Explanatory Memorandum to COM(2023)148 - Amendment of Regulations (EU) 2019/943 and (EU) 2019/942 as well as Directives (EU) 2018/2001 and (EU) 2019/944 to improve the Union’s electricity market design - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2023)148 - Amendment of Regulations (EU) 2019/943 and (EU) 2019/942 as well as Directives (EU) 2018/2001 and (EU) 2019/944 to improve ... |
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| source | COM(2023)148 |
| date | 14-03-2023 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
Energy prices significantly increased throughout 2021 and 2022. This resulted from reductions in gas supply, particularly after the start of Russia’s war against Ukraine and the weaponisation of energy as well as from domestic shortfalls in hydropower and nuclear power. The price rises also resulted from increased energy demand, as the global economy picked up after the COVID-19 pandemic. These price rises were rapidly felt by households, industry and businesses across the EU, and governments immediately took steps to mitigate them. At the European level, the EU swiftly provided an energy prices toolbox1 with measures to address high prices, in particular for the most vulnerable consumers (including income support, tax breaks, gas saving and storage measures), as well as the REPowerEU plan2 with further measures and funding to boost energy efficiency and renewable energy in order to reduce dependence on Russian fossil fuels. This was followed by the creation of a temporary State Aid regime3 to allow certain measures to soften the impact of high prices, a strong gas storage regime4, effective demand reduction measures for gas5 and electricity6, faster renewable energy and grid permitting processes7, and price limiting regimes to avoid windfall profits in both the gas and electricity markets8.
These short-term measures helped Member States to deal with the immediate fall-out of the energy crisis. However, the crisis also showed how exposed consumers and industries are and our lack of resilience to energy price spikes. The impact of fossil fuel-based generation on setting electricity prices was seen as excessive by businesses and citizens, while Member States’ ability to cushion short term prices with longer term contracts appeared inadequate. For this reason, the European Commission President announced in the 2022 State of the Union Address9 the need for a fundamental reform of the electricity market design.
Whilst the EU’s internal energy market delivers huge gains and growth across Europe, the recent energy crisis has highlighted that the energy market design’s short-term focus can distract from broader, longer-term goals. The reflection of short-term prices in consumers bills led to price shocks where energy bills of many consumers tripled or quadrupled, even as the costs of wind and solar power were declining; the sudden exposure to volatile and high prices triggered some supplier bankruptcies; many industrial enterprises in energy intensive sectors were obliged to shut down. Therefore, the proposal includes a set of measures aimed to create a buffer between short-term markets and electricity bills paid by consumers, in particular by way of incentivizing longer term contracting, to improve the functioning of short-term markets to better integrate renewables and enhance the role of flexibility and to empower and protect consumers.
The recent price volatility has also highlighted the lack of flexibility in the electricity grid, with prices set too often by gas-fired generation and with a general lack of low carbon flexible supply, demand response and energy storage. As more wind and solar power enter the system, low-carbon flexible technologies will be needed to balance the variable supply with variable demand. In parallel with this proposal, the Commission is making recommendations for the advancement of storage innovation, technologies, and capacities.
More broadly, the sensitivity of the electricity price to fossil fuel prices highlighted the need to speed up the deployment of renewables together with the flexibility of the power system to displace fossil fuels. REPowerEU provides such a boost to renewable energy and with it, a boost to economic growth and quality jobs creation. It builds on the European Green Deal’s drive to improve European competitiveness through innovation and the transition to a net zero economy and is closely aligned with the Commission’s Green Deal Industrial Plan. To facilitate the investments needed in the face of recent price volatility, uncoordinated regulatory interventions and grid and regulatory barriers to entry, fundamental reform is needed. Finally, in the Report on the final outcome of the Conference on the Future of Europe, citizens asked the EU institutions to take measures to “Enhance European energy security, and achieve the EU’s energy independence” and to ‘Reduce dependency of EU from foreign actors in economically strategic sectors’, including energy10
The proposal is addressing consumer, industry and investors’ concerns over exposure to volatile short-term prices, driven by high prices of fossil fuels. It will optimize the electricity market design by complementing the short-term markets with a greater role for longer-term instruments, allowing consumers to benefit from more fixed priced contracts, and facilitating investments in clean technologies. Ultimately, it will mean that less fossil fuel generation is needed and will lead to lower prices for consumers during future fossil fuel crisis due to the low operational costs of renewable and low carbon energy.
