Europaudvalget 2016
KOM (2016) 0863
Offentligt
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EUROPEAN
COMMISSION
Brussels, 30.11.2016
SWD(2016) 412 final
PART 1/2
COMMISSION STAFF WORKING DOCUMENT
Evaluation Report
covering the
Evaluation of the EU's regulatory framework for electricity market design and
consumer protection in the fields of electricity and gas
Evaluation of the EU rules on measures to safeguard security of electricity supply and
infrastructure investment (Directive 2005/89)
Accompanying the document
Proposal for a Directive of the European Parliament and of the Council on common
rules for the internal market in electricity (recast)
Proposal for a Regulation of the European Parliament and of the Council on the
electricity market (recast)
Proposal for a Regulation of the European Parliament and of the Council establishing
a European Union Agency for the Cooperation of Energy Regulators (recast)
Proposal for a Regulation of the European Parliament and of the Council on risk
preparedness in the electricity sector
{COM(2016) 861 final}
{SWD(2016) 410 final}
{SWD(2016) 411 final}
{SWD(2016) 413 final}
EN
EN
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Table of Contents
1.
Executive Summary ........................................................................................................... 4
1.1.
1.2.
Background and purpose of the evaluation ................................ 4
Key findings ............................................................................... 4
Scope of the evaluation .............................................................. 7
Purpose of the evaluation ........................................................... 9
Objectives of the Initiatives........................................................ 9
Objectives of the Third Electricity Package ............................... 9
Objectives of the Security of Electricity Supply Directive ...... 11
Description of the initiatives .................................................... 12
Third Electricity Package ......................................................... 12
Security of Electricity Supply Directive .................................. 16
2.
Introduction ........................................................................................................................ 7
2.1.
2.2.
3.
Background to the evaluated initiatives ............................................................................. 9
3.1.
3.1.1.
3.1.2.
3.2.
3.2.1.
3.2.2.
4.
5.
6.
7.
Evaluation logic................................................................................................................ 17
Evaluation Method ........................................................................................................... 18
Implementation of the initiatives and state of play .......................................................... 20
Answers to the evaluation questions ................................................................................ 22
7.1.
7.1.1.
7.1.2.
7.1.3.
7.2.
7.3.
7.3.1.
realities
Effectiveness ............................................................................ 22
Market integration, competition and investments .................... 23
Consumer empowerment and protection.................................. 43
Security of Electricity Supply Directive .................................. 48
Efficiency ................................................................................. 51
Relevance ................................................................................. 53
The 2009 market design is not fully adapted to new market
53
7.3.2.
The Third Package does not provide regulatory solutions to
address perceived lack of investment into generation ...................................................... 55
7.3.3.
The significant increase in uncoordinated state interventions . 56
7.3.4.
Increased interconnection and decarbonised market require
closer TSO and NRA cooperation .................................................................................... 59
7.3.5.
7.3.6.
7.3.7.
7.4.
Consumers participation and protection ................................... 60
Distribution and flexibility ....................................................... 61
Security of Electricity Supply Directive .................................. 64
Coherence ................................................................................. 66
2
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7.4.1.
7.4.2.
7.4.3.
7.5.
7.5.1.
7.5.2.
7.5.3.
8.
Internal Coherence ................................................................... 66
External Coherence .................................................................. 67
Security of Electricity Supply Directive .................................. 70
EU value added ........................................................................ 72
Value added of EU market framework .................................... 72
Security of Electricity Supply Directive .................................. 75
Assessing the case for continuing EU-intervention ................. 77
Conclusions ...................................................................................................................... 77
Annex 1
–
Procedural Information ........................................................................................... 81
Annex 2:
Stakeholder consultation ........................................................................................... 82
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1.
E
XECUTIVE
S
UMMARY
1.1.
Background and purpose of the evaluation
This Evaluation supports the concomitant Impact Assessment aimed at improving the EU
regulatory framework governing the internal electricity market ("Market Design Initiative").
The Evaluation analyses to what extent the existing legislation was successful in achieving its
goals
1
. In contrast, the purpose of the Impact Assessment is to identify and weigh options for a
future reform of the regulatory framework.
As set out in the Evaluation Roadmap
2
, this Evaluation will focus on developments in
electricity markets which have been subject to a several legislative reforms in the past 20
years. The latest reform of the regulatory framework
–
which is the object of this evaluation -
dates back to 2009 and is commonly referred to as the 'Third Energy Package'. The package
followed on a first and second set of landmark energy legislation adopted in 1996 ('First
Energy Package') and 2003 ('Second Energy Package') respectively.
The Third Energy Package pursued the general objective of completing the internal energy
market and moving towards a competitive, secure and sustainable Energy Union. It covers in
particular five main areas:
unbundling energy suppliers from network operators;
strengthening the independence of regulators;
establishing the Agency for the Cooperation of Energy Regulators (ACER);
enhancing cross-border cooperation between transmission system operators and the
creation of European Networks for Transmission System Operators;
open, fair retail markets and consumer protection.
This Evaluation also analyses the effects of the Security of Electricity Supply Directive (SoS
Directive)
3
as adopted in 2005 to establish some first rules on security of supply in electricity,
and which has in the meantime been complemented and partly superseded by the Third
Energy Package of 2009 and by other legislation
4
.
1.2.
Key findings
Tangible progress
Overall and within the scope of the two evaluations carried out, the evaluation's findings
support the view that the Third Package has positively contributed to competition and
performance of the internal electricity market, delivering tangible market benefits that have
translated into added net social welfare.
1
2
See in detail the Commission's "Better Regulation Guidelines", SWD(2015)111 of 19.5.2015.
Evaluation Roadmap " Evaluation of aspects of the regulatory framework of the EU electricity markets
–
AP
2015/ENER/061";
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf
3
Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures
to safeguard security of electricity supply and infrastructure investment, OJ L 33, 4.2.2006, p. 22–27.
Evaluation Roadmap " Evaluation of the Directive 2005/89/EC on security of electricity supply
–
AP
2016/ENER/032";
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf
4
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Although only a handful of years have passed since the entry into force of the Third Energy
Package in 2011, the evaluation showed that the initiative to further increase competition and
to remove obstacles to cross-border competition in electricity markets has
generally been
effective,
and that active enforcement of the legislation has led to
positive results for
electricity markets and consumers.
The reinforced unbundling rules had a positive effect on competition and helped to limit
problems of market foreclosure. Markets are in general less concentrated and more integrated
than in 2009. The new rules aiming at removing barriers to cross-border trade and to enhance
cooperation between transmission system operators and regulators contributed to
increased
liquidity
of electricity markets and a
significant increase in cross-border trade,
resulting in
more competitive wholesale markets and contributing to lower wholesale prices.
As regards retail markets, the set of new consumer rights introduced by the Third Energy
Package have clearly
improved the position of consumer in energy markets.
The new rules
enabled consumers to make better use of emerging competition between different suppliers in
many countries, and switching between different suppliers increased. Also, consumers have
access to a single point of contact for queries and to alternative (supplier-consumer) dispute
settlement services while self-generation and smart technologies started to spread in several
markets.
Remaining obstacles
However, in other fields the success of the rules of the Third Package in developing the
internal electricity market further to the benefit of customers
remains limited.
On
wholesale markets,
persisting barriers to cross-border trade
and unused interconnector
capacities resulting notably from insufficient cooperation between national grid operators and
regulators on the shared use of interconnectors. The national perspective of the involved
parties still prevents effective cross-border solutions in many cases and limits possible cross-
border flows.
With regards to
retail markets,
competition performance could be significantly improved.
Electricity and gas prices still vary significantly from Member State to Member State for non-
market reasons, and
prices have risen steadily
for households as a result of significant
increases in non-contestable charges in recent years (network charges, taxes and levies). Poor
competition, as evidence through a range of market structure and conduct indicators, may help
to explain lacklustre consumer satisfaction and engagement in the energy markets, as well as
the slow deployment of innovative retail products such as dynamic price supply contracts. A
number of Member States still practice some form of blanket price regulation for electricity
and/or gas
–
a practice that may cause gross market distortions.
With regard to
consumer protection,
rising energy poverty, as well as lack of clarity on the
most appropriate means of tackling consumer vulnerability and energy poverty, hamper the
further deepening of the internal energy market. Switching related fees such as contract
termination charges continue to constitute a significant financial barrier to consumer
engagement. In addition, poor consumer satisfaction with energy bills, and poor awareness of
information conveyed in bills
5
suggests that there may still be scope to improve the
comparability and clarity of billing information.
5
European Commission (2016), ' Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU ',
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New developments were not addressed by the existing rules
While the principles of the Third Energy Package achieved its main purposes (e.g. more
supplier competition), new developments in electricity markets led to significant changes in
the market functioning in the last five years and dampened the positive effect of the reforms
for customers.
The commitment to
decarbonize
the economy led to a steep increase of energy generated
from renewable energy sources (RES). The physical nature of renewable electricity generation
–
more variable, unpredictable and decentralized than traditional generation
–
had important
practical consequences on electricity markets and grid operation. As most RES generation can
only be predicted shortly before the actual production (due to weather uncertainties), effective
short-term markets
play a key role today. Most electricity from RES is produced decentrally
and fed into the local distributions grid. The market design rules of the Third Package,
however, are based on the predominant generation form of the last decade, i.e. central, large-
scale fossil fuel-based power plants.
In parallel, we have seen a dramatic increase of
state interventions
into the electricity market.
Sub-optimal rules for the support of RES generation had the unintended effect to distort the
wholesale market price signal. Uncertainty about the ability of the new market to incentivise
sufficient investments led many Member States to introduce national subsidies aiming at
protecting existing generation or triggering new (so-called Capacity Mechanisms). These state
interventions had a significant impact on the market price signals of the market to guarantee
lower consumer prices investment signals and to limit cross-border trade. State interventions
also translated into higher transmission tariffs, ultimately neutralising the positive
developments on wholesale electricity markets and driving up prices for end customers at the
retail level. The volumes of electricity trade affected by such state interventions contracted
under such mechanisms have increase significantly in the last years, with increasing impacts
on functioning of the internal electricity market.
Equally dramatic changes have taken place on the
technological
side. Power exchanges (PX)
and market coupling are facilitating wholesale trading while digitalisation of energy markets
and metering increasingly allows to use so-called 'demand
response'
solutions, enabling the
demand of industry, businesses and households to participate in electricity markets. However,
the current legislation has not been effective in removing the primary market barriers
especially for independent demand response service-providers and creating a level playing
field for them. Nor was it designed to address currently known challenges in managing large,
commercially valuable consumption
data
flows. In addition, technological progress allows
distribution system operators
to reduce network investments by locally managing the
challenges posed by increasing amounts of distributed RES E directly connected to
distribution systems. However, outdated regulatory frameworks prevent them from operating
more innovatively and efficiently. And the increased use of online comparison tools is
changing the way consumers interact with the retail market. The nature of the transformation
of Europe's energy system and the gap in the existing legislation to deal with these changes
has been clearly confirmed by stakeholders.
Overall, the Third Package partially fulfilled its original mission and created a stable market-
based approach on which however further legislation should be built on. However, retail level
competition could be significantly improved, and consumer protection strengthened further in
order to ensure that the full benefits of the internal market can be passed through to all EU
consumers. Moreover, the existing rules are not fully adapted to deal with the recent changes
in electricity markets effectively. The direction and speed of such changes had not been fully
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foreseen by the Third Package, creating a clear rationale to update market rules so that they
may be able to cope with the reality of today's energy system.
In the area of
security of electricity supply,
the evaluation finds that the objectives that
inspired SoS Directive are still relevant. But the Directive itself was quickly overruled by
newest EU rules and had a limited impact on the security of electricity supply in Europe.
Moreover, its objectives match only partially the current needs on security of supply in
Europe, in particular concerning risk preparedness. Indeed, the Directive failed to address
emergency related aspects, i.e. how to make sure that Member States are aware and duly
prepared to all kind of security of supply risks, that they clarify roles and responsibilities in
case of emergency and that they take into consideration the potential cross border impact
when adopting safeguard measures.
2.
I
NTRODUCTION
2.1.
Scope of the evaluation
The evaluation covers four EU Directives and Regulations concerning the electricity sector,
namely the three forming the so-called "Third Electricity Package", adopted in 2009, as well
as the Directive on Electricity Security of Supply (SoS Directive), adopted already in 2005.
The main evaluated acts are:
Directive 2009/72 of the European Parliament and of the Council of 13 July 2009
concerning common rules for the internal market in electricity and repealing Directive
2003/54/EC, OJ L 211, 14.8.2009, p. 55–93 (henceforth the "Electricity Directive");
Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13
July 2009 on conditions for access to the network for cross-border exchanges in
electricity repealing Regulation (EC) No 1228/2003, OJ L 211, 14.8.2009, p. 15–35
(henceforth "Electricity Regulation");
Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13
July 2009 establishing an Agency for the Cooperation of Energy Regulators. OJ L 211,
14.8.2009, p. 1–14 (henceforth "ACER Regulation");
Directive 2005/89 of the European Parliament and of the Council of 18 January 2006
concerning measures to safeguard security of electricity supply and infrastructure
investment, OJ L 33, p.22 (henceforth, "Security of Supply or SoS Directive").
The EU regulatory framework for
gas
markets
6
will only be evaluated partly, namely only for
those provisions which concern common "horizontal" topics in electricity and gas legislation,
such as the provisions on governance (e.g. rules on the European Agency for the Cooperation
of Energy Regulators (ACER)), as well as open and fair retail markets, smart meters and
consumer protection rules
7
.
6
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in natural gas and repealing Directive 2003/55/EC
OJ L 211, 14.8.2009, p. 94–
136
("Gas Directive") and Regulation (EC) No 715/2009 of the European Parliament and of the Council of
13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation
(EC) No 1775/2005
OJ L 211, 14.8.2009, p. 36–54
("Gas Regulation").
See e.g. Articles 5-9 of the Electricity and Gas Regulations. Parallel provisions can also be found in the
Directives, see e.g. Articles 4, 5, 6 and 39 of the Electricity Directive and the corresponding Articles 5, 7, 8
and 43 of the Gas Directive.
7
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Recent EU legislation on transparency (e.g. the Regulation (EU) No 1227/2011 on wholesale
energy market integrity and transparency - "REMIT"
8
) or on infrastructure (e.g. Regulation
(EU) No 347/2013 on guidelines for trans-European energy infrastructure
9
- "TEN-E
Regulation") will
not
be subject of this evaluation, but considered in separate evaluations. The
evaluation will take into account, where possible, recently adopted delegated acts under
comitology rules (e.g. the CACM Guideline
10
, the Requirement for Generators network
code
11
).
For further details see the two published Evaluation Roadmaps (henceforth, "the Evaluation
Roadmaps"):
Evaluation of aspects of the regulatory framework of the EU electricity markets
–
AP
2015/ENER/061
12
;
Evaluation of the Directive 2005/89/EC on security of electricity supply
–
AP
2016/ENER/032
13
.
The evaluation is based on a several comprehensive
monitoring reports
on the functioning of
the implemented market legislation
14
, as well as on a number of specific
public consultations
issued by the Commission to verify the effects of its legislation (see the consultative
communications
"Launching the public consultation process on a new energy market design"
(COM(2015) 340 Final)
15
,
"Delivering a new deal for energy consumers"
(COM(2015) 339
Final)
16
, as well as two public consultations on
"Risk preparedness in the area of security of
electricity supply"
17
and
"Retail Energy Markets"
18
.
Other consultations via public events
such as forums and conferences have also contributed to gather feedback from stakeholders
on the functioning of the Third Energy Package. For instance, a High Level Conference on
electricity market design took place on 8 October 2015 in Florence. The Florence Forum was
8
Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on
wholesale energy market integrity and transparency,
OJ L 326, 8.12.2011, p. 1–16
Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines
for trans-European energy infrastructure and repealing Decision No 1364/2006/EC and amending
Regulations (EC) No 713/2009, (EC) No 714/2009 and (EC) No 715/2009,
OJ L 115, 25.4.2013, p. 39–75
Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and
congestion management,
OJ L 197, 25.7.2015, p. 24–72
Commission Regulation (EU) 2016/631 of 14 April 2016 establishing a network code on requirements for
grid connection of generators,
OJ L 112, 27.4.2016, p. 1–68
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf
See (2012 monitoring report; 2014 Monitoring Report; Energy Union Communication 2015); "Report on the
progress concerning measures to safeguard security of electricity supply and infrastructure investment"
COM (2010) 330 final.
http://ec.europa.eu/energy/sites/ener/files/documents/1_EN_ACT_part1_v11.pdf
https://ec.europa.eu/energy/sites/ener/files/documents/1_EN_ACT_part1_v8.pdf
.
https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-
supply
of 15 July 2015
https://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market
.
9
10
11
12
13
14
15
16
17
18
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set up to discuss the creation of true internal electricity and gas markets in Europe
19
. The
Third Energy Package and its implementation was discussed in this stakeholder forum at
several occasions.
2.2.
Purpose of the evaluation
This evaluation provides the basis for the impact assessment for the initiative to review the
existing EU electricity market design rules
20
, including the creation of a new framework on
security of electricity supply
21
("Market Design Initiative"). It seeks to contribute to the
formulation of an adequate and effective policy response to the challenges electricity markets
are currently facing.
The evaluation will assess whether the abovementioned EU rules introduced in 2006 and 2009
have been successful in meeting their stated objectives, in particular achieving a better-
functioning internal electricity market and ensure a higher level of security of electricity
supply. The evaluation will analyse the effectiveness, efficiency, coherence, relevance and EU
added value of the relevant measures in relation to the objectives strived by the Third
Electricity Package and the Security of Electricity Supply Directive. In view of some recent
changes in electricity markets (see in detail below), the evaluation will also analyse the
possible relevance of these changes for EU electricity market regulation and verify to what
extent the electricity market rules adopted in 2006 and 2009 and the EU internal energy
market framework are able to respond to the energy sector's new challenges and to meet
current and future expectations on security of supply in Europe.
3.
B
ACKGROUND TO THE EVALUATED INITIATIVES
3.1.
Objectives of the Initiatives
3.1.1.
Objectives of the Third Electricity Package
Prior to the EU's liberalisation initiatives, electricity was produced, purchased, transported
and sold mostly by domestic, state-controlled monopoly companies. Competition in electricity
markets was almost absent, with only limited cross-border exchanges of electricity. This,
however, led to manifold problems in terms of cost-efficiency and security of supply.
The EU has taken the initiative to gradually liberalise EU energy markets and to create
internal electricity market ("IEM"). The process started with the adoption of the First
Electricity Directive in 1996
22
. The liberalisation initiative brought some first successes, but
19
The participants are national regulatory authorities, Member States, the European Commission, transmission
and distribution system operators, electricity traders, consumers, network users, and power exchanges. The
Forum convenes once or twice a year.
Commission's legislative initiative on "market design and regional electricity markets, and coordination of
capacities to ensure security of supply, boosting cross-border trade and facilitating integration of renewable
energy, including review of the Agency for the Cooperation of Energy". Agenda Planning reference:
2016/ENER/007.
Agenda Planning reference: 2016/ENER/026.
The Directive provided for a partial market opening, giving new energy suppliers a possibility to transport
their energy on grids owned by the incumbent companies, under conditions to be negotiated with the
incumbent (so-called
“negotiated Third Party Access”). The biggest consumers (e.g. industrial consumers)
were given the right to choose their supplier. Knowing about the incentives of suppliers to use their grids to
avoid competition, the Directives also required grid owners to create separate accounting for their grid
business, and to nominate a dedicated management for their grids which should not be active in
20
21
22
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progress remained limited. In 2003, a Second Electricity Package was therefore adopted to
stimulate the development of competition in electricity markets
23
.
Despite good progress in some individual countries, the Commission’s systematic
sector
inquiry
into the energy sector from 2005-2007
24
revealed that
significant obstacles
to
competitive cross-border markets remained, and that consumers could still not fully benefit
from liberalisation. Incumbent companies - mostly still state owned - had managed to
maintain their dominant positions and tried to avoid competition from domestic and foreign
companies. They notably systematically used their control over their electricity grids to avoid
competition from new energy suppliers. The results of the sector inquiry triggered the
Commission’s proposal for a comprehensive Third Electricity Package. The new legislation
mainly aimed at addressing the problems identified in the Sector Inquiry
25
, namely:
market concentration and market power in wholesale and retail markets;
vertical foreclosure (in particular the inadequate unbundling of network and supply);
lack of market integration (cross border and national);
lack of transparency;
insufficient independent regulatory oversight;
distorted price formation mechanisms (regulated prices and cross-subsidies); and
downstream market foreclosure (access to consumers).
The identified problems harmed competition, leading to unnecessarily high prices and
limiting choice for consumers. Incomplete and inefficient unbundling rules for TSOs
26
prescribed by the Second Directive resulted in structural conflict of interest. Insufficient
unbundling of networks from the competitive parts of the sector (vertical integration) resulted
in lack of investment in infrastructure and discriminatory conduct on the supply and
production markets downstream and upstream from network activities. Consequently, the
Commission recommended taking urgent action with regard to some key areas of the
regulatory framework
27
.
The overarching objective of the Third Energy Package was to complete the internal market
for electricity and gas. Within this objective the EU intended to
improve competition
in the
production/supply businesses (“management and accounting unbundling”). Member States were obliged to
provide for basic regulatory oversight of these rules.
23
The Second Package replaced the right for grid owners to negotiate grid access rules freely with potential
grid users and introduced regulated Third Party Access rules. For this purpose, every Member State had to
create national energy regulators to determine grid access tariffs and other access conditions, and to better
detect discriminating practices by incumbents- The new Package also reinforced the existing loose
unbundling rules by imposing a legal separation between grid and production/supply business (“legal
unbundling”). It also prescribed a mandatory path for full market opening until 2004 (for non-household
customers) and 2007 (for household customers).
http://ec.europa.eu/competition/sectors/energy/2005_inquiry/index_en.html
See
also:
Impact
assessment
for
the
Third
Package
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52007SC1179
(SEC(2007)
1179/2)
24
25
26
See in this context also the numerous antitrust investigations of the Commission between 2006 and 2009,
identifying systematic problems of network foreclosure and ineffective unbundling rules (see eg. cases .g.
E.ON
http://europa.eu/rapid/press-release_IP-09-1099_en.htm
or RWE
http://europa.eu/rapid/press-
release_MEMO-07-186_en.htm?locale=en).
COM (2006) 841, Communication from the Commission, Prospects for the internal gas and electricity
market.
27
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electricity sector through better regulation and unbundling aimed at removing obstacles
resulting from the fact that most established national incumbent electricity suppliers were
vertically integrated
28
and could use the control over their electricity grids to keep off
potential new competitors. The goal of improving competition was coupled with improving
security of supply,
inter alia
by strengthening the incentives for sufficient investment in
transmission and distribution capacities.
The Third Energy Package's objectives in the area of retail markets and consumer
empowerment were: (i) to enable effective consumer choice and boost competition through
the availability of transparent, comparable and reliable information on prices, costs, energy
consumption, fuel mix and environmental impact of electricity suppliers; and (ii) to
enable/incentivize energy savings through sufficiently frequent feedback to consumers about
(the cost of) their energy consumption. In order to guarantee consumer choice, the Third
Package provides that all customers shall be free to buy electricity/natural gas from the
supplier of their choice as from 1 July 2007
29
.
At the same time the Third Energy Package sought to ensure protection of vulnerable
consumers and to mitigate the problem of energy poverty. This objective was put in place to
facilitate the decision by Member States to proceed with electricity and gas market
liberalisation, as it was recognised by the legislators that actions to protect vulnerable
consumers were needed in the context of liberalising the European energy market
30
.
In a broader context, the Third Energy Package also served the overall goals as formulated in
the EU’s 2020 Strategy (or so-called
"Lisbon strategy") for
smart, sustainable
and
inclusive
growth
31
.
3.1.2.
Objectives of the Security of Electricity Supply Directive
As concerns security of energy supply, the first two liberalization packages of 1996 and 2003
contained only rudimentary rules. Directive 2003/54/EC
32
was based on the assumption that a
stable regulatory framework would facilitate the necessary investments in new generating
capacity and networks, thereby contributing to security of supply. It contained a mere
obligation for Member States to monitor security of supply issues, so that appropriate
measures could be taken if security of supply was compromised. Finally, Member States were
allowed to take safeguard measures in the event of a "sudden crisis" in the energy market.
33
28
In a vertically integrated company multiple steps in the typical distribution process are consolidated. In other
words, a vertically integrated company performs tasks of a producer, distributor and retailer.
Article 33 of the Electricity Directive and Article 37 of the Gas Directive
As stated in paragraph (2) of the Directive 2003/54/EC concerning common rules for the internal market in
electricity, which says that "important shortcomings and possibilities for improving the functioning of the
market remain, notably concrete provisions are needed to ensure a level playing field in generation and (..)
ensuring that the rights of small and vulnerable customers are protected (…)."
