Bulgaria’s energy sector stands at a critical crossroads, hindered by distorted price regulations, cross-subsidisation, and the lack of a targeted social support system. The current state-controlled model protects inefficient, carbon-intensive producers, deters innovation and private investment, and fails to support vulnerable consumers - while subsidising high-consumption households and wealthy corporations. This undermines energy security and delays the modernisation of the electricity grid.

The path forward lies in a fair and comprehensive liberalisation of the electricity market, supported by smart grid digitalisation, intelligent metering, and well-designed social support mechanisms. This transition must be gradual, with clear safeguards to protect vulnerable groups from price shocks without compromising market competition. Transformation funding can be drawn from the Security of the Electricity System Fund and European green transition instruments. Liberalisation should not mean withdrawing state involvement, but rather redefining it—ensuring the state acts as an impartial regulator, fostering a fair, competitive, and sustainable energy future.

This policy brief provides key recommendations for successfully completing the liberalisation process in Bulgaria, making the following key points: 

• The financial condition of state-owned energy companies in Bulgaria has been deteriorating almost continuously due to a distorted subsidy policy, further straining public finances.
• Regulated prices and cross-subsidisation lead to inefficient resource allocation, artificially sustain unprofitable energy production, and hinder investment in sustainable energy technologies.
• Price controls and revenue caps on producers distort the market, reduce investment incentives, and increase the sector’s dependence on state subsidies.
• Successful liberalisation must be accompanied by the digitalisation and automation of networks through intelligent electricity flow management systems and the integration of decentralised renewable energy sources.
• Bulgaria has the opportunity to leverage substantial European funding to modernise its electricity grid.
• The introduction of dynamic pricing and smart metering will enable consumers to optimise energy use and lower electricity costs.
• Addressing energy poverty should be achieved through active social policies and direct payments to the lowest-income households, rather than by maintaining artificially low prices for all consumers.
• Funds from the Security of the Electricity System Fund could be used to finance a dedicated social programme, establishing appropriate compensation mechanisms.