Something For Everyone? The European Commission's Winter 'Clean Energy' Package On Energy Union (November 2016)

On 30 November 2016, the European Commission officially unveiled the latest instalment of its ongoing Energy Union initiative, which will reform some of the central pieces of EU energy legislation. Referred to in advance as the "Winter Package" (not to be confused with the rather more limited package released in February 2016), it has been published as the "Clean Energy for all Europeans" proposals and is the most significant series of proposals yet to emerge under the Commission's "Energy Union" brand. It will have far-reaching implications within and potentially beyond the existing EU single energy market.

There is a lot to consider in these proposals, and we will return to some of the issues they raise in more depth and from other perspectives in future posts. What follows is an overview and some initial thoughts from a predominantly UK-based viewpoint.

Important though it is, many of the Winter Package's proposed reforms are evolutionary rather than revolutionary. Some could even be criticised for lacking ambition. The Commission's proposals certainly provide opportunities for newer technologies such as storage and demand side response and for those seeking to make use of newer commercial models such as aggregation or community energy schemes, but all these groups are still likely to need to work hard in many cases to exploit the leverage that the new rules would give them. It is interesting that what has been picked up most in early news reports of the Winter Package is the Commission's move to end subsidies for coal-fired plant. This is a significant step, but it is only one part of a complex and multi-layered set of draft legislative measures, and is one of the few instances in those measures of a provision that overtly tilts the playing field in favour of or against a particular technology in a new way.

The story so far

Let's begin by reminding ourselves what Energy Union is about. The project is said to have five "dimensions". These are:

Security, solidarity & trust: the buzz-words are "diversification of supply" and "co-operation between Member States" – all informed by anxieties about over-dependence on Russian gas. A fully-integrated internal energy market: going beyond the 2009 " Third Package" of gas and electricity market liberalisation measures (and their ongoing implementation through the promulgation of network codes) to achieve genuine EU-wide single gas and power markets. Energy efficiency: using less energy can be hard, but it is the best way to meet environmental objectives and it can also be a significant source of new jobs and economic growth. Climate action – decarbonising the economy: signing and ratifying the Paris CoP21 Agreement was the easy bit. How is the EU going to achieve deep decarbonisation of not only its power but also its heat and transport sectors so as to meet its UNFCCC obligations? Research, innovation & competitiveness: can European businesses still take the lead in developing technologies that will save the planet, and also make money out of commercialising them? In other words, Energy Union is about everything that matters in EU energy policy. To date, at least in relation to electricity markets, the initiative has involved a lot of consultation but not many concrete legislation proposals. The new Winter Package goes a long way towards redressing this balance, but it shows there is still a lot of work to do.

What is in the Winter Package?

The documents published by the Commission (all available from this link) include legislative proposals and a range of explanatory and background policy documents. The legislative proposals are for:

a revised Directive on the Internal Market for Electricity (the Revised IMED – Annexes here); a revised Electricity Market Regulation (the Revised Market Regulation – Annexes here and here); a revised Renewable Energy Directive (the Revised RED – Annexes here); a Regulation on the Governance of the Energy Union (the Governance Regulation – Annexes here); a new Regulation on Electricity Sector Risk-Preparedness (the Risk Regulation – Annex here); a recast Regulation on the Agency for the Cooperation of Energy Regulators) (the ACER Regulation – Annex here); a Directive (with Annex) amending the existing Energy Efficiency Directive; and a Directive (with Annex) amending the existing Energy Performance of Buildings Directive. We comment below on what seem to us at this stage to be the most interesting points in these, and also on the Communication on Accelerating Clean Energy Innovation (the Innovation Communication).

The Revised IMED

Overall impressions

The legislative elements of the Winter Package are all inter-related, but the Revised IMED is as good a place to start as any. Its early articles include two programmatic statements:

National legislation must "not unduly hamper cross-border flows of electricity, consumer participation including through demand-side response, investments into flexible energy generation, energy storage, the deployment of electro-mobility or new interconnectors". Electricity suppliers must be free to determine their own prices. Non-cost reflective power prices should only apply for a transitional period to vulnerable customers, and should be phased out in favour of other means of support except in unforeseeable emergencies. In some ways, this sets the tone for the more specific provisions that follow. It often seems that the Commission never loses an opportunity to put forward legislation in the form of a directly applicable Regulation rather than in the form of a Directive that by definition requires Member States to take implementing measures in order fully to embed its effect within national regulation. However, the revised IMED, like its predecessor, stands out as a classic old-school Directive, in which EU legislators tell Member States lots of results to be achieved, but do not prescribe many of the means by which this is to happen. Moreover, even the expression of those objectives is (inevitably) qualified: in other words, get rid of the barriers to the Commission's vision of Energy Union, except the ones you can justify. Of course, that is slightly unfair: as noted below, there are at least one or two eye-catching points in the revised IMED, and there are significant changes proposed in other parts of the Winter Package that should further the objectives of the revised IMED, but it arguably demonstrates less willingness to get to grips with some of the most difficult of the longer-term and more fundamental changes in the market than the call for evidence on moving towards a smart, flexible energy system that was published on 10 November by the UK government and GB energy regulator Ofgem (although admittedly the UK authorities are only asking questions, not proposing solutions at this stage).

A market for consumers (and prosumers)

The revised IMED would enhance the rights of consumers generally in a variety of ways. For example:

Price increases are to be notified and explained in advance, giving them the opportunity to switch before an increase takes effect. Switching must take no longer than three weeks. Termination fees may only be charged where a fixed term contract is terminated prematurely, and must not exceed the direct economic loss to the supplier. All consumers are to be entitled, on request, to a "dynamic electricity price contract" which reflects spot market price fluctuations at least as frequently as market settlement occurs. They will of course need smart meters to make this work (see further below). All consumers are to be entitled to contract with aggregators, without the consent of their supplier, and to end such contracts within three weeks. In addition, special consideration is given to two newly defined categories of persons.

"Active consumers" are defined as individuals or groups "who consume, store or sell electricity generated on their premises, including through aggregators, or participate in demand response or energy efficiency schemes", but who do not do so commercially / professionally. "Local energy communities" are defined as organisations "effectively controlled by local shareholders or members, generally non-profit driven or generally value rather than profit-driven...engaged in local energy generation, distribution, aggregation storage, supply or energy efficiency services, including across borders". Active consumers are to be:

entitled to undertake their chosen activities "in all organised markets" without facing disproportionately burdensome procedures or charges; and encouraged to participate alongside generators in all organised markets. Obviously in most cases they will do this through aggregators, who are to be treated "in a non-discriminatory manner, on the basis of their technical capabilities". For example, they are not to be required to pay compensation to suppliers or generators (contrary to some of the suggestions in the UK call for evidence referred to above). Local energy communities:

are similarly not to be discriminated against; may "establish community networks and autonomously manage them" and "purchase and sell electricity in all organised markets"; must not make participation in a local energy community compulsory, or limit it to those who are shareholders in or members of the community; and will be subject to the unbundling rules for distribution system operators if they are DSOs. As in the original Directive 2009/72/EC, there are provisions requiring improvements to customer billing and encouraging the rollout of smart meters.

Customers should receive bills once a month where remote reading of the meter is possible. Where a Member State has decided not to mandate smart meters for cost-benefit reasons, they are to revisit their assessment "periodically" and report the results to the Commission. The draft Directive sets out functionalities that smart meters must include where a Member State mandates their rollout. In such cases, the...