REPORT NOVEMBER 2024

FINANCING BULGARIA’S GREEN TRANSITION

POLITICAL AND FINANCIAL CATALYSTS FOR A
SUSTAINABLE ECONOMY
GENADY KONDAREV AND JUREI YADA
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2 FINANCING BULGARIA’S GREEN TRANSITION

 REPORT NOVEMBER 2024

FINANCING BULGARIA’S GREEN TRANSITION

POLITICAL AND FINANCIAL CATALYSTS FOR A
SUSTAINABLE ECONOMY
GENADY KONDAREV AND JUREI YADA

3 FINANCING BULGARIA’S GREEN TRANSITION

Acknowledgements
Tsvetelina Kuzmanova made a significant contribution to the writing of this
report prior to leaving E3G.

The authors would like to thank all those organisations that provided their
valuable input to this research in various ways. This briefing benefited greatly
from a preliminary round of interviews conducted with experts and
representatives from Bulgaria representing a range of sectors, including the
financial industry, asset management, relevant state bodies, businesses
impacted by new regulations (such as the CSRD and EU Taxonomy), and civil
society organisations with various areas of expertise. We are grateful for the
time and the insights shared by these individuals.

We would like to extend special thanks to those who agreed to be named for
their valuable contributions: Julian Popov – Former Minister of Environment and
Water of Bulgaria, and the team of MOVE.BG: Sasha Bezuchanova – Chair of
MOVE.BG and Marin Marinov – Head of MOVE.BG Green Program.

The views expressed as well as any errors in this paper are the authors’ own.

A special thanks to colleagues within E3G who contributed to this briefing: David
Nemecek, Kate Levick, Manon Dufour, Marc Weissgerber, Danièle Gibney and
Isabel Syrek. A special thanks to Mary Davis for copy-edit support.

4 FINANCING BULGARIA’S GREEN TRANSITION

CONTENTS

About E3G ................................................................................................................ 2

Copyright ................................................................................................................. 2
Acknowledgements ................................................................................................. 4
CONTENTS................................................................................................................ 5

SUMMARY................................................................................................................ 6

CHAPTER 1 THE BENEFITS OF THE GREEN TRANSITION FOR BULGARIA ................. 9

1.1 Geopolitical benefits – a model of success for Eastern Europe .................... 9
1.2 Socio-economic benefits – improved economic growth and health
outcomes ............................................................................................................... 11
1.3 Financial benefits – reduced exposure to climate change risks .................. 12
1.4 Action towards a sustainable economy....................................................... 13

CHAPTER 2 MOBILISING POLITICAL SUPPORT FOR THE TRANSITION ................... 14

2.1 The need for political pragmatism and cooperation ................................... 14
2.2 The importance of better administrative coordination .............................. 16

CHAPTER 3 HARNESSING PUBLIC FINANCE BEYOND EU FUNDING....................... 18

3.1 The impact of green public spending .......................................................... 18
3.2 Defence spending and operations as a catalyst for sustainability .............. 19
3.3 The role of public banks in supporting the green transition ....................... 19
3.4 Implementing tax incentives and regulations ............................................. 21

CHAPTER 4 ENHANCING PRIVATE FINANCE FLOWS FOR THE TRANSITION .......... 23

4.1 Enable a greater private sector role ............................................................ 23
4.2 Mobilise the middle class and SMEs............................................................ 25
4.3 Cultivate a culture of sustainable investment ............................................. 26
4.4 Expand the role of the financial sector........................................................ 29
4.5 Encourage institutional investment ............................................................ 30
4.6 Promote energy communities ..................................................................... 32
4.7 Extend ESCO model energy efficiencies to the private sector .................... 34

CHAPTER 5 PROMOTING INTERNATIONAL ENGAGEMENT AND MEMBERSHIP IN

GLOBAL INITIATIVES .............................................................................................. 37

CONCLUSION ......................................................................................................... 38

5 FINANCING BULGARIA’S GREEN TRANSITION

SUMMARY
Bulgaria’s green transition offers powerful geopolitical, socio-
economic and financial advantages. Yet, the nation is facing
substantial obstacles and lagging behind other Central and
Eastern European countries. To secure a sustainable future,
Bulgaria must take decisive action – both politically and
financially – to build a stronger economy, enhance living
conditions and promote a healthier environment. Achieving
these goals hinges on mobilising robust political support for the
transition, tapping into public finances beyond EU funding,
boosting private investment, and fostering international
engagement through participation in global initiatives.

Bulgaria should view the green transition as a strategic economic necessity, not
just as a cost or an environmental requirement. Notwithstanding its limited fiscal
space, investing in sustainable practices will bring benefits in the form of
competitiveness – especially in construction and manufacturing – and public
health. It will also bring the country in line with EU directives, and support its
ambitions to adopt the euro and join the Organisation for Economic Co-
operation and Development (OECD). Indeed, Bulgaria could be a regional leader
in climate initiatives, if it capitalises on opportunities such as the possibility of
switching from coal to renewable energy, without reliance on gas.

Bulgaria must also take the risks of climate change seriously if it is to put its
financial system on a stable footing for the long term. Its exposure to climate
hazards such as floods and extreme heat poses significant financial risk.
Increasing the resilience of its system will better allow it to weather these
storms, as well as increase its attractiveness as an investment market.

6 FINANCING BULGARIA’S GREEN TRANSITION

Bulgaria needs to take decisive action to remove the barriers hindering its green
transition, in four areas:

1. Mobilising political support for the transition.

2. Harnessing public finance beyond EU funding.

3. Enhancing private finance flows for the transition.

4. Promoting international engagement and membership in global initiatives.

Mobilising political support for the transition

> It is vital that political parties work together to establish long-term strategies,
to be followed even under caretaker governments – or Bulgaria risks losing
EU funding for the green transition.

> Creating a dedicated Climate and Transition Ministry could provide the
necessary channel to develop and manage a coherent, long-term vision.

Harnessing public finance beyond EU funding

> Mandating green public procurement can help mainstream sustainability

across sectors and ensure consistent demand for green products and
services. Integrating sustainability into defence spending will contribute
significantly to environmental goals.

> The role of public banks should be expanded to include more comprehensive
support for green projects, which in turn will facilitate private sector
involvement.

> A wider range of tax incentives and regulations is needed to promote

sustainable practices. Support mechanisms should be available to help
energy-poor households participate in the energy transition.

Enhancing private finance flows for the transition

> Businesses, small and medium-sized enterprises (SMEs) and the middle class
all have a role to play in the transition. Government can create an
environment to encourage and support their participation by providing
financial and regulatory support, and information and training.

> Sustainable investments can be encouraged by adopting a regulatory

framework to encourage the development of sustainable financial products.

7 FINANCING BULGARIA’S GREEN TRANSITION

> The financial sector’s role should be expanded to give businesses more
targeted regulatory support in complying with the EU sustainable finance
framework.

> Local energy communities and Energy Service Company (ESCO) models are
nascent initiatives in Bulgaria that are worth helping to grow.

Promoting international engagement and membership in global initiatives

> By joining initiatives like the Network for Greening the Financial System
(NGFS), Mission Innovation, and C40 Cities, Bulgaria can not only
demonstrate its commitment to climate action, but also benefit from shared
resources and support to accelerate its transition.

8 FINANCING BULGARIA’S GREEN TRANSITION

CHAPTER 1
THE BENEFITS OF THE GREEN
TRANSITION FOR BULGARIA
If Bulgaria can successfully navigate its green transition, it could
reap significant geopolitical, socio-economic and financial
benefits, potentially influencing the entire Eastern European
neighbourhood. Given that sustainability is a key driver of global
economic dynamics,1 Bulgaria’s ability to achieve this
transformation will be critical to securing its future prosperity
and relevance on the world stage.

