~nergy Energy Sectol Managemen: Assistance Programme Report 260/02 October 2002 JOINT UNDP I WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) is a special global technical assistance partnership sponsored by the UNDP, the World Bank and bi-lateral official donors. Established with the support of UNDP and bilateral official donors in 1983, ESMAP is managed by the World Bank. ESMAP's mission is to promote the role of energy in poverty reduction and economic growth in an environmentally responsible manner. Its work applies to low-income, emerging, and transition economies and contributes to the achievement of internationally agreed development goals. ESMAP interventions are knowledge products including free technical assistance, specific studies, advisory services, pilot projects, knowledge generation and dissemination, trainings, workshops and seminars, conferences and roundtables, and publications. ESMAP work is focused on three priority areas: access to modern energy for the poorest, the development of sustainable energy markets, and the promotion of environmentally sustainable energy practices. GOVERNANCE AND OPERATIONS ESMAP is governed by a Consultative Group (the ESMAP CG) composed of representatives of the UNDP and World Bank, other donors, and development experts from regions which benefit from ESMAP's assistance. The ESMAP CG is chaired by a World Bank Vice President, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme's strategic agenda, its work plan, and its achievements. ESMAP relies on a cadre of engineers, energy planners, and economists from the World Bank, and from the energy and development community at large, to conduct its activities under the guidance of the Manager of ESMAP. FUNDING ESMAP is a knowledge partnership supported by the World Bank, the UNDP and official donors from Belgium, Canada, Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom. ESMAP has also enjoyed the support of private donors as well as in-kind support from a number of partners in the energy and development community. FURTHER INFORMATION For further information, a copy of the ESMAP Annual Report, or copies of project reports, etc., please visit the ESMAP website: www.esmap.Qrg. ESMAP can be reached by email at esmaD@worldbank.orQ or by mail at: ESMAP clo Energy and Water The World Bank I 1818 H Str~t, NWWashIngton, QC 20433 U.S.A!. Table of Contents Table Acknowledgements. of Contents iii ..IX Executive Summary 6.7.5.4.8.3.2.1. AlternativeConclusionsTheRationaleEnvironmentalMethodologyEnvironmentalIntroduction.EnergyAlternativeTheTheResultsENPEP'sNEK'sStrengtheningTheTheEnergyPowerImpactEnvironmentalEnvironmentalEnergy Base BaseModelsInterfuelScenario CaseSectorForOnElectricityPrice.".,.."".,..,IntensityConsumptionScenariosAndCaseEnergyCarbonTheScenariosScenarioIssues,PolicyProjectionsSubstitutionPlantsApproachLocalRecommendationsScenarioRegulationsIssuesEERDemandDemandEmissionsIssuesRegulations,AndInstitutions",AndTechnologiesAndScenario,...,..,ForecastsSubscenariosForecastsAndOptionsAndAndOn,..,..,"StaffInternationalCarbonInThe ,.,.".""..,...,..,...,...,Capability:Trade,EnergyTreatiesSector,..,: Annexes Annex 1: Energy Consumption Statistics 61 Annex 3: 2: EER Environmental Computer Models Regulations 67 71 iii Annex Annex Annex 4:7: 6: 5: Tenns Base Alternative Government Case of Reference Scenario Scenarios Comments ofEER On Draft Eer (February 2001) 73 113 Tables Table Al.l Primary Energy Consumption and Production 61 Table Al.2 Final Energy Consumption by Sectorand Energy Source. 62 Table Al.3 Energy Consumption by Industrial Subsectorsand Energy Source .63 Table Al.4 Electricity Consumption by Sector 64 Table A 1.4 (a) Electricity Production, Import, Export, and Consumption, 1980-99 64 Table Al.5 International Comparisons of Energy Intensity '.. .65 Table Al.6 International Comparison of Household Energy and Electricity Consumption.. ...66 Table A2.1 Environmental Progressbetween1991 and 1998 67 TableA2.2 Ambient Air QualityStandards 68 Table A2.3 Emission Standards from Thermal Power Plants .69 TableA4.l ForecastofGDP 76 Table A4.2 World Bank Index of Average Crude Oil Prices, 1999-2010 ...' ".. 77 Table A4.3 World Bank Index of CoalPrices, 1999-2010. 77 Table A4.4 Economic Cost of Bulgarian Lignite and Coal 78 Table A4.5 Index of Bulgarian Lignite Costs, 1999-2015 79 Table A4.6 Ratios of Gas/Fuel Oil Prices to Crude Oil Prices 79 Table A4.7 Technical and Economic Data for Existing Power Plants. 80 Table A4.8 Projected Retirement of Kozloduy Nuclear Units 1-4 81 Table A4.9 Power Rehabilitation Program: Investment Scheduleand Capacity ...82 Table A4.10 Technical and Economic Data for Selected New Power Plants 83 Table A4.ll Primary Energy Consumption -Forecast 84 Table A4.12 Fuel Sharesin Primary Energy Consumption -Forecast.. 84 Table A4.13 Final Energy Consumption by Sector -Forecast 85 Table A4.14 Fuel Sharesin Final Energy Consumption -Forecast.. 85 Table A4.15 Sectoral Shares in Final Energy Consumption -Forecast ...85 Table A4.16 Forecast of Electricity Production and Consumption. 86 Table A4.17 Electricity Consumption by Sector-Forecast. 86 Table A4.18 Energy Consumption by Households -Forecast.. '."..' 87 iv TableA4.19 Power Generation CapacityAdditions and Retirements -Forecast ...87 TableA4.20 Power Capacity Balance -Forecast 88 TableA4.21 Power Energy Balance -Forecast 89 TableA4.22 BaseCase Power GenerationInvestment Program- Forecast.. 90 TableA4.23 BaseCaseEnergySectorEmissions-Forecast 92 TableA5.1 Kozloduy Nuclear PowerUnits 1-4 Retirement Schedule 99 TableA5.2 Price Projections for Natural Gas 99 TableA5.3 Electricity ExportAssumptions 99 TableA5.4 New Power Generation CapacityAdditions 100 TableA5.5 Power Investment Programfor Alternative Scenarios 101 TableA5.6 Total Energy SectorEmissions for All Scenarios 102 TableA5.7 Comparison of CarbonEmissions and Savings 102 Tables Primary Energy Consumption and Fuel Shares -Forecast for Scenarios.. 103 A5.8-17 Figures FigureA3.1 Integrated System of ComputerModels Used in the EER 71 FigureA3.2 ENPEP'sDemandModule 72 FigureA4.1 Indexes of Energy Intensity Forecastsby Sector and per Capita. "" 93 FigureA4.2 Nonhousehold Electricity Intensity Forecasts (NEK) 94 FigureA4.3 Actual Generation (1998-1999) and Forecasts (2000-2015) 74 FigureA4.4 BCEOMPowerGenerationForecasts 95 FigureA4.5 ERM PowerGenerationForecasts 95 FigureA4.6 Comparison of Power GenerationForecasts ,... 96 FigureA4.7 Comparison of Electricity Intensity Forecasts. 96 FigureA4.8 Price Indexes of SelectedForms of Energy. 97 v ~ Abstract The main purpose of the Energy and Environment Review (EER) was to develop and test a methodology to better integrate energy sector development and investment plans with Bulgaria's environmental objectives. It was undertakenatthe requestof the country's State Agency for Energy and Energy Resources(SAEER). The EER highlights the intrinsic trade-offs betweenBulgaria's objective to ensure least- cost energy supply to the country and its concurrentobjectives of being a dominant energy supplier in the region, minimizing its dependenceon imported energy, and meeting its national and international environmental commi.tments.Achievement of theseobjectives is complicated by Bulgaria's heavy reliance on electricity to meet its own energy needs,the virtual absenceof natural gas in the consumption mix of non-industrial consumers,and the fact that except for environmentally polluting lignite, the country does not have economical energy resources. Since the bulk of Bulgaria's electricity (about 80%) is generated from nuclear fuel and indigenous lignite, a disproportionate reliance on electricity would be costly, particularly as the country strives to meet the nuclear safety and environmental compliance requirements for accession to the European Union. Growing electricity exports over the last few years,however, have beengood for Bulgaria, both from a financial point of view and in projecting Bulgaria as a stable and reliable sourceof electricity. Under these circumstances, crafting an energy supply strategy that is cost-effective, provides adequate energy security, and reinforces the national goals of economic growth and poverty alleviation will be challenging. Formulation of such a strategy could benefit from a wider debateamong key stakeholders, suchas energy suppliers, industrial and other consumers,policymakers, regulators, and investors. The Energy and Environment Review provides a useful analytical framework for sucha debate. vii The report was prepared by a World Bank team consisting of Messrs. Salman Zaheer, Stratos Tavoulareas, Robin Bates, and Nikolay Danev. It is based on analytical input prepared by Energoproekt pIc (Bulgaria), Mr. Ljulin Radulov and the Black SeaRegional Energy Center (Sofia), and Mr. Lyubomir Kaloferov. Dr. Karl Jechoutek provided insightful review of the final report. The team wishes to thank the State Agency for Energy and EnergyResources,the Ministry of Environment and Waters, the State Energy Efficiency Agency, the National Electricity Company, Bulgargaz, and AES Horizons for their cooperationand comments in preparing andimproving the EER. Finally, the team wishes to thank the Energy Sector ManagementAssistance Programme (ESMAP), which provided crucial funding and support for the EER. ESMAP is a global technical assistance program sponsored by the World Bank and the United Nations Development Programme (UNDP) and managedby the World Bank. ESMAP focuses on the role of energy in economic development, with the objective of contributing to poverty alleviation and economic development, improving living conditions, and preserving the environment in developing countries and economiesin transition. ix Currency Equivalents (as of June 1,2001) CUlTencyunit, Bulgarian lev (BGN) US$ 1 = 2.2741eva The New Bulgarian Lev (BGN) replacedthe old leva (BGL) on July 5, 1999 @ 1 BGN = 1,000 BGL bcm billion cubic meters Btu British thermal unit hoe barrels oil equivalent Gcal gigacalorie (109 cal) GJ gigajoule (109J) GWh gigawatt hour (109 Wh) k~ kilogram km squarekilometer kgoe kilograms of oil equivalent kWh kilowatt hour m3 cubic meter Mt million tonnes MW megawatt (106W) PJ petajoule (1015J) t tonne tce tonnes of coal equivalent tcm thousand cubic meters toe tonnes of oil equivalent Mtoe million tonnesof oil equivalent TWh terawatt hour (1012Wh) Conversion Factors 1 Gcal = 4.19 GJ = 3.97 million Btu = 1,163kWh; 1 tce = 7 Gcal; 1 toe = 10 Gcal; 1 tcm natural gas= 8.1 Gcal; 1 tonne crude oil = 7.3 barrels of oil, 1 boe = 1.59286 MWh x Abbreviations and Acronyms ACAA Ambient Clean Air Act BG Bulgargaz CCGT Combined-cycle gasturbine CEEC Central and EasternEuropean countries CHP Combined heatand power C~ Methane CO2 Carbondioxide COM Council of Ministers DR District heating DSM Demand-side management EBRD EuropeanBank for Reconstruction and Development EC European Commission EEEA Energy and Energy Efficiency Act EER Energy and Environment Review ENPEP Energy and Power Evaluation Program EU European Union FGD Flue gas desulfurization GEF Global Environmental Facility GDP Gross domestic product GoB Government of Bulgaria GHG Greenhousegas HPP Hydroelectric power plant IAEA International Atomic Energy Agency IBRD International Bank for Reconstruction and Development IMF International Monetary Fund IPPC Integrated Pollution Prevention and Control MOEW Ministry of Environment and Waters NzO Nitrous oxide NEK National Electricity Company NG Natural gas NOx Nitrogen oxides NPP Nuclear power plant NSI National Statistical Institute O&M Operation and maintenance OCGT Open-cycle gasturbine OECD Organisation for Economic Co-operation and Development PLF Plant load factor PPA Power purchaseagreements PV Presentvalue xi REI Regional Environmental Inspectorates SABER State Agency for Energy andEnergy Resources SEEA State Energy Efficiency Agency SERC State Energy Regulatory Commission SOl Sulfur dioxide TPES Total primary energy supply TPP Thermal power plant UNFCCC United Nations Framework Convention on the Changesof the Climate WASP Wien Automatic SystemPlanning model WHO World Health Organization xii Objectives and Outputs 1. Objectives. The main purpose of the Energy and Environment Review (EER) was to develop and test a methodology to better integrate energy sector development and investment plans with Bulgaria's environmental objectives. It focused on a limited number of issues that in early 2000 were identified jointly by the Government of Bulgaria (GoB) and the World Bank as being of high priority. Theseissueswere: Significant uncertainty regarding energy demand (impacted by the economic transition of the country) and the need for energy efficiency improvements throughout the energy sector, and especially in power, district heating, industrial processes,andhouseholds. Major investment decisions associatedwith the power generationsubsector, including: :;;. closure of Kozloduy 1-4 (Units 1 and 2 were scheduled for closure in end-2002, but the schedule for Units 3 and 4 was still undecided) >- new lignite-fired plantswerebeingproposed,somejustified on the basisof electricityexports ~ increasing role of natural gas, which is available at increasing volumes but at relatively high price International environmental obligations. The expected ratification of the Kyoto Protocol and the accession to the European Union (EU) are dominating Bulgaria's environmental policy agenda. The fomIer has the potential to benefit the country through greenhousegas emission trading, while the latter sets very specific requirements the country would need to meet over time (environmental standards for all the sectors of the economy). It is acknowledged that there are other important energy-environment issues for Bulgaria, but they were not covered in detail in this study either becausethey have beenaddressedin other studies (e.g., district heating issueshave beenevaluated aspart of International Bank for Reconstruction and Development (illRD) and European Bank for Reconstruction and Development (EBRD) loans) or because they could not be addresseddue to the limited resources and time available for this study. The EER was undertaken at the request of Bulgaria's State Agency for Energy and Energy Resources (SAEER) according to agreed terms of reference (Annex 6). 1 . 2. Outputs. Related outputs of the EER are: (a) An updateof the end-useenergydemandforecasts that were usedto prepare the 1998National Strategyfor Development of the Energy Sector ti112010, and adoption of a "most-likely" demand scenario for the base case assessmentof energy supply options. (b) An evaluation of the economic and environmental impact of alternative energy supply strategies(see below) to meet projected demand until 2015 (including an estimate of associatedcapital and operating costs for power supply)!: The Base Case Scenario assumed that nuclear Units 1 and 2 at Kozloduy will be retired in end-2002, Unit 3 in end-2007, and Unit 4 in end-2008. Other key assumptions included annual electricity exports of 4,200 GWh from 2002; SAEER/National Electricity Company (NEK) forecasts for lignite and coal prices; and World Bank cost estimatesfor thermal power generation technologies and forecasts for natural gasprices (US$ 130 per thousand cubic meters in 2000, dropping to US$ 75/tcm by 2015, at constant 1999 prices, netof taxes). 11. The Interfuel Substitution Scenario analyzed the consequencesof varying the contribution of nuclear and natural gas-based power over the planning period through analysis of the following subscenarios: a. The Early Retirement of Kozloduy Units 3 and 4 Scenario (or EU Preferred Scenario) assessed the implications, relative to the basecase,of advancing the retirement of Units 3 and 4 to end-2006. b. The Late Retirement of Kozloduy Units 3 and 4 Scenario (NPP Economic Life Scenario) assessedthe implications, relative to the base case, of utilizing the full useful (economic) lives of Units 3 and 4, retiring Unit 3 in end- 2010 and Unit 4 in end-2012. c. The High Natural Gas Price Scenario considered the impact of substantially higher gas prices on least-cost power supply options, and the associated environmental consequences. This alternative used the high-price projections published in the U.S. Department of Energy's Annual Energy Outlook/or 2001 (US$ 147/tcm in 2000 and US$ 150/tcmin 2015, at constant 1999prices, net of taxes). Environmental impact analysis included an assessmentof the impact of electricity exports on carbon emissions to illustrate the opportUnity cost to Bulgaria of consuming its carbon emission allowances under the Kyoto Protocol, should a global carbontrading systembe put in place. ExecutiveSummary 3 (c) Policy options for balancing least-costenergy supply with energy security (greaterreliance on indigenous resources)and compliance with national and international environmental requirements. 3 A collaborative approach. To helpmainstreamthe methodology, the analysis was canied out in cooperation with local experts,to the extent possible using existing data, infonnation, and local modeling capability. Several differences of opinion between Bulgarian energy authorities and the Bank team were accommodated through the alternative scenarios,someof which (such as high gas price and high exports) were included in responseto the SAEER's comments relevant to the Base CaseScenario (Annex 7). 4. General agreement was reached in key areas such as domestic electricity and energy demand projections, the rehabilitation program for existing power plants and district heating systems in high population density areas, and the need to develop the low-pressure gas network to serve the market for spaceheating and cooking investments. It was also agreedto maintain capacity reserves at no less than 22% above projected peak demand (in part due to the old age of Bulgaria's power plants). While agreementwas reached on electricity export projections for the Base Case,SABER is optimistic that exportswill be significantly higher. 5 Some key differences remain. While the views of the Bank team and the Bulgarian governmenthave convergedthrough the collaborative preparation of the EER, some differences of opinion persist. The main differences are related to the findings of the EER that no new power generation capacity is neededbefore 2006 and that plants based on imported fuels may well provide cheaper and cleaner electricity than plants based on indigenous energy resources. The government's strategy (articulated initially in the National Strategy for Development of the Energy Sectortill 2010, which was adoptedby Parliament in early 1999and is now being updated) envisageslarge-scaleinvestment in new capacity earlier, in part to meet higher domestic demandprojections made before the EER was initiated (i.e., pre-2000), and in part to position Bulgaria to capture an increasing share of regional demand2and to minimize reliance on imported fuels (mainly natural gas) lor power generatIon. ~ .3 6. The Bank, in contrast, hasrecommendedthat lower-cost rehabilitation investments and priority refornIs be implemented first (paragraph 15), and that costly investments in new capacity be made, with private investors assuming the bulk of market risks, particularly those related to export markets. Regardless of the final course taken by the GoB, the EER methodology has served to highlight the costs SAEER expects to increase electricity exports from the level in 2000 (about 4,300 GWh, or 11% of domestic demand) to about 8,000 GWh/year over the next three to five years. SAEER also disagrees with the Bank's conclusion that the entire installed capacity atthe Chaira Pumped Storage Plant (864 MW) is available to provide emergencybackup reserve, arguing that only half could be available because of limited water resources. However, the Bank believes that investment in the Jadenitsa Dam (included for all scenariosand in NEK's plans) would expand the available capacity to its . desIgnlevel. and benefits of different supply scenarios. Some investment projects the GoB is considering are captured in the scenarios analyzed under the EER and are summarized below. Results: Demand, Supply Options, And Environmental Impact Demand '7 Energy demand forecasts -Base Case. The EER estimates an average annual growth rate within Bulgaria of approximately 1.6% for total energy and electricity consumption over the 2000-2015 period, for all scenarios.This demand estimate is consistent with that of the Bulgarian authorities (SAEER and NEK), and is based on an average GDP growth of about 3.8% per year and the energy consumption trends of each consumer group. The implied elasticity of 0.42 incorporates improvements in energy efficiency and adjustment of prices to cost-recovery levels (Figure A4.8), and is broadly consistent with estimates from other European countries. As mentioned above,three export demand scenarioshave beenanalyzed: the Ba.seCase, with exports of 4,200 GWh/year; no exports; and exports of 8,000 GWh/year from 2004 (under the main Carbon Trading Scenario, as defined in Chapters4 and 7). Particular attention has beenpaid to electricity demand forecasts due to strong government interest in the power sector investment program and the closure of Kozloduy Units 1-4. (Primary and final energy consumption forecasts and breakdown by sectorandtype of energyare presented in Tables A4.12-A4.18.) 8. Consumption of primary energy is forecast to increase by 40% over the period 2000-2015. The most rapid growth (56%) is forecast in liquid fuels, mirroring the underlying expansion in the transport sector. Substantial increasesare also expected in solid fuels (40%) and natural gas(39%), eventhough the end use of solid fuels is forecast to drop by 7% due to a decline in household use of coal and lignite. The production of primary electricity is forecastto fall by 39% following the retirement of Kozloduy Units 1-4. One consequence of these changes is that Bulgaria's dependence on energy imports is expected to be higher in 2015 (with 66% of primary energy needs imported) than in 2000 (59%). These estimates of primary energy consumption are for the Base Case Scenario and would be different for other scenarios (e.g., lignite consumption would be higher under the higher gas price scenario). 9, Energy intensity. Energy intensity, represented by the amount of primary energy resources consumed to produce one unit (i.e., US$ 1) of GDP, is an important element of national competitiveness. The Base Case Scenario estimates Bulgaria's energy intensity to decline by 27% over the planning period to about 1.2 kg of oil equivalent (kgoe) per U.S. dollar of GDP, with all productive and service sectors improving their energy efficiency (Figure A4.1). However, even more aggressive energy efficiency measureswill be neededto bring Bulgaria's energy intensity to the present(1998) levels of more advanced transition economies with which it will need to compete, such as Hungary (0.54 kgoe/US$), the Czech Republic (0.74 ExecutiveSummary 5 kgoeruS$), and Poland (0.61 kgoeruS$) (Table AI.5). While market forces will ensure that productive sectors improve their energy efficiency (or go out of business), more deliberate policies and investments will be necessaryto improve energy efficiency in the following areas: (a) Energy conversion processes and losses (e.g., in refining, in electricity and heat production, in briquetting, and in energy transmission and distribution). For the Base Case, conversion and transportation losses increase from about 36% in 1998 to 39% by 2015, reflecting both an increasein liquid fuels for the growing transport sector(demand for primary fuels for this sectorincreasesby about 80%) and the continued high level of reliance on electricity for cooking and heating.4 (b) Household energy/electricity consumption. While the total energy consumed by households is in line with other countries that have similar climatic and economic conditions, Bulgaria stands out for its high level of household electricity consumption. NEK's electricity demand forecasts (used for the Base Case Scenario) imply an increase in annual household electricity consumption per capita from 1,301 kWh in 1998 (or 3,698 kWh per household) to 1,804 kWh in 2015 (Table Al.6 and Chapter 6). This consumption can be compared with substantially lower household consumption per capita in Romania (352 kWh), Lithuania (471 kWh), Turkey (608 kWh), Estonia (923 kWh), and Slovakia (1,030 kWh). This high usageof electricity by Bulgarian households reflects the dependence on electricity for heating (a costly and inefficient use of energy resources) due to historical choices (opting for large nuclear and lignite-based power plants versus developing low pressure gas networks), and will be particularly challenging to overcome in the transition to a market economy. High electricity usagehas been exacerbated by continued electricity price subsidiesand delays in modernizing district heating systems or developing gassystems.s Least-Cost Power Supply Options 10. Common for all scenarios. Key assumptions that would affect supply options (timing and least-cost selection) and that have been kept constant for all scenarios include: Net fuel conversionefficiency(after auxiliary uses)is about25-30% for the bulk of Bulgaria's power plants; another15-20% of this is "lost" in transmission/distributionto end users,resulting in a very inefficient(and fuel-intensive)meansof heatingandcooking. District heating,particularly if produced by combinedheatandpowerplantswith more than80%conversionefficiency,and otherfuels suchas gaswouldbe farmoreefficientandcleanermodesof cookingandspaceheating. Much electricalheatingin Bulgariais derivedfrom small2 kW electricheatersthatareswitched on for short durationsthat coincide with the peakperiods of electricity demand.One million households switchingon a heateraroundthesametime would drive up peakdemandby 2,000MW. Building new generationcapacityto meetthis demandwould costaboutUS$ 2 billion for lignite-basedcapacityor US$ 1.0billion for gas-basedcapacity.Efficientgasor district heatingsystemscouldbe constructed(or rehabilitated,inthecaseof districtheatingsystem)for a fractionof thecost. 6 Bulgaria: Energy-Environment Review (a) Rehabilitation program (4,295 MW) and modernization of Kozloduy Nuclear Power Units 5 and 6 (2,000 MW). It is assumed that NEK's rehabilitation program (Table A4.9) will be implemented, as it is deemedto be the least-cost means for tpeeting projected electricity demand. This program includes the rehabilitation of generation capacity at Maritsa East 2 (1,520 MW) and 3 (840 MW), Bobov Dol (645 MW), and Varna (1,290 MW). (b) Cogeneration/combined heat and power (CHP) units. All scenarios include the addition of several small CHP units (50 MW total), capacity expansion of the Sofia CHP plants through their replacement(60 MW), and a new replacement CHP plant serving industrial steamdemand in Devnja (230 MW). (c) Retirement of Kozloduy Nuclear Power Units 1 and 2. It is assumedthat Units I and 2 will be retired in end-2002 (as agreedwith the EU). (d) Expansion of capacity available from the Chaira Pumped Storage Plant (PSP). All scenarios specify investments in the JadenitsaDam, to extend the duration for which the Chaira PSP (864 MW) can contribute to meeting peak demand andproviding emergencyreserves. (e) Capital and operating costs of candidate units. Standard industry estimates were employed for the capital and operating costs for new power plants utilizing fossil fuels (imported coal, lignite, and natural gas). The costs of nuclear and hydroelectric options were provided by NEK, since they are site-specific. (f) Fuel costs. With the exception of the price forecast for natural gas, fuel prices were the sameunder all scenarios. (g) Electricity imports. As provided by NEK, electricity imports are priced at US$ 0.05/kWh during off-peak periods andUS$ 0.07/kWh atpeakhours. 11 Timing for new capacity requirements. The analysis shows that existing generation capacity, if appropriately rehabilitated in accordancewith NEK's plans, would be sufficient to safely meet demand at leastuntil 2005. This timeline can be extended by: (i) accelerating cost-effective investments in nonelectrical heating systems, particularly modernization of existing district heating systems; (ii) implementing demand-side energy efficiency measures; and (iii) allowing reserve capacity margins to drop, for example to a safe 22% in 2006, thus deferring the need for about 450 MW of new capacity. However, this flexibility would be reduced if Bulgaria decidesto shut Kozloduy Units 3 and 4 (880 MW) by 2006, as desired by the EU, or exports expandbeyond the levels assumedin the BaseCase. 