The proposal is putting forward measures to protect consumers from such volatility, empower them with greater contract choice and more direct access to renewable and low carbon energy. To improve investment conditions for businesses, in particular those pursuing decarbonisation pathways. it proposes measures to counter exposure to short term price spikes through power purchase agreements and more prudential obligations for energy suppliers. It also proposes measures to improve the way variable renewable and low carbon energies are integrated into the short-term market. This includes measures boosting the use of demand response and storage, among other forms of non-fossil flexibility. The proposal also improves and clarifies access to longer term contracts for developers (both State supported such as contracts for difference, and private, such as power purchase agreements) in order to provide secure, stable revenues for renewable and low carbon energy developers and bring down risk and capital costs while avoiding windfall profits in periods of high prices.
Whilst the current market design has over many decades delivered an efficient, increasingly integrated market, the energy crisis has highlighted a number of shortcomings relating to: (i) insufficient tools to protect consumers, including businesses, against high short term prices; (ii) the excessive influence of fossil fuel prices on electricity prices and the failure for low cost renewables and low carbon energy to be better reflected in electricity bills; (iii) the impact of extreme price volatility and regulatory interventions on investment; (iv) the lack of sufficient non-fossil flexibility (such as storage or demand response) that could reduce dependence on gas-fired generation; (v) the limited choice of supplier contract types; (vi) the difficulties to directly access renewable energy though energy sharing; and (vii) the need for robust monitoring of the energy market to better protect against market abuse.
To protect consumers from volatile prices, the proposal will provide for the right to fixed price contacts as well as dynamic price contracts, the right to multiple contracts and to better and clearer contract information. Consumers will be offered variety of contracts that best fits their circumstances. In this way, consumers, including small businesses, can lock in secure, long-term prices to mitigate the impact of sudden price shocks, and/or they may choose to have dynamic pricing contracts with suppliers if they wish to take advantage of price variability to use electricity when it is cheaper (e.g., to charge electric cars or use heat pumps). Such a combination of both dynamic and fixed pricing allows to keep market incentives for consumers to adjust their electricity demand, while providing more certainty also for those who wish to invest in renewable energy sources (rooftop solar panels for instance) and stability of costs. In addition to the existing protection framework for energy poor and vulnerable consumers, the proposal will also provide access to regulated retail prices for households and SME consumers in the event of a crisis and stabilise the supply industry by requiring that suppliers make more effort to guard against high price spikes by making greater use of forward contracts with generators (locking in future prices) and by requiring Member States to establish a supplier of last resort regime. The proposal will empower consumers by creating the right to share renewable energy directly, without the need to create energy communities. Greater energy sharing (e.g., sharing surplus roof top solar power with a neighbour) can improve the use made of low cost renewable energy and provide greater access to direct use of renewable energy for consumers who might not otherwise have such access.
To enhance stability and predictability of the cost of energy, thereby contributing to the competitiveness of the EU economy facing excessive volatile prices, the proposal intends to enhance market access to more stable longer-term contracts and markets. Power purchase agreements (PPAs) - long-term private contracts between a generator (typically renewable or low carbon) and a consumer – can protect against price volatility, but they are currently mostly available only to large energy consumers in very few Member States. A barrier to the growth of this market is the credit risk that a consumer will not always be able to buy the electricity over the whole period. To address this, Member States should ensure that instruments to reduce the financial risks associated to off-taker payment default in the framework of PPAs, including guarantee schemes at market prices, are accessible to companies that face entry barriers to the PPA market and are not in financial difficulty. To further encourage the growth of the market for such agreements, renewable and low carbon energy project developers participating in a public support tender should be allowed to reserve a share of the generation for sale through a PPA. In addition, Member States should endeavour to apply in some of these tenders' evaluation criteria to incentivise the access to the PPA market for customers that face entry barriers. Finally, the obligation on suppliers to hedge appropriately may also boost demand for PPAs (which are a way of locking in future prices).
