Bulgarian Biomass Market Handbooks for Investments 2012/2013 by Ilko Iliev

T E K R A M S S A M O I B N A I R 3 A 1 G 0 L 2 / 2 1 BU 0 2 s ent m t s e v n I r o f ndbook Ha

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BULGARIAN BIOMASS MARKET: HANDBOOK FOR INVESTMENTS 2012/2013 This Handbook represents complete, unique and the most complete guide for investments in Bulgarian biomass market. If you already have some background information about the market but you are wondering how to take decision to invest, then this is the Handbook you can use. In view of maturing biomass markets in Germany, Austria, France, UK, Czech Republic, Slovakia and Italy, Bulgaria represents a stable investment environment in South-East Europe with clear rules and fair FIT rates. The report provides a complete picture of the market situation, dynamics, current issues and future prospects. It contains 200 pages of valuable information in this very detailed and in-depth investments guide. With comprehensive up-to date market data this handbook brings clear and concise insights, to help investors in their decision making process. For your convenience we offer opportunity for orders with customized book content. Reasons to buy this handbook include:  Bulgarian political and economic environment overview, including PEST Analysis  Biomass resource potential in Bulgaria  Historical data provided from 2007 to 2012 and forecasts until 2020  Overview of Bulgarian biomass market development 2000 ÷ 2020  Grid connected and major upcoming biomass installations for 2012/2013  Development scenario of Bulgarian biomass sector until 2020  Current market prices of biomass projects with scenario to 2020  Porter Analysis, SWOT Analysis  Detailed overview of Bulgarian legal and regulatory framework for RES generation  Key organizations affecting development of the biomass sector  Detailed review of most relevant financing and supporting incentives  You will receive 4 free updates of this handbook for 1 year period.

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BULGARIAN BIOMASS MARKET: HANDBOOK FOR INVESTMENTS 2012/2013 TABLE OF CONTENTS

FOREWORD ................................................................................................................ 9 1.

METHODOLOGY .............................................................................................. 10

EXECUTIVE SUMMARY .................................................................................... 12

BULGARIAN POLITICAL AND ECONOMIC ENVIRONMENT. PEST ANALYSIS ........ 17 3.1. Basic country data ............................................................................................... 17 3.2. Political Climate and Ruling Party ....................................................................... 20 3.3. GDP and Economic Growth ................................................................................. 21 3.4. Labor market and unemployment rate ............................................................... 24 3.5. Electricity Imports and Exports. Electricity prices for business and households 25 3.6. Industrial Output and Private Consumption ....................................................... 27 3.7. Foreign direct investments (FDI) ......................................................................... 27 3.8. Taxes .................................................................................................................... 29 3.8.1. VAT ............................................................................................................... 29 3.8.2. Income and Corporate Taxes ....................................................................... 30 3.8.3. Property Tax ................................................................................................. 31 3.8.4. Transfer Tax.................................................................................................. 31 3.8.5. Types of corporation in Bulgaria .................................................................. 31 3.9. Inflation ............................................................................................................... 32 3.10. Monetary indicators ............................................................................................ 34 3.11. Banking and Credit Market ................................................................................. 35 3.12. Monetary Indicators ............................................................................................ 37 3.13. Ease of doing business in Bulgaria ...................................................................... 38

EUROPEAN BIOMASS ENERGY MARKET........................................................... 40 4.1. 4.2.

DRIVERS OF THE BIOMASS ENERGY MARKET ................................................... 43 5.1. 5.2. 5.3. 5.4.

Co-firing and cogeneration.................................................................................. 43 Livestock and livestock growth ........................................................................... 44 Agriculture ........................................................................................................... 45 Forestry ............................................................................................................... 47 RESISTANCE AGAINST BIOMASS POWER MARKET ........................................... 49

6.1. 6.2. 6.3. 6.4.