12. Investment, operating costs, and emissions of each scenario. The timing and least-cost selection of the candidate new plants is summarized in Table A. This table also compares present values of investment and operating costs for each scenario. The emissions of particulates SO2, NOx, and CO2 for eachscenario are summarized in Table B. Exec~tiye~~~ 7 13 The key conclusions regarding the investment program derived from the scenario analysisare: (a) A substantial portion (55%, or 925 MW, over the planning period) of new capacity is needed to meet projected export demand. This proportion increases to 67% (1,496 MW) if export demand is 8,000 GWh/year compared with 4,200 MW /year in the BaseCase. (b) If exports double over the Base Case, new capacity would be needed as early as 2003 (assuming adequate transmission capacity is in place). In other casesnew capacity would be neededin 2006 or later (assuming that a number of planned small cogeneration plants with a total capacity of 305 MW are implemented in the 2003-05 period). With no exports, new capacity would not be neededuntil 2009 (or later, if nuclear Units 3 and 4 are operated until the end of their economic life). (c) If high gas prices prevail throughout the planning period, the model selects lignite-based plants as being least-cost compared with gas-basedplants. However, at least one gas-based plant is selected because of its greater flexibility to respond to changes in load (with lignite plants preferred for meeting base demand). As could be expected, the preference for lignite plants increasesthe presentvalue (PV) of capital costs (highest PV with the exception of the High Exports scenario), but reduces the PV of operating costs; (d) Late retirement of Units 3 and 4 at the Kozloduy nuclear power plant still justifies the need for about 450 MW of new capacity in 2006 (gas- or lignite-based, depending on the price of natural gas), but eventhis capacity could be postponed for about two years if the reserve margin is allowed to drop from 26% to 20%. The next capacity increment beyond that would not needed until 2011, when another450 MW'gas turbine is recommended for commissioning (again depending on the gasprice, and assuming exports at 4,200 GWh/year). As could be expected, this scenario also has the lowest investment cost (in presentvalue terms). Imports of electricity, if they could be reliably secured, could play an (e) important role in alleviating short-term demand-supplyimbalances. It might be possible to postpone investment in new capacity from 2006 to 2008 if imported electricity of up to 2,700 GWh could be purchased at reasonable rates. Screening curve analysis suggests that imports could be more attractive than building new capacity if import prices were at or below US$ 0.035/kWh. Capacity additions could also be deferred through peak shaving (shifts in load profile), which may well occur ashousehold electricity prices are adjusted to their cost-recovery levels.6 14 With respectto environmental impact, the EER concluded that: Examinationof existing typical dailyloadcurvesfor wimer andsummerindicatesthatthe annualsystem peakis drivenpartly by the residentialheatingload. (a) Significant progress has beenmade in the last 10 years, partly the result of the severedecline of economic:activity and partly becauseof stepsthe GoB has taken to addressenvironmental issues,align its regulations with the EU, and strengthenits environmental institutions. Bulgaria is expected to remain in compliance with local environmental standardsand international treaties over the 2000-10 period undermost scenariosexamined. (b) The High Gas Price (with more lignite power plants) and High Export scenarios result in the highest level of emissions and would be the most costly to Bulgaria (particularly if greenhousegasemissions become tradable and any reduction in carbonemissionsthus has the potential to earn foreign exchange revenue). Assuming a value of US$ 10 per tonne of carbon (i.e., US$ 2.73 per tonne of CO2equivalent), the EER found that, compared with the Base Case, Bulgaria's potential sales of carbon in a carbon trading market would fall by approximately US$ 13 million per year with high exports of 8,000 GWH/yr andwould increaseby US$ 19 million per year if .exports were eliminated. This penalty attached to exports would be even higher if more lignite plants and fewer gas plants were to be built in anticipation of high gas prices or higher import dependence.Increased use of lignite would also exacerbate SO2 emissions, which are projected to exceedthe level of the GothenburgProtocol after 2010 even under the Base Case. (c) While total particulate emissions are expected to remain unchanged from 2000 to 2015, site-specific analyses and measures will be needed to ascertain whether the air quality in a number of "hot spots" (such as Varna and Devnja) meets national and World Health Organization (WHO) standards. However, increased use of natural gas in industrial and urban areasis expectedto result in improvements. (d) There are a number of issuesthat were not addressedin detail in this study. Local pollution issues were identified but not evaluated in detail because this would have required site-specific assessmentthat was outside the scope of this study, andbecausemostof themhave beenevaluated in World Bank report 13493-BUL, "Bulgaria: Environmental Strategy Study Update and Follow-up." Also, the transport sectorwas included in this study, but local environmental impacts were not assessedin detail. In particular, increasing NOx emissions in large cities require more detail assessment.Finally, as World Bank report 13493-BUL documented, water pollution continues to be an issue in Bulgaria, but assessmentof the progress made in the last few years again was outside the scopeof this study. Such assessmentwould be valuable and should be carried out in the near future. C. Key Policy Recommendations 15 The scenario analysis approach followed by the EER offers some important conclusions that will serve policymakers well in developing sector policies, ExecutiveSummary 9 strategies, and investment plans. Some key issues and recommendations are summarizedbelow: (a) The GoB's strategy of capturi~g export power markets while reducing dependence on energy imports is likely to face resistance from trading partners, particularly within the context ofEU accession.Market design and regulatory restrictions favoring the use of indigenous lignite or nuclear fuel would also require higher capital cost investments per MW at a time when the risk-adjusted cost of capital is high, and this could make the electricity produced less competitive in foreign markets and unaffordable in the domestic market. While the increased used of indigenous fuels would improve energysecurity, it would adverselyeffect Bulgaria's environmental performance. The impact on the balance of payments would have to be compared weighing foreign exchange requirements for debt and equity service (as the bulk of investment capital is likely to be foreign for the next few years) againstthe costsof imported energy. (b) Bulgaria could boost its competitiveness and social welfare through the efficient use of its energy resources.There is an urgent need to promote energy efficiency in all areas: in end-use consumption, production, transmission, and distribution. While the EER has relied on reasonable estimates of demand growth (1.6% per year), energy intensity at the end of the period remains uncompetitive with that of other transition economies. Part of this high energyintensity is explained by Bulgaria's historical heavy reliance on electricity.? While this may have been sustainable with the low costsof nuclear fuel andindigenous lignite (on which Bulgaria relies most), with its depreciated assetbaseBulgaria's high dependenceon electricity is unlikely to be affordable if the country is to meet EU environmental requirements and include capital costs of new investment in electricity tariffs. The extraordinarily high amountof electricity used by households is likely to be a serious public policy challenge as electricity prices are adjusted to their full-cost recovery levels, particularly when capital costs of costly new investmentsarepassedthrough to end users. In particular, it will be necessaryto develop more efficient, alternate forms of energy services suchas modem district heating or gas supply to alleviate the adverseimpact on consumerwelfare and on economic competitiveness.8 (c) Cost-effective rehabilitation of existing assetsmust be accelerated, ideally through the proper privatization of assets.While appropriate regulations are being put in place it may be necessaryto consider suitable contracts, with sovereign guaranteesif necessary,to attract qualified investors to improve Electricity in Bulgaria is producedlargely by condensing-typethennal plants with poor conversion efficiencies (25-30%). Lossesin transmissionand distributionare currentlyaround 20%,resulting in only 25-30% of theprimary fuel actuallybeingavailableto theenduser. Overthe next fewyearstheaverageelectricityprice for householdsis expectedto rise to its economic costof US$ 50-60/MWh. Comparedwith this,theeconomiccostof low-pressurenaturalgaswould be US$ 20-24/MWh (orUS$ 200/tcm);districtheatingwouldbe aboutUS$ 25/MWh. 10 Bulgaria: Energy -Environment Review energy services. In areas such as the transmission/distribution of district heat, where major legal and regulatory reforms are still needed and contractual arrangementsare more complex, investments could be initiated through the budget and sovereign loans. (d) It will be necessary to defer costly investments in new power and heat generation capacity until regulatory reforms are more advanced and investors can assume a larger share of the market risks, under a suitable regulatory framework. Given the high level of uncertainty associated with demandprojections at this early stageof transition to a market economy, the available surplus capacity, the "lumpy" nature of investments in power plants, and the high risk premium that private capital is likely to demand at the presenttime, it would be prudent to direct investment capital toward the areasof highest return. These include the rehabilitation of existing assetsto improve their efficiency, reliability, and safety, and measuresto reduce the high dependenceon electricity for heating and cooking. (e) As a priority, it should be ensured that private investments in new power capacity for export are made with investors taking all export market risks. This is particularly important becausemore than 55% of new capacity is justified to meet export demand projections. Under the present market structure, only NEK can export (and import) electricity, and it therefore must assumeall the market risks (and rewards) of the export markets. These risks and rewards are bestassumedby the private sector. (1) In order not to constrain the emergenceof a competitive electricity market, NEK (the transmission/dispatch company)should consider long-term power purchase agreements (PPAs) only where essential to ensure reliable supply over the next four to five years. With the signing of long-term PPAs for the Maritsa East 1 (670 MW) new plant and the Maritsa East 3 (860 MW) rehabilitation and the "must run" nature of nuclear and cogeneration plants, already only about 40% of projected demand will be' available to competitive suppliers (Table A4.20). The GoB must ensure that environmental costs are internalized as fully as possible by monitoring and enforcing compliance with all relevant environmental regulations. The pricing of exports will also need to reflect any commitments that might eventually be assumed by the government on the emissions of greenhousegases.Furthermore, all electricity prices should include (in a transparent manner) NEK's costs as system operator of maintaining the capacity reserves (20-25% over peak) needed to ensure reliable supply to domestic and foreign consumers. The GoB should consider transparent policy measures to ensure that the strategic objectives of energy security arerealized, rather than merely using site, fuel, and plant selection. Such predetermination goes against market principles, deters many reputable strategic investors, and places more responsibility (and contingent liabilities) on the government. Specific objectives such as reducing import dependence and promoting the ~~~ry 11 exploitation of indigenous energyresourcesmay be better achieved through the provision of explicit tax incentives or disincentives.9 Similar mechanismscould be extended to the development of clean and renewable energyand the promotion of efficient energytechnologies. This would give investors a clear framework within which to make investment decisions while also satisfying the government's strategic and environmental objectives. The dependence on Russian gas is likely to be mitigated through the major expansion of Russian gas transit to Turkey (increased interdependence) and the ongoing development of gas pipelines from the Caucasusand Iran (through Turkey). Executive 1 1('1 88888888 0 ('I -('I ('I Z~ d ('I r'"I 'o:tr"1 1/')0 00 ('I '"1" .~ "2 E. 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U.c~ 0:=,- =.- '- ~ ='GJ~ GJ:;~ ~ '" '" "'"Q.o C '" ~ GJ C C 0 GJ GJ GJ GJ c ~ 0 '- GJ u .- '- .- ~ = 0 -GJ S .= 0 ~ = 0 ~ GJ '- E ~ u .- e ~ E E 0 ~ '" c :; 0 '" ... '- GJ C 0 ~ GJ '- C 0 01) GJ u 0 GJ ~ u GJ 0 u 0 GJ '- .- .GJ , ::? ~ C ... .5 IU u ~ GJ 0 E u '- GJ ~ ~ .t: Introduction 1.1 Bulgaria, as are many other Central and EasternEuropean (CEE) countries, is in the middle of major political and economic transformation. In the early 1990s, the country's transition to a democracy and market-based economy was characterized by the slow pace of structural reforms and stop-and-go stabilization policies. The result has been significant uncertainty and a collapse of the Bulgarian economy, especially in 1996-97. Since then, sound macroeconomic policies and a comprehensive program of structural reforms have contributed to Bulgaria's economic turnaround. However, significant uncertainty remains. Reforms in the energy sector have not been fully implemented and considerablemacroeconomic uncertainty makes it difficult to forecastenergydemand. 1.2 Historical energy demand characteristics. As in other CEE countries, these macroeconomic developments were largely reflected in the trend in Bulgaria's energy consumption in general and electricity consumption in particular. Over 1989-99, total primary energy consumption fell by an average of nearly 5.5% per annum (p.a.). Although some temporary growth was experienced in 1995 and 1996, this was more than offset by the sharpdecline in 1998 and again in 1999. In consequence,total primary energy consumption in 1999 was only 57% of the level reacheda decadeearlier, although (due to a declining population) consumption per capita was nearly 63% of the 1989 level. The basic facts in the electric power sectorwere the same: electricity consumption in Bulgaria fell by more than 4% p.a. over the decade 1989-99, reaching 65% of the 1989 level by 1999, while per capita electricity consumption fell to 71% of the 1989 level. During the last five years, actual economic growth and energy demand in Bulgaria were significantly different from earlier projections, making short- and medium-term forecasting very risky. The first steps ofrefonn (such asmeasuresalready taken to increasehousehold electricity and heating prices and to liberalize coal prices) indicate that energy demand may be affected significantly by the time that reform is completed. 1.3 Energy production characteristics. The total domestic production of primary energy in Bulgaria fell less rapidly than consumption over the decade 1989-99, with the result that Bulgaria's dependenceon imported energy fell from 61% to 49% over the period. Most of Bulgaria's domestic production of energy is in the form ofcoaVlignite (44.7%), nuclear power (43.7%), and hydroelectric power (7.2%). Table Al.lll Annex includesall thetablesof this section. 15 16 Bulgaria: Energy -Environment Review summarizes the development of total primary energy consumption and production in Bulgaria for the period 1989-99. 1.4 Reform directions. Against this background, the Government of Bulgaria (GoB) expects private investors to undertake significant investments in the energy sector, including in the rehabilitation and replacementof old, inefficient, and unsafe power plants, the expansion of electricity and gas transmission networks to boost exports, and development of a domestic low-pressure gas market. However, unless uncertainty is reduced and policy reforms are implemented, costly state guaranteeswould be needed to make suchprivate investmentspossible. 1.5 Furthennore, in December 19~9 in Helsinki, Bulgaria was invited to start negotiations toward European Union (EU) membership. Policy refonn and specific investment decisions will needto take into accountEU accessionrequirements, especially environmental requirements and nuclear safetyconsiderations, suchas the closure of older nuclear plants. 1.6 A key issue in Bulgaria's accessionto the EU is the EU requirement for early closure of the four older nuclear power units at Kozloduy, which are deemed by the EU to be intrinsically unsafe, based on its assessmentof the design of such reactors. To begin pre-accessionnegotiations, the GoB agreedto clbse Units 1 and 2 (commissioned in 1974 and 1975) before 2003. A definitive agreementhas not been reached about Units 3 and 4 (commissioned in 1981 and 1982). The EU expects they will be closed no later than 2006, but the GoB would prefer to close them at the end of their economic lives (2010- 12). The government is improving their safety to a level that is acceptable to relevant international agencies. In support of an early closure of Units 1-4, the G-7 countries provided a grant of 24 million euros in 1993/94 under the Nuclear Safety Account to improve their operating safety. The EU has also agreedto grant financing of 200 million euros over 2000-06 to alleviate the social impact of early closure, with the second half of this grant to be confirmed by the EU in 2002 depending on the GoB confirming closure of Units 3 and 4 by 2006. Additional financing has also beenmobilized from Euratom and severalbilateral and commercial creditors to refurbish and modernize the two newer 1,000 MW units (commissioned in 1988and 1993), ata costof about470 million euros. 1.7 Institutional framework. Key elements of the legal and institutional framework for the energy sectorwere set down in the Energy and Energy Efficiency Act (EEEA) that was adopted by the Bulgarian National Assembly on July 2, 1999. The EEEA provides for a system of regulation of electricity, district heating, and gas, with the intention of developing a competitive energy market and attracting investment and privatization in the energy sector. The EEEA sets up three new bodies concerned with energy: the State Agency of Energy and Energy Resources (SABER), the State Energy Regulatory Commission (SERC), andthe StateEnergy Efficiency Agency (SEEA). 1.8 SABER (foffi1erly the Committee of Energy) remains the dominant entity in the sector, responsible for drawing up national energy policy and for the strategy for development of the energy sector. It also approves programs for system expansion, restructuring, andprivatization. It proposessubordinate legislative regulation to be adopted Introduction 17 by the Council of Ministers (COM), detennines what additional investment capacity is required, and proposes the tendersrequired for new generation capacity to the COM. It also exercises the state's ownership rights in energy companies and is responsible for preparing legislative changesto ensurehannonization with the EU directives for energy. 1.9 SERC is required to propose draft ordinances to the COM setting out the conditions and proceduresfor issuingpennits and licensesand specifying the tenns of such licenses. Upon approval by the COM, SERC is responsible for issuing, amending, suspending, and revoking pennits and licenses for the generation, transmission, and distribution of electricity, heating, and natural gas. It must also develop secondary legislation and ordinances for phasing in competition in supply for eligible consumers. SERC also proposes the tariff methodology for regulated prices to the COM and, after approval by the COM, will be responsible for enforcing this methodology after the transitional period that endson December31, 2~Ol. 1.10 SEEA participates in the development of a national strategy of energy and energy efficiency, although this task is also allocated to SABER. In the past, the two agencieshave held radically different views on the appropriate energystrategy, with SEEA stressing energy efficiency and demand-side measures and SABER stressing supply security (through greaterreliance on domestic coal and on nuclear energy) to meetdemand based on historical consumption patterns. To the extent that the COM is responsible for accepting proposals, neither agency is ultimately responsible for the adoption of a particular strategy, and this apparent conflict may provide a beneficial check on the soundnessof any proposed strategy. SEEA is responsible for promoting energy efficiency andthe use of renewabIesand for licensing experts for auditing energyefficiency. 1.11 Power sector enterprises. The vertically integrated state-owned Natsionalna Elektricheska Kompania (NEK), establishedasa joint stock company in 1992, dominated the electricity supply industry until its "unbundling" in May-July 2000 into legally separategeneration, transmission/dispatch,and distribution entities. NEK has been converted to a transmission company with a single buyer division, transmission system maintenance division, hydropower plants enterprise, and dispatchcenter. Its name is to be changed to Natsionalna Elektroprenosna Kompaniya (National Electro-transportation Company). The four large hydroelectric cascades at Belmeken-Sestrimo-Chaira, Batak, Vacha, and Arda, consisting of 14plants with total capacity of 1637MW, and the pumped storage hydroelectric power plant at Chaira (with 864 MW generating and 784 MW pumping capacity) will remain in NEK. 1.12 Gas sector enterprises. Apart from the private development of the Galata gasfield, the natural gas subsectoris dominated by Bulgargaz (BG), a vertically integrated, 100 percent state-owned company formed in 1990 and transformed into a joint-stock company in 1993. Gas penetrationhas beentraditionally low in Bulgaria, with virtually no low-pressure or household supply. Large industries and the cogeneration and heat-only boilers of the district heating companiesconstitute the main customergroups, with the 28 largest customers accounting for 78 percent of total consumption and the balance consumed by the remaining 200 customers.Consequently, there is a uniform end userprice in Bulgaria, with prices being set by the Council of Ministers until end-200l, after which this function is to be assumed by SERC. Private investors have expressed interest in developing the low-pressure market but remain constrained by the absence of a suitable regulatory framework, particularly on differentiated prices for small-volume consumers. Bulgargaz is, however, expanding gas transit capacity, with the expectationof expanding it from the current about8 billion cubic meters per year to 21 bcm/year by 2003. 1.13 District heating enterprises. District heating (DR) is the dominant fonn of spaceheating and hot water in 22 of the highest-density cities in Bulgaria, serving about 25% of the population. It is produced largely from natural gas. Except for the Sofia DR company, which is owned by the municipality and accounts for about 60 percent of national DR consumption, the DR companies are state-owned and governed by SABER. With the objective of ensuring consumers accessto the least-costmeans of spaceheating and hot water in an environmentally sustainable manner, the GoB is in the process of preparing a strategy for the country's 22 district heating companies. In addition, the government will need to analyze the heating patterns of areas not supplied with district heating and develop a heating strategy to help consumers cope with the liberalization of coal prices, the phase-out of price subsidies for electricity, and adaptation to EU environmental regulations; it will also need a strategy to help mitigate the adverse impact on health of poor quality home heating. In that regard, it can be noted that 14 cities in Bulgaria have been identified as "hot spots" that exceed SO2, NOx, and particulate emission limits. Energy Production 1.14 Bulgaria has large deposits of low-quality brown coal, comprising a reserve of 2.5 billion tonnes of lignite and 200 million tonnes of subbituminous coal. In 1998, Bulgaria produced a little over 30 million tonnes of coal, consisting of 27.4 million tonnes of lignite, 2.7 million tonnes of bituminous coal, and 18,000 tonnes of anthracite. The Maritsa East coalfield in southern Bulgaria is the largest producer, but the quality of the coal is low, with high ash and sulfur content. The Maritsa field supplies the power plants at Maritsa East 1,2, and3. The lignite has anaverageheating value of 1,500kcal/kg and its heating value ranges from 1,340 kcal/kg to 3,061 kcal/kg. At expected production rates, the reserves at Maritsa East are projected to last 50 years. Besides lignite for the power plants, the Maritsa East mines provide about 3 million tonnes per year that is used for production of 1 million tonnes per year of briquettes. The Bobov Dol mines produc~ 2 million tonnes per year of brown coal for use at the Bobov Dol power plant. The Staniantsi, Beli Breg, and Chukurovo mines produce about 1.5 million tonnes of coal per year. Deposits at the Pernik mines are being depleted and will eventually be phasedout. In 1998 they supplied 1.6million tonnesof coal.12 1.15 The Bulgarian authorities classify nuclear power as an indigenous source of energy. Bulgaria hasone nuclear power plant, Kozloduy, located 200 kIn north of Sofia on the Danube River. In 1999, the Kozloduy complex produced nearly 16,000 GWh. The Kozloduy complex, the largest plant in the Balkan Peninsula, has six units, using Russian- 12 Infomtation on the coal industry in this paragraph is from the U.S. Department of Energy's (USDOE's) "An Energy Overview of the Republic of Bulgaria." Heating values were provided by SAEER. Introduction 19 designedVVER reactors. Units 1,2,3, and 4 were commissioned in 1974, 1975, 1980,and 1982 respectively. Units 5 and 6 were commis$ioned in 1987 and 1991, respectively. The total capacity of all six units is 3,760MW(e).I3 1.16 Bulgaria has modest hydroelectric resources. Water accumulates in approximately 50 large reservoirs at77 hydropower plants. The 14 largestplants operatein four cascades,to generate power to meet peak demand and to provide systemregulation. These four cascadesare the Belmeken-Sestrimo-Chaira cascade,Batak cascad~,and Arda cascade in the Rodopi mountains, and the Vacha cascade in the Rila mountains. Other cascades are at Iskar, in the Rila Mountains, and Sandanska Bistritsa, in the Pirin mountains. In 1995, Bulgaria completed the first stage of the largest pumped storage hydroelectric power station ,in the country, located at Chaira. The second stage was commissioned in 1999.The total output of the hydro plants in 1999 was 2,979 GWh; 351 GWh was consumed in the pumping mode.14 1.17 Bulgaria has virtually no indigenous supply of oil and only modest quantities of natural gas.Crude oil production in 1999 was less than 1,000 barrels per day, although exploration efforts are continuing. At least eight agreementshave beensigned to explore for oil in the Black Sea and on the Black Sea coast. These joint venture arrangementsor concessions, which could be extended to cover other parts of the country, include those with British Gas to explore in the Kamchia and Bourgas blocks. Texaco Exploration Offshore Bulgaria Limited has an exploration and production license with Enterprise Oil (U.K.) and OMV, the dominant oil operator in Austria. For the future, development for gas production on the Black Sea shelf may have significant potential for Bulgaria. 1.18 Domestic gas reserves in Bulgaria are limited to roughly 5.7 billion cubic meters (m3); production in 1999 wasless than 29 million m3.The origins of the gasindustry dateback to 1963 with the discoveryof the condensatefield at Chiren in the northwestof the country. Quantities were small, and in 1971 construction of the main gas pipeline from the former Soviet Union wascommenced.The pipeline was completed in 1974.The original gas field at Chiren then becamea gas storagefacility, connectedto the ring main, not far from Sofia. Exploration in the Black Seahasresulted in a small find atGalata,nearVarna.This has reservesof 1.5 billion m3,which drawn down over five years at0.3 billion m3jyearwould be lessthan 10% of total demand.The gaswould probably be consumed locally at Varna. The prospectsfor finding additional gasin thenearfuture are not promising. 15 Energy Consumption 1.19 The total consumption of primary energy in Bulgaria, including imports, is dominated by solid fuels (coal, lignite and coke: 36.6%), liquid fuels (21.5%), primary 13 The Kozloduy data are from NEK's Annual Report (1999). 14 Information on hydroelectric resources from USDOE, "An Energy Overview of the Republic of Bulgaria." Information on oil and gas resources from USDOE, "An Energy Overview of the Republic of Bulgaria" and D. M. Newberry, "The Bulgarian Energy Sector,'~World Bank, 21 February 2000. 