COM (2010) 2020, Communication from the Commission, Europe 2020, A strategy for smart, sustainable
and inclusive growth.
Directive 2003/54/EC of the European Parliament and the Council of 26 June 2003 concerning common
rules for the internal market in electricity OJ L 176, 15.7.2003, p.37
For more details about the baseline situation on Security of Supply, see the "Note of DG Energy &
Transport on Directives 2003/54/EC and 2003/55/EC on the Internal market in Electricity and Natural Gas
–
Measures to secure electricity supply", dated 16/01/2004.
29
30
31
32
33
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Between 2000 and 2003, several incidents (blackouts in California in 2000-2001; European
heat wave in 2003; several blackouts in Europe, especially one in Italy, that affected 55
million of Europeans and lasted up to 24 hours) raised concerns about the lack of cooperation
between European grid operators and network adequacy (i.e. having sufficient transmission
capacities available at all times), but also on the market ability to deliver the required
demand/supply balance (e.g. following the nuclear phase out decision in Germany in 2001).
With electricity markets growing together and increasing interdependences between national
grids, it turned out that some more concrete rules on how to safeguard security of supply and
to manage emergency situations were needed, notably to avoid that national measures would
endanger security of supply in neighboring countries. A closer integrated market necessitated
indeed more aligned, transparent and non-discriminatory security of supply policies at
national level, the absence of which could lead to problems with security of supply and
distortions of competition.
34
The SoS Directive therefore came in to complement the Second Package rules with the
objective to safeguard the security of electricity supply so as to ensure the proper functioning
of the internal market for electricity. However, its provisions were not prescriptive enough
and were soon superseded by new EU rules
35
.
3.2.
Description of the initiatives
3.2.1.
Third Electricity Package
The Third Electricity Package followed up on the liberalisation steps in the two "packages"
from 1996 and 2003. It built upon key concepts established in the previous packages (e.g.
Third Party Access to networks, unbundling, regulatory oversight, right to choose a supplier)
and developed these further in order to create a regulatory framework that would allow for
integrated and competitive EU electricity wholesale and retail markets, to the benefit of
consumers.
The legislation of the Third Energy Package covers five main areas:
1.
2.
3.
4.
5.
unbundling energy suppliers from network operators;
strengthening the independence of regulators;
establishment of the Agency for the Cooperation of Energy Regulators (ACER);
cross-border cooperation between transmission system operators and the creation of
European Networks for Transmission System Operators;
open, fair retail markets and consumer protection.
(1)
Unbundling
is the separation of energy supply and generation from the operation of
transmission or distribution networks. It is based on the assumption that if a single company
operates a transmission or distribution network and generates or sells energy at the same time,
34
35
Commission Staff Working Paper, Extended Impact Assessment, (COM(2003) 740 final).
Directive 2005/89/EC was to be implemented by 24
th
February 2008. By then, the Commission had already
adopted its proposal for a Third Package (that would be adopted in 2009) and new guidelines for trans-
European energy networks (TEN-E) were in place, introducing the concept of 'project of European interest'
and strengthening project coordination (Decision No 1364/2006/EC of the European Parliament and of the
Council of 6 September 2006 laying down guidelines for trans-European energy networks and repealing
Decision 96/391/EC and Decision No 1229/2003/EC).
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it may have an incentive to obstruct competitors' access to infrastructure or the market. This
prevents fair competition in the market and can lead to higher prices for consumers. Under the
Third Package, unbundling for transmission system
36
operators must take place in one of three
ways, depending on the preferences of individual EU countries:
Ownership Unbundling where all integrated energy companies sell off their gas and
electricity networks. In this case, no supply or production company is allowed to hold
a majority share or interfere in the work of a transmission system operator
Independent System Operator (ISO) where energy supply companies may still
formally own gas or electricity transmission networks but must leave the entire
operation, maintenance, and investment in the grid to an independent company
Independent Transmission System Operator (ITO) where energy supply companies
may still own and operate gas or electricity networks but must do so through a
subsidiary. All important decisions must be taken independent of the parent company
The relevant provisions concerning distribution system operators require legal unbundling of
those operators that serve more than 100,000 customers.
Member States may decide not to apply unbundling rules to DSOs serving less than 100.000
customers, in which cases only accounting unbundling applies. It is the discretion of Member
States whether or not to apply this threshold or to set a lower threshold.
(2) A competitive internal energy market cannot exist without
independent regulators
who
ensure the application of the rules. The Commission's assessment of the role of regulators in
2007 showed a number of deficiencies: the effectiveness of regulators was frequently
constrained by a lack of independence from government and insufficient powers. Under the
Third Package, the requirements for national regulators have undergone a number of changes.
Specifically: (1) regulators must be independent from both industry interests and government.
They must be their own legal entity and have authority over their own budget. National
governments must also supply them with sufficient resources to carry out their operations;
(2) regulators can issue binding decisions to companies and impose penalties on those that do
not comply with their legal obligations; (3) electricity generators, gas network operators, and
energy suppliers are required to provide accurate data to regulators; (4) regulators from
different EU countries must cooperate with each other to promote competition, the opening-up
of the market, and an efficient and secure energy network system. In order to support the
implementation of the Directive, the Commission issued an interpretative note on the energy
regulatory authorities
37
.
(3) In order to help the different national regulators cooperate and ensure the smooth
functioning of the internal energy market, the EU established the
Agency for the Cooperation
of Energy Regulators (ACER).
ACER is independent from the Commission, national
governments, and energy companies. Its work involves:
drafting guidelines for the operation of cross-border gas pipelines and electricity
networks
reviewing the implementation of EU-wide network development plans
36
Transmission System Operators (“TSOs”) are high voltage/high pressure grids which transport the main
electricity over long distances. Distribution
System Operators (“DSOs”) are usually smaller grids, often at
regional or local level, mainly for the distribution to end customers. Unbundling requirements exist also for
DSOs (basically legal, functional and accounting unbundling for all TSOs with more than 100000
customers).
https://ec.europa.eu/energy/sites/ener/files/documents/2010_01_21_the_regulatory_authorities.pdf
37
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deciding on cross-border issues if national regulators cannot agree or if they ask it to
intervene
monitoring the functioning of the internal market including retail prices, network
access for electricity produced from renewables, and consumer rights
(4) The Third Electricity Package also created a framework for the co-operation of
Transmission System Operators ("TSOs") by creating the European Network for Transmission
System Operators for Electricity ("ENTSO-E"). Before the reform, national transmission
system operators were responsible for ensuring electricity and natural gas is effectively
transported through pipelines and grids in a secure manner, without any legal framework for
the coordination of their activities. Due to the cross-border nature of Europe's energy market,
they must work together to ensure the optimal management of EU networks. These
organisations develop standards and draft network codes to help harmonise the flow of
electricity and gas across different transmission systems. They also coordinate the planning of
new network investments and monitor the development of new transmission capabilities. This
includes publishing a Europe-wide ten year investment plan to help identify investment gaps
every two years.
(5) In order to pursue the objective of consumer empowerment, the Third Energy Package
contains provisions on a number of aspects related to electricity and gas supplies, such as
switching and contract termination fees, billing
of electricity and gas consumption
38
, the right
to receive information on energy consumption, and quickly and cheaply resolve disputes.
With regard to consumer protection, the Third Energy Package prescribes the Member States
to define the concept of vulnerable consumers at the national level at the national level, adopt
the measures to protect such consumers and to address energy poverty.
An important tool to enable competition and consumers' choice in the retail sector is the
default prohibition of applying regulated prices
39
. Regulated prices are unlawful under current
Gas and Electricity Directives as interpreted by the Court of Justice
40
, unless they form part of
a public service obligation (PSO) imposed on undertakings in electricity or gas sector and
fulfil specific conditions prescribed by the Third Package.
Smart metering is a crucial measure to allow taking informed decisions by consumers. In
recognition hereof, provisions were included in the Gas Directive 2009/73/EC and in the
Electricity Directive 2009/72/EC fostering the smart metering roll-out and
targeting the
active participation of consumers in the energy supply market,
through (i) transparency
38
The issue of billing is also addressed by Energy Efficiency Directives (addressed in this evaluation in order
safeguard coherence), as well as in the Renewable Energy Directive (addressed in the REFIT for that Directive).
A regulated supply price is considered as a price subject to regulation or control by public authorities (e.g.
governments, NRAs), as opposed to being determined exclusively by supply and demand. This definition
includes many different forms of price regulation, such as setting or approving prices, standardisation of prices
or combinations thereof.
40
39
The Court of Justice has ruled that supply prices must be determined solely by supply and demand as opposed
to State intervention as from 1 July 2007 (See: Case C-265/08, Federutility and others
v Autorità per l’energia
elettrica e il gas). The Court based its interpretation on the provision stating that Member States must ensure that
all customers are free to buy electricity/natural gas from the supplier of their choice as from 1 July 2007 (Article
33 of the Electricity Directive and Article 37 of the Gas Directive interpreted in light of the very purpose and the
general scheme of the directive, which is designed progressively to achieve a total liberalisation of the market in
the context of which, in particular, all suppliers may freely deliver their products to all consumers.
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provided by the meter (timely and accurate information on consumption: predictability of
costs, awareness), (ii) third party access to data and interoperability (facilitate competitive
offers at the customer end, facilitate system integration, lower cost) and (iii) due regard to best
practises (for instance installation of in-home displays, connection to home automation, self-
consumption, etc.)
41
.
The intervention logic table from the Impact Assessment for the Third Package
42
illustrates
the relationship between the measures and the structural problems addressed by the respective
measures.
Table 1: Intervention logic table
Problems
Lack of
Market
Vertical Lack of
transparenc
concentratio foreclosur market
integration y
n
e
and
(insufficient
cooperation
info e.g. on
(cross-border generation &
and national)
eliminates
Improves TPA tackles
facilitates TSO
capacities)
Distorted
Downstrea
price
m
formation
market
(e.g. regulated
foreclosure
prices, cross- (access to
subsidies)
customers)
N/A
eliminates
cross subsidies
Secure grid
investments
& cross-
border
connections
Measures
TSO
unbundling
Promotes e.g.
problem at cooperation
preferential
interconnectio
and thus
n
market entry the root
and mergers information
flows
investment
To monitor
To monitor
To monitor To monitor
Strengthen
To ensure level To better To monitor
playing field; monitor
management transparency cross-subsidies access to
investment in
NRA
unbundling of
obligations
and determine customer data grid &
obligations interconnectio
tariffs
generation
Indirect effect Indirect
oversees
Indirect effect Indirect effect To assess
n capacity
closes
ACER
effect
ETSO+/GTE+
regulatory
crossborder
cross-border
Art. 22
gap, oversees
requests
N/A
To improve
To develop ETSO+/GTE+ To develop
To develop
To improve
10-year
ENTSO-E
interconnectio common
market and
market and
interconnectio
investment
n and create rules on
technical
technical
n and thus
plan, security
larger markets TPA and
codes,
codes, rules liquidity
and reliability
grid
coordinate grid on trading &
rules
To
To overcome To increase
To facilitate transparency To reveal
tackles
Transparenc
To facilitate connection operation
market entry overcome market entry problem at the cause of price information network
y
information
root
deformation advantage of security &
obligations
advantage
integrated
reliability
of
groups
integrated
To strengthen to eliminate N/A
To improve
strengthen
NRA to
DSO
compliance
monitor
brand con-
unbundling
market entry resources of
DSOs
transparency officers, NRA fusion; NRA
to
obligations
to
41
These provisions were then complemented with provisions under the Energy Performance in Buildings
Directive 2010/31/EU, and the Energy Efficiency Directive 2014/32/EU which amongst others added demand
response as a specific means for energy efficiency benefits via novel energy services based on smart metering
data.
42
SEC(2007) 1179/2 Commission Staff Working Document, Accompanying the legislative package on the
internal market for electricity and gas COM(2007) 528 final, COM(2007) 529 final, COM(2007) 530 final,
COM(2007) 531 final, COM(2007) 532 final, SEC(2007) 1180, Impact Assessment, page 91-92.
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3.2.2.
Security of Electricity Supply Directive
The adoption of the Security of Electricity Supply Directive in 2006 was a first attempt to
provide the EU with a framework on security of electricity supply. The Directive came at a
point in time where a comprehensive set of energy acquis was already in place (2nd IEM
package, RES, EE, infrastructure guidelines), but rules addressing specifically supply security
and secure operation of the electricity system were still missing.
The SoS Directive required Member States to lay down an appropriate and stable framework
which would facilitate security of electricity supply, as a precondition for the proper
functioning of the internal market for electricity. It mainly contained
principles
to ensure
security of supply and stable grid operation without undue distortions of the internal market,
e.g. by an adequate level of generation capacity, an adequate balance between supply and
demand, and an appropriate level of interconnection between Member States. It also required
a national regulatory framework that guarantees stable investments in networks, as well as
some reporting obligations on national security of supply policies.
The SoS Directive came to complement the framework set by the Second Package and,
together with it, provided a co-ordinated set of basic rules for the following issues:
1. Requirement for a stable and transparent wholesale market design - facilitating
generation investment and energy efficiency measures in a competitive market
framework, and preventing MS from intervening in the markets,
2. Ensuring that network operation rules are agreed and adhered to by transmission
system operators,
3. Providing for the maintenance and renewal of transmission and distribution networks,
4. Introduction of a monitoring and reporting system for important interconnection
projects.
The table below presents an overview of the 4 issues outlined above:
Table 2: Overview of security of supply measures
Stable and transparent
wholesale market design -
facilitating
generation
investment
in
a
competitive
market
framework
Art 3(2)(g), Art 5
Art 3, Art 6, Art 7
Ensuring network
operation rules are
agreed and adhered
to by transmission
system operators
Art 4(1), 4(3), 4(4)
Art 24
Providing for the
maintenance and
renewal
of
transmission and
distribution
networks
Art 4(2), 6(1)
Art 23(2)
Introduction of
a monitoring
and reporting
system
Relevant
legislation
D 2005/89
D 2003/54
Art 6(2), 7
Art 4
Art 28(1)(c)(d)
R 1228/2003
Source: DG ENER
Art 5, 8(4)
Art 6(6)
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The obligations imposed on Member States as well as the Directive's rationale are illustrated
in the following intervention logic scheme:
Figure 1: Intervention logic scheme for security of supply
Source: DG ENER
4.
E
VALUATION LOGIC
The evaluation logic is framed under five different evaluation categories: Effectiveness,
Efficiency, Relevance, Coherence and EU added Value (Figure 2). Effectiveness considers
how successful the initiatives have been in achieving or progressing towards their objectives.
This will be done by comparing the objectives with the actual effects generated by the
initiatives (outputs, results, and impacts). Efficiency considers the relationship between the
resources used (inputs) and the effects generated by the Directives (outputs, results, and
impacts). Relevance looks at the relationship between the needs and problems of the
electricity sector and the objectives of the legislation . Coherence looks for evidence of
synergies or inconsistencies between the Directives and other EU policies which are expected
to work together. EU added value assesses whether action continues to be justified at the EU
level and looks for changes which it can reasonably be argued are due to EU intervention,
rather than any other factors. For each of these categories a series of evaluation questions, set
out in the mandate, are given (see the published Evaluation Roadmaps). These questions are
presented under Section 7 for each category.
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Figure 2: Fitness Check evaluation logic
5.
E
VALUATION
M
ETHOD
The Evaluation Roadmaps were prepared in October 2015 and made publicly available
43
.
Since 2001, the European Commission has reported yearly on the progress and
implementation of the internal electricity market. Indeed, since the adoption of the Electricity
Directive, Article 47 legally obliges the Commission to monitor the application of the
Directive and to submit an overall progress report to the European Parliament and the Council
on an annual basis. Such monitoring and reporting has been conducted yearly
44
. The findings
and conclusions of these reports have fed into the present Evaluation. Moreover, several
studies have been conducted by external experts on behalf of the European Commission to
assess in detail different aspects of the implication if the Third Energy Package on the
electricity market
45
.
As the implementation of the rules of the Third Energy Package is ongoing (e.g. adoption of
last network codes and implementation of adopted network codes), the evaluation was based
on the status quo of the implementation
46
. Throughout the evaluation period, legal documents,
position papers, studies, reports, statistical data and other pieces of written evidence were
reviewed. The evaluation made use of a number of studies prepared for the Impact
Assessment in support of the proposal for a new Market Design. These make up a bulk of
close to 30 studies, most of which carried by independent parties and covering a range of
43
44
45
Supra note.
https://ec.europa.eu/energy/en/topics/markets-and-consumers/single-market-progress-report
See the list of the studies with reports carried out for the European Commission in the field of energy market
https://ec.europa.eu/energy/en/studies?field_associated_topic_tid=42
46
However, problems in the implementation, such as the difficulties amongst Member states to agree on
network codes, provided evidence in itself which was used for the evaluation.
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different methodologies, including both qualitative and quantitative aspects
47
. For detailed
information on the content, authors and how to access such studies we refer the reader to
Annex V of said Impact Assessment.
Kex data (such as raw market data) are based on data supplied by ACER, which acts as
primary collector of market data from EU Member States and carries a responsibility to make
the data comparable across time and geographies.
In addition, two specific stakeholder consultations
48
were launched on the 15 July 2015 in the
form of a consultation on the future initiative on electricity market design
49
and on risk
preparedness
50
. The stakeholder consultations ended in 9 October 2015. They were open to
EU and Member States' authorities, energy market participants and their associations, SMEs,
energy consumers, NGOs, other relevant stakeholders and Citizens.
A wide public consultation
51
on a new energy market design (COM(2015)340 was conducted
from 15 July 2015 to 9 October 2015. It was open to EU and Member States' authorities,
energy market participants and their associations, SMEs, energy consumers, NGOs, other
relevant stakeholders and citizens. The public consultation on a new market design aimed at
obtaining stakeholder's views on how fit the current regulatory framework is to meet the
challenges that the market faces and on how the issues may need to be addressed in a redesign
of the European electricity market.
As regards representativeness and quality, the Commission received 320 replies to the
consultation. About 50 % of submissions come from national or EU-wide industry
associations. 26% of answers stem from undertakings active in the energy sector (suppliers,
intermediaries, customers), 9% from network operators. 17 national governments and several
national regulatory authorities submitted also a reply. A significant number of individual
citizens and academic institutes participated in the consultation.
A public consultation on risk preparedness in the area of security of electricity supply was
organized between July 15th and October 9th 2015. This public consultation aimed at
obtaining stakeholder's views in particular on how Member States should prepare themselves
and co-operate with others, with a view to identify and manage risks relating to security of
electricity supply.
47
For some aspects concerning supplementary evidence, only preliminary results were available at the time of
the Evaluation; however, since more than one study was investigating main issues (for example
competitiveness or liquidity of short-term markets), the robustness of the Evaluation was not put into
question.
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
The Commission issued two Communications - (COM(2015) 340 Final)
"Launching the public consultation
process on a new energy market design"
and (COM(2015) 339 Final)
"Delivering a new deal for energy
consumers"
–
as well as a public consultation on risk preparedness in the area of security of electricity
supply
https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-
supply
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
48
49
50
51
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The consulation resulted in 75 responses including public authorities (e.g. Ministries, NRAs),
international organizations (e.g. IEA), European bodies (ACER, ENTSO-E) and most relevant
stakeholders, including SMEs, industry and consumers associations, companies and citizens.
The following paragraphs provide a summary of the responses.
The results of the public consultations have been discussed in the Inter-Service Steering
Group (ISG) (it was decided to use the same ISG for both evaluations: SoS and Electricity
Market Design).
A study
52
was carried out to analyse risk preparedness policies in the Member States.
For detailed information about the studies and documents that constituted the basis for this
Evaluation as well as methodologies applied thereto, we refer also to Annex 1 and 2 of this
Evaluation.
6.
I
MPLEMENTATION OF THE INITIATIVES AND STATE OF PLAY
Given the complex nature of the Third Energy Package, the Commission has assisted Member
States in the process of the implementation of the new rules, e.g. by discussing draft
legislative measures and implementation solutions with the national governments and
regulators (as well as with ACER, ENTSO-E and other stakeholders) on an on-going basis
since its adoption. This intensive implementation cooperation has proven efficient to prevent
deficiencies at national level at an early stage as well as to resolve existing incompatibilities
between national and EU legislation. In order to facilitate the implementation of the Third
Energy Package, the Commission has also issued a number of interpretative notes, providing
guidance to national authorities and stakeholders concerned
53
.
Several Member States were nevertheless reluctant to transpose all required provisions of the
Third Electricity Package on time (i.e. by 3.3.2011). The Commission has therefore also
resorted to formal legal action where required.
In a first step ("transposition checks"), the Commission opened 19 infringement proceedings
against 19 Member States to ensure full transposition of the Electricity Directive between
September and November 2011. Non-resolved cases were followed up in 2012-2013 by
sending reasoned opinions and referrals to Court. At present, all of the infringement
proceedings for partial transposition of the Electricity Directive have been closed as the
Member States achieved
full transposition
in the course of the proceedings.
In a second step ("non-conformity checks"), focus has been put on possible incorrect
transpositions or EU law incompatible application of the Third Electricity Package. Priority
was given to violations having the highest impact on the functioning of the internal market,
e.g. incomplete unbundling of transmission activities from production or supply, violations of
the principle of independence of national regulators, or disregard of consumer protection
rules. On this basis, the Commission opened so-called "EU-Pilot" cases against a number of
52
Review of current national rules and practices relating to risk preparedness in the area of security of
electricity supply, prepared by VVA for DG Energy. (Contract ENER/B4/ADM/2015-623/SI2.717165).
are
available
at
http://ec.europa.eu/energy/en/topics/markets-and-
53
Interpretative
notes
consumers/market-legislation.
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Member States
54
. In parallel, it carried out a structured dialogue with the Member States so as
to resolve the identified implementation problems. In many cases, such dialogue with national
governments has brought satisfactory solutions and the "EU-Pilot" cases could be closed.
However, as of 1
st
July 2016, 8 of these EU Pilot cases have resulted in infringement
procedures where,
inter alia,
violation of EU electricity market rules is at stake. Further EU-
Pilots cases remain open and might lead to more infringement procedures.
In parallel to these systematic non-conformity procedures, the Commission has also acted on
an
ad hoc
basis, following up on specific non-conformity problems of which the Commission
became aware through complaints from individuals or undertakings, or emanating from
contacts with National Regulators or based on the Commission's own assessment. Here again,
the Commission first opened EU-Pilot cases against the respective Member States. If the issue
raised was not resolved at the EU-pilot phase, the Commission opened an infringement
procedure. As of 1
st
July 2016, two such infringement procedures are still pending.
At the time of writing, some form of price regulation exists in 17 Member States
55
.
A regulated end-user price is considered as a price subject to regulation or control by public
authorities (e.g. governments, NRAs), as opposed to being determined exclusively by supply
and demand. This definition includes many different forms of price regulation, such as setting
or approving prices, standardisation of prices or combinations thereof.
Price regulation for
non-households
has been systematically challenged via infringements
while price regulation for
households
56
has not been yet subject to infringement procedures.
Price regulation for non-households has been challenged by the Commission as a priority due
to the more important market distortion that the regulation of prices for large and potentially
most active consumers represents
–
after all these consumers cover an important amount of
energy sold on the market.
Deregulating household prices may be politically unpopular as regulation in Member States is
often justified by social policy objectives and/or lack of competition and refocussing the
support only to those in need (such as energy poor) would reduce the access of middle and
high income groups to the discounted prices. Therefore an informal approach via bilateral
consultations with Member States was initially preferred to discuss reasonable and sustainable
alternatives to price regulation and accompanying measures. However, infringement actions
against price regulation for households are not excluded in the follow-up to informal
consultations.
The Commission published a detailed report on its enforcement activities in relation to the
Third Electricity Package (see the document Enforcement of the Third Internal Energy
Market Package (SWD(2014) 315 final
57
).
The regulatory framework of the Third Package has also created new Commission
competences to verify the implementation of EU market rules. It created a competence for the
54
55
56
57
EU Pilot is a scheme designed to resolve compliance problems without having to resort to infringement
proceedings. It is based on a website which the Commission and national governments use to share
information on the detail of particular cases, and give governments a chance to remedy any breaches through
voluntary compliance.
BG, HR, CY, DK, FR, UK, EL, HU, IT, LT, LI, MT, PL, PT, RO, SI, ES.
And other comparable customers such as SMEs, schools, hospitals etc.
https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex6_0.pdf.
presented here are updated, to the extent necessary.
