The saga escorting the notorious NPP Belene project is like a ‘Die-Hard-X’ movie – the main character seems immortal. Thousands of pages have been dedicated to the analysis of what went wrong and led to the gravest industrial loss in Bulgaria’s history – BGL 5 billion in direct or indirect losses to the National Electric Company. The ‘sin list’ starts in the very early days – NEK’s first long-term forecast for electricity demand that supposedly evinced the need for a new generating capacity of no less than 2000 megawatts after 2010 – just in time with the predicted construction horizon of the new NPP.
The forecast was wrong on the design board, and it did not take long to prove its irrelevance against totally contradictory actual electricity demand figures between 2001 and 2005. The die-hard proponents of the new nuclear station had to look for an alternative justification for their immortal project.
It has long been an unwritten rule in dealings between Bulgaria’s nuclear and coal lobbies that they do not cross swords and confine their appetites to the already achieved market shares.
The early closure of the four small VVER-440 reactors decommissioned 1760 megawatts. Yet the energy system seemed to cope with their loss without much difficulty, just when it was meant to experience two concurrent shocks – from the purported demand growth that never materialized, on one side, and the loss of generating capacity with prophesied dramatic consequences, on the other.
On top, the EU-promoted entry of the ‘new kid on the block,’ the renewables, quickly filled in the void with more than 1800 megawatts in freshly installed capacity bringing the overall installed capacity to more than 14,000 megawatts in 2015.
This invited the inevitable effect – a capacity crowding out – that forced the national regulator to terminate a cold reserve contract with TPP Varna, which wiped off another 1260 megawatts from NEC’s energy system balance sheet.
The excess in total installed capacity lingered on, aggravated by the long-term PPA’s with the TPP and the RES, thus pre-empting genuine market liberalization and full integration into the SEE regional power market.
The Belene NPP promoters refused to succumb to market gravity even after the government halted the project in 2012. It took the National Electric Company another year and a half to formally end the project in early October 2013.
The Belene protagonists persisted in their pious belief ushering in a new stress, that the decommissioning of the units 5 and 6 of the Kozloduyi NPP could happen as early as 2017 and 2019, i.e. that their life extension is uncertain.
The doomsayers continued to press on, claiming Bulgarians consumers would face imminent power outages. This latest ‘Belene defense’ line went almost viral with the media carefully picking the critical moments of peak demand in January 2017 and the payments in December for the two reactors.
The Bulgarian Academy of Science was once again called in to assist – and the former Borisov government formally asked the academics to pass a judgment on the pros and cons of the project restart with the reactors already delivered to Bulgaria.
In the world of business and markets, advisory work from academic circles — especially when outside a market recognizable corporate format — does not carry much weight. Not because in their personal capacity the involved pundits are not capable of passing a reasonable and valid judgement, but because their opinion bears no professional liability with regard to due diligence standards or risk management procedures in project development. Banks, shareholders, investors, contractors, consultants, insurers and all involved parties that take risk and face exposure in such a multi-billion-dollar project are not likely to validate findings in academic reports to the government or to any public office.
Should the government choses to base any future decision to proceed with the project based on the BASc report on the market feasibility and the overall impact of the project, it would do it at its sole risk without any recourse to forms of litigation or compensation should such a decision end in future losses or damages.
The reasoning in this case is simple – the academic institutions although nominally independent rely on state budget financing, therefore the conflict of interest is inherent. None of these institutions have passed rigorous market checks and quality of work assurances that are required by insurers to effectively license them for advisory work on infrastructure and award them professional indemnity insurance policies.
The track record of the BASc regarding previous involvement in risk assessment of large-scale energy projects in Bulgaria is contentious at best. Suffice to allude to the Hydro-power project Tzankov Kamuk, where the final bill was almost six times (!?) above initial cost projections, as well as the NPP Belene. Whereas comments and opinions passed on geological and seismic risks are generally perceived as legitimate and valid, even though authors carry no liability, this is the nature of predicaments in the area. Judgement on market related benchmarks – analysis on feasibility, project structuring, market take or bankability of projects or demand forecasts – are of limited value beyond the reference in government offices.
Chances that a decision taken by the government to restart the project in any form, on the basis of BASc feasibility and market analysis, are high and future governments and taxpayers will not be spared the risk of future losses or damage.
In the interim, the supply and demand reality check continues to defy even most pessimistic scenarios for a niche opening for NPP Belene or any other new substantial generating capacity regardless of energy source – the Arda HPP cascade was quietly shelved by EVN, as were plans to upgrade TPPs in Varna or build new blocks in Maritza East – 2 or any other nuclear power generation unit.