Some forms of public support guarantee the energy producer a minimum price by the government but allow for the producer to nevertheless earn the full market price even when this market price is very high. With the recent high prices much (cheap) publicly supported energy has been receiving these high market prices. To curb this and so stabilise prices, investment support should be structured as “two-way” (two-way contract for difference), which set a minimum price but also a maximum price, so any revenues above the ceiling are paid back. The proposal will apply to new investments for the generation of electricity, which include investments in new power-generating facilities, investments aimed at repowering existing power-generating facilities, investments aimed at extending existing power-generating facilities or at prolonging their lifetime. Moreover, the proposal will require that such money is then channelled to support all electricity consumers in proportion to their consumption to mitigate the effect of high prices.
A further means of guarding against volatile prices is to use long term contracts that lock in future prices (“forward contracts”). This market shows low liquidity in many Member States but could be boosted across the EU, so that more suppliers or consumers can guard against excessively volatile prices over longer periods of time. The proposal will create regional reference prices via a hub to increase price transparency and oblige system operators to allow transmission rights longer than a year, so that if a forward contract is between parties across regions or borders, they can ensure transmission of the electricity.
Finally, to ensure markets that behave competitively and prices are set transparently, regulators’ ability to monitor energy market integrity and transparency will be enhanced.
The third objective is to boost renewable energy investment, in order to ensure that deployment triples, in line with European Green Deal goals. This will be achieved partly by improving the markets for long term contracts. Power purchase agreements and contracts for difference not only provide consumers with stable prices, they also give renewable energy suppliers reliable revenues. This lowers their financial risk and greatly reduces their cost of capital. This creates a virtuous circle where stable revenues lower costs and boost demand for renewable energy.
Renewable energy is also a better investment when its ability to produce power is not curtailed due to technical constraints in the system. The more flexible the system is (generation that can rapidly turn on or off, storage that can absorb or put power onto the system, or responsive consumers who can increase or decrease their demand for power) the more stable prices can be and the more renewable energy the system can integrate. For this reason, the proposal requires Member States to assess their needs for power system flexibility, establish objectives to deliver on these needs. Member States can design or redesign capacity mechanisms in order to promote low-carbon flexibility. Moreover, the proposal opens the possibility for Member States to introduce new support schemes for non-fossil flexibility such as demand side response and storage.
System operators should also play an enhanced role integrating renewables into the grid, partly by increasing transparency surrounding availability of grid connection capacity. First, this clearer information would enhance renewable energy developers’ ability to develop renewables in areas where the grid is less congested. Second, renewable energy can be more efficiently traded and balanced in the system if trades between market participants can take place closer to “real time”. If offers to supply electricity are made minutes before consumption rather than hours before consumption, the offers from wind and solar power producers are more accurate, more wind and solar power can be consumed and the “imbalance costs” of the system are reduced. Thus, trading deadlines will be brought closer to real time.
Consistency with existing policy provisions in the policy area
The proposed initiative is strongly linked and complementary to the legislative proposals brought forward in the context of the European Green Deal Package and speed up the decarbonisation objectives laid down in REPowerEU Plan, in particular as regards the proposal to revise the Renewable Energy Directive (“RED II”), which is the main EU instrument dealing with the promotion of renewable energy. The proposed initiative is complementary in that it aims to enable the acceleration in the uptake of renewable energy. The proposal seeks to ensure more stable long-term sources of revenue to unleash further renewable and low carbon energy investments, while improving the functioning of short-term markets, which are key for the integration of renewables in the electricity system. In addition, the proposal seeks to enable energy sharing to allow consumers to engage in the market and help to speed up the energy transition.
Reducing energy consumption through price signals, energy efficiency measures or voluntary efforts can often be the cheapest, safest and cleanest way to reduce our reliance on fossil fuels, to support security of supply and to reduce our energy bills. The proposal will facilitate the active participation of the consumers in the market and the development of their demand response. It will also enable non-fossil flexibility such as demand side flexibility and storage to compete on a level playing field so that the role of natural gas in the short-term market in providing flexibility is progressively reduced. Therefore, the proposal is in line with the proposed increase of the 2030 target for energy efficiency to 13%, as set out in the proposed amendments to Renewable Energy, Energy Performance of Buildings and Energy Efficiency Directives11 accompanying the REPowerEU Plan12.
There is also an important link between the proposal and the Energy Performance of Buildings Directive which is the main EU instrument to help reach the building and renovation goals set out in the European Green Deal. The proposal is strongly linked in particular to provisions on sub-metering and demand response in addition to the Commission’s proposal, as part of the European Green Deal Package and expressed under the EU Solar Strategy Communication, on the gradual mandatory integration of solar photovoltaic in order to make public, commercial and residential buildings climate neutral.
