Feed-in Tariff: Overview and Policy in Bulgaria

Feed-in Tariffs schemes (FITs) are successfully used to promote investments in Renewable Energy Sources all over the world. This article will look into how FITs work, the renewables they are applied for, and basic FIT provisions. An overview of FIT policy in Bulgaria will present relevant information for investors looking for RES opportunities on the local market.

For further information about Bulgarian energy law or legal advice from local experts, feel free to contact us.

How does a Feed-in Tariff work?

The feed-in tariff (FIT) is a fixed electricity price (usually above market) paid to renewable energy producers. The preferential price is paid per unit (kWh) of electricity generated and delivered into the electricity grid. In most cases, this is the surplus energy produced by solar panels or wind turbines not used by the household or business and sent to the grid.

FIT schemes are used by governments as part of their policy promoting investments in renewable energy sources (RES). They are usually tied to the cost of production of energy for the specific technology. This is why tariffs vary depending on the renewable source used.

Countries developing their green energy, typically combine FIT with long-term power purchase agreements (PPAs) concluded with RES producers. Such agreements guarantee this fixed above market price for the whole term of the contract, typically concluded for 15 to 20 years.

To sum up, feed-in tariffs (FITs) have the following 3 main provisions:

• Guaranteed access to the electricity grid 
• Long-term power purchase contracts
• Guaranteed cost-based purchase price

These ensure that RES producers receiving FIT payments will be connected to the grid so that they can inject surplus energy into it and will have the necessary support. Often renewable technology is related to costs that would make RES investment projects unprofitable without FIT and PPAs.

FIT schemes and PPAs are subject to annual review, for the latest legal amendments contact our team.

What are Feed-in Tariffs applied for?

The FIT scheme is in general used to encourage investment in renewable or low-carbon energy technology, such as:

• Solar panels
• Wind turbines
• Hydro turbines
• Micro combined heat and power (CHP)

Who are Feed-in Tariffs suitable for?

Feed-in Tariffs are a proven mechanism to support and promote the development of the renewables sector. FITs are common in the USA and have also been successfully applied in Germany and Japan. In certain areas three quarters of solar energy projects are reportedly supported through FIT schemes.

In the UK, for example, RS energy producers receive FIT payments from their electricity suppliers under the local FIT system. Owners who have installed solar panels and hold a MCS certificate can apply with their energy supplier (deadline 31 March).

However, some countries choose not to rely on the feed-in tariff system. Instead they seek a market-driven mechanism to support and control the supply of energy from renewable sources.

Generally, the FIT system is not aimed at commercial energy producers but rather at small-scale investors such as:

• Private investors
• Farmers
• Homeowners
• Business owners

Investors planning larger scale RES projects can find more information about RES policy and legislation in Bulgaria here.

For more information and consultations about FIT supported investments in renewable energy sources, contact our legal experts.

Feed-in Tariff in Bulgaria

The feed-in tariff system was introduced in Bulgaria in 2010 with the 16% renewable energy target set under RED 2009/28/EC. FIT was combined with guarantees for connecting RES power plants to the electricity grid.

In addition, RS energy producers were guaranteed purchase of all produced energy. Long-term PPAs were set by law, depending on the electricity generation technology, as follows:

• 20 years for solar energy, biomass and geothermal energy
• 15 years for biogas and hydropower up to 10 MW
• 12 years for wind power

Costs of the FIT scheme are borne by consumers (through the electricity price).

The FIT scheme succeeded in attracting sufficient investments. By 2013 Bulgaria ranked 2nd in Top 10 emerging markets for renewable energy. The effective FIT strategy also helped Bulgaria reach its 16% target early. As a result, new mechanisms had to be adopted to slow down investments.

FIT is now used to support renewable energy producers with installed capacity below 4 MW. The feed-in tariff system applies to producers that inject electricity generated from renewable sources into the grid.

The amount of the FIT is determined by the Bulgarian Energy and Water Regulatory Commission (EWRC). Preferential prices are reviewed annually by the commission. Support is guaranteed for the whole period of purchase contracts (12-20 years).

For current FIT amounts for a specific type of renewable energy source, contact our legal experts.

As of 2018 the National Electricity Company (NEK) is no longer legally required to purchase the energy output of RES producers under FIT.

The PPA and FIT system is currently substituted with premium contracts signed with the ESSF. The Energy Security System Fund supports all RES plants with capacity over 4 MW.

Investors who need more information about the latest policy changes regarding the FIT scheme in Bulgaria can contact our experts here.

Liberalisation of the energy market

With the goal of establishing a market-driven mechanism to promote and control the supply of energy from renewables, new changes to the Energy Act were introduced.

As of July 2021 all RES producers with capacity of 0.5 mW or more will sell their electricity on the free market. Under the feed-in tariff scheme their energy is purchased by NEK at preferential prices.

Under the new changes, RES power plants conclude premium contracts with the ESSF. The premium is set by the EWRC. It is reviewed annually by June 30th. A comparison is made between previous preferential prices and projected market prices for electricity produced by RES plants.

The premium differs depending on the primary energy source used for generating energy. More information about current premiums for new RES investment projects can be provided by our experts.

RES power plants with capacity over 1 MW sell their electricity on the free market. Under the current arrangements they pay a 5% on revenue fee to the ESSF.

New plants that start operating after 01.01.2021 are to be freed from the 5% fee.

Legal advice for RES investors in Bulgaria

Our expert team offers comprehensive support in the area of RES and feed-in tariffs such as:

• Consultations about all legal aspects of RES and the FIT system
• Legal support during the planning and construction of all RES projects
• Negotiations with NEK and electricity distribution companies
• Preparation of all types of legal documents and draft contracts.

For any investment related questions, RES-project and FIT issues and consultations, contact us.

“Danailova, Todorov and Partners'' Law Firm provides top-quality legal services on all aspects of trade law and contractual law. Our experts also specialize in administrative law, tax law and employment law.