Installed capacity ................................................................................................. 40 Key facts and trends ............................................................................................ 41

High capital costs................................................................................................. 50 Need for secure biomass stock supply ................................................................ 51 Significance of unconventional gas ..................................................................... 52 Liquid biofuels for transport ............................................................................... 53

BIOMASS ECONOMICS .................................................................................... 54

BULGARIAN RENEWABLE ENERGY MARKET ..................................................... 56

BULGARIAN BIOMASS MARKET: HANDBOOK FOR INVESTMENTS 2012/2013 8.1. General electricity market information .............................................................. 56 8.1.1. Electricity Consumption and Production ..................................................... 57 8.1.2. RES targets ................................................................................................... 57 8.1.3. Bulgarian renewable energy action plan ..................................................... 61 8.2. Country attractiveness index for renewable investments .................................. 62 9.

BULGARIAN BIOMASS ENERGY MARKET ......................................................... 64 9.1. Summary ............................................................................................................. 64 9.2. Bulgarian biomass energy market ....................................................................... 64 9.2.1. Biomass in Bulgarian energy mix ................................................................. 65 9.2.2. Porter Five Forces Analysis .......................................................................... 70 9.2.3. Renewable energy support schemes ........................................................... 74 9.2.4. Overview of Bulgarian biomass market development ................................ 76 9.2.5. Market prices for biomass projects in Bulgaria ........................................... 78 9.2.6. Key biomass project developments in Bulgaria ........................................... 79 9.3. Biomass supply .................................................................................................... 83 9.3.1. Biomass from agricultural land and by products ......................................... 84 9.3.2. Biomass from forestry.................................................................................. 85 9.3.3. Biomass from waste sector .......................................................................... 87 9.4. Heat from biomass .............................................................................................. 88 9.4.1. General overview ......................................................................................... 89 9.4.2. District heating and cooling ......................................................................... 90 9.5. Electricity from biomass ...................................................................................... 91 9.5.1. Generation ................................................................................................... 92 9.5.2. Combined Heat and Power (CHP) ................................................................ 94 9.6. Biofuels for transport .......................................................................................... 96 9.6.1. Overview ...................................................................................................... 97 9.6.2. Bioethanol and biodiesel ............................................................................. 98 9.7. Pellets .................................................................................................................. 99 9.7.1. Pellets production ...................................................................................... 100 9.7.2. Pellets trade ............................................................................................... 101 9.7.3. Pellets consumption................................................................................... 102 9.8. Biogas ................................................................................................................ 103 9.8.1. General overview ....................................................................................... 104 9.8.2. Resource potential ..................................................................................... 105 9.8.3. Biogas for electricity .................................................................................. 106 9.8.4. Biogas for heat ........................................................................................... 107 1.1.1. Key biomass companies operating on Bulgarian market .......................... 108

10.

EUROPEAN RENEWABLE ENERGY POLICY LANDSCAPE ................................... 111

10.1. Bulgarian RES Regulations and EU Directives ................................................... 111 10.1.1. Precedent EU regulations .......................................................................... 111 10.1.2. Most recent EU renewable energy policy developments ......................... 112 10.2. Renewable energy mandatory targets for Bulgaria set out by the EU ............. 113 10.2.1. Interim targets set out by the EU .............................................................. 113 10.2.2. National support schemes flexibility allowed by the EU ........................... 114 10.3. RES LEGAL Project ............................................................................................. 115 11.

