AES Corporation: Advancing Bulgaria’s energy transition through innovation

(08.09.2020)

INTERVIEW WITH OLIVIER MARQUETTE, PRESIDENT OF AES BULGARIA

In light of its significant historical dependence on fossil fuel power generation, Bulgaria is set to be heavily affected by the decarbonisation of its economy. Can you give us your perspective on the key challenges for a successful energy transition in Bulgaria?

The transition towards carbon neutrality is a central pillar of the EU Green Deal and as a major goal for society-at-large in the future, it will clearly shape broader policymaking to a significant extent. At the same time, achieving this goal will require a staged, pragmatic approach that accounts for the divergences in the energy mix of every member state – and that appreciates the complex socioeconomic effects of this transition. In the Bulgarian context, we see that more than 40% of the overall electricity production is based on fossil fuels and this share reaches even 60% during some periods in the winter. This is clearly a significant proportion – and the thermal power plants (TPPs) in Bulgaria represent the backbone of the country’s energy independence, because lignite is the only fuel the country produces locally.

And here comes the logical question – “Is it possible to stop these facilities and substitute them with other energy sources and renewables in particular?” The answer is “Yes but the transition to renewables must be done responsibly and progressively over a defined period time”. Because it depends on whether security of supply can be ensured, since at the end of the day our mission as electricity producers is to ensure that the security of supply is preserved. In this regard, I am proud to recall that AES Galabovo was vital for supplying energy needs in Bulgaria during the intense cold snaps in the winter of 2017, when cross-border electricity flows were restricted. Safeguarding energy independence is a key element for a smooth energy transition and grid stability is vital to ensure smooth electricity flows.

We strongly believe that thermal plants are needed to support a responsible transition to renewable energy:

In terms of security of supply – tomorrow’s energy will come predominantly from renewable plants, but thermal plants still provide much needed capacity where renewable generation is not sufficient. This will continue to be of vital importance in Bulgaria and South East Europe, where TPPs still constitute the backbone of the energy system;
    In terms of energy independence, TPPs will play a key role to ensure the energy independence, not only of the country, but also of the South East Europe region.
    In terms of grid stability, TPPs in Bulgaria are the main providers of critical services that preserve the stability of the national Grid like primary and secondary control, frequency regulation, etc.

Another critical aspect to be considered is the social impact of an abrupt closure of the TPPs in Bulgaria. The country’s energy sector has been an important source of economic growth for years and abrupt closures will have very serious ramifications for local employment and the standard of living.

In light of such challenges, what do you perceive are the central priorities for Bulgaria going forward, as it implements the EU Green Deal and its respective targets?

In light of the challenges I have just mentioned, the strategy towards decarbonisation of the Bulgarian energy market should guarantee that modern power plants using state-of-the-art technology, such as AES Galabovo will continue to operate in order to ensure:

    security of supply;
    national transmission capacity; and
    system reliability.

AES Galabovo is vital for the security of supply and generation adequacy in Bulgaria, especially when there is an increased electricity demand. AES Galabovo guarantees an uninterrupted supply of 600MW to NEK, Bulgaria’s national electricity company. In January 2017, AES’ plant met up to a quarter of total demand in that crucial period, since the consumption peak coincided with low levels of wind and solar generation and a reduced availability of hydropower capacity[1].

The issue is that, in present circumstances, renewable energy does not yet guarantee the security of supply and grid stability required in Bulgaria and South East Europe. Take, for instance, recent events in the United States – where Californians experienced a series of power outages and rolling blackouts in early August, for the first time in 19 years. Lack of diversified energy sources, and insufficient storage capacities were often touted as contributors to the problems experienced there, and the importance of grid stability should not be underplayed. Indeed as a recent article on the topic pointed out, “the need for a reliable grid is becoming ever more obvious”: […] blackouts have many causes, including poor planning, an unexpected lack of capacity and sweltering heat in not just California but nearby states from which it sometimes imports power. Further, California’s solar panels become less useful in the evening when demand peaks[2].”

Another important area to look at is the EU’s Platform for Coal Regions in Transition. The platform is an important forum gathering all relevant institutional and private stakeholders from certain coal dependent countries. It enables the regions that will be most affected by the transition to address key concerns, share knowledge and experiences in a way that can help national and regional authorities to find the best way to implement the transition. Given Bulgaria’s long history of coal dependence and the abundant challenges that lie ahead, participation in this forum will support the country to rollout new priority energy projects and find new ways to alleviate the socioeconomic impacts of the energy transition.

How do you see the impact of private investment on Bulgaria’s energy transition going forward?

Private investment is critical to bringing both capital and innovative technologies to Bulgaria. A healthy investment climate is one of the most important prerequisites for the development of the energy sector and the economy in general. Essential aspects of a healthy investment climate include a predictable economic environment, rule of law, sanctity of contracts and the obligations of the parties that have signed them. The COVID-19 crisis is also having a profound impact on global investments as it is changing the way supply chains are operating for instance. In this context, technological advancement, research and innovation are even more important since they are facilitating remote work capabilities and also decreasing the physical need for manpower in some parts of the economy.