1.1 Geopolitical benefits – a model of success for

Eastern Europe
Bulgaria has the opportunity to emerge as a regional leader in climate initiatives.
Effective green transition will allow the country to serve as a model for the West
Balkans and potential European Union (EU) enlargement candidates, guiding
their own green transitions.

Bulgaria’s location at the easternmost edge of the EU and its position in the
Balkan region gives it significant strategic geopolitical importance and a relevant
position in discussions on EU enlargement, an issue that has gained prominence
in recent years. The debate over a two- or multi-speed Europe has underscored
the problem of regional disparities, making Bulgaria’s progression towards
sustainable development a matter of political priority within the EU.2

Despite this strategic importance, Bulgaria is currently lagging behind in the

planning of its decarbonisation efforts and financing the transition.3 This has

1World Economic Forum, January 2024, Why 2024 is the year sustainability develops a credible business
case.
2Free Europe Radio, Bulgaria, 20 September 2023, EU at four speeds: Where will Bulgaria be according to
the project of France and Germany.
3 European Commission, 2021, Transitions Performance Index (TPI).

9 FINANCING BULGARIA’S GREEN TRANSITION

resulted in an increasing sense of exclusion from Europe’s shift towards a
sustainable economy.4 The success or failure of climate initiatives in Bulgaria, as
well as in other Central and Eastern European (CEE) countries, will serve as a
critical litmus test for the EU’s broader climate goals, particularly the European
Green Deal. Demonstrating the feasibility and scalability of such initiatives across
diverse member states is crucial for the EU’s climate agenda. Success in Bulgaria
could influence neighbouring countries and shape the energy and industrial
landscape of the region. If Bulgaria can emerge as a regional leader in climate
initiatives, its progress could serve as a model for the Western Balkans and
future EU enlargement candidates, guiding their own green transitions.

As a relatively recent entrant to the EU in 2007, Bulgaria also brings unique

perspectives and challenges to the table. Its status as a latecomer in energy
transition actions presents both a challenge and an opportunity. Bulgaria has the
chance to rapidly adopt new technologies and practices, potentially leapfrogging
traditional, fossil fuel-dependent economic models. For example, plans for
converting coal power plants to gas were never fully implemented which has so
far prevented Bulgaria from gas lock-in. This has led to a shrinking role for coal in
power generation and gradually transformed the coal fleet into seasonal capacity
with low usage before their eventual retirement.5 This limited reliance on gas
presents an opportunity for a smoother and less challenging transition towards
phasing down and eventually phasing out of the use of fossil gas. However,
despite these opportunities, Bulgaria remains behind in economic development
and the shift to sustainable energy sources. Addressing these gaps is crucial for
national prosperity and also for the broader EU objective of fostering cohesion
and equitable development among member states.

Bulgaria’s ambitions to join the Organisation for Economic Co-operation and

Development (OECD) and adopt the euro further highlight the importance of
aligning with European and global standards.6 Membership of the OECD and
adoption of the euro will signal economic progress as well as demonstrating
Bulgaria’s commitment to international best practice. This will significantly boost
the country’s international standing, improve the business environment and
attract foreign investment.

4 OBC Transeuropa, August 2024, Bulgaria and Hungary's Reluctant Green Transition.
5 Evgeny Ahmadzai, Capital, 2024, 2023 Energy Charts: Coal and Export Crash, Renewables Record.
6 Ministry of Foreign Affairs, Republic of Bulgaria, 2023, Why Bulgaria Aims to Become a Member Of OECD.

10 FINANCING BULGARIA’S GREEN TRANSITION

1.2 Socio-economic benefits – improved economic
growth and health outcomes
The green transition is a strategic economic necessity, given its projected impact
on economic growth and resilience, and on health outcomes for the population.
For Bulgaria, the green transition and innovation should be seen as a strategic
economic necessity, not just as a cost or an environmental requirement. The
sustainable transition will reduce dependence on fossil fuels, lower energy costs
and improve environmental sustainability. Reducing air pollution, for example, is
expected to improve public health significantly. This has been a pressing issue,
with air pollution contributing to over 11,000 premature deaths annually in
Bulgaria.7 Recent reports suggest that an early closure of the coal capacities of
Bulgaria, and replacing them with renewable energy capacity, could prevent as
many as 3,600 premature deaths over the Balkans and save up to EUR 10 billion
in health costs.8 The health benefits of the green transition are estimated to be
two to six times greater than the systemic costs of decarbonisation, underscoring
the value of moving towards a sustainable economy.

The green transition is expected to stimulate growth in the construction,

manufacturing and related service sectors while leading to a decline in the coal
industry and impacting utilities through energy efficiency measures. Bulgaria’s
Long-Term Strategy estimates that total system costs between 2030 and 2050
will range from EUR 172 to 189 billion, depending on different scenarios.9
Approximately two-thirds of these costs will be directed toward transforming the
transport sector, with 13–14% allocated to households and 17% to the industrial
sector.

Given its status as the poorest EU member state, Bulgaria faces limited fiscal
space to finance its green transition. Nevertheless, maintaining competitiveness
through innovation and sustainable practices is essential for long-term economic
resilience and growth. Despite financial constraints, investing in sustainable
technologies and practices aligns with EU directives and would position Bulgaria
to compete more effectively on the global stage. This is particularly relevant as
the EU seeks to enhance its competitiveness against global initiatives like the
United States’ Inflation Reduction Act (IRA). Bulgaria currently ranks lowest

7 Climateka.bg, February 2024, The Health Cost of Air Pollution.

8Centre for Research on Energy and Clean Air, 2024, Air quality impacts of delaying coal power plant
decommissioning in Bulgaria.
9 European Commission, 2022, Bulgaria’s Long-term Climate Change Mitigation Strategy By 2050.

11 FINANCING BULGARIA’S GREEN TRANSITION

among EU member states in sustainable competitiveness indicators, highlighting
the need for compelling alternatives to foreign competition and clean tech
subsidies that could otherwise draw away capital and innovation. By aligning
with the EU’s broader strategy to counteract the competitive pressures from
global initiatives like the IRA, Bulgaria stands to benefit from EU support and
funding aimed at promoting sustainable development and enhancing its
competitiveness. Bulgaria and other CEE countries can modernise and green
their industries, thereby boosting their economic influence, through the
implementation of the Net-Zero Industry Act (NZIA) and the upcoming Clean
Industrial Deal. The NZIA aims to strengthen Europe’s clean technology
manufacturing capacity by supporting renewable energy, energy storage and
low-carbon industries to achieve net-zero emissions by 2050. Meanwhile, the
Clean Industrial Deal – currently in development – seeks to complement this by
establishing a cohesive framework that incentivises clean energy investments,
enhances sustainability in production and drives competitive advantage for
European industries on the global stage. Together, these initiatives provide CEE
countries with strategic opportunities to develop greener industrial capabilities
and integrate them into broader EU market goals. This alignment can help
Bulgaria attract foreign investments, create jobs and drive technological
advancements. Ultimately, these efforts will ensure that Bulgaria remains
relevant in the rapidly evolving global economy.

