CASES, WP1

ELECTRICITY SCENARIO FOR BULGARIA

Project No 518294 SES6

CASES

Cost Assessment of Sustainable Energy Systems

Instrument: Co-ordination Action

Thematic Priority: Sustainable Energy Systems

DELIVERABLE No D 1.1

WP1

Electriciry scenario for Bulgaria

Due date of deliverable: end September 2007

Actual submission date: 8th0ctober 2007

Updated to 29th September 2008

Start date of project: 31 March 2006 Duration: 30 months

Organization name of lead contractor for this deliverable ECON, OME

Revision: 0

Project co-funded by the European Commission within the Sixth Framework Programme (2002-2006)
Dissemination level
PU / Public / X
PP / Restricted to other programme participants (including the Commission Services)
RE / Restricted to a group specified by the consortium (including the Commission Services)
CO / Confidential, only for members of the consortium (including the Commission Services)

Electricity Scenario

for Bulgaria

Name of all participants to the redaction of the report: a

Plamen Tzwetanov – co-ordinator

Georgi Stoilov-

Temenuga Manoilova-

a Organisation name: Energy Agency of Plovdiv

C O N T E N T S

1.Introduction......

2.Demand and Supply Drivers

2.1Achivements and Issues of Economic and Human Resources Development

2.1.1Achievements and Potential Tensions on Macroeconomic Level

2.1.2Human Resources and Income

2.1.3EconomicsFutureDevelopmentDirections

2.1.4National Economy Acceleration Development Strategy

2.2. Issues and Pitfalls of the Economy Development Acceleration Strategy. Macroeconomic Scenario for CASES Electricity Scenario of Bulgaria.

2.3Structure and Dynamics of the Ex-Ante Country Energy Balance......

2.4Industrial Dynamics of the Last years......

2.4.1Individual Industry Characteristics

2.4.2IndustrialValueAddedScenario

2.5Energy Policy Demand and Supply Drivers......

2.5.1Integrated Economy-Energy –Environmental Indicators of Some European Countries and Bulgaria

2.5.2The Energy “Strategy” of Bulgaria

2.5.3Energy Efficiency Policy

2.5.4Environment Protection

2.5.5Renewable Resources Policy

2.5.6ActualPolicyIssuesofBulgaria

3Reference ElectricityScenarioforBulgaria......

3.1Electricity Demand Forecast......

3.1.1Industry

3.1.2Households

3.1.3ServiceSector

3.1.4Agriculture

3.1.5Transport

3.1.6Electricity Consumption within the Energy Sector

3.1.7Final Electricity Demand Forecast of Bulgaria

3.2ElectricitySupply Forecast......

3.2.1Selection of the Electricity Power Capacity Options

4Conclusion......

5References......

REFERENCE ELECTRICITY SCENARIO FOR BULGARIA

1.Introduction

This report is a part of WP1 of EC CASES Project in regard to Bulgaria.It consists of definition and analysis of electricity demand and supply drivers, electricity demand and supply reference scenario till 2030, its private cost[1] and input data for 2010, 2015, 2020 and 2030 for ECON model runs.

2.Demand and Supply Drivers

2.1Achivements and Issues of Economic and Human Resources Development

Bulgaria started the new millenium with hopes and anxiety.

Bulgaria is a democratic country already with clear and foreseen positions in relation to the present day democratic valuables. ThenegotiationswithEuropeanUnionhavefinishedsuccessfullyandBulgariabecameafullEUmemberfrom 01.01.2007. At the same time among a part of the population, and the business environment and the experts the disturbances grow in relation to the potentialities for quality Bulgarian integration to EU as an equivalent partner of the other member countries. Thereasonsforthese troubles havenotbeensosmallnumbersandhavebeenseriouslyenough: BulgariahasrelativelythelowestGDPperpersonlevel, thenegativeforeigntradebalancehasreachedveryhighdimensionsandcontinuestorise; theBulgariancompaniescompetitiveness is one of the lowest ones among the existing and the new member countries; Bulgaria is dependentvery much on the energy carries import; an unprecedented demography crisis has been developed in Bulgaria; the institutions have not worked effectively enough.

Insuchconditionsofaccumulatedandreproducedheavyeconomicandsocialproblems, combinedwiththepresenceoffavorable possibilities for their decision, an interdisciplinary teamhas developed an Economy Development Acceleration Strategy [1] on order of Bulgarian Presidency. This Strategy is quoted in the report as potential economic base for CASES electricityscenario of the country.