Figures
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Commission to provide an opinion on draft decisions of national regulators who have to
decide whether national TSOs can be considered as compliant with unbundling rules (so-
called "certification" of TSOs, see Article 10 and 11 of the Electricity Directive). The
Commission has provided opinions in more than 100 cases since 2009. The Third Package
gave the Commission also the competence to decide on the compatibility of national
exemptions from EU rules in case of investments into major new infrastructure (see Article 17
Electricity Regulation). To the extent pertinent, the experience gained from these ex-ante
approval procedures will be fed into the evaluation (see "Effectiveness" section).
Regarding
security of electricity supply,
Member States had to implement SoS Directive by
24th February 2008. The Commission issued an interpretative note, meant to help Member
States in implementing the Directive
58
. Non-transposition infringement procedures were
opened in 2008 against 17 Member States. Between 2009 and 2010, Member States produced
comprehensive correlation tables reflecting the transposition in their national legislative
frameworks, which served as a basis for the Commission when carrying out systematic
conformity checks. Ultimately, no infringement procedure was opened on non-conformity
with the SoS Directive. This was, on the one hand, due to the fact that the SoS Directive
contains, apart from monitoring and reporting obligations, only a few, rather general,
obligations, often in the form of broad principles to be respected. On the other hand, the
"Third Package", which entered into force in 2009, superseded some of the rather general
provisions of the SoS Directive (e.g. notably concerning grid operation, grid investment or
congestion management rules).
Accordingly, the Commission received only a limited number of complaints related to this
Directive. None of these led to the opening of an infringement procedure on security of
supply related issues. The progress report on the SoS Directive
59
published on 2010
concluded that Member States had implemented the provisions of the Directive either through
the creation of new legislative provisions or the use of existing provisions emanating from
other European legislation.
7.
A
NSWERS TO THE EVALUATION QUESTIONS
This section summarises the main findings in relation to the analysis of each of the questions
set out in the Evaluation Roadmaps. Questions are either dealt with individually or have been
combined where there are significant overlaps in information justifying a unified approach.
Additional key provisions of the Third Package - not covered by the questions - have also
been evaluated, although more briefly.
7.1.
Effectiveness
The effectiveness evaluation aims at verifying whether the Third Energy Package and the
Electricity Security of Supply Directive have been achieving their objectives. This is being
done by comparing the intended objectives with the actual effects generated in the various
areas under consideration.
58
59
The note was sent to Member States and is not publicly available.
COM (2010) 330 final, Report on the progress concerning measures to safeguard security of electricity
supply and infrastructure investment.
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1467289040003&uri=CELEX:52010DC0330
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For the Third Energy Package, two aspects were analysed in particular, namely to what extent
the new legislation removed competition problems, contributed to increased market
integration, better coordination and stimulated grid investments (7.1.1.) and to what extent the
new provisions improved the situation for consumers in terms of consumer protection (7.1.2.).
As concerns the Electricity Security of Supply Directive, the analysis focussed on whether the
general rules of the Directive have effectively increased security of supply and risk
preparedness (7.1.3.).
7.1.1.
Market integration, competition and investments
-
-
-
To what extent have
wholesale markets
become more competitive?
To what extent has
market integration
already been achieved? To what extent has
cooperation
between TSOs and regulators evolved?
What
factors
contributed hereto in particular or prevented this?
Reduced competition and foreclosure problems through strengthened unbundling
In order to further promote competition on the electricity markets, the Third Energy Package
strengthened the unbundling rules to completely remove any conflict of interest between
generators and suppliers on the one hand and transmission system operators on the other hand.
With the aim of ensuring structural independence of network operation, the Directive foresees
three unbundling models: ownership unbundling, the independent system operators (ISO) and
the independent transmission operator (ITO).
Following the expiry of the transposition deadline on 3 March 2011, the Commission has
systematically assessed all national transposition measures. As of July 2013, regarding
electricity, 16 Member States had implemented ownership unbundling, 6 Member States had
implemented the ITO framework, and one Member State the ISO framework.
Compliance with unbundling requirements is monitored at national level by the national
regulatory authorities, under a procedure set out in Articles 10 and 11 of the Electricity
Directive. Under this procedure, national regulatory authorities are required to submit their
draft decisions on the certification of transmission system operators to the Commission. The
Commission then adopts an Opinion on the draft decision within a period of two months.
National regulatory authorities are obliged to take utmost account of the Commission's
Opinion when adopting the final certification decision. This notification procedure ensures a
high degree of consistency in the interpretation of the rules on unbundling for transmission
system operators, and thereby increases legal certainty for Member States, transmission
system operators and other stakeholders. The certification procedure pursuant to Article 10 of
the Electricity Directive has been successfully implemented in practice. In the period of 3
March 2012
60
until 31 May 2016, the Commission has issued 127 Opinions on draft
certifications of national regulatory authorities from 26 Member States
61
. Of these, 67
Opinions concerned transmission system operators for gas, and 60 concerned transmission
system operators for electricity
62
.
60
61
The application date for the unbundling requirements, as set out in Article 9(1) of Electricity Directive.
This includes draft certifications by which a transmission system operator previously certified under the ITO
or ISO model was re-certified under the OU model.
The Commission Opinions are available on the website of DG Energy under the following link:
https://ec.europa.eu/energy/sites/ener/files/documents/certifications_decisions.pdf
62
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The positive impact of the reinforced unbundling rules was confirmed by a specific evaluation
of the new unbundling rules, as required by Art. 47(3) of the Electricity Directive. In its report
on the ITO model from October 2014
63
, the Commission analysed in detail to what extent the
new rules were capable of sufficiently and adequately ensuring the effective separation of
transmission networks from generation and supply interests. According to the Commission's
initial assessment, most requirements related to the ITO model
seem to work in practice
and
are usually sufficient and adequate to ensure effective separation of the transmission business
from generation and supply activities in the day-to-day business. This assessment was notably
based on the view of national regulators, the network users and compliance officers within the
ITOs. The report confirmed that problems of network foreclosure, which had been an ongoing
concern prior to the adoption of the Third Package
64
, had become less frequent after the
introduction of the reinforced unbundling rules.
With regard to DSO unbundling, the intervention mainly aimed at the unbundling of vertical
integrated distribution companies with the objective to ensure non-discriminatory and
transparent third party access in distribution networks, in order to promote competition in the
energy market. There is no evidence that the intervention within the boundaries of the
unbundling requirements, did not achieve the objective of promoting competition in the
market.
According to CEER's data for 24 EU Member States
65
there is a total of 2,600 electricity
DSOs operating in across EU. From these DSOs, 2,347 fall under the 100,000 rule and
according to Article 26(4) for these DSOs Member States are not obliged to implement
unbundling provisions under Article 26 of the Electricity Directive. Eurelectric
66
also reports
a total number of 2,331 DSOs operating in EU (data for 27 Member States). According to
Eurelectric from this total number 2,148 DSOs fall under the 100,000 rule leaving only 183 to
have obligations of unbundling
67
.
63
64
https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex3.pdf
See e.g. Communication from the Commission, Inquiry pursuant to Article 17 of Regulation (EC) No
1/2003 into the European gas and electricity sectors (Final report), COM(2006) 851 final, 10.1.2007
http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52006DC0851
and DG Competition report on energy sector inquiry (SEC (2006)1724, 10.1.2007
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52006SC1724
Cases COMP/39.388
–
German Electricity Wholesale Market and COMP/39.389
–
German Electricity
Balancing market).
http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52009XC0213(02)
Case
COMP/B-1/39.402
–
RWE
Gas
Foreclosure
http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=uriserv:OJ.C_.2009.133.01.0010.01.ENG&toc=OJ:C:2009:133:TOC
Case COMP/39.315
–
ENI
http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=uriserv:OJ.C_.2010.352.01.0008.01.ENG&toc=OJ:C:2010:352:TOC
Case COMP/39.386
–
Long Term Electricity Contracts France
content/EN/TXT/?qid=1439992538223&uri=CELEX:52010XC0522(01)
http://eur-lex.europa.eu/legal-
65
"Status Review on the Transposition of Unbundling Requirements for DSOs and Closed Distribution System
Operators"
(2013) CEER.
"Power Distribution in Europe Facts & Figures",
Eurelectric.
CEER and Eurelectric numbers only coincide for very few Member States. In some cases the discrepancy is
very high, for instance for the Czech Republic CEER reports 308 DSOs while Eurelectric only 3, also in
Romania 41 (CEER) and 8 (Eurelectric).
66
67
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According to CEER only around 189 DSOs across EU are legally unbundled. There are no
known cases where Member States have decided to go beyond the provisions of the
Electricity Directive. There is only the exception of Netherlands where ownership unbundling
requirements have been introduced for DSOs.
Increased liquidity and competition leading to lower prices on wholesale markets
The Commission's analyses of the development of the electricity market
68
showed that the set
of the different measures of the Third Electricity Package had a positive effect on liquidity
and competition in the wholesale market.
In power markets, Eurostat data on the development of market concentration between 2009
and 2014 indicate new players could enter the wholesale generation and supply market in
several countries, leading to decreasing market shares of the largest generators. This is, for
instance, the case in Belgium, Czech Republic, Germany, Greece and Latvia. The market
concentration, measured by the so-called "Herfindahl Hirschmann Index" (HHI) in the
electricity generation market
69
has significantly decreased in several Member States. In
Belgium, for instance, HHI was 7 390 in 2008 and 4 700 in 2013. It has also decreased
slightly in Italy from example going from 1 087 in 2011 to 884 in 2014).
However, in many Member States, the traditional incumbent generation and supply company
holds a dominant position. No significant change in the market can, for instance, be observed
in France, Italy, Poland, Romania and Slovakia. The HHI has stayed constant in many
Member States such as in Ireland (1 150) or Greece (6 844 in 2011 and 6 183 in 2014) in
Spain (around 1 300) or in France (above 8 500). The market share of the largest generator is
still higher than 50% in 10 Member States in 2014 (in 11 Member States in 2011). This
reveals for some Member States the limited progress brought by the Third Package when it
comes to fostering competition through reducing dominant positions and stimulating new
entry.
The Commission's market monitoring reports of 2012 and 2014 showed that more
competition between generators contributed
70
to a
reduction of the electricity prices at
wholesale level.
In 2014, nearly all EU day-ahead wholesale prices prolonged the
downward
trend
that has been observed since 2011
71
.
68
European Commission, EU Energy Markets in 2014, SWD (2014) 310 final and SWD (2014) 311 final
accompanying the Communication "Progress towards completing the Internal Energy Market" COM (2014)
634 final of 13 October 2014;
European Commission, Energy markets in the European Union in 2011, Commission Staff Working
Document SWD (2012) 368 final of 15 November 2012 accompanying the Communication "Making the
internal energy market work" (COM(2012) 663 final).
69
The HHI is a commonly accepted measure of market concentration. It is calculated by squaring the market
share of each firm competing on the market and then summing the result numbers the higher the index the
more concentrated the market.
Other factors such as subsidies for certain generation technologies combined with regulatory dispatch rules
or changes in energy demand have also contributed to this development. However, the decrease in electricity
prices has been higher than the decrease for other energy prices, see e.g.
Commission Communication
COM(2012) 663 final, p. 4.
ACER market monitoring report 2014 :
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx;
70
71
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F
igure 3:
Cross-border
electricity trade has increased…
The general objective of the Electricity Directive, as set out in its Article 1 to improve and
integrate competitive electricity markets in the EU. In order to measure progress towards
market integration, market concentration, the volume of cross-border trade as well as the
development of market coupling should be looked at.
One of the main issues at the time of adoption of the Third Package was the lack of sufficient
rules and necessary coordination to permit cross-border trade to work effectively. Data on
cross-border trade show that
cross-border trade in electricity between most EU countries
has increased
and so has the use of interconnectors
–
the share of imports in the total
electricity available for final consumption has grown in 23 Member States between 2008 and
2012. Despite a decline in EU electricity demand between 2008 and 2014, traded volume of
electricity increased in Europe between 2008 and 2014
72
.
72
ACER market monitoring report 2014 :
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
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Figure 4:
Source: ACER market monitoring report 2015, p. 150
Since 2009, electricity national markets have notably grown together through the
development of so-called "market
coupling",
a coordinated form of electricity trading over a
central platform which aggregates all bids and offers, thereby optimising electricity flows
almost EU-wide
73
. The Third Package paved the way for market coupling, which has in the
meantime been made legally binding though implementing legislation
74
. Today, 19 Member
States representing 86% of the EU's energy consumption are connected via the common
platform.
Figure 5:
Source: http://www.nordpoolspot.com/globalassets/download-center/pcr/pcr-presentation.pdf
73
Market coupling ensures that interconnectors are more efficiently used by simultaneously clearing their
capacity with all bids and offers into the day-ahead auction. Before interconnectors were coupled, traders
had first to secure capacity ahead of time on the interconnector and then offer or bid into the power
exchanges on each end of the interconnector (Source: Booz & Company final Report: "Benefits of an
integrated European energy market").
Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and
congestion management,
OJ L 197, 25.7.2015, p. 24–72
74
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Evidence shows that market coupling increased the
convergence of wholesale prices
between neighbouring markets in the EU
75
.
Figure 6: Illustration on price convergence after introducing market coupling between Romania, Czech
Republic, Hungary and Slovakia
Source: ENTSO-E, https://www.energy-
community.org/portal/page/portal/ENC_HOME/DOCS/3736161/179B1C2EE4372E9CE053C92FA8C0C45E.PDF
By making more cross-border capacities available, market coupling is also beneficial for
cross-border competition, the integration of renewables and security of supply.
The Commission had found frequent evidence of "underinvestment" in cross-border
interconnections
76
. One of the aims of the Third Package was therefore to improve security of
supply by strengthening incentives for sufficient investments in transmission. To make this
possible the Third Package foresees measures to monitor more closely through regulators
whether TSOs carry out the adequate investments (for example Article 37 of the Electricity
Directive
77
and the unbundling provisions on investment monitoring
–
Article 22 Electricity
Directive), and to encourage closer coordination between TSOs as regards their investments
(e.g. long term planning for the development of their systems through a ten-year network
development plan as required by Article 22 of the Electricity Directive). Data show that
investments into cross-border infrastructure are likely to increase further in the current
decade
78
.
75
76
See also example the study from CIGRE,
Market coupling, facing a glorious past,
2016
See for example : Commission Decision of relating to a proceeding under Article 102 of the Treaty on the
Functioning of the European Union and Article 54 of the EEA Agreement (Case COMP/39.315
–
ENI)
http://ec.europa.eu/competition/antitrust/cases/dec_docs/39315/39315_3019_9.pdf
Article 37 Electricity Directive
"Duties and powers of the regulatory authority": "1. The regulatory
authority shall have the following duties:[...] (g) monitoring investment plans of the transmission system
operators, and providing in its annual report an assessment of the investment plans of the transmission
system operators as regards their consistency with the Community-wide network development plan referred
to in Article 8(3)(b) of Regulation (EC) no 714/2009; such assessment may include recommendations to
amend those investment plans[.]"
Final Report by Roland Berger strategy consultants, " The structuring and financing of energy infrastructure
projects, financing gaps and recommendations regarding the new TEN-E financial instrument, July 2011:
https://ec.europa.eu/energy/sites/ener/files/documents/2011_ten_e_financing_report.pdf
77
78
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Figure 7: Comparison of past and planned future TSO investments [EUR billion]
(Source: Annual reports of TSOs, interviews, Roland Berger research)
…but significant barriers to
cross-border trade remain
A report of the European Court of Auditors from 2015
79
commented the on effects of the
Third Package as follows
"While the aim of unbundling and other measures was to create the
regulatory conditions for an internal energy market, a liberalised and competitive market has
often not emerged. This is because many governments and incumbent energy companies have
continued to restrict third-party network access through regulations and technical
restrictions".
Indeed, while the measures of the Third Electricity Package clearly had a positive impact in
the development of cross-border trade, important barriers to the trade of electricity across
borders are still in place. One key barrier to cross-border-trade remains the uncoordinated use
of interconnectors, leading to a
limitation of available cross-border capacity.
Even where
interconnection capacity between countries is
physically
available, TSOs do often not make
this capacity available to the market. According to recent ACER analyses, up to 75% of the
physically available interconnector capacity cannot be used because of such practices. At
some borders, cross-border capacities offered by TSOs have even been reduced to 0 or close
to zero, although a large physical interconnection is in place (e.g. at the German/Polish or
German/Danish border
80
). The main motivation for TSOs to reduce existing cross-border
capacities and not to make all capacities available to the market is to avoid problems in the
internal grid of the TSOs. It is the TSOs task to guarantee stability of the electricity grid. If
the internal grid capacity is not sufficient to transport all energy produced, TSOs need to take
measures to ensure grid stability ("congestion management"). Such measures can for example
79
Special Report of the European Court of Auditors, "Improving the security of energy supply by developing
the internal energy market: more efforts needed", 2015:
http://www.eca.europa.eu/Lists/ECADocuments/SR15_16/SR_ENERGY_SECURITY-EN.pdf
ACER market monitoring report 2014 : page 162
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
80
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consist in so-called "re-dispatch" (e.g. paying generators to de- or increase their generation
against a compensation payment), or in the reduction of interconnector capacities. ACER
showed in its analysis that TSOs systematically reduce interconnector capacity to deal with
internal congestion problems
81
. One main reason for the increasing reductions of cross-border
capacities is the significant
increase of volatile generation
from wind and sun. If the internal
grid is not strong enough to accommodate this renewable energy production (e.g. in peak
times of strong winds or sun), imports are often reduced or stopped
82
. This is also the result of
a bidding zone configuration which is not yet optimised within the EU
83
.
Also
uncoordinated national state interventions
in the form of renewables support schemes
or capacity mechanisms have reduced the effectiveness of the measures of the Third Package
and introduced new barriers to cross-border trade, as evidenced in the Commission's
comprehensive report of 2014 on this issue
84
. Support schemes which do not take into account
that continental Europe is connected though a synchronised grid can lead to reductions of
cross-border flows and lead to problems to transport energy in neighbour states
85
. National
state aid for generators in the form of capacity mechanism reduced also cross-border
electricity exchanges, as most capacity mechanism are not open to production from foreign
countries
86
.
Another problem is the lack of adequate and efficient investment in electricity infrastructure
to support the development of cross-border trade
87
. ACER's recent monitoring report and
other reports on the EU regulatory framework stress that the incentives to build new
interconnections are still not optimal. In the current regulatory framework, TSOs earn money
from so-called congestion rents
88
. If TSOs reduce congestion between two countries, their
revenues will therefore decrease. The Third Package has identified this dilemma and
addressed through obliging TSOs to use congestion rents either for investments in new
interconnection or to lower network tariffs. Experience with this rule has, however, shown
81
82
See footnote above.
While other measures would be available which would not limit cross-border flows (e.g. "redispatch"),
ACER showed that TSOs prefer to limit cross-border capacity to costly redispatching measures.
ACER market monitoring report 2014 : page 162
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
Communication from the Commission, Delivering the internal electricity market and making the most of
public intervention, C(2013) 7243 available at
http://ec.europa.eu/energy/sites/ener/files/documents/com_2013_public_intervention_en_0.pdf
See for a description of the so-called "loop-flow problem" the ACER market monitoring report 2014 p. 163.
See the Commission's interim report of the sector inquiry into capacity mechanisms, p. 14
http://ec.europa.eu/competition/sectors/energy/state_aid_to_secure_electricity_supply_en.html
ACER market monitoring report 2014 and 2015
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
Price differences between bidding areas occur when the surplus volume in one or more bidding area is
greater than the total export capacity from this/these areas. The sales and purchase curves then have to be
balanced taking the transmission capacity into account. This will lead to a relatively low price in the surplus
area and a relatively high price in the deficit area
–
utilizing the maximum capacity between the areas. These
price differences generate an ownerless income on the spot market trading flow from the area with a lower
price to the area with a higher price. In specific situations the spot market flow on single connections may
also flow from an area with a higher price towards an area with a lower price, thus generating an ownerless
cost. This income (or cost) is referred to as the congestion rent and is allocated to the TSOs as owners of the
transmission grid.
83
84
85
86
87
88
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that most TSOs prefer to use congestion rents to lower their tariff to investing into new
interconnectors
89
.
Cooperation between TSOs increased…
The creation of ENTSO-E and ENTSO-G as a cooperation bodies for European TSOs has
intensified the cooperation between TSOs across Europe and within regions. The ENTSOs
have notably worked intensively on developing draft text proposals for so-called "network
codes", i.e. implementing legislation for more coordinated grid operation and trading rules.
Based on the ENTSOs work and other stakeholders' input, the Commission was in a position
to adopt a large number of implementing Regulations under comitology rules since 2009
90
.
ENTSO-E has also delivered the required input for a more coordinated infrastructure
planning
91.
According to the results of the Commission's stakeholder consultations on the
ENTSO's work on network codes (see the Consultation on the establishment of the annual
priority lists for the development of network codes and guidelines
92
) and the ENTSOs role in
general, stakeholders consider the creation of the ENTSOs as a step into the right direction for
more TSO cooperation. Also recent reports from ACER
93
confirm that both ENTSOs have
achieved a good level of performance since their establishment by the Third Package.
Implementing legislation adopted under the new Third Package provisions on "network
codes" have further strengthened cooperation between TSOs. These network codes oblige
TSOs to find common solutions for problems which require action of several neighbouring
TSOs (e.g. to coordinate redispatch measures in order to limit negative impact on neighbours)
and created new regional groupings of TSOs within which TSOs have to cooperate
94
.
…but cross-border
trade is still hampered by insufficient TSO coordination
However, the evaluation has also identified some shortcomings in the regulatory framework
created for ENTSOs. A common concern raised by stakeholders in consultations
95
relates to a
possible conflict of interest in ENTSO-E’s
role –
being at the same time an association called
to represent the public interest, involved e.g. in network code drafting, and a "lobby
organisation" of commercial operators with an interest to expand the own business. Indeed,
89
ACER 2016 Report on Congestion at Interconnection points in 2015
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%202016%20Repor
t%20on%20Congestion%20at%20IPs%20in%202015.pdf
The network codes which have been adopted or on in preparation
http://ec.europa.eu/energy/en/topics/wholesale-market/electricity-network-codes
can
be
found
at:
90
91
European Network of Transmission System Operators for Electricity, Ten-Year Network Development Plan
2014,
https://www.entsoe.eu/major-projects/ten-year-network-development-plan/tyndp-
2014/Documents/TYNDP%202014_FINAL.pdf
92
http://ec.europa.eu/energy/en/consultations/consultation-establishment-annual-priority-lists-development-
network-codes-and
ACER Report, "Energy Regulation: A Bridge to 2025 Conclusions Paper", 19 September 2014
See also recent annual activity reports of ACER :
http://www.acer.europa.eu/official_documents/publications/pages/publication.aspx
93
94
See Article 15 on capacity calculation regions in the Commission Regulation (EU) 2015/1222 of 24 July
2015 establishing a guideline on capacity allocation and congestion management.
See contributions to the market design public consultation from EUROPEX, ACER, CEER and E-
Control,,Eurelectric for example
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
95
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the Commission had to rework some draft network codes in order to ensure that the interest of
all stakeholders and consumers are taken into account in a balanced manner. Stakeholders
argued that independence and transparency requirements should therefore be reinforced, and
regulatory oversight over the ENTSOs should be reinforced
96
. Stakeholders also suggested in
this context that the process for developing network codes should be revisited in order to
provide a greater a balance of interests and ensure optimal results for the internal market.
Despite the creation of ENTSOs as coordination body for TSOs, significant problems through
insufficient coordination remain. While being connected through a synchronised grid and
albeit electricity is traded EU-wide via market coupling, today 42 individual TSOs decide
separately about the flows of electricity within this synchronised grid. TSOs tend to maximise
benefits within their grid area and to disregarding negative effects outside their grid area.
Stakeholders and ACER criticise that this leads to sub-optimal results and hampers cross-
border trade
97
. To accommodate the need for coordination across TSO areas, Regulation (EC)
No 714/2009 established regions for the coordination of capacity calculation, capacity
allocation and secure network operation. These regions were further developed in one of the
subsequently adopted network codes called 'CACM Regulation'
98
. The frequent individual
and uncoordinated reductions of interconnector capacities through individual TSOs described
above show that coordination between TSOs is still underdeveloped. According to the ACER
2014 Market Monitoring Report, progress in coordinating capacity calculation is very limited
and varies from region to region. It concludes that there is still significant scope for
improvements in the area of capacity calculation coordination and that the inefficiencies of
the current methods are probably one of the main obstacles to further market integration. The
new obligations for regional coordination between TSOs on electricity trading and system
operation issues are likely to improve the situation.
In addition, TSOs have voluntarily launched so-called
Regional Security Coordination
Initiatives
in the recent years (e.g."Coreso" and "TSC"
99
) covering a greater part of the
European interconnected networks aiming at improving TSO cooperation by providing a set
of services to national TSOs and maintaining or increasing security of operation of European
interconnected networks. This RSCI approach is widely recognised as a positive step
forward
100
and is further formalised in European legislation with the new Guideline on
System Operation which received a positive vote from Member States on 4 May 2016
101
.