1.3 Financial benefits – reduced exposure to climate

change risks
The green transition will enable Bulgaria to reduce its exposure to the financial
risks posed by climate change. Like many CEE countries, Bulgaria is increasingly
vulnerable to physical risks (such as extreme weather events and water stress)
and transition risks linked to its reliance on emission-intensive industries.
Bulgaria faces a high level of physical climate risk, particularly from natural
hazards such as river flooding, urban flooding and wildfires. The country is also at
medium risk of water scarcity and extreme heat. One of the most significant
climate threats is flooding, which affects approximately 80,000 people and costs
USD 400 million in GDP annually.10 With the frequency and severity of climate-
related disasters such as heatwaves and droughts projected to rise significantly,11
the financial stability of Bulgaria is at risk. The 2022 European Central Bank

10 World Bank Group, 2021, Climate Risk Country Profile: Bulgaria.

11 Climate Change Knowledge Portal, World Bank’s Climate Change Knowledge Portal: Bulgaria.

12 FINANCING BULGARIA’S GREEN TRANSITION

climate stress test highlighted that the Bulgarian banking sector is lagging in the
adoption of climate risk management practices.12 Despite Bulgaria joining the
Single Supervision Mechanism in 2020, its financial system remains
underprepared for the mounting threats posed by both physical climate impacts
and the transition to a low-carbon economy.

To safeguard financial stability and ensure long-term economic resilience,

Bulgaria’s financial regulators and central banks should take decisive action.
Addressing these risks would protect local financial institutions and position
Bulgaria as a stable market for banking groups and investors, ensuring access to
finance for green projects and economic growth.

1.4 Action towards a sustainable economy

Bulgaria stands to gain significantly from transitioning to a sustainable economy.
However, several factors have hindered this shift: a limited understanding of the
benefits of green transition, insufficiently ambitious plans for change and the
impact of political instability in the country. As a result, Bulgaria is lagging behind
other Central and Eastern European countries in this crucial economic
transformation.

In this context, decisive action is vital to accelerate Bulgaria’s green transition

and close the gap with its regional peers. The following key political and financial
factors encompass both domestic and international dimensions, addressing the
core challenges and opportunities for Bulgaria that should be addressed:

> Chapter 2: Mobilising political support for the transition

> Chapter 3: Harnessing public finance beyond EU funding

> Chapter 4: Enhancing private finance flows for the transition

> Chapter 5: Promoting international engagement and membership in global

initiatives

12 European Central Bank, July 2022, 2022 Climate Risk Stress Test.

13 FINANCING BULGARIA’S GREEN TRANSITION

CHAPTER 2
MOBILISING POLITICAL SUPPORT
FOR THE TRANSITION
Bulgarian political parties should find common ground in their
domestic disputes to avoid losing EU funds designated for the
green transition. The involvement of retail investors and private
actors who have been driving progress in the absence of
consistent government action and legislative support will also be
crucial.

2.1 The need for political pragmatism and

cooperation
Given the current political instability, it is essential that Bulgarian political parties
work together to achieve consistent government action and legislative support.
Without this, Bulgaria will risk losing EU funds designated for the green
transition.

In 2020, the government of Prime Minister Boiko Borissov was ousted following
years of national turmoil marked by widespread corruption scandals, allegations
of massive misuse of public funds and a decline in media freedom. These issues
culminated in large-scale protests across the country, with citizens calling for
transparency, judicial reforms and an end to political favouritism and oligarchic
influence. The European Commission had also criticised Bulgaria for failing to
address these deep-rooted problems, further fuelling public discontent. The
subsequent Covid-19 pandemic, Russian war in Ukraine and energy shortages,
and the cost-of-living crises severely tested the political establishment and
diverted political attention and actions away from the sustainable transition. At
the same time, Bulgarian society has remained fragmented around the paths
forward for Bulgaria’s economic and social development.

Political pragmatism is therefore crucial for Bulgaria’s successful transition to a

green economy. The significant political turmoil, frequent changes in

14 FINANCING BULGARIA’S GREEN TRANSITION

government and accompanying instability have resulted in inconsistent policy-
making and delayed reforms. For example, Bulgaria has not yet introduced a fully
liberalised energy market. This step, already significantly postponed for a
decade, was to be implemented in 2024 but was delayed for another year on
political grounds.13 In addition to the deadlock on progressing with reforms and
EU legislation transposition, Bulgaria has had a low absorption rate for Cohesion
Policy funds. Furthermore, since 2021 Bulgaria has gone through multiple
general elections. A seventh round took place in October 2024 that failed to offer
a resolution to the political crisis. These deep-seated political challenges hinder
the continuity of long-term strategies, including those related to sustainability
and decarbonisation efforts.

This political instability not only affects the pace of the green transition but also
poses a risk to accessing critical EU funds, such as those from the Recovery and
Resilience Facility (RRF) and the Just Transition Fund (JTF) which have conditions
attached. It is not easy to estimate the level of funding at stake but it is in the
range of billions of euros. Politicians and economists have warned that almost all
the grant allocation under the RRF and over EUR 1 billion under the JTF are at
risk.14

The low absorption rates of Cohesion Policy funds under the current Multiannual
Financial Framework programming can only partially be explained by the delayed
programming. By April 2024, only 4% of the EU funds had been absorbed by
Bulgaria.15 Without these funds, Bulgaria’s economy will struggle to make the
necessary investments to transition to a sustainable future. These EU funds,
including EUR 11 billion of Cohesion Policy funds and EUR 5.5 billion grants under
the RRF, are equal to approximately 7–8% of Bulgaria’s annual public spending.
While the immediate loss of substantial part of these funds might not be acutely
felt, it would create an incremental backlog over time, impacting the country’s
ability to invest in critical infrastructure and sustainable development. It would
also leave a bitter long-term mistrust in the use of public support. Many actors
invested years of preparation for their projects and planning in order to use
funding that may not be available or will have to be provided from national
funds, adding to the national budget deficit.

13National Assembly of the Republic of Bulgaria, 25 April 2024, The National Assembly decided to postpone
the liberalization of the electricity market for household consumers by one year
14Deputy Prime Minister Lyudmila Petkova claims at least 1 bn EUR is at risk under the RRP during an
interview for Bulgarian National Television, 27 September 2024.
15
Rumyana Gocheva and Raya Lecheva, Capital.bg, 23 April 2024, Bulgaria has only 4% absorbed European
money since 2021

15 FINANCING BULGARIA’S GREEN TRANSITION

 Recommendations
> Recommendation 1: Foster cross-partisan support for decarbonisation.
Sustainability and economic modernisation are in Bulgaria’s national
interest. It is vital that political parties should work together to
implement consistent policies, regardless of the party in power.

> Recommendation 2: Establish a long-term vision even under caretaker

governments. Given the frequency of caretaker governments in recent
years, it is important that these interim administrations adhere strictly
to EU sustainability directives and continue to progress towards
decarbonisation, even if these directives have not yet been transposed
into national legislation. This will help prevent backsliding on critical
reforms and maintain Bulgaria’s eligibility for EU funding.

2.2 The importance of better administrative

coordination
A coordinated approach across government bodies is vital to a centralised long-
term vision for Bulgaria’s green transition and improved efficiency. The
fragmented approach to the green transition across various government bodies
has led to inefficiencies and lack of a centralised vision. Take, for example, the
policies related to the heating and cooling of buildings, and energy efficiency
measures in buildings. This is under the competence of the Department for
Housing Policy (under the Ministry of Regional Development and Public Works).
Despite this, the Ministry of Energy does not leverage data on building energy
and fuel consumption to its full potential. This oversight results in missed
opportunities to balance the energy system more effectively, reduce
dependence on carbon-intensive energy sources, and decrease reliance on
imported energy. The lack of coordination between these government bodies
hinders the achievement of broader energy and environmental objectives.

