Natural gas has long been presented as the fuel that could bridge Europe’s transition from coal to a low-carbon electricity system. Compared with coal, it produces fewer carbon dioxide emissions, gas-fired power plants provide the flexibility needed to balance increasingly variable renewable generation, and Europe entered the energy transition with an extensive gas transmission and storage network already in place.
The energy crisis of 2021–2022 fundamentally challenged this narrative. Instead of providing stability, natural gas became the main source of price volatility across European energy markets. As gas prices reached unprecedented levels, wholesale electricity prices followed. This raises an important question for Bulgaria: does natural gas still function as a bridge fuel, or has it become a channel through which external market shocks are transmitted into the country’s electricity market?
The surge in European gas prices was initially driven by the rapid recovery in energy demand following the COVID-19 pandemic, combined with constrained gas supply and unusually low storage levels across Europe. Russia’s invasion of Ukraine in February 2022 transformed an already tight market into a full-scale energy crisis. The sharp reduction in Russian pipeline gas forced European countries to compete for liquefied natural gas (LNG) supplies, pushing prices at the Dutch Title Transfer Facility (TTF) – Europe’s benchmark gas market – to historic highs.
The consequences extended well beyond the gas sector. Because gas-fired power plants frequently set the marginal price in the European electricity market, higher gas prices rapidly translated into higher wholesale electricity prices across the continent. As a result, even countries with relatively limited gas-fired electricity generation experienced substantial increases in electricity prices.
Bulgaria’s changing relationship with natural gas
Natural gas has been part of Bulgaria’s energy system for more than six decades. Domestic production began in 1963 with the development of the Chiren gas field (supplying a cement plant and a chemical enterprise), which later became the country’s only underground gas storage facility. Large-scale gasification followed during the 1970s, when Bulgaria’s transmission network was connected to Soviet gas supplies. For decades, Russian pipeline gas remained the country’s principal source of supply, while Bulgaria also developed into an important transit corridor for neighbouring countries.
This model changed abruptly in 2022. Following the interruption of Russian gas deliveries, Bulgaria rapidly diversified its import routes. The commissioning of the Greece–Bulgaria Interconnector (IGB) provided access to Azerbaijani gas through the Southern Gas Corridor as well as LNG imported through Greek terminals. A year later, Bulgargaz signed a 13-year agreement with Turkey’s state-owned company BOTAŞ, providing additional access to Turkish LNG infrastructure. Although the agreement strengthened supply diversification, its commercial terms and utilisation remain the subject of considerable public debate.
How important is natural gas for Bulgaria’s electricity generation?
Despite its importance for the country’s overall energy system, natural gas plays only a limited role in electricity generation. Domestic production now covers less than 0.3% of annual gas consumption, leaving Bulgaria almost entirely dependent on imports, yet gas is used primarily in combined heat and power (CHP) plants supplying district heating rather than in large baseload power stations (gas is mainly used by Toplofikacia Sofia, EVN Bulgaria Toplofikacia in Plovdiv, and district heating companies in cities such as Varna, Burgas, Pleven, Pernik, Vratsa, Razgrad and Veliko Tarnovo).
In 2026, gas-fired power plants account for 739 MW, or 3.3% of Bulgaria’s installed electricity generation capacity – comparable to wind power (715 MW, 3.2%) but significantly below solar (30.4%), energy storage (19.7%) and coal (18.4%).
At first glance, such a modest role would suggest that natural gas should have only a limited influence on Bulgarian electricity prices. The opposite, however, can be observed. Figure 2 illustrates this relationship. Before 2021, TTF gas prices and Bulgarian day-ahead electricity prices generally followed similar long-term trends but remained only loosely connected. From the second half of 2021 onwards, however, the two markets began moving almost in lockstep. The convergence culminated in August 2022, when TTF prices reached approximately EUR 236/MWh while Bulgarian day-ahead electricity prices peaked at EUR 231/MWh. Although both prices subsequently declined, neither returned to the relatively stable levels observed before the crisis, suggesting that the shock fundamentally altered the pricing environment.