96
97
ACER Report, "Energy Regulation: A Bridge to 2025 Conclusions Paper", 19 September 2014
See Eurelectric position paper: "Optimal use of the transmission network a regional approach" , June 2016
http://www.eurelectric.org/media/278462/eurelectric_report_congestion_management_-2016-2210-0009-
01-e.pdf
Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and
congestion management
TSOs have a long tradition of cooperation. In the early 2000s, they voluntarily set up regional entities to
provide them with regional data and calculations - the now called Regional Security Coordinators. RSCs
complement the TSOs own data and support the TSOs' decision-making on which actions to take to secure
their grid while integrating more and more volatile generation and with more and more cross-border
exchanges.
European Parliament, Report on Towards a New Energy Market Design (2015/2322(INI), Committee on
Industry, Research and Energy, 21.6.2016.
ENTSO-E Policy paper Future TSO Coordination for Europe, November 2014
https://www.entsoe.eu/Documents/Publications/Position%20papers%20and%20reports/141119_ENTSO-
E_Policy_Paper_Future_TSO_Coordination_for_Europe.pdf
98
99
100
101
https://ec.europa.eu/energy/en/topics/wholesale-market/electricity-network-codes
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However, given the economic importance (and distributive effects) of the decisions TSOs
have to agree on, experience has shown that voluntary cooperation between TSOs was not
able to overcome the problems that block progress in the internal electricity market (e.g.
definition of fair bidding zones, effective cross-border curtailments). Absent robust rules on
regional TSO cooperation in the Third Package (including decision-making rules), only
limited progress could be achieved on issues requiring a compromise between TSOs.
A clear majority of stakeholders who responded to the public consultation is
in favour of
closer cooperation
102
between TSOs. Stakeholders mentioned different functions which
could be better operated by TSOs in a regional set-up and called for less fragmentation in
some important parts of the work of TSOs.
Regulatory independence and cooperation between regulators has improved…
As concerns the newly introduced rules on the reinforcement of independence of national
regulators, the Commission's systematic compliance checks showed that the detailed
provisions on how to guarantee regulatory independence were implemented in most Member
States. The independence rules even go beyond the requirements in other areas such as
competition
103
.
The Third Package also created a new coordination body for regulators, the Agency for the
Coordination of Energy Regulators (ACER). The evaluation has shown that ACER's activity
has provided tangible benefits for EU citizens. Since its creation in 2011, ACER has
coordinated the work of 28 national regulators and moderated their discussions within
working groups and the Board of Regulators, monitored EU markets as well as the activities
of the ENTSOs, and provided valuable advice on regulatory issues, notably in the process of
the development of network codes.
104
. The positive impact of ACER on market functioning
has been acknowledged by most stakeholders. Since its creation through the Third Package,
ACER has also been given new tasks, namely in the field of market supervision in the
framework of the "REMIT"-regulation and infrastructure planning, in the framework of the
new "TEN-E"-regulation
105
.
...but problems with regulatory independence and coordination remain
The Evaluation showed that despite clearer rules on regulatory independence, many
governments try to interfere in competence areas reserved to independent regulators. The
Commission has opened several infringement procedures for non-conformity of Member
State legislation as regards national regulatory authorities, notably concerning attempts from
national governments to interfere in areas which are deliberately reserved to the competence
102
As reflected in the contributions of ACER and CEER, IFIEC, the IEA and Eurelectric for example
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
103
SWD(2014) 231 final: "Enhancing competition enforcement by the Member States' competition authorities:
institutional and procedural issues", recital 27.
ACER also provided first opinions on contentious regulatory questions at the request of national regulators
under Article 7(4) of the ACER Regulation, see ACER Opinion 09-2015 on the compliance of NRAs´
decisions approving methods of cross-border capacity allocation in the CEE region, 23.9.2015
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Opinions/Opinions/ACER%20Opinio
n%2009-2015.pdf
104
105
In particular ACER received a key role in in the monitoring of trading activity in wholesale energy products
to detect and to prevent trading based on inside information and market manipulation, as well as in the
energy network planning by participating on the process for the selection of Projects of Common Interest
(PCIs) and their regulatory treatment.
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of independent regulators, such as the setting of adequate transmission tariffs
106
. Also the
2015 Special Report of the European Court of Auditors
107
stated that problems with
regulatory independence still hamper the internal market and identified three main problems
in the operation of the NRAs. Regarding their independence, they underline that the principles
set out in the Electricity Directives are not always followed. They illustrate this with examples
in Member States where the heads of regulatory bodies are not selected in a transparent
manner and provided with sufficient freedom to operate. The Court of Auditors also mentions
the existence of restrictions to the scope of their powers. They mention for instance that some
governments still retain for themselves (at least partially) certain regulatory powers, notably
of tariff setting which are of the competence of the NRA based on the Electricity Directive.
This has been addressed by the Commission through the opening of several infringement
procedures against Member States. Another concern relates to the level of resources available
to the different NRAs which vary considerably from one NRA to another, staff ranging from
21 to more than 200. Some NRAs are for instance better equipped than others to participate in
international cooperation and in the work of ACER for instance.
The evaluation identified also deficits in the regulatory set-up of ACER that hamper the
internal market. One of the problems relates to the fact that ACER remains largely an
advisory body without tangible decisions powers. Indeed, none of the very few decision
powers ACER was given in the Third Package (e.g. concerning infrastructure exemption
decisions
108
) have to date been exercised. This has created problems in the implementation of
the network codes. Some technical features require a common regional method (e.g. a
common algorithm for the market coupling process). However, while a regional group of
TSOs can decide by majority on proposals for such methods, ACER cannot approve this
method. Instead, each individual regulator has to approve the common method individually.
Only after this procedural step, ACER can decide (using its arbitration function under Article
8 of the ACER Regulation) on this method. This has already caused significant delays in the
implementation of the CACM regulation
109
. Unlike in other EU agencies, Member States
retain a decisive role within ACER. National regulators chair the main decision body ("Board
of Regulators"). It is not the independent ACER director or a group of directors who take
decisions within ACER (as in similar EU agencies
110
), but national regulators, voting with a
106
The Commission plans to conduct a specific study on the subject of national regulatory authorities and their
independence in the course of 2017.
Special Report of the European Court of Auditors, "Improving the security of energy supply by developing
the internal energy market: more efforts needed", 2015:
http://www.eca.europa.eu/Lists/ECADocuments/SR15_16/SR_ENERGY_SECURITY-EN.pdf
See Art. 8 and 9 of the ACER Regulation.
On 17 May 2016, the ACER has been informed by the NRAs, that they could not reach a unanimous
decision on the definition of capacity calculation regions. (ACER Consultation document "The definition of
capacity calculation regions", PC_2016_E_02 of 22 June 2016).
http://www.acer.europa.eu/Official_documents/Public_consultations/PC_2016_E_02/PC_2016_E_02%20on
%20the%20capacity%20calculation%20regions.pdf
107
108
109
110
See for example the ESMA Agency: Regulation (EU° No 1095/2010 of the European Parliament and of the
Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and
markets Authority), amending Decision No 716/2009/EC and repealing Commission decision 2009/77/EC,
OJ L 331, 15.12.2010, p. 84.
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02010R1095-20140523
Or the EASA Agency : Regulation (EC) No 216/2008 of the European Parliament and of the Council of 20
February 2008 on common rules in the field of civil aviation and establishing a European Aviation Safety
Agency, and repealing Council Directive 91/670/EEC, regulation (EC) No 1592/2002 and Directive
2004/36/EC, OJ L 079 19.3.2008, p. 1.
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two-thirds majority. Experience with this rule has shown that a "blocking minority" of only
1/3 of the regulators can veto regulatory proposals, which led to failure or delays of regulatory
initiatives
111
.
Consumer electricity and gas prices vary significantly for non-market related reasons, and
have risen steadily for households
The first observation on electricity and gas consumer prices is that these vary significantly
between different MS. Denmark (30.38 euro cents/kWh) remains the country with the highest
electricity household post-tax prices (POTP), more than three times the POTP charged to
electricity households in Bulgaria (8.63 euro cents/kWh), the country with the lowest POTP in
Europe. Household gas prices in 2014 remained lowest in Romania (3.14 euro cents/kWh
post-tax), and highest in Sweden (11.61 euro cents/kWh), where considerably higher taxes
and charges are levied. A wide range of factors contribute to this including the sources and
kinds of energy consumed, the level of regulatory intervention in price setting, differing levels
of competition and the different taxes and levies applied
112
.
The second observation is that industrial consumers pay, in general, between two to three
times less for their electricity and gas than household consumers do. This is due to a number
of factors, including industry's greater ability to benefit from scale economies (higher levels
of consumption), the fact that industry is less burdened by non-contestable charges, and the
fact that industry may benefit from better market information and bargaining power
vis-à-vis
suppliers than household consumers.
The third pertinent observation, illustrated in the chart below, is that electricity and gas prices
for household consumers rose steadily between 2008 and 2014. Most recently, between 2013
and 2014, post-tax prices (POTP) for electricity and gas supplied to households increased on
average by 2.6% and 2.1%, respectively. In contrast to household prices, industrial prices
remained largely stable between 2008 and 2014, even declining between 2013 and 2014.
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1459786766853&uri=CELEX:02008R0216-20160126
111
Such as in the case of the proposed network code on gas tariff harmonisation, where a minority of Member
States could prevent that ACER tables a proposal.
Unless stated otherwise, the figures and analysis presented in the remainder of this section are drawn from
the 2014 ACER Market Monitoring Report. ACER/CEER (2015), Market Monitoring Report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitorin
g_Report_2015.pdf
112
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Figure 8: Electricity and gas POTP trends for household and industrial consumers in Europe
–
2008-2014
(euro cents/kWh)
113
An analysis of the price components reveals the main drivers of rising household prices in the
period 2008-2014. Figure 9 below shows that household electricity prices were greatly
influenced by non-contestable charges (i.e. taxation and network charges) in most MS during
this period. These currently make up, on average, 40% of the total bill in electricity and more
than 50% in gas. Since 2008, and particularly over the last few years, non-contestable charges
have significantly increased in many MSs, especially as a result of costs related to support
schemes for renewable energy sources (RES). The fact that industrial electricity consumers
are less burdened by non-contestable charges helps explain why their electricity POTPs
decreased in a number of Member States during the period 2008-2014, albeit to a limited
extent (Figure 10).
Figure 9: The compounded annual growth rate (CAGR)
114
of the electricity POTP, energy component and
non-contestable part of POTPs for households in Europe
–
2008–2014 (%)
115
113
Source: Eurostat (29/08/2015) and ACER calculations. Note: The figure is based on bi-annual data provided
by Eurostat for consumption bands: DC: 2,500
–
5,000 kWh (electricity households), D2: 20-200GJ (gas
households), IE: 20,000-70,000 MWh (electricity industrial consumers) and I5: 1,000,000-4,000,000 GJ
(gas industrial consumers).
CAGR is calculated by taking the
n
th
root of the percentage of the year-on-year demand growth rate for the
period analysed, where
n
is the number of years in the period being considered (in this case, the sixth root).
Source: Eurostat (29/08/2015) and ACER calculations. Note: Consumption band: DC: 2,500-5,000 kWh
(electricity households).
114
115
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Figure 10: The CAGR of the electricity POTP, energy component and non-contestable part of POTPs for
industry in Europe
–
2008–2014 (%)
116
Retail electricity and gas markets for households remain concentrated in most Member
States
Figure 11 below shows a high concentration in retail electricity and gas markets for
households at the national level in the majority of MS, measured by the concentration ratio
CR3.
117
The cumulative market shares of the three largest electricity and gas suppliers for
households is more than 70% in the majority of countries, including those with a large
number of nationwide suppliers (i.e. those with a bigger ‘bubble’). As a result, the retail
household market for small competitors is above 30% in only 8 out of 29 countries in
electricity and in 5 out of 25 countries in gas, while the rest of the market is held by three
dominant suppliers. CR3 values above 70% and low numbers of main suppliers are indicative
of possible competition problems.
Figure 11: Market share of three largest suppliers (CR3) and the number of main suppliers and number
of nationwide suppliers in retail markets for households
–
2014
118
116
Source: Eurostat (29/08/2015) and ACER calculations. Note: Consumption band: IE: 20,000-70,000 MWh
(electricity industrial consumers).
The sum of the market shares of the three largest suppliers in a market, and the number of main suppliers i.e.
suppliers with market shares equal to or higher than 5%.
Source: CEER National Indicators Database (2015).
117
118
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As regards the trend, Figure 12 below shows that there has been little change in these CR3
values since 2009, with decreases of 10% or more recorded only in the Czech Republic’s
electricity and gas household markets, the Swedish electricity and the Spanish gas market.
The comparable CR3 data for retail markets for non-households show that non-household
markets are much less concentrated than household markets in many MS.
Figure 12: CR3 in the retail electricity and gas markets for households in the EU MSs and Norway
–
2014
and change from 2009–2014 (%)
119
To summarize, retail electricity and gas markets for households are highly concentrated in
more than 2/3 of MS
–
a situation that has remained largely unchanged for the last five years.
In the non-household sector, market concentration is less pronounced, although still generally
high.
Retail margins seem to be increasing more than expected in some Member States
In contrast to non-contestable charges, wholesale electricity and gas prices, as demonstrated
earlier in this section, generally decreased between 2008 and 2012 (Figure 3). Mark-ups
determine the extent to which these falling wholesale prices were passed through to
consumers. They help explain why the CAGR of the energy component of household
consumer bills is positive in 15/28 MS (Figure 10), in spite of the general trend of falling
wholesale prices.
119
Source: CEER National Indicators Database (2015).
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Figure 13: Average annual mark-ups in electricity and gas retail markets for households from 2008 to
2014 for electricity and from 2012 to 2014 for gas
–
(euros/MWh)
120
Figure 13 above shows that household mark-ups vary greatly between the MS. On the one
hand, mark ups in Member States who practice price regulation (BG, HU and HR, for
example) tend to show the lowest retail margins
–
as low as minus 10% in the case of RO. On
the other hand, mark-ups in several MS seem to be higher that could in principle be expected,
posing questions about the extent of real price competition. This observation is reinforced by
the fact that mark-ups for both electricity and gas household prices in non-regulated markets
have shown an increase over the last six and three years, respectively (Figure 14, below)
–
a
trend that cannot be easily explained by other changes in the market during these periods.
Figure 14: Relationship between the wholesale price and the energy component of the retail price and
evaluation of mark-up in household segments in countries with non-regulated retail prices from 2008 to
2014 for electricity and from 2012 to 2014 in gas (euros/MWh)
121
Whilst the variety of products is improving in some dimensions, it is lagging in others
Although low prices are the most commonly thought of way for firms to attract consumers,
firms may also seek to distinguish their products by other means. These may include quality
120
121
Source: ACER Database, Eurostat and European power exchanges data (2015) and ACER calculations.
Source: ACER Database, Eurostat, NRAs and European power exchanges data (2014) and ACER
calculations. Note: Gas data are available only for the period 2012-2014.
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of service, convenience, an environmentally sustainable product, or any other non-price
aspect that adds value for consumer. The diversity of products available in a market is
therefore also a good indication of the health of competition.
Although challenging to quantify precisely, the data suggest that 'choice' for consumers in
European capitals widened between 2012 and 2014
122
, with a greater variety of offers
available. The increasing diversity and variety of offers is a sign of more innovation in the
sector, and helps raise consumer interest in the market.
Green electricity and gas
offers continue to make strides in the market. By the end of 2014,
in total, almost one third of all electricity offers and almost one quarter of gas offers were
marketed as green.
Dual-fuel offers
(electricity and gas), comprised more than 35% of all
offers on price comparison tools in Amsterdam, Brussels, Dublin, Lisbon, London and Paris
–
capitals with traditionally higher consumption of gas. And at the end of 2014, approximately
6% of all electricity and 12% of all gas offers presented in the price comparison tools across
Europe included an
additional service,
123
up from 4% and 7% respectively from just the
previous year.
124
The type of
pricing
of the offer (i.e. fixed, spot-based or variable) remains one of the most
visible features of energy products. Although there is diversity in this dimension, there is
certainly scope for improvement. Fixed-price offers account for the majority of all electricity
and gas offers in Europe, in spite of the fact that spot-based electricity offers
–
where
available
–
were consistently found to be the cheaper. This point is developed further in this
Section along with shortcomings in consumer access to companies offering demand response
services.
Many Member States still practice some form of price regulation
The analysis in this section focuses solely on the regulation of the energy component of retail
prices and excludes any discussion on the regulation of network prices
125
.
The regulation of electricity and gas prices limits consumer choice, restricts competition, and
discourages investment. This is particularly true for markets where retail end-user prices are
set below costs (i.e. without taking into consideration wholesale market prices and other
supply costs). Artificially low regulated prices (even without pushing them below costs) limit
market entry and innovation, prompt consumers to disengage from the switching process and
consequently hinder competition in retail markets. In addition, they may increase investor
uncertainty and impact the long-term security of supply. Furthermore, regulated prices (even
when set above costs) can act as a pricing focal point which competing suppliers are able to
122
ACER market monitoring report 2014 :
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
Free-of-charge services and/or products enticing consumers into a contract (i.e. supermarket points or
similar, membership points, air miles, gifts in kind, free insurance cover, maintenance services); or payable
services and/or products complementing the electricity and gas offers against additional payment (insurance,
boiler maintenance, home insulation, etc.).
Source: ACER Database.
Transmission and distribution tariffs are addressed in separate parts of this Evaluation and IA (annexes
2(1).3 and 1(c)3). Unlike distribution and transmission tariffs which are regulated according to the Third
Energy package provisions, the energy component of end user prices shall be in principle set by supply and
demand according to existing acquis, exceptions being allowed under certain conditions (article 3(2) of
Electricity and Gas Directives).
123
124
125
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cluster around and
–
at least in markets featuring strong consumer inertia
–
can also consider-
ably dilute competition.
This policy choice has meant addressing through infringements the more important market
distortion created by the regulation of prices for larger and potentially most active consumers
who use most of the energy sold on the European market (more than 70% of total electricity
consumption and close to 60% of the total gas consumption)
126
. In addition, the Commission
has opted initially for an informal approach via bilateral consultations with Member States to
discuss reasonable and sustainable alternatives to price regulation and accompanying support
for vulnerable consumers. However, infringement actions against price regulation for
households are not excluded in the follow-up to informal consultations.
Cross-referencing the MS who practice price regulation against the indicators covered in this
Section is suggestive of the gross distortions to the market that can result from this practice.
Observable tendencies include lower consumer prices and mark-ups for household prices in
MS that regulate prices, higher market concentration (Figures 11 and 12), lower switching and
consumer satisfaction (Figures 15 and 16 below), and lower levels of retail competition
performance overall.
Figure 15: Average switching rates in countries with and without regulated electricity and gas prices
–
2008–2013 and 2014 (%)
127
126
In 2014, non-residential customers consumed 1.921.153 out of the total 2.706.310 Gigawatt-hour
electricity consumption and 1.506.185 Gigawatt-hour out of the total 2.578.779 Gigawatt-hour of gas
consumption
–
Eurostat data, 2014.
127
N.B. figure does not include IT. Source: CEER National Indicators Database.
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Shortcomings of current demand response
The available evidence available generally suggests that the demand response provisions
currently in place have been less effective than intended. The provisions have not been
effective in removing the primary market barriers especially for independent demand response
service-providers and creating a level playing field for them. Instead the heterogeneous
development of demand response has led to fragmented markets across the EU. This is mainly
due to the high degree of freedom the existing provisions leave to Member States. As such in
many Member States, the roles and responsibilities for aggregators are not defined, suppliers
are able to prevent independent DR service-providers from entering the market by not
granting them access to their customers, and significant 'compensation' payments from
aggregators to BRPS and/or suppliers risk to overcompensate those parties and diminish the
business case for Demand Response. At the same time, rules and technical requirements at
national balancing, wholesale and capacity markets often prevent flexibility products from
entering those markets which forms another barrier for incentive based demand response. This
seems to be slowly changing, in particular for the balancing markets where the TSOs have
started to adapt the requirements. However, the design of more favourable requirements at
national level will in the longer term not be sufficient from the perspective of an integrated
energy market.
It can be concluded that the different treatment especially of independent DR service-
providers in national energy markets as well as of flexibility products in electricity markets
risk undermining the large-scale deployment of DR needed as well as the functioning of the
internal energy market.
Slow and uneven deployment of smart metering
Commitment to smart metering is not uniform across the EU; the roll-out is overall
progressing in a rather conservative manner, at different speeds and operational environments
across the Member States.
The least ambitious deployment and slowest pace for rolling-out is noted in the gas sector.
Seven Member States only intend to roll-out by 2020 in total 45 million gas smart meters,
corresponding to 40% of EU consumers; so far as little as a 1.5% penetration rate has been
achieved, as explained earlier. Moreover twelve Member States concluded in their CBAs that
for now the costs outweigh the benefits; others intend to install smart metering systems only
for selected groups of consumers or have reached no binding decisions yet128. This is
coherent with the observation that the business case for gas is more challenging given that the
expected benefits are either less significant than for electricity, or do not apply129.
For electricity, still a majority of Member States intend to proceed with large-scale
deployment by 2020. So far, 19 Member States have committed to rolling out close to 200
million smart meters for electricity by 2020, to at least 80% of households in 17 of these
nations, and close to 23% in 2 countries that are rolling out to a specific segment of
consumers. But Member States are at different stages of the process when it comes to actual
installations. Only four have completed so far the roll-out in electricity, while the target date
of 2020 is approaching.
128
129
SWD(2014) 189
The fact that gas can be held in storage while the supply and prices of gas do not vary much over short time periods,
makes the expected advantages of smart metering more modest than for electricity
–
[SWD(2014) 189 and EP briefing
(September 2015) on smart electricity grids and meters in the EU Member States
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The current slow advancement (which is to peak much later than originally foreseen) , the low
diffusion rates achieved to date (21% for electricity, and just 1.5% for gas in the EU-28), and
the recurring delays in national roll-out programmes, further widen the gap to delivery.
The deployment of smart metering in Member States, which is not as ambitious as originally
intended, can be credited to a certain extent to the legislation in place, even though it is
difficult to quantify it. However it should not be forgotten that in a number of cases it has
been influenced by other factors, e.g. market drivers, regulatory environments.
Conclusions
Overall, the Third Package partially fulfilled its original mission and created a stable market-
based approach on which however further legislation should be built on. In particular, it can
be concluded that:
The strengthening of unbundling rules has had a positive effect on competition
with new players entering the market, except in some Member States where the
incumbent still holds a dominant position.
Market integration has improved with the increase of cross-border electricity
trade. National markets have grown together since 2009 thanks notably to
market coupling. However, obstacles to further integration still exist due to
uncoordinated state interventions and inefficient use of interconnectors.
Cooperation between TSOs and between regulators has improved, but needs to
evolve further.
Retail level competition has progressed in some Member States, while it remains
limited in others, mainly where price regulation is still in place. Overall, the
linkage between wholesale and retail markets could be improved to enable the
pass-through of the price signals to the consumers and trigger demand response.
7.1.2.
Consumer empowerment and protection
-
-
To what extent have consumers been properly empowered, including been given
effective freedom of choice
to purchase electricity from their supplier of choice;
Are consumers sufficiently
protected,
what is the level of consumer satisfaction?
This evaluation addresses three aspects of the existing acquis that cover consumer
engagement and protection: The measures on vulnerable and energy poor consumers; the
measures on fees related to switching energy suppliers; and the measures on billing.
Consumer satisfaction and engagement in energy markets could be improved
Although subjective, consumer satisfaction is a valuable indicator on the extent to which
competition in the market is working for customers and whether suppliers are responding
adequately to changing consumer preferences.
In terms of consumer satisfaction, the data indicate that there is clearly scope for
improvement. According to the 10
th
edition of Consumer Scoreboard,
130
which is based on
130
DG Justice and Consumers' ‘Consumer Markets Scoreboard’ provides at the EU-wide
level a quantitative
assessment of how different markets worked for consumers The 10th edition of Consumer Market
Scoreboard
published
is
available
at:
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/10_edition/index_en.htm.
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consumer survey
131
and expressed in a composite Market Performance Index (MPI),
132
electricity services rank 28
th
and gas services 22
nd
among the 31 markets for services across
the EU. Therefore, both markets can be considered low performing from the consumer
standpoint. The figure below illustrates the large differences between the top-ranking and
bottom-ranking countries in the markets for electricity and gas services, measured by the
composite indices MPI and MPIsc.
133
This variance is particularly marked for electricity
markets.