Similarly, the Ministry of Environment and Water is tackling heating and cooling
from a clean air perspective, but the climate angle is not significantly considered.
Furthermore, there is insufficient focus on the need of energy for buildings from
the perspective of energy system integration. Establishing a dedicated and
empowered Climate and Transition Ministry could provide the necessary
administrative channel to coordinate policies, secure funding and guide private

16 FINANCING BULGARIA’S GREEN TRANSITION

sector initiatives. Such centralisation would ensure a coherent and long-term
vision for the transition.

Recommendations
> Recommendation 3: Establish a dedicated Climate and Transition
Ministry. Creating a central ministry dedicated to climate and transition
issues could provide the leadership and coherence needed to coordinate
Bulgaria’s green efforts. The ministry would act as the focal point for all
transition-related policies, ensuring that initiatives are aligned with
Bulgaria’s long-term strategic vision and that resources are allocated
effectively. This ministry could also serve as the main interface with EU
bodies and other international organisations, streamlining Bulgaria’s
engagement in global sustainability initiatives.

> Recommendation 4: Develop a centralised vision and monitoring

mechanism. Introducing a centralised system for monitoring the
implementation of green transition policies would allow tracking of
progress across various ministries and ensure that all actions contribute
to the overarching goals of decarbonisation and sustainability. A
centralised monitoring mechanism would help identify bottlenecks and
areas needing improvement, enabling timely adjustments and better
resource management.

> Recommendation 5: Promote inter-ministerial collaboration.

Encouraging more robust collaboration among ministries through
regular inter-ministerial meetings and joint task forces focused on key
areas of the green transition could help integrate policies and the
exchange of best practices. This approach would allow challenges to be
addressed collectively and foster a more unified approach to
sustainability.

17 FINANCING BULGARIA’S GREEN TRANSITION

CHAPTER 3
HARNESSING PUBLIC FINANCE
BEYOND EU FUNDING
Bulgaria has several powerful tools at its disposal to drive the
green transition beyond relying solely on EU funding. These
include leveraging green public procurement, aligning defence
spending with sustainability goals, using public banks to finance
sustainable initiatives, and implementing a comprehensive
framework of tax incentives and regulations to accelerate the
shift towards a more sustainable economy.

3.1 The impact of green public spending

Green public procurement is a powerful yet underused tool in Bulgaria’s
transition to a sustainable economy. As the largest consumer in the economy,
the government has the purchasing power to drive demand for green products
and services, setting a precedent for the private sector. However, without
mandatory requirements, public officials often avoid incorporating green
procurement rules due to the perceived complexities and potential challenges in
the procurement process.

Like many other countries, Bulgaria can significantly boost its green transition by
implementing comprehensive green public procurement practices that extend
beyond the green components required by EU funding. Using its commitment to
net-zero government operations through its membership of the Net-Zero
Government Initiative, Bulgaria has the opportunity to transform its
procurement practices to support broader environmental and economic goals.
By embedding sustainability criteria into public procurement, the government
can stimulate market demand for green products and services, encouraging
businesses to innovate and align with sustainability standards.

18 FINANCING BULGARIA’S GREEN TRANSITION

3.2 Defence spending and operations as a catalyst
for sustainability
Defence is a substantial part of national budgets and can be a significant catalyst
for sustainability. In alignment with the EU Climate and Defence Roadmap,
Bulgaria has formulated a Strategy for the Preparedness of the Defence Forces
for Climate Change.16 This strategy lays the groundwork for integrating
sustainability into defence operations, which includes reducing carbon footprints
and enhancing energy efficiency within military operations.

Considering the expected increase in defence spending across Europe and

Bulgaria’s commitment to meeting the NATO target of allocating 2% of GDP to
defence, the integration of green procurement into defence can be a powerful
driver of sustainable practices. This approach also enhances operational
efficiency and resilience by taking into account climate change, one of the most
potentially disruptive and challenging issues of our time. As the recently
published ‘The future of European competitiveness: Report by Mario Draghi’
suggests, defence and security spending may have to be ramped up well above
the 2%, highlighting the need to align with the sustainability goals.17

3.3 The role of public banks in supporting the green

transition
Public banks play a critical role in supporting the green transition by financing
sustainable initiatives, including those that have higher risk profiles or are not yet
commercially viable. The Bulgarian Development Bank (BDB), for example, offers
specialised credit lines for renovation programmes which support the
implementation of energy efficiency measures in buildings. Moreover, Bulgaria’s
plan to transform the Bulgarian Energy Efficiency and Renewable Energy Fund
into a National Decarbonisation Fund with a target size of EUR 3.5 billion further
underscores the importance of public banks in channelling this funding for the
green transition.

Public banks can act as catalysts for private investment by providing the
necessary initial funding and financial incentives to de-risk green projects. By
working in partnership with multilateral development banks like the European

16Ministry of Defence of Bulgaria, 2024, Strategy for the Preparedness of the Defence Forces for Climate
Change.
17 European Commission, September 2024, The future of European competitiveness, Part A.

19 FINANCING BULGARIA’S GREEN TRANSITION

Bank for Reconstruction and Development and the European Investment Bank,
these institutions can offer technical support, enhance transparency and
mobilise additional resources. The involvement of public banks ensures that
financial resources are aligned with national and EU climate goals, thus driving a
more robust and coordinated approach to sustainability.

Recommendations
> Recommendation 6: Mandate green public procurement. The legislator
should introduce regulations that make green procurement mandatory
for all government contracts, including defence spending. This can help
mainstream sustainability across various sectors and ensure consistent
demand for green products and services.

> Recommendation 7: Integrate sustainability in defence. Full

implementation of the Strategy for the Preparedness of the Defence
Forces for Climate Change and the use of defence procurement as a
vehicle for sustainable innovation will contribute significantly to
environmental goals. It will also improve operational efficiency and
energy independence.

> Recommendation 8: Strengthen the role of public banks. The mandate

of public banks like the BDB should be expanded to include more
comprehensive support for green projects. Banks must have the capacity
to provide long-term, low-interest financing and guarantees for
sustainable initiatives, facilitating private sector involvement.

> Recommendation 9: Leverage multilateral partnerships. The national

and local governments and large private actors should actively engage
with multilateral development banks to co-finance green projects. These
partnerships can bring in technical expertise and additional funding,
amplifying the impact of national initiatives and ensuring alignment with
international best practices.

20 FINANCING BULGARIA’S GREEN TRANSITION

3.4 Implementing tax incentives and regulations
Currently, Bulgaria lacks a comprehensive range of tax incentives to effectively
drive the green transition. While some local measures exist – such as property
tax breaks for energy-efficient buildings – they are limited in scope and fail to
address broader sustainability goals.18 These measures are insufficient to
generate the large-scale adoption of renewable energy technologies, energy
efficiency upgrades or electric vehicles (EVs). The absence of robust national
fiscal incentives has slowed progress, leaving Bulgaria lagging behind other EU
countries where such incentives are helping accelerate the green transition. For
instance, in Poland, excise tax exemptions and income tax deductions have made
EV purchases more affordable.