• Consistency with other Union policies
The proposal’s objectives to protect and empower consumers, improve competitiveness of EU industry and boost renewables and low carbon investment are wholly consistent with the framework of the European Green Deal and coherent and complementary to current initiatives, including the legislative proposal for a “Net-zero Industry Act” which is being adopted in parallel. It responds to the issues that were identified in the Commission’s Communication laying out a “Green Industrial Plan for the net-zero age” issued on 1 February 202313, namely that the competitiveness of many companies has been severely weakened by high energy prices and that long-term price contracts could play an important role to enable electricity users benefit from more predictable and lower costs of renewable power. Last but not least, the legislative proposal is complementary to the ongoing revision of relevant financial market regulations such as the Market Abuse Regulation14. The proposal also builds on the Council Recommendation on ensuring a fair transition towards climate neutrality whereby Member States are invited to continue to mobilise public and private financial support to invest into renewable energy, tackle mobility challenges and promote cost-saving opportunities linked to the circular economy15.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The proposal is based on Article 194 i of the Treaty on the Functioning of the European Union (TFEU), which provides the legal basis for proposing measures aiming inter alia to ensure the functioning of the energy market, promote energy efficiency and energy saving and the development of new and renewable forms of energy.16 In the field of energy, the EU has a shared competence pursuant to Article 4(2)(i) TFEU.
• Subsidiarity (for non-exclusive competence)
The need for EU action
The unprecedented nature of the energy price crisis has shone a spotlight on EU electricity markets. Despite the growing shares of low-cost renewables electricity across the EU, there is a continuing influence of fossil-fuel generated electricity on overall energy bills. Households and businesses across the EU have experienced skyrocketing energy prices during the crisis.
This is an issue of EU-wide relevance which can only be addressed with action at EU level. The increased integration of EU electricity markets requires closer coordination between national actors, also in the context of market monitoring and surveillance. National policy interventions in the electricity sector have a direct impact on neighbouring Member States due to energy interdependence, grid interconnections and ongoing electricity market integration. To preserve the functioning of the electricity system and cross-border trade and investments and to accelerate, in a coordinated way, the energy transition towards a more integrated and more energy-efficient energy system based on renewable generation, a common approach is needed.
The amendments proposed set out a balance between obligations and flexibility left to the Member States on how to achieve the main objectives pursued of ensuring that the lower cost of renewable electricity will be reflected in consumer bills and of boosting the deployment of renewable energy.
Furthermore, the objective of the proposed measures can only be achieved by action at EU level, not at individual Member States’ level, since the proposed action requires changes to the existing EU-wide framework for the electricity market design as set out in the Electricity Regulation (EU) 2019/943 and the Electricity Directive (EU) 2019/944 as well as to existing REMIT framework.
• EU added value
EU action to address the shortcomings of the current electricity market design brings added value because it is more efficient and effective than individual Member States’ actions, thus avoiding a fragmented approach. The measures proposed to address the shortcomings identified will be more ambitious and cost-effective if driven by a common legal and policy framework. In addition, action at Member State level would only be possible within the constraints of the existing EU-wide framework for the electricity market design as set out in the Electricity Regulation and Electricity Directive as well as REMIT Regulation and not be able to achieve the necessary changes to that framework. Consequently, the objectives of this initiative cannot be achieved only by Member States themselves and this is where action at EU-level provides an added value.
• Proportionality
The proposed amendments to the Electricity Regulation, the Electricity Directive, the REMIT Regulation and the ACER Regulation are considered proportionate.
The proposed measures to incentivise the use of long-term contracts such as power purchase agreements and two-way contracts for differences may lead to increased administrative costs and burden for undertakings and national administrations. However, the envisaged economic impacts are necessary and proportionate to achieve the objective of incentivising the use of such long-term contracts and ensuring that the energy bills of European households and companies as well as the revenues of non-fossil fuel technologies with low variable costs become more independent from the fluctuation of prices in short-term markets and thus more stable over longer periods of time.