Figure 16: Overall performance of markets for electricity and gas services by country
–
2013 and change
on 2012 (index)
134
The switching rate
135
is perhaps the most direct indicator of consumer engagement with the
market and of the choice available on the retail market. Although switching is affected by a
range of other factors (regulated prices, the difference in price between offers on the market
and trust in new suppliers, for example), the switching rate provides an important quantitative
measure of the effectiveness of the Articles in the Electricity and Gas Directives
–
albeit an
indirect one. At the same time, other factors that may influence the switching rate besides
131
The
2013
edition
of
the
Market
Monitoring
Survey
is
available
at:
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/market_monitoring/index_en.htm
. The ‘Market Monitoring Survey’ which has
been used as the main statistical source for the Scoreboard has
been produced annually from 2010 to 2013. However, from 2013, it will be available only every other year
and therefore as data for 2014 are lacking and data for 2013 are used instead.
The MPI is a composite index based on the results of survey questions on four key aspects/components of
consumer experience: (1) expectations (i.e. the extent to which the market lives up to what consumers
expect); (2) the ease of comparing goods or services;
(3) consumers’ trust in suppliers to comply with
consumer protection rules; and (4) the experience of problems and the degree to which they have led to
complaints. These four aspects of consumer experience are equally weighted when creating the overall
score.
MPIsc is the MPI supplemented with ‘choice’ and ‘switching’ components and is used only in markets where
it is possible to switch services and providers.
Source: DG Justice and Consumers (2014).
The percentage of consumers who change suppliers in any given year.
132
133
134
135
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status quo bias/inertia are
–
according to consumers surveyed
–
linked to the difficulty of
finding out what the right tariff would be for them (21%) or the fact that they will have to
manage their account online (3%) in order to get cheaper tariffs. Thus, removing certain
market barriers could lead to more effective consumer choice. The following figure shows
that while switching rates have generally increased since 2008, they remain relatively low in
the EU-28 at around 6%.
Figure 17: Switching rates for electricity and gas household consumers in 2014, annual average 2008–
2013
136
Contract exit fees represent a salient potential barrier to switching, since they tend to increase
the threshold for consumers to switch due to the perceived diminished potential savings
available. These are addressed in more detail in Annex 3 of this Evaluation.
Switching and exit fees
Thanks to these provisions on switching and exit fees, the switching process itself is mostly
free for the consumer. However, contractual conditions may sometimes include additional
charges related to switching. These include exit fees, administrative costs, start-up costs for a
new or short-term service
137
.
Exit (termination) fees are applied to cover,
inter alia,
the costs of leaving a fixed-term and/or
fixed-price contract early (as sometimes occurs in MS including NL and UK), as well as to
recoup the costs of administrative services, equipment, discounts and/or other incentives
provided at the beginning of the contract. While exit fees provide suppliers more flexibility in
136
137
Source: CEER National Indicators database
Charges for short term contracts are justified often by need to cover administrative costs, while at the same
time they encourage customers' loyalty.
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the range of tariffs they are able to offer, they render comparisons and switching more
difficult for consumers. Price comparison tools that do not cover exit and other fees associated
with switching are therefore not complete.
In a recent survey of ten MS, 21% of suppliers responded that a customer would be charged a
fee or similar other charge for cancelling his or her energy contract. Contractual obligations
and administrative hurdles can disproportionately discourage consumers from switching
because of a cognitive bias called 'loss aversion' – a tendency to strongly prefer avoiding
losses to acquiring gains. This is exacerbated by the fact that incorrect assumptions also deter
action. 56% of consumers in a recent electricity study survey responded that they could be
charged a fee for switching or did not know whether or not they would be charged.
Given the persistently low levels of switching and consumer engagement in the energy sector
(see sections above), there may therefore be scope to further restrict the use of switching and
exit fees charged to consumers for changing suppliers. Any such fees should be proportionate
to avoid consumer detriment and avoid lock in to a particular contract.
For a detailed analysis, see the accompanying Thematic Evaluation on Switching Fees in
Annex.
Billing
In terms of effectiveness, it is impossible to quantify the extent to which the provisions in the
Electricity, Gas and Energy Efficiency Directives have made positive contributions towards
these objectives, given the multiple and complex other factors that also affect their
achievement (the unbundling of network operations and introduction of energy efficiency
targets,
inter alia),
the absence of precise indicators and the scarcity of data. It was, however,
possible to identify certain gaps, problems and opportunities for potential improvement in the
legislation
–
notably, the following.
The latest ACER Market Monitoring Report stated that the average electricity and gas
consumer in their countries is only able to compare prices to a limited extent. The average
score was 4.8 and 5.0 on a scale from 1 to 10 for electricity and gas respectively.
138
These
poor figures are backed by a recent Commission survey that found that just 40% of EU
respondents strongly agreed that the electricity bills of their electricity company were easy
and clear to understand.
139
Correspondingly, the largest share of consumer complaints
reported to the Commission between 2011 and 2014 were related to billing (30%).
140
With regard to comparability and clarity of billing information, the relatively low degree of
satisfaction of electricity and gas customers and the high number of complaints related to
billing suggests that there is still room for improvement and that further action might be
required to this end either at national or EU level. There are several factors that could be
contributing to this.
138
ACER (2015) Market Monitoring report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitorin
g_Report_2015.
European Commission ([ongoing]), ' Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU ', [link].
Recommendation 2010/304/EU is addressed to all third-party complaint bodies (national authorities,
consumer organisations, etc.) and calls on them to classify complaints according to a common taxonomy and
to report the data to the Commission.
139
140
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There is a widespread divergence in national practices with regards to some billing elements
–
in particular information on energy sources and consumer rights
–
that would appear to
indicate a lack of implementation of certain billing requirements in the Electricity and Gas
Directives. Some Member States have gone beyond EU legislation when setting out billing
requirements in national legislation. This has in some cases caused additional confusion at the
level of the consumer.
Finally, certain elements of the current legislative framework around metering are complex
and open to interpretation with regard to the nature and scope of key obligations
–
for
example, the precise meaning of phrases such as "information on actual time of use". This
may be making it more difficult for consumers to gain access to information on their
consumption levels. Many consumers continue to receive bills based on estimated
consumption, either as a result of annual meter reading or because they do not have individual
household meters. This does not enable consumers to manage their consumption effectively,
for example, by reducing it, resulting in potentially higher bills than necessary.
For a detailed analysis, see the accompanying Thematic Evaluation on Billing and Metering in
Annex 3.
Vulnerable and energy poor consumers
The measures were to some extent effective in getting Member States to define the concept of
the vulnerable consumer and to adopt measures to protect those in this category. The
measures have tended to be predominantly at the level of welfare provision and social policy,
and not so much at the level of energy policy measures. They were also successful in bringing
the issue of energy poverty to the attention of some Member States.
Given the absence of a common EU definition of consumer vulnerability, the implementation
of the consumer protection provisions resulted in an uneven level of consumer protection
across the EU Member States. This result is naturally more pronounced regarding energy
poverty where obligations for measures in the Directives had some caveats and were not
accompanied by any common definition or a requirement for defining the concept at national
level. In addition, there have been shortcomings in the definition of the role of National
Regulatory Authorities (NRAs) in the protection of vulnerable consumers and in monitoring
of electricity and gas disconnections.
Finally, the provisions have not been effective in assisting Member States in addressing the
problem of energy poverty. Even though, recent external research
141
indicates that energy
poverty and consumer vulnerability are two distinct issues, the provisions in the Electricity
and Gas Directives refer to energy poverty as a type of consumer vulnerability. This
categorisation leads to an incorrect expectation that a single set of policy measures from
Member States can address both problems simultaneously.
Whilst precise data on the topic remains limited, rising levels of energy poverty as well as
lack of clarity on the most appropriate means of tackling consumer vulnerability and energy
poverty constitute a barrier to the further deepening of the internal energy market. The need to
address the problem seems pressing given that some form of retail energy price regulation, in
some cases intended to protect vulnerable and energy poor consumers, still exists in 17 MS,
and levels of market concentration remain high in some liberalised markets.
141
Energy poverty and vulnerable consumers in the energy sector across the EU: analysis of policies and
measures.
2015. Insight_E
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For a detailed analysis, see the accompanying Thematic Evaluation on Consumer
Vulnerability and Energy Poverty
–
Annex 3 of this document.
Conclusions
Switching rates have generally increased since 2008, they remain relatively low in the
EU-28 at around 6%. However, the analysis demonstrates that exit fees and lack of
information remain a problem. About 20 % of suppliers would charge a customer a fee
or similar other charge for cancelling his or her energy contract. Furthermore, 56 % of
consumers responded that they could be charged a fee for switching or did not know
whether or not they would be charged. Comparison tools were used by 64% of EU
consumers who had compared tariffs of different electricity companies.
Current provisions on consumer protection have proved to be a partial success as
Member States have defined the notion of vulnerable consumers and adopted some
measures to protect them. In general, this is a good direction for regulation with regard
to consumers' benefits from the internal market. However, protection of vulnerable
consumers in Member States is uneven. Moreover, energy poverty across the EU is
growing while data on the scale and drivers of energy poverty is missing.
7.1.3.
Security of Electricity Supply Directive
-
-
To what extent have the objectives of Directive 2005/89 (i.e. a high level of security of
supply, a better functioning of the internal market) been achieved?
To what extent would these objectives have been achieved in the absence of Directive
2005/89?
The SoS Directive was proposed by the Commission in December 2003, where Member
States were still working on the implementation of the Second Directive. Strong motivation
for coming up with this proposal were blackouts in both the EU (especially the one in Italy)
and US, which highlighted the need for clear operational standards for transmission networks
and the need for correct maintenance and development of the network. Generation adequacy
was also tested by both a cold winter in the Nordic region and a very hot summer all over
Europe. Although the supply chain performed well, the evidence showed the need for a
regulatory framework on investment in generation and demand management.
The SoS Directive was a good example of the Commission's swift reaction to a specific
problem: while Italy's blackout intervened in the night of 27 to 28th September 2003, the
Commission was able to table a legislative proposal by the end of the year.
142
This proposal
represented a big step forward, especially if one considers that it was made at a time where
there was no recognised EU policy on energy.
143
This also explains why its provisions are not
prescriptive enough and limit themselves to set objectives and enounce general principles.
The limitations of this Directive were soon highlighted by different stakeholders. The
European Economic and Social Committee, in its opinion
144
on the Commission's proposal,
142
143
COM(2003) 740 final, of 10 December 2003.
The Directive, indeed, was based on Article 95 of the EC Treaty, allowing the European Union to adopt
measures for the approximation of national rules related to the establishment and functioning of the internal
market.
TEN/173 of 28 October 2004.
144
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asked to be cautious before modifying the 2
nd
package rules (point 3.1) but also criticised that
the proposed Directive did not really address the existing concerns regarding security of
supply (point 3.2) and suggested that the general provisions in Article 3 were "relevant
features of any good national energy policy and widely implemented. Presenting them as
provisions in a directive may lead to confusion of responsibilities".
MEP Chichester's report
on the proposal very directly states that
"It is no secret that the original Commission proposal
has not found favour with either the Parliament or the Council".
145
Events such as those that were at the origin of the SoS Directive were certainly not the last
ones,
146
and less than ten months after the publication of the SoS Directive in the Official
Journal, Europe suffered, on 4
th
November 2006, a generalised blackout that affected 15
millions of European citizens. The disturbance, which started in North Germany, ended up
affecting large parts of the European interconnected power systems. This blackout highlighted
the existence of a series of regulatory gaps, as identified by the European Regulators Group
for Electricity and Gas (ERGEG, ACER's predecessor).
147
On 8
th
of February 2007, the
Commission's press release (IP/07/187) summarised the event as follows:
"Three main
reasons appear to have caused the blackout. Firstly, E.ON Netz, the German electricity
transmission system operator which was at the origin of the fault, was not able to monitor
whether the grid was operating securely; secondly, other European transmission system
operators did not receive information on the actions taken by the German transmission
operator; and thirdly, insufficient investment both at the level of reliability and the operation
of the grid."
As a matter of consequence, the Commission announced that the necessary
improvements of the regulatory framework would be put forward.
The SoS Directive was therefore quickly caught up by the discussions on internal market
measures proposed by the Commission already in 2007 and that led to the adoption of the
Third Package.
The SoS Directive, in its Article 9, asked the Commission to monitor and review the
application of the Directive and to submit a progress report to the European Parliament and to
the Council in 2010. In its progress report,
148
the Commission made an overview of ongoing
activities on security of supply, referred to the benefits that the implementation of the Third
Package would bring along and explained some of the future evolutions in the European
electricity system, that would require massive investments and appropriate incentive schemes
for delivering the necessary investments in generation and transmission in a timely manner.
One should recognise that the progress report contained very little about the SoS Directive, as
such, and a lot about the future regulatory changes.
145
Report on the proposal for a directive of the European Parliament and of the Council concerning measures to
safeguard security of electricity supply and infrastructure investment (FINAL-A6-0099/2005), Committee
on Industry, Research and Energy, Rapporteur: Giles Chichester, p. 30
For an overview of blackouts, their impacts and lessons learnt, see the 2011 Report on the analysis of
historic
outages,
prepared
under
the
SESAME
project
https://www.sesame-
project.eu/publications/deliverables/d1-1-report-on-the-analysis-of-historic-outages/view
ERGEG Final Report, The lessons to be learned from the large disturbance in the European power system
on the 4th of November 2006 Ref: E06-BAG-01-06
"Report on the progress concerning measures to safeguard security of electricity supply and infrastructure
investment" COM (2010) 330 final.
146
147
148
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This was not surprising, because the Third Package had in the meantime clarified the role of
NRAs and TSOs, reinforced TSO co-operation by putting into place ENTSO-E (responsible,
among other tasks, of adopting every 2 years a Community wide ten-year network
development plan, including a generation adequacy outlook), and provided for the
harmonization of the technical standards and operating procedures for the electricity system
through the establishment of network codes and guidelines. Network codes and guidelines,
once adopted, become an integral part of the Third Package. Network codes and guidelines
are currently at different stages of the adoption procedure. From an electricity Security of
Supply perspective, the most relevant are those related to the operation of the electricity
system (System Operation Guidelines, expected to be adopted early 2017) and on Emergency
and Restoration (currently under discussions in the committee of Member States
representatives).
Work on infrastructure projects had also evolved since the adoption of the SoS Directive,
mainly based on Regulation No 347/2013 on guidelines for trans-European energy
infrastructure. In 2013, the European Union identified 248 energy infrastructure Projects of
Common Interest (PCIs). This list was reviewed and up-dated in 2016 and will then be
reviewed again every other year. An Energy Infrastructure Forum was set up and convened
for the first time in 2015 in Copenhagen as a framework to discuss the major issues relating to
infrastructure and EU energy policy.
Under these circumstances, and based on additional analysis and research made by the
Commission's services, it is fair to conclude that the SoS Directive had only a limited impact
on the electricity sector in general and on the security of electricity supply in particular. This
statement is based on the following considerations:
-
The Directive imposes Member States a series of open-ended obligations, which gave
large freedom for implementation and are therefore hardly enforceable (e..g. Art. 5(1)
"Member States shall take appropriate measures to maintain a balance between the
demand for electricity and the availability of generation capacity").
The Directive was quickly (but only partially) superseded by further EU rules, which
addressed in particular the role of TSOs in the area of security of supply and the need
for infrastructure investments. The new rules do not address, however, the role
governments have to play when it comes to setting standards, identifying risks, and
taking the necessary measures to prevent & manage crisis situations.
The Directive has received a limited treatment in the specialised literature. Thorough
literature research shows that references to this Directive in articles and comments are
marginal.
149
The limited number of complaints received indicates the lack of awareness about the
Directive and confirms that its content is not precise enough to support
citizens/companies rights. According to the Commission's records (database CHAP),
potential breaches to this Directive were claimed in only 5 complaints, always as
ancillary claim to main breaches to other Directives of the second/third internal energy
-
-
-
149
The consultation of the Commission's bibliographic database produced only 2 results for bibliography
mentioning the Directive in their summary. Analysis of the Directive provisions were only found in
Christopher Jones e.a. EU Energy Law. Volume I. Internal Energy Market, and in Henrik BjØrnebye,
Investing in EU Energy Security, Kluwer Law International.
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packages or, in one occasion, the RES Directive. None of these complaints led to the
opening of an infringement procedure based on the SoS Directive.
-
The SoS Directive did not give rise to any infringement procedure on the
Commission's own initiative neither (other than the 17 cases for non-communication
of the transposing measures referred to in point 6). The reason was the general nature
of its obligations and the adoption of the Third Package, making more efficient to
address issues of non-compliance under the new more precise rules.
The limited European case-law interpreting its provisions: Only the "Castelnou
case"
150
, originated in a Commission's state aid decision challenged by a company,
gave the Court of Justice the opportunity to construe some provisions of the SoS
Directive, whereby it confirmed that
"Directive 2005/89 confines itself, in essence, to
setting the objectives (Article 1) and the factors to take into consideration when
drafting and implementing measures to safeguard security of supply (Article 3)"
(recital 206).
Last, but not least, the SoS Directive has not been the subject of any parliamentary
question. To our knowledge, it was mentioned in only one occasion.
151
-
-
It can be concluded that the SoS Directive has not been effective in the achievement of
the objective pursued. Indeed, the incident of November 2016, one year after its
approval, highlighted the existence of a series of regulatory gaps on security of supply in
terms of monitoring, information exchange and insufficient investments. Most of these
gaps have been addressed by further EU rules.
7.2.
-
-
Efficiency
-
In qualitative terms, to what extent are the costs proportionate to the benefits achieved?
Are there areas where there is potential to reduce inefficiencies particularly regulatory
burden and simplify the intervention (the issue of streamlining planning and reporting will
be dealt with elsewhere)?
Are there areas where the current regulatory framework for the EU's electricity markets
could be streamlined and optimised?
Undoubtedly, the detailed rules for TSOs, DSOs, generators and suppliers, and in particular
the respective monitoring obligations for national regulators, led to some additional
administrative costs for undertakings (e.g. for unbundling compliance monitoring) and for
regulators (e.g. through increased tasks in monitoring and deciding on implementation details
of the Third Package). This constituted a significant additional burden given the moderate size
of many National Regulatory Authorities ("NRAs"). Half of the 28 NRAs have less than 100
staff members
152
. Generally, the level of resources available to different NRAs varies
150
Judgment of the General Court (Second Chamber) of 3 December 2014, Case T-57/11, Castelnou Energía,
SL,vs European Commission
It was mentioned in the Commission's answer to the Written Question E-010039/13, by MEP Marc
Tarabella on 10 September 2013.
See overview per Member state in "EU Energy Markets in 2014"
http://ec.europa.eu/energy/sites/ener/files/documents/2014_energy_market_en.pdf
151
152
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considerably. As underlined by the Court of Auditors
153
, the number of people dealing with
energy issues in NRAs visited during their audit ranged from 21 (Estonia) to more than 200.
However, given a
value of the EU the electricity sector of more than €
1.000 billion in 2014
154
and the significant potential economic losses due to distortions of competition, the cost for
monitoring are considered negligible by stakeholders who rather call for stronger regulatory
oversight. This is made clear in the responses to the public consultation where there is notably
significant support for increasing ACER's powers by many stakeholders
155
(e.g. oversight of
ENTSO-E activities or decision powers for swifter alignment of NRA positions).
Certain regulatory measures contained in the Third Package, such as unbundling have had a
cost for electricity stakeholders. The implementation of the unbundling requirements for all
TSOs certainly entailed costs for these companies. However these are difficult to quantify and
no detailed aggregated data on the cost of these organisational changes required by the
unbundling measures exist. The Commission's report on the impact of its unbundling reform
from October 2014
156
showed that cost effects did not play a significant role for stakeholders.
The possibility for a Member State to choose between three unbundling models has provided
some flexibility which may have contributed to keep the costs related to the organisation
changes relatively limited. Indeed, it may be assumed that the Member States have opted for
the unbundling model which was the closest to the existing organisational structure of their
TSOs.
ENTSO-E is financed almost exclusively by fees collected from its members i.e. the TSOs. In
2015, its budget was of 17 000 k€ to be divided by the 41 TSOs from 34 countries. ENTSO-E
also holds as members TSOs from the Energy Community from countries which are not part
of the EU. The public consultation
157
has not gathered any remarks on the cost or budget of
ENTSO-E. The fees paid by the TSOs to ENTSO-E appear to be of an acceptable level and
justified by the benefits that the TSOs enjoy from the existence of such an organisation whose
task is inter alia to defend their interests.
To the exception of the budget of ACER, no EU funds have been used to implement the
measures of the Third Energy Package.
Regarding ACER, its budget is almost exclusively financed by an EU budget subsidy. While
initially foreseen to be of approximately 6 to 7 million euros
158
ACER's annual budget in
2015, amounted to 10 513 574 euros. Similarly the staff of ACER was foreseen to be
approximately 40-50 people while it is now 69 (ACER Establishment plan 2016). This
increase, both is budget and staffing reflects the gradual increase in tasks and duties attributed
to ACER, notably in consecutive legislation (e.g REMIT and TEN-E) ACER's financing has
153
Special Report 16/2015 by the European Court of Auditors, Improving the security of energy supply by
developing the internal energy market: more efforts needed, 2015
http://www.eca.europa.eu/en/Pages/DocItem.aspx?did=34751
The value is calculated using the turnover of the EU electricity sector which was estimated at 1.182 bn € in
2014 (based on Eurostat data), representing around 8% of the EU-28 GDP.
See for example the answers to the public consultation on the Market Design Initiative from Europex, E-
Control, IFIEC, IEA, Eurelectric, EFET, EUROPEX.
https://ec.europa.eu/energy/en/consultations/public-
consultation-new-energy-market-design
https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex3.pdf
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
Impact assessment for the Third Package (SEC(2007) 1179/2)
http://ec.europa.eu/smartregulation/impact/ia_carried_out/docs/ia_2007/sec_2007_1179_en.pdf.
154
155
156
157
158
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been facing different challenges as the tasks of the Agency have grown over the years. While
its budget has increased since its establishment, it is still seen as unsufficient by ACER itself.
The Director of ACER has been requesting additional staff over the years but these have not
been granted in full by DG BUDG. In addition ACER has been given the possibility to collect
fees under the Third Package. Article 22 of the ACER Regulation provides that fees shall be
due to the Agency for requesting an exemption decision and the fees shall be set by the
Commission. Since the establishment of ACER no such exemption decision was requested
and until now, the Commission did not set such fees.
Overall, it can be concluded that the new rules of the Third Energy Package have
generated additional administrative costs for undertakings and regulators. However
these are not perceived as too heavy by stakeholders and appear to be counterbalanced
by the benefits they generate notably through the increase in competition in the sector.
Security of Electricity Supply Directive
-
-
-
-
To what extent have the interventions been cost effective?
Is the administrative burden imposed on Member States and economic operators (e.g.,
through the reporting obligation contained in Article 7) justified?
Is there room for simplification?
Could the legislation have been better enforced/implemented?
The SoS Directive limited itself, in essence, to setting the objectives and the factors to take
into consideration when drafting and implementing measures to safeguard security of supply.
That means that it set a general framework on security of supply, but left it by and large to
Member States to define their own security of supply standards and policies within certain
limits. Because of the general terms of its provisions, it is estimated that the cost of the
intervention was a limited one, because it required limited legislative efforts (as confirmed by
CEER 2009 report) and did not imply specific actions by Member States.
Concerning the additional requirements on reporting imposed by Article 7, in connection
with the obligation to monitor security of supply imposed in Article 4 of Directive
2003/54/EC and in the Electricity Directive, the administrative burder of the reporting
obligation set in Article 7 is negligible.
Therefore, it can conclude that due to the limited number of obligations, largely
referring to mere reporting, the administrative burden remain limited.
7.3.
Relevance
The evaluation of the effectiveness and efficiency of the Third Electricity Package showed
that the new rules clearly had a positive effect on markets and for consumers. However, with
a view to some
fundamental changes
in electricity markets since 2009, the evaluation needs
to assess if the Third Package framework is still sufficient to deal effectively with future
challenges of the sector.
7.3.1.
The 2009 market design is not fully adapted to new market realities
-
The 2030 targets imply that the share of electricity generated from RES is likely to
reach up to 50% of electricity produced.
Under which conditions can the current
electricity market facilitate the integration of such increasing levels of RES, also
considering that it is primarily decentralised?
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Europe's power system is in the midst of profound changes. The European Union's policy to
fight global warming requires the electricity systems to shift from a generation mix that is
mostly based on nuclear and fossil fuels to a virtually decarbonised power sector by 2050
159
.
This shift in the means employed to generate electricity from wind and solar has already
started to take place and is expected to become still more pronounced towards 2030.
On the political side, a renewed commitment at both European and global level to
decarbonize
the economy means that the uptake of generation from renewable energy sources
(RES) has been on an upward trend ever since, and is promised to increase further.