Without a similar national framework, Bulgaria’s progress in promoting green

technologies and sustainable practices will remain limited. A more extensive set
of tax incentives that aligns with the EU’s sustainability objectives could help
make the adoption of green technologies more financially accessible, particularly
for individuals and businesses hesitant to make significant upfront investments.
Additionally, by linking municipal charges to environmental impact – such as
basing waste management fees on the volume of waste produced – Bulgaria
could foster more sustainable behaviours at the local level. The introduction of
green public procurement incentives could further strengthen demand for eco-
friendly products and services. These targeted measures, when combined with
support mechanisms for energy-poor households, would create a holistic
approach to driving the green transition, making it more inclusive and impactful.
Therefore, a set of clear recommendations should be considered to address
these gaps and drive Bulgaria towards a more sustainable future.

Recommendations
> Recommendation 10: Introduce comprehensive tax incentives for
sustainable practices. Bulgaria should implement a wider range of tax
incentives that align with the EU Taxonomy and encourage sustainable
investments. These could include tax breaks for individuals and
businesses investing in renewable energy, energy-efficient technologies
and EVs. Providing such incentives would make sustainable choices more
financially attractive and accessible, driving adoption and supporting the
green transition.

18 Ministry of Finance, Republic of Bulgaria, Real Estate Tax.

21 FINANCING BULGARIA’S GREEN TRANSITION

 > Recommendation 11: Link municipal charges to environmental impact.
Reforming municipal tax structures would encourage sustainability at
the local level. For instance, waste management taxes could be adjusted
based on the quantity of waste produced or the adequacy of waste
separation. Such measures would incentivise households and businesses
to reduce waste and adopt better waste management practices,
contributing to a more sustainable environment.

> Recommendation 12: Develop incentives for green public

procurement. In addition to private sector incentives, the government
should implement tax incentives that encourage public entities to
engage in green procurement practices. These could include tax
deductions for organisations that prioritise the purchase of sustainable
goods and services, helping to create demand for green products and
driving the market towards sustainability.

> Recommendation 13: Support mechanisms for the energy poor.

Targeted support mechanisms for the procurement of energy should
ultimately be limited to the energy-poor households would ensure that
they can participate in the green transition without financial hardship.
These mechanisms could also include higher share of subsidies or
rebates for green energy or energy-efficient home upgrades and
renewable energy installations. Those falling outside the definition of
energy poor – and particularly those not facing a severe crisis – must be
exposed to price signals.

22 FINANCING BULGARIA’S GREEN TRANSITION

CHAPTER 4
ENHANCING PRIVATE FINANCE
FLOWS FOR THE TRANSITION
Bulgaria’s green transition will require significant private sector
involvement and investment to succeed, especially as the
country currently lags behind other EU nations. A greater role
for private sector initiatives is needed, supported by a regulatory
and financial environment that encourages sustainable
initiatives. By mobilising the middle class and small-to-medium
enterprises, Bulgaria can tap into vital resources for its
sustainability goals. Additionally, fostering a culture of
sustainable investment and expanding the role of institutional
investors will be crucial in driving meaningful change across the
nation.

4.1 Enable a greater private sector role

Despite lagging behind other EU countries and limited public sector support, the
private sector in Bulgaria has shown initiative in driving the green transition.
Their role should be acknowledged and supported, including by the state, as they
can drive innovation and set standards that encourage broader participation in
sustainable practices.

Some prominent examples of the private sector driving Bulgaria’s green

transition include following:

> Net-Zero Industrial Zone Trakia: The Trakia Economic Zone (TEZ)19 is a
significant example of a private sector initiative aiming for sustainability. As
one of the largest industrial zones in Eastern Europe, TEZ’s commitment to
becoming carbon-neutral by 2040 demonstrates the feasibility of aligning

19Trakia Economic Zone, 10 May 2022, EU regions in the transformation towards a climate-neutral future –
Case 5: Climate-neutral economic zone in Plovdiv (Bulgaria).

23 FINANCING BULGARIA’S GREEN TRANSITION

 industrial development with environmental, social and governance (ESG)
principles. The zone’s comprehensive 12-point plan focusing on green
energy, energy efficiency and zero-carbon technologies serves as a model for
other businesses in Bulgaria and the region. The success or failure of TEZ will
provide valuable insights into the practical implementation of large-scale
sustainable projects.

> TOKI: TOKI is an energy trading company that fits the role as an energy
aggregator. TOKI helps integrate small renewable energy producers with
consumers, optimising the balance and efficiency of the energy market. By
supporting decentralised energy production and providing access to broader
markets, TOKI contributes to the growth of sustainable energy sources in
Bulgaria. This model supports the green transition by bridging the gap
between energy demand and supply, thus promoting more efficient use of
renewable energy.

> Eldrive and Spark EV Car Sharing: Eldrive’s network of EV charging stations
and the Spark EV car sharing service illustrate the role of innovative business
models in promoting sustainable transportation. These initiatives not only
support the adoption of electric vehicles by ensuring the availability of
charging infrastructure but also encourage shared mobility, reducing the
carbon footprint of urban transport. The success of Spark in expanding
operations beyond Bulgaria to Lithuania and Romania highlights the potential
for regional cooperation in advancing sustainable mobility.

The success of such private initiatives depends on a supportive regulatory and

financial environment. While private sector leadership is crucial, it is not a
substitute for the role of the state in providing clear, consistent policies and
incentives that encourage sustainable business practices. The state should play
an active role in supporting these efforts through legislation, financial incentives
and public–private partnerships. State actors should unequivocally support new
sustainability regulations, articulating them not as burdensome external
requirements but as opportunities to align with global best practices and
enhance Bulgaria’s competitiveness.

Moreover, private sector initiatives should be encouraged to broaden their scope

beyond the minimum required regulatory compliance. By integrating
sustainability deeply into their business models, Bulgarian companies can create
a robust competitive edge. This would involve developing and promoting
sustainable products and adopting green procurement practices. Fostering a
culture of sustainability also requires active engagement with stakeholders,

24 FINANCING BULGARIA’S GREEN TRANSITION

including employees, customers and suppliers. By doing so, the private sector
can catalyse wider societal changes, making sustainability a norm rather than an
exception.

4.2 Mobilise the middle class and SMEs

The involvement of middle-class citizens – through their savings and investments
– and small-to-medium enterprises (SMEs) is essential for the success of
Bulgaria’s green transition. These groups represent a significant portion of the
economic landscape and have the potential to drive substantial change. For
example, SMEs as part of the Bulgarian economy are employing over 75% of the
workforce and generating 65% of the country’s added value. SMEs are 98% of
the export companies and are responsible for 50% of Bulgaria’s exports.20
However, their participation in sustainability initiatives has been limited, largely
due to a lack of awareness, access to finance and opportunities to invest in the
green economy.

Currently, a significant challenge is the perception that investments in

sustainability are merely costs rather than opportunities for economic and
personal financial growth. Changing this perception through the right narrative
and education is crucial to mobilising the middle class and SMEs. By promoting
the long-term economic benefits of the green transition, policymakers can
encourage more active participation from these groups.

One effective approach to engage the middle class and SMEs is to establish more
accessible pathways to invest in and reap the benefits from sustainable projects.
This could include the development of community energy projects, such as local
energy cooperatives, that allow citizens to invest in renewable energy
installations. Such projects provide a tangible way for individuals and small
businesses to participate in the energy transition, generate returns on their
investments and feel a sense of ownership over local energy production.
Moreover, energy communities can serve as educational platforms, increasing
awareness and understanding of sustainable practices.

To facilitate this, the government should establish supportive frameworks that

make it easier for SMEs and middle-class citizens to participate in green projects.
This could include providing support for complying with regulatory requirements,
providing financial incentives, developing guidelines and ensuring that public

20 Ministry of Innovation And Growth, Republic of Bulgaria, 2023, Small and Medium-Sized Enterprises

25 FINANCING BULGARIA’S GREEN TRANSITION

support programmes are accessible to a wide range of participants. Grant
programmes – in building renovation, for example – should be designed to allow
for various levels of partial private funding, enabling middle-class households
and SMEs to top up grants with their own investments. This approach not only
leverages public funds but also fosters a sense of involvement and responsibility
among participants.

