A Dissertation Submitted to the Department of Environmental Sciences and Policy Central European University In partial fulfilment of the Degree of Doctor of Philosophy DEVELOPING SUSTAINABLE ENERGY SYSTEMS: POLICIES, BARRIERS AND PROSPECTS FOR DISTRIBUTED ELECTRICITY GENERATION IN BULGARIA By: Gergana Miladinova Supervisors: CEU eTD Collection Prof. Diana Ürge-Vorsatz, Central European University Dr. Christian Jardine, University of Oxford Prof. Alexios Antypas, Central European University February, 2008 Budapest PHD THESIS - DISTRIBUTED ELECTRICITY GENERATION IN BULGARIA Notes on copyright and the ownership of intellectual property rights: (1) Copyright in text of this thesis rests with the Author. Copies (by any process) either in full, or of extracts, may be made only in accordance with instructions given by the Author and lodged in the Central European University Library. Details may be obtained from the Librarian. This page must form part of any such copies made. Further copies (by any process) of copies made in accordance with such instructions may not be made without the permission (in writing) of the Author. (2) The ownership of any intellectual property rights which may be described in this thesis is vested in the Central European University, subject to any prior agreement to the contrary, and may not be made available for use by third parties without the written permission of the University, which will prescribe the terms and conditions of any such agreement. (3) For bibliographic and reference purposes this thesis should be referred to as: Miladinova, G. 2007. Developing sustainable energy systems: policies, barriers and prospects for distributed electricity generation in Bulgaria. Dissertation, Department of Environmental Sciences and Policy, Central European University, Budapest. Further information on the conditions under which disclosures and exploitation may take place is available from the Head of the Department of Environmental Sciences and Policy, Central European University. CEU eTD Collection Photo credits to the author if not otherwise stated. PhD Student: Gergana Miladinova ii PHD THESIS - DISTRIBUTED ELECTRICITY GENERATION IN BULGARIA Author’s declaration No portion of the work referred to in this thesis has been submitted in support of an application for another degree or qualification of this or any other university or other institute of learning. (signed) Gergana MILADINOVA Legal Disclaimer The sole responsibility for the content of this Dissertation lies with the author. It does not represent in any way the opinion of the organizations for which the author has been working over the period of research and writing. The author accepts no responsibility or liability whatsoever with regard to the information contained in this document. CEU eTD Collection PhD Student: Gergana Miladinova iii PHD THESIS - DISTRIBUTED ELECTRICITY GENERATION IN BULGARIA Abstract Distributed electricity generation (DG) (i.e. based on small- and medium-scale renewables and combined heat and power (CHP) units (mainly up to 10MW)) can help our society on its way towards achieving sustainable development by contributing to all three of its pillars – social, environmental, and economic. DG can be a viable option for Bulgaria as there is significant potential – though to date has had rather limited utilization sofar. The aim of this research is to assess the existing public policy supporting DG penetration in Bulgaria, to identify the barriers, and to propose a comprehensive policy framework to support its wider penetration. Due to the interdisciplinary character of the issues related to DG the author uses approaches from various fields (policy analysis, economics and environmental protection). The analysis is qualitative, meso-level and inductive. The research was based on extensive literature review; interviews with a number of experts, investors, and other stakeholders; and a questionnaire for investors in DG. The research was carried out between September 2003 and February 2008, but most of the data have been updated as of May 2007. The research reveals that although there have been advancements in the setting up of a favourable environment for investments in DG by the Bulgarian Government, there are a number of policy and regulatory barriers that still need to be addressed. Economic limitations, complicated administrative procedures, and corruption further discourage DG investors. Based on analysis of the existing policy and the barriers, and on a comparison with the experience of other EU Member States, recommendations for improvement of the existing policy framework are made, and five scenarios (present policy, high DG share, high employment and social justice, market-based, and optimal) for possible development pathways, depending