Olivier Marquette: AES wants to focus on innovative energy solutions

April 3, 2015

“We are a long-term investor in Bulgaria” said for an interview for “Capital daily”, and published today, the Executive director of AES Bulgaria, Mr. Olivier Marquette. “What we want to focus on innovative energy solutions such as energy storage and electric cars. In terms of energy storage, we are talking about using batteries, such as car batteries, which can provide services to the energy network. The accumulated energy in the batteries can be used for balancing the system in case this is needed. AES has successfully developed such projects in the USA and Chile.  In Europe we would like to develop such project in Bulgaria. Another thing that we would like to develop is electric cars” said Marquette.

What were the first tasks you had to deal with when you arrived in Bulgaria?

In the first place, it was the financial issue related to the lack of liquidity of the company, which in turn was related to the lack of liquidity in the energy system. When I took over the management of the company in January, an agreement to pay certain amount to our lenders had already been made. This payment was supposed to be effected in February but we had doubts because of the delay of the payments from the National Electric Company (NEC).

The other thing that surprised me when I came here was the image of the company. There is a complete discrepancy between what I see when I visit our plant in Maritsa (editor’s remark: TPP AES-Galabovo), or our wind farm in Kavarna (editor’s note – St. Nikola Wind Farm) or even here in our office in Sofia with the public image of the company. AES is described as an American company, as the reason for the high prices for electricity and the problems in the energy sector. The reality is totally different. We are an innovative company, the biggest investor in the sector, having invested more than 1.6 billion euros in the Bulgarian economy. We invest in the development of our personnel. We apply entirely new standards in the production of electrical energy and exceptionally high standards regarding the ecological norms. The project was designed in such a way to meet the highest ecological requirements including those which the European Union will enforce in 2016.

And since you brought up the issue about the prices and the problems in the energy sector, have you finalized the negotiations with the National Electric Company on the reduction of the prices of TPP AES-Galabovo – reduction of the prices of the long-term Power Purchase Agreement?

We are not done yet. I think that both parties in the negotiations, we and the Bulgarian government, are working very hard to reach an agreement. I think we share a common understanding on how the process should run, but as always “the devil is in the detail” and we are trying to clarify our common positions. We meet several times a week and both parties are committed to reach an agreement, as was laid down in the Memorandum of Understanding. This agreement should be mutually beneficial. We are still working on it.

What are the specific parameters that you and the government want to achieve by this agreement? 

The main concept concerns the reduction of the price for availability (Editor’s note: this is the price that NEC pays to the plant to be in a stand-by mode) and we are on the way to reach an agreement in this direction. Each party is trying to protect its position – the government is trying to achieve the maximum reduction of the prices, we, on the other hand, must protect the interests of our lenders and shareholders.

Is only the percentage of the price reduction that you cannot yet agree on or on some other parameters of the agreement? 

Of course, the main discussion is on the percentage of the price reduction, but we also discuss the remaining parameters. The negotiations will end when we believe that we have reached consent on all the details in the agreement. Usually, the parties agree on one of the parameters then proceed to another one, but then the parties decide to change the first one again, that is why we think that the process will end when the parties have reached a consent on all the issues.

When do you expect to finalize the negotiations?

It’s rather a matter of weeks than months. Honestly, it is hard to say when exactly. Both parties understand that the agreement should be mutually beneficial and until this has not been achieved we cannot consider the negotiations finalized. This agreement will impact the entire term of the agreement and from this point of view its reflection is important to the company but also to the government.

In the negotiations with the government, have you discussed the possibility to sell some of AES’s assets to the state?

I would not comment on any specific parameters of the negotiations. Anything can be part of the deal. If you ask me whether we have discussed it, yes, it has been discussed together with many other parameters. But I wouldn’t comment more because I do not want to create expectations which, at present, are not based on the reality.

I understand that you are not willing to talk about the parameters of the agreement.

Since it is a negotiation involving two parties and is not a public negotiation, I think that it is wiser to discuss the parameters when they have been finalized. The only goal is to reduce the price for availability of the plant and at present we are looking for ways to achieve and execute this goal.

Is the payment of the debts of NEC to AES part of the negotiations for price reduction?

This is one of the parameters and from this point of view the full payment of the outstanding payables is a condition of the agreement.

How do you assess the financial results of AES last year?

We had a very good year from operational point of view. The availability of TPP AES – Galabovo was very good – 96%, and the wind farm, too, achieved its targets. The biggest problem, from financial point of view, is the large volume of outstanding payments from NEK. We are talking about 400 million leva that should be in our bank accounts but are not, and that creates difficulties for payments along the chain.

For how long have these debts been accumulated?

They reflect payments for about 7 months. I would like to underline that in the recent months NEC has done the maximum they could do to effect those payments and we appreciate their efforts.

Does that mean that in the recent months they have paid more?

Yes, the payments they are making these months are higher than the average amounts paid last year.

Have you considered the possibility to sell your electricity on a market principle?

The short answer is “yes”, we could sell electricity on the free market. Our business model, however, is based on a fixed price, laid down in the long-term Power Purchase Agreement and there should be some mechanisms for compensations. Such mechanisms are implemented in several European countries. However, to do so, the difference between the market value and the agreed price should be compensated by the government.

Do you discuss with the government such compensation mechanisms in case you decide to go the free market?

The government has the obligations to fulfill the requirements of the Third Energy Package of the European Union, which requires a complete liberalization of the energy market. As to us, we believe that measures for a free market will be taken. The practice in many countries in the world shows that long-term agreements can exist in liberalized market conditions. To do so, however, special compensation mechanisms must be implemented to balance the difference.

Is AES considering further investments in Bulgaria?

We are a long-term investor in the country. Certain conditions have to be met in order to avoid problems with receivables from already realized projects. Considering the right steps undertaken by the government in this direction and if a certain project is feasible, then of course, we would invest. What we want to focus on are the innovative energy solutions such as energy storage and electric cars. Energy storage means using batteries, like car batteries, to provide services to the grid.  The electricity accumulated in those batteries can be used for balancing of the system, if needed. AES has developed such projects in the USA and Chile, where they operate successfully. In Europe, we would like to develop such a project in Bulgaria. The other thing that we wish to develop is the electric cars.

Does it mean that you want to produce electric cars in Bulgaria? 

I am rather talking about partnership with other companies that are already in this business. We do not plan to produce cars but to offer solutions which would make them more efficient and attractive on the market.

And regarding batteries?

Our company does not produce batteries. Our service consists of construction of a system of such batteries, which, through the accumulated energy, provide services to the grid. Thus we provide a complete solution for the imbalances – a major difficulty in the control of the electricity system

How would you respond to certain accusations claiming that the long-term power purchase agreement with TPP AES Maritsa East 1 is a state aid and may be appealed before the European Commission?

I don’t think it is a state aid. Our long-term purchase agreement was signed in a competitive and transparent process. Agreements of this type exist all over the world. We cannot say that the long-term Power Purchase Agreement is a state aid.