Adam Zuckerman
Today we're here with Konstantin Konstantinov, the CEO of the Independent Bulgarian Energy Exchange, also known as IBEX. Konstantin, welcome to the Energy Impact Podcast.

Konstantin Konstantinov
Hello, Adam. Many thanks for inviting me. It's a pleasure for me.

Adam Zuckerman
Oh, we're glad to have you here. Bulgaria is of critical importance to the European energy ecosystem. There are some very wonderful and exciting things that are going on. But before we get into that, why don't you tell us a little bit about your background? You're the CEO of IBEX. How did you get your start in energy and how did you end up at IBEX?

Konstantin Konstantinov
Thanks, once again, Adam. Actually, I'm electrical engineering. I studied in the Technical University here in Sofia. After that, at the end of my study, actually, because of my mentor there, I was invited to start working for the local distribution company, electricity distribution company. He worked for them and invited me. This was a great opportunity for me to strike right after my diploma and start working according to the stuff that I learned in university. A few years later - I'm talking about 2004, 2005, something like this - the free electricity market was about to start developing here in Bulgaria and in the region of southeastern Europe. At the time, I was invited to start working for one big, private company who was about to try to receive the license and become a trader of electricity here in Bulgaria. This was a great opportunity for me, because I was among the first members of such teams. There were only six or seven companies in the beginning with this license for trading with electricity in Bulgaria. and we had direct contact with the biggest producers here in Bulgaria. I am talking about the nuclear power plant of Kozloduy, the national electricity company who is running the hydros in Bulgaria, and the biggest thermal power plant in Bulgaria, Maritsa Iztok-2. This was from one side. From another side, we had to have a very close relationship with the consumers and to explain the free market of electricity and so on.

Adam Zuckerman
What do you mean by, you had a license? Do you mean that individual traders like a stock trader had a license or the organization had a license?

Konstantin Konstantinov
From the very beginning, in 2004, all the traders or the companies who want to trade with electricity have to have a trading license, which is issued by the national regulatory energy authority in Bulgaria.

Adam Zuckerman
So, if you wanted to start a new organization that did trade, are you able to do that? Or are there only specific types of companies that can be authorized to even apply for a license?

Konstantin Konstantinov
Practically every company is in position to apply for this license and there is some condition that has to be covered.

Adam Zuckerman
Okay. Well, let's get into that a little bit later. Before, there are many listeners to the podcast that are literally around the world and they may not be too familiar with Bulgaria. So, let's give a little bit of a background. The country is located in southeastern Europe, It borders the Black Sea between Romania and Turkey with five different countries on its border: those are Greece, Macedonia, Romania, Serbia and Turkey. Correct?

Konstantin Konstantinov
Exactly.

Adam Zuckerman
Okay. So, the square kilometers is about 110,000, which is just about the size - a little bit less than - Louisiana and a little bit bigger than Tennessee, if you come to the United States, and the population is just under 7 million. So, Massachusetts.

Konstantin Konstantinov
Unfortunately, yes.

Adam Zuckerman
Okay, unfortunately.

Konstantin Konstantinov
It used to be above eight million.

Adam Zuckerman
Really? So, the population is shrinking?

Konstantin Konstantinov
Yeah.

Adam Zuckerman
Why is that?

Konstantin Konstantinov
Because of the negative trends of births and a lot of people just decided to leave the country and start living somewhere in Europe or in America.

Adam Zuckerman
Okay, so, we'll come back to how the population size and trajectory may be impacting the energy ecosystem, but let's actually talk about Bulgaria's energy ecosystem. Where does the country sit in respect to Europe's electricity network? What do people need to know about Bulgaria electricity and energy in general?

Konstantin Konstantinov
In general, according to the production, we have one nuclear power plant with 2,000 megawatts installed capacity. We have a couple of thermal power plants. The common installed capacity, let's say is above 3,000 or 4,000 megawatts, and we have a lot of hydropower stations with total installed capacity above 3,000 megawatts.

Adam Zuckerman
It sounds like it's a very diversified mix. Is the country an energy exporter or is it an importer?

Konstantin Konstantinov
Definitely we are a net exporter, or at least we used to be a net exporter, because nowadays, there are moments, days, and even months that we are a net importer of electricity, mainly from Romania and even from Turkey. But I think this is some kind of current situation. The global picture is showing that we are and we have to be net exporter.

Adam Zuckerman
What are some of the market conditions that would shift the country on a daily or a weekly basis from exporting to importing?

Konstantin Konstantinov
Currently, the weather conditions and the production situation of electricity hear in Bulgaria determines this, but, in the region, we have one very important factor. I mean, in Turkey, the Turkish Lira and the production there from renewable energy sources are the determining the flows also.