on governmental objectives, are outlined. The research contributes to better understanding of the problems related to wider DG penetration and provides decision-makers in Bulgaria guidance on the needs and alternatives CEU eTD Collection if a higher share of DG is to be sought. Keywords: Bulgaria, energy policy, distributed generation, renewables, CHP, barriers PhD Student: Gergana Miladinova iv PHD THESIS - DISTRIBUTED ELECTRICITY GENERATION IN BULGARIA Acknowledgements The writing of this thesis has been a long journey and I could not have completed it without the support of my supervisors, contribution of experts, and encouragement by my family and friends. I am very grateful to my main supervisor Prof. Diana Ürge-Vorsatz from the Central European University (CEU) for her guidance and critical comments, and for giving me such a great professional training. Dr. Chris Jardine from Oxford University has immensely helped me by diligently reading and commenting on each individual chapter. Dr. Brenda Boardman strongly supported and pressured me to write it before starting a very demanding job which I highly appreciate. I am also very thankful to Prof. Lutz Mez from Free University of Berlin, who was my ‘opponent’ on the defense, for his time and interesting questions. My deep gratitude also goes to all experts and investors who readily provided me with information, their insights on the challenges of distributed generation in Bulgaria and Europe. This research would not have also been possible with the generous support of the Central European University. I strongly admire the efforts of its founder and main funder - the financier, philanthropist and philosopher George Soros, to support the building of an ‘open society’ in the post-communist countries and around the world. I have also obtained financial assistance from the UK’s Foreign and Commonworld Office to do a year research in Oxford. Part of my research has been carried out within the DIGENAS project (funded under the Seventh Framework Research Programme of the European Union). Many thanks to Dr. Lulin Radulov from the Black Sea Regional Energy Centre for guiding me and commenting on the earlier drafts, and for providing valuable insights into Bulgarian energy sector. I am very thankful to my mother and sister for stimulating me to pursue an international carrier and to my friends and colleagues who were very supportive and understanding. I am particularly grateful to Ismo Grönroos-Saikkala from the European Commission for mentoring me during my traineeship in Brussels and encouraging me to pursue a carrier of an EU official and to Andrey Daminov who was always there to support and cheer me in times CEU eTD Collection of hardship. Rex Bailey assisted me a lot in improvement of the English language of several key chapters and Alan Watt provided me with very helpful comments on my prospectus and assisted me with some organizational aspects. My motivation and inspiration to work in the field of sustainable energy comes from my late father Eng. Vladimir Miladinov to whom I dedicate this work. PhD Student: Gergana Miladinova v PHD THESIS - DISTRIBUTED ELECTRICITY GENERATION IN BULGARIA TABLE OF CONTENT 1. INTRODUCTION TO THE RESEARCH ....................................................................... 1 1.1. FOREWORD AND PROBLEM STATEMENT........................................................................ 1 1.2. DEFINITION OF DISTRIBUTED GENERATION................................................................... 3 1.3. BENEFITS FROM WIDER DEPLOYMENT OF DG............................................................... 4 1.4. AIMS AND OBJECTIVES.................................................................................................. 7 1.5. ANALYTICAL FRAMEWORK ........................................................................................... 8 1.6. RESEARCH LIMITATIONS ............................................................................................. 13 1.7. METHODOLOGY........................................................................................................... 14 1.8. STRUCTURE OF THE DISSERTATION ............................................................................. 17 2. OVERVIEW OF THE BULGARIAN ENERGY SECTOR, CURRENT SHARE AND POTENTIAL FOR DISTRIBUTED GENERATION ................................................ 19 2.1. BASIC CHARACTERISTICS OF SUPPLY AND CONSUMPTION .......................................... 19 2.2. OVERVIEW OF ELECTRICITY GENERATION SECTOR..................................................... 20 2.3. THE ELECTRICITY AND NATURAL GAS MARKETS ....................................................... 21 2.4. PRIVATIZATION IN THE BULGARIAN ENERGY SECTOR................................................