BULGARIAN RENEWABLE LEGAL AND REGULATORY FRAMEWORK ................ 117

BULGARIAN BIOMASS MARKET: HANDBOOK FOR INVESTMENTS 2012/2013 11.1. Main laws and regulations ................................................................................ 118 11.2. Zoning, planning and construction related authorizations ............................... 119 11.2.1. Availability of Land ..................................................................................... 120 11.2.2. DZP ............................................................................................................. 120 11.2.3. Change of Designation of Agricultural Land .............................................. 121 11.2.4. Design Visa ................................................................................................. 121 11.2.5. National Institute for Protection of Immovable Cultural Valuables .......... 121 11.2.6. Parcel Plans for Power Lines ...................................................................... 122 11.2.7. Approval of an Investment Project ............................................................ 122 11.2.8. Construction Permit ................................................................................... 122 11.2.9. Operating Permit ....................................................................................... 123 11.3. Environmental related authorizations .............................................................. 123 11.3.1. Ecological Assessment ............................................................................... 123 11.3.2. Environment Impact Assessment .............................................................. 124 11.3.3. Natura 2000 Network ................................................................................ 125 11.3.4. Joint Implementation ................................................................................. 126 11.4. Energy law authorizations ................................................................................. 127 11.4.1. Power Generation Licensing ...................................................................... 127 11.4.2. Grid Interconnection .................................................................................. 127 11.4.3. Power Off-Take .......................................................................................... 129 11.4.4. Feed-in tariff (FIT) ...................................................................................... 130 11.4.5. Guarantees of Origin .................................................................................. 131 11.4.6. Scheme of Administrative procedure for biomass energy plants in Bulgaria 132 11.5. Ten key points in new Bulgarian RES Act .......................................................... 133 11.6. Financial Incentives and Support for RES electricity ......................................... 135 11.7. Future market pricing mechanisms................................................................... 136 11.8. Key Co-financing opportunities ......................................................................... 137 11.8.1. Bulgarian Energy Efficiency and Renewable Energy Credit Line ............... 137 11.8.2. Measure 311 .............................................................................................. 142 11.8.3. Measure 312 .............................................................................................. 143 11.8.4. European Local Energy Assistance ............................................................. 143 11.8.5. Operational Program Competitiveness ..................................................... 144 11.8.6. Implementing Energy Saving Technologies in Enterprises Scheme .......... 145 12.

KEY ORGANIZATIONS AND INSTITUTIONS ..................................................... 145

12.1. Government ...................................................................................................... 145 12.1.1. The Ministry of Economy, Energy and Tourism (MEET) ............................ 146 12.1.2. The State Energy and Water Regulatory commission (SEWRC) ................ 146 12.1.3. Agency for Sustainable Energy Development (ASED) ................................ 146 12.1.4. Ministry of Agriculture and Food ............................................................... 147 12.1.5. BEH ............................................................................................................. 147 12.1.6. NEC ............................................................................................................. 148 12.1.7. ESO ............................................................................................................. 148 12.1.8. MOEW and RIEW ....................................................................................... 149 12.1.9. MOH and RIPCP.......................................................................................... 149 12.1.10. Napoitelni Sistemi EAD ......................................................................... 150

BULGARIAN BIOMASS MARKET: HANDBOOK FOR INVESTMENTS 2012/2013 12.2. Electricity Distribution Companies (EDC’s) ....................................................... 150 12.2.1. EVN ............................................................................................................. 151 12.2.2. E.ON Bulgaria/ Energo-Pro......................................................................... 151 12.2.3. CEZ.............................................................................................................. 153 12.3. NON-GOVERNMENT ORGANIZATIONS ............................................................. 154 12.3.1. National Biomass Associations (BGBIOM) ................................................. 154 12.3.2. APEE ........................................................................................................... 155 12.3.3. Energy Utilization Biomass Association (EUBA) ......................................... 156 12.3.4. ABEA ........................................................................................................... 157 12.3.5. American Chamber of Commerce – RES Group......................................... 158 12.4. Key biomass companies operating in Bulgarian market ................................... 159 12.5. Lobby groups ..................................................................................................... 161 12.6. Stаkeholder Аnаlysis ......................................................................................... 161 13.

RISKS ABOUT RENEWABLE INVESTMENTS IN BULGARIA ................................ 163

13.1. Risks Associated with the Renewable Energy Industry in Bulgaria ................... 164 13.1.1. Regulatory Risk........................................................................................... 164 13.1.2. Competition within the Renewable Energy Industry................................. 165 13.1.3. Public Attitudes towards Renewable Energy Projects ............................... 166 13.1.4. Emerging Market Risk ................................................................................ 166 13.1.5. Insurance Risk ............................................................................................ 166 13.1.6. Force Majeure Risk .................................................................................... 167 13.2. Risks Associated with the Investor’s Finance Arrangements............................ 167 13.2.1. Asset Sale Risk ............................................................................................ 167 13.2.2. Borrowing Risk ........................................................................................... 167 13.2.3. Foreign Exchange Risk ................................................................................ 168 13.3. Risks Associated with the Development of Renewable Energy Plants ............. 168 13.3.1. Variability in the Source of Renewable Energy .......................................... 168 13.3.2. Development of the Project and Construction Risk .................................. 169 13.3.3. Capital Cost Risk ......................................................................................... 169 13.3.4. Permits ....................................................................................................... 169 13.3.5. Land Options .............................................................................................. 170 13.3.6. Construction ............................................................................................... 170 13.3.7. Dependency on Suppliers .......................................................................... 171 13.3.8. Technology Risk.......................................................................................... 171 13.3.9. Operation and Maintenance Risk .............................................................. 172 13.3.10. Market Price of Electricity ...................................................................... 172 14.