Adam Zuckerman
So, it's both a question of the price in various countries as well as how much is being created from a renewable standpoint, whether it's photovoltaic or wind, and what exactly is put on the grid.

Konstantin Konstantinov
Yeah, because you probably know not only here in the region, but in the whole world, Europe and America, this generation from renewable energy resources securing the region for photovoltaics and solar are merging a lot.

Adam Zuckerman
And that brings us to IBEX, so it positions you in a fantastic place to understand the nuances of what's happening in the country. What is IBEX?

Konstantin Konstantinov
IBEX is the Bulgarian power change operator. By the law, we have also applied for license for this activity and by the law, the local energy regulatory authority is in position to issue only one license for this activity in Bulgaria This is the current situation according to the Energy Act. We had this license issued in 2014 for 10 years, so, in 2024 we have to apply for new one.

Adam Zuckerman
Is that typical, that a country only has one ecosystem for an energy exchange? Or are there typically more than one?

Konstantin Konstantinov
I should say, Yes, here in the region it's typical, because we are a pretty small market. This is one of the first steps from the side of the government in order to secure enough liquidity for the power exchange.

Adam Zuckerman
And in terms of liquidity, how much money is being spent back and forth, and what is the size of the transactions that you're seeing on an annual basis?

Konstantin Konstantinov
Annual basis?

Adam Zuckerman
Annual basis.

Konstantin Konstantinov
Interesting. I have to say just a couple of things before that. In order to improve the transparency of the market - which is very important in the electricity market and the deals with electricity - the government initiated, and the parliament confirmed, one amendment in the Energy Act a couple of years ago, according to which, all the producers here in Bulgaria which are producing electricity for the free market and with installed capacity above 0.5 megawatts are obliged to sell this electricity through IBEX platforms. Actually, we are running three platforms: day-ahead, intraday, and the third one is called bilateral contracts, which deals with delivery periods longer than one day, but mainly a week, month, quarter or year. The producers are free to select one or multiple of these screens to sell their electricity. This, of course, boosts the liquidity in IBEX, which is good for the company itself and for transparency, because like every exchange, after the deal, we are publishing the result on our website so that everybody who is interested in the community, of course, are in a position to see what is going on on the free market. So, on your question, I have to calculate it. On the day-ahead, we are about 50% from the total consumption in Bulgaria. I'm talking about 80,000 megawatt-hours daily. But you want me to say money?

Konstantin Konstantinov
I'm just trying to get a general understanding of the size of the exchange itself. So, if there's a different statistic, that's easier to pull, that's all right.

Konstantin Konstantinov
The statistic and the parameter that we are using is the percentage of the total traded amounts or volumes on the day-ahead, compared with the total consumption and it's about 50, about 50 percent. Which is pretty good and it is near to the developed market, such as France, Germany and other in the western part of Europe.

Adam Zuckerman
So, effectively, you're operating as the stock market for electricity. Most people are more familiar with stocks for a company's equity, you guys are helping to purchase electricity between generators and suppliers, or generators and off takers? Can you explain that?

Konstantin Konstantinov
Even end consumers.

Adam Zuckerman
So, as an individual or company, you could then become a member of the exchange?

Konstantin Konstantinov
Actually, we are a wholesale market as an exchange, so, individuals are not - by the rules - they can be exchange members, but actually, it's not work. We have a couple of members which are end consumers, factories and so on.

Adam Zuckerman
Can you explain the difference of the three different verticals that you guys offer? You said there were three different trading mechanisms, correct?

Konstantin Konstantinov
Yes, three different trading platforms. The spot markets are represented according to two screens, one of them is day ahead market. This is an auction structured platform according to every day til 12 o'clock, noontime, Central European Time, we are collecting offers from our participants and a couple of minutes after that. We are publishing the results, the clearing prices and volumes for every single hour for the next 24 hours. The interesting situation here is that IBEX is, from the very beginning of operation in the day-ahead market, is a member of the Multi Regional Coupling organization in Europe, with the current name Single Day-ahead Coupling and according to this, our order book is calculated together with the order books of all European power exchanges.

Adam Zuckerman
How many European power exchanges are there?

Konstantin Konstantinov
Every country definitely has its own power exchange, but how many? Let's say 15, roughly.

Adam Zuckerman
Alright.

Konstantin Konstantinov
There are power exchanges, like EPEX SPOT and Nord Pool, which are operated in several countries.

Adam Zuckerman
Okay. So, before we get to the second and the third mechanism, you mentioned market coupling. And IBEX and market coupling has recently been in the news, specifically in Greece, specifically mentioned in Romania. Can you explain what market coupling is and why this is important?