20 Bulgaria: Energy-Environment Revi~ dominated by solid fuels (coal, lignite and ~oke: 36.6%), liquid fuels (21.5%), primary electricity (24.3%), and natural gas (16.7%).16The breakdown of total fmal consumption by fuel and by consuming sector (expressedin both TI and Mtoe) is in Table A1.2. With reference to TabIe 1.1, it canbe noted that total final energy consumption is roughly 50% of total primary energy consumption, the difference being caused mainly by conversion losses (81%), consumption by energy producing industries (12%), and losses in transportation and distribution (7%).17The sharesof liquid fuels (25%), heat energy(23%), and electricity (22%) in final energy consumption are roughly similar, with the balance of final consumption being met by solid fuels (17%) and natural gas (13%). In terms of sectors, industry accounted for more than half the total final energy consumption in 1998 (further detail on this important sector is provided in Table Al.3). The industrial sector relies mainly on heat energy (34%), natural gas (24%), and electricity (23%). Within the industrial sector, the largest single consumersare metallurgy and chemicals, accounting for 29% and 28% of total industrial consumption, respectively. The household sector consumes almost one-quarter of all final energy in Bulgaria, relying heavily on solid fuels (39%), electricity (36%), and heat energy(23%). Table Al.2 shows clearly the negligible penetration of natural gas in the household sector (less than 3%), which is due to the absence of any significant low-pressure supply network (see below). The high usage of electricity by households is also reflected in the sectoral composition of electricity consumption (Table Al.4). In 1998, households took more than 38% of all electricity, second only to industry (nearly 53%). As would be expected, the transport sector uses almost exclusively liquid fuels (98% of its consumption), and has a share of 21% in Bulgaria's total final energy consumption. The very small sharesof agriculture (3%) and services probably reflect a low degreeof mechanizationand a still-nascent servicessector, respectively. 1.20 The shortfall between total primary energy consumption and the total domestic production of primary energy is made up mainly by imported coal, liquid fuels (crude oil and refined products), and natural gas. These imports are partially offset by electricity exports: Imported coal, crude oil, and natural gas accounted for 19%, 45%, and 29% of total energy imports, respectively.IS Although Bulgaria has virtually no low- pressure supply network, a natural gas distribution system of 1,500 km has been 1997 data, from the National StatisticalInstitute's "Energy Balances'97." The NSI calculatesthe 1.6 contribution of nuclearandhydroelectricpowerto grossprimaryenergyasthe amountof fuel thatwould be burned in a conventionalthermalpowerplant to producean equivalentamountof electricity. The important consequenceof this traditional approachis to increasethe contribution of nuclear and hydroelectric power to total primary energyproductionby an amountof energyequalto the thermal lossesof a conventionalpowerstation.Underthe normalassumptionof a 33% efficiency factor for a conventionalthermalpowerplant, 10.9TJof energyis neededto generateI GWhof electricity.Forthe discussionof future results,the EER relied onthe EnergyandPowerEvaluationProgram(ENPEP)of the InternationalAtomic EnergyAgency(IAEA). However,ENPEPcalculatesnuclearandhydroelectric power on thebasisof the energycontentof theelectricity.Underthatapproach,1 GWhis equivalentto 3.6 TJ ratherthan10.9TJ,andtheshareof primaryelectricityin total primary energyis thereforemuch less. This difference must be borne in mind in the following discussion.The measurementof final energyconsumptionis notaffectedbythisdifferencein methodology. 1997data,fromthe NationalStatisticalInstitute's"EnergyBalances'97." 1997data,fromthe National StatisticalInstitute's"EnergyBalances'97." Introduction 21 constructed within the country to transport the imported Russian natural gas to large and medium-size consumers. Bulgaria has also served as the transit route for Russian gas through to Turkey since 1989. Energy Intensity 1.21 The total final consumption of energy in Bulgaria, relative to GDP, is high by international standards. Key comparative statistics on energy intensity for a cross- section of OECD countries, Bulgaria, the Czech Republic, Poland, Romania, and Ukraine are provided in Table A1.5. If energy efficiency is roughly measuredby the total primary energy supply as a ratio of GDP, Bulgaria fares badly. Whether the conventional measure of GDP is used (according to which Bulgaria's energy intensity is 1,628 kgoe/US$ 1,000) or purchasing power parity is used (according to which Bulgaria's energy intensity is 526 kgoe/US$), Bulgaria is second only to Ukraine. Compared with the OECD average, Bulgaria usesmore than seventimes as much energyto produceUS$ 1 of output. 1.22 Data compiled by the World Bank recently on energy and electricity intensity, specifically for households, in Bulgaria, Romania, Slovakia, Estonia, Turkey, and Lithuania is also illuminating, and confirms the high usageof electricity in Bulgaria (Table A1.6). Energy consumption per household in Bulgaria in 1998 and 1999 is below that of the other countries in the table, but electricity consumption is higher than in the other countries for which data were available. For example, electricity consumption per household in Bulgaria was more than three times that in Romania in 1998, although GDP per household was lower; more than three times that in Slovakia in 1998, despite the fact that GDP per household in Bulgaria was only 2% higher; nearly three times that in Lithuania in 1998 and 1999, despite a much lower GDP per household; and even higher than that in Turkey, whose GDP per household was approaching double the level in Bulgaria in 1998and 1999. 2 Rationale for the EER 2.1 In general, environmental considerations have become more important in Bulgaria and needto be reflected in its energystrategy.Bulgaria has takenthe first steps in this direction with its SecondNational Communication on Climate Change (1998) and an attempt to develop an environment strategy (Action Plan for Implementation of the International Environmental Commitments in the Energy Sector, March 1999). However, in mid-1999 the GoB and the World Bank concluded that more needs to be done to integrate Bulgaria's energy and environment strategies. The World Bank, working with SABER and the Ministry of Environment and Water (MOEW), developed terms of reference to carry out an Energy and Environment Review (EER) (Annex 6). 2.2 The objectives of the EER were to develop and test a methodology to better integrate energy sector development and investment plans with the country's environmental objectives, to evaluate alternative policies, and to strengthen the local capability to carry out similar assessmentsin the future. It was expected that key findings of the EER should be helpful in updating the National Energy Strategy, which the Bulgarian parliament reviews and approveseverytwo to three years. 2.3 With regard to the scopeof the study, the GoB and the World Bank jointly decided to focus on a number of issues that in early 2000 were considered the highest priority. These were mainly thefollowing: The uncertainty regarding the energy demand and the need for energy efficiency improvements throughoutthe energysector. Major investmentdecisionsassociatedwith the powergenerationsubsector, including: ~ closure of Kozloduy 1-4 (Units 1 and 2 were scheduled for closure in end-2002, but closure of Units 3 and 4 was still undecided) >- new lignite-fired plants were being proposed, somejustified on the basisof electricity exports >- the increasing role of natural gas, which is available at increasing volumes but at relatively high price 23 . International environmental obligations. The expected ratification of the Kyoto Protocol and the accession to the European Union (EU) are dominating Bulgaria's environmental policy agenda. The former has the potential to benefit the country through greenhouse gas emission trading, while the latter sets very specific requirements the country would need to meet over time (environmental standardsfor all sectorsof the economy). 2.4 There are other important energy-environment issues for Bulgaria, but they are not covered in detail in this study either because they have been addressed in other studies (e.g., district heating issueshave beenevaluated aspart ofillRD and EBRD loans) or becausethey could not be addresseddue to the limited resources and time available for this study. 2.5 The approach followed was to build upon SABER's previous analysesand independent studies and to focus on issues related to the integration of energy and environment in tenns of methodology and results. The GoB's National Energy Strategy (August 1998), the Action Plan for Implementation of the International Environmental Commitments in the Energy Sector (March 1999),the National Energy Efficiency Program of Bulgaria (July 1998), and NEK's Power Development Programs were the main sources of infonnation on the government side. 2.6 To help mainstream the methodology, the analysis was carried out in cooperation with local experts, using existing data, information, and local modeling capability to the maximum extent possible. Several differences of opinion between Bulgarian energy authorities and the Bank team were accommodated through alternative scenarios,some of which (like high gasprice and high exports) were included in response to SAEER's comments relevant to the Base Case Scenario (Annex 7). General agreement was reachedin key areassuchasdomestic electricity and energy demand, the rehabilitation program for existing power plants and district heating systems in high population density areas,and the need to develop the low-pressure gas network to serve the market for space heating andcooking investments. 2.7 Key differences are related to SABER's strategy (articulated initially in the National Strategy for Development of the Energy Sector till 2010, adopted by parliament in early 1999 and now being updated) which envisages large-scale investment in new capacity earlier, in part to meet higher domestic demand projections made before the EER was initiated (pre-2000), and in part to position Bulgaria to capture an increasing shareof regional demand and to minimize reliance on imported fuels (mainly natural gas) for power generation. The main difference relates to the timing of these investments: SAEER plans to proceed with start-up of a lignite plant as early as 2004, while the World Bank team estimatesthat no investment is neededbefore 2006. 2.8 The first important task of the EER was to review and update the energy demand forecast. The official forecasts were reviewed taking into account changes in the macroeconomic and micro economic environment, as well as similar trends experienced in other countries of Eastern Europe that went through comparable political and economic transformations. The official forecasts were also compared to analyses carried out over the Rationalefor theEER 25 last few years by BCEOM French Engineering Consultants (on behalf of the EU) and ERMEnergy (U.K.), on behalf of AESHorizons Ltd. 2.9 The assessmentof the Base Case Scenario, as well as alternative scenarios, focusedon the environmental impacts of energydevelopment. In the processof developing the Base Case scenario, the least-cost power development program was reevaluated. However, the purpose of the EER did not include detailed technical and economic review of every investment option; instead,it relied on prior assessmentsthat had beencarried out by the government and other organizations. The alternative scenarios focused on the evaluation of strategies involving, for example, more reliance on domestic resources or imported gas, earlier and later retirement of Kozloduy Units 3 and 4, the impact of electricity exports, and emission trading options. 2.10 The project was managed by the World Bank on behalf of SABER. NEK's Planning Department and the MOEW helped to fonnulate the work plan. NEK participated in the implementation of the EER by running the IRPManager model for the power sector. Other organizations that provided input include the National Statistical Institute (NSI) and the Agency for Economic Projections and Development. Energoproekt was the main local consultant, collecting relevant data and carrying out the energy analyses with the supervision and technical support of World Bank consultants. By working with local experts to the maximum extent possible, the EER process was intended to build capacity within SABER, NEK, and other organizations to carry out integrated energy-environment planning in the future. 2.11 This report is organized in eight chapters. Following the Introduction (Chapter 1) and Rationale for the EER (Chapter 2), Chapter 3 summarizes the environmental issues facing Bulgaria, as well as the environmental regulations and international treaties. Chapter 4 identifies the main issues and policy options that need to be evaluated,and Chapter 5 outlines the methodology and analytical tools used. Chapter6 describesthe Base Case Scenario,including the energy demand forecast, the power sector least-costdevelopment plan, and environmental impacts. Chapter 7 summarizesthe results of the alternative scenarios, and Chapter 8 provides the key conclusions and recommendationsof the EER. Tables andfigures are consolidated in Annexes 1 through 5. 3 Environmental Issues, Regulations, and International Treaties Environmental Issues 3.1 In general, enviromnental pollution has been reduced since 1989, when Bulgaria began its transition to a market-based economy, and since the country's enviromnental issues were documented in the World Bank's 1994 report, "Bulgaria: Enviromnental Strategy Study Update and Follow-up" (13493-BUL). Pollution has been reducedbecauseof a significant decline in economic activity, govermnent efforts to reform the economy, and new enviromnental regulations to control pollutants. As Table A2.119 shows, all air pollutants have declined both in terms of the total amount released and per capita emissions. 3.2 However, the country still has a number of "hot spots" that continue to experience severe pollution, and approximately one-third of the population is exposed to harmful ambient air quality. These hot spots include densely populated towns such as Bourgas, Plovdiv-Assenovgrad, Dimitrovgrad, Vama-Devnya, Rouse, Vratza, Kardazhali, Pernik, Pirdop, Sofia-Kremikovtzy, Pleven, and Silistra. Pollution in these areasis caused mainly by heavy industry, notably ferrous and nonferrous metallurgy, chemical, and cementfactories, and by motor transport. 3.3 Particulates are the most serious pollutant. Concentrations of particulate matter exceed national standards (annual average: 150 J.1g!m3)and World Health Organization (WHO) guidelines (24-hour average: 150 J.1g!m3or annual average: 60-90 J.1g!m3)in most cities. For example, in 199620the maximum annualaveragewas measured as high as350-500 J.1g/m3in Bourgas, Pernik, andPleven; Sofia, Plovdiv, and StaraZagora also exceeded the standard. The combustion of solid fuels in power plants, industry, and households and dust from unpaved roads are the main contributors to high particulate concentration. All tables relating to this section are in Annex 2. Source: "Reduction of S02 and Particulate Emissions: Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia," Regional Enviromnental Center for Central and Eastern Europe, May 1998. 27 3.4 802 concentrations continue to be above the national standards (annual average: 50 Jlg/m3) and WHO guidelines (40-60. Jlglm3) in many cities and towns, especially in areas with nonferrous metallurgy, chemical industry, and lignite-fired power plants. For example, in 1996 daily emissions of802 in Varna-Devnja exceededadmissible standards on nearly 290 days.ZlHome heating with coal and briquettes contributes to high SOl concentrations in some areas. By 2002, when the standard for maximum SOl concentration will be reducedto 20 J.!glm3,many more areaswill be above this ambient air quality standard. 3.5 With the exception of Sofia, NOx regulations (annual average: 50 ~g/m3) are being met. However, NOx emissions are increasing due to the growth of the motor transport sectorand are expectedto contribute significantly to urban pollution problems in the near future. The aging car fleet and increasing number of vehicles pose a challenge in controlling pollution from the transportsector. Between 1991 and 1997, the vehicle stock increased from 16 to 22 vehicles per 100 inhabitants, and further increases are expected in the future. 3.6 Water pollution hasbeenidentified asa problem,22especially with regard to contamination of drinking water and food supplies by heavy metals and toxic organic compounds, but was not included in the scope of this study due to the limited resources andtime available. Environmental Regulations 3.7 Bulgaria's presentenvironmental legislation is based on the Environmental Protection Act of 1991. This act revises the system of environmental standards and incorporates the principles of polluter pays, the right of the public to be informed, and pollution prevention, and calls for the integration of environmental protection in other areas of national policy. In recent years the country has made considerable progress in harmonizing its environmental laws and regulations with those of the EU, particularly in the areasof air, water, waste, natureprotection, and chemicals. The most recent revision of environmental regulations (the Ambient Clean Air Act (ACAA)) was introduced in May 1999. Tables A2.2 and A2.3 summarize Bulgaria's environmental regulations after the 1999 revision and compare its air quality and emission standardsfor thermal power plants to those of othercountries. 3.8 Bulgaria's air quality standards (see Table A2.2) are clearly tighter than WHO guidelines and U.S. standards,and reflect an effort on the part of policymakers to improve air quality by 2005-08 (the period during which Bulgaria expects to become an EU member). According to the ACAA, municipalities within nonattainment areas are obliged to prepare action plans to reduce pollution by 13 specified pollutants to acceptable 21 Ministry of Enviromnentand Waters(1999). ISPAStrateg;' Paperfor Environment.Sofia, Bulgaria, November. World Bank report 13493-BUL,"Bulgaria: Enviromnental Strategy Study Update and Follow-up," December30,1994. levels. The Regional Environmental Inspectorates (REls) within the Ministry of Environment and Water (MOEW) are obliged to assist municipal authorities during the preparation of theseplans, to ensuretheir compliance with the corresponding provisions of the Framework Directive. 3.9 One instrument used for improving air quality is further tightening of emission standards for thermal power plants. As Table A2.3 shows, Bulgaria's new standards are almost identical to EU standards,and apply to both new and existing power plants. One uncertainty with regard to their enforcementis the availability of funding to retrofit existing plants with the required emission control equipment (e.g., flue gas desulfurization (FGD». An extension of up to five yearshas beengiven to older plants that cannot comply with the new standards,but it is not clear how theseplants will be brought into compliance with national emissionstandards. 3.10 Legislation affecting non-power sector facilities (e.g., industrial plants) has beenaligned to EU Directive 96/61/EC on IntegratedPollution Prevention and Control (IPPC), which gives a general framework for preventing pollution and for controlling it from selected manufacturing technologies that have the most substantial environmental impacts. The legislation sets standards for operating and discharge permits and dictates certain procedures for enforcement and reporting. This directive encourages industries to prevent or minimize emissionsto all environmental media rather than considering "end-of- pipe" solutions, and stressesan integrated, cross-media approach to industrial pollution control for emissions to air, land, and water, alongsidea rangeof other issues. 3.11 By 2002, Bulgaria will launch a phasedissuance of integrated permits for all manufacturing companies falling within its purview. There are 380-400 plants requiring integrated permits in the following sectors: waste (26%), metallurgy (20%), chemical (16%); energy 14(%), and mining (18%). Most of the existing installations require substantial upgrading to comply with the requirementof the directive. According to the timetable, the bestavailable technologies for pollution control should be adopted in the main industrial sectorsby end-2009.However, somecompaniesmay need to be allowed to operate these facilities until 2012 or later without any emission controls.23 The full implementation of all requirements of the directive is not expected until the country becomes an EU member. 3.12 In the transport sector, Bulgaria hasintroduced legislation to promote the use of unleaded gasoline andphaseout lead gasolineby 2003. 3.13 Bulgaria has signed a number of international treaties and agreements, including: a) The Second Sulfur Protocol to the Convention on Long-Range Transboundary Air Pollution, which was signed in Oslo, Norway on June 14, 1994. This protocol requires Bulgaria to keep annual S02 emissions 23 According to MOEW's timetable, a transitional period until January 2012 has been suggested for existing facilities. 30 Energy-Environment~iew below 1,374ktonnes in 2000, 1,239ktonnes in 2005, and 1,127ktonnes in 2010. This reflects reductions of33%, 40%, and 45% from 1980 levels, but current SO2 emissions are already below these levels because of the reduction in economic activity andthe ongoing restructuring. With regard to future SO2 emissions, Bulgaria signed on December 1, 1999 the Gothenburg Protocol, which will replace previous Transboundary Air Pollution treaties and which is expected to require Bulgaria to achieve further reductions to the 856 ktonneslevel, starting in 2010. b) The Sofia Protocol requires that the annual releases of NOx emissions be kept below the following levels: 380 ktonnes in 2000, 350 ktonnes in 2005 and 290 ktonnes in 2010. As of 2000, Bulgaria satisfies the Sofia Protocol requirements. The Gothenburg Protocol will require further reduction of NOx emissionsto the 266 ktonnes level, andwill take effect in 2010. c) Bulgaria would have to consider compliance with the UN Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol, if and when the latter is ratified. According to this convention, the main commitment of Bulgaria is to ensure that by 2000 its greenhouse gas emissions do not exceed the 1988 level. Under the Protocol, Bulgaria is committed to reducing greenhousegasemissions by 8 percent during 2008- 12, with respect to 1988 emissions. This means that average annual greenhousegas emissions during this period should not exceedthe level of 92,260 ktonnes CO2-eq./yr. ~ulgaria: 4.1 The Bulgaria EER was designed to address a limited number of targeted issues and options. These relate to the environmental impacts of the energy sector, especially during the economic transition and restructuring process; the way in which the timing of investments and the choice of technologies in the energy sector could affect emissions and air quality; and the scope for carbon trading under possible international arrangements,post-Kyoto. These issueswere identified jointly by the GoB and the World Bank as the highest priority at the time (early 2000). There are other important issuesalso, but the study was limited by resource and time constraints. For convenience, the environmental issuesraised by thesetopics and the policy options available to the GoB to try to tackle thosetheseissueswere framed asa setof three questions, asfollows: 4.2 Energy demand. First, how will the economic transition and restructuring process affect the demand for energy? The energy intensity of the Bulgarian economy is high by international standards,but how far can it be expected to fall in the future? How will this process be affected by energy price changes and shifts in the composition of GDP? Energy prices areincreasing, to move into closer alignment with the costsof supply. However, during the transition process, the pace of deregulation and the development of competition has varied between the different energy subsectors.Notably, district heating prices have increased at a fasterpace than electricity prices, but as the transition proceeds household electricity price increases will have to accelerate to their full cost-recovery level. Restructuring and privatization in the economy at large is causing a shift away from the traditional heavy industries and toward services, including more developed transport and banking sectors. In agriculture, the program of economic reform has been aimed at creating a macroeconomic framework and incentive system for producers, processors,and traders consistent with the requirements of a market-based food and agriculture system. The share of agriculture in GDP has increased steadily in the 1990s. There will be consequencesfor the agroprocessingindustry, the degree of mechanization in agriculture, and agriculture's energy requirements. Again, however, there are transition issues. For example, the size of the informal sector remains disproportionately large and can be expected to fall over time. In addition to the normal effects of economic transition and restructuring, Bulgaria is attempting to deal with the constraints imposed by the GoB's desire to join the EU and meet the EU's accessionrequirements. Considerable uncertainty is caused by all of these forces and energy demand forecasting is therefore beset with 31 challenges. Nevertheless, the rate at which energy efficiency improves in the Bulgarian economy can have a profound impact on aggregate energy demand and the likely environmental impacts. 4.3 Least-cost investment program and environmental impacts. Second, given best estimates about the future trajectory of energy demand, what is the investment program likely to look like in the medium term, especially in the capital-intensive power sector? What is the likely timing of investments and what are the likely technological choices? Will the environmental impacts be consistent with Bulgaria's domestic and international policy objectives, especially in the context of EU accession?ill examining these questions, the EER assessedthe way in which the answers might be affected by different assumptions about the retirement dates for Units 3 and 4 of the Kozloduy nuclear plant; and by different prices for natural gas: Retirement of Kozloduy 3 and 4. A key issue in Bulgaria's accessionto the EU is the EU requirement for early closure of the four older VVER 440/230 nuclear power units at Kozloduy (total 1,600 MW net), which are deemed by the EU to be intrinsically unsafe. To begin pre-accession negotiations, the GoB agreedto close Units 1 and 2 (commissioned in 1974 and 1975) before 2003. A definitive agreementhas not beenreached about Units 3 and 4 (commissioned in 1980 and 1982); while the EU expects they will be closed no later than 2006, the government would prefer to close them at the end of their useful life. Earlier retirement of Units 3 and 4 would advancethe timing of the next investment and causea change in the generation mix. Emissions of NOx, S02, particulates, and CO2 would in all probability be higher with lessnuclear power, since the production of Units 3 and 4 would likely be replaced by thermal energy. Natural gas prices. Considerable uncertainty surrounds the future of natural gasprices, which in Bulgaria are indexed to international gasoil and heavy fuel oil prices. Higher international prices for crude oil and refined products would raise natural gasprices in the Bulgarian market and reduce natural gas utilization, with the consequenteffects of lower gas penetration and increaseduse of solid fuels and electricity, particularly for cooking and heating. 4.4 Carbon trading. Third, what options could Bulgaria have under the Kyoto Protocol and otherpossible international arrangementsfor carbon trading? In particular, do profitable opportunities exist for Bulgaria to reduce its carbon emissions even below the level of its international commitments, therebycreating opportunities to sell the additional carbon savings to a carbon fund or to trade directly underjoint implementation schemes? The EER dealt with this question by looking specifically at the opportunity cost to Bulgaria of electricity exports, in terms of the foregone opportunities to trade the carbon emissions directly attributable to those exports. Along with a decline in the domestic consumption of electricity since 1989, Bulgaria has substantially increased its exports to neighboring countries. Exports increased from 548 GWh in 1989 to 4,300 GWh in 2000 (with a downturn in 1999 due to regional instability), and are expected to be sustained at . Environmentalfolicy IssuesandOptio~_~~~erg¥Sector 33 the level of at least 4,200 GWh/year in the future. Given the dominance of thermal generation in the Bulgarian power system, especially from lignite plants, there will be a direct consequence in terms of carbon emissions and, therefore, a potential direct opportunity cost.. 4.5 Environmentalissuesthathavenotbeenaddressedin detailunderthis study include: Impact of the transport sectoron local pollution. This sectorwas included in the analysis, but only macro-level effects were assessed.Local pollution was beyond the scope of this study, but such assessmentis recommended for future study, especially with regard to NOx emissions and their impact on smog in large cities Water pollution has beenidentified asa problem,24especiallywith regard to the contamination of drinking water and food supplies by heavy metals and toxic organic compounds. It was not, however, included in the scopeof this study due to the limited resourcesandtime available. 