The Bulgarian Energy Market between Subsidies and Challenges

The Bulgarian Energy Market between Subsidies and Challenges

Many know Bulgaria as the poorest country in the EU. The country consistently lags behind its Western partners and ranks the lowest in a variety of areas. From disposable income to media freedom, as well as corruption and trust in the government. However, there seems to be an area in which Bulgaria is outperforming the EU average: green development. A combination of subsidies and ponderous growth has fostered this outcome, but the way ahead is not guaranteed.

Bulgaria is known for being the poorest member of the EU since joining the Union in 2007.  In effect, Sofia keeps lagging behind its Western partners, and ranks the lowest in a variety of areas. From disposable income to media freedom, as well as corruption and trust in the government, there seems to be no bright spot. However, there is an area in which Bulgaria is outperforming the EU average: green development. Still, the country is rarely included in discussions about the fastest adopters of new technologies and talks about the Green Revolution. This article explores some of the policies and the factors that have arguably allowed Bulgaria to reach this result. The forecast highlights the risks going forward and recommends a progressive disinvestment in the Bulgarian green-economy in the short term.

A Green Success

According to preliminary data released by Eurostat in December 2020, the EU’s energy sector mostly met green targets in 2019. The EU as a whole is only slightly below the 20% threshold it had assigned itself. Only a handful of countries have failed to reach the prescribed goals. Meanwhile, traditionally green countries such as Sweden, Denmark and Finland topped it by several percentage points. More to the point, 2019 was a great year for green energy made in Bulgaria. In fact, the share of electric energy and heating produced from renewable sources in Bulgaria has grown steadily, such that Sofia overtook the Netherlands and the Republic of Ireland in terms of renewables’ share of the energy mix. Surpassing much more developed, wealthier and greener countries in this ranking is no small achievement for Bulgaria (see Figure 1 below).

The country has been consistently trying to make technology a driving force behind its growth. In this sense, the official strategy document Bulgaria 2030 is paramount. It states that:

Environmental investments are a prerequisite for the country’s transition to a resource-efficient, green and competitive low-carbon circular economy, which is in itself a key step on the road to a sustainable future.

Given this premise, it is no surprise that the government has played a crucial role in favoring Bulgaria’s green development.

Subsidize your Way to Greenness

The Netherlands, and especially the Republic of Ireland, are decidedly neo-liberal in their management of the economy. This means that most of the time, policies let market actors develop their strategies with minimal constraints. And the green economy has been no exception up until now. On the contrary, Bulgaria runs a post-socialist economy in which the State has held an important role. The government still holds stakes in key sectors (Figure 2) such the pharmaceutical industry and nuclear energy.

Thus, Sofia leveraged government expenditures to pave its way to green development in ways Dublin and Amsterdam could not imitate. Against this backdrop, some have noted that “this Bulgarian success is mainly due to the scandalously high guaranteed prices of ‘green’ electricity”. An EU-wide scheme to favor greener energy sources, allows member States to de facto subsidize this sector. Namely, it provides for the introduction of an additional ‘green-energy’ tariff. Hence, the scheme is, in a way, cross-subsidizing energy providers by altering fair-competition mechanisms. The provision that those firms boasting higher shares of renewables in their mix gather higher revenues. Yet, their clients are still paying the same price while being able to signal ‘greenness’. The green-energy additional (DZE) steadily rose in Bulgaria until it took over the analogous German stimulus (Figure 3).

Comparing Bulgarian figures with German ones shows that the year 2012 was actually a milestone for Bulgarian green energies. In the first two quarters, various companies built a staggering number of new  solar-power parks as electricity prices climbed. These investments’ profitability kept rising in 2013 since the authorities set the DZE higher than the German tariff. With these policies, Bulgaria has earned much praise. The country was “cited as an example of excellent support for renewable energy”.


Bulgaria’s impressive success in transitioning its energy system towards a greener source did not come about by chance. It was the result of the government’s impressive medium-term planning and the right structure of incentives. As economic theory has often highlighted, public powers are more effective when they create the ‘right’ incentives for private actors. In Bulgaria, the DZE worked as the tool that favored private investments into solar parks and wind turbines. Yet, this has come at the expense of traditional providers — which have cross-subsidized ’greener’ ones. And, more importantly, with a high price for final consumers. The price of electricity has grown faster for Bulgarian households than for their EU peers. At this pace, and given the severe political and economic aftermath of the pandemic, the status quo seems unsustainable. People may take again to the streets as they did in 2013

Foreseeing these negative developments, investors should avoid being long on Bulgarian energy firms. In the short term, the safest bet is divesting. However, once the context improves, at their new dumped prices those same stocks and bonds could be a valuable acquisition. Hence, reinvestments may be useful both for speculation and medium-to-long term saving.

Categories: Environment, Europe

About Author

Fabio Telarico

Fabio A. Telarico was born in Naples, Southern Italy. He is fluent in Italian, English and Bulgarian. Between 2015 and 2017 he won several prizes in nation-wide literary contests. Since 2018 he has been publishing on websites and magazines about the culture, society and politics of South Eastern Europe and the former USSR. He also participates regularly to international conferences on the same topic.