Konstantin Konstantinov
Of course, this is very hard to say. We will focus huge resources in order to achieve these couplings with our neighboring countries. Of course, the first ones are with European union members, Romania and Greece. Definitely, I do hope that we will manage to do it with non-European member countries, like Turkey and North Macedonia and even Serbia, in the near future. Market coupling itself is just one optimization of the trading because currently, the traders and the market participants have to participate in auctions for cross border transmission capacity first, in order to have the right to buy or sell electricity from some neighboring country. With the market coupling, this cross border transmission capacity will be located implicitly by participating on a day-ahead auction and in the intraday platform, because currently on the intraday platform, we are coupled with Romania, and there is a flow between Bulgaria or Romania. Of course, these flows are depending on the cross-border megawatts that are confirmed by the transmission system operators.

Adam Zuckerman
So, there's the day-ahead market, there's the intraday market. What's the third market?

Konstantin Konstantinov
The third market is one platform, as I mentioned, called bilateral contracts. It connects mainly producers with traders or end consumers in order to reach their best prices in order to have deals for longer periods of delivery, mainly months or longer.

Adam Zuckerman
What's the longest period of time that somebody can contract for?

Konstantin Konstantinov
Here in Bulgaria it is one year. Of course, it is possible to have a contract with a deliberate period longer than one year, but in this situation, I think the parties have to inform the national regulatory authority.

Adam Zuckerman
Is that the equivalent of a PPA, power purchase agreement? Or is that a little bit different?

Konstantin Konstantinov
I think it's a little bit different, because these PPAs are for many, many years, I think about five years.

Adam Zuckerman
Okay, so, we are getting a master class in electricity trading in Bulgaria today. On the website, there is a frequently asked questions area. Within that, there's a piece about the continuous trading mechanism. And it says that the minimum price can be negative 9,999 megawatt-hour euro, and the maximum price is 9,999 megawatt-hour euro, obviously a big range. And I don't believe that anybody would ever be purchasing any electricity at 9,999.

Konstantin Konstantinov
Hopefully.

Adam Zuckerman
Hopefully not and if so, it's very high quality electricity. Why is there a negative value, though? What does that mean and how often does the price of electricity go negative and you're actually getting paid to consume?

Konstantin Konstantinov
Actually, these negative prices a couple of years ago was a very, very interesting question and issue here in Bulgaria, and in the region I think. But, step by step, all the people are getting used to it, because it is not a normal situation. Even I think last year, we saw negative prices for the oil trading, probably you noticed that. However, with this huge development of the production from the renewable energy sources wind and solar mainly, obviously from a physical point of view, we as a society and energy structures are not ready to balance the system and in some hours, there is too much supply which is not in position to be turned off. In this situation, the producers are ready to pay the consumers just to get them to consume their energy.

Adam Zuckerman
Okay. All right. We were talking about renewables, then, and that causes that situation. Bulgaria started its clean energy transition in about 2007. How have you seen the country progress since then? What challenges have been encountered? And where do you see things going in the future?

Konstantin Konstantinov
Interesting question and topic currently here in Bulgaria. Probably - I don't know if you're aware - but the political situation here in Bulgaria at the moment are a little bit complicated, because we have a brand new parliament, and now we are waiting for a new government, but I think that the parts in the parliament are not in position to create a stable government and of course, there is an option to go to new elections this month for a second time. But, however, the state has to continue with this energy transition. Definitely, there is a lot of new projects. According to each a new photovoltaic systems will be connected to the grid and time, this will be a complicated question, how this production will be first physically managed, because of course, Bulgaria is very well connected with the neighboring countries, but this production of 1,000 megawatts have to go somewhere and consume somewhere. And the other question - this my, of course, personal opinion - the other questions that everybody here should think about is how these megawatts will be traded, because in some hours, there will be much supply on the market, and even in the so-called peak hours during the day, they will become off-peak, if we see the price go up because the supply will be too much. Of course, in some other hours, there'll be a lack of supply and the prices will go up. But this is so tough and a complicated problem that will have to be solved somehow.

Adam Zuckerman
Now, in 2019, the country pledged to update its national target for renewable energy and raise the share of wind and solar and other renewables to 27% of energy consumption with a goal of 2030. Do you have any insight on how that process is going right now?

Konstantin Konstantinov
Just roughly insight, my opinion is that, during this period, this percentage will be higher, according to production from solar and wind.

Adam Zuckerman
Is electricity priced differently? Are there different tariff structures based on the energy generation source? So, does hydro have a different tariff than renewables than photovoltaic or wind?

Konstantin Konstantinov
Actually, on the free market, we have no tariffs, because this is free market and it's according to the market situation. But if we go back 20 minutes ago in our conversation, we had to say that, here in Bulgaria, we have still part of the market which is so-called regulated parts. Regulated I mean, the energy regulatory authority are determining special tariffs according to which some selected producers are selling direct listed to the so-called public provider, which public provider is selling to the distribution companies. We have four distribution companies here in Bulgaria in order to supply the end consumers, but only households, because all the non-household consumers will be obliged to go to the free market after the first of July this year. So, in the light of this, there is some tariffs and special prices for every producer.