24 World Bank report 13493-BUL,"Bulgaria: EnvironmentalStrategy StudyUpdate and Follow-up, December30,1994. . The Scenario Approach 5.1 The EER relied on an integrated set of computer programming modules to explore three scenarios: a Base Case Scenario, an Interfuel Substitution Scenario, and a Carbon Trading Scenario. These scenarios were designed to help the EER answer the questions outlined in Chapter4, concerning the way in which the economic transition and restructuring process would affect the demand for energy; the likely composition and timing of the energy investment program in the medium term, especially in the capital- intensive power sector; and the options facing Bulgaria under the Kyoto Protocol and other possible international arrangementsfor carbontrading. 5.2 The Base Case Scenario made best estimates aboutthe trajectory of energy demand over the time horizon 1998-2015, both for primary energy consumption by fuel and final energy consumption by sector. These best estimates take into account the closer alignment of energy prices with the costsof supply, the restructuring of the economy, and forecasts of the economic costs of alternative fuels and technologies. Given these best estimates,a small subsetof environmental attributes was monitored explicitly: particulates, SO2, and NOx, because of their importance to air quality and human health; and CO2, becauseof the interest in climate changeand carbontrading. 5.3 The Interfuel Substitution Scenario analyzed the consequencesof varying the contribution of nuclear power and natural gas over the investment planning horizon. The specific goals of this scenario necessitatedthree subscenarios.The first explored the implications of advancing the retirement dates for Units 3 and 4 of the Kozloduy nuclear plant to meet EU accession requirements. This would require that nuclear energy be replaced by alternative fuels at an earlier date in the planning horizon. The second subscenarioconsideredthe impact of delaying the retirement of Units 3 and 4 until the end of their useful economic lives. It is understood that this scenario reflects the preferences of the GoB. The third respondedto the major uncertainty surrounding the forecast of natural gas prices, and considered a price trend substantially above the levels used for the Base Case Scenario. The change in the subsetof environmental attributes was measured for thesethree subscenarioscompared with the Base CaseScenario. 35 5.4 Each supply scenarioestimated the quantity of carbon that Bulgaria could offer to international parties undersuitable carbontrading arrangements.Given uncertainty about the future level of exports, the EER approached this subject by considering two subscenarios,defined by variations in the level of electricity exports above and below the amounts included in the Base CaseScenario, to measurethe impact on carbon emissions. Every tonne of carbon equivalent that can be saved below the ceiling set by the Kyoto Protocol can potentially be sold in a carbontrading market. 5.5 The Base CaseScenariois discussedin Chapter 6. The alternative scenarios arepresentedin Chapter 7. The Models 5.6 Modeling of Bulgaria's energy system under the three scenarios involved mainly the Energy and Power Evaluation Program (ENPEP) provided by the International Atomic Energy Agency (IAEA). The following programming modules of ENPEP were used in the EER: MACRO, DEMAND, BALANCE, WASP, and IMPACTS. In addition, IRPManager was used to model the power subsector,to take advantageof the much greater detail that it provided on the power sectorinvestment program and dispatch schedule.The integration of thesemodels is shown in Figure A3.1.25 5.7 The macroeconomic forecasts,including GDP and population growth, were provided by the Bulgarian Agency for Economic Analysis and Forecasts, which is part of the Ministry of Finance. The GDP forecastshad beendeveloped in collaboration with the International Monetary Fund (IMP). Such macroeconomic data are key inputs to the MACRO module, along with the structure of the subsectors of the economy. MACRO provides an interface with DEMAND, to which it transfers the macroeconomic projections for further analysis. The DEMAND module estimates the useful and final energy demand by sector, including households,industry, services,and transport. 5.8 The BALANCE module is a nonlinear equilibrium model that matchesthe demand for energy with available resources and technologies. It uses a market-based simulation approach to determine how various segments of the energy system would respond to changes in energy prices and quantities needed. BALANCE relies on a decentralized decision making process in the energy sector, and can be calibrated to the different preferencesof energyusersand suppliers. 5.9 As Figure A3.2 shows, the user provides the design of the energy system configuration being studied, using a node and link formulation. More specifically, inputs include the country's energy resources by type (e.g., solids, liquids, gaseous,hydro, and nuclear energy and renewable resources), energy conversion processes (e.g., refineries, electricity production facilities, and heatproduction), fuel and energy transmission losses, andprices of energy resources.Also, the userprovides asinputs the baseyear energyflows and prices, as well as the final energy demand growth projections and various constraints, both technical- and policy-related. In the case of Bulgaria, the following economic sectors 25 All figures related to this section are in Annex 3 and subsectorswere included: Industry (Chemistry, Metallurgy, and Building Materials), Transport, Agriculture andForestry, Households, andServices. 5.10 The WASP model (Wien Automatic SystemPlanning Package) is used to determine the least-costgenerating systemexpansionthat adequatelymeets the demand for electrical power, subjectto a numberof user-defined constraints.The present worth of total system costs, including the capital cost of new generating units, fixed and variable operation and maintenance (O&M) costs,fuel costs, and costs of unserved energy, is used to measure the economic performance of alternative expansion plans. The model uses probabilistic simulation to calculate the production costs and reliability parameters for a large number of possible future system configurations, and a dynamic programming technique to determine an economically optimal expansion path for the electric power system under consideration. System reliability is evaluated using three indices: reserve margin, loss-of-ioad-probability, andunserved energy.These reliability indices, along with the maximum number of thermal or hydroelectric units that can be added each year, are user-specified constraints that an expansion plan must meet to be accepted. It should be noted that economic costs were used throughout the scenario analysis (although WASP will accept financial costs also), and that costs of meeting environmental standardswere internalized and included in economic costs to the extent that all power plants were required to meetBulgarian environmental standards,regulations, andlaws. 5.11 The IMPACTS module of ENPEP calculates the residuals (air pollutants, water pollutants, solid waste, and land use) of the energy system. It takes the energy system design from BALANCE and WASP, and calculates the residuals based on fuel consumption and any environmental control technology in use. IMPACTS also allows the userto prescribe a variety of different environmental control regulations that can vary with the age of the facility. As mentioned in the discussion of the scenarios, the subset of environmental attributes monitored by the EER coveredparticulates, SOl, NOx, and COl. 5.12 IRPManager is an integrated resource planning model that takes into account electricity demand, power system supply, tariff structure, and financial considerations. NEK, the Bulgarian power company, is using IRPManager for its power system planning activities. For this reason, and because IRPManager can provide much more detail on the investment and dispatchprograms, IRPManager was used in this study to establish the Base CaseScenario.The results of this scenario were then confirmed by running WASP. As in WASP, economic costswere provided to IRPManager, and the costs of meeting environmental standardswere internalized and included in economic costs by requiring all power plants to meetrelevant Bulgarian environmental standards,regulations, and laws. Alternative scenarioswere evaluatedusing the ENPEP system (with WASP used to model the power system), which allows modeling of the entire energy system without the needto input manually the resultsof IRPManager into BALANCE. The Base Case Scenario 6.1 Overview: Energy demand and supply. Under the Base Case Scenario, best estimates were made of the future trajectory of energy demand over the time horizon 1998-2015, for primary and final energy consumption by fuel and by sector. 1998 was chosenasthe starting point sincethis was the most recent year for which reliable historical data were available. Subsequentyears-i.e., 1999-2015-were estimates or forecasts, although where possible adjustments were made in the 1999 and 2000 figures to reflect actual data. In the case of nonpower energy demand, the forecasts were produced by the ENPEP modeling suite. For the power sector, the EER incorporated NEK's latest demand forecasts. In light of the energy and power demand forecasts and other inputs related to energy prices and the technical characteristics of the supply options, supply projections were made by ENPEP and IRP Manager. 6.2 In Bulgaria, there is strong interest in the investment program of the power sector from the government, the EU, and the private sector. For this reason,the EER paid special attention to the electricity demand forecast as the major driver of that program, and to the technical options and fuel choices available in the power plants. These topics form the subjectof separatesubsectionsbelow. ENPEP's Energy Demand Forecasts 6.3 The three key inputs. The ENPEP modeling suite uses three sets of key inputs to produce the energy demandforecasts, building on the historical data in the base year (1998) for the level and structureof GDP, total population, and the level and structure of final energy consumption. a) For GDP in the base year, the infonnation was provided by the Bulgarian National Statistical Institute's National Statistical Reference2000 and the Bulgarian Agency for Economic Analysis and Forecasts (Ministry of Finance). Projections of the rate of growth for GDP, by subsector,were also developed by the agency, in collaboration with the International Monetary Fund (IMP). The infonnation used in the analysis, expressed in constant 1999 prices, is in Table A4.1.. As can be seen, the GDP structure is identified by the contributions of industry (which comprises metallurgy, chemicals, building materials, and "other" industries), agriculture (including 39 ~o Bulgaria: Energy -Environment Review- forestry), transport, and services. The relative shares of industry and agriculture decline over the period 1999-2015 from 36% to 31% and from 15% to 13%, respectively. Correspondingly, the shares of services and transport increase from 45% to 49% and 4% to 7%, respectively. Table A4.1 also highlights the annual growth rate for overall GDP, which increasesfrom 2.4% in 1999to 4.5% in 2000 and to 5% in 2001. The GDP growth rate then declines steadily to 3% by 2011. The implied average growth rate for the entire period 1999-2015is 3.8% p.a. The second set of key inputs was the population in the base year (8.2 b) million) and its growth rate. In line with the official projections of the Bulgarian Academy of Science,the population growth rate was assumedto decline by 1.8% over the period 1998-2000, by 3.1% between 2000 and 2010, and by 3% between2010 and2015.Total population by this measure drops to about 7.4 million by 2015. By implication, per capita GDP more thandoubles over the entire planning horizon. The third set of key inputs describes the level and structure of energy c) consumption in the base year. The salient information used in the EER has already beenreported in Table A1.2, showing final energy consumption by sector (transport, agriculture, households, services, and industry) and fuel (solid, liquid, gaseous,electricity, andheat), and in Table A1.3, which gives a more detailed breakdown of final energy consumption for different industrial subsectors (metallurgy, chemicals, building materials, and "other"). TheBaseCaseScenario 41 consumption with respect to GDP is 0.42. Such an elasticity can be regarded as low, suggesting that a considerable amount of energy efficiency is built into the forecasts. Furthermore, the average growth rate and elasticity of total energy consumption are broadly consistent with estimates from other countries in Europe.26 The projected improvements in energy efficiency in Bulgaria are confirmed by the fall in energy intensity: total energy consumption per unit of GDP drops by 27% between 2000 and 2015. The improvements take place in all sectors,as shown in Fig. A4.1, with the transport sector leading the way. However, looking at comparative data from Western and Eastern Europe and recognizing the current very high energyintensity of the Bulgarian economy, it can be argued that further improvements would be possible.27As a final indicator, overall per capita energy consumption increasesby about40% from 2000 to 2015 (Fig. A4.1). The increase is judged to be within an acceptablerange, given the very low starting point for Bulgaria compared with other countries in the region (Table Al.5), although more aggressive energy conservation again would reduce this figure.28 It nonetheless can be noted that household per capita consumption of final energy declines, according to these forecasts, by about 5% over the period 2000-2015. NEK's Electricity Demand Forecasts 6.6 The Maximum and Minimum Scenarios. In September 2000, NEK prepared revised forecasts of generation requirements for the Bulgarian power system. These forecasts involve Maximum and Minimum Scenarios,as shown in Fig. A4.2. They are differentiated by the degree of optimism or pessimismaboutthe rate of improvement in energy,efficiency that the Bulgarian economy would achieve over time. Although not yet officially adopted by the GoB, it is understood from NEK that SABER has unofficially acceptedNEK's minimum forecastasthe mostrealistic. 26 The available forecasts for Western Europe (comprising the United Kingdom, France, Germany, Italy, the Netherlands, Austria, Belgium, Denmark, Greece,Ireland, Italy, Luxembourg, Portugal, Spain, and Switzerland) and Eastern Europe (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Hungary, Macedonia, Poland, Romania, Serbia and Montenegro, Slovakia, and Slovenia) are a mixture of past and future, covering the period 1997-2015, and therefore are not strictly comparable. According to the U.S. Energy Information Administration's "Annual Energy Outlook 2001 with Projections to 2020" (December 2000), the average growth rates of total energy consumption for Western Europe and EasternEurope in the period 1997-2015 are expected to be 0.9% p.a. and 1.6% p.a., respectively. If the estimated Bulgarian growth rate for total energy consumption is recalculated over that same time period, for better comparison, it comesto 1.04%p.a. The average elasticities for Western and Eastern Europe, again calculated over the period 1997-2015, are 0.40 and 0.38 respectively, using the same U.S..Energy Information Administration source. 27 The current situation for Bulgaria relative to selected countries is shown in Table 2.5. The numbers included in the U.S. Energy Information Administration's "Annual Energy Outlook 2001 with Projections to 2020" imply a reduction in energy intensity of 7% for Western Europe and 37% for Eastern Europe over the period 1997-2015. The number for Eastern Europe is probably somewhat misleading, since it almost certainly starts from a base (1997) with a much higher energy intensity than was Bulgaria's in 2000. 28 The average per capita consumption for Eastern Europe is estimated to increase by 17% from 2005 to 2015, compared with 26% in Bulgaria over the sameperiod (U.S. Energy Information Administration). a) NEK's forecasts of consumption from the household sector were prepared using a "bottom-up" methodology, which takes into account factors suchas the rate of household fonnation, the growth in the number of dwellings, the efficiency of energy use, and the increase in population. The sameforecasts of consumption from the household sector were used in the Maximum and Minimum Scenarios, based on the belief that per capita household consumption was already relatively low in Bulgaria and that further decreasesin the electricity intensity of household consumption were unlikely. In fact, the projections imply an increase in household energy consumption per capita, from 1,296 kWh in 2000 to 1,804 kWh in 2015. b) NEK's forecasts of consumption from the nonhousehold sector proceeded from a detailed examination of the underlying structure of the economy, in tenns of the breakdown between industry, agriculture, transport, and services.29 As discussed previously, that structure incorporates an increasing share of services and transport over time and a falling share of industry and agriculture (see Table A4.1). Projections are made for the output of enterprises in the nonhousehold sector, their likely electricity consumption, and trends in electricity intensity (measured by the ratio of electricity consumption to output), in light of discussions with a variety of experts. The projections therefore include judgments on the impact of changes in the price of electricity, interfuel substitution, technological change, and so on. The end result is a forecast of the decline in the electricity intensity of the nonhousehold sector, measured by the ratio of electricity consumption of the nonhousehold sector to GDp.. This electricity intensity declines more rapidly under the Minimum Scenario than under the Maximum Scenario, as shown in Figure A4.3, which plots the ratio of electricity consumption by the nonhousehold sector to GDP (expressedin 1999 prices) in kWh/leva. c) NEK's forecasts of total generation requirements for the Bulgarian power system are built up from domestic consumption by incorporating exports andadding a provision for the expected technical losses(assumedto bethe samein both the Maximum and Minimum Scenarios). 6.7 An evaluation of NEK's electricity forecast. Although NEK's methodology enjoys a high degree of robustness,due to its carefully worked and detailed data base,the end result lacks transparency, in the sense that it is difficult to disentangle the specific impacts of key drivers. These are notably changes in the relative prices of different forms of energy, the availability of natural gas, the value added in different sectors, technical change, the level of transmission and distribution technical losses, economic restructuring, and incomes. A large number of underlying factors, some of which pull in different directions, are wrapped up in the end results. For this reason, as with the forecast of total energydemand, the EER focused its evaluation of NEK's forecasts on the central end results, by making judgments on the assumed GDP growth rates, the implied 29 NEK usedthesameforecastsof GDP asENPEP.provided by the Agency for EconomicAnalysis and Forecasts(Ministryof Finance)(seeTableA4.1). TheBaseCaseScenario 43 evolution of aggregateelectricity intensity (measuredby the ratio of gross generation for the internal market to GDP), and the level of electricity exports. These judgments were infonned by comparisons with other forecasts and analyses recently carried out by BCEOM French Engineering Consultants,30on behalf of the EU, and by ERM Energy (U.K.),3! on behalf of AES Horizons Ltd. More detailed evaluation of these scenariosand comparisonto NEK's forecastsis presentedin Annex4. 6.8 The EER concluded that the NEK Minimum Scenario provides satisfactory forecasts of total generation for Bulgaria for the period 2000-2015. The methodology is sound; the underlying assumptionsabout GDP growth, the changes in the structure of GDP, and the implied trajectory of electricity intensity over time appearto be reasonable;andthe end result, in tenns of total generationrequirements (GWh), compares well with alternative forecasts made by other independent experts. The forecasts were therefore incorporated within the ENPEP model. The resulting breakdown between generation, exports, losses,and final consumptionis shown in Table A4.16. The reduction in auxiliary losses that took place from 1998 (10.3%) to 1999 (9.9%) is projected to continue in 2000 (8.9%), but is forecast to increase temporarily in 2005 to 12.0%, following the retirement of the first two units at Kozloduy. Thereafter, auxiliary lossesare expected to stabilize at 11.5%. Transmission and distribution losses, which rose from 15.6% in 1998to 18.8% in 1999,are projectedto decline steadily to 8.5% by 2015. Energy Price Projections 6.9 The future pattern of energy prices will playa central role in determining fuel choices in the Bulgarian economy. Forecastsof prices for both primary and secondary energytherefore constituted a further setof key inputs to the BaseCaseScenario. a) Crude oil prices. Forecasts of crude oil prices were based upon official World Bank projections madein July 2000. The EER took the averageprice of Brent, Dubai, and West Texas Intermediate crude oils for 1999, as reported by the World Bank (US$ 18.07/barrels of oil equivalent (boe», as the base price and applied the World Bank's index for the period 1999- 2010. The index is shown in Table A4.2. It was assumedthat beyond 2010 the real price of crude oil would remain constant at the 2010 level. Under theseassumptions,the price of crude oil would fall from US$ 18.07 in 1999 to US$ 14.56 in 2015, at constant1999prices. b) Imported coal prices. For imported coal, the EER obtained from NEK a sample of prices (with sulfur content typically 1.3-1.5%) delivered to Varna, on the Black Sea, and to Russe, on the Danube. The prices of Russianand Ukrainian coal delivered to Russe in late 1999 (US$ 42/tonne) were similar to the price of South African coal delivered to Varna (US$ 41.25/tonne). The EER selectedthe higher of the two figures as the base price and made projections by applying the World Bank's index of coal 30 BCEOM French Engineering Consultants, "Replacement Energy Scenarios and Related Costs in the Context of the Closure of the KNPP Units 1-4,"July 1999 (SSTA '97 BG 9608 FWC N SFR 96/04). 3\. ERM Energy/AES Horizons Ltd, "Maritsa East I: Bulgarian Market Study," April 2000. prices for the period 1999-2010. The resulting index is shown in Table A4.3, and represents the price movement for coal f.o.b. (free on board) Hampton Roads, Norfolk, United States,containing less than 1% sulfur and 12% ash and with a heat content of 12,000 Btu/lb. It was assumed that beyond 2010 the real price of imported coal would remain constant at the 2010 level. Under these assumptions,the price of imported coal would fall from US$ 42.00/tonne in 1999 to US$ 36.88/tonne in 2015, at constant 1999 prices. c) Domestic coal prices. For domestic lignite, brown coal, and hard coal SAEER provided the EER with costdata for Bulgarian solid fuels, as shown in Table A4.4. Costs per tonne were calculated as the selling price that would be necessaryto cover all capital and operating costs and yield an adequate return on capital. The EER used these figures as proxies for the economic costs of solid fuel in Bulgaria. The EER understandsthat the cost of US$ 30/tce for Maritsa is consistent with Rheinbraun's estimates,32and that the cost would remain constant in real tenns. However, the expected continued downward pressureon imported coal prices (Table A4.3) is likely to affect the competitive position of lignite, even though lignite earns economic rent due to its better location to most power plants. For the projections, the EER thus took Energoproekt's forecast of domestic lignite costs, which imply a slow fall over the period 1999-2015, and constructed the index of lignite costs shown in Table A4.5. Under these assumptions, the price of lignite would fall from US$ 30.00/tce in 1999to US$ 24.80/tce in 2015, at constant 1999 prices,33 d) Natural gas prices. Natural gas in Bulgaria is taken from the gas pipeline system from Russia, which passesthrough Ukraine andRomania. The price in Bulgaria is indexed to the prices of gasoil and heavyfuel oil, c.i.f. (cost, insurance, and freight included) Italy, with the following weights: gasoil, 30%; heavy fuel oil with 1.5% sulfur, 35%; and heavy fuel oil with 3.0% sulfur, 35%. There are three main difficulties with trying to forecast future natural gas prices from this source: first, Bulgargaz was not in a position to provide the EER with the baseprice to which the index could be applied; second, there are substantial uncertainties in forecasting shifts in the weights; and third, it is far from clear how to estimate the future quantities of natural gas likely to be available from Russia under the existing tenns. Given these difficulties, the EER took the natural gas price for 1999 and assumed that the relative prices of gasoil and fuel oil to crude oil would remain fairly stable in the future. Using that assumption, the 1999 natural gas price was indexed to the World Bank price index for crude oil (see Table A4.2). The historical ratios of gasoil and fuel oil prices to crude oil prices, c.i.f. Italy, were not available, but the corresponding price ratios for 32RheinbraunA.G. (Germany) prepareda feasibility study for the rehabilitationof the Maritsa East opencastlignite minesin 1999. 33A specialadjustmentwasmadefor the costof coalsuppliedto the Bobov Dolpowerplant.SeeNote on TableA4.5. TheBaseCaseScenario 45 gasoil, fuel oil with 1% sulfur and fuel oil with 3% sulfur for Rotterdam are shown in Table A4.67. It canbe seenthat the ratios are reasonablystable. In any case, the volatility of crude oil prices (in real teffils) over time and therefore of petroleum product prices (in real teffils) is likely to be much greater than changes in the ratios of petroleum product prices to crude oil prices, so the useof the crude oil price index should be a satisfactory basis for the economic analysis. The outcome of the above analysis is that the price of natural gas in Bulgaria, net of value-added tax (VAT), is estimated to increase from US$ 92.60/noffilal thousandm3in 1999to US$ 130/nonnal thousand m3 in 2000, a figure that appearsto be in line with the latestprice estimate (excluding VAT) according to Energoproekt. By 2015, the price would fall backto US$ 74.61/nonnal thousandm3. e) The cost of nuclear fuel. The EER took NEK' s estimate of the cost of nuclear fuel-i.e., US$ 6.0/MWh-for the analysis of the Base Case Scenario. International sources confiffiled that this was a reasonable estimate. For example, the fuel costs of nuclear power plants in the United Statesin 1997ranged from aboutUS$ 4/MWh to US$ 6/MWh, according to a 1999 study by Washington Nuclear Corporation. Also, the DECADES program of the International Atomic Energy Agency (IAEA) has documented the costs of most nuclear plants in the world and reports fuel costs in the range of US$ 5.2/MWh to US$ 10.8/MWh. Plants similar to the onesconsidered in Bulgaria had fuel costsof US$ 8/MWh. f) The prices of secondary energy. In the analysis, it was assumedthat the prices of secondary energy would move into closer line with the economic costs of the primary fuels identified above. Naturally, the rate at which this occurs is governed by policy assumptions, reflecting the progress of privatization and commercialization in the energy sector. ENPEP contains a wide variety of energy prices, representing transfers at different nodes or points in the energy system and reflecting the prices per useful unit of energy. Prices at each node are expressed in US$/boe, allowing for conversion losses (including appliance losses), transmission losses,and so on. By way of illustration, the base year (1998) prices of electricity and district heating to households were US$ 38.5/boe (US$ 0.0242/kWh) and US$ 23.9/boe (US$ 0.0150/kWh), respectively. Taking useful energy, the household electricity price used for cooking was US$ 55.0/boe (US$ 0.0345/kWh). Representing an energy-intensive industry, the electricity price to chemicals was US$ 31.6/boe (US$ 0.0198/kWh). The electricity price to "other" industries (i.e., industries that are not electricity-intensive) was US$ 29.6/boe (US$ 0.0186/kWh). The indexes used for these prices over the period 1998-2015 are shown in Figure A4.8 (the electricity price index for cooking follows the same path as electricity to households). The prices to the household sector and to "other" industries escalate the most rapidly, rising by approximately one-third by 2005. These arethe electricity prices that were the furthest below economic costs in 1998. After 2005, the electricity price to the household sector stabilizes, but the price to "other" industry continues to rise, reaching 140% of its 1998 value by 2015. The electricity price to large energy-intensiveconsumersincreasesby less: 17% by 2005 and 22% over the entire period. The district heating price to households falls in real terms: it is 7% lower in 2005 than in 1998 and 14% lower by 2015. Power Sector Plants and Technologies 6.10 An overview of the data for the power sector. NEK supplied a considerable amount of data for the power sector, especially on the existing system. The EER reviewed the data and found most of them to be adequatefor the type of analysis being carried out. Given that the main purpose of the study was to assess the environmental impacts of alternative policies, inputs such as the available capacity and operation and maintenance (O&M) costs of existing power plants, as well as the rehabilitation program of some units, were not evaluated in detail. However, they were reviewed by experts to make sure that they were reasonable.Most of the estimatesused in this study have been based on detailed studies carried out by or on behalf of NEK, and have beenused in its latest power developmentprogram. The most significant amendments to the supply input data related to the capital costs of new thermal power plants using imported coal, domestic lignite, and natural gas, and the corresponding economic costs of fuels. 