2.1.1Achievements and Potential Tensions on Macroeconomic Level

The Currency Regime

After many changes in the firstpart of 90-s, the Bulgarian "lev" (BGN) found a quite state after anchoring to the German mark (accordingly EUR). This was a start position for the production structures adaptation to the new realities. The introduction of currency board (CB) helped the security of BGN, increasing the international currency reserves from 3 x 109 BGN in the middle of 1997 to 17.5 x 109 BGN by the end of 2006.

Budget Structure

After the introduction of CB,Bulgaria managed to preserve a remarkable budget discipline. For example in the period 2003-2006, the national budget was over fulfilled with an averaged annual around 12%. A negative side was the almost traditional model of stepped month distributional budget expenditures.

Inflation Dynamics

The financial structures stabilization has a positive impact on economy dynamics. The economy progress is displayed by two major dimensions -nominal and paritet. In 1998 the paritet assessment of GDP/cap in Bulgaria was below 1/4 of this in EU. Seven years ago, it achieved 1/3. A serious misbalance between nominal and paritet values still exists, as a result of the relatively prices low level per the developed countries rapport. The gradual approach in the conditions of the fixed currency rate is possible with front-running inflation dynamics per rapport of this in the developed countries. Some of economic consequences are the export production expenses growth and increasing preferences of country's consumers to export goods.

National Debt

The external national debt in 1994 was around 120% of GDP. After the adoption of CB in 1997 a process of progressive improvement of external national debt started. By the end of 2005 the gross external debt is assessed at around 67.6 % of GDP. Table 2.1.1 shows the payment balance aggregated structure.

Table 2.1.1. Payment Balance Structure,106Euro

2000 / 2001 / 2002 / 2003 / 2004 / 2005 / 2006
Current account / -761 / -1102 / -926 / -1630 / -1131 / -2427 / -3879
Directinvestments (net) / 1100 / 895 / 951 / 1827 / 2244 / 2400 / 3927
Gross external debt growth / 1036 / 52 / -1166 / -128 / 1882 / 2539 / 4084
Public external debt growth / 481 / -178 / -1738 / -913 / -619 / -1255 / -671
Private external debt growth / 556 / 231 / 572 / 784 / 2500 / 3794 / 4755
Others (net) / -1186 / 580 / 1858 / 562 / -1594 / -1943 / -2346
Reserves and other financing / -188 / -425 / -717 / -630 / -1400 / -569 / -1786

During the last three years a decisive contribution for the positive balance has the new emissions of the private sector external debt. The problem is whether and to what extent such situation could induce risks and tensions on macroeconomic level.

Current Account of the Payment Balance

The sustainability of current account deficit is a characteristic phenomenon for the states in transition market economy. (Russia is an exception). It is negative for Bulgaria for almost the whole period from year 1990. Table 2.1.2 illustrates a systematic increasing deficit of the country's trade balance. The energy resources hold an important role in this deficit.

Table 2.1.2. TheCurrent Account Structure of the Payment Balance, 106Euro

2000 / 2001 / 2002 / 2003 / 2004 / 2005 / 2006
Current account / -761 / -855 / -403 / -972 / -1131 / -2427 / -3879
Trade balance / -1280 / -1778 / -1878 / -2426 / -2954 / -4343 / -5285
Services / 548 / 331 / 505 / 553 / 693 / 678 / 579
Income / -345 / 30 / 404 / 288 / 238 / 246 / 16
Current transfers / 316 / 562 / 566 / 613 / 891 / 993 / 811

2.1.2Human Resources and Income

Bulgarian Population Development Possibilities till 2020

The country population decreases from 8.767 to 8.191 x 106inhabitants between 1990 and 2000 (annualdecrease 7%). It was 7.7187 mln. Inhabitants at the end of 2005(average annual decrease of 12.24% for the period 2000-2005). The main factor for this decrease, together with the biological ones given below, is the young and highly qualified people emigration waveto the well economically developed countries.

The Bulgarian population possibilities for rate decrease delay till 2020 have been analyzed in [1].

Fertility

Thetotal fertility rate foryear 2004 is 1.29;for 2005-1.31;for 2006 -1.38[2].

Fig.2.1.1showsthatthefertilitytrendinBulgariawould be rather close to the Eurostat optimalscenario forEU-27. It is supposed that in the case of the emigration of 400-600 x 103young people at the age of 25-34 years during the last ten years, they would return backand would bear in Bulgaria. WeproposedthatonlyasmallpartoftheseBulgariancitizenswouldreturn backfor constant settlement in Bulgaria and that the emigration would continue in the coming years. TheBulgariancitizen’sdynamicsinthecountryisnecessaryfortheelectricityand heat energydevelopmentscenarioaims, becauseofthe fact that the fertilityratedynamicwould be close to the Eurostat mainscenariofor Bulgaria.