Adam Zuckerman
Is the government subsidizing or offering incentives for new developments in the country to move away from dirty energy generating sources?

Konstantin Konstantinov
Yes, but not currently. I think, to not mention the exact year, but some years ago the government stopped subsidizing these new projects. But there are a lot of projects which are running at the moment with 1,000 megawatts of capacity with five to 10 years in the future with PPA suing the state and the state is obliged to pay them high price for their production. According to this, we have one structure here under the Ministry of Energy called, security funds, which main task is to secure the cash flow between these companies in the energy sector on the regulated part of the market, but actually everybody here is a consumer of electricity. Each is obliged to pay some amount of money called obligation to the society, I think roughly 20 euros per megawatt-hour, between 15 and 20. But it's updated every year by the regulatory authority to this fund, and this fund is obliged to pay to the renewable energy producers of this additional money to the prices that they are receiving from the market selling their electricity.

Adam Zuckerman
15 to $20 per megawatt-hour is a significant percentage of-

Konstantin Konstantinov
-roughly something like this.

Adam Zuckerman
Yeah. Okay. For IBEX, you're leaders in the space. You're doing more than just offering trading platforms for electricity. What is the Green Centre?

Konstantin Konstantinov
Thanks for this question, I was prepared to mention it in the end. We will create it as a company owned 100% by the Bulgarian Energy Holdings, which is state-owned under the Ministry of Energy. This was during 2014. But a few years later, according to one request by the European Commission, and in the light of transparency and independency of the power exchange operator, independency from other energy sector companies, Bulgarian Energy Holdings transferred the company to the Bulgarian Stock Exchange in Bulgaria, which is the major owner there at the Ministry of Finance. But currently, we are separated, actually from the energy sector as a company. I'm telling you that just to share it. Currently, we are 100% owned by the Bulgarian Stock Exchange, and together with them, in the end of March, we initiated this Green Financial and Energy Centre. The initial idea was to create some kind of think tank and to attract smart people ready to think about the problems and to determine and propose concrete politics on the government in order to secure the green future of Bulgaria and in the region. Of course, my position there is I should be responsible for the energy and electricity part of this initiative. My colleagues from the Bulgarian Stock Exchange will cover the financial part.

Adam Zuckerman
What are some of the challenges that you're trying to address and what are some of the solutions or proposed solutions? If you're able to share them?

Konstantin Konstantinov
Yeah, I am able, but definitely it is pretty soon to discuss something concrete. Our main task now is to attract people with position and ready to support this idea just to think about the concrete problems and how they can be solved. And the main thing is to attract people, just themselves, not the company, or the company to propose some CEOs or CFOs. For my part, of course, I will propose, for example, the market coupling with non-European members like Turkey and North Macedonia to move forward because it is very difficult, currently, to develop this project. Actually, we have a current project with Macedonia. We have very close relations with Turkey. But definitely we are in position to do nothing concrete, according to the market coupling with them.

Adam Zuckerman
Konstantin, this has been fantastic. Thank you for your time. I have one issue, though, that we haven't talked about. And it's a little bit tongue n cheek, but I'm disappointed in IBEX. And, what I mean by that is, you're located near the European Alps and in the European Alps, there's a mountain goat called the ibex, but the mascot for your organization is a bull and not the ibex mountain goat. I think it's a missed opportunity.

Konstantin Konstantinov
Oh, I will investigate that for sure.

Adam Zuckerman
All right. One last question for you, Konstantin. What should we have talked about that we haven't yet discussed?

Konstantin Konstantinov
My idea here was to mention this Green Financial and Energy Centre. But you were first according to that? Well, we haven't discussed the COVID situation.

Adam Zuckerman
All right, let's do it.

Konstantin Konstantinov
We have interesting situation about day-ahead market price here in Bulgaria and in the region and even in Europe, I think, they're pretty high for the second quarter of this year. Of course, we know that last year, we were in the beginning of the pandemic, and these pretty low levels of the market prices was normal, having in mind the COVID situation. But now we have extremely, extremely high prices. And I was wondering how is the situation in the US?

Adam Zuckerman
Well, that is a conversation for another podcast. It is a very complicated, nuanced energy ecosystem, just like Europe does. What I can say, though, is that if you'd like, we can have a follow up conversation.

Konstantin Konstantinov
With pleasure.

Adam Zuckerman
All right, Konstantin, I don't think that we could end this on a better note. Thank you so much for your time. Again, the CEO of IBEX, the Independent Bulgarian Energy Exchange. Thank you very much.

Konstantin Konstantinov
Thank you very much for having me and see you soon.

Adam Zuckerman
Alright, take care.

Konstantin Konstantinov
Take care.