The measures envisaged to improve the liquidity and integration of markets may also generate some short-term impact on businesses, as these would have to be adapted for new trading arrangements. These are however considered necessary in order to achieve the envisaged objectives of ensuring better integration of renewable and low carbon energy and reducing dependency on fossil fuels for flexibility, and ultimately reaching carbon neutrality in the Union with lower costs for consumers. They are also proportionate to these objectives, since the impact on businesses appears minimal compared to the current framework and the economic gains of the reform would largely surpass any short or long-term administrative reorganisation.
It is also proportionate with the objectives pursued not to envisage measures amending existing provisions in the Electricity Regulation and the Electricity Directive where any issues identified with regard to existing provisions can be addressed through their manner of application or implementation. One such instance relates to the measures concerning resource adequacy in Chapter IV of the Electricity Regulation, in particular, the process for Member States to introduce capacity mechanisms, which could be simplified without amending the relevant provisions.
The measures envisaged to strengthen consumer empowerment, rights and protections will expand duties and obligations placed on suppliers and network operators. However, the additional burdens are necessary and proportionate to achieve the objective of ensuring consumers have access to better information and variety of offers, decoupling their electricity bills from short term movements on energy markets and rebalancing the risk between suppliers and consumers.
The measures envisaged to improve the REMIT framework may increase reporting obligations for market participants due to a broader scope of REMIT. These measures are necessary to achieve the objective of increasing transparency and monitoring capacities and ensuring more effective investigation and enforcement of cross-border cases in the EU so that consumers and market participants have confidence in the integrity of energy markets, prices reflect a fair and competitive interplay between supply and demand and no profits can be drawn from market abuse. They are also proportionate to that objective, since the gains in terms of quality of market monitoring and surveillance would surpass any short or long-term administrative costs.
Finally, the overall package of measures proposed is considered appropriate given the overarching imperative of achieving climate neutrality at the least cost for consumers while ensuring security of supplies.
• Choice of the instrument
The proposal will amend the Electricity Regulation, the Electricity Directive, the REMIT Regulation, the ACER Regulation and the Renewables Energy Directive. Given that the proposal aims to add a limited set of new provisions and amend a limited set of existing provisions in these instruments, the recourse to an amending act is adequate. For the same reason, it also appears appropriate to use the instrument of an amending regulation to introduce amendments both to existing regulations and existing directives.
3. STAKEHOLDER CONSULTATIONS AND STAFF WORKING DOCUMENT
• Stakeholder consultations
In preparation for the present initiative, the Commission has conducted a public consultation from 23 January 2023 to 13 February 2023. The consultation was open to everybody.
The Commission received 1369 replies to this consultation. More than 700 of those have come from citizens, around 450 from businesses and business associations, around 40 from national or local administrations or from national regulators and around 70 from network operators. Also, around 20 energy communities, 15 trade unions and 20 consumers organisations participated. A significant number of NGOs, think tanks and research or other academic organisations submitted responses as well. An overview of stakeholders’ opinions is available in the Staff Working Document accompanying this legislative initiative.
In addition, the Commission organised an online targeted stakeholder consultation meeting on 15 February 2023 which counted with the participation of around 70 market actors, non-governmental organisations, network operators, ACER and national regulators, think tanks and academics. The consultation overall highlighted that the stakeholders considered that:
- Short-term markets and the pricing mechanism based on marginal pricing should be preserved, as they function well and provide the right price signals. Short-term (day-ahead and intraday) markets are well-developed, and they result from years of implementation of EU energy legislation.
- Short-term markets need to be complemented by instruments incentivizing longer term price signals, such as the ones indicated in consultation by the Commission, in particular power purchase agreements (‘PPA’), contracts for difference, and enhanced forward markets. The right balance between the different tools should be established. Nonetheless, there should not be mandatory schemes, and the freedom of choosing the relevant contracts should be preserved.
- The benefits of non-fossil flexibility solutions such as demand response and storage were acknowledged, especially in the context of an increasing share of renewables. Their market participation should be facilitated.
- The future electricity markets will have to be adapted to a high share of renewable energy. Furthermore, there should be more emphasis on the local dimension and grid development. These challenges could be addressed by the solutions presented in the public consultation.
- Consumer protection is essential, as is affordability of energy, but preserving the signals for demand response is equally important. Emerging solutions such as energy communities, self-consumption, energy sharing should be enabled and incentivized.