In addition to financial and regulatory support, educational initiatives are vital.

Providing information and training on the benefits and opportunities of the
green transition can empower SMEs and households to take action. This could
involve workshops, information campaigns and the development of resources.
These can be delivered by various state and local government bodies as well as
non-state actors such as CSOs and associations, or consultancies.

By mobilising middle-class households and SMEs, Bulgaria can create a strong,

broad-based coalition that supports the green transition. This would in turn drive
demand for sustainable products, services and policies, creating a virtuous cycle
that reinforces Bulgaria’s shift towards a sustainable, resilient economy.

4.3 Cultivate a culture of sustainable investment

A shift in investment culture towards sustainability is necessary to achieving the
country’s green transition. Encouraging retail investors and smaller businesses to
invest in green alternatives can create a strong demand for sustainable financial
products. The government should support frameworks that allow retail investors
to participate in local green projects, providing transparency and showcasing the
impact of their investments. Developing local sustainable portfolios and
promoting sustainable international funds will further enhance this shift.

Traditional investment behaviours pose significant challenges to this shift in

culture. Bulgarians usually favour assets such as real estate, often purchasing
second or third homes to rent out or preserve value. Investment in commodities
like oil and gold often carry significant climate and environmental impacts.

This current preference for investing in real estate, automobiles and

commodities like oil and gold continues despite the decreasing population, high
mortality rates and significant emigration. According to the 2021 census, nearly
40% of homes in Bulgaria are unoccupied, with major cities like Sofia seeing

26 FINANCING BULGARIA’S GREEN TRANSITION

domestic property vacancy rates of about 25%.21 This surplus of unproductive
assets not only ties up capital that could be invested in more productive,
sustainable ventures but also increases maintenance costs and energy
consumption, which are typically not aligned with high energy performance
standards or circular economy principles.

The lack of sustainable investment options is another significant barrier.

Sustainable investment portfolios are virtually non-existent in Bulgaria, with only
a few global funds represented by local asset managers. These funds, often
managed by international providers like Schroders, do not offer visibility into
where and how the funds are invested locally. As a result, potential investors lack
a clear understanding of the impact of their investments, which reduces the
attractiveness of these products. The limited opportunities currently offered to
the average investor to participate in sustainable initiatives hampers the ability
to direct substantial capital towards green projects.

There is a growing need to shift investment preferences towards more

sustainable alternatives. Household and business savings currently amount to
over EUR 65 billion in bank deposits at near-zero interest rates.22 Redirecting
even a portion of these savings into green investments could significantly boost
the financing available for Bulgaria’s green transition.

Developing local sustainable investment portfolios that focus on green

infrastructure, renewable energy projects and sustainable agriculture could
provide attractive options for investors seeking both financial returns and
environmental impact. These portfolios should be designed to offer
transparency, demonstrating and emphasising the local and tangible benefits of
the investments. This would help build trust and interest among retail investors,
who are currently more familiar with traditional investment options.

Recommendations
> Recommendation 14: Promote sustainable investments. The
government should create a supportive regulatory framework that
encourages the development and promotion of sustainable financial
products. This framework could include tax incentives for investments in
green funds, simplification of investment processes and clear guidelines

21 National Statistical Institute of Bulgaria, 15 November 2023, Results of the Census of 2021
22 CEIC Data, June 2024, Bulgaria Bank Deposits

27 FINANCING BULGARIA’S GREEN TRANSITION

 that align with the EU Taxonomy for sustainable activities. Such
measures would help make sustainable investments more appealing and
accessible to both institutional and retail investors.

> Recommendation 15: Encourage local sustainable portfolios. Asset

managers in Bulgaria should be encouraged to introduce local
sustainable investment products. These could include green bonds,
renewable energy project shares and funds focused on sustainable
agriculture and circular economy initiatives. Offering these products
locally would give investors a sense of ownership and connection to the
projects they are funding, enhancing their willingness to invest.

> Recommendation 16: Increase investor education and awareness.

Educational initiatives are essential for informing potential investors
about the benefits and opportunities of sustainable investments. This
could include workshops, seminars and information campaigns
highlighting successful case studies of green investments. By increasing
awareness, investors can be better informed about how their financial
choices impact the environment and the economy.

> Recommendation 17: Leverage technology for transparency and

engagement. Digital platforms, similar to the Oxygen platform
developed by the Bulgarian Stock Exchange (see below), can be used to
provide detailed information on sustainable investment options. These
platforms can offer real-time data on the environmental and social
impact of investments, helping to build transparency and trust. They can
also facilitate easier access to sustainable investment products, enabling
more people to participate in the green transition.

> Recommendation 18: Expand access to green financial products. Banks

and non-banking financial institutions should diversify their product
offerings. For mainstream sustainable investing, this should include
options beyond traditional investments like real estate and vehicles.
Products could include green bonds, shares in renewable energy
projects and funds focused on sustainable development. Providing a
range of options can cater to different investor preferences and financial
goals, thereby broadening the appeal of sustainable investments.

28 FINANCING BULGARIA’S GREEN TRANSITION

4.4 Expand the role of the financial sector
The financial sector has a vital part to play and some private investors in Bulgaria
have already recognised the significance of green investment. This shift has been
driven primarily by adherence to EU regulatory standards and reporting
requirements. The Bulgarian Stock Exchange’s Oxygen platform was licensed by
the Global Reporting Initiative in October 2024.23 This initiative aims to help
companies generate sustainability reports, complying with EU reporting
obligation and promoting sustainable business practices. While compliance with
the ESG rules may start as a regulatory need, it gradually evolves into a core
value for businesses, as has been the case with many rounds of regulation and
introduction of standards in the past. State support for these initiatives is
essential to reinforce the role of private sector leadership.

In particular, businesses could benefit from targeted regulatory support with the
compliance of their obligations under the EU sustainable finance framework,
including regulations such as the EU Taxonomy of sustainable activities,
Sustainable Finance Disclosure Regulation (SFDR) and Corporate Sustainability
Reporting Directive (CSRD). Those EU-level rules are often perceived as an
additional reporting burden in Bulgaria and are not fully appreciated for the
benefits and additional funding they could attract. The correlation between the
regulatory certainty those rules bring and higher demand for sustainable
financing is already well established.24

For instance, the CSRD presents an opportunity to develop a sustainability-

aligned investment culture. This is because it ensures transparency and
accountability, providing investors with consistent, reliable data on companies’
sustainability practices, which is essential for making informed, responsible
investment decisions. Previously, Bulgaria was lagging in the implementation of
CSRD and it seemed unachievable. Despite the political instability and frequent
rounds of elections, progress has been made by the legislator. As of August 2024,
Bulgaria has formally integrated CSRD requirements into its Accounting Act,
mandating large companies and entities of public interest to report their
sustainability practices. This new regulation is in the early stages of
implementation and covers almost 800 Bulgarian companies, aligning Bulgaria
with broader EU sustainability objectives.25 These companies will now undergo

23Momchil Rusev, October 2024, ‘Oxygen’ Platform Licensed by Global Reporting Initiative, Bulgarian
News Agency
24 European Commission, Taxonomy compendium and stocktake
25 Bozhidara Zhivkova, ESG News, March 2024, How CSRD Will Be Introduced In Bulgaria

29 FINANCING BULGARIA’S GREEN TRANSITION

audits that include both financial and non-financial sustainability indicators,
marking a major step toward integrating sustainability factors into standard
business operations.