6.11 Existing plants. Bulgaria has approximately 11 GWs of installed capacity, consisting of 24% hydro, 30% nuclear, and 46% thermal. Table A4.7 provides the key characteristics of these plants, including available capacity, type of fuel burned, heat rate, fixed O&M costs, and forced outagerate. For someof the plants two heat rates and forced outages are provided ("before" and "after"), becausethey are planned to be rehabilitated. The plants shown in Table A4.7 include all plants owned by NEK, aswell as cogeneration and industrial units. The Maritsa 3 (Dimitrovgrad) and Maritsa East 1 plants are expected to retire by the end of 2005. 6.12 The Kozloduy nuclear power plant. The retirement scheduleof Units 1-4 of the Kozloduy nuclear power plant is uncertain. As shown in Table A4.8, the EU has expresseda preference for earlier retirement than hasthe GoB. While the two parties have reached an agreementto retire Units 1 and 2 by 2003 (end of 2002), they have not agreed on Units 3 and 4; the EU proposesto close them by 2006, but the GoB would like to wait until they have reached the end of their useful life (end of 2010 for Unit 3 and 2012 for Unit 4). For the purposes of this study, it was assumedthat Unit 3 will retire at the end of 2007 and Unit 4 at the end of 2008. Units 5 and 6 at Kozloduy are scheduled for extensive upgrading prior to 2006; each of theseunits will be off-line for four months per year in the period 2001-2006. 6.13 Power plant rehabilitation. The GoB and NEK plan to rehabilitate several existing power plants, including Maritsa East2 and 3, Bobov Dol, andVarna. The decision to proceed with these rehabilitation projects was basedon numerousstudies that have been carried out on behalf of NEK. These studies were site-specific assessmentsof the cost- effectiveness of the rehabilitation options, andinclude: TheBaseCaseScenario 47 PowerConsult, "Power Sector Long-Run Marginal Cost Study," PHARE Subproject B910-01-15 (7), Final Report, November 1996 NEK, "Project for Rehabilitation of 150,210, and215 MW Units of Maritsa East 2 TPP," Maritsa East2 TPPProject, April 1995 PowerConsult, "Bulgaria Generation Plan: A Review of Performance Improvement Opportunities and the Preparation of Electricity Supply Investment Plans," Final Report, Project200/07, September1994 PowerConsult, "Bulgaria Generation Plant: A Review of Performance Improvement Opportunities and the Preparation of Electricity Supply Investment Plans," Draft Report, Plant Condition Assessment -District Heating/Industrial Plants and RusseEastTPP, Project Task 5.2.3, 5.3, 5.4, July 1993 6.14 The EER reviewed the rehabilitation program and concluded that NEK's estimates were reasonable for the present analysis. The key datarequired for the analysis (e.g., investment, schedule,heatrates, andincreasedcapacity)were obtained from NEK's "Least-Cost Planning Development of the Electricity Sector of the Republic of Bulgaria for the Period 2000-2015 and Trends up to 2020," dated September2000. Table A4.7 summarizes the impacts of the rehabilitation projects on heat rate and reliability (forced outage rate). Table A4.9 provides additional information, including a relatively small increase in plant capacity and the investment schedule. In general,the rehabilitation program seems to be cost-effective and should be pursued as a high priority. The above investments were included in the power systemmodel, with the exception of Maritsa East 3, for which the preliminary contract (between Entergy and NEK) was used.This contract specifies a capacity charge of US$ 172.5/kWyr up to the year 2010, and US$ 137.5/kWyr capacity charge thereafter. 6.15 New candidate power plants. The main new power plants considered in the power system planning analysis include the following: themlal power plants using imported coal, with a nominal size of 300 MW plants using domestic lignite, with a nominal size of 300 MW (the initial target site is Maritsa East 1) combined-cycle gas turbine (CCGT) plants burning natural gas, with a nominal size of 146 MW and 450 MW open-cycle (combustion turbine) plants burning natural gas (OCGT), with a nominal size of 25 MW nuclear power plants with a nominal size of 1,000 MW for installation at the partially completed site at Belene, and 600 MW for a new candidate plant district heating plants repowered to 120 i\tIW cogenerationplants, utilizing combined-cycle gasturbine power cycle . hydroelectric power plant (HPP) Goma Arda, with installed capacity 156 MW HPPSrednaVacha,with installedcapacity120MW 6.16 The main data for the candidate new power plants are summarized in Table A4.10. The candidate new thennal power plants burning domestic or imported coal are assumed to be equipped with flue gas desulfurization (FOD) for S02 control. Two nuclear power options were included among the candidate options. The first option would be to complete the 1,000 MW unit that has started construction at the Helene site. According to NEK, this unit is partly completed and the projected capital costs to finish it are US$ 1,625 per kW. A second option would be to construct new nuclear units of 600 MW each, with capital costs of US$ 1,820 per kW. Results 6.17 ENPEP's projections of primary energy consumption for 1998-2015, by type of fuel, are shown in Tables A4.11 and A4.12. In terms of terajoules (TJ), total primary energy consumption is projected to grow by nearly 30% from 1998 and almost 40% from 2000; growth is also projected in the consumption of all primary fuels, except for primary electricity (Table A4.11). The greatest proportionate growth is in the future consumption of liquid fuels, in the form of petroleum products, which increase their share from about29% in 1998to more than 35% in 2015 (Table A4.12). There is a slight decline in the shareof solid fuels, largely lignite and imported coal, from 45% in 1998 to a little less than 44% in 2015. Natural gas consumption increases by almost one-third from 1998 (almost 40% from 2000), asthe new gas-fired power generation units are commissioned in the Base CaseScenario (seebelow), although there is little overall change in the share of gas from 1998 to 2015. The sharp fall in the contribution of primary electricity after 2000 is explained mainly by the retirement of the first two units of the Kozloduy power plant at the end of 2002; and of Units 3 and 4 at the end of 2007 and 2008, respectively (see below). Hydroelectricity declines from 1998 to 2000, but remains flat thereafter. The total consumption of renewables increasesby nearly 70%, but renewables continue to account for a small but constantproportion of total primary energy consumption. 6.18 ENPEP's projections of final energy consumption for 1998-2015, by sectorand by type of fuel, are shown in Tables A4.13-15. Total final energy consumption is projected to grow by 23% from 1998 (26% from 2000), with growth occurring in all sectors except for households (Table A4.13). The most rapid growth is expected to be in transport and services, the sharesof which increase from about 21% and 2% in 1998 to 30% and 3% in 2015, respectively. The share of households falls from 23.4% to 14.5%, and the shares of both industry and agriculture remain essentially unchanged (Table A4.15). The rapid growth witnessed in the transport sector results in a substantial 67% increase in the consumption of liquid fuels as a final energy source, and a steady growth in the relative importance of these fuels, from 25.4% in 1998 to 34.5% in 2015 (Table A4.14). Solid fuels decline in absolute terms and are therefore proportionately much less important by 2015. Natural gas usagegrows by 21%, although the share of natural gas declines slightly. Unlike primary electricity, final electricity climbs by almost 28%, . TheBaseCaseScenario 49 boosting its sharefrom nearly 22% in 1998 to nearly 23% in 2015. Heat energy remains a major fuel in the matrix of final energyconsumption, increasing in absolute terms by 5%, but its significance diminishes in percentageterms by the end of the period to around 20% (Table A4.15). A breakdown of final electricity consumption by sector is shown in Table A4.17. As in the caseof total final energyconsumption, the shareof transport and services increases while that of households declines. Agriculture retains a small and relatively constantshare,and industry grows from about 53% in 1998to nearly 57% in 2015. 6.19 The changing pattern of energy consumption in the household sector is analyzed in Table A4.18. The household sectoris the only sector in which there is a drop in the absolute consumption of energy over the period 1998-2015. Total household energy consumption falls by 24%, due partly to a 10.5% fall in the total population and a 15% fall in per capita householdconsumption. Most of the decline is attributable to a drop of more than50% in solid fuels consumption. Despite the relative increase in the price of electricity compared with district heating (as discussed earlier), the consumption of electricity by households is nearly 8% higher in 2015 than in 1998, while the consumption of heat energy drops by 27%. By 2015, more than half the total energy consumption by householdsis projected to be in the form of electricity.34Gasalso increases in absolute and relative terms, but its importance in 2015 to households is still relatively small. It is striking that the consumption of electricity by householdsper capita is 20% greaterin 2015 than in 1998, even though the overall per capita consumption of energy by households drops by 15%.35 6.20 The results obtained by the EER for the supply of electric power were obtained from NEK's power systemplanning model, IRPManager. The essential features of the least-costsolution to meetthe electricity demand forecast discussedearlier, using the inputs described in the previous section, are summarized in Tables A4.19-A4.22. These tables show, for the period through 2015: (i) the schedule of capacity additions and retirements (Table A4.19), (ii) the capacity and energy balances(Tables A4.20 and A4.21, respectively), and (iii) the investment outlays (Table A4.22). Table A4.20 also includes the peak load and the reserve margin. In Table A4.19, the cogeneration units listed for the years2003, 2004, and2005 (aswell asthe Sofia andDevnja extensions in 2004, 2005, and 2008) were all determined exogenously; i.e., they were taken as given (based on current information then available to NEK) and made part of the "fixed" system. Hence the first new power plant selectedby the model is a 450 MW CCGT, in 2006. It is followed by 300 MW lignite plants in 2008 and 2009; a 300 MW plant using imported coal in 2010; an OCGT of 25 MW in 2012; and a 300 MW lignite plant in 2013. For the Base Case, the Kozloduy Units 1 and 2 are retired at the end of 2002; Unit 3 at the end of 2007; and Unit 34 It should be noted that the consumption of liquid fuels by households, for transport, is included in the transport sector. 35 The decline in the overall per capita consumption of energy by households relative to 2000, as noted earlier, is about5%. Relative to 2000, per capita consumption of electricity by households increases by 17%. It must also be pointed out that, although ENPEP incorporates NEK's forecasts of total generation, the sectoral breakdown is carried out by ENPEP independently from the NEK forecast and the per capita changes in household electricity consumption are consequently not comparable. As mentioned earlier, the NEK electricity demand forecast implies an increase in per capita consumption from 1,296 kWh in 2000 to 1,804 kWh in 2015; i.e., by nearly40%. 4 at the end of 2008. The lignite plants are base-loaded,operating at a plant load factor (PLF) close to 80%. The plant burning imported coal and the CCGT are for intermediate load operation, with PLFs of about 70% and 57-68%, respectively. The OCGT is needed primarily to maintain an adequatereserve margin, although it is used to a limited extent also for peaking purposes(the PLF is only 3.5%-4.5%). 6.21 Some possible options to modify these results. Examination of the capacity and energy balances(Tables A4.20 and A4.21) indicates that it might be possible to postpone the first investment in the above sequence from 2006 to 2008, if imported electricity of up to 2,700 GWh could be purchased at reasonablerates. In the model runs, imported electricity was assumedto cost US$ 0.05/kWh during off-peak hours and US$ 0.07/kWh during peak hours. Facing those rates, the model finds it more economic to install the CCGT units or the OCGT units for off-peak and peak usage, respectively. Screening curve analysis suggests that the import option could be more attractive at rates below US$ 0.035/kWh, provided that the reserve margin is allowed to fall to 28% in 2007 (Table A4.20). Much closer attention should therefore be given to finding a low-cost, reliable, and flexible source of electricity imports to cover this short time interval. Furthermore, peak shaving (shifts in the load profile) may occur as electricity prices move more closely into line with costs as a result of the ongoing restructuring of the power sector in Bulgaria, since residential consumers may turn to alternative sources of heating that are currently less subsidized. Examination of the existing typical daily load curves for winter and summer indicate that the annual system peak is driven partly by the residential heating load, along with lighting. 6.22 The key results on emissions from the ENPEP/IMPACTS model are shown in Table A4.23. a) The total amount of particulates remains unchanged over the planning period. However, becauseparticulates affect mainly the immediate vicinity of the pollution source, the EER is able to draw only limited conclusions, in the absenceof studies of local air quality. Such studies would have to be supported by air dispersion modeling. Nevertheless, it is clearly an improvement to keep particulates to the 1998-2000 level, considering that total primary consumption in Bulgaria is projected to increase by approximately 30% in the period 1998-2015, with the consumptionof solid fuels in particular increasing by more than 25% and liquid fuels by 57% (Table A4.11). The increased penetration of natural gas in electricity production, including cogeneration facilities, combined with reduced utilization and/or modernization of industrial facilities is expected to improve air quality in environmental hot spots. However, it is not clear whether such improvement would be adequatefor all cities to comply with the country's air quality standardsand with the guidelines issued by the EU and WHO. Most likely, further improvement would be neededin coal-fired district heating plants, the transportation sector, and unpavedroads.Specific recommendations can only be made basedon site-specific evaluations. TheBaseCaseScenario 51 b) 802 emissions are projected to decline significantly, especially in the period 2000-2005. This is mainly due to the installation of flue gas desulfurization (FOD) equipment at Maritsa East 2 (Units 7 and 8), Maritsa East 3 (Units 1--4)and all new coal- andlignite-fired power plants that will be placed in service. These FOD retrofits, along with a 33% increase in natural gas utilization (in the power sector, industry, services, and households), are expectedto improve the air quality in most Bulgarian cities despite the planned sharp decreaseof the installed nuclear capacity from 3,760 MW to 2,000 MW (or 46.8%). However, it is not clear if all cities will be able to comply with the stricter air quality standard of 20 J.1g1m3, which is expected to be implemented by 2002. As Table A4.23 shows, S02 emissions comply with the Second Sulfur Protocol. Bulgaria would need to take further action to control S02 emissions shortly after 2015 to comply with the Gothenburg Protocol. c) Total NOx emissions are projected to increase,but they remain below the levels established by the Sofia Protocol and the presumed requirements of the Oothenburg Protocol. However, increases in NOx in cities with a significant urban air pollution problem (e.g., particulates pollution and smog), such as Sofia, may make it necessaryfor those cities to take action to reduce NOx from the power, industrial, and transport sectors.To assess the specific needsof suchcities, more site-specific studieswould be needed. d) Greenhouse gas (GHG) emissions, including carbon dioxide (CO2), methane (C~), and nitrous oxide (N2O), are expected to increase from more than 56 million tonnes CO2 equivalent in 2000 to nearly 81 million tonnes in 2015. The Kyoto Protocol is expected to set a ceiling of 92,261 ktonnes/yr for Bulgaria for the period 2008-2012. As Table A4.23 shows, under Base Case Scenario projections the country would be able to stay below this level. However, any reduction in GHG emissions has the potential for revenue generation, provided that an internati'onal emission trading market is created. 7 Alternative Scenarios 7.1 In addition to the Base Case Scenario, the EER analyzed an Interfuel Substitution Scenario and a Carbon Trading Scenario. Originally, an energy efficiency scenario was also planned, but it was not carried out due to lack of data and the unavailability of key staff of the study team. For the Interfuel Substitution and Carbon Trading Scenarios, selected changeswere made in the inputs to ENPEP to evaluate their impact on the key results that had been derived for the Base Case.The changes in the inputs and outputs aresummarized in the following section. The Interfuel Substitution Scenario 7.2 As describedin Chapter5, the Interfuel Substitution Scenarioinvolved three subscenarios: a) The first subscenarioexamined the consequencesof changing the retirement dates for Units 3 and 4 of the Kozloduy nuclear plant to meet the EU accessionrequirements, which are that both units be taken out of operation no later than2006. The EU Accession Subscenario forces the retirement of Units 3 and 4 atthe end of 2006. b) The secondsubscenarioassumedthat both units would be operateduntil the end of their useful (economic) lives, which areestimatedto be at the end of 2010 for Unit 3 and at the end of 2012 for Unit 4. It is understood that this subscenario(the GoB Preferred Subscenario) reflects the preferred policy of the GoB. These alternative retirement dates for Units 3 and 4 of the Kozloduy nuclear plant are summarized in Table A5.1. Under the Base Case Scenario, intermediate retirement dates were selected for Kozloduy Units 3 and 4 (2007 for Unit 3 and2008 for Unit 4). c) The third subscenario considered future prices for natural gas that were substantially abovethe levels used for the BaseCaseScenario,to reflect the considerable uncertainty surrounding the projections. This alternative High Gas Price Subscenario uses the high price projections published in the U.S. Department of Energy's Annual Energy Outlookfor 2001, as shown in Table A5.2. 53 7.3 Under the EU Accession Subscenario, investments in new generating capacity are made earlier, to compensatefor the earlier retirement of Kozloduy Units 3 and 4. In the WASP results, apart from the new450 MW CCGT that is also installed in 2006 in both the Base CaseScenarioand the EU AccessionSubscenario,600 MW of thermal plant are installed in 2007, a CCGT plant is commissioned in 2009, and hydro capacity is brought on line in 2014, to maintain the reserve margin. In contrast, under the GoB Preferred Subscenario it is possible to delay investments in new capacity: following the 450 MW CCGT commissioned in 2006, no further new capacity is added until 2011 (a 450 MW CCGT); this is followed by a 300 MW thermal plant in 2012 and a third 450 MW CCGT unit in 2013. Theseadditions of new capacity are summarized in Table A5.4. 7.4 The need to advance new capacity under the EU subscenario inevitably increases the costs of power development: the difference in net present value of total systemcosts betweenthe EU AccessionSubscenarioand the GoB Prefeued Subscenario at year 2000 (using a 10% discount rate) is roughly US$ 251 million. Put differently, it is equivalent to an annual cost (annuity) of about US$ 33 million over the IS-year period 2000-2015, and representsthe economic costs of advancing the retirement of Kozloduy Units 3 and 4 to meetthe EU's accessionrequirements. 7.5 The main impact on primary energy consumption is that the consumption of lignite and natural gas are about 2% and 3% higher under the EU Accession Subscenario than under the GoB Preferred Subscenario;the consumption of nuclear energyis about 8% lower (Tables A5.8-11). Emissions of S02, NOx, and CO2 equivalent thus all increase under the EU Accession Subscenario relative to the GOB Preferred Scenario. As Table A5.6 shows, in both scenarios all emissions nonetheless stay below the levels set by international treaties. 7.6 When natural gas prices are increased under the High Gas Price Subscenario, a lignite plant is commissioned in 2006 in place of the CCGT that is built in the Base Case Scenario, and the installation of the CCGT is delayed until 2009, when it servesas a peaking plant and to provide systemreserve (Table A5.4). In terms of primary energyconsumption, the consumption of natural gasdrops by about 8% compared with the Base Case Scenario and the consumption of solid fuels increasesby 3.4% (Tables A5.12- 13). Of course, the higher gasprice drives up the net present value of total system costs, although the increase overall is slight (less than 1%). The shift from natural gas to lignite in the primary energy mix causesan increase in the emissions of particulates, S02, NOx, and CO2equivalent, compared with the BaseCase.As Table A5.6 shows,the averageCO2 equivalent emissions over the period 2008-2012 increase by approximately 3.3% from the levels of the Base Case Scenario, but remain below the presumptive requirements of the Kyoto Protocol. S02 emissions increase by approximately 6% in the period 2010-2015, exceeding the requirements of the GothenburgProtocol after year2010. Impact on Carbon Emissions and on Carbon Trade 7.7 In Chapter 5, it was explained that the Carbon Trading Scenario was designed to examine the opportunity cost of electricity exports in terms of a potential revenue loss to Bulgaria in a carbon trading market. It was demonstrated in Chapter 6 that Bulgaria could expect to keep its GHG emissions below the ceiling that might be established under the Kyoto Protocol. As Table A4.23 shows, under Base Case Scenario projections the country should be able to stay below the anticipated Kyoto ceiling of 92,261 ktonnes/yr set for the period 2008-2012. Any reduction in GHG emissions in this period hence would have the potential for revenue generation, provided that an international emissions trading market is created. Two subscenarios-the Maximum Exports Subscenario and the No Exports Subscenario- were modeled, reflecting uncertainty about the possible level of future electricity exports. The level of electricity exports assumed for these two subscenarios,compared with the Base Case,is shown in TableA5.6. 7.8 Under the Maximum Exports Subscenario, investments have to be made earlier to meet the additional power generationrequirements, and more capacity would be installed than in the Base CaseScenario.Conversely, if exports areeliminated as in the No Exports Subscenario,investments canbe postponedand less total capacity is required than in the Base Case. A comparison of the plant programs for the Base CaseScenario and the Maximum Exports SubscenarioandNo Exports Subscenariois in Table A5.4. 7.9 The main impacts on primary energy consumption are that the consumption of solid fuels and natural gasincrease by 23% and 3%, respectively, under the Maximum Exports Subscenario compared with the No Exports Subscenario, as shown in Tables A5.14-17. Consequently, emissions of particulates, S02, NOx, and CO2 equivalent all increase under the Maximum Exports Subscenario, as shown in Table A5.6. S02 emissions, in particular, rise enough to exceedthe level of the Gothenburg Protocol after 2010. Table A5.6 shows the emissions under the No Exports Subscenario.All emissions are reduced relative to the Maximum Exports Subscenario and remain well below the levels required by the international treaties. 7.10 To assessthe impact on future carbon trading, the EER focused on the behavior of CO2 equivalent relative to Bulgaria's likely obligations under the Kyoto Protocol. Table A5.7 comparesBulgaria's expected ceiling for OHO emissions under the Kyoto Protocol with the estimated annual average emissions of CO2 equivalent over the period 2008-2012 for the BaseCaseScenario and the Maximum Exports Subscenarioand No Exports Subscenario. If these savings are valued at US$ 10 per tonne of carbon (i.e., US$ 2.73 per tonne of CO2 equivalent), then Bulgaria's potential sales of carbon in a carbon trading market would be worth approximately US$ 51 million per year in the Base Case Scenario, US$ 70 million per year in the No Exports Subscenario, and US$ 38 million per year in the Maximum Exports Subscenario.The opportunity cost of increasing exports by 3,800 OWh per year in the period 2008-2012 under the Maximum Exports Subscenario, compared with the Base CaseScenario, is therefore US$ 13 million per year (i.e., the cost in terms of a potential loss in sales of carbon through a carbon trading arrangement). Compared with the No Export,sSubscenario,the opportunity cost is US$ 32 million per year for an increasein exports of 8,000 OWh per year. 8.1 The EER study assessedthe environmental impacts of the energy sector, evaluated a targeted set of alternative policies, and strengthened the local capability to carry out similar assessmentsin the future. The key findings of the EER should be helpful in updating the National Energy Strategy, which the Bulgarian Parliament revises and approves every two to three years. The Base Case Scenario 8.2 Primary energy consumption. Projections of energy development under the Base Case Scenario are characterized by an increase in total primary energy consumption of almost 40% from 2000 to 2015. The greatestproportionate growth is in liquid fuels, in the form of petroleum products, which increase their share from about29% in 1998 to more than 35% in 2015. There is a slight decline in the share of solid fuels; natural gas consumption increasesby 40% from 2000. Hydroelectricity declines from 1998 to 2000, and remains flat thereafter. The contribution of renewables increases by nearly 70%, although these continue to account for a small but constant proportion of total primary energy consumption. 