Leaked: draft EU Electricity Market Regulation
On Wednesday 30 November the European Commission will present the next Energy Union Package. (On Twitter a.k.a. #EnergyUnionPackage.) The package will consist of nine (possibly ten) elements:
- Governance of the Energy Union Regulation
- Energy Efficiency Directive (leaked draft here)
- Energy Performance of Buildings Directive (leaked draft here)
- Renewable Energy Directive (leaked draft here)
- Electricity Market Regulation
- Risk Preparedness Regulation
- Outcome Sector Inquiry into National Capacity Mechanisms (interim report here)
- Accelerating clean energy innovation (research, innovation and competitiveness)
- ACER Regulation
- (Energy Prices?)
A first assessment of the overall Energy Union Package (by leading energy MEP Claude Turmes) is rather negative. The European Commission can and should do much better.
A draft of the Electricity Market Regulation was leaked to me today (Monday 14 November 2016). Full title: ‘Proposal for a regulation of the European Parliament and of the Council on the electricity market’. The draft document has 94 pages (plus cover page). Its structure:
- CONTEXT OF THE PROPOSAL (p1)
- LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY (p7)
- RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS (p10)
- BUDGETARY IMPLICATIONS (p15)
- OTHER ELEMENTS (p16)
- Explanation of the specific provisions of the proposals (p17)
- Text with EEA relevance (p20)
Explanation of the specific provisions of the proposal on the internal electricity market
‘Chapter I of the proposed Regulation sets out the scope and subject matter and the definitions of terms used in it. It emphasises the importance of undistorted market signals to provide for increased flexibility, decarbonisation and innovation and updates and complements the main definitions used in the Regulation.
Chapter II of the proposed Regulation introduces a new Article which sets out the key principles to be respected by national energy legislation in order not to allow for a functioning internal electricity market. It also sets out the man legal principles for electricity trading rules within different trading timeframes (balancing, intraday, day-ahead and forward markets), including principles for price formation. It clarifies the principle of balancing responsibility and provides for a framework for more market compatible rules for the dispatch and curtailment of generation and demand response, including conditions for any exceptions thereof.
Chapter III of the proposed Regulation describes the process to define bidding zones in a coordinated manner, in line with the review process created in Regulation 1222/2015 establishing a Guideline on Capacity Calculation and Congestion Management. In order to address the persisting problem of significant national limitations to cross-border electricity flows, the conditions for such exceptional limitations are clarified, notably by rules that shall ensure that electricity imports and exports are not restricted by national actors for economic reasons. This Chapter further contains amendments to pre-existing principles for transmission and distribution network tariffs and sets a procedure for fostering the progressive convergence of transmission and distribution tariff methodologies. It also sets out amended rules for the usage of congestion rents.
Chapter IV of the proposed Regulation sets out new general principles for addressing resource adequacy concerns by Member States in a coordinated manner. It sets out principles and a procedure for the development of a European resource adequacy assessment and, if appropriate, the setting of a reliability standard by Member States. It also clarifies how and under which conditions capacity mechanisms can be introduced in a market-compatible manner. It also clarifies market compatible design principles for capacity mechanisms, including rules for the participation of capacity located in another Member State and for interconnection usage. It also sets out how Regional Operation Centres (ROCs), national TSOs, the ENTSO for electricity and national regulators via the Agency will be involved in the development of technical parameters for the participation of capacities located on another Member State as well as the operational rules for their participation. Finally, it sets a rule for the convergence of already existing mechanisms upon this regulatory framework.
Chapter V of the proposed Regulation sets out the tasks and duties of the ENTSO for Electricity and the monitoring tasks of the Agency in this regard whilst clarifying its duty to act independently and for the European good. It defines the mission of regional operational centres and provides for criteria and a procedure for defining system operation regions covered by each regional operational centre and the coordination functions that these centres perform. It also sets out working and organisational arrangements, consultation requirements, requirements and procedures for the adoption of decisions and recommendations and their revision, the composition and responsibilities of the management board and liability arrangements of regional operational centres. The chapter also incorporates rules on the connection if cogeneration units, previously included in Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency. The rules on a ten-year network development plan, inter-transmission system operator compensation, information exchange and certification remain largely unchanged.
Chapter VI of the proposed Regulation sets up a European entity for distribution system operators, defines a procedure for its establishment and its tasks including with regard to the consultation of stakeholders. It also provides detailed rules on the cooperation between distribution and transmission system operators with regard to the planning and operation of their networks.