Recommendations
> Recommendation 19: Provide support for compliance. The swift
implementation of the EU regulatory frameworks that require or
incentivise institutional investors to integrate sustainability criteria into
their investment decisions must be encouraged. This includes
mandatory sustainability reporting under the Taxonomy, SFDR and
CSRD. This would increase transparency and accountability, encouraging
investments in companies that prioritise sustainability. Policies could
also offer tax incentives or subsidies to funds that prioritise green
investments. Companies should receive guidance and support to comply
with these new reporting requirements, including workshops and access
to consulting services specialising in sustainability reporting.

> Recommendation 20: Build capacity for non-financial audits. Given the
initial limited scope of these non-financial audits, developing local
expertise and capacity is essential. Over time, the audit processes should
evolve to provide comprehensive and accurate assessments of
companies’ sustainability practices. Affordability of the audits should be
within reach for Bulgarian companies.

> Recommendation 21: Raise awareness and encourage early adoption.

To ensure a smooth transition, companies should be encouraged to
adopt CSRD practices early. Awareness campaigns and incentives for
early adopters can help integrate these practices into businesses.

4.5 Encourage institutional investment

Institutional investors, particularly pension funds, can play a pivotal role in
driving Bulgaria’s green transition. Their substantial assets and long-term
investment horizon make them uniquely positioned to support sustainable
development. By strategically aligning their financial interests with sustainability
goals, these investors can simultaneously secure stable returns and contribute to
Bulgaria’s environmental objectives. This approach creates a synergy between

30 FINANCING BULGARIA’S GREEN TRANSITION

economic growth and ecological responsibility, fostering a more sustainable
future for the country.

In addition to pension funds, several other types of institutional investors play

significant roles in Bulgaria’s financial landscape. Insurance companies manage
large portfolios, typically investing in secure assets like government and
corporate bonds, though many are beginning to explore green bonds and
sustainability-aligned investments. Mutual funds offer various investment
options, including equity and bond funds, and are gradually incorporating
sustainability criteria due to EU pressures for greener portfolios. Although
Bulgaria lacks its own sovereign wealth fund, foreign sovereign wealth funds
actively invest in the country, targeting infrastructure, energy and real estate
sectors. Development banks, notably the Bulgarian Development Bank (BDB),
support national economic goals, particularly green transition projects and small
business financing. Private equity and venture capital funds also play a vital role,
focusing on high-growth sectors such as technology, renewable energy and
infrastructure, fostering innovation within the economy. Real Estate Investment
Trusts (REITs) are gaining traction as well, meeting the demands of urbanisation
with investments in income-generating properties across Bulgaria. Together,
these institutional investors are critical to Bulgaria’s market growth and are
increasingly aligned with EU sustainable finance mandates.

Recommendations
> Recommendation 22: Facilitate public–private partnerships.
Collaborations between institutional investors and public entities to co-
fund green projects should be encouraged. Public–private partnerships
can de-risk large-scale green investments, making them more attractive
to institutional investors. This approach can leverage public funds to
attract private capital, effectively increasing the total investment in
sustainable infrastructure and renewable energy projects.

> Recommendation 23: Develop investment guidelines and tools.

Providing institutional investors with clear guidelines and tools for
assessing the sustainability of their investments can help investors
evaluate the environmental impact of potential investments and align
their portfolios with Bulgaria’s green transition targets. Training
programmes and workshops can also raise awareness among fund
managers about the opportunities and benefits of sustainable investing.

31 FINANCING BULGARIA’S GREEN TRANSITION

 > Recommendation 24: Align with international standards and networks.
Participation by Bulgarian pension funds and institutional investors in
international networks like the Network for Greening the Financial
System (NGFS – see below) and the Coalition of Finance Ministers for
Climate Action can provide access to global best practices, research and
peer support. This will help Bulgarian investors align with international
sustainability standards and enhance their role in the green transition.

> Recommendation 25: Promote green bonds and sustainable

investment products. Pension funds and other institutional investors
should be encouraged to invest in green bonds and other sustainable
financial instruments. These products can offer stable, long-term returns
that align with the investment objectives of pension funds while
supporting projects that contribute to Bulgaria’s sustainability goals.
Green bonds, for instance, have gained popularity globally due to their
dual benefit of offering financial returns and supporting environmental
projects.

4.6 Promote energy communities

Energy communities are gaining popularity across the European Union, offering a
valuable model for collective engagement in the energy transition. These
initiatives provide retail investors with direct control over local energy projects,
fostering innovation and collaboration. Energy communities serve as incubators
for new business models and start-up initiatives, while also attracting interest
from the financial sector due to their bankable projects.

In Bulgaria, energy communities are still in their infancy, with only a few recent
initiatives. The National Energy and Climate Plan (NECP) – including the latest
version (June 2024) – has not yet recognised the potential of energy
communities, particularly for heating and cooling applications, which limits their
integration into Bulgaria’s energy strategy.26 This in turn limits the opportunity to
scale up these initiatives and integrate them fully into Bulgaria’s energy strategy.

A significant barrier to the development of energy communities is the limited

sense of shared ownership among municipalities and residents. In contrast with

26 Ministry of Energy, Republic of Bulgaria, June 2024, The Ministry of Energy and the Ministry of
Environment and Water offer for public consultation an updated Integrated National Plan ‘Energy and
Climate’.

32 FINANCING BULGARIA’S GREEN TRANSITION

many other European regions with strong traditions of local governance,
Bulgarian municipalities often lack the autonomy and financial power to invest in
or benefit directly from local renewable energy projects. This is due to a
centralised fiscal structure where tax revenues primarily flow into the central
budget. In contrast, other EU countries have successfully embraced partnerships
between municipalities and local energy projects, resulting in tangible benefits
for communities. These include financial returns, job creation and increased
community involvement in decision-making processes, where the ongoing
benefits create a positive feedback loop, encouraging the expansion of energy
communities.

Energy communities in Bulgaria should not be limited to small-scale prosumer

setups. They have the potential to leverage various financial schemes and
collective investments to harness economies of scale. Currently, there are limited
options for Bulgarian citizens to become shareholders in large-scale renewable
energy projects such as photovoltaic or wind farms. Existing procedures for
feeding excess power into the grid are complex and often require on-site
consumption of the generated electricity, making it unworkable for most
households and limiting the appeal of rooftop solar applications and other small-
scale renewable energy solutions.

Despite challenges, Bulgaria’s energy transition is progressing. Industries with

consistent daytime power consumption have already started investing in their
own renewable energy capacities to reduce energy costs, although the full
impact of these efforts is not yet quantified. The growing share of solar power
(which became the second-largest source of electricity after nuclear in early
2024) and the seasonal shift away from coal indicates significant potential for
energy communities to contribute further to Bulgaria’s energy landscape.27

Recommendations
> Recommendation 26: Facilitate model pilot energy communities.
Bulgaria should initiate diverse pilot projects to demonstrate the
viability and benefits of energy communities. These pilots should be
designed with replication in mind, focusing on scalability and
adaptability to different local contexts. Key success factors include
simplifying regulatory frameworks, providing technical support and

27 Balkan Green Energy News, July 2024, Bulgaria experiences historic power output slump in June.

33 FINANCING BULGARIA’S GREEN TRANSITION

 offering grant and bridge funding, as well as long-term credit or
guarantees to ensure project payback.