8.3 Final energy consumption. The Base Case Scenario projects increases in final energy consumption in the order of 26% from 2000 to 2015, with growth occurring in all sectors except households. The most rapid growth is projected to be in transport and services, the shares of which increase from about 21% and 2% in 1998 to 30% and 3% in 2015, respectively. The rapid growth witnessed in the transport sector results in a substantial 67% increase in the consumption of liquid fuels as a final energy source,and a steady growth in their relative importance, from 25.4% in 1998 to 34.5% in 2015. The share of households falls from 23.4% to 14.5%, while the shares of both industry and agriculture remain essentially unchanged. Heat energy continues as a major fuel in the matrix of final energy consumption, increasing in absolute terms by 5%, but its significance diminishes in percentageterms by the end of the period to around20%. 8.4 Environmental impacts. Against this energy backdrop, the environmental picture that emerges is one of general compliance with local environmental standardsand international treaties. Despite the increase in energy consumption, total particulate emissions remain unchanged from 2000 to 2015. Whether this is adequateto improve the 57 58 Bulgaria: Energy-Environment Review air quality in a number of "hot spots" that exist in Bulgaria would require site-specific assessments.However, increased use of natural gas in industrial and urban areas is expected to cause some beneficial improvement. S02 emissions are projected to decline significantly, especially in the period 2000-2005, mainly due to increased utilization of natural gas and the installation of FGDs in some existing and in all new coal- and lignite- fired power plants. With this decline, S02 emissions stay below the levels required by the Second Sulfur and Gothenburg Protocols over the planning period (up to 2015). However, it is not clear if all cities would be able to comply with the stricter air quality standard of 20 ~g of S02/m3 that is expectedto be implemented by 2002. NOx emissions are projected to increase, but remain below the level setby the Sofia and Gothenburg Protocols. Finally, emissions of greenhouse gases (GHGs) are expected to increase to nearly 81 million tonnes/yr in 2015, but stay below the ceiling expected to be set by Kyoto (92,261 ktonnes/yr for the period 2008-2012). If GHG trading is established, any reduction in GHG emissions hasthe potential to earnrevenue. Alternative Scenarios and Subscenarios 8.5 A number of scenariosand subscenarioswere developed as alternatives to the Base Case Scenario, to addresskey uncertainties associatedwith energy development andevaluate alternative policy options. 8.6 Uncertainties related to Kozloduy retirement dates. One such uncertainty is the retirement schedule of Kozloduy Units 3 and4. The Base CaseScenario assumes that Unit 3 will retire by 2007 and Unit 4 by 2008. Two alternatives were evaluated: (i) retirement of both units atthe end of 2006, as advocated by the EU; and (ii) retirement at the end of 2010 for Unit 3 and at the end of 2012 for Unit 4, which is the end of their useful (economic) lives andis preferable to the GoB. a) Emissions of 802, NOx, and CO2 equivalent all increase under the EU Accession Subscenariorelative to the GOB Preferred Scenario, but in both casesstay below the levels setby international treaties. b) The need to advance new capacity under the EU Accession Subscenario inevitably increasesthe costs of power development. The difference in net present value of total systemcosts betweenthe EU Accession Subscenario and the GoB PrefeITed Subscenario at year 2000 (using a 10% discount rate) is roughly US$ 251 million, or US$ 33 million p.a. over the period2000-2015. 8.7 Uncertainties related to the price of natural gas. A third subscenario considered a future price trend for natural gas that is substantially above the levels used for the Base Case Scenario, to reflect the considerable uncertainty surrounding these projections. The alternative incorporates the High Price Scenario developed by the U.S. Department of Energy in its Annual Energy Outlookfor 2001. ConclusionsandRecommendations 59 a) Consequentto the gasprice increase,the consumption of natural gas drops by about 8% compared with the Base CaseScenario, and the consumption of solid fuels increasesby 3.4%. b) This shift from natural gasto lignite in the primary energy mix causessome increase in emissions. While most pollutants stay below the levels established by international treaties, S02 emissions are projected to exceed the requirements of the Gothenburg Protocol after year2010. 8.8 Uncertainties about the future level of exports. The impact on Bulgaria's potential for carbon trading was designed to examine the opportunity cost of electricity exports in terms of the potential revenue loss to Bulgaria should a carbon trading market develop. Under Base Case Scenario projections, the country should be able to stay below the anticipated Kyoto ceiling of 92,261 ktonnes/yr set for the period 2008-2012. Any reduction in GHO emissions in this period hence would have the potential for revenue generation, provided that an international emissions trading market is created. Two subscenarios-the Maximum Exports Subscenarioandthe No Exports Subscenario-were modeled, to reflect uncertainties aboutthe impact of future exports on emissions in general and on OHG emissions in particular. a) The main impacts on primary energy consumption are that the consumption of solid fuels and natural gas increase by 23% and 3%, respectively, under the Maximum Exports Subscenario compared with the No Exports Subscenario. b) Consequently, emissions of particulates, S02, NOx, and CO2 equivalent all increase under the Maximum Exports Subscenario, with S02 emissions rising enoughto exceedthe level of the GothenburgProtocol after 2010. c) With regard to potential revenue from GHG emissions, assuming US$ 10 per tonne of carbon or US$ 2.73 per tonne of CO2 equivalent, Bulgaria's potential sales of carbon in a carbon trading market would be worth approximately US$ 51 million per year underthe Base Case Scenario, US$ 70 million per year underthe No Exports Subscenario,and US$ 38 million per year under the Maximum Exports Subscenario.The opportunity cost of increasing exports by 3,800 GWh per year in the period 2008-2012 under the Maximum Exports Subscenario,compared with the Base CaseScenario, would be therefore US$ 13 million per year (i.e., the cost in terms of the potential loss in sales of carbon through a carbon trading arrangement). Compared with the No Exports Subscenario,the opportunity cost would be US$ 32 million per year for anincreasein exports of 8,000 GWh peryear. 8.9 Uncertainties about the energy demand forecasts. In addition to the uncertainties addressed through these alternative scenarios (covering the schedule of Kozloduy retirement, natural gas prices, and the amount of electricity exports), there is inevitably some degree of uncertainty associated with the energy demand forecast. The approachadopted in the EER, asdescribed in detail in Chapter6, was to compare forecasts of energy and electricity demand from a number of independentsources,looking carefully at the implicit or explicit changes in energy intensity over time and in per capita energy 60 Bulgaria: Energy -Environment Review i ---i consumption. The EER concluded that the Base Case Scenario forecasts were the best available. The underlying growth rate of final energy consumption (and of electricity demand in particular) is about 1.6% p.a. over the period 2000-2015, compared with a projected GDP growth rate of 3.8% p.a. over the sameperiod. Hence, the elasticity of final energy and electricity consumption, with respectto GDP, is about0.42. The figure appears consistent with other countries in Europe, and a considerabledegreeof energy efficiency is already built into the forecasts.Although no alternative demand forecast was developed, it is recognized that further gains in energy efficiency are possible. The Base CaseScenario does take into account the restructuring of the Bulgarian economy, the impact of energy efficiency options, interfuel substitution, and energy use patterns by key sectors of the economy suchashouseholds. Strengthening Local Institutions and Staff Capability 8.10 In addition to the analytical results, the EER seeks to contribute to the strengthening of the local capability to carry out similar assessmentsin the future. Clearly, Bulgaria has the key analytical tools for such assessments, such as ENPEP and IRPManager; but the EER identified the need for strengthening staff capability in two main areas: a) First, the electricity demandforecast, asprepared by NEK, is very thorough but lacks transparency. It should be formulated in such a way that it is possible to trace changes in the key assumptions, such as GDP, energy prices, andthe structure of the economy. b) Second, key personnel involved in power and energy system planning require additional training, not only in how to run the models, but also in order to be able to make more critical judgments about the data inputs, the analysis, andthe model outputs. 8.11 Clearly, this EER study is only the first step in trying to integrate energy and the environment in Bulgaria. More needs to done in the future. The EER especially underlines the importance of getting key institutions-notably SABER, MOEW, NEK, and SEEA-to collaborate andengagethe public in this important policy debate. (HISTORICAL) Table Al.l: Bulgaria -Total Primary Energy Consumption and Production (1980-99) Total Primary Energy Total Primary Energy Consumption Production Ouads* Ouads* Mtoe** 1989 1.47 0.57 14.45 1990 1.30 0.51 12.81 1991 1.01 0.43 10.86 1992 1.00 0.41 10.42 1993 0.93 0.43 10.88 1994 0.92 0.43 10.96 1995 0.99 0.47 11.87 1996 1.01 0.50 12.63 1997 0.96 0.48 12.14 1998 0.89 0.49 12.27 1999 0.84 0.43 10.81 Source: U.S. Infonnation Administration/Department of Energy Notes: * Quads = 1015Btu ** Mtoe = Million tonnes of oil equivalent 61 Mtoe** 62 Bulgaria: Energy-Environme~_e~iew TableAl.2: Final Energy Consumption by Sector and by EnergySource(1998) ConsumingSector Tj Mtoe % Transport 97,194.1 2.3 20.76 Solidfuels 85.3 0.09 Liquid fuels 95,017.6 97.76 Gaseousfuels 167.6 0.17 Electricity 1,691.2 1.74 Heatenergy 232.4 0.24 Agriculture 13,970.6 0.3 2.98 Solidfuels 123.5 0.88 Liquid fuels 11,238.2 80.44 Gaseousfuels 844.1 6.04 Electricity 820.6 5.87 Heatenergy 944.1 6.76 Households 109,738.2 2.6 23.43 Solidfuels 42,276.5 38.52 Liquid fuels 0.0 0.00 Gaseousfuels 2,950.0 2.69 Electricity 39,267.6 35.78 Heatenergy 25,244.1 23.00 Services 10,005.9 0.2 2.14 Solidfuels 270.6 2.70 Liquid fuels 2,291.2 22.90 Gaseousfuels 491.2 4.91 Electricity 6,582.4 65.78 Heatenergy 370.6 3.70 Industry 237,361.7 5.7 50.69 Solidfuels 35,726.5 15.05 Liquid fuels 10,614.7 4.47 Gaseousfuels 56,447.0 23.78 Electricity 54,244.1 22.85 Heatenergy 80,329.4 33.84 TOTAL 468,270.5 11.2 100.00 Solidfuels 78,482.3 1.87 16.76 Liquid fuels 119,161.7 2.85 25.45 Gaseousfuels 60,900.0 1.45 13.01 Electricity 102,605.9 2.45 21.91 ~eatenergy 107,120.6 2.56 22.88 Source:ENERGOPROEKT TableA1.3: Final Energy Consumptionin Industry by Subsectorand EnergySource(1998) All Industry (Total) 237,361.7 5.67 100.00 Solidfuels 35,726.5 0.85 15.05 Liquid fuels 10,614.7 0.25 4.47 Gaseousfuels 56,447.0 1.35 23.78 Electricity 54,244.1 1.30 22.85 Heatenergy 80,329.4 1.92 33.84 Metallurgy (Total) 67,829.4 1.62 100.00 Solid fuels 26,823.5 0.64 39.55 Liquid fuels 2,826.5 0.07 4.17 Gaseousfuels 22,773.5 0.54 33.57 Electricity 9,514.7 0.23 14.03 Heatenergy 5,891.2 0.14 8.69 ChemicalIndustry (Total) 67,385.3 1.61 100.00 Solidfuels 2,135.3 0.05 3.17 Liquid fuels 2.9 0.00 0.00 Gaseousfuels 18,035.3 0.43 26.76 Electricity 11,005.9 0.26 16.33 Heatenergy 36,205.9 0.86 53.73 Buildings Materials Industry (Total) 18,170.6 0.43 100.00 Solidfuels 373.5 0.01 2.06 Liquid fuels 2,797.1 0.07 15.39 Gaseousfuels 10,185.3 0.24 56.05 Electricity 3,079.4 0.07 16.95 Heatenergy 1,735.3 0.04 9.55 Other Industries (Total) 83,976.5 2.01 100.00 Solid fuels 6,394.1 0.15 7.61 Liquid fuels 4,988.2 0.12 5.94 Gaseousfuels 5,452.9 0.13 6.49 Electricity 30,644.1 0.73 36.49 Heatenergy 36,497.1 0.87 43.46 - E-- ::s < ~ ~ ~I - "~ - - "= ~ ,..; "" "C "~ rn '-' ~ ~ = = 5 c. rIJ ,Q ~ ~ Q\ Q\ ~ --- 0 I.. rn~- -.tC'l\Or-r-I"-- ir)C'lOr-O,-= -.0" ' "':OOO-DNQ \Q iii --~ :" '- ~ N 1) 00 0 ~ "0 '" --M O-"..,fr.:- C'I" ~ --V 00 '- ~ 00" 0 ~ ~ t;i; iii:: 0\ r- .'- ~ ~ :: :: CI) ~ z 0 ~ :; u ~ ~ 0 O C- ~ 0 ~ ~ E- ~I < - - :.:., ~ "~ £1 - ~ "1; ~ = "t: 'C = -.: ...r ~I = - OJ~ ~ ~ Q=: S c. 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"'" '..I ..; :n Co ~ M O. ° 0\ N 0- 00 1"-- CI) § "- Q :oJ I.;J 500MW); 1.7(liquid, 50-300MW); 1.7-0.4decreasinglinearlybetween300and500MW; 0.4(liquid,>500MW); 0.25(gas<50MW); 0.035(gas) EU 0.4-2.0 (500-100MW coal) 0.4-1.7 (500-300MW oil) Japan 0.223 USA 0.920-1.24(oil-coalpost-1971P Particulates Bulgaria Solidfuels;0.05(>500MW); 0.1 (5~500 MW); 0.15«500 MW) Liquid fuels:0.05(>50MW for fuelswI ash<0.06%);0.08 «50 MW for fuels wI ash<0.06%);0.1 (all sizesforfuels wI ash>0.06%) Gasfuels:0.01 all gasfuels exceptrefinerygas,cokeproduction,andblast furnacegas,whichis requiredto achieve0.05 EU 0.05(coal> 500MW; all oil) 0.1 (coal< 500MW) Japan 0.05-0.8 USA site-specific I NOx Bulgaria 0.65(solid);0.45(oil); 0.25(gas<50MW); 0.35(gas>50 MW) EU 0.65(coal);0.45 (oil) Japan 0.267-0.411(oil-coal) USA 0.35-0.62(oil-coalpost-1971) * Ministry of Environment and Water, Regulation 9, May 3, 1999 3 Figure A3.1: Integrated Systemof Computer ModelsUsedin the EER[ ~cForecast )roecoOOniC rIRPManager&W:; I lll ;;. ~ 'u; -,., --u oa o -=~~~" 8 ~ ~ ~.,~ C ~O--U '-~" -OJ) 0 C Z 1r)001r)1r)01r)1r)'S'-lr)oooo\O\O\OO'IOO~C"'100'l0'l~1-~C"'1 .~.,c- ~~~~~ -;:; I -.,., oaO ~ ~E N~NNNN~N~~~~NN~N~~ "'" o/J ~ '" ~ 'u; ~~~~-~~ -- ~--O-O N-N O\~II"\..oN..or-- C"'!,",,:c;oc;oc; -='---' "- 8. "c.c.::1c. ;:; -=' "- O GJ c: Z ~ E 8. -;; .,., ~ ~ U 0 c.-::c.~~=~=~~=~~~ .~ .-~.-"0 0 Z N oz C .~"" ":=- ~Z - ~ ...::1 ~ 'u; ~ -'~ oa= 0 ,- ~ "0 N 0 ~~~~>~~~~~~...zoo~o~~ 0000000000000000000 ~ N ~ ° ,-u '~..c' :;::J~ \000\0000 LIJU - .-~ on-l- = ~p.. .-~ ;t:;'p.. "0 -:00 000 801 :I::I: '" ... 0 >.>. ~~ e r..)\Q IQ- r---r--- 'C1'C1 00 -= .- CI) e Annex4 81 Table A4.8Projected Retirement of Kozloduy Units 1-4 Kozloduy Unit # A. BaseCase B.t Early Retirement B.2Late Retirement (EU Accession (GoB Preferred Scenario) 1 End end-2002 end-2002 2 End end-2002 end-2002 3 End no laterthan2006 end-2010 4 end-2008 no laterthan2006 end-2012 200220022007 - ~ ...E '-, o~OJ -= > ~=Z(.j(.jZ ----'"'-~---'"' --_u ~ c..: ~ ~C~.1:;.1:;= ':'::'u=== '" -Coo' o~o~"':"" ~~~c.u", Coooc.~~::IJ dJ. "'-o c.."'c..::3dJ t;~(U-0j)'"' ~ =- ~ '"' -~ ::"::;\..r\..r =- t; dJ...;>, =.- gu -.- ~ 'C ~ ::IJ 5 u .=.= '"'dJ~ "C U 'u -'"'- 0c 0 (UC dJ ~ ~ Q u '"' (U'" 2 ... -'"' dJ r'.. - '" '" 84 Bulgaria: Energy-Environment Review I Table A4.11: Primary Energy* Consumptionby Source(1998-2015;in TJ) 1998 2000 2005 2010 2015 Solid fuels Liquid fuels Gaseousfuels Nuclearenergy Hydroelectric energy Net electricityexports Renewables Total Source:ENERGOPROEKT Solid Liquid Gas Electricity Renewables Total Source:ENERGOPROEKT The National StatisticalInstitute (NSI) calculatesthe contributionof nuclearandhydroelectricpowerto gross primary energyasthe amountof fuel thatwouldbeburnedin a conventionalthermalpowerplantto producean equivalent amount of electricity. The importantconsequenceof this traditional approachis to increasethe contributionof nuclearand hydroelectricpowerto total primary energyproductionby an amountof energy equalto the thermallossesof a conventionalpowerstation.Underthe normal assumptionof a 33%efficiency factor for a conventionalthermalpowerplant, 10.9TJ of energyareneededto generate1 GWhof electricity. For the discussionof future results,the EER relied on ENPEP. However, ENPEPcalculatesnuclear and hydroelectric power on the basisof the energycontentof the electricity. Under that approach,1 GWh is equivalentto 3.6 TJ ratherthan10.9TJ,andtheshareof primaryelectricity in totalprimaryenergyis therefore much less. This difference must be borne in mind in the discussion.The measurementof final energy consumptionis notaffectedbythisdifferencein methodology. Annex4 85 Table A4.13: Final Energy Consumptionby Sectorand EnergySource (1998-2015;inTJ) Solid fuels 78,482 65,079 62,394 61,688 60,779 Liquid fuels 119,162 123,891 146,350 171,782 198,835 Gaseousfuels 60,900 60,100 63,591 68,821 73,594 Electricity 102,606 101,744 108,844 120,274 131,138 Heat 107,121 105,759 107,003 110,826 112,668 TableA4.14: Fuel Sharesin Total Final EnergyConsumption(1998-2015;%) Solidfuels Liquid fuels Gas Electricity Renewables Total Table A4.15: SectoralSharesin Total Final EnergyConsumption(1998-2015; %) Transport Agriculture Households Services Industry Total Sourceof TablesA4.13-15: ENERGOPROEKT 86 Bulgaria: Energy -Environment Review ! I TableA4.16: Forecastof Electricity Production, Exports, Losses, and Final Consumption(GWh) (Actual,1998-1999;and forecasts,200a-2015) 1998 1999 2000 2005 2010 2015 Gross electricity generation Lessexports Gross internal electricity consumption Lessauxiliary losses Lesstransmissionanddistributionlosses Final electricity consumption Auxiliary losses(%) Trans~ssion anddistrib~~_nlosses(%) Notes: 1.Grosselectricitygenerationincludesimportsin 1998and1999 3. Auxiliary lossesoccuratthegeneratorsandarehighestfor lignite plants 4. Auxiliary lossesareexpressedasapercentageofgrossgeneration 5. T&D lossesareexpressedasapercentageofgrossinternalconsumption Source: NEK Annual Reports (1998 and 1999 actualresults); ENERGOPROEKT (2000-2015 projections) TableA4.17: Electricity Consumptionby Sector(1998-2015) Transport GWh % Agriculture GWh % Households GWh % Services GWh % Industry GWh % Total GWh ~ ~ ~ = ::E -< ~ U .c ~ = ~ I-~ ~ Q= 0,.= = == = ..= Q "C {I) = e Co Q ~ Q {I) ~ {I) Ij - - ~ I~ t/) ~ I~ 10 0 ~ ... ::?: u ~ ... r.!. tic) 0 0 ~ 1.-9 E- = ~ - ~ -< ~ ~ ~ = .-; ~ = ~ = - --= U ... -< ... ~ 0 = = = Co or; "C :.a "~ "C --= - ~ '-' ~ ~ tIJ = = ~ ~ 5 ~ N Q Q Q N Q .-; 1"rI~ I >- ~ ~ ~ -< "C ;a -.: .. 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" ~ O >- - - - 0: -Z ~ -'" - ,.. §: ~ ~ -C , 0 0 0 N 0" 0 0: 0 0 0 0 0: 0 0 0 0 0 ~'- 0 0 o >- - - - - - -' ] '. ~~-<.;;; ~ -" Z t 0 0; 0 0 r-- r-: IJ""I 0\ r- --.t: \r1 \r1 11"\ [--. 0- "3" 0 -.t: -.t -.t 0 00 M -~ >-- t"'\ 1.0 t"'\ - - - --~ -] ~~::o-Z, :0" --" ; ---,- ~ ~ ~ ~ ~ 00 00 N 0 0; 0; C! r'") 0 M 0 aI 0 0\ 0; 0 0\ 0 0'1 0 N 0 N 0; 0 N 0. 0 N 0 N 0. 0 0. 0 0; 0 0..,:, ~ -- u N N ~ !"" ,~ ~ -- M C; c: Q M '== Q M c N '=! Q M C; Q N '=: Q N 0. Q ~ - .. -g -, ~ ~ I I I , Annex 4 91 Q '=1 Q = = c=; 92 Bulgaria: Energy-Environment Revie \C c: QCON\OCO In N .N .'""," ~ ~ \Cr--CNC.--" \0 N N N N - r-- co \Q <"'I. <"'I C\ 0 C N C 00 -""'""' -c '"N co Q -"'1 '""! - 11"\ 11"\ '- ..= -01 = .. >, ... C/) = 0 "0 -g '- ~ c: Qj u 0 u ~ -" '" 1) ~ C Qj 0 ~ >, r- :Ij C/) ~;z: '-~ ~ 1:; -5 ~ " Annex4 93 Fig. A4.1: Indexesof Ener2YIntensity (EI) by Sectorand of Per Capita Consumption ~ndustry -EI -Services -EI :;: = ... II = = = ~ -.-Transport -EI " " '0 .5 -+ -Agriculture- EI -*- PerCapitaConsumption 1998 1999 2000 2005 2010 2015 Annex4 94 Fig. A4.2: Non-HouseholdSector Electricity Intensity Actual 1998-1999and Forecast2000-2015 (NEK Maximum and Minimum Scenarios) , .25 1- MaximumI 1- MinimumI 0.95 0.85 0.75 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fig. A4.3: Actual Generation (1998-1999)and Forecasts(2000-2015) (NEK Maximum and Minimum Scenarios) 55.000 53.000 51.000 49,000 11-Maxirnum I ~147,OOO I-+-Minimurn I 45.000 ~~J 43.000 41,000 39.000 1998 19992000 2001 200220032004 20052006 2007 2008 2009 2010 2011 2012201320142015 ~ ~~~ ~ Annex4 95 Fig.A4.4: BCEOM GenerationForecasts1999-2015 55000 ~ 50000 45000 -e-BCEOMI "~ -e- BCEOM2 -BCEOM3 40000 35000 30000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ~ 96 Bulgaria: Energy-Environment Review -- Fig. A4.6: Generation Forecasts -NEK Maximum and Minimum Scenarios ERM Base: Scenario+Exports,BCEOM Scenario1 .~n~ I I." 2000 2001 2002 2003 2004 200S 2006 2007 2008 2009 2010 2011 2012 2013 20" 20lS , Fig. A4.7: Index of Electricity Intensity 1999-2015 (NEK Minimum Scenarioand BCEOM1) ~ Annex4 97 Fig. A4.8: ConsumerPriceIndexesofSelectedEnergy (Electricity and District Heating) 150 140 130 120 110 100 90 80 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Alternative Scenarios TableA5.1: Projected Retirement of Kozloduy Units 1-4 Kozloduy A. BaseCase B. 1 Early Retirement(EU B.2 Late Retirement (GoB Unit # AccessionScenario Preferred Scenario) I end-2002 end-2002 end-2002 2 end-2002 end-2002 end-2002 3 end-2007 no laterthan2006 end-2010 4 end-2008 no laterthan2006 end-2012 TableA5.2: Price Projections for Natural Gas (USSper 1,000nm3) BaseCase!!!g!t GasPrice Case TableAS.3: Electricity Export Assumptions (GWh) 99 100 Bulgaria: Energy z o "'f"('"\ V10 00 ...J .~ 'c P- -Environment z 0 ..,. "" 0 Z O'S -.r""("'1 II"', o z0 '"'" 'rI 0 ;J;J 0000'c E. r'")r'") 00 00 ..J..§ g .-Co oo. 'c -0y"tU E. 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Q .-.c V"I 0\ Q = -I.. - = ~ .- S ~ C/) N = - ~ ~ '" = '" .£: -.t \0 C.I <01 C = Q I Annex5 103 Scenario 8.1: Early Retirement of Kozloduy Nuclear Units 3 and 4 Table A5.8: Primary Energy Consumption by Source(1998-2015;TJ) 1998 2000 2005 2010 2015 Solid fuels 295, Liquid fuel 215, Gaseousfuels 121, Nuclearenergy 63, Hydroelectricenergy 8, Net electricityexports -11, Renewables 1, Total 693, Table A5.9: Fuel Sharesin Total Primary Energy Consumption(1998-2015;%) Scenario B.2: Late Retirement of Kozloduy Nuclear Units 3 And 4 Table A5.10: Primary Energy Consumption by Source(1998-2015;TJ) Solid fuels 295, 341, 353, Liquid fuel 215, 249, 290, Gaseousfuels 121, 122, 147, Nuclearenergy 63, 54, 54, Hydroelectricenergy 8, 8, 8, Net electricityexports -11, -15, -15, Renewables 1, 1, 1, Total 693, 762, 840, Table A5.Il: FuelSharesin Total Primary Energy Consumption(1998-2015;%) Solid Liquid Gas Electricity Renewables Scenario 8.3: High Natural Gas Prices Table A5.12: Primary Energy Consumptionby Source(1998-2015;TJ) 1998 2000 2005 2010 2015 Solid fuels 329,473 295,618 343,382 424,762 453,318 Liquid fuel 213,850 215,053 249,138 290,712 334,829 Gaseousfuels 127,471 121,712 121,815 134,432 142,947 Nuclearenergy 61,135 63,106 54,805 37,962 37,962 Hydroelectric energy 11,994 8,276 8,276 8,276 8,276 Net electricityexports -13,194 -11,576 -15,194 -15,194 -15,194 Renewables 1,129 1,238 1,618 1,765 1,912 Total 731,859 693,425 763,840 882,714 964,049 Table A5.13: Fuel Sharesin Total Primary Energy Consumption(1998-2015; %) 1998 2000 2005 2010 2015 Solid Liquid Gas Electricity Renewables Scenario C.1: Maximum Electricity Exports Table A5.14: Primary Energy Consumptionby Source(1998-2015;TJ) 1998 2000 2005 2010 2015 Solid fuels Liquid fuel Gaseousfuels Nuclearenergy Hydroelectric energy Net electricityexports Renewables Total Table A5.15: FuelSharesin Total Primary Energy Consumption(1998-2015; %) 1998 2000 2005 2010 2015 Solid Liquid Gas Electricity Renewables Annex5 105 Scenario C.2: Zero Electricity Exports Table A5.16: Primary Energy Consumptionby Source(1998-2015;TJ) 1998 2000 2005 2010 2015 Solidfuels Liquid fuel Gaseousfuels Nuclearenergy Hydroelectricenergy Net electricityexports Renewables Total Solid Liquid Gas Electricity Renewables Terms of Reference of EER Bulgaria: Energy and Environment Strategy Terms ofReference Background Overthe nexttwo to threeyears,Bulgaria will needto takeseveralmajor investmentdecisionsin the energysector, including decisionson the rehabilitation, retirement or replacementof old, inefficient,andunsafepowerplants;the expansionof electricityandgastransmissionnetworksto boostexports;and the developmentof a domesticlow-pressuregas market. These investment decisionswill also needto take into accountEU accessionrequirements(particulateand sulfur emissions,nuclearsafety,andtheclosureof theoldernuclearplants)andenergysecurity. The Governmentof Bulgaria expectsprivate investorsto undertakethe bulk of the investments. Investmentdecisionswill needto be made in an environmentof uncertainenergydemandand during a period in which policies are being put in place that would allow private investorsto assumemarketand commercialrisks in the future.Consequently,sovereignguaranteeswill most likely be neededduring the next two to threeyearsto mitigate the marketand regulatoryrisks investorswill faceuntil thetransitionof the economyto acompetitivemarketbasis. Duringthe lastfive years,actualeconomicgrowthand energydemandweresignificantly different from earlierprojections;no improvementis expectedin termsof more accuratepredictionsin the near term. Furthermore,the first steps of reform (such as measuresalready taken to double householdelectricity and heatprices by 2001 and to liberalize coal prices) suggestthat energy demandwill be affected significantly when reform is completed.In this environment,which is characterizedby a needfor costly,state-guaranteedinvestmentsand uncertaindemandforecasts, there is an urgent need to strengthenlocal capacity for demand forecastingand investment planning. Strengtheningthis capacitywill also help in policy formulation and in timing the implementationof policyreforms. The Committeeof Energy (CoE) of Bulgaria (a governmentbody responsiblefor formulating energypolicy and managingstate-ownedenergyassets)hasissuedan energystrategydocument 107 (National Strategy for Development of the Energy Sector till 2010, August 1998) and an environment strategy (Action Plan for Implementation of the International Environmental Commitmentsin the EnergySector,March 1999).Thesetwo documentsarecomprehensive,but theyare not developedin a consistentway. DuringaWorld Bank Missionin April 1999,CoEand the Ministry of Environment (MoE) requestedthe Bank's assistancein updating the demand forecast,integrating the energyand environmentstrategiesinto one (i.e., an integratedenergy- environmentstrategy),andevaluatingalternativeenvironmentalcompliancestrategies. Objectives and Outputs The objective of the proposedstudy is to assistBulgaria in developingan integratedenergy- environment strategy that takes into account the impacts of reform and environmental requirements. Thekeyoutputsof the studyare: a comprehensiveenergy-environmentstrategywith prioritization of investments (indicative least-costplan) thatbalancestheneedsfor economicdevelopmentand environmentalprotection, includingrequirementsrelatedto internationaltreaties suchasEU accession evaluationof alternativestrategies,suchasmorerelianceondomesticresourcesor imported gas; an emphasison energy efficiency and renewables;or flexible environmentalcomplianceinstruments(e.g., emissionaveraging)to reducethe costof environmentalcompliance policy recommendationsonhowto implementthe energy-environmentstrategy revised demandforecastthattakesinto accountthe impactsof reform as well as the mostrecentprojectionsof economicgrowth capacitybuilding within MoE and NEK (theBulgarianpowercompany)to carry outintegratedenergy-environmentplanninginthefuture disseminationof theresultsandthe methodologywill be animportantpart of the project (a workshopwill be organizedto bring togetherall the stakeholdersand form thebasisof a networkfor disseminatingtheresults) Approach Consideringthatthe primaryobjectiveof this studyis to developanintegratedenergy-environment strategy,it will build upon previous assessmentsthat have evaluatedspecific topics related to energy and environment. To the extent needed,these assessmentswill be updated or new informationwill becollected. Updatingthe energydemandforecastis the first stepin this processandis intendedto addressthe highdegreeof uncertaintyassociatedwith the latestforecasts.Giventhetimeframeandresources availablefor the analysis,the existingmodels,methodology,anddatawill be utilized as muchas possible. While the demand forecast is being updated, the integrated energy-environment strategy task will commence. A workshop will take place in late January 2000 to review preliminary results and . Annex6 109 discuss the issues and options facing Bulgaria with regard to energy and the environment. An attempt will be made to solicit the perspectives of all stakeholders. The keycounterpartsfor this studyaretheCommitteeof EnergyandtheMinistry of Environment. Both have expressedtheir support for this project and have requestedin writing the Bank's assistance.Also, NEK's planningdepartmenthadinput in the formulationof thetermsof reference for this study and will playa critical role by carrying out the power systemanalysis.Local organizationsand consultantswill participateto the maximumextentpossible.For example,the demandforecastmay be carried out by the Economic Institute of the Academyof Scienceof Bulgaria. Scopeof Work Task 1. Enerav Forecast Energydemandforecastsarehighly uncertainfor a varietyofreasons: Economicgrowthforecastsarehighly uncertain. Substitutionof electricity by other energyresourcesis expectedto have some impact on electricitydemand.For example,with increasingelectricityprices,use of electricity for heatingmay decline.