Fig.2.1.1.Total Fertility Rate

CrudeBirthRate, Mortality, NaturalIncrease

Thecrudebirthrate(per 1000 people) is: 9.0 inyear 2004;inyear 2005-9.2; inyear 2006-9.6;the mortality (per 1000people) is accordingly: 14.2; 14.6and 14.7:the natural increase is -5.2; -5.4; -5.1. [2]

Towardsyear 2005 thelife expectancy at birth in Bulgaria is behindEU-15 with approximately 7 years for men andover 5 years for women. Thislaghasbeenformedduringthelast 30 yearsanditisduetothestagnation, andduringtheninetyyears – also to the population health cares worseningon the base of the social-domestic conditions and habits worsening. Theanalysisin [1] showsthatinmiddle-shortforecastthedifferencebetweenmortality;accordingly thelife expectancy at birth, in Bulgaria and in the European countriescould be significantly decreased.

Migration

The migration is influenced by the social-economical situation to the greatest stage and it is at least inertia. If one takes in mind the Bulgarian nature, the low density of population and the unacceptable hypothesis of continuing depopulation in a dense populated continent like Europe, the hypothesis of continuously negative migration growth could be hardly accepted. In [1] it was assumed that there will be an overturn of the Bulgarian population migration view, there will establish some reverse migration possibilities of the already emigrated people from the country and “an invitation” to our compatriots from the neighbor countries that in the period 2014-2016 could lead to continuous net migration up toyear 2030. Themeasuresthatcouldbehelpfulinthiscaseareconnectedfirstofallwithsomeprocedures simplification and the terms of Bulgarian citizenship reduction for the ethnic Bulgarians living in other countries. Duringthelasttwoyearstherequests’numberhasincreased 4-5 times in comparison with 2001, while the number of people that have received citizenship – only with 25%.

Status and Employment Improvement Perspectives

The employment and the population economic activity between 15 and 64 years old in Bulgaria[2]are relatively low in comparison to the EU member-countries (EU-25). The total EU employmentfor the period 2000-2005 is growing from 62.4%to 63.8%, while for Bulgaria it is growing from 49.9%to 55.8%.

The employment strategy aim for the period 2006-2020 is based on the full working age status population employment achievement in high technology economy conditions. Itwasprovidedtheachievementof 75% ofemploymentlevelat 5% unemploymentand 78.9% economic activity at the end of the period. (Table2.1.3).

Table2.1.3. Population Economic Activity Forecast

Indicators of: (%) / 2007 / 2013 / 2020
Economic activity / 62.2 / 75.3 / 78.9
Employment / 55.6 / 70.0 / 75.0
Unemployment / 9.0 / 7.0 / 5.0
Continuous education switch / 30 / 65 / 70

Thisaimrealizationissupposedtobedoneintheconditionsofeconomyjoiningtothechangesfromtheimposedmicroeconomicenlargementoftheproductionsystemsand also from the large-scale penetration of the information and communication technologies in the Production sphere and Households. The priority directions for this goal achievement are:

  • Numberofemployedincreaseontheirqualitycharacteristics improvementThelabourresourcesqualitycharacteristics improvementincludesshare increase of those ones with upper secondary and higher level of education and qualification. Theshareoftheemployedwithhigherdegreeisprojectedtoreach 65%, while 36% ofthosewithuppersecondaryand4% for those ones with lower secondary and primary at the end of the period.
  • Employeddiversification:large-scaleworkoftheemployersunderlabourcontractforcertainperiodsoftimeonprograms, projectsetc.; informationandcommunicationtechnologies implementation with possibilities forinstallation of non-typical (up to now) forms of work without any limitations for time and place (incl. in the houses); higher dynamics and flexibility of the labour market.
  • Implementationofnewconceptforemployersecurity, basedontheofeducationandqualificationaccessforemployer’ possibilities improvement; change in the existing social protection systems, changes in the labour legislation.
  • Realizationofpoliticsforguaranteeofequalemployersaccesstothelabour market

Education Development Directions

The challenges in this area are: The indications of potential education level worsening in future period; the existing problems with the participation and education access; the education quality worsening; the discrepancy between the professional qualification and the labour market necessities; the low development level of life education; the limited financing and the lack of stimulations in this direction. Thetimeovercomingoftheeducationareaexistingproblemsimpose quick and adequate measures and actions in the following more significant directions:

  • The education population share increase;
  • The education access improvement;
  • The social and territorial differences overcome in the education preparation;
  • Theeducationqualityimprovement;
  • Thediscrepancylevelincreasebetweentheprofessionalqualificationandthelabourmarketnecessities;
  • Life educationshare enlargement;
  • Financial security improvement;
  • Normativeandadministrativebaseimprovement.