Notes: European natural gas prices are represented by the Dutch Title Transfer Facility (TTF) front-month futures contract, widely recognised as the benchmark for wholesale natural gas pricing in Europe. Although Bulgaria does not purchase all of its natural gas directly at TTF prices, the hub serves as the principal price reference for European gas markets and captures the market conditions that influence gas trading across the region. Bulgarian electricity prices are daily averages of hourly day-ahead prices. Prices reported in BGN before 2023 are converted to EUR using the official fixed exchange rate. The sample covers October 2017–July 2026 and contains 2,200 daily observations after aligning the electricity series with TTF trading days.
The visual evidence is supported by econometric analysis based on daily observations covering the period from October 2017 to July 2026. The model estimates the contribution of four variables to Bulgarian wholesale electricity prices: European natural gas prices (TTF), EU ETS allowance prices, electricity demand in Bulgaria and domestic renewable generation (wind and solar). To capture the structural changes associated with the energy crisis, the analysis distinguishes between the period before and after May 2021, when tightening gas markets and rapidly increasing energy demand marked the beginning of a new pricing environment.
The results indicate that the role of natural gas changed markedly after May 2021. Each 1 EUR/MWh increase in the TTF price was associated with an average increase of approximately 0.55 EUR/MWh in Bulgarian wholesale electricity prices. Carbon prices also became more influential: a 1 EUR/tCO₂ increase in EU ETS allowance prices corresponded to roughly 0.61 EUR/MWh higher electricity prices. Domestic market conditions remained important. Every additional 100 MW of electricity demand was associated with an increase of around 2 EUR/MWh in wholesale prices, while an additional 100 MW of wind and solar generation reduced prices by approximately 6 EUR/MWh.
Table 1: Regression estimates of the determinants of Bulgarian wholesale electricity prices
| Variable | Before may 2021 | After may 2021 | Economic interpretation |
| TTF price (EUR/MWh) | -0.44** | 0.99*** | A 1 EUR/MWh increase in TTF is associated with about 0.55 EUR/MWh higher Bulgarian electricity prices after May 2021. |
| EU ETS (EUR/tCO₂) | 0.33** | 0.28*** | Carbon prices became a stronger determinant of electricity prices. A 1 EUR/tCO₂ increase in EU ETS prices was associated with approximately 0.61 EUR/MWh higher wholesale electricity prices. |
| Electricity demand | 0.02*** | – | Every additional 100 MW of daily electricity demand was associated with approximately 2 EUR/MWh higher wholesale electricity prices. |
| Renewable generation | -0.06*** | – | Every additional 100 MW of wind and solar daily generation was associated with approximately 6 EUR/MWh lower wholesale electricity prices. |
Notes: Coefficients represent estimated marginal effects obtained from a multiple linear regression model, with Bulgarian wholesale electricity prices as the dependent variable and TTF natural gas prices, EU ETS allowance prices, electricity demand and renewable generation as explanatory variables. The model includes interaction terms between a post-May 2021 indicator and TTF and EU ETS prices to allow their relationship with electricity prices to change after the energy crisis. The model has an R² of 0.70, indicating that the included variables account for around 70% of the observed variation in Bulgarian daily wholesale electricity prices over the sample period. Robust (HAC) standard errors are used. ***, ** and * denote statistical significance at the 1%, 5% and 10% levels, respectively.
The results therefore support the view that Bulgaria’s exposure to natural gas extends beyond its direct use in electricity generation. Although gas-fired power plants account for less than 4% of installed capacity, Bulgaria is exposed to international gas prices through its reliance on imported gas. Their impact on wholesale electricity prices depends not only on the overall share of gas in the generation mix, but also on how much gas-fired generation is needed at a given time and whether gas-fired plants are among the marginal units setting the market price. This helps explain why developments in European gas markets became increasingly associated with wholesale electricity prices after 2021. At the same time, gas prices are only one element of a broader price-formation mechanism, which also reflects carbon costs, electricity demand, renewable and conventional generation availability, and wider market conditions, particularly during periods of market stress.
Whether natural gas continues to serve as a bridge fuel ultimately depends on the aspect of the transition being considered. From a technical perspective, gas still provides flexibility that complements variable renewable generation. From a market perspective, however, the experience of 2021–2022 illustrates that reliance on imported natural gas may also increase exposure to external price shocks. For countries such as Bulgaria, the challenge is therefore not simply to reduce gas consumption, but to strengthen the resilience of the electricity system through a broader mix of renewable generation, storage, flexible resources and well-functioning electricity markets.
Authors: PhD Candidate Lyubimka Georgieva & Dr. Mariya Trifonova