How can Bulgaria increase its share of renewables progressively without jeopardising security of supply and grid stability? Please consider in this regard what the future energy mix of Bulgaria might look like.

Based on the country’s central location and natural energy resources, I think a viable option for Bulgaria could be a combination of natural gas, renewable sources (wind, solar and hydro) and energy storage projects. Combining RES and energy storage could be a helpful tool in dealing with the major energy infrastructure challenges Bulgaria is facing. Bulgaria has good potential to enhance diversification – and safeguard both energy security and grid stability.

For example, AES and our joint-venture with Siemens – Fluence – are deploying successfully several energy storage solutions in many countries. The big advantage of Energy Storage technology (Battery Energy Storage Solutions – BESS) is that it allows the elimination of fluctuations caused by renewable energy sources accumulating the excess energy when it is produced. With this technology, we are able to store excess energy and release it into the grid when required. Adding storage capacity in Bulgaria would enable the incorporation of much larger amounts of intermittent renewable energy into the grid, in addition to creating strong interconnections between national grids.

Natural gas can also play an important role in the energy transition in Bulgaria. There are two options to be considered to develop the use of gas in electricity generation from existing assets. The first option is to convert the burners of a power plant from coal to gas and to keep the rest of the equipment largely the same. While such conversion is technically possible, its economic viability depends on the long-term evolution of the prices of natural gas and CO2 credits. The second option is to build new natural gas combined cycle plants, ensuring the most efficient use of natural gas, albeit with a much larger investment. In this context, appropriate infrastructures and international supply agreements will have to ensure that gas is imported into Bulgaria and that security of supply concerns are addressed. In addition, it would be important to open up access to a range of new suppliers. The LNG terminal at the port of Alexandroupolis on the Aegean coast of Greece represents a good start – and Bulgaria has already acquired 20% of the shares in the Alexandroupolis LNG facility. But there are undoubtedly major technical and regulatory hurdles that need to be overcome for natural gas to be integrated into the Bulgarian energy mix in the short-to-medium term. Equally important is the construction of the gas interconnector between Bulgaria and Greece – ICGB, which is expected to start operations by end of 2021.

Are there any other particular factors at play in the Bulgarian energy market you would like to discuss here?

Going forward, in Bulgaria there will have to be a central focus on the planned future composition of the energy mix, and on how to address the high dependence on imported energy resources – whilst keeping in mind the overall GDP level of the country. Bulgaria is still in the process of modernising and enhancing its economy – and at the moment it stands at the bottom of the chart of EU member states in terms of income and standard of living. It is important to ensure that the energy transition would not lead to an increase in the price of electricity which would affect all consumer goods as it is included in the cost for their production. Such an increase would have a very negative effect on the standard of living and might be difficult to handle for many Bulgarians. In light of this, we have to ensure that as the energy transition is implemented, the concerns of the Bulgarian people and economy are also addressed.

The Stara Zagora region will probably be the Bulgarian most affected one by the energy transition. For many years, Stara Zagora has been the energy hub of Bulgaria due to the local lignite-fired TPPs and this attracted a lot of highly qualified experts to move there and work at the power plants and affiliated industries in the region. The potential closure of the TPPs needs to be assessed via the social effects for the region as well. If we look at the last available data, at the beginning of 2016 324 thousand people are living in this region. Approximately 100 000 of them are directly or indirectly dependent upon the energy sector (employees, contractors and their families). Looking from this angle it is clear that the potential closure of the TPPs will affect approximately 30% of the population. A large proportion of this segment of the population will therefore require new job opportunities – without this, a regional economic slowdown will be inevitable.

Creating new economic and employment opportunities in this region will be of critical importance to ensure that the people of Stara Zagora are not left behind. To this end, EU funds and programmes have to facilitate the economic transition of coal regions present a clear opportunity to open up new jobs and to create new enterprises and business opportunities in Stara Zagora.

We have no doubt that local expertise already present in the Stara Zagora region will allow it to maintain its role as an energy hub for Bulgaria.  Harnessing this opportunity will also be critical for a successful energy transition in Bulgaria as a whole.

Could you give us some insight into AES’ experience in support of energy transition in other markets?

All over the world, AES is working to accelerate the future of energy and is innovating in energy solutions that address our customers’ needs for affordable and reliable low-carbon energy. In Chile, for instance, we have developed the “green blend and extend offering” which progressively replaces coal generation with lower cost renewable energy and accelerates access to low-cost solar and wind for existing customers, while maintaining the reliability offered by the thermal assets. In the Dominican Republic, AES has been introducing natural gas on the island 19 years ago to help the country reduce its dependence on imported oil, saving more than half a billion dollars a year for consumers. We are now working to expand the rollout of our existing gas infrastructures on the island, including the first LNG terminal in the region, with a new pipeline to bring gas to the Eastern half of the country to convert existing plants from diesel to natural gas. We are also expanding solar and energy storage capability there.

[1] CEPS Policy Insight: Is security of energy supply possible without deeper cross-border market integration? Lessons from the cold spell in South-Eastern Europe Christian Egenhofer and Cristian Stroia (link).

[2] Lit Businesses compete to battle California’s blackouts – Green companies vie not just to generate power but also to store and manage it, Economist Aug 29th 2020 edition (link).