Income Policy Priorities andStrategic Aims

Thestandardoflivingproblemsdecisionandthepopulationincomeimposetheactivepolicycarryonthatwouldleadfromonesidetograduallyconvergenceinincomelevels with the other members of EU in long-term plan and from the other side to creation of effective mechanisms forkeeping up the social balances and especially for helping the people with low income. The priorities and the aims of such policy could be summed up in several aspects:

  • The main income sources increase in accordance with the achieved economic results

These priority realization possibilities depend on economic growth dynamics and its transfer in the household’s income. IftheexpectedGDPgrowthisintheframeof 5-9% peryearandinthecase of change of the existing distribution relationsit could be expected real income growth in order of 4-8%.

  • Adequatesocialdefenseofthepoorandsociallyweakcircles of the population

Thisincomepolicypriorityhastoberealizedintheframesoftheexistingfinanciallimitsand on the base of the balance between the labour market flexibility and the socially weak security. This balance has to insure such income defense of the socially weakthat could motivate them to take participation in thelabour market and in the active job seeking.

  • Creationofconditionsforcloserlabour income binding with the economic results

The state influence possibilities through income policy are limited. Income binding with the economic and financial results is a priority and a contract object between the employers and the workers on micro level. Thestatecouldinfluencethroughseveralmaininstruments: minimumlaboursalary, obligatoryinsurancethresholds, social transfers, public sector payment level and agreement law frame.

  • Sociallyacceptableachievementofpopulationincomedifferentiation

The differences between the labour payment and the social transfers formed the level and the income inequality of the small and medium-size income groups. Thiscategoryincludesthesmallprivatebusinessaswell. Thepowerful redistribution processesmainlyrealizedon “shadow” economybase,formedthe negligiblebysize group with highest income and with a big weight in the total income. This group income characteristic is that they are a result from criminal and semi-criminal economic activity.

2.1.3EconomicsFutureDevelopmentDirections

In the conditions of the accelerated global change in the technologies usage and the supporting economical processes, the EU Lisboan strategy for national economics knowledge development is a strategy object for higher economic growth, better employment and sustainable development.

TheeconomicsdevelopmentmainprobleminBulgariaisthatthepermanenteconomicgrowthattheexistingstagehas not been followed by creation increase, learning and new knowledge and technologies usage. Two future development scenarios have been outlined: by following the current policy and by activating the public policy.

Two Scenario of Knowledge Economy Development

Pessimistic Scenario

The country’s economy has been characterized with financial stability and constant economic growth during the period of monetary council introduction. During the same period the tendency of new knowledge share increase has been observed, measured with the expenditure for SRDA /science research and development activity/ in GDP. Thepublicinvestmentsaswellastheprivateoneshavebeenonverylowlevelincomparisonwiththemedium of othercountries – EU members. The employers’ payment level in SRDAis low that is an additional stimulation for highly qualification and education population emigration. Thehightechnologyexportsharedecreases, therelativelycompetitiveprioritiesintheforeigntradeachievedin past periods have been lost.

Thesenegativetendenciesofcompetitiveprioritieslostwouldincreasebecauseof newknowledgedemandenlargementandtheextensiveglobalizationoftheeconomicprocessesand also because of theimpossibility of one small market economy to form nationally solvent new knowledge demand which to be in accordance with the globalformed demand. ThesenegativetendenciespermissionwouldleadtotheBulgariatransformationintoperipheral in respect to other countries – EU members.

The industrial dynamics and its electricity intensity analyses are shown in section 2.4 of the report.

Optimistic Scenario

The Lisboan EU strategy new start gives somedirections to the optimistic scenario country economics development realization. Itsmainelementistheproposalforcreationof National programofeconomicsdevelopmentthatcouldreflectthenationalpotentialspecificityandthedevelopmentprioritieswhichhavetobetakeninaccount on GeneralEuropeanstrategyconcretizationin 2010. In [1] the main directions of such program have been formulated: main tasks; state policy; EU instruments; institutions and their co-ordination; financial and institutional criteria for program aim achievement; economics development branch aspects; main priorities.