When the market could not substantiate the need for NPP Belene, scare tactics came into play. The latest game plan of the proponents is to turn to ecological arguments against coal based generation, thus openly abandoning the long-time truce between the nuclear and coal lobby. The nuclear energy addicts quickly grasped that fighting back in the energy power game against the renewables is a mission impossible, while joining the environmentalists’ chorus could invite better chances to take coal’s share in base load generation.
The first ‘victims’ of higher EU regulatory air pollution and industry norms are likely to be the oldest technology blocks in Maritza East – 2 and the private TPPs that ignored calls to invest in cleaner coal technology and have instead relied on the government leniency in environmental control.
Bulgarian TPPs rely most on low-quality lignite coal, which has the worst track record in the EU for air polluting. Yet the new environmental regulatory standards for industry emissions at source, debated at EU level, overtake by a significant margin general air quality standards, which is evidenced by the rarer instances of air pollution (NO2 and CO2 emissions) over critical ‘alarm’ levels over the last 10 years, according to data of the Executive Environmental Agency. Cleaner air quality standards lag behind industry pollution standards, which are increasingly defined by political expediency, codified in supranational agreements like the Paris Climate Agreement.
The pursuit of more ambitious environmental goals might come at a socially unacceptable cost that translates in higher electricity prices.
Recent technological advances clearly point to a dramatic overhaul in the energy sector with generation and supply options available at the consumer level, shifting the focus away from large capacity generation and transmission. Although it is still unclear today what the optimal generation mix might look like in 10 or 20 years, it certainly does not reside with big bang jumbo size energy investments that would limit the flexibility of future generations to pick the best energy choice of their time.
It is a myth that with the current generation mix, including dominant nuclear power generation, Bulgaria enjoys a sustainable competitive edge over its neighbors when it comes to export price of electricity. There is a critical gap – the lack of substantial generating capacity based on natural gas – both as a base and for balancing power load. Low oil and respectively gas price have allowed Turkish and Greek gas-based power generation to regain competitiveness versus power generated across the border in Bulgaria. Demand levels after peaks in 2013 have remained flat or declining both in Greece and Turkey, in line with trends in the Bulgarian domestic market.
Exports in 2016 have fallen dramatically – by 39 percent, when compared to 2015. Expectations for 2017 are not brighter with the hydropower plants, which should have otherwise given NEC a competitive edge, likely to take the brunt and generate lower sales. Yet again.
Bulgaria’s power system will continue to feature excess generating capacity, leaving promoters of the new NPP no option but to forcefully crowd out one or more of the TPPs in Maritsa East – 1, 2 and 3 or the smaller blocks in private TPPS. This could hardly prove the quirk of the day or happen overnight without politically aligned consensus among the leading parties.
The contours of what lies ahead for the two “Belene” reactors could be traced back to the seemingly inexplicable moves by the Bulgarian government, deciding not to appeal the ruling of the court of arbitration but to pay the bill for the reactors. With evidence piling up that resale and alternative use abroad is not being considered as a credible option, the scenarios for home utilization are gathering momentum in election season.
Some of the leading parties have already vouched to close polluting coal-based power generation until 2030 in order to meet more stringent EU environmental regulation. Few people would acknowledge and accept an earlier closure of an existing power generation unit; even fewer would bother to dig into impact assessment or risk analyses.
The shutting down of the Maritza East blocks, without a clear-cut welfare and job substitution strategy, would shatter living standards for at least 60,000 people living in the Stara Zagora and Haskovo regions. Coal-based energy is likely to be wound up – in the horizon of the next of 30-50 years – either through imposing higher environmental protection standards or loss of market shares due to lack of competitiveness, unacceptable level of state support or rigid response to a volatile market.
Lignite coal is produced in Maritsa Iztok mines and bought at regulated price without any reference to market demand and supply volatility, which means state subsidies.
The upside is that the value chain is totally within Bulgaria’s control – therefore immune to market turbulence, supply breakdowns and exogenous security risks. Being energy resources poor, the country is vulnerable for its energy supplies of nuclear fuel, oil and gas to factors beyond its control. To say nothing of the inherent and unmanageable security hazard that any nuclear reactor presents.
Henceforth, replacement of the main coal-based energy security pillar is neither a quick nor a necessary risk-free or cost-efficient step. The phased decommissioning of Maritza East TPPs does not have to be preordained and replaced by a new nuclear power generation unit, regardless of the expenditures so far in pursuit of the NPP Belene’s ‘grand’ reasoning.
Considering the context of the forthcoming general parliamentary elections, the easy talk of premature closure of the Maritza East – without the required analytical depth and alternatives risk-reward based strategy – is not only irresponsible, but constitutes a deadly attack on national security at a critical juncture in Bulgaria’s development.
Grand Slams come natural with Grand Coalitions and grand losses.