons permitted to install them – they are introduced with a number of new provisions (Articles 20a to 20f), which will become effective in a year from now on 1 April 2013. On a positive note, the connection to the grid procedure for the smallest class of PV installations (up to 30 kW) is amended to allow faster completion of the process and with less administrative burden for the producer (e.g. the preliminary connection agreement is no longer necessary).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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