Chapter VII of the proposed Regulation sets-out pre-existing powers and rules for the Commission to adopt delegated acts in the form of network codes or guidelines. It provides for clarifications as to the legal nature and the adoption of network codes and guidelines and enlarges their possible content to areas such as distribution tariff structures; rules for the provision of non-frequency ancillary services; demand response, energy storage and demand curtailment rules; cyber security rules; rules regarding to regional operational centres; and, the curtailment of generation and redispatch of generation and demand. It also simplifies and streamlines the procedure for the elaboration of electricity network codes and gives national regulators the possibility to decide within the Agency on issues concerning the implementation of network codes and guidelines. It also includes the European entity for distribution system operators and other stakeholders more closely in the procedure of the development of proposals for electricity network codes.
Chapter VIII of the proposed Regulation sets out the final provisions of the proposed Regulation. It includes the pre-existing rules for the exemption of new direct current interconnectors from certain requirement of the Electricity Directive and Regulation whilst clarifying the procedure for subsequent amendments made by national regulatory authorities thereof. . It also introduces clarifications concerning the conditions for a full participation of non-EU countries in internal electricity market. Specific rules for the Energy Community Contracting Parties aim at ensuring a smooth integration of the countries of this region into the internal electricity market.
The Annex to the proposed Regulation defines in more detail the functions attributed to the Regional Operational Centers created by the Regulation.’ (p18-19)
Comment by MEP Claude Turmes (source; p5-6)*
‘In the middle of climate talks in Marrakech, we would expect the Commission to come forward with clear rules against the establishment of capacity markets for new coal. But with the new article 23 of the electricity regulation, the Commission is authorising Member States to establish subsidies to new coal capacity! The Commission is ignoring the calls of the European Parliament to set strict conditionality and to promote less market-intrusive instruments such as targeted network/strategic reserves, although it is proven that such reserves can be ten times least costly for consumers than fully-fledged capacity markets.
Secondly, all the good rhetoric about a more competitive and flexible retail market benefitting to consumers and triggering their active involvement in the system is encouraging. There is good wording on the necessity to allow self-generation without facing market and non-market barriers such as excessive taxation, disproportionate network tariff or complex administrative authorisation procedures. However this rhetoric is vanishing when we start analysing the content of the Winter Package. Good intentions are frontally contradicted by two major elements. How can you ensure that citizens, cooperatives, energy communities and SMEs are encouraged to enter into self-generation while scrapping priority access and dispatch for the surplus electricity they generate from renewables? By leaving priority access and dispatch optional and capping it to 15% and 250 kW, the Commission is de facto preventing self-consumption. What does an EU right to become an active energy citizen mean if Member States are not obliged to enforce it? Second contradiction, how do you ensure a truly democratic and consumer-centric system if the rules of the game are still defined by the oligopolies via their subsidiaries (distribution system operators)? The establishment of an EU-wide DSO body is a counterproductive solution as it would allow dominating players to set the rules applying to their competitors. Of course structuring DSOs at EU level is a necessity as they will be more than ever at the centre of the energy transition. Most renewables are already connected at distribution level and the importance of the distribution grid will increase with electro-mobility and the deployment of flexibility options. But in order to organise this transformation in a transparent and a competitive way, DSOs must remain neutral market facilitators! As almost 70% of the EU distribution grid belong to oligopolies who still dominate the power sector, the Commission should come forward with concrete ideas on how to unbundle generation activities and distribution grid management.
Thirdly, the Commission should bring clarity in opening all relevant markets to flexibility providers (demand-side management, storage) notably on balancing and ancillary services Articles 5 and 6 of the revised electricity regulation are showing interesting indications in this sense. TSOs and DSOs should design products in a way that they allow full and effective participation of DSM and storage operators. TSOs and DSOs should not be allowed to operate themselves demand-side management and storage portfolios. In addition, the Commission should provide a solution to the compensation issue hampering the business model of aggregators. Do you need to compensate the Italian restaurant if you chose to go to the Chinese one? Or to compensate Renault for the car they would not sell when you take the bus? The obligation for aggregators to compensate the electricity supplier and to enter into complex contractual arrangements with them constitutes a barrier and should be removed. The compensation obligation currently in place in France and which EDF and Eurelectric want to broaden to the whole EU would penalise consumers while protecting and artificially raising revenues for suppliers based on old conventional power plants. The wording of articles 12 and 16 of the revised electricity directive is a step in the right direction and should remain as it stands now.’
Let’s hope the European Commission will improve this draft before they adopt and publish it on 30 November. The climate change clock is ticking, and we don’t have any time to waste.
You can find the draft document here. If this blog is the first place you saw it, then please use its original source when sharing it, that is: please share this blog, not just the Google doc. Many thanks!
* This blog will be updated with more comments from stakeholders.