Axpo Bulgaria was established in 2006 as part of Swiss energy company Axpo Group. The group covers the entire energy value chain and is a marketer of renewable energies in Europe. In 2007, Axpo Bulgaria received a power trading license and since then has been a participant in the power markets in Bulgaria and its neighbouring countries. In 2011, the company built a service centre to render operations and various back office services to the Axpo Group. Milena Videnova has been Axpo Bulgaria's Managing Director since August 2020.
Ms. Videnova, 2023 has been quite a turbulent year for the Bulgarian energy market, casting uncertainty over its future direction. On one hand, businesses have received compensations to address the issue of high electricity prices. On the other hand, the introduction of the new windfall profit tax adds to the complexity. How have all these developments affected the market?
While 2023 is proving to be a dynamic and exciting year, with financial concerns adding to the geopolitical uncertainties, it has still been considerably calmer than 2022.
In terms of the extraordinary excess profits tax, I believe any new tax is always risky. In addition to significant earnings, one must carefully analyse the return on equity before considering the implementation of such a tax, especially given the possibility of an approaching recession. All the rules in place are hurting the medium and long-term market. In general, the market liquidity in the SEE region is weak and any additional extraordinary crisis measures and taxes literaly “kill” the long-term trading and hamper the development of the PPA market. I genuinely hope that this is a one-off occurrence and that everything will return to normal soon. After all, investors need stability and such events make markets challenging to foresee and raise the cost of hedging risk.
Despite the challenges, the renewable energy sector in Bulgaria appears to be gaining traction. Could you elaborate on the current state of the local PPAmarket and share some details about Axpo's promising project pipeline?
Axpo recently concluded a series of landmark deals in south-eastern Europe, including the first long-term wind PPAs in Croatia and Serbia and the first financial corporate PPA in Slovenia. Bulgaria's PPA market is still in its infancy and evolving more slowly than the rest of the EU. That said, the country already has some successful projects which demonstrate that this is achievable, and we are closely researching processes and exploring opportunities at Axpo Bulgaria.
However, there's still much to do to develop this market. Bulgaria currently lacks a long-term energy strategy to create the framework and ensure the energy industry's future, leading to a lack of trust in individual actors. Strengthening the regulatory environment is critical to ensure that all players in the process have calarities on next steps.
Positively, no restrictions on long-term power purchases means every investor is now on the market with open positions, and there is no hedging of long-term power purchase agreements. If the EU and Bulgaria wish to encourage the Green Deal, there should be no windfall taxations or other constraints, allowing the processes to evolve on a market basis.
Of course, there are some favourable circumstances arising from Bulgaria's energy system being very well connected with those of our neighbouring countries. For several years, our spot market has been linked to markets in Romania and Greece. In addition, things will improve considerably once the second electrical pipeline between Bulgaria and Greece becomes operational, as the transmission capacity will grow dramatically, expanding market potential for collaboration with existing and new partners. Customers will also benefit: if they cannot locate the required goods in Bulgaria, they will be able to enter into cross-border supply contracts.
Axpo also offers trading with guarantees of origin as a stand-alone service. What is the level of interest among Bulgarian customers for such services?
Clients are very interested. Every renewable energy source (RES) producer provides such guarantees. As the Bulgarian Agency for Sustainable Energy Development (ASED) must still finish the process for its certification, these guarantees of origin are now selling at a somewhat reduced value.
Axpo manages over 25 different registers and has many industrial clients in Western Europe for whom green energy products are critical. It is these enterprises that are candidates for their purchase. We can provide trading solutions with guarantees of origin for all renewable energy producers.