• Staff Working Document
Given the urgency of the initiative, a Staff Working Document has been produced instead of an impact assessment. The Staff Working Document underpinning the present proposal sets out the explanation and rationale behind the Commission’s proposals for a structural response to the high energy prices experienced by households and businesses and to ensure secure, clean and affordable energy for households and businesses into the future as well as presents the available evidence of relevance for the proposed measures.
The Staff Working Document concludes that the package of proposed reforms is expected to significantly improve the structure and functioning of the European electricity market. It is another building block to enable the delivery of the Green Deal objectives and in addition it takes stock of the shortcomings revealed by the energy crisis and seeks to address them.
The document shows that the reform will contribute to protecting and empowering consumers currently facing high and volatile prices by creating a buffer between them and short-term markets. This proposal will decouple the high prices of fossil-fuel technologies operating in the electricity market from the energy bills of consumers and businesses. More long-term contracting opportunities in the form of PPAs, contracts for difference and forward markets will ensure that the part of the electricity bill exposed to short-term markets can be greatly reduced. In addition, including a hedging obligation on suppliers and an obligation to also offer fixed price contracts will significantly increase the options to reduce the exposure of price volatility for electricity bills. Consumers will also have better information on offers before signing up and Member States will have an obligation to establish suppliers of last resort. Besides, they can enable access to regulated retail prices in a crisis. The right to share energy is a new feature that will empower consumers and support the decentralised rollout of renewable energy as it grants consumers more control over their energy bills.
The Staff Working Document explains how this reform will also enhance the competitiveness of EU industry in a way that is fully complementary to the Net-zero Industry Act. Member States will be required to ensure that the right conditions exist for PPA markets to develop, thereby providing industry access to affordable and clean electricity over the long-term. The improvements to the forward markets will provide far greater access to cross-border renewable energy for industries and suppliers up to three years in advance, a significant improvement compared to today. Overall, public support schemes for renewable energy will increase the energy independence in Member States and the penetration of renewables into the system while supporting local jobs and skills.
The document demonstrates that this reform will accelerate the rollout of renewables and tap into the full potential of firm generation capacity and flexibility solutions to enable Member States to integrate ever higher levels of renewables. The Commission proposes that Member States assess their need for power system flexibility and allows the introduction of new support schemes for demand response and storage. The proposal also introduces extra possibilities for renewables to trade closer to real time at cross-border and national level. In this way, the market can better support the integration of renewables and the business case for flexibility solutions that can contribute to security of supply.
Finally, the Staff Working Document describes how this proposal responds to the request from the European Council to assess ways of optimising the functioning of the electricity market design in the context of the energy crisis. It aims to protect consumers, creating a buffer between them and short-term electricity markets through longer-term contracting and to make those short-term markets work in a more efficient way for renewables and flexibility solutions, with better regulatory oversight. This proposal ensures that the market rules remain fit for purpose to drive the cost-effective decarbonisation of the electricity sector and increase its resilience to energy price volatility.
• Collection and use of expertise
The preparation of the present legislative proposal and the Staff Working Document is based on a large body of material, which is referenced in the footnotes in the Staff Working Document, and on the responses to the public consultation.
• Fundamental rights
The present proposal may have an impact on a number of fundamental rights established by the Charter on Fundamental Rights of the EU, in particular: the freedom to conduct a business (Article 16) and the right to property (Article 17). As explained above, however, to the extent that the proposed measures limit the exercise of these rights, these impacts are considered necessary and proportionate to achieve the objectives of the proposal and therefore constitute legitimate limitations of such rights as allowed under the Charter.
On the other hand, the proposal enhances the protection of fundamental rights, such as the respect for private and family life (Article 7), the right to protection of personal data (Article 8), the prohibition of discrimination (Article 21), access to services of general economic interest (Article 36), the integration of a high level of environmental protection (Article 37) and the right to an effective remedy (Article 47), in particular through a number of provisions concerning consumer empowerment, rights and protection.
• Regulatory fitness and simplification
The proposed amendments to the Electricity Directive, the Electricity Regulation, the REMIT Regulation and the ACER Regulation focus on what is considered necessary to address the shortcomings of the current electricity market design in the context of the energy crisis and to contribute in a cost-effective manner to the Union’s climate ambition. They do not constitute a full revision of these instruments.
The proposal may increase administrative requirements for national administrations and undertakings, albeit in a