(Note: following agreementwith the IMP, the GoBincreasedhouseholdelectricitypricesby 14%and commercialpricesby 8% in early March 2000. More increasesare expectedin an effort to cover electricity costsby year2001). Centralheatingand/ornaturalgasareexpectedto competewith electricity. In the industrialsector,electricitywill competewith ClIP (combinedheatandpower)andotherfuels. Reformis expectedto result in significant efficiencyimprovements.While timing of reformis still uncertain,it is clearthatwheneverit happens(certainlywithin the energyplanninghorizon)it will have animpacton energydemand.Privatepower companieswill prefer smaller (thanthe public coal-fired) powerplants utilizing natural gas. Also, significant efficiency improvements are expected in the industrial,mining,anddistrict heatingsectors. Demand for electricity is below projected levels. For example, in 1999 and especiallyduringtheperiod February-April--electricity demandwassignificantly lower thanprojected.While this reduction may be temporaryand may be more thancompensatedfor by increaseddemandlater in theyear, it maybe associated with a longer-termtrend. Potentialenergysavingsfor energyefficiencyprogramsare highly uncertain.This potentialshouldbe assessedin the contextof the newenergylaw andthe energy sectorreform,asmostsavingsareexpectedto berealizedfromthe privatizationof government-ownedenterprises. To address these uncertainties, the energy demand forecast will be revised. A "most-likely demand" scenario will be developed, as well as "low demand" and "high demand" scenarios. Furthermore, the forecast will be extended from 2010 to 2020. Such extension is essential as it affects all energy investments being considered. . 110 Bulgaria:E~y -Environme~Review Given the timeframe and resourcesavailable for the analysis,the project team will work as much as possible with the existing models, methodology, and data.Thus, the emphasis will be on assessing the extent to which the existing assumptions are reasonable, and on whether appropriate consideration has been given to likely changes in relative fuel prices, changes in economic and industrial structure, and income growth. More specifically: The disaggregationof energydemandby consumingsectorwill be checkedto make sure that it is meaningful.The likely breakdownwill involve the main componentsof energydemand,i.e., solid fuels, petroleumproducts,naturalgas, electricity, and district heating; and the main consuming sectors: industry, agriculture,transport,services,andhouseholds. As a first approach,the projectteamwill considerthe existingdemandforecastfor eachfuelindividually, brokendownby consumingsector. a. The existingdatawill be evaluated,for the presentand the past5 to 10 years.Particularattentionwill be givento attemptingto find econometric relationships betweenthe sectoral demand for each fuel and key parameters,notablyvalueadded,thesector'scontributionto GDPandits growth rate, the price history of the fuel, and populationgrowth. In the caseof the industrialsector,it is desirableto obtaina breakdownshowing the mainindustriesseparately,especiallythosethat are energy-intensive, suchas iron andsteel,manufacturing,smelting,and so on. With sucha breakdown,the patternof energyconsumptionper unit of physicaloutput (for example,tonneof steelor aluminum)canbeascertained. Onthe basisof theanalysisconductedin step2 (a), it will be possibleto form a view ontheprojectionsfor eachfuel individually, brokendownby consumingsector,basedon the mostlikely developmentof the economy asa wholeand of theenergysectorin particular.Judgmentswill bemade onappropriatevaluesforthe keyparametersandon how thoseparameters influencedemand.Thevaluesmaycomefrom the econometricanalysis, but it is more likely thatsomeadjustmentswill be necessary(giventhe likely inadequaciesof the data)to bringto bearthe experienceof similar countries.For example,price and income elasticities,as well as likely changesin economicstructure (the shares of the different consumer categoriesin overall GDP) and energy efficiency by main consumer categorywill requireablendof thespecificBulgariandataandtrendsfrom elsewhere. 3 Having developed plausible forecasts for the individual fuels, adjustments will need to be made for interfuel substitution. One approach is to consider, at a disaggregated level (by consumingsector, by fuel), the more obvious cases: ,. natural gas/solid fuels/petroleumproducts in electricity generation ~ solid fuels/electricity in heating ,. gasoil/petrol/CNG in transport; and so on b. 2. Annex6 111 Calculationscanbemadeto derivetherelativepriceswhereswitchingcouldtakeplace;or, in the caseof the electricity sector,interfuel substitutioncan be modeled directly by runninga least-costpowerexpansionplanwitharangeof energyprices. 4. Finally, scenarios will be required to forecastdemand according to key variations in the economic outlook: (i) prices moving into line with economic costs (and the consequent interfuel substitution impacts and increases in energy efficiency), which could be linked with economic reforms; and (ii) faster or slower economic growth (which again may be a function of the pace of economic reform) causing higher or lower growth in energydemandthrough the income elasticities. Task 2. Workshop A workshopwill be organizedto sharepreliminaryfmdingsof the studywith all stakeholdersand to solicit their input with regardto the studyandto thecountry's energy-environmentstrategy'in general. Task 3. Energy and Environment Strateav The project teamwill reviewtheNationalStrategyfor Developmentof the EnergySectortill 2010 (August 1998)and the "Strategyfor the Environment"(Action Plan for Implementationof the InternationalEnvironmentalCommitmentsin the EnergySector,March 1999)andintegratethem into one document.During this process,it is possiblethat there may be a need to revise the previousanalysescaniedout.Reasonsfor suchrevisionmaybe eitherinconsistenciesin theresults presented in the two documentsor incorporationof most recent projections regarding the developmentof theenergysector. In additionto potentialrevisionsof theanalyses,thefollowingassessmentswill becauiedout: Evaluate alternative environmentalcompliancestrategieswith regard to international obligations and localreqnirements Considering that there is some flexibility with regard to how environmental requirements and goals are achieved (e.g., a certain level of total S02 emissions could be achieved through a variety of combinations, including FGDs, coal washing, or use of low-sulfur coal and alternative fuels), considerable cost savings can be achieved. The project team will evaluate alternatives and recommend least-costcompliance strategies. For example, the allocation of S02 reduction requirementsto the various sectors/subsectors (e.g., power, industry, households,and transport) will be evaluated and approaches will be identified to reduce the overall costs. Similarly, alternatives will be evaluated to meet the same systemwide averageS02 emissions (tonnes/yr) for the power sector, instead of unit- by-unit compliance. 2. Evaluate the potential of energyefficiencyoptions Morerealisticassessmentof thepotentialof energyefficiencyoptionsis needed;in particular, efficiencyimprovementsafterthe privatizationof enterprisesshouldbe assessed.Alreadytherearesignsthatsuchchangesarehappening;for example,a 112 Bulgaria: Energy-Environment Review copper smelter experienced a significant reduction in energy requirements after it was sold to a Belgian company. Private companiesare very interestedin energy efficiency, but there is no reasonableshort-termcredit.The bankingsystemis not preparedto lend for such projects(interestratescanbe in excessof 20% andguaranteesrequired).Reform of the banking systemis an essentialfirst step. (Note: the establishmentof a "revolving fund" by public organizationsis not legal, so investmentsin energy efficiencyprojectscannotberecovered.) Assessmentof T&D losses:while most lossesare nontechnical, a thorough assessmentis neededto estimatethepotentialforsavings. 3 Evaluate environmental issuesassociatedwith solidwastedisposal The project teamwill assessthe extentof the environmentalissuesassociatedwith the disposalof fly-ash from powerplantsand otherrefinerybyproducts.It will then identify alternativesto mitigate such environmentalimpacts,and will recommendstrategiesto utilize theseresources.Examplesof optionsthatwill beconsideredinclude: useof fly-ashasa constructionmaterialandassoil stabilizer marketingof gypsumproducedby fluegasdesulfurization(FGD)plants useof refinerybyproductsby cogenerationplants 4. Evaluate alternative strategies to deal with uncertainty in energy planning The project teamwill incorporatemore rigorousrisk assessmentmethodologyin energy planning,andwill useit to improvethe energy-environmentstrategy. October31, 1999 Government Comments on Draft EER (February 2001) 113 114 Bulgaria:E~ -Environme~eview STATE AGENCY OF ENERGY AND ENERGY RESOURCES ~ 8 Triaditza Str. Te],:+ 3592 54909 Sofia Fax:+ 3592 9&8 1443 TO MR. ANDREW VORKINK DIRECTOR OF THE WORLD BANK TO MR. THOMAS O'BRIEN WORLD BANK COPY: Mrs. MARIELA NENOV A EXECUTIVE DIRECTOR OF THE AGENCY FOR ECONOMIC ANALYSES AND FORECASTS DEAR MR. VORKINK, DEAR MR O'BRIEN, Hereby we confinn our opinion that the section of the World Bank's Draft Report on Bulgaria "Country Economic MemorandUll1" dealing in the condition and development of Bulgarian energyshould be updated in accordance with the additional infonnation provided by SABER. Our disagreement with respect to some texts in the "Country Economic Memorandum" Draft Report arises, in the first place, from the significance of energyto the economic developmentof Bulgaria, and that circumstance calls certainly for clarification and presentation of the conceptual differences on the findings and conclusions made in the report by the World Bank (WE) experts through introduction (directly or as footnotes) of the additional text and Information from SABER. In OUTopinion, that should be done along the following guidelines: I. With respect to the electricity demand forecast where both economic growth trends and the market conditions in the region should be taken into account. Annex7 115 One ofthe main arf!uments of the WB experts in the Draft Report is that the Bul lure electrici demand development is undulv hie-h. The WB experts contest the electricity demand forecast for the country and the region, and thence -the need for new generating capacities in the time limits and capaciti~s estimated by SAEER and NEK. We believe that the \VB experts' conclusions have been drawn on the basisof the following forecasts: .The Bank and NEK assume that the annual average growth of electricity demand in the period 2000-2015 will be about 1.68%, which follows trom a forecast of low economic development rate (an average GNP growth in Bulgaria of the order of 3.8% in the period till 2015), asrecommendedby the IMF. .We have noted that, in neighbour countries, a 3-4 % growth rate of electricity demand is considered normal and meets with no onjections. .According to the WB experts, forecasting of electricity demand in Bulgaria is difficult, supposedly for several reasons: uncompleted restructuring of the large industrial customers, low price of electricity for the households. The WE forecast foresees a 27% decreaseof enerf!V intensiveness for the ~lanned period till 2015. It is also noted that Bul!!aria has not reached the ener,g}: intensiYenes~ level of other countries such as Hunga~, Czechia. Poland. Germany and Eel!!ium. In our opinion. in order to achieve an enerpv intensiveness decrease of the Bul!!arian econom hi h rate 0 economic develo ment is re uired rather than low ener~ develo~ment rates. More particularly, we think that the WB experts do not fully take into consideration the electricity export forecast; cWTently. they use in part an expert estimate based mainly on the concluded electricity export agreements. Our position on this issue is basedonthe following facts: .Currently, electricity demand in someneighbour countries is growing at significant rates, therefore the electricity export forecast should indicate a long-teml optimistic trend. That trend has been recently enhanced by the high prices of oil products and natural gas which have a significant share in the energy industry of the neighbour countries. 116 Bulgaria: Energy-Environment Review The existence of an establishedpower generation structtJre with low- cost fuel base constituted primarily by the nuclear power plant and tilennal power plants using indigenous lignite renders electricity exports economically beneficial to Bulgaria from the point of view of tile market development forecasts for tilat industry branch. The domestic electricity demand in the country is based on the analyses, indicators, and the forecast of economic state and development of Bulgaria which includes overcoming of the 1996 economic crisis, achievement of seriousfinancial stability in 1997-2000, a clear trend to economic growth this and the nextyears. Another main ar ument 0 the WB ex erts underl in the Dra t Re ort is that the develo ment orecast 0 do,nestic electrici demand does not take into account the exDectedearly im/Jlementation ofener!!V savinI! ]JrOI!rams. Tha[ statement cannot be acceptedsince one of the causes of the lower rates of electricity demand development in Bulgaria according to the new forecast of SABER and NEK of September 2000 are the foreseen higher rates of decreaseof the GNP electricity intensiveness. The results of the National Energy Efficiency Programme developed by the State Energy Efficiency Agency have been used to develop the forecast. On the basis of the argumentsof WB cited above, a conclusion is drawn that it is not necessaryto enterinto any long-teI1Il power purchase agreements (PPAs) in the environment of an early introduced free electricity market which is unacceptableto the Bulgarian party. Such total denial of long-term power purchase agreements at the present stage of economic development would put off the potential strategic partners and may result in stagnation of the investment development in the energy sector,so it bearsa risk for Bulgaria to lose its position in the energy markets of the region and, from an exporter, to turn into importer of electricity. There is an actual risk of increasing the electricity price as a result of the new investments, but such risk is possible and even less predictable in the absence of any long-term agreements. One of the reasons is depletion of cheap generated electric power by eligible customers. The other reason is the existing, still unbalanced tariffs and the low living standard of the population. In rinci Ie the Dra t is underlied b the ri ht ormulation or establishment 0 a cost e Icient ricin olic. More particularly, the WB experts recommend liberalization of coal prices, phasing out of cross-subsidization in the electricity subsector and increaseof the heat energyprice for households. Annex7 117 It should be noted that, on that point, the Bulgarian government has already taken the relevant steps. So, with demonopolisation of NEK, cross-subsidization was stopped, and in the area of household heat supply, only in the three recent years the fixed price of heat energy was increased by 42 % and that was done under the conditions of a Currency Board. On the other hand we think that there is a fundamental error in Table 8.4: Household Expenditures on Heating. It indicates the daytime price of electricity for households, while households use electricity for heating mainly at night. Taking into account that in the year reviewed 30 % of the households used electricity for heating, 16% -district heating, and 54% -solid fuels, the heating of one household per month should change as below: 2000 2020 Electricity 28 $/month 42 $/ month District heating 40 $/ month 56 $/ month Solid fuels 16 $/ month 32 $/ month These figures explain the high share of solid fuels in the energy consumed by households and the reason for which people give up district heating and turn to othermethods of heating. All argwnents statedhere corroborate the relevancy of the adopted middle-term investment program. II. With respect to the electricity generation structure in terms of total operating capacity and the emerging shortage in connection with decommissioning of some units of the nuclear power plant, the methodological approaches to determining the capacity reserve of the system and the power demand variation in the country and in the Balkan region. In our 0 inion the WE whichdoesnot necessitat within the next decade is wron.2'. The comment on this point is as follows: a certain surplus of capacity and energy is expected before the end of 2002. Due to the expected decommissioning of Uits 1 and 4 of the nuclear power plant within a few years, a shortage of capacity is expected as early as in 2003 as shown below: 2010 2003 2005 Highestscenarioof the forecast 350 MW 540 MW 2050 MW 118 Bulgaria: Energy-Environme~t Review Lowestscenarioof theforecast 160 MW 220 MW 1310 MW In our opinion, the fundamental reason for the discrepancy between the forecasts of required investmcnts of the World Bank /\VB/ and SAEER is differenccs with respectto the total operating capacity mainly due to the different manner of prcsenting the capacity of the pumped-storage hydro-power plant. We suppose that, according to WB, the capacity of thc pumpcd- storage hydro-power plant is assumedto be 864 MW, and according to SAEER and NEK it should be assumedto be 432 MW. That assumption is of major significance for calculation of the power reserve of the system.By assuming 864 MW instead of 432 MW, one obtains about 5% higher power reserve. Indced, the installed capacity of the Chaira pumped-storagehydro- power plant is 864 MW. approximately as much as required upon decommissioning of the largest unit capacity il: +~esystem, however, the capacity of the Chaira pumped-storage hydro-power plant is not an adequate emergency stand-by capacity. After cxpiration of four hours from switching in of 864MW pumped-storage capacity, if the emcrgcncy conditions continuc, another stand-by capacity will have to be started up due to depletion of the water reserve of the pumped-storage hydro-power plant. We \Jelieve that, atthe present stage,it would be more realistic and correct to present the pumped-storage hydro-power plant as a reserve with half of its capacity for the purpose of such a type of forecast. As a conse the above-cited 0 WB about the caDacitv surDlus. a conclusion is made that anv new investments in the construction 0 sources would be un 'ust; led and that the focus should be on rehabilitation. Such an argument cannot be accepted by the Bulgarian party for the following reasons: .Energy has a major role in the development of the country's economy. The existing legal framework of the Republic of Bulgaria requires from NEK and SAEER planning of the power system in a manner as to secure reliable and efficient electricity supply in the country and performance of the commitments undertaken under long-tcrm clectricity export agreements. .Final negotiations are on-going wid1 investors for construction of the replacement capacity of TPP Maritsa East 1, Gorna Arda cascade,and rehabilitation of the main generating units with ~ view to covering the above-indicated shortage of capacity in thc near term. Thcsc are the first-stage project sites in the latestphaseof contracting and design. Annex 7 119 The Bulgarian experts have proven that the electricity generation capacities shall be enoughto cover the required capacity reserve which shall not be less than 20 % as dictated by the actual circumstances described below: .Requirements towards our power system in connection with its intended interconnection to the Europeansystem; .The specificity of Bulgarian electricity demand characterized by a highly dynamic andwide-range variation of the load curve during the heating season; .The inability of the neighbour countries to cover their own electricity demand in the middle term, or to supply us with electricity under an agreement or in emergency-whenever required. .Even at the present moment, the shortage of electric power in the neighbour Balkan countries (Turkey, Yugoslavia, Greece) during the recent years is coveredprimarily through export of our electricity. Ill. On the choice of a commercial model in the electric power sector with a view to the specific conditions in the country and to securing its fuel/energy balance, and the gradual "opening" and development of a competitive energy market from the beginning of 2002. A basic rt is that the wron -the "Sin.e-leBuver Moael' /1asbeen selected. We cannot acceptthat opinion for the following reasons: .The Bulgarian energy sector is being restructured in conformity with the specific conditions in the country; at the same time that was assessed by the IMP and regulated by the Energy and Energy Efficiency Act. .The "Single Buyer" model is in agreementwith the positions of many foreign specialists presented in several studies within the framework of the PHARE program, as well as studies performed by local specialized contractors and participants in the electric energy sector restructuring process. The model chosen by Bulgaria meets the requirements of EU Directive 96 / 92 on the development of a competitive domestic energymarket. .At the present stage, considering the pending demonopolization of NEK, the on-going introduction of radically new commercial and economic relations in the electric power sector, it would be most advisable to preserve the adopted "Single Buyer" commercial model. That is a basic prerequisite for a warranted fuel/energy balance in the 120 Bulgaria:Energy-Envi~nrnent~ country underthe conditions of the presentand future implementation of the structural refonn in all its aspects. In the long run, we think that the model for acceleratedcreation of a free competitive wholesale electricity market cannot be a basis on which public interestscan be guaranteed at this stage of restructuring of the sector. That should be done in further transitional stages after 2002 for the domestic market. After 2002, preparatory work will start in the country for phased "opening" and development of the competitive electricity market, eachnew stepin the direction of market liberalization being taken on the basis of precise technical and economic analyses of the results achievedduring thepreceding phase. IV. On the texts and findings in Section 8.14. "NATURAL GAS of the Draft In our opinion, in assessingthe Power Sector Investment Program, the WB experts have used unrealistic input parameters to create their optimization model. Thus for instance, ilie natural gas price used by tile Bank experts is too low and does not correspond to the actual condjtions and the inte1TeJationbetweenthat price and the alternative fuels derived from oil. The trade and industry experts are unanimous that raw oil prices will stayhjgh. In that connectjon, tile World Bank's forecasts are 21% to 33% lower than ilie futures prices for oil formed by Morgan Stanley. The expectations of preserving high oil and oil product prices in the long term are confimlcd also by the Annual Energy Outlook 2001 with Projections to 2020, of the US Department of Energy. Unlike the World Bank forecast, according to that report the trend towards preserving high prices of oil will be steady and increasing, with forecast oil prices for the next years asfollows: for 2005 -expected price 26,04 $ / bbl ; for 2010, respectively-26,66 $ / bbl ; for 2015 -28,23 $ / bbl ; and for 2020 -28,42 $ / bbl. On the other hand, the World Bank assumesa basis price of 79 USD per one thousandcubic meters delivered at the border as of the first quarter of 2000. We think that price is unrealistically low keeping in mind the methodology and the input data applied pursuant to the existing supply agreements. The World Bank's assumption is also much lower than the published price of Russian gas at ilie Czech-German border which was recently 115USD per thousand m3 (thcm) -quite close to the actual supply price for natural gas in Bulgaria during the sameperiod. Since the prices under the agreement with Gasprom are bound by the prices of oil, resp. oil products (gas oil, fuel oil with 1 % sulphur and 3,5 % sulphur), they are liable to significant variations and are Annex7 121 unpredictable in the long term aswe have noted recently. Since February 2000 the prices of these oil products went up dramatically and remained at that high level. That affected the natural gas prices in Bulgaria, and its new price since November 1st2000 is already268 BGL/thcm, equivalent to 116 USD/thcm. Obviously, the World Bank does not take into consideration the negative effects of exchange rate change~in Bulgaria in relation to gas imports. Unlike lignite which is mined locally, imported gas is quoted and sold in US dollars and, besides, its import involves currency expenses and currency risks. A high-capacity co-generation plant (for example, 600 MW) will consumenatural gasof a total cost about 90 mIn. USD annually, and that sumwill beexposedto a currencyrisk. V. On the texts and findings in Section 8.20. "DISTRICT HEATING" of the Draft We insist to make more specific the texts and findings in the District Heating section taking into accountthe increaseof fuel prices in the international market, the need to retain subsidization for a longer time, the positive change in the negative trend for massivedisconncction, and the regulatory framework provided by the Energy and Energy EfficiencyAct. The main changes in the district heating sector of the country's energy industry that have to be implemented over the period 2000 -2005 were defined by the Council of Ministers in the Centralized Heat Supply Development Strategy 2000 -2005 accepted by it, and the Action Plan for Restructuring of district heating Companies by Decision No. 582 of 23.08.2000. According to that strategy for developmcnt and restructuring of district heating companies during the next few years up to 2005, fourteen commercial companieswere determined as economically effective. These companies shall receive significant investments as early as 200, some of them from strategic investors, in order to restore their commercial viability. These district heating companies can develop within their regions assuming that no real competitors of them will arise over the next 10-12 years. Three of the companies no longer receive subsidies since mid- 2000, and subsidization of another five will stop from the lniddle of 2001. With these steps, the next phase of refonnation of the district heating sectorwas actually enteredupon. ~22 Bulgaria: Energy- Environment Review I, '- .-- We do not agree with the general evaluation in the district heating part of Section 8.20. 1. Data from pastperiods have beenused. 2. During the mentioned period of 1998,the Governmenthas secured 7 mln. US dollars of investments for the district heating companies through the Energy ResourceFund which will have a direct effect on the reduction of costs in the nextperiods. 