BULGARIAN WIND ENERGY ASSOCIATION BULSTAT 175924617 +359 2 4833820 [email protected] WWW.BGWEA.ORG 7 PARIS STR., FLOOR 5, APT. 15 1000,

OPEN LETTER

To: Mr. , President of the Republic of Bulgaria

Mr. Plamen Oresharski, Prime Minister of the Republic of Bulgaria

Ms. Daniela Bobeva, Deputy Prime Minister for Economic Development

Mr. Dragomir Stoynev, Minister of Economy and Energy

Mr. Ramadan Atalai, Chairperson of the Energy Committee

Mr. Ognian Zlatev, Head of the European Commission Representation in Bulgaria

Mr. Boyan Boev, Chairperson of the State Energy and Water Regulatory Commission

Sofia, 30 May 2014

Dear Madam and Sirs,

On May 29, 2014, the State Energy and Water Regulatory Commission (SEWRC) published Decision No. EE-1 from May 27, 2014, proposing legislative changes related to the reduction of up to 50% on the amount of electricity produced from wind and photovoltaic plants purchased at preferential prices.

This proposal is submitted in addition to the introduced in January this year fee of 20% on the income from the production of wind and photovoltaic plants, as well as to the limit imposed on the electricity purchased at preferential prices up to a set by SEWRC “average annual duration of work” for the respective producer.

The drastic reduction of the amount of electricity from wind and solar energy, which shall be purchased at preferential prices, as proposed by SEWRC, will inevitably lead companies in the sector to bankruptcy. The introduction of the proposed measure by SEWRC would constitute a deliberate destruction of private businesses.

Similar measures that drastically alter the investment environment have extremely negative consequences not only for the particular sector. They create challenges for the banking sector, send warning signals to all foreign investors and undermine the image of the country as a reliable investment destination.

We understand the need for urgent measures to recover the state-owned energy companies. However, the proposal of SEWRC lacks a mechanism to compensate for the losses that producers of electricity will undergo as a result of the proposed measures. Without such a mechanism, the international companies in the sector will be forced to resort to the protection of their interests before arbitration tribunals and eventually the price for the rash and short-sighted decisions of public institutions will have to be paid by the Bulgarian taxpayer.

We would like to note that SEWRC’s proposal for yet another restrictive and discriminatory measure imposed on producers of electricity from wind and solar energy fails to take account of the recommendation by the European Commission with respect to the state policies in the renewable energy sector from November 2013, namely that the governments should respect the legitimate expectations of the investors regarding the return on their investments and should avoid applying measures with retroactive effect to the projects that are already implemented1.

The proposal of SEWRC contradicts the provision of item 6 of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity2. Under this provision, a well-functioning internal energy market should provide producers with the appropriate incentives for investment in new energy production, including from renewable energy sources.

The European Commission maintains a clear policy which promotes the development of renewable energy sources, as they are an important factor for the energy security and independence of Europe. In line with this policy, the state institutions in Bulgaria should support the trend of increasing the competitiveness of renewable energy sources by providing a predictable regulatory framework, and should not deliberately hinder the development of this sector.

The decision of SEWRC once again demonstrates that political pressure is put on the Energy Regulator. Instead of introducing quality reforms to optimize the activities throughout the entire energy sector in Bulgaria, and instead of implementing social measures to help the vulnerable consumers, in the past few years, many piecemeal amendments to regulations were introduced that do not solve the fundamental problems, but rather transfer them from one market participant to another. This approach only resulted in a heavy regulatory instability.

Furthermore, the proposal to limit the electricity produced from wind and solar purchased at preferential prices to certain quantities, set by SEWRC, in its essence represents a rearrangement by law of the contractual relations between the producers and the end suppliers (the power purchase agreements). This contradicts the requirement of legal certainty, which is an element of the rule of law, as confirmed by the decisions of the Constitutional Court3.

Finally, the ongoing campaign for introduction of restrictive measures against the producers of electricity from wind and solar energy will lead to the destruction of the small and medium private businesses in the energy sector and to the halt of the process of diversification of energy sources in the country. This will have serious consequences both for the energy security and the price of energy for consumers in the long run.

The Bulgarian Wind Energy Association would like to remind that namely renewable energy sources provide a long- term price buffer against the rising prices of fossil fuels used by conventional power plants. The global trends of price levels for conventional and renewable sources are going in opposite directions. The price of energy from conventional sources is increasing, while that from renewables, and particularly wind, is decreasing.

1 http://europa.eu/rapid/press-release_IP-13-1021_en.htm 2 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:211:0055:0093:EN:PDF 3 “According to art. 19, para. 1 of the Constitution[,] the economy of the Republic of Bulgaria is based on the free economic initiative. The free economic initiative can be deployed only where there is legal certainty for the legal subjects in the performance of their economic activity. According to art. 20a of the Law on Obligations and Contracts, the contract concluded between the parties is a law for them. Changes in the terms of a contract introduced by law without a doubt create uncertainty when undertaking economic initiative and hinder its free deployment. According to art. 19, para. 2 of the Constitution, the law creates and ensures, to all citizens and legal persons, equal legal conditions for an economic activity. Such a change is unconstitutional and renders the rule under art. 19, para. 2 of the Constitution, meaningless.” (Unofficial translation of Decision No. 7 of 2001 of the Constitutional Court).

We believe that the proposed measures by SEWRC go against the economic logic and compromise the European commitments and economic development of the country. Therefore, we urge the state institutions to suspend these policies and to take a step towards the stabilization of the business environment in the country by defending the investments already made.

Sincerely,

The Bulgarian Wind Energy Association

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About the Bulgarian Wind Energy Association The Bulgarian Wind Energy Association unites about 50 companies active in the Bulgarian wind energy sector, including investors, project developers, producers of wind turbines and related components, financial consultants and law firms. We have united our efforts with the aim to improve the environment for wind energy and achieve sustainable development of renewable energy sources in Bulgaria. Until now, our members have invested more than 1 billion BGN in Bulgaria and have created thousands of jobs.