The physical nature of renewable electricity generation
–
more variable, unpredictable and
decentralized than traditional generation
–
has important practical consequences for the way
electricity is traded, priced, and how grid operators can operate the electricity grid in a safe
and efficient manner. While at the time of the Third Package electricity was mainly produced
in central, large-scale fuel-based power plants, a market design with a large part of electricity
produced from variable wind and solar sources
requires different rules. Effective short-
term markets and prices that reflect actual scarcity played a minor role in the Third
Package, but are now key for the functioning of the market.
The Third Package clearly
lacks rules for the development and functioning of short markets
as well as
rules that
would enable the development of peak prices
reflecting actual scarcity in terms of time and
location.
Despite the importance played by market coupling since 2009 in the further integration of
European markets (leading to price convergence and increase of exchanges between Member
States), the Third Package does not mention market coupling. Similarly, power exchanges
which play a critical role in the energy market are not addressed by the Third Energy Package.
Since variable energy production needs significant backup energy for times without wind and
sun, cooperation in organising this backup across member states is crucial to save unnecessary
costs for consumers. Also the safe management of the EU-wide connected electricity grid
requires closer cooperation between grid operators.
While some progress has been made in
the Third Package on cross-border cooperation, notably with the creation of ACER and the
ENTSOs, close regional cooperation between TSOs and regulators is a key feature of a
"decarbonised" electricity market, and the current do not reap the full benefits of cooperation.
Equally dramatic changes have taken place on the
technological
side. Digitalisation of energy
markets increasingly allows the use of so-called 'demand
response'
solutions, enabling
industrial, business and household customers' demand to participate in electricity markets.
However, the current legislation has not been effective in removing the primary market
barriers especially for independent demand response service-providers and creating a level
playing field for them. The same goes for insufficient EU-wide deployment of fit-for-purpose
smart metering
that can support novel energy services and products of value also to
consumers as well as enable the consumers to take active participation in the market.
In addition, technological progress allows
distribution system operators
to reduce network
investments by locally managing the challenges posed by increasing amounts of distributed
RES E directly connected to distribution systems. However, outdated regulatory frameworks
prevent them from operating more innovatively and efficiently.
159
See table under paragraph 2.1
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In parallel, we have seen a partial comeback of
state interventions
as Member States began
introducing new types of national schemes aimed at protecting existing generation. The most
important such examples are support schemes for electricity produced from renewable energy
sources and so-called Capacity Mechanisms (CMs). Sub-optimal rules to support renewable
generation had the unintended effect to deter price signals or limit cross-border trade. State
interventions also translated into higher transmission tariffs, ultimately neutralising the
positive developments on wholesale electricity markets and driving up prices for end
customers at the retail level. The volumes of electricity trade affected by such state
interventions contracted under such mechanisms have increase significantly in the last years,
with increasing impacts on functioning of the internal electricity market. Further, whilst the
Third Energy Package contains provision on transmission tariffs, their level and design still
differ significantly between Member States. This has the potential to distort price signals.
In addition, the worldwide
financial and economic crisis
in 2008 has depressed economic
output - and therefore energy demand - in a way that had not been foreseen. This decline in
energy demand, in combination with the politically intended decarbonisation of the generation
fleet, had a significant effect on the business case of fuel-based generators and raised the
question whether market arrangements are fit to deliver needed investments to decarbonize the
economy on the required scale.
Overall, the rules of the Third Energy Package appear to be insufficient to cope with
such current levels of RES. Different rules appear needed to ensure in particular the
development of short term markets and the emergence of prices that reflect actually
scarcity. Rules to ensure closer cooperation of grid operators are also insufficient as they
stand.
7.3.2.
The Third Package does not provide regulatory solutions to address
perceived lack of investment into generation
-
-
Does the market (still) provide a
proper framework for investments in electricity
assets?
Are there
barriers
to investment, in particular in
new technologies?
Does the EU electricity market constitute a
favourable investment climate for
electricity assets?
To what extent does it create
a level playing field for investments
in the operation of RES, conventional generation, demand response or storage?
Generation adequacy is not addressed in the Third Energy Package. Consequently, there are
no common generation adequacy rules at EU level. However the Commission underlined in
its Communication on public interventions that "even
if it might be legitimate for generation
adequacy standards to be different against the background of differing circumstances in
Member States, the system reliability in interconnected markets is interdependent
160
". This is
why the Commission has felt the need to develop some guidance form Member States
wishing to put in place generation adequacy measures through a Communication on State Aid
Guidelines
161
.
160
C(2013) 724 Communication from the Commission, Delivering the internal market and making the most of
public interventions, 5 November 2013;
SWD(2013) 438, Commission Staff Working Document, Generation Adequacy in the internal electricity
market - guidance on public interventions, 5 November 2013
Communication from the Commission
—
Guidelines on State aid for environmental protection and energy
2014-2020,
OJ C 200, 28.6.2014, p. 1–55
161
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The Interim Report of the sector inquiry on capacity mechanisms
162
conducted this year by
DG Competition provides an analysis of the current investment climate in electricity
generation. The increase in generation capacity coupled with decreasing demand have led to
increasing gaps between peak demand and generation capacity, which points to overcapacity.
This has in turn led to decreasing electricity wholesale prices since 2011.
"The
generation capacity of new renewable energy usually has lower running costs than
conventional coal- or gas-fired power plants. As a result the conventional power plants do
not produce as often as they did in the past, especially in markets with a high proportion of
renewable energy. The intermittent character of renewable sources of electricity creates
uncertainty regarding the frequency of price spikes that help conventional technologies to
recoup their investment costs."
In recent years, many unprofitable power plants plan to mothball and close. This is especially
the case for flexible gas fired power plants that have become more expensive to run compared
to less flexible lignite and coal.
Normally, well-functioning wholesale markets should provide price signals necessary to
trigger the right investment, However, the ability of markets to do so is debated today because
today's electricity markets are characterised by uncertainties as well as by a number of market
and regulatory failures which affect price signals; These include low price caps, renewable
support schemes, the lack of short term markets and lack of demand response operators.
Overall, the Third Energy Package does not ensure sufficient incentives for private
investments in the new generation capacities and network because of the minor attention
in it to effective short-term markets and prices which would reflect actual scarcity.
7.3.3.
The significant increase in uncoordinated state interventions
-
To what extent can the current regulatory and governance framework respond to the
risk that, in an increasingly integrated market, national policies create negative spill-
over effects?
State aid support in the field of energy has increased tremendously since the Third package
was adopted. Indeed, EU Member States have primarily relied on dedicated policy
instruments to support the deployment of renewables. These instruments take the form of
operating aid or investment aid. In parallel, based on perceived or real generation adequacy
concerns, several Member States have introduced generation adequacy measures. These
measures often take the form of either dedicated generation assets kept in reserve or a system
of market wide payments to generators for availability when needed, referred to as capacity
mechanisms (CMs).
In 2009, state interventions concerning renewable energy support schemes or capacity
mechanisms played a limited role in the market, as renewables accounted only for 19% of
electricity produced in 2009
163
and CMs had been in place only in a limited number of
countries. Since then this share has increased to 27.5% in 2014.
162
163
http://ec.europa.eu/competition/sectors/energy/state_aid_to_secure_electricity_supply_en.html
Eurostat data
:
http://ec.europa.eu/eurostat/statistics-explained/index.php/Energy_from_renewable_sources
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Today, renewable support schemes and capacity mechanisms disregard market rules (priority
of dispatch, balancing exemptions, missing cross-border participation, etc.) leadsing to major
malfunctions of the market.
On Capacity Mechanisms
Regarding capacity mechanisms, the Third package (Art 8 of the electricity directive)
recognises the need for tendering of new capacity if markets are not able to deliver the right
level of generation adequacy to safeguard security of supply. It provides a legislative
framework for providing for new capacity or energy efficiency/demand-side management
measures through a tendering procedure or any procedure equivalent in terms of transparency
and non-discrimination.
Since variable energy production needs significant backup energy for times without wind and
sun, cooperation in organising this backup across member states is crucial to save unnecessary
costs for consumers.
As reflected in the Sector Inquiry on capacity mechanisms led by DG Competition, the
heterogeneous development of capacity mechansims has led to fragmented markets across the
EU. This is mainly due to the high degree of freedom the existing provisions leave to Member
States as they are neither detailed nor instructive. The Sector Enquiry highlights that "The
different types of capacity mechanisms are not equally well suited to address problems of
security of supply in the most cost effective and least market distortive way."
In particular, these mechanisms may lead to distortions if their design affects natural price
formation in the energy market (e.g. bids of energy) and therefore alter production decisions
(operation of power generating plants) and cross-border competition
164
Capacity mechanisms
may also influence investment decisions (investment in plants and their locations), with
potential impacts in the long term
165
..
CMs may also cause a number of competition concerns. In this respect, the DG Competition's
Interim report on the Sector Inquiry identifies substantial issues in relation to the design of
CMs in a number of Member States. First, many Capacity mechanisms do not allow all
potential capacity providers or technologies to participate, which may unnecessarily limit
competition among suppliers or raise the price paid for the capacity
166
. Second, capacity
mechanisms are also likely to lead to over-compensation of the capacity providers
–
often to
the benefit of the incumbents
–
if they are badly designed and non-competitive. In many
Member States the price paid for capacity is not determined through a competitive process but
set by the Member State or negotiated bilaterally between the Member State and the capacity
provider. This creates a serious risk of overpayment
167
. Third, the inquiry revealed that
164
For instance, a possible distortion is when generators in a CM market, receive (capacity) payments which
are determined in a way that affects their electricity generation bids into the market, while in a neighbouring
"energy-only" market generators do not. This may tilt the playing field for generators on either sides of the
border.
For instance, if contributions from cross-border capacity are not appropriately taken into account, they may
lead to over-procurement of capacity in countries implementing CMs, with a detrimental impact on
consumers
In some cases, certain capacity providers are explicitly excluded from participating or the group of potential
participants is explicitly limited to certain providers. In other cases, Member States set requirements that
have the same effect, implicitly reducing the type or number of eligible capacity providers. Examples are
size requirements, environmental standards, technical performance requirements, availability requirements,
etc.
In Spain for example, the price for an interruptibility service almost halved after a competitive auction was
introduced.
165
166
167
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capacity providers from other Member States (foreign capacity) are rarely allowed to directly
or indirectly participate in national capacity mechanisms
168
. This leads to market distortions
as additional revenues from capacity mechanisms remain reserved to national companies.
This is particularly problematic in case of dominant national incumbents whose dominant
position may even be strengthened by a national capacity mechanism. Lastly, although there
is a challenge to design penalties that avoid undermining electricity price signals which are
important for demand response and imports, where obligations are weak and penalties for
non-compliance are low, there are insufficient incentives for plants to be reliable.
All in all, as reflected in the Sector Inquiry, "A
patchwork of mechanisms across the EU risks
affecting cross border trade and distorting investment signals in favour of countries with
more 'generous' capacity mechanisms. Nationally determined generation adequacy targets
risk resulting in the overprocurement of capacities unless imports are fully taken into
account. Capacity mechanisms may strengthen market power if they, for instance, do not
allow new or alternative providers to enter the market. Capacity mechanisms are also likely
to lead to over-compensation of the capacity providers
–
often to the benefit of incumbents
–
if
they are badly designed and non-competitive."
All of these issues can undermine the
functioning of the internal energy market and increase energy costs for consumers.
To conclude, given the widespread use of state aid in European electricity markets today and
the potential for state aid measures to create market inefficiencies and distortions, the rules of
the Third package remain important and relevant today; but to protect them and make them
effective, new rules are necessary on market compatible RES support schemes and capacity
mechanisms.
On RES support schemes and regulatory exemptions
In 2009, the majority of Member States were promoting renewable energy production either
by green certificate regimes or quotas (23 Member States), or by feed-in-tariff system (21
Member States). Premiums were used in 7 Member States and tendering was not common
practice at the time
169
.
Member States retained full discretion over their use of support schemes, including their
design, structure and the level of support. The EU legislative framework, including the 2009
RES Directive
170
, provided no guidance on how or when using support schemes, nor even on
their eventual revision or reform. As a result, each and every Member State provided its own
support, used different models for support schemes and all Member States started off by
excluding non-domestic renewables from access to the support schemes. Not all national
support schemes were found to be equally efficient and responsive to market signals
168
For example, Portugal, Spain and Sweden appear to take no account of imports when setting the amount of
capacity to support domestically through their CMs. In Belgium, Denmark, France and Italy, expected
imports are reflected in reduced domestic demand in the CMs. The only Member States that have allowed
the direct participation of cross-border capacity in CMs are Belgium, Germany and Ireland. For more
details, see annex 5.2.
Renewable Energy: Progressing towards the 2020 target, COM (2011) 31
Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of
the use of energy from renewable sources and amending and
subsequently
repealing Directives 2001/77/EC
and 2003/30/EC (Text with EEA relevance)
OJ L 140, 5.6.2009, p. 16–62
169
170
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When these limitations started to become apparent, the Commission issued Guidance on RES
support schemes design and their reform in 2013
171
. The move towards more market-based
support mechanisms was then further complemented by the Guidelines on State aid for
Environmental Protection and Energy ('EEAG')
172
and both paved the way for the design of
future support schemes, which should be market-based and granted through a competitive
process. For this, the EEAG set two major deadlines in 2016 and 2017, respectively for
market-based support and competitive bidding, which is already in place in 13 Member
States
173, 174
.
7.3.4.
Increased interconnection and decarbonised market require closer TSO
and NRA cooperation
-
Does the current
regulatory and governance framework
still provide sufficient scope
for fostering necessary market integration, and effective prevention of distortions and
secure operation of the integrated electricity system?
Since the adoption of the Third Package in 2009, the increasing share of variable renewable
energy sources and decentralised generation in the electricity mix resulting from the
implementation of the 2020 and 2030 targets, together with closer market integration,
especially in shorter market time intervals, resulting from the implementation of network
codes and guidelines, have made system operation much more interrelated than it was in the
past. Indeed, interconnection flows can vary hugely from one hour to another depending on
weather and market conditions, impacting security of supply.
TSOs play an increasingly important role in facilitating market integration with processes
such as capacity calculation or balancing markets where coordination across borders is
essential. As analysed in the ACER Market Monitoring Report
175
, there is a high amount of
cross-border capacities that remain unused even in case of significant price differences. The
increasing volatility of flows might even deteriorate the situation if more efficient methods are
not employed.
These evolutions require much deeper regional coordination of TSOs and NRAs.
As regards TSO regional coordination, driven by the lessons learnt from the serious electrical
power disruption in Europe in 2006, European TSOs have pursued enhancing regional
cooperation and coordination. To this end, TSOs have voluntarily launched Regional Security
Coordination Initiatives in the recent years (the most prominent are Coreso and TSC, launched
in 2008) covering a greater part of the European interconnected networks and aiming at
improving TSO cooperation and maintaining or increasing security of operation of European
interconnected networks. Moreover, in a multi-lateral agreement between all the European
171
"European
Commission
guidance for the design of renewable energy support schemes", 2013, SWD (2013)
439 final
"Guidelines on State aid for environmental protection and energy 2014-2020", OJ 2014/C 200/01
DE, ES, ET, FR, HR, HU, IT, LT, LV, MT, PT, SL, SK
RES-Legal
ACER/CEER (2015), Market Monitoring Report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitorin
g_Report_2015.pdf
172
173
174
175
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TSOs signed in December 2015, nearly all have agreed to make participation in these RSCIs
obligatory.
The RSCI approach is widely recognised as a positive step forward and has been further
formalised in European legislation with the new Commission Regulation establishing a
guideline on electricity transmission system operation. The Guideline mandates the creation of
Regional Security Coordinators (RSCs) covering the whole of Europe to perform five relevant
tasks at regional level as a service provider to national TSOs.
Even with the creation of RSCs, the current framework for system operation is largely based
on the national approach, given that it follows the design established during the times of
existence of vertically integrated utilities, based on a national power system. This is also
reflected by the fact that typically the network of each Member State is managed by one TSO,
regardless of the geographical size of the country, valid for e.g. France and Slovenia.
The challenges the EU power system will be facing in the medium to long term are pan-
European and cannot be addressed and optimally managed by individual TSOs,
rendering the current legal framework concerning system operation unsuitably adapted
to the reality of the dynamic and intermittent nature of the future electricity system and
putting to question whether the mandated regional cooperation of TSOs via RSCs is fit
for purpose in the post 2020 context.
The institutional framework currently applicable to the internal energy market as set
out in the Third Package is based on the complementarity of regulation at national and
EU-wide level. In view of the developments since the adoption of the Third Package as
described above, the institutional framework, especially as regards cooperation of NRAs
at regional level, will need to be adapted to ensure the oversight of entities with regional
relevance (e.g., RSCs). Moreover, as the European energy markets are more and more
integrated, it is crucial to ensure that ACER can function as swiftly and as efficiently as
possible. In addition, the implementation of the Third Package has highlighted areas
with room for improvement concerning the framework applicable to ACER and the
ENTSOs.
7.3.5.
Consumers participation and protection
-
Does the current regulatory provide sufficient scope to ensure that
final consumers
can
actively participate in the market, and are optimally protected?
At the time of drafting both the Second and Third energy packages, consumer bills and pre-
contractual information formed the basis of consumer comparability, as consumers would be
given the possibility to measure up individual offers against their current supply contract.
Since then, the use of online
comparison tools
has risen significantly across the EU. Over
time the continuation of this trend might challenge the relevance of the EU intervention if it is
not adapted to also reflect new ways of consumer-market interaction.
Well-designed, reliable and transparent online comparison tools do the number-crunching
necessary to accurately compare the costs of each offer for individual consumers. 64% of EU
consumers who had compared tariffs of different electricity companies now say they had used
comparison tools to do so. Behavioural experiments show that comparison tools significantly
increase the number of cheaper offers consumers are able to identify compared with
contacting individual providers directly.
In addition, rising energy prices and stagnant wage growth mean that there are growing levels
of
energy poverty
within the EU. Since 2000 expenditure on energy services for the poorest
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households in the EU has increased by 50%, reaching almost 9% of their total budget on
average. And in 2014, the gap in the share of expenditure spent on domestic energy services
between the average and the poorest households increased to three percentage points
176
.
These developments have provoked strong political interest in the issues of consumer
vulnerability and energy poverty, and may suggest that the existing provisions on these topics
in the
acquis
need to be revisited to be relevant in the current context.
Consumer vulnerability will remain relevant as some drivers of vulnerability are
permanent. Energy poverty problem is likely to grow in the future if no policy measures
are adopted.
7.3.6.
Distribution and flexibility
-
-
Are the roles carried out by DSOs, and their incentives, still fit-for-purpose given the
increased need to integrate variable distributed generation?
Are the existing provisions for demand response ("demand-side management")
sufficient for ensuring cost effective levels of flexibility?
DSOs
Developments in the retail market such as the deployment of smart metering systems and the
increasing importance of data will call for a more active and neutral role of DSOs, and put
into question the continued relevance of the existing legislation.
Whereas previously, larger-sized generation capacity was mainly connected to the
transmission grid, RES-E is often smaller in scale and connected to the medium and low
voltage grids. In meeting 2020 targets some Member States are already experiencing a high
penetration of RES with an increasing number of the resources being variable (wind and
solar). A large share of these resources in many cases is connected to distribution grids (low
and medium voltage). According to available data this number is estimated to be as high as
90% (e.g. in Germany)
177
.
Technological progress allows distribution system operators to reduce network investments
by locally managing the challenges this presents. However, outdated regulatory frameworks
prevent them from operating more innovatively and efficiently. For example, EU provisions
which aimed to enhance the DSOs position in using demand side management and energy
efficiency measures in planning their networks were not proved to be effective. Also DSOs
should be in a position to use innovative tools in order to avoid costly investments and operate
their networks more efficiently in only few Member States. The resulting inflexibility of
distribution networks significantly increases the cost, in particular terms of investment needs,
for integrating larger RES E.
176
177
Working Paper on Energy Poverty, 2016. Vulnerable Consumer Working Group.
Based on data from the EvolvDSO Project (FP7/2007-2013).
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Figure 18: The level of electricity grid fees for households (DC band) in EU member states depending on the current
share of RE electricity generation.
DC: grid fees and RE share
Euro/kWh
.02
.04
.06
.08
.1
2008
2010
2012
2014
2015
2008
2010
2012
2014
2015
RE share <= 10%
grid fees
Source:
DG ENER, refe, mercados, indra
RE share > 10%
The increasing more decentralised connection of electricity production units will imply that
distribution system operators will have to manage low and medium voltage grids more
actively than previously, when such management was only required at the transmission
system level.
There is a common view among DSOs and other stakeholders that in order for DSOs to cope
with this increasing number of variable RES-E they should become more active in managing
their networks. This would involve the use of flexible resources in order to alleviate short-
term and long-term congestions. Moreover, it would require investments in smarter grid
elements.
For more information see the Annex on DSOs.
The original objectives of current DSO unbundling requirements still correspond to the
EU objective of a competitive internal energy market and given, the growing importance
of DSOs, strong enforcement needs to continue.
The introduction of smart metering systems will generate more granular consumption
data and new business opportunities in retail market. Moreover, the integration of more
RES-E generation at distribution level will require a more active management of the
network from DSOs. Even if current provisions partially cover those challenges, the
circumstances have changed significantly since the adoption of the Third Package.
Consequently, the upcoming market framework requires further definition of tasks for
DSOs.
Demand-side response
The current EU legislation (Art 25.7 of the Electricity Directive together with Art. 15 of
Energy Efficiency Directive) recognises the need to make electricity demand more flexible in
order to enable the energy system to better cope with variable RES and new loads, as well as
to reduce the need for related capacity investments. It provides a legislative framework for
demand response, obliging Member States to ensure that demand response providers are
treated in a non-discriminatory manner.
The evidence available generally suggests that these provisions have been less effective in
achieving their stated objectives than intended. The provisions have not been effective in
removing the primary market barriers especially for independent demand response service-
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providers and creating a level playing field for them. Instead the heterogeneous development
of demand response has led to fragmented markets across the EU. This is mainly due to the
high degree of freedom the existing provisions leave to Member States. As such, a host of
market barriers exist in many Member States: The roles and responsibilities for aggregators
are not defined, suppliers are able to prevent independent demand response service-providers
from entering the market by not granting them access to their customers, and significant
'compensation' payments from aggregators to Balance Responsible Parties and/or suppliers
risk to overcompensate those parties and diminish the business case for Demand Response.
As for consumers reacting directly to changes in retail prices (also referred to as price based
(or implicit) demand response) there is no binding EU legislation in place, and dynamic price
contracts for residential consumers are currently only widely available in four Member States.
In the absence of this, two major barriers to enabling price based demand response have
emerged: low access to fit for purpose smart meters and (relatedly) the lack of supply
contracts with dynamic prices linked e.g. to the spot market.
Under the Electricity (and Gas Directives), MS have some discretion on the extent to which
they roll out smart meters based on national Cost Benefit Analyses (CBAs). They only have
the obligation to roll out smart meters for electricity to at least 80% of consumers by 2020 if
these national CBAs are positive. This has contributed to the partial deployment of smart
metering systems. To date, 19 Member States have committed to rolling out close to 200
million smart meters for electricity by 2020, meaning that up to 72% of EU consumers should
have a smart meter by this date
178
. However, only 21% of consumers had smart meters as of
2014 (the latest reliable data we have from ACER), raising doubts over whether these national
rollout plans are achievable.
Moreover, the legislative provisions in the aforementioned Electricity and Gas Directives are
silent on the practicalities/specifications for reaching the ultimate requirement to roll-out
systems that shall assist the consumers'
'active participation'
in the energy supply market.
There is therefore a risk that the systems being rolled-out may not be fit for purpose and not
bring all the desired benefits to consumers and the market as a whole
–
including facilitating
price- and incentive-based demand response.
Partly as a result of these deficiencies, price signals in real time are currently not passed
to final consumers, resulting in inflexible demand patterns. This is also reflected in the
slow uptake of demand response in Europe. According to recent analyses, the current
theoretical demand response (or flexibility) potential accounts for approx. 100GW of
which up to 40GW could be economically activated. However, currently only approx. 21
GW (predominantly in the industrial sector) are activated indicating that the demand
response potential is underutilised.
The Commission Report COM(2014) 356
“Benchmarking
smart metering deployment in the EU-27 with a
focus on electricity”,
as also recently updated in the
Smart Grids Task Force EG1 Report: “Status
report based
on a survey regarding Interoperability, Standards and Functionalities applied in the large scale roll-out of smart
metering in EU Member States”,
October 2015. COM(2014) 356:
http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=COM%3A2014%3A356%3AFIN;
and accompanying (country fiches) SWD(2014) 188:
http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:52014SC0188;
(analysis of data) SWD(2014) 189:
http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:52014SC0189;
Smart Grids Task Force EG1 report:
https://ec.europa.eu/energy/sites/ener/files/documents/EG1_Final%20Report_SM%20Interop%20Standards%20
Function.pdf
178
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In summary it can be concluded that the existing measures have been partly effective in
removing barriers for the participation of industry in demand response but have not
been effective in removing barriers for the participation of the residential and the
commercial sector. This is of great concern as by 2030 demand response potential is
expected to increase to approx. 160GW by 2030 with the increase mostly driven by the
residential sector and the uptake of electric vehicles and heat pumps. As the existing
provisions have not been efficient in removing barriers for the commercial and
residential sector the gap between demand response potential and activated demand
response is likely to further increase in the future unless those barriers are removed.