3. The need for subsidies for 2000 is determined mainly by the increase of prices tor energy resources in the international and, respectively, the domestic markets. In our opinion, the description of the key charactcristics does not reflect the positive trendsobserved in the developmentof the system. The downward spiral appraisal could be applied in connectiion with the increasedneed for subsidies in 2000 comparedto 1998,the key factor being the increaseof fuel prices in the international market. The text should be amendedto contain the following in substance: 'I Preservation of subsidies for the district heating sector for a longer time period adapted to the affordability of bills to the public and under conditions of high fuel prices in the international market." A detailed analysis of the reasons for disconnections shows that the customers themselves actually regulate their consumption by availing themselvesof the opportunities given to them by the regulatory framework adopted in 1996. The measures undertaken by the government supported by the Sector Development Strategy yield their results and a stabilization of the disconnectiion processis observed atthe presentmoment. " A change in the negative trend to massive disconnection of the customers of district heating companies after the undertaken campaign for introduction of technical means for regulation and reading of individual heatconsumption". The heating installations built in the past were not fitted with devices for regulation of heat consumption and, since that is an obligation of the users, certain time is required for implementation of that process. The legal and regulatory framework needs change, and such change is provided by the draft amendmentof the Energy and Energy Resource Act. Irrespective of that, the existing law has createdconditions for regulation of individual consumption and reading of the energy actually consumed. In the end of 2000, the required changes were introduced in the Regulation of Social Aid to Low-Income Persons and Families in order to alleviate the problems of the needy. Annex7 123 The text shouldreadasfollows ,- Need for development and sllpplementing of the legislative and regulatory framework related to energy distribution in the buildings and revocation of the right to full disconnection of any of the us~rs connected to the same userstation", VI. On the comments made in the Summary of the Country Economic Memorandum We have also definite reservations mainly with respectto the texts in the SUImnary dealing in the costprice of coal, efficiency of gas as a cost element in power and heat generation, the safety of Kozloduy NPP and energy restructuring and liberalization, asfollows: 1. In the sentence "Bulgarian coal is high cost and ofpoor quality" We suggestto delete the words high ~. The bulk of steamcoal mined in Bulgaria is lignite -(about 90% of the domestic coal), mined by a highly productive mechanized open-cast method and their cost is the lowest (per ton of fuel equivalent) comparedto the other steamfuels such as indigenous soft coal, imported coal andnatural gas. 2. In the sentence lIThe country lacks indigenous gas and is completely reliant upon imports from Russia for gas, the one fuel that is environmentall ower eneration an we suggestto delete the underlined part for the following reasons: .One cannot assert that natural gas does not pollute the environment, because it releases CO2,when burned, although two times less than coal. .With the existing prices of natural gas the plants using such fuel for power generation have high costsof their product. In the remaining text, we suggest to add "solcly" after the word "imports". In the sentence "The nuclear power station, supplying 45 percent of electricity, has been criticized by the European Commission (EC)for the poor intrinsic (design) safety in its four older VVER 440/230 reactors which are under pressure to be retired before the end of their economic life. " 124 Bulgaria: Energy -Environment Review i we suggestto amendthetextasfollows "The nuclear power plant, "Kozloduy" EAD, supplying 45 percent of the electricity, has been criticized by the European Commission (EC) on the basis of the general evaluations of the type of old nuclear reactors of Units 1 to 4 -VVER 440/230 for their lower safety level compared to that of the technologically newer generation of nuclear reactors from the point of view of the up-to-date international safety standards, and in that connection they were under pressure for their early shutting down:' In principle, we cannot acceptsucha general text on the evaluation of Kozloduy NPP because: .There is an on-going modernization of Units 5 and 6 (1000 MW each.) of the nuclear power plant whereby the strictest intcmatioal standards,requirements and criteria of nuclear safetywill be met; .Bulgaria is performing a program for modernization of NPP Units 1 - 4. After the agreementreached with the EC on the time schedule of decommissioning of Units 1 and 2 of the nuclear power plant, active work is going on for modernization and safety upgrading of Units 3 and 4 so that their operation till the end of their design life should not provoke criticism onthe part of international organisations; .That position of the Bulgarian party is supported by the lAEA missions carried out the last two years within the framework of the OSART expert missions. 4. In the sentence "The current government is committed to restrocturing and liberalizing the energy sector. Privatization, after lengthy delays, is now back on the agenda and thefirst power stations are at the point of concluding deals to transfer them to new private owners." We suggestto amendthe text to read: "The Bulgarian government developed and implemented the Plans of restructuring the power and coal mining sectors. In April 2000 NEK EAD was unbundled and 15 new commercial companies for power generation and distribution were separatedon the basis of its assetsand liabilities. In June 2000, the unefficient mines and sectors were separated from the loss-making coal mining companies, and in that mannerthe coal mining sectorof the national economywas stabilized. Preliminary work is going on for liberalization of the national electricity market and privatization of the sector. That process will continue throughout 2001 and 2002. S.~ER will implement the further stages of the corporative reform by developing an Energy Privatization Strategy which will be Annex 7 125 DearMr. Vorkink, Dear Mr. O'Brien, We believe that by reflecting the comnlents made by us on the Section on Bulgarian energy (directly or as footnotes), the World Bank Country Economic Memorandum on Bulgaria and its Summary will confonn to the independentposition of the World Bank and, at the same time, will reflect the Bulgarian party's views on the energy policy, reliable electricity supply in a competitive market environment, in confonnity with the Europeanenvironmental protection standards.least- cost development of the energysectorin agreementwith the targets of a sustainable economic growth, competitiveness of the economy, improvement of the living standardandjoining the EuropeanUnion. In that respectwe finnly believe that the developmentof Bulgarian energy should be based on national interests and utilization of the existing conditions and facts in the country which determine its status today as a source of regional stability with leading positions in the Balkan Peninsula in the energyindustry. In conclusion, we are of the opinion that publishing of the World Bank's Country Economic Memorandum on Bulgaria should be brought to the knowledge of the wide international financial and economic community hoping that, in that manner,its members and leaderswill get a clear indication of the condition and development prospects of Bulgarian economy and, more particularly, its energy sector, and of the priority sectors,targetsand objectives of the national economy set by the Bulgarian government. v JointUNDP/World Bank ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) LIST OF REPORTS ON COMPLETED ACTIVITIES SUB-SAHARAN AFRICA (AFR) Africa Regional AnglophoneAfrica HouseholdEnergyWorkshop(English) 07/88 085/88 RegionalPowerSeminaronReducingElectric PowerSystem LossesinAfrica (English) 08/88 087/88 InstitutionalEvaluationofEGL (English) 02/89 098/89 BiomassMappingRegionalWorkshops(English) 05/89 FrancophoneHouseholdEnergyWorkshop(French) 08/89 InterafricanElectricalEngineeringCollege:Proposalsfor Short- andLong-TermDevelopment(English) 03/90 112/90 BiomassAssessmentandMapping(English) 03/90 SymposiumonPowerSectorReformandEfficiencyImprovement in Sub-SaharanAfrica (English) 06/96 182/96 Commercializationof MarginalGasFields(English) 12/97 201/97 CommercilizingNaturalGas:Lessonsfromthe Seminarin Nairobi for Sub-SaharanAfrica andBeyond 01/00 225/00 Africa GasInitiative-Main Report:VolumeI 02/01 240/01 FirstWorld Bank WorkshoponthePetroleumProducts Sectorin Sub-SaharanAfrica 09/01 245/01 Ministerial Workshopon Womenin Energy 10/01 250/01 Angola EnergyAssessment(EnglishandPortuguese) 05/89 4708-ANG PowerRehabilitationandTechnicalAssistance(English) 10/91 142/91 Africa GasInitiative-Angola: VolumeII 02/01 240/01 Benin EnergyAssessment(EnglishandFrench) 06/85 5222-BEN Botswana EnergyAssessment(English) 09/84 4998-BT PumpElectrificationPrefeasibilityStudy(English) 01/86 047/86 Reviewof ElectricityServiceConnectionPolicy (English) 07/87 071/87 Tuli Block FarmsElectrificationStudy(English) 07/87 072/87 HouseholdEnergyIssuesStudy(English) 02/88 UrbanHouseholdEnergyStrategyStudy(English) 05/91 132/91 BurkinaFaso EnergyAssessment(EnglishandFrench) 01/86 5730-BUR TechnicalAssistanceProgram(English) 03/86 052/86 UrbanHouseholdEnergyStrategyStudy(EnglishandFrench) 06/91 134/91 Burundi EnergyAssessment(English) 06/82 3778-BU PetroleumSupplyManagement(English) 01/84 012/84 StatusReport(EnglishandFrench) 02/84 011/84 Presentationof EnergyProjectsforthe FourthFive-YearPlan (1983-1987)(EnglishandFrench) 05/85 036/85 ImprovedCharcoalCookstoveStrategy(EnglishandFrench) 09/85 042/85 PeatUtilization Project(English) 11/85 046/85 EnergyAssessment(EnglishandFrench) 01/92 9215-BU Cameroon Africa GasInitiative-Cameroon: VolumeIII 02/01 240/01 CapeVerde EnergyAssessment(EnglishandPortuguese) 08/84 5073-CV HouseholdEnergyStrategyStudy(English) 02/90 110/90 CentralAftican Republic Energy Assessement(French) 08/92 9898-CAR Chad Elements of Strategy for Urban Household Energy The Caseof N'djamena (French) 12/93 160/94 2- Region/Country "4ctivity/ReportTitle Date Number Comoros EnergyAssessment(EnglishandFrench) 01/88 7104-COM In Searchof BetterWaysto DevelopSolarMarkets: The Caseof Comoros 05/00 230/00 Congo EnergyAssessment(English) 01/88 6420-COB PowerDevelopmentPlan(EnglishandFrench) 03/90 106/90 Africa GasInitiative -Congo: VolumeIV 02/01 240/01 Coted'lvoire EnergyAssessment(EnglishandFrench) 04/85 5250-IVC ImprovedBiomassUtilization (EnglishandFrench) 04/87 069/87 PowerSystemEfficiency Study(English) 12/87 PowerSectorEfficiency Study(French) 02/92 140/91 Projectof EnergyEfficiency inBuildings(English) 09/95 175/95 Africa GasInitiative-C6te d'Ivoire:Volume V 02/01 240/01 Ethiopia EnergyAssessment(English) 07/84 4741-ET PowerSystemEfficiency Study(English) 10/85 045/85 Agricultural ResidueBriquettingPilot Project(English) 12/86 062/86 BagasseStudy(English) 12/86 063/86 Cooking Efficiency Project(English) 12/87 EnergyAssessment(English) 02/96 179/96 Gabon EnergyAssessment(English) 07/88 6915-GA Africa GasInitiative-Gabon: VolumeVI 02/01 240/01 TheGambia EnergyAssessment(English) 11/83 4743-GM Solar WaterHeatingRetrofit Project(English) 02/85 030/85 SolarPhotovoltaicApplications(English) 03/85 032/85 PetroleumSupplyManagementAssistance(English) 04/85 035/85 Ghana EnergyAssessment(English) 11/86 6234-GH EnergyRationalizationinthe IndustrialSector(English) 06/88 084/88 SawmillResiduesUtilization Study(English) 11/88 074/87 Industrial EnergyEfficiency (English) 11/92 148/92 EnergyAssessment(English) 11/86 6137-GUI HouseholdEnergyStrategy(EnglishandFrench) 01/94 163/94 Guinea-Bissau EnergyAssessment(EnglishandPortuguese) 08/84 5083-GUB RecommendedTechnicalAssistanceProjects(English& Portuguese) 04/85 033/85 ManagementOptionsfor theElectricPowerandWaterSupply Subsectors(English) 02/90 100/90 Powerand WaterInstitutionalRestructuring(French) 04/91 118/91 EnergyAssessment(English) 05/82 3800-KE PowerSystemEfficiency Study(English) 03/84 014/84 StatusReport(English) 05/84 016/84 Coal ConversionAction Plan(English) 02/87 Solar WaterHeatingStudy(English) 02/87 066/87 Peri-UrbanWoodfuelDevelopment(English) 10/87 076/87 PowerMasterPlan(English) 11/87 PowerLossReductionStudy(English) 09/96 186/96 ImplementationManual:FinancingMechanismsfor Solar Electric Equipment 07/00 231/00 Lesotho EnergyAssessment(English) 01/84 4676-LSO Liberia EnergyAssessment(English) 12/84 5279-LBR RecommendedTechnicalAssistanceProjects(English) 06/85 038/85 PowerSystemEfficiency Study(English) 12/87 081/87 Madagascar EnergyAssessment(English) 01/87 5700-MAG PowerSystemEfficiency Study(EnglishandFrench) 12/87 075/87 Madagascar Environmental Impact of Woodfuels (French) 10/95 176/95 Malawi Energy Assessment(English) 08/82 3903-MAL Technical Assistance to Improve the Efficiency of Fuelwood Use in the Tobacco Industry (English) 11/83 009/83 Status Report (English) 01/84 013/84 Mali Energy Assessment (English and French) 11/91 8423-MLI Household Energy Strategy (English and French) 03/92 147/92 IslamicRepublic of Mauritania EnergyAssessment(EnglishandFrench) 04/85 5224-MAU HouseholdEnergyStrategyStudy(EnglishandFrench) 07/90 123/90 Mauritius EnergyAssessment(English) 12/81 3510-MAS StatusReport(English) 10/83 008/83 PowerSystemEfficiencyAudit (English) 05/87 070/87 BagassePowerPotential(English) 10/87 077/87 EnergySectorReview(English) 12/94 3643-MAS Mozambique EnergyAssessment(English) 01/87 6128-MOZ HouseholdElectricity Utilization Study(English) 03/90 113/90 Electricity Tariffs Study(English) 06/96 181/96 SampleSurveyof Low VoltageElectricityCustomers 06/97 195/97 Namibia EnergyAssessment(English) 03/93 11320-NAM Niger EnergyAssessment(French) 05/84 4642-NIR StatusReport(EnglishandFrench) 02/86 051/86 ImprovedStovesProject(EnglishandFrench) 12/87 080/87 HouseholdEnergyConservationandSubstitution(English and French) 01/88 082/88 Nigeria EnergyAssessment(English) 08/83 4440-UNI EnergyAssessment(English) 07/93 I 1672-UNI Rwanda EnergyAssessment(English) 06/82 3779-RW StatusReport(EnglishandFrench) 05/84 017/84 Improved CharcoalCookstoveStrategy(EnglishandFrench) 08/86 059/86 Improved CharcoalProductionTechniques(EnglishandFrench) 02/87 065/87 EnergyA~sessment(EnglishandFrench) 07/91 8017-RW Commercializationof ImprovedCharcoalStovesandCarbonization TechniquesMid-Term ProgressReport(EnglishandFrench) 12/91 141/91 SADC SADC RegionalPowerInterconnectionStudy,Vols. I-IV (English) 12/93 SADCC SADCC RegionalSector:RegionalCapacity-BuildingProgram for EnergySurveysandPolicyAnalysis(English) 11/91 SaoTome andPrincipe EnergyAssessment(English) 10/85 5803-STP Senegal EnergyAssessment(English) 07/83 4182-SE StatusReport(EnglishandFrench) 10/84 025/84 IndustrialEnergyConservationStudy(English) 05/85 037/85 PreparatoryAssistancefor DonorMeeting(EnglishandFrench) 04/86 056/86 UrbanHouseholdEnergyStrategy(English) 02/89 096/89 IndustrialEnergyConservationProgram(English) 05/94 165/94 Seychelles EnergyAssessment(English) 01/84 4693-SEY Electric PowerSystemEfficiencyStudy(English) 08/84 021/84 SierraLeone EnergyAssessment(English) 10/87 6597-SL Somalia EnergyAssessment(English) 12/85 5796-S0 Republicof SouthA&ica Optionsfor theStructureandRegulationof Natural GasIndustry(English) 05/95 72/95 -4- A!::!ivi~Report Title Date Number Sudan 05/83 003/83 07/83 4511-80 06/84 018/84 11/84 026/84 Swaziland 07/87 073/87 02/87 Tanzania 6262-8W 10/97 198/97 11/84 4969-TA 08/88 086/88 05/89 102/89 06/90 08/90 122/90 06/98 204A/98 Togo 06/98 204B/98 06/85 5221-TO 04/86 055/86 Uganda 12/87 078/87 07/83 4453-UG 08/84 020/84 01/85 029/85 02/86 049/86 03/86 053/86 12/88 092/88 02/89 097/89 03/89 UNDP Tenninal Energy Assessment(English) Report Rural Electrification Strategy Study 12/96 193/96 Zaire Energy Assessment(English) 09/99 221/99 Zambia Energy Assessment(English) 05/86 5837-ZR Status Report (English) 01/83 4110-ZA Energy SectorInstitutional Review (English) 08/85 039/85 Power SubsectorEfficiency Study (English) 11/86 060/86 Energy Strategy Study (English) 02/89 093/88 Urban Household Energy Strategy Study (English) 02/89 094/88 Zimbabwe Energy Assessment(English) 08/90 121/90 Power SystemEfficiency Study (English) 06/82 3765-ZIM Status Report (English) 06/83 005/83 Power SectorManagementAssistance Project (English) 08/84 019/84 Power Sector Management Institution Building (English) 04/85 034/85 Petroleum ManagementAssistance (English) 09/89 Charcoal Utilization Prefeasibility Study (English) 12/89 109/89 Integrated Energy Strategy Evaluation (English) 06/90 119/90 Energy Efficiency Technical Assistance Project: 01/92 8768-ZIM Strategic Framework for a National Energy Efficiency Improvement Program (English) Capacity Building for the National Energy Efficiency 04/94 Improvement Programme (NEEIP) (English) ~ -5 Zimbabwe RuralElectrificationStudy 03/00 228/00 EAST ASIA AND PACIFIC (EAP) Asia Regional PacificHouseholdandRuralEnergySeminar(English) 11/90 China County-LevelRuralEnergyAssessments(English) 05/89 101/89 FuelwoodForestryPreinvestmentStudy(English) 12/89 105/89 StrategicOptionsfor PowerSectorReforminChina(English) 07/93 156/93 EnergyEfficiencyandPollutionControlin Townshipand Village Enterprises(TVE) Industry(English) 11/94 168/94 Energyfor RuralDevelopmentin China:An AssessmentBased ona JointChinese/ESMAPStudyin SixCounties(English) 06/96 183/96 ImprovingtheTechnicalEfficiencyof DecentralizedPower Companies 09/99 222/99 Fiji EnergyAssessment(English) 06/83 4462-FIJ Indonesia EnergyAssessment(English) 11/81 3543-IND StatusReport(English) 09/84 022/84 PowerGenerationEfficiencyStudy(English) 02/86 050/86 EnergyEfficiencyinthe Brick,Tile and Lime Industries(English) 04/87 067/87 DieselGeneratingPlantEfficiencyStudy(English) 12/88 095/88 UrbanHouseholdEnergyStrategyStudy(English) 02/90 107/90 BiomassGasifierPreinvestmentStudyVols. I & II (English) 12/90 124/90 ProspectsforBiomassPowerGenerationwithEmphasison PalmOil, Sugar,RubberwoodandPlywoodResidues(English) 11/94 167/94 LaoPDR UrbanElectricityDemandAssessmentStudy(English) 03/93 154/93 InstitutionalDevelopmentforOff-Grid Electrification 06/99 215/99 Malaysia SabahPowerSystemEfficiencyStudy(English) 03/87 068/87 GasUtilizationStudy(English) 09/91 9645-MA Mongolia EnergyEfficiencyinthe ElectricityandDistrict HeatingSectors 10/01 247/01 ImprovedSpaceHeatingStovesfor Ulaanbaatar 03/02 254/02 Myanmar EnergyAssessment(English) 06/85 5416-BA Papua New Guinea Energy Assessment(English) 06/82 3882-PNG Status Report (English) 07/83 006/83 Institutional Review in the Energy Sector (English) 10/84 023/84 Power Tariff Study (English) 10/84 024/84 Philippines ..Commercial Potential for Power Production from Agricultural Residues(English) 12/93 157/93 Energy Conservation Study (English) 08/94 Strengtheningthe Non-Conventional and Rural Energy Development Program in the Philippines: A Policy Framework and Action Plan 08/01 243/01 Rural Electrification and Development in the Philippines: Measuring the Social and Economic Benefits 05/02 255/02 Solomon Islands Energy Assessment(English) 06/83 4404-S0L Energy Assessment(English) 01/92 979-S0L SouthPacific Petroleum Transport in the South Pacific (English) 05/86 Thailand Energy Assessment(English) 09/85 5793-TH Rural Energy Issuesand Options (English) 09/85 044/85 -6 - Thailand AcceleratedDisseminationof ImprovedStovesand CharcoalKilns (English) 09/87 079/87 NortheastRegionVillage ForestryandWoodfuels PreinvestmentStudy(English) 02/88 083/88 Impactof LowerOil Prices(English) 08/88 CoalDevelopmentandUtilization Study(English) 10/89 Tonga EnergyAssessment(English) 06/85 5498-TON Vanuatu EnergyAssessment(English) 06/85 5577-VA Vietnam RuralandHouseholdEnergy-IssuesandOptions(English) 01/94 161/94 PowerSectorReformandRestructuringin Vietnam:FinalReport to the SteeringCommittee(EnglishandVietnamese) 09/95 HouseholdEnergyTechnicalAssistance:ImprovedCoal BriquettingandCommercializedDisseminationof Higher EfficiencyBiomassandCoalStoves(English) 01/96 178/96 PetroleumFiscalIssuesandPoliciesfor FluctuatingOil Prices In Vietnam 02/01 236/01 An OvernightSuccess:Vietnam's Switchto UnleadedGasoline 08/02 257/02 The Electricity Law for Vietnam-Status andPolicyIssues- The SocialistRepublicof Vietnam 08/02 259/02 WesternSamoa EnergyAssessment(English) 06/85 5497-WSO SOUTH ASIA (SAS) Bangladesh Energy Assessment(English) 10/82 3873-BO Priority Investment Program (English) 05/83 002/83 Status Report (English) 04/84 015/84 Power System Efficiency Study (English) 02/85 031/85 Small Scale Uses of Gas Prefeasibility Study (English) 12/88 Reducing Emissions from Baby-Taxis in Dhaka 01/02 253/02 India Opportunities for Commercialization of Nonconventional Energy Systems (English) 11/88 091/88 Maharashtra BagasseEnergy Efficiency Project (English) 07/90 120/90 Mini-Hydro Development on Irrigation Dams and Canal Drops Vols. I, II and III (English) 07/91 139/91 WindFarm Pre-Investment Study (English) 12/92 150/92 Power Sector Reform Seminar (English) 04/94 166/94 Environmental Issues in the Power Sector (English) 06/98 205/98 Environmental Issues in the Power Sector: Manual for Environmental Decision Making (English) 06/99 213/99 Household Energy Strategies for Urban India: The Caseof Hyderabad 06/99 214/99 Greenhouse Gas Mitigation In the Power Sector: Case Studies From India 02/01 237/01 Energy Strategies for Rural India: Evidence from Six States 08/02 258/02 Nepal Energy Assessment(English) 08/83 4474-NEP Status Report (English) 01/85 028/84 Energy Efficiency & Fuel Substitution in Industries (English) 06/93 158/93 Pakistan Household Energy Assessment(English) 05/88 Assessmentof Photovoltaic Programs, Applications, and Markets (English) 10/89 103/89 174/95 -7- Pakistan NationalHouseholdEnergySurveyandStrategyFonnulation Study: ProjectTenninalReport(English) 03/94 Managingthe EnergyTransition(English) 10/94 Lighting EfficiencyImprovementProgram Phase1: CommercialBuildingsFive YearPlan(English) 10/94 CleanFuels 10/01 246/01 SriLanka EnergyAssessment(English) 05/82 3792-CE PowerSystemLossReductionStudy(English) 07/83 007/83 StatusReport(English) 01/84 010/84 IndustrialEnergyConservationStudy(English) 03/86 054/86 EUROPE AND CENTRAL ASIA (ECA) Bulgaria NaturalGasPoliciesandIssues(English) 10/96 188/96 EnergyEnviromnentReview 10/02 260/02 CentralAsia and TheCaucasus CleanerTransportFuelsin CentralAsiaandtheCaucasus 08/01 242/01 Centraland EasternEurope PowerSectorRefonnin SelectedCountries 07/97 196/97 Increasingthe Efficiencyof HeatingSystemsin Centraland EasternEuropeandthe FonnerSovietUnion (Englishand Russian) 08/00 234/00 TheFutureof NaturalGasin EasternEurope(English) 08/92 149/92 Kazakhstan NaturalGasInvestmentStudy,Volumes1,2 & 3 12/97 199/97 Kazakhstan& Kyrgyzstan OpportunitiesforRenewableEnergyDevelopment 11/97 16855-KAZ Poland EnergySectorRestructuringProgramVols. I-V (English) 01/93 153/93 NaturalGasUpstreamPolicy (EnglishandPolish) 08/98 206/98 EnergySectorRestructuringProgram:Establishingthe Energy RegulationAuthority 10/98 208/98 Portugal EnergyAssessment(English) 04/84 4824-PO Romania NaturalGasDevelopmentStrategy(English) 12/96 192/96 Slovenia WorkshoponPrivateParticipationinthe PowerSector(English) 02/99 211/99 Turkey EnergyAssessment(English) 03/83 3877-TU EnergyandtheEnvironment:IssuesandOptionsPaper 04/00 229/00 MIDDLE EAST AND NORTH AFRICA (MNA) ArabRepublic of Egypt Energy Assessment(English) 10/96 189/96 Energy Assessment(English and French) 03/84 4157-MOR Status Report (English and French) 01/86 048/86 Morocco Energy Sector Institutional Development Study (English and French) 07/95 173/95 Natural Gas Pricing Study (French) 10/98 209/98 Gas Development Plan PhaseII (French) 02/99 210/99 Syria Energy Assessment(English) 05/86 5822-SYR Electric Power Efficiency Study (English) 09/88 089/88 Energy Efficiency Improvement in the Cement Sector (English) 04/89 099/89 Energy Efficiency Improvement in the Fertilizer Sector (English) 06/90 115/90 Tunisia Fuel Substitution (English and French) 03/90 -8 - Regiol1/Coul1tr.v Acth'ity/Report Title Date Number Tunisia PowerEffi~iencyStudy (EnglishandFrench) 02/92 136/91 EnergyManagementStrategyinthe Residentialand TertiarySectors(English) 04/92 146/92 RenewableEnergyStrategyStudy,VolumeI (French) 11/96 190A/96 RenewableEnergyStrategyStudy,VolumeII (French) 11/96 190B/96 Yemen EnergyAssessment(English) 12/84 4892-YAR EnergyInvestmentPriorities (English) 02/87 6376-YAR HouseholdEnergyStrategyStudyPhaseI (English) 03/91 126/91 LATIN AMERICA AND THE CARIBBEAN (LAC) LAC Regional RegionalSeminaronElectric PowerSystemLossReduction intheCaribbean(English) Eliminationof Leadin Gasolinein LatinAmericaand theCaribbean(Englishand Spanish) 04/97 194/97 Eliminationof Leadin Gasolinein LatinAmericaand theCaribbean-Status Report (EnglishandSpanish) 12/97 200/97 Harmonizationof FuelsSpecificationsin LatinAmericaand the Caribbean(Englishand Spanish) 06/98 203/98 Bolivia EnergyAssessment(English) 04/83 4213-BO NationalEnergyPlan(English) 12/87 La PazPrivatePowerTechnicalAssistance(English) 11/90 111/90 PrefeasibilityEvaluationRuralElectrificationandDemand Assessment(Englishand Spanish) 04/91 129/91 NationalEnergyPlan(Spanish) 08/91 131/91 PrivatePowerGenerationandTransmission(English) 01/92 137/91 NaturalGasDistribution: EconomicsandRegulation(English) 03/92 125/92 NaturalGasSectorPoliciesandIssues(EnglishandSpanish) 12/93 164/93 HouseholdRuralEnergyStrategy(EnglishandSpanish) 01/94 162/94 Preparationof Capitalizationof the HydrocarbonSector 12/96 191/96 IntroducingCompetitioninto the ElectricitySupplyIndustryin DevelopingCountries: LessonsfromBolivia 08/00 233/00 Final Reporton OperationalActivities RuralEnergyandEnergy Efficiency 08/00 235/00 Oil IndustryTraining for IndigenousPeople:TheBolivian Experience(Englishand Spanish) 09/01 244/01 Brazil EnergyEfficiency& Conservation:StrategicPartnershipfor EnergyEfficiency in Brazil (English) 01/95 170/95 HydroandThermalPowerSectorStudy 09/97 197/97 RuralElectrificationwith RenewableEnergySystemsinthe Northeast:A PreinvestmentStudy 07/00 232/00 Chile EnergySectorReview(English) 08/88 7129-CH Colombia EnergyStrategyPaper(English) 12/86 PowerSectorRestructuring(English) 11/94 169/94 EnergyEfficiency Reportfor the Commercial andPublic Sector(English) 06/96 184/96 CostaRica EnergyAssessment(EnglishandSpanish) 01/84 4655-CR RecommendedTechnicalAssistanceProjects(English) 11/84 027/84 ForestResiduesUtilization Study(EnglishandSpanish) 02/90 108/90 Dominican Republic EnergyAssessment(English) 05/91 8234-00 -9 Ecuador EnergyAssessment(Spanish) 12/85 5865-EC EnergyStrategyPhaseI (Spanish) 07/88 EnergyStrategy(English) 04/91 PrivateMinihydropowerDevelopmentStudy(English) 11/92 -- EnergyPricing SubsidiesandInterfuelSubstitution(English) 08/94 11798-EC EnergyPricing,PovertyandSocialMitigation(English), 08/94 12831-EC Guatemala IssuesandOptionsin theEnergySector(English) 09/93 12160-GU Haiti EnergyAssessment(EnglishandFrench) 06/82 3672-HA StatusReport(EnglishandFrench) 08/85 041/85 HouseholdEnergyStrategy(EnglishandFrench) 12/91 143/91 Honduras EnergyAssessment(English) 08/87 6476-HO PetroleumSupplyManagement(English) 03/91 128/91 Jamaica EnergyAssessment(English) 04/85 5466-JM PetroleumProcurement,Refining,and Distribution Study(English) 11/86 061/86 EnergyEfficiencyBuilding CodePhaseI (English) 03/88 EnergyEfficiencyStandardsandLabelsPhaseI (English) 03/88 ManagementInfonnationSystemPhaseI (English) 03/88 CharcoalProductionProject(English) 09/88 090/88 FIDCO SawmillResiduesUtilization Study(English) 09/88 088/88 EnergySectorStrategyandInvestmentPlanningStudy(English) 07/92 135/92 Mexico ImprovedCharcoalProductionWithin ForestManagementfor theStateof Veracruz(EnglishandSpanish) 08/91 138/91 EnergyEfficiency ManagementTechnicalAssistanceto the ComisionNacionalparaelAborro deEnergia(CONAE)(English) 04/96 180/96 EnergyEnvironmentReview 05/01 241/01 Nicaragua ModernizingtheFuelwoodSectorinManaguaandLeon 12/01 252/0 I Panama PowerSystemEfficiencyStudy(English) 06/83 004/83 Paraguay EnergyAssessment(English) 10/84 5I45-PA RecommendedTechnicalAssistanceProjects(English) 09/85 StatusReport(EnglishandSpanish) 09/85 043/85 Peru EnergyAssessment(English) 01/84 4677-PE StatusReport(English) 08/85 040/85 Proposalfor a StoveDisseminationProgramin theSierra(EnglishandSpanish) 02/87 064/87 EnergyStrategy(EnglishandSpanish) 12/90 Studyof EnergyTaxationandLiberalization of theHydrocarbonsSector(EnglishandSpanish) 120/93 159/93 RefonnandPrivatizationinthe Hydrocarbon Sector(Englishand Spanish) 07/99 216/99 RuralElectrification 02/01 238/01 SaintLucia EnergyAssessment(English) 09/84 5111-SLU St. Vincentand theGrenadines EnergyAssessment(English) 09/84 5IO3-STV SubAndean EnvironmentalandSocialRegulationof Oil andGas Operationsin SensitiveAreasoftheSub-AndeanBasin (Englishand Spanish) 07/99 217/99 Trinidad and Tobago EnergyAssessment(English) 12/85 5930-TR -'10 Region/Country Activity/Report Title Date Number GLOBAL EnergyEndUseEfficiency: ResearchandStrategy (English) WomenandEnergy--AResourceGuide The InternationalNetwork:PoliciesandExperience(English) Guidelinesfor Utility CustomerManagementand Metering(EnglishandSpanish) Assessmentof PersonalComputerModelsfor Energy PlanninginDevelopingCountries(English) 10/91 Long-TermGasContractsPrin~iplesandApplications(English) 02/93 152/93 ComparativeBehaviorof FirmsUnderPublicandPrivate Ownership(English) 05/93 155/93 Developmentof RegionalElectricPowerNetworks(English) 10/94 RoundtableonEnergyEfficiency(English) 02/95 171/95 AssessingPollutionAbatementPolicieswith a CaseStudy ofAnkara(English) 1/95 177/95 A Synopsisof theThird AnnualRoundtableonIndependentPower Projects:RhetoricandReality(English) 08/96 187/96 RuralEnergyandDevelopmentRoundtable(English) 05/98 202/98 A Synopsisof theSecondRoundtableonEnergyEfficiency: InstitutionalandFinancialDeliveryMechanisms(English) 09/98 207/98 TheEffectof a ShadowPriceonCarbonEmissioninthe EnergyPortfolio of theWorld Bank:A Carbon BackcastingExercise(English) 02/99 212/99 Increasingthe Efficiencyof GasDistributionPhaseI: CaseStudiesandThematicDataSheets 07/99 218/99 GlobalEnergySectorReforminDevelopingCountries: A Scorecard 07/99 219/99 GlobalLighting ServicesforthePoorPhaseII: Text Marketingof Small"Solar"Batteriesfor Rural ElectrificationPurposes 08/99 220/99 A Reviewof theRenewableEnergyActivities of theUNDP/ World BankEnergySectorManagementAssistance Programme1993to 1998 11/99 223/99 Energy,TransportationandEnvironment:PolicyOptionsfor EnvironmentalImprovement 12/99 224/99 Privatization,CompetitionandRegulationinthe British Electricity Industry,WithImplicationsforDevelopingCountries 02/00 226/00 Reducingthe Costof Grid Extensionfor RuralElectrification 02/00 227/00 UndevelopedOil andGasFieldsin theIndustrializingWorld 02/01 239/01 BestPracticeManual:PromotingDecentralizedElectrification Investment 10/01 248/01 Peri-UrbanElectricityConsumers-A Forgottenbut Important Group:WhatCanWeDo to Electrify Them? 10/01 249/01 Village Power2000:EmpoweringPeopleandTransforming Markets 10/01 251/01 PrivateFinancingfor CommunityInfrastructure 05/02 256/02 10/31/02 The World Bank 818 H Street, NW Washington, DC 20433 USA Tel. 1.202.458.232 Fax. 522.3018 Internet: www.esmap.org Email: esmap@Warldbank.org CIlJ~J= A joint UHDP/World Bonk .