Green energy rules stifle wind finance

BULGARIA: Bulgarian renewable energy law in effect since May 3 is expected to block the development of wind projects in what was once one of the most promising markets in Eastern Europe. The Bulgarian Wind Energy Association (BGWEA) and other renewable-energy associations have warned that the law will drive away investors and cause the country to miss its 2020 renewables targets.

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The most problematic aspect of the law is a provision that would see confirmation of the applicable feed-in-tariff (FIT) only once construction of a project is completed. A previous measure limiting to 5% any reduction in the premium component of the FIT has now been removed. "I'm pretty certain that with this new law in force you will not be able to get project-financing lined up," says BGWEA executive director Sebastian Noethlichs. "No sane bank would take on this tariff risk."

Another controversial element of the law is a reduction in the duration of the FIT for wind farms, from 15 to 12 years. BGWEA argues that the new 12-year term places Bulgaria at a disadvantage compared to other European states and puts it on a par with uncompetitive nations such as Latvia, Luxembourg and Slovakia, where wind energy has yet to develop significantly.

Investment barriers

The law will be troublesome for investors in new wind energy developments, but will also present problems for investors in existing, operational wind farms. Operational projects will receive a FIT fixed at the current level for the remainder of their term. However, investments in operational projects were made under a previous scheme that saw tariffs adjusted annually according to a formula by which investors and banks assumed the FIT would rise slightly each year.

BGWEA says it will challenge the law in every forum possible and notes that some of its members are seeking advice about possible legal action. However, legislative corrections appear unlikely in the short term.

The current Bulgarian government has made an anti-renewable-energy strategy a key part of its platform. No policy changes are likely until after October 23, when presidential and municipal elections will be held. In a best-case scenario, Noethlichs believes a new, more acceptable legislative framework could be in place in a year's time.

Last year, Bulgaria's installed wind capacity jumped 198MW to 375MW and a number of projects already completed or under construction should guarantee a significant capacity rise this year as well. However, investment in further projects began to stall last year, a situation that is likely to persist under the new law.

Until recently, Bulgaria had been seen as one of Europe's main emerging wind energy markets. Bulgaria's renewable-energy association, APEE, has forecast more than 3.2GW as a realistic target for 2020. But the country's national government has been far less ambitious, setting a goal of just 1.25GW in its National Renewable Energy Action Plan. This is widely seen as insufficient for Bulgaria to meet its EU target of achieving 16% of electricity consumption from renewable sources by 2020.

Without a change in Bulgaria's renewable-energy legislation, even the 1.25GW objective may be unachievable.

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