For a detailed analysis, see the Annex on Demand Response and Smart Metering
Systems.
7.3.7.
Security of Electricity Supply Directive
-
-
To what extent is the intervention still relevant?
Do the objectives of the Directive and related EU rules still correspond to the needs of
security of electricity supply, taking into consideration the evolution of the electricity
markets over the past 10 years?
The objectives that inspired the SoS Directive are still relevant for improving the security of
electricity supply in Europe: (1) setting the conditions to facilitate a stable investment climate;
(2) clarifying roles and responsibilities; (3) guaranteeing a safe and secure system operation;
(4) maintaining the balance between supply and demand, and (5) appropriate regulatory
framework for investments.
All these objectives also inspired the Third Package rules, which benefitted from the lessons
learnt especially the 2006 blackout (that started in Germany and cascaded across Europe) and
certainly improved Europe's preparedness to cope with crisis resulting from predictable
events, such as those resulting from the unavailability of generation / transmission units or
adverse weather conditions.
Since the 2006 blackout, Europe has luckily not experienced any widespread incident. The
2012 cold spell or the 2003 and 2015 heat waves had adverse impacts on the electricity
sectors of some Member States (France, Poland), and those effects were sufficiently
addressed at national level. In 2011, Cyprus suffered a serious emergency situation following
an explosion in a military naval base which seriously damaged nearly all generation units of a
nearby power station.
Well-functioning electricity markets offer the best guarantee for security of supply, both in
the long term (by securing the necessary investments in networks and capacity) and in the
medium and short-term (by securing an optimal matching of demand and supply). But the
question arises: are internal market rules enough to guarantee the supply of citizens with
electricity in any event and face to any risks?
The Third Package recognises that, in exceptional circumstances, market mechanisms and
operational rules might not suffice, and therefore allows Member States to adopt safeguard
measures "in the event of a sudden crisis in the energy market and where the physical safety
or security of persons, apparatus or installations or system integrity is threatened". These
safeguard measures need to be notified to the Commission, which may ask the MS to amend
or withdraw the measures. Especially in case of simultaneous crisis, uncoordinated national
safeguard measures can jeopardise the effectiveness of emergency and remedial actions taken
at operational level, and the risk of cascading effect and a generalised black-out cannot be
excluded.
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The results of a recent study
179
show a fragmented and diverse framework in relation to
obligations concerning security of supply. In particular, the existing practices differ across
Europe regarding (a) monitoring and assessment of security of supply issues, (b) measures to
deal with emergency situations and (c) definition of roles and responsibilities.
This patchwork of security of supply rules across Europe stands in stark contrast with the
reality of today's interconnected electricity market. Whilst so far, electricity crises have been
relatively limited, there is no guarantee that, where a cross-border incident occur, Member
States will have to the tools to address it effectively and efficiently.
Whilst all Member States monitor and assess possible risks related to security of supply and
take measures to prevent and mitigate such risks, national rules and practices turn out to be
very different. First, Member States have different understandings of what constitutes a risk
related to security of supply and methods for assessing and addressing such risks vary
considerably. There is also no common agreement on what the desired level of security of
supply should be. The study results indicate that 23 Member States describe and differentiate
between various categories of risks, but the approach followed to assess them differs
considerably across these states, and different actors are involved. Further, whilst most
Member States have plans in place to prevent and deal with electricity crisis situations, the
content and scope of these plans veries considerably. A majority of Member States provide a
legal definition of emergency but with varying levels of detail. In addition, existing national
plans tend to focus on the national situation only. Cross-border co-operation between Member
States in the planning phase is scarce and where it takes place at all, it is often limited to co-
operation at the level of TSOs.
The SoS Directive was conceived as a complement to the market rules, in the absence of a
clear Treaty mandate on security of supply. Today, Article 194 of the Treaty on the
Functioning of the European Union (TFEU) clearly states that the Union policy on energy
shall aim, in the spirit of solidarity between Member States, to ensure security of energy
supply in the Union. In practice, this means that Member States, system operators, the energy
industry and all other stakeholders have the duty to work closely together to ensure a high-
level of energy security for European citizens and companies, but also that Member States
should be assured that in situations of tight supply, they can rely on their neighbours.
However, whilst electricity markets are increasingly intertwined within Europe, there is no
common European framework on security of electricity supply. National authorities tend to
decide, one-sidedly, on the degree of security they deem desirable, on how to assess risks and
on what measures to take to prevent or mitigate them.
In their replies to the public consultation
180
, most of the respondents acknowledged that
security of supply should be considered as a matter of common concern, because countries are
increasingly dependent on one another and measures taken in one country can have a
179
Risk Preparedness Study - "Review of current national rules and practices relating to risk preparedness in
the area of security of electricity supply" (2016), prepared for DG Energy of the EC.
https://ec.europa.eu/energy/sites/ener/files/documents/DG%20ENER%20Risk%20preparedness%20final%2
0report%20May2016.pdf
180
Consultation on risk preparedness in the area of security of electricity supply.
https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-
supply
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profound effect on what happens in neighbouring states and in electricity markets in general.
They acknowledged that the SoS Directive does not offer the right framework for addressing
this inter-dependence.
In the absence of clear rules and procedures, agreed in advance, on issues such as how to
prevent and mitigate cyber-attacks, how to communicate across Member States in crisis
situations, what measures to take to prevent a further deterioration of a critical situation,
actions taken within one Member State can have serious negative effects elsewhere.
Therefore, it can conclude that the SoS Directive intervention is not relevant today as it
does not match the current needs on security of supply. The current needs result from
the clear TFEU mandate and, in particular, concerning risk preparedness to make sure
that Member States are aware and duly prepared to security of supply risks, clarify
roles and responsibilities in case of emergency and provide clear rules on the conditions
under which Member States may adopt safeguard measures.
7.4.
Coherence
Under this section the evaluation aims at verifying both internal and external coherence of the
Third Energy Package. The former (internal coherence) includes consistency and
interdependence of various regulatory measures adopted under the Third Package. The latter
(external coherence, in turn, means checking coherence of the Third Package with other
pieces of legislation relevant for the energy sector namely:
-
Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009
on the promotion of the use of energy from renewable sources and amending and
subsequently repealing Directives 2001/77/EC and 2003/30/EC ("RES Directive");
Directive 2012/27/EU of the European Parliament and of the Council of 25 October
2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and
repealing Directives 2004/8/EC and 2006/32/EC ("Energy Efficiency Directive");
Directive 2005/89/EC of the European Parliament and of the Council of 18 January
2006 concerning measures to safeguard security of electricity supply and
infrastructure investment ("Electricity Security of Supply Directive").
7.4.1.
Internal Coherence
-
-
Are the various measures comprised in the
Third Package properly working
together
or not?
Does the
ineffectiveness of certain measures compromise the effectiveness
of other
components?
-
-
General speaking, the Third Energy Package provisions are working together well.
However, the Commission has spotted several provisions which would need to be either
deleted because obsolete or never used or modified because unclear or confusing.
More precisely, regarding ACER, the report prepared by ACER in 2014, "Energy Regulation:
A Bridge to 2025 Conclusions Paper"
181
recommends that the Agency be given adequate
181
http://www.acer.europa.eu/official_documents/acts_of_the_agency/sd052005/supporting%20document%20t
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powers to fulfil effectively the important monitoring responsibilities assigned to it in the
ACER Regulation, in particular, in respect of information gathering. There seems to be a
mismatch between the monitoring tasks and the powers of the Agency to request information
from NRAs, TSOs, and ENTSOs.
Regarding ENTSO-E, some stakeholders who replied to the public consultation on the market
design initiative mention a possible conflict of interest in ENTSO-E’s
role –
being at the same
time an association called to represent the public interest, involved e.g. in network code
drafting, and a lobby organisation with own commercial interests
–
and ask for measures to
address this conflict. This could be considered as incoherence within the Electricity
Regulation which entrust, in its Article 6, ENTSO-E to play a key role in the elaboration of
the network codes, ENTSO-E being at the same time a representation of national TSOs which
represent their own interests. This issue has also been underlined in the report prepared by
ACER in 2014, "Energy Regulation: A Bridge to 2025 Conclusions Paper"
182
.
With regard to protection of vulnerable consumers, the main discrepancy between the
Electricity and Gas Directive arises from Universal Services (Article 3 (3) of the Electricity
Directive). The right to universal service does not exist for gas. This limits some provisions
related to the protection of vulnerable consumers in the gas sector. Member States are not
obliged to ensure certain protection to all vulnerable consumers, but only to those already
connected to the gas system. The reason is that a piped gas network for consumers is not
available throughout every EU MS.
The Third Package's provision on allowing regulated prices in specific cases adhere to
difficulties with carrying out the overarching objectives of the EU regulatory framework:
introducing competition and enabling consumer choice.
7.4.2.
External Coherence
-
To what extent is the Third Package
coherent with other measures affecting the
electricity sector,
such as the Renewable Energy (RES) Directive, the Energy
Efficiency Directive and the Electricity Security of Supply Directive?
Dispatch
The Third Package Electricity Directive sets out in its Article 32 the general principle of
non-
discriminatory access to the network.
The system of access to the electricity network has to
be based on tariffs which are applied without discrimination to all network users.
Similarly, the Electricity Directive of the Third Package contains in its Article 15 the general
principle of
non discriminatory dispatching.
Dispatching of the electrcity produced by the
different generators within a Member State must be dispatched in the network by the TSO on
the basis of criteria approved by the NRA. These criteria may take into account economic
precedence of electricty and should be applied in a non-disciminatory manner.
In terms of access to and use of the electricity grid, the Renewable Energy Directive lays
down that Member States shall ensure that, priority access or guaranteed access to the grid-
system of electricity produced from renewable energy sources is safeguarded. In terms of
o%20acer%20recommendation%2005-2014%20-
%20%20energy%20regulation%20a%20bridge%20to%202025%20conclusions%20paper.pdf
182
See footnote above
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dispatching to the system, Member States must require system operators to ensure that when
dispatching renewable energy electricity installation to the system, they have priority over
other installations. Similarly, Member States may also require the system operator to give
priority when dispatching generating installations producing combined heat and power (CHP).
These measures
–
clearly aiming at encouraging within a Member State the development of
renewable energy sources and CHP
–
is a positive discrimination in favour of renewable
energy producers. Consequently, the general non-discriminatory access principle of the Third
Package is contradicted by the priority access granted to renewables in the Renewable Energy
Directive.
When the priority access provisions of the RES Directive were developped, renewables
represented only a small proportion of installed generation capacity and these were a less
mature technology. This special treatment was in a way justifiable and had a limited impact
on the electricity system as a whole.
However, in view of the increasing share of RES E, this has resulted in a situation where in
some Member States very high shares of power generation are coming from "prioritized"
sources
183
. In view of the EU target for at least 27 % of renewable energies in final energy
183
The comparison of Germany and Denmark, two Member States with high shares both of RES-E and CHP, is
helpful to assess the deficiencies of systems based on strong priority dispatch and priority access principles.
Taking the example of Denmark, an average of 62 % of power demand in the month of January 2014 has
come from wind generation alone (http://www.martinot.info/renewables2050/how-is-denmark-integrating-
and-balancing-renewable-energy-today) and the share of annual demand covered by wind power has risen
from 19 % in 2009 to 42 % in 2015 (http://www.energinet.dk/EN/El/Nyheder/Sider/Dansk-vindstroem-
slaar-igen-rekord-42-procent.aspx). Adding to this the share of 50.6 % of CHP in total Danish power
generation.
(https://ec.europa.eu/energy/sites/ener/files/documents/PocketBook_ENERGY_2015%20PDF%20final.pdf,
p. 183), which makes Denmark one of the Member States with the highest share of CHP (http://www.code2-
project.eu/wp-content/uploads/Code-2-D5-1-Final-non-pilor-Roadmap-Denmark_f2.pdf;), in many periods
almost all generation would be subject to "priority dispatch". Finally, it may be necessary to add certain
generation assets which are needed to operate for system security, e.g. because only they can provide certain
system services (e.g. voltage control, spinning reserves), further limiting the scope for fully market based
generation. However, in Denmark, market incentives on generators are set in a way that drastically reduces
the impact of priority dispatch. Almost all decentralized CHP plants and a large number of wind turbines
would be exposed to and are not willing to run at negative prices. As CHP are not shielded from market
signals by national support systems, they have strong incentives to stop electricity generation in times of
oversupply. The integration of a high share of RES-E and CHP in parallel has been successful to a
significant extent because CHP are not built and operated on the basis of a "must run" model, where heat
demand steers electricity generation. To the contrary, CHP plants have backup solutions (boilers, heat
storage), and use these where this is more efficient for the electricity system as expressed by wholesale
prices.
Taking the example of another "renewables front runner", Germany, "must run" conventional power plants
have been found to contribute significantly to negative prices in hours of high renewable generation and low
load, with at least 20 GW of conventional generation still active even at significantly negative prices (See:
http://www.netztransparenz.de/de/Studie-konventionelle-Mindesterzeugung.htm). Financial incentives are
so that many conventional plants generate even at significantly negative prices, with many power plants
switching off electricity generation only at prices around minus 60 €/MWh. This increases the occurrence of
negative prices, worsening the financial outlook for both renewable and conventional generators, and can
increase system stress and costs of interventions by the system operator. This is not due to technical reasons
–
also in Germany, CHP plants generally have backup heat capacities, which are already necessary to
address e.g. maintenance periods of the main plant, or could technically install these. While it may be
economically and environmentally efficient to run through short periods of low prices (to avoid ramping up
or down), this is no longer the case where the market is willing to pay a lot for electricity being not
generated. Excess electricity is in these situations not very efficiently generated, but essentially a waste
product. While there is a wide range of reasons for conventional generation to produce at hours of negative
prices (e.g. very inflexible technologies such as nuclear or lignite which need a long time to reactivate),
approximately 50 % of the plants in such a situation in Germany had at least the capability for parallel heat
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consumption (which according to PRIMES EuCo27 projections would require 47 % of gross
final electricity consumption to come from renewable energy), the high share of priority
dispatch and priority access-technologies will increasingly occur in other Member States.
This can have very significant impact on the well-functioning of the electricity market. It
affects the level playing field between technologies, renders assets non-responsive to price
signals and undermines the market's price signals and flexibility and the efficiency of the
market outcome. Moreover, where the majority of assets benefit form priority dispatch, the
mesure in effect becomes meaningless when viewed from the perspective of its intially
intended objective and can have unintended negative effects, such as unnecessary curtailment
of RES E.
Balancing
The principles applicable to balancing as set out in Article 15 of the Electricity Directive are
similarly not in coherence with other existing rules and practices applicable in many Member
States. Balancing responsibility refers to the obligation of market actors to deliver/consumer
exactly as much power as the sum of what they have sold and/or purchased on the electricity
market. Balancing responsibility implies that the costs of the balancing actions taken by the
transmission system operator are generally to be compensated by the market parties which are
in imbalance. Article 15 of the Electricity Directive requires that TSOs adopt rules on
balancing which are non discriminatory. However, in some Member States, certain types of
power generation (notably wind and solar, but possibly also other technologies) are excluded
from this obligation or have a differentiated treatment. Whereas many Member States already
foresee some balancing responsibility for RES generators (2013: 16 Member States) this is
not yet the case for all Member States, and the degree of balancing responsibility differs
considerably between Member States.
Demand response
The provisions of the Third Package on demand response are fully coherent with other
legislative provisions within the electricity directive, the energy efficiency directive (EED),
the renewable energy directive (RED) and the energy performance of buildings directive
(EPBD). As all of those directives currently undergo revisions this coherence needs to be
continuously ensured to allow demand response to a) enable the integrating of renewables
efficiently into the electricity system in line with the RED, b) contribute to energy savings in
line with the EED, c) participate as a resource in the electricity markets, d) be considered
when capacity mechanisms are established, e) be supported under the distribution tariff
design.
Smart metering
In terms of
coherence
–
internally & with other EU actions
–
even though no clear
contradictions could be pointed out, the evaluation has identified some room for
improvement. Linking of the term 'actual time of use' in Article 9(2a) and Article 9(1) of the
EED to smart metering provisions erroneously restricts the functional requirements of the
targeted set-ups and raises questions about coherence with the framework for promoting smart
production, and approximately 8-10 % of conventional plants still producing at such moments were found to
be heat-controlled CHP generation (Consentec, "Konventionelle Mindesterzeugung
–
Einordnung, aktueller
Stand und perspektivische Behandlung", Abschlussbericht 25. Januar 2016, p. vii and 25).
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meters. There is therefore a need to clarify that a wide range of functionalities is in fact
promoted, as those recommended by the Commission, that go much beyond the capability of
just 'actual time of use' information which usually refers to advanced, and not smart, metering.
Moreover, to ensure coherence, avoid any further confusion and unnecessary administrative
burden for updating the related provisions in different legislative documents, it is advised to
consider that all existing requirements and any future legislative interventions on smart
metering be consolidated/embedded in one single legal act.
Metering and billing
Whereas no direct contradictions with other provisions and actions have been identified, it
may seem incoherent or at least confusing that, as explained above, the minimum frequency
of billing is (qualitatively) regulated in the Electricity and Gas Directives and quantitatively
regulated in the EED for all but smart electricity and gas meters. Most importantly, the latter
(EED) results in what would seem to be an unjustified difference between those customers of
electricity/gas and thermal energy forms, respectively, who have equipment allowing for
automatic/remote readings: whereas customers with smart electricity or gas meters should
expect to have at least monthly information (cf. the Commission's interpretation of the IEM
provisions), consumers whose consumption is measured with "smart" heat meters or heat cost
allocators are only entitled to information 2 or 4 times a year (assuming that the cost-
effectiveness condition has not been used to deviate from it). It would seem more logical that
where supplies are measured using remotely readable equipment, and where marginal costs of
more frequent information are therefore very small, the minimum frequency would be the
same regardless of the energy form, and that this be clearly spelled out.
7.4.3.
Security of Electricity Supply Directive
-
-
To what extent is this intervention coherent with other interventions which have similar
objectives and with wider EU policy?
In particular what is the coherence between this Directive and the provisions contained in
the Third Package?
Many provisions of the SoS Directive have been superseded by more recent EU legislation, in
particular the Third Package and the SoS Directive could therefore be considered as an
intermediate step between the Second and the Third Package. The SoS Directive was not
prescriptive, but rather set general principles that whould inspire Member States' policies on
SoS.
Its provisions represented a forerunner for some measures that were later on developped in
successive EU rules, as illustrated by the following references:
The need to define roles and responsibilities of competent authorities, NRAs, TSO and
market actors (Article 3(1) SoS Directive), which is a basic requirement of the EU
rules on the promotion of renewables, on energy efficiency and of the guidelines on
energy infrastructures.
The possibilities for cross-border cooperation (Art. 3(2)(c) SoS Directive) are a
essential feature of the third package, and in particular of the Electricity Regulation.
They are in the essence of the infrastructure guidelines and can also play a role in the
promotion of renewables (e.g. in the form of joint support schemes foreseen in
Directive 2009/28).
The need for regular maintenance and, where necessary, renewal of the transmission
and distribution networks, to maintain the performance of the network (Art. 3(2)(d)
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SoS Directive), is further elaborated among the TSOs duties in the Electricity
Directive (as complemented by the Network Codes and Guidelines).
The importance of ensuring proper implementation of the EU rules on promotion of
renewables and cogeneration (Art. 3(2)(e) SoS Directive).
The importance of encouraging energy efficiency and the adoption of new
technologies, in particular demand management technologies, renewable energy
technologies and distributed generation (Art. 3(3)(c) SoS Directive).
The importance of removing administrative barriers to investments in infrastructure
and generation capacity.
Special attention deserves Article 4 of the SoS Directive, which deals with "Operational
network security" and represents a truly "embryo" of what will become, more than a decade
later, the EU Guidelines on System Operation and the Network Code on Electricity
Emergency and Restoration.
The SoS Directive certainly anticipated later regulatory developments, without contradicting
them, as shown by the fact that later rules did not required amending of repealing the
Directive. To this extent, it can be considered as consistent with the remaining internal energy
market rules, with the rules on energy efficiency and on promotion of renewables, as well as
with the European guidelines on energy infrastructure.
However, a comparison of the SoS Directive with the equivalent rules existing in the gas
sector raises strong coherence concerns.
In the gas sector, issues related to the security of supply "at broad" (understood as a natural
consequence of a truly competitive energy market) are covered through the relevant internal
market rules (Gas Directive and Gas Regulation). For its part, Regulation No 994/2010
184
, and
to some extent also its predecessor (Directive 2004/67)
185
, directly adresses risk preparedness
issues. In the terms of recital 3,
"this Regulation aims at demonstrating to gas customers that
all the necessary measures are being taken to ensure their continuous supply, particularly in
case of difficult climatic conditions and in the event of disruption".
Regulation No 994/2010
created a transparent mechanism, in a spirit of solidarity, for a coordinated response to an
emergency at national, regional and EU levels. To this end, it provides for a definition of
protected customers, it sets up common infrastructure and supply standards, it introduces the
requirement to prepare risk assessments, preventive action plans and emergency plans and
defines different crisis levels, among other provisions. All these provisions aim at increasing
the degree of emergency preparedness at national and EU level in the gas sector. Regulation
No 994/2010 is currently in the process of being reviewed, based on the experience.
186
Contrary to the gas sector, the SoS Directive limits itself to anticipate future market related
developments
but
does
not
address
risk
preparedness
as
such.
The EU electricity sector therefore lacks a basic act that would enounce basic principles and
184
Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October 2010 concerning
measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC (OJ L 295/1).
Council Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas
supply (OJ L 127/92).
Commission Proposal for a Regulation of the European Parliament and of the Council concerning measures
to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010 (COM(2016) 52 final).
185
186
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impose basic obligations and clear procedures aiming at guaranteeing coordinated response in
case of emergency.
The absence of clear rules guaranteeing a coordinated action by all relevant players when it
comes to preventing and managing crisis situations, seriously weakens the EU's ability to deal
with large-scale electricity crisis situations. There is a stark contrast between the reality of
today's electricity networks, which are increasingly integrated, and the fact that so far Member
States identify risks and take action to manage and prevent them on a purely national basis, by
reference to their own sets of rules and procedures.
While EU risk preparedness has evolved and improved over the past years in the gas sector,
this has not been the case in the electricity sector.
This state of affairs can also lead to undue and unnecessary market interferences. In fact,
Article 42 of Directive 2009/72/EC grants Member States wide powers to take safeguard
measures in the event of a sudden crisis in the energy market. Such measures must cause the
least possible disturbance in the functioning of the internal market and must not be wider in
scope than is strictly necessary to remedy the difficulties. The provisions on safeguard
measures were introduced in the internal energy market rules from the very beginning, but
were never modified, and the current SoS Directive does not offer rules about the governance
aspects linked to the safeguard measures and the necessary coordination in case of crisis.
As the SoS Directive was not prescriptive but rather set general principles on security of
supply, it can be considered that the SoS Directive is consistent with other interventions
which have similar objectives, in particular with the Third Package. However, the
content and approach of the SoS Directive are not consistent with the EU rules on
security of supply in the gas sector and therefore match only partially the current needs
on security of supply in Europe, in particular concerning risk preparedness.
7.5.
EU value added
This section aims to determine value resulting from the Third Package (as determined by
‘Effectiveness and Efficiency’ section) compared to what could have been achieved by
Member States at national and/or regional levels. It includes the added value of the
institutional bodies established at EU level by the Third Package: ENTSO-E and ACER.
7.5.1.
Value added of EU market framework
-
What is the additional value
resulting from the Third Package
compared to what
could be achieved by Member States at national and/or regional levels?
Unbundling
The legal and functional unbundling of TSOs that were vertically integrated with production
and supply activities, provided for under the Second Package, did not succeed in ensuring
equal access to the networks for all suppliers. Reinforced common rules on TSO unbundling
introduced by the Third Package in order to foster competition on the grid could only be
adopted at EU level. If fragmented national rules had been in place, distortions would have
emerged in the synchronised electricity grid in a similar way as today's fragmented state
interventions distort the market. Common unbundling rules were needed to ensure a level
playing field.