SWOT Analysis .............................................................................................. 173

15.

CONCLUSIONS .............................................................................................. 179

16.

LIST OF ABBREVIATIONS ............................................................................... 182

17.

REFERENCES ................................................................................................. 185

18.

DISCLAIMER .................................................................................................. 195

19.

APPENDIX I. BIOMASS MAPS OF EUROPE AND BULGARIA ............................. 196

BULGARIAN BIOMASS MARKET: HANDBOOK FOR INVESTMENTS 2012/2013 LIST OF MAPS, CHARTS AND TABLES Map 1: Where is Bulgaria on the European map............................................................... 17 Map 2: Major transport corridors passing through Bulgaria ............................................. 18 Map 3: Bulgarian regions ................................................................................................... 19 Map 4: Biomass potential of Bulgaria ................................................................................ 73 Map 5: Biomass potential in Bulgaria according to Bulgarian Academy of Science ......... 76 Map 6: NATURA 2000 areas in Bulgaria........................................................................... 125 Map 7: Districts covered by EVN Bulgaria ....................................................................... 151 Map 8: Districts covered by E.ON Bulgaria/ENERGO-PRO .............................................. 153 Map 9: Districts covered by CEZ ...................................................................................... 154 Chart 1: Real GDP growth for the period 2000-2012 (including estimates)...................... 22 Chart 2: Bulgarian GDP growth compared to EU-27 for the period 2002-2011(Q1) ........ 23 Chart 3: Unemployment rate in % from 2000 to 2011 ...................................................... 25 Chart 4: Electricity imports and exports for the period 2004-2011 (in million MWh) including estimations ......................................................................................................... 26 Chart 5: FDI for the period 2000-2011 (in million EUR) ..................................................... 28 Chart 6: Lowest corporate income tax rate in Central / Eastern Europe ........................ 31 Chart 7: Inflation Rate per year for the period 2004-2012................................................ 34 Chart 8: Structure of Bulgarian electricity market ............................................................. 56 Chart 9: Gross electricity production 2011 ........................................................................ 57 Chart 10: Bulgarian RES targets in % set by the EU ........................................................... 58 Chart 11: Biomas indices May 2012 by E&Y analysis, ........................................................ 62 Chart 12: Comparison of the recent biomass installations growth (in MW) in the EU including estimations ......................................................................................................... 68 Chart 13: Trajectory to reach share of renewable energies in the EU in 2020 ................. 70 Chart 14: Biomass equipment supply in Bulgaria in % by countries for 2012 ................... 85 Chart 15: Cumulative developments of biomass power plants in Bulgaria in MW from 2000 to 2020, including estimates ..................................................................................... 87 Chart 16: Scheme of administrative procedure for biomass energy plants in Bulgaria .. 132 Chart 17: BEERCL structure .............................................................................................. 138 Chart 18: Structure of BEH ............................................................................................... 148 Chart 19: Market Shares by Sales of the Major Utility Companies in Bulgaria in 2011 .. 150 Chart 20: Structure of ENERGO-PRO Bulgaria ................................................................. 152 Table 1: Electricity prices for business and households .................................................... 26 Table 2: Support schemes for RES generation in the EU countries ................................... 69 Table 3: Market prices for biomass projects in Bulgaria for 2011 ..................................... 79 Table 4: Selected operational, under construction and planned biomass projects in Bulgaria .............................................................................................................................. 82 Table 5: Market prices for biomass equipment supply in Bulgaria in 2012 ...................... 86 Table 6: Feed-in-tariffs for electricity from biomass sources in Bulgaria ........................ 131 Table 7: Types of Renewable Energy and Energy Efficiency Projects Financed by BEERECL .......................................................................................................................................... 139 Table 8: Benefits of renewable energy and energy efficiency projects .......................... 139 ÂŠ 2012, Inea Consulting Ltd., Bulgaria; All rights reserved. Last Edition on 18.06.2012