> Recommendation 27: Encourage local investment and ownership. Local

governments and relevant ministries (such as Energy, Regional
Development and Public Works, Environment and Water, Agriculture
and Forestry, Transport, and Education) should encourage renewable
energy developers to structure projects that allow local investors and
governments to acquire shares and receive dividends. This approach,
especially with developers using public land, ensures that the economic
benefits of renewable energy projects remain within local communities,
rather than being absorbed into the central government through taxes
and royalties.

> Recommendation 28: Develop local engagement policies. Policies

should be implemented to encourage active involvement of the local
workforce and provide opportunities for public engagement. This can
include educational programmes, open-door policies for visiting projects
and initiatives that showcase successful energy community models. By
fostering a culture of participation and transparency, these policies can
build public trust and support for renewable energy initiatives.

> Recommendation 29: Simplify grid access and regulatory processes.

Procedures for feeding excess renewable energy into the grid should be
simplified and restrictive requirements that limit on-site energy
consumption should be removed.

4.7 Extend ESCO model energy efficiencies to the

private sector
Energy Service Company (ESCO) models, which focus on delivering energy
efficiency improvements with performance-based contracts, have been
implemented with varying degrees of success in public buildings across Bulgaria.
However, attempts to extend these models to private residential buildings have
repeatedly encountered obstacles – in particular, a lack of a comprehensive
framework to facilitate the combination of grants and debt instruments. Without
this framework, it is difficult to finance projects effectively.

A significant challenge to expanding ESCO models to the private sector is the

absence of a fully liberalised energy market in Bulgaria. Regulated energy prices

34 FINANCING BULGARIA’S GREEN TRANSITION

for households create an environment where the financial incentives for energy
savings are less compelling, thereby reducing the appeal and viability of ESCO
projects. Despite multiple commitments since 2014 to liberalise the energy
market, Bulgaria has consistently postponed these plans, with the latest delay
extending the timeline to the end of 2025. This regulatory uncertainty has
hindered the growth of the ESCO market, limiting the development of energy
efficiency projects that could benefit private building owners and contribute to
Bulgaria’s overall energy transition.

In Bulgaria’s current regulatory environment, household energy prices are still

controlled.28 This reduces the economic motivation for private building owners
to invest in energy efficiency upgrades. ESCO models thrive in markets where
energy prices reflect true costs, providing clear financial savings from efficiency
improvements. In a regulated market, the potential for savings is not as
pronounced, leading to less interest from private owners and ESCO providers
alike.

Moreover, the inability to combine public grants with private debt financing
limits the scalability of ESCO projects. A well-structured framework that
integrates various funding sources is crucial for the success of these models.
Without it, the financial risks are too high for ESCOs to invest in large-scale
residential projects. This is compounded by a lack of adequate support
mechanisms for vulnerable groups who might face energy poverty, making it
challenging to implement ESCO projects on a broader scale without creating
inequities.

Recommendations
> Recommendation 30: Prioritise energy market liberalisation. The
Bulgarian government should prioritise the liberalisation of the energy
market to create a more conducive environment for ESCO models. By
allowing energy prices to reflect true market values, private building
owners will have greater financial incentives to invest in energy
efficiency. This will, in turn, create a more robust market for ESCOs and
encourage the development of innovative financing models that include
both public and private funds.

28 National Assembly of the Republic of Bulgaria, , 25 April 2024.ear, 25 April 2024.

35 FINANCING BULGARIA’S GREEN TRANSITION

 > Recommendation 31: Develop a comprehensive framework for ESCO
financing. To successfully expand ESCO models into the private sector,
Bulgaria needs a clear framework that allows the blending of grants and
debt instruments. This would lower the financial barriers to entry for
private building owners and provide ESCOs with the necessary financial
security to undertake projects. Such a framework should be designed in
collaboration with financial institutions, ESCOs and policymakers to
ensure it meets the needs of all stakeholders.

> Recommendation 32: Introduce and promote ESCO pilot projects for
residential buildings. National and local governments should introduce
and support pilot ESCO initiatives targeting residential buildings. These
pilots would serve as model projects, showcasing the benefits of energy
efficiency improvements and building confidence among private building
owners. Successful case studies will encourage wider adoption and
scale-up of ESCO models. Special attention should be paid to ensuring
quick scalability and to upfront investment in ESCO companies’ soft
skills. This is important to ensure that ESCO companies are able to be
proactive in offering their services and gather customer feedback
efficiently to continuously improve their product.

> Recommendation 33: Implement support mechanisms for energy-poor

households. To ensure equitable access to the benefits of ESCO projects,
the government should establish support mechanisms that specifically
address the needs of energy-poor households. This could include
subsidies, grants or low-interest loans that make energy efficiency
improvements affordable for all, preventing disparities in access to
energy-saving technologies.

36 FINANCING BULGARIA’S GREEN TRANSITION

CHAPTER 5
PROMOTING INTERNATIONAL
ENGAGEMENT AND MEMBERSHIP IN
GLOBAL INITIATIVES
Engaging with global networks can enhance Bulgaria’s capacity
to implement effective green transition strategies. Despite the
promising local business initiatives, Bulgaria’s participation in
international sustainability and climate change organisations
remains limited. Engaging with global networks can boost
existing efforts by providing access to international best
practices, peer support and collaborative opportunities.

There are currently several notable gaps in international participation. Bulgarian

entities, such as the Bulgarian National Bank and the Financial Supervision
Commission, are not members of key international coalitions like the Network
for Greening the Financial System (NGFS). The Ministry of Finance and the
Ministry of Energy are also not members of initiatives like the Coalition of
Finance Ministers for Climate Action and Mission Innovation. No Bulgarian cities
are part of the C40 Cities Climate Leadership Group. This lack of engagement and
membership limits opportunities for urban sustainability leadership.

Recommendation
> Recommendation 34: Increase participation in international networks.
To enhance Bulgaria’s role in the global green transition, it is crucial to
increase participation in international networks. By joining initiatives like
the NGFS, Mission Innovation and C40 Cities, Bulgaria can benefit from
shared knowledge, resources and support, accelerating its progress
towards sustainability goals. Engaging in these platforms will also help
Bulgaria align more closely with global standards and demonstrate its
commitment to climate action.

37 FINANCING BULGARIA’S GREEN TRANSITION

CONCLUSION
For Bulgaria to succeed in its sustainable transition, the
immediate critical steps are to safeguard the available EU funds
and to begin mobilising national and municipal budgets as key
drivers, with green public procurement playing a pivotal role in
redirecting public spending towards sustainability.

This will send a clear and unequivocal signal to private actors, both large and
small. There are already many seeds of change among businesses, which have
been crucial sources of sustainable initiatives, particularly during times of
political uncertainty, and these efforts deserve more room to grow and be
encouraged.

Special attention should be given to engaging retail investors by creating

accessible and attractive investment opportunities. This will ensure that SMEs
and the middle class are not passive observers, but active participants, with a
direct stake in the green transition. Bulgaria can build a sustainable future with
shared benefits for all by aligning public and private resources and ensuring
broad societal inclusion.

This approach will also strengthen ties with neighbouring EU countries like
Greece and Romania. Additionally, Bulgaria can drive positive change towards
sustainability in the broader region of EU-aspiring nations. Only by mobilising
political support and harnessing public and private finance, together with
increased international engagement, will Bulgaria be in a position to benefit from
the significant geopolitical, socio-economic and financial benefits of a sustainable
economy.

38 FINANCING BULGARIA’S GREEN TRANSITION