With regard to DSOs, the large majority of the Member States have not set unbundling
requirements beyond those of the Electricity Directive, demonstrating that the intervention
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was necessary in order to structure the EU energy sector in such way so as to pursue the wider
objectives of the internal market, to promote competition and economic growth.
Access to cross-border infrastructure
At the time the Third Package was adopted the legal framework did not allow for a proper and
efficient regulation of the cross border issues relating to gas and electricity network access.
The fact that access to cross border interconnectors was often granted in a preferential manner
showed that rules were insufficient. This is why the Third Package aimed at a modification of
existing EU legislation and at the creation of new frameworks for cross-border co-operation
which could legally and practically only be achieved at the European level. The challenges
could not be addressed as efficiently by individual Member States. Fostering a more efficient
and integrated EU electricity market and ensuring a more co-ordinated policy response to
security of supply clearly required harmonised and coordinated approaches by all Member
States.
The increase in cross-border trade (see subsection 7.1 on Effectiveness) clearly shows that the
Third Package has meant a major step in regulating cross-border interconnectors. This is
clearly an issue that could only be regulated at EU level.
Similarly, as Member States' networks became increasingly interconnected via infrastructure,
there was a clear need for more cooperation between neighbouring TSOs. This could clearly
only be achieved by supranational measures. This is especially true as regards the need for a
coordinated approach to infrastructure development in particular with relevance for security
of supply. This has called for the development of ENTSO-E and the establishment of a ten
year network development plan. The coordination rules for TSOs and NRAs introduced by
the Third Package were needed to avoid fragmented uncoordinated decisions which could
hamper the effective functioning of the internal market.
Metering and billing
In a single market for energy there is a strong case for suppliers being subject to similar if not
identical obligations and rules, and for consumers to enjoy the same basic rights and be
provided with comparable and recognisable information wherever they live and wherever they
purchase their energy from. More generally, the delivery of a New Deal for energy consumers
as part of the Energy Union includes providing consumers with frequent access to partially
standardised, meaningful, accurate and understandable information on consumption and
related costs. Guaranteeing certain minimum standards in terms of the frequency and content
of billing and billing information therefore contributes to realising the Energy Union and
meeting EU goals on energy efficiency and greenhouse gas reductions.
The provisions addressing consumer information in the Electricity and Gas Directives are
essential for protecting consumers in the internal energy market at the retail level. They play
an important role in ensuring the benefits of the internal market in energy can be enjoyed by
all consumers, and help to create a level-playing field for suppliers and other retail market
actors across the EU. Whereas there are currently still very few if any examples of cross-
border supply in the retail market, a common base of energy consumer rights is a precondition
for that to develop over time.
Customer protection
In terms of the EU added value, while some Member States had already been protecting their
vulnerable energy consumers prior to the EU intervention, others have taken action as a result
of the EU intervention.
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Conclusions
Overall, it can be concluded that the subjects covered by the examined legislation such
as unbundling, cross-border cooperation, interconnectors, are topics which legally and
practically could only be regulated at EU level. Similarly cooperation between
neighbouring TSOs and NRAs needed to avoid fragmented uncoordinated decisions.
Regulation could only happen at supranational level.
Harmonised approach to metering and billing as well as consumer protection provisions
safeguard the level playing field for suppliers and provide equal rights for energy
consumers. It also facilitates providing cross-border services.
-
What is the value added of ENTSO-E and ACER?
The regulatory framework and rule-making process for energy policy has been enriched in the
Third Energy Package by creating ACER and ENTSO-E. ACER provides a framework for
institutionalised cooperation between national regulators. ENTSO-E, in turn, constitutes a
cooperation platform for transmission system operators.
Both ACER and ENTSO-E have become important partners in discussions on regulatory
issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively. They are
both crucial actors in the adoption process of the network codes. In its Communication
Delivering the internal electricity market and making the most of public intervention,
the
Commission underlined that ACER and the ENTSOs have played a key role in the progress
towards a functioning internal energy market. The Commission recently made an evaluation
on the first years of functioning of ACER and has concluded that the agency has become a
credible and respected institution playing a prominent role in the EU regulatory arena and
focusing on the right priorities
187
.
An external evaluation of ACER was conducted in 2014
188
. It concluded that ACER’s
governance and management structure is widely considered to be appropriate for the Agency's
current role. It also concluded
that the Agency’s working methods represent significant value
added thanks to numerous informal interactions with associations and other stakeholders.
Also their on-going publishing of all relevant documents is highly appreciated from the
market participants. In 2014 the vast majority of stakeholders consulted for this ACER
evaluation reported the Agency to be understaffed. However, the Agency was able to carry
out most of the activities planned in the work plans. The report also concluded that
deliverables produced by ACER bring value to all stakeholders by informing them of key
market and regulatory developments.
As regards ENTSO-E, improving security of supply by strengthening incentives for
investment in transmission and distribution capacities required a tighter cooperation between
national TSOs. Through the setting up of ENTSO-E, the Third Package made this cooperation
easier and smoother. Such an EU-wide structure could only be created thanks to EU
intervention.
However, the implementation of the Third Package has highlighted the existence of a number
of shortcomings concerning the framework applicable to ACER and the ENTSOs. See notably
187
188
https://ec.europa.eu/energy/sites/ener/files/documents/20140122_acer_com_evaluation.pdf
Commission Evaluation of 22.01.2014 of the activities of the Agency for the Cooperation of Energy
Regulators (ACER) under article 34 of Regulation (EC) 713/2009
–
C(2014) 242 final.
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section 7.1.1 on the need to reinforce the independence and transparency requirements
applicable to this ENTSO-E and the possible conflict of interest in ENTSO-E’s
role.
Also, it is important to note that ACER acts primarily through recommendations and
opinions. As pointed out above, the agency has limited decision-making powers. However, in
some instances, fragmented national regulatory oversight has proved to be inefficient for
cross-border issues related to the electricity and gas system (e.g. market coupling).The lack of
a stronger governance and regulatory framework for cross-border issues constitutes a barrier
for the integration of the energy markets.
189
In this regard, there is consensus among market
parties and stakeholders that ACER should indeed be enabled to more efficiently oversee the
development of the internal energy market and deal with cross-border issues.
The 29th meeting of the European Electricity Regulatory Forum of 9 October 2015
underlined, as a conclusion,
"the need for analysing and further elaborating the roles, tasks,
responsibilities and consider possible governance structures of ACER and ENTSO-E"
and
stressed
"the need to observe and consider possible governance structures for other bodies,
including DSOs and power exchanges, and for NEMO cooperation."
Overall, ACER and ENTSO-E have become key partners in discussions on regulatory
issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively.
However, a number of shortcomings concerning their framework have been identified
which need to be resolved.
7.5.2.
Security of Electricity Supply Directive
-
What is the additional value resulting from the EU intervention compared to what
could have be achieved by Member States at national and/or regional levels in the
absence of the Directive?
As already explained (mainly under the effectiveness criterion), the provisions of the SoS
Directive, as such, were quickly superseded by successive EU rules and they therefore had a
limited impact on Member States policies. One can therefore argue that, to the extent that the
SoS Directive anticipated what would become the Third Package, the added value resulting
from this intervention is close to zero (as the relevant Member States policies were based on
the Third Package provisions and would have been the same in the absence of the SoS
Directive).
Beyond those rules which were already overtaken by the Third Package, the SoS Directive
limited itself to providing a very general framework on security of electricity supply, and left
it by and large to Member States to define their own security of supply standards. This has
resulted in a pachwork of security of supply rules across Europe which make difficult to
189
Study for the ITRE Committee of the European Parliament "Energy Union: Key Decisions for the
Realisation of a Fully Integrated Energy Market", 15 March 2016 "In
several regional or EU-level projects
(e.g. market coupling projects, (…)) national authorities, TSOs, regulators and energy exchanges of
different Member States need to cooperate. However, as they are primarily responsible for their own
national gas and electricity system and market they are not always sufficiently motivated to also take
supranational interests into account.
[…]
This leads to complex and slow decisional and implementation
processes for most cross-border projects, resulting in delayed implementations (e.g. the intra-day
markets’
coupling project)."
In this context, different stakeholders argue for stronger
governance at the EU level.
For example, EPEX Spot states the need to accompany the electricity target model by appropriate
governance architecture at European level, applicable on Market Coupling activities, which will be crucial
to ensure an efficient day-to-day operation of such complex mechanisms.
http://www.europarl.europa.eu/RegData/etudes/STUD/2016/578968/IPOL_STU(2016)578968_EN.pdf
 kom (2016) 0863 - Ingen titel
compare the situation in the different Member States, limit cooperation and imperil trust and
confidence in neigbhouring Member States. Unco-ordinated approaches to security of supply
may also distort the internal electricity market (e.g premature market intervention) and put at
risk the security of supply of neighbouring Member States (e.g. export bans).
As mentionned when assessing the coherence criterion, the SoS Directive failed to adress risk
preparedness issues. The conclusions of the fact finding Study carried out to analyse risk
preparedness rules and practices in the EU describe the constellation of national approaches in
this area:
Although all twenty-eight Member States have a general obligation to monitor the
security of electricity supply, only nine countries have a explicit legal obligation to
carry out a risk assessment. National entities responsible for risk assessment and role
allocation vary across the Member States.
Not all Member States define the types of risks or they do so in a (very) general
manner. There exists a patchwork of types of risks covered under the assessments in
the Member States, and they are described in various levels of detail.
Research shows a fragmented and diverse framework on security of electricity supply.
While all Member States take into account risk preparedness considerations to some
extent, the fact is that only ten Member States set clear obligations to draw up risk
preparedness plans.
While TSOs have, in general, a central role in the adoption of risk preparedness plans
or measures, the responsible national entities and TSOs exact role varies significantly.
The type of preventive measures envisaged varies significantly across Member States.
The large majority of countries focus on the adoption of market measures in their
preventive framework (primarily measures directed at supply / demand, operational
security and energy efficiency). In seven other countries, the information available
does not allow for a categorisation of measures.
The time horizons covered by the different measures vary significantly across the
Member States and no overall trend can be identified; they can vary from one year to
fifteen years. Some Member States set no limits of validity for their measures, others
have a system of continuous updates while at least eleven countries do not specify
time horizons.
The study could not identify any formal bilateral agreements at Ministerial level (only
at TSO level).
There is no common definition of "emergency". This could potentially lead to
disparate reactions of Member States in various emergency events.
Market suspension measures are foreseen in all Member States by national legislation
or operational plans but to different extents. This could potentially lead to dissimilar
responses between Member States, which could potentially have consequences for
neighbouring countries. In some countries, limitations to cross-border trading
capacities are foreseen. Two Member States specifically include explicit legal
provisions (law or regulation) on export bans.
The results of this Study are conclusive about the lack of a coordinated approach in the Union
on security of supply and risk preparedness, as well as about the heavy consequences that
differing rules and practices may have in case of emergency. The SoS Directive did not
contain any specific rule on risk preparedness and coordination; as for the monitoring and
reporting obligations, they were understood by Member States in such a narrow way that the
Commission lacked the relevant information and had to contract an
ad hoc
fact finding study
in order to get the right picture on the risk preparedness policies in the 28 Member States.
 kom (2016) 0863 - Ingen titel
1730803_0077.png
The results of the public consultation confirmed the need for further action at EU level to
harmonise Member States approaches possibly through the preparation of risk preparedness
plans based on common templates, to make sure that each Member State takes appropriate
security of supply measures and cooperates with and takes account of others, in line with the
Energy Union objectives.
It can be concluded that the added value of the SoS Directive has been very limited as it
created a general framework but left it by and large to Member States to define their
own security of supply standards. This has resulted in a patchwork of security of supply
rules across Europe. Having the SoS Directive in place has no added value, both from
the perspective of the internal market rules and from the perspective of the risk
preparedness..
7.5.3.
Assessing the case for continuing EU-intervention
-
To what extent do the
objectives
addressed by the Third Package and the SoS Directive
continue
to require EU-intervention?
Despite the positive developments generated by the examined legislation, there is still very
limited coordination between national TSOs, often restricted to very specific subjects or
situations. Similarly, there is still very limited use of cross-border capacity in increasingly
important areas such as RES aggregation and generation adequacy.
Indeed, the recent increase of decentralised electricity generation and RES calls for continued
EU action to to improve the functioning of the internal electricity market and enable
maximum cross-border trading to happen. Further EU-action is also necessary in order to
enhance the transparency in the functioning of the electricity markets and avoid
discrimination between market parties.
Today's uncertainty about future investments in generation capacity and uncoordinated
government interventions also calls for continued EU action.
In relation to SoS, the necessity of EU action is based on the evidence that uncoordinated
national approaches not only lead to the adoption of suboptimal measures but that they also
make the impacts of a crisis more accute. Given the interdependency between the electricity
systems of Member States, the risk of a blackout is not confined to national boundaries and
could directly or indirectly affect several Member States. Therefore, the actions SoS and crisis
situations cannot be defined only nationally, given the potential impact on the level of security
of supply of a neighboring Member State and/or on the availability of measures to tackle
scarcity situations.
National policy interventions in the electricity sector have direct impact on neighbouring
Member States. This even more than in the past as the increasing cross-border trade, the
spread of decentralised generation and more enhanced consumer participation increases spill-
over effects. No State can effectively act alone and the externalities of unilateral action have
become more important. This clearly calls for a continuation of EU action to reach the
objectives of the Third Energy Package and of the SoS Directive.
8.
C
ONCLUSIONS
In this evaluation the Commission services have assessed if the Third Energy Package and the
Security of Electricity Supply Directive are fit for purpose by examining their performance
 kom (2016) 0863 - Ingen titel
against five criteria: relevance, effectiveness, efficiency, coherence and EU added value. The
results of the evaluation will be used by the Commission to inform future decisions in relation
to EU energy policy. In particular, this evaluation provides the basis for the impact assessment
for the initiative to review the existing EU electricity market design rules, including the
creation of a new framework on security of electricity supply (the Market Design Initiative).
The main results of the Evaluation can be summarised as follows:
Effectiveness
The various public consultations conducted as well as the studies used provide a good picture
of the effectiveness of the analysed legislation. Based on these elements it can be concluded
that the reinforcement of unbundling requirements has had a positive effect on competition
with new players entering the electricity market. However in some Member States the
incumbent still holds a dominant position. Market integration has improved with a clear
increase in cross-border trade since 2009. However, uncoordinated state interventions and
inefficient use of interconnectors still constitute obstacles to further integration. Cooperation
between TSOs and regulators through ENTSO-E and ACER respectively has improved, but
remains insufficient.
On the retail side, competition still needs to significantly improve to ensure that the full
benefits of market integration are passed on to EU consumers. Our evaluation has identified
price regulation as one of the major reasons for status quo or little progress in this area.
Consumer protection provisions in the analysed legislation prove to be partially fit for
purpose. Member States have defined the notion of vulnerable consumers and adopted
measures to protect them. However, their protection is uneven between Member States.
Energy poverty is growing across the EU. On this point, it appears that data is lacking in order
to fully analyse the scale and the drivers of energy poverty.
The evaluation also concludes in the ineffectiveness of the SoS Directive in achieving the
objectives pursued. Regulatory gaps exist as regards monitoring, exchange of information and
insufficient investment. However, most of these gaps have already been address in subsequent
EU regulatory measures.
Efficiency
There is limited quantitative information available at the EU scale to underpin an assessment
of administrative burden and, more generally, of efficiency of the legislation analysed.
Overall, it can be concluded that the new rules of the Third Energy Package have generated
additional administrative costs for undertakings and regulators. However these are not
perceived as too heavy by stakeholders and appear to be counterbalanced by the benefits they
generate notably through the increase in competition in the sector.
On security of electricity supply, the evaluation also concludes that due to the limited number
of obligations of the SoS Directive, largely referring to mere reporting, the administrative
burden remain limited.
Relevance
Electricity markets have changed significantly in the last five years, with variable renewable
energy production becoming increasingly important. The market-oriented rules of the Third
Energy Package are still highly pertinent to cope effectively with the challenges of the new
market. Market-based energy prices that are able to take into account the rapid changes of
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demand and response and cross-border trade are even more crucial than in 2009. However,
the existing rules are not sufficient to cope with the increasing levels of variable renewable
generation. Different rules are needed to ensure in particular the development of short term
markets and the emergence of prices that reflect actual scarcity. The market design of the
Third Energy Package does also not ensure sufficient incentives for private investments in
new generation capacities. Regarding the institutional framework, it appears that the
challenges the EU power system will be facing in the medium to long term are regional or
pan-European and cannot be addressed and optimally managed by individual TSOs, rendering
the current legal framework concerning system operation unsuitable The institutional
framework, especially as regards cooperation of NRAs at regional level, will need to be
adapted to ensure the oversight of entities with regional relevance (e.g., RSCs). Moreover, as
the European energy markets are more and more integrated, it is crucial to ensure that ACER
can function as swiftly and as efficiently as possible.
In the area of retail markets and consumer empowerment, the objective of enabling consumers
to actively participate in the market will remain the key, multi-dimensional challenge. Firstly,
with regard to ability to react to price signals, existing measures have been partly effective in
removing market barriers for the participation of industry in balancing and flexibility services,
including demand response; but have not been effective in removing barriers for the
participation of the residential and the commercial sector. Secondly, further progress is
needed in the area of billing information, comparison tools and consumers' ability to easily
switch suppliers. In consequence smart metering deployment
–
a key development facilitating
consumer empowerment in the above-mentioned areas
–
remains a very relevant policy area.
Also, the functions of DSOs need further definition and enhanced regulatory oversight in
order to deploy inter alia local flexibility markets and non-discriminatory management of
consumer data. Progress towards lifting regulated prices blocking competition and consumers'
choice should also continue. Last, but not least, consumer vulnerability will remain relevant
as some drivers of vulnerability are permanent.
The SoS Directive intervention is no longer relevant today as it does not match the current
needs on security of supply. The current needs result from the clear TFEU mandate and, in
particular, concerning risk preparedness to make sure that Member States are aware and duly
prepared to security of supply risks, clarify roles and responsibilities in case of emergency and
provide clear rules on the conditions under which Member States may adopt safeguard
measures.
Coherence
General speaking, the Third Energy Package provisions are working together well. However,
the Commission has spotted several provisions which would need to be either deleted because
obsolete or never used or modified because unclear or confusing.
The general non-discriminatory access principle and non discriminatory dispatching of the
Third Package is contradicted by the priority access granted to renewables in the Renewable
Energy Directive.
Regarding the SoS Directive, it was not prescriptive but rather set general principles on
security of supply. It can be considered that the SoS Directive is consistent with other
interventions which have similar objectives, in particular with the Third Package. However,
the content and approach of the SoS Directive are not consistent with the EU rules on security
of supply in the gas sector, and therefore match only partially the current needs on security of
supply in Europe, in particular concerning risk preparedness.
EU-added value
 kom (2016) 0863 - Ingen titel
Overall, the needs and rationale for EU level action through the electricity legislation remain
valid. The transnational nature of the subjects covered such as cross-border cooperation and
interconnectors justify EU level action as an effective way to achieve the objectives of the
Third Energy Package. These are topics which legally and practically could only be regulated
at EU level. Similarly cooperation between neighbouring TSOs and NRAs needed to avoid
fragmented uncoordinated decisions.
ACER and ENTSO-E have become key partners in discussions on regulatory issues and fulfil
a useful task in the coordination of NRAs and TSOs, respectively. However, a number of
shortcomings concerning their framework have been identified which need to be resolved.
EU-wide framework for introducing competition on retail markets and enabling consumers'
choice is beneficial for providing level playing field for energy generators and suppliers as
well as to benefit the consumers. It also facilitates providing cross-border services.
Regarding the SoS Directive, its added value has been very limited as it was quickly
superseded by the Third Package and only created a general framework but left it by and large
to Member States to define their own security of supply standard. Whilst electricity markets
are increasingly intertwined within Europe, there is still no common European framework
governing the prevention and mitigation of electricity crisis situations. National authorities
tend to decide, one-sidedly, on the degree of security they deem desirable, on how to assess
risks (including emerging ones, such as cyber-security) and on what measures to take to
prevent or mitigate them. Having the SoS Directive in place has no added value, both from
the internal market perspective and from the perspective of the risk preparedness.
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1730803_0081.png
A
NNEX
1
–
P
ROCEDURAL
I
NFORMATION
DG ENER is leading this evaluation.
Reference to Evaluation Roadmaps: AP 2015/ENER/061
190
and AP 2016/ENER/032
191
.
The Commission has conducted a number of wide public consultations on the different policy
areas covered by the present evaluation which took place between 2014 and 2016. In addition
to the public consultations, it has organised a number of targeted consultations and workshops
with stakeholders throughout 2015 and 2016
192
.
A wide public consultation
193
on a
new energy market design
(COM(2015)340 was
conducted from 15 July 2015 to 9 October 2015. It was open to EU and Member States'
authorities, energy market participants and their associations, SMEs, energy consumers,
NGOs, other relevant stakeholders and Citizens This public consultation aimed at obtaining
stakeholder's views on: on the issues that may need to be addressed in a redesign of the
European electricity market. These issues include: (i) improvements to market functioning
and investment signals; (ii) market integration of renewables; (iii) linking retail and wholesale
markets (iv); reinforcing regional coordination of policy making, between system operators
and of infrastructure investments; (v) the governance of the internal electricity market; and,
(vi) an European dimension to security of supply. A summary of the responses is available on
the Commission's website
194
. This public consultation served as a basis for this evaluation as
it put into light the shorthcomings of the current legislative framework.
A public consultation on
risk preparedness in the area of security of electricity supply
was
organized between July 15th and October 9th 2015 and resulted in 75 responses including
public authorities, international organizations (IEA), European bodies (ACER, ENTSO-E)
and most relevant stakeholders
–
companies and associations. This public consultation aimed
at obtaining stakeholder's views in particular on how Member States should prepare
themselves and co-operate with others, with a view to identify and manage risks relating to
security of electricity supply. A summary of the responses is available on the Commission
website.
195
This consultation helped to identify the current shortcoming of the Electricity
Security of Supply Directive.
Generation adequacy
related issues were also the subject of a public consultation conducted
from 15 July 2015 to 9 October 201515 November 2012 to 7 February 2013 through the
"Consultation on generation adequacy, capacity mechanisms, and the internal market in
electricity".
It was open to EU and Member States' authorities, energy market participants and
their associations, and any other relevant stakeholders, including SMEs and energy
consumers, and citizens. It aimed at obtaining stakeholder's views on ensuring generation
190
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf
For more information on the consultation process, please refer to Annex 2
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-
supply
191
192
193
194
195
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1730803_0082.png
adequacy and security of electricity supply in the internal market. A summary of the
responses is available on the Commission's website.
196
A public consultation dedicated to
retail energy markets
197
was conducted from 22 January
2014 to 17 April 2014. It was open to all EU citizens and organizations including public
authorities, as well as relevant actors from outside the EU. This public consultation aimed at
obtaining stakeholder's views on the functioning of retail electricity and gas markets with
focus on market functioning, design and consumer participation (demand response, self
consumption). A summary of the responses is available on the Commission's website.
198
Several reports and Communications have been used the draft the present evaluation, inter
alia:
-
"Delivering the internal electricity market and making the most of public
interventions"
(C(2013) 7243). This Communication was accompanied inter alia by a
Commission Staff working document (SWD(2013) 438) entitled "Generation
Adequacy in the internal electricity market
–
guidance on public intervention";
-
Communication on the "Progress
towards completing the Internal Energy Market"
COM(2014) 634 final. This Communication emphasized that energy market
integration has delivered many positive results but that, at the same time, further steps
are needed to complete the internal market.
-
Special Report by the European Court of Auditors
"Improving the security of energy
supply by developing the internal energy market: more efforts needed".
This special
report made nine recommendations to reap the benefits of market integration
199
;
-
Interim report of the sector inquiry on capacity mechanisms, accompanied by a
Commission Staff working document (SWD(2016) 119 final). The interim report
points out that there is a lack of proper and consistent analysis of the actual need for
capacity mechanisms. It also appears that some capacity mechanisms in place could be
better targeted and more cost effective. It emphasizes the need to design capacity
mechanisms with transparent and open rules of participation and a capacity product
that does not undermine the functioning of the electricity market.
No external expertise was used except for the external studies mentioned in footnotes in the
text.
A
NNEX
2:
S
TAKEHOLDER CONSULTATION
For the a detailed description and summary of the stakeholder consultations used for this
evaluation, please refer to Annex 2 of the Impact Assessment on the Market Design Initiative.
196
https://ec.europa.eu/energy/en/consultations/consultation-generation-adequacy-capacity-mechanisms-and-
internal-market-electricity
https://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market
https://ec.europa.eu/energy/sites/ener/files/documents/Charts_Public%20Consultation%20Retail%20Energy
%20Market.pdf
http://www.eca.europa.eu/en/Pages/DocItem.aspx?did=34751
197
198
199