The financialandinstitutionalcriteriaforprogramaimachievement towards year 2010 could possibly be:

  • Level achievement of 1.4 % from GDP for SRDA expenditure (1.8% maximum and 1% minimum). Mainsource - Thestructuralfundsthatcouldpushtheresearchanddevelopmentactivitiesintensityinordertoachieveajumpfromthepresent level of 0.4% at least of 1% - levelmeeting the minimum development requirementsaccording the OON criteria;
  • SRDA expenditureincrease, formed by the country business up to 0.6% from GDP (1% maximum, 0.5% minimum);
  • Creation of Nationalcentreforpublicandprivateinnovationinthecountryandabroadinitiativesco-ordination;
  • Achievementofmediatorsfunctioninghigherlevelduringtheinnovationprocessesrealizationthrough: noveltyinformationprovision, innovationprojectsfinancing, design; consultantservices, incubation, broker, registrationandprotection of intellectual property, contacts’ researches and development, mediator services, technologies transfer, test and certification (standardization), new technologies usage training, prototypes production.

Towards 2020 the financial criteria should bemeasurable with the average EU achievements.

2.1.4National Economy Acceleration Development Strategy

Main Aim

ThemainstrategyaimistheacceleratedeconomicdevelopmentofBulgariaforitstransformationinto developed country with high population income and effective economy successfully integrated in EU in a medium-term period.

Accelerated economic development means that onewhose GDP annual growths are higher then 6% and as for a part of the period (5-7 years) it is possible for them to be 8-9%/year. The nominal annual GDP growth rates is possible to become 10-12%/year. (The average growth is 10%/yearin the period 2000-2006). Thesegrowths’achievementwouldleadto 3.5-4 timesnominalincreaseand 2.2-2.5 times GDP real increase in the period from year 2007 up to 2020.

Theterm “developedcountrywithhighpopulationincome” hasbeenusedaccordingtheWorldBankclassificationcriteria: countrieswithhighincome – 10066 USD and more gross national income per person; medium-sized developed countries with income higher then 3256 up to10065USD; medium-sized developed countries with income lower then826 up to 3255 USD and countries withlow income – under 825 USD. OnlySloveniaandCzechRepublicfromthenewEUmember-countriesfromEasternEuropeareinthefirstgroup, the rest ones are in the second group. Bulgariaalso enteredthesecondgroupof“medium-sizeddevelopedcountrieswithhigher income” in 2005.

This classification is based on the gross national income data, measured in the market exchange rate of the national currency towards USD. Ifwemeasurebypower purchase capability purchasing power ability(PPA), thenallthenewcomersfromtheEasternEuropeancountrieswillbelongtothefirstgroup – countrieswithhighincome. According to the present growth rates Bulgaria also couldjoin this group to year 2010 and somebody could mention that the Strategy aim is not topical.

Growth Rates Reality

A lot of experts are skeptical in the respect of the possibility to achieve such GDP growth rates. Different EasternEuropeancountriesshowed that this is possible – Armeniaregistered GDP growth ratesfrom 6%to 13.9% since 2000(period average – 10.0%), Moldova – from 6%to 7.8% for the period 2001-2007, Tadzhikistan – from 6%to 10.6% since 2000 (average 8.6%). Azerbaijan, KazakhstanandTurkmenachievedmuchmorehigheraverageannualgrowthrates, accordingly 13.2% fromyear 1998, 9.7% fromyear 2000 and 13.4% from year 1998.

There are also some examples of high GDP annual growth among the new-country members in EU. Estoniakeeps grow rates of 6.5%to 9.8% since year 2000 (average 7.6%), Latvia - from 6.5%to 10.2% since year 2000 also (average 8.1%), Lithuania - from 6%to 10.5% since year 2001 (average 7.2%).

Bulgariaisamongthecountriesthatsucceededto “achieve” thebiggestGDPdecreaseintheperiod 1988 – 1998 – averagefortheperiodminus 5.8%/year.The Bulgarian enterprises used around 70% of their capacity that is a very low level and gives an opportunity quicker and cheaperto be achieved an economy growth at market insurance. A quarter of the cultivated land is not used and the rest is cultivated ineffectively. The tourism development resources are also used incompletelyand not effectively enough. Bulgaria is a country with the highest energy consumption and especially electricity consumption for 1 GDP production. The effective energy usage is also one of the sources for higher growth. ThereisunusedlabourforceinBulgaria. Thecountryhasnotyettakenadvantagefromitsgoodgeographicandgeo-politicalposition.

A sensitive investments growth is expected at the same time during the coming years. ThefundsfromEUwillincreaseseveraltimestowardsthepre-joiningfundsafterthejoiningrespectfullyonthistheinternalco-financingwillrise. It is expected the money investments proportion to increase and the process of Bulgarian enterprises investment growth to continue.

Allthismeansthatthereexistrealgrowthpossibilitiesoflandandothernaturalresourcesusage, labourforceand capital thatcould lead to GDP growth rates real increase.

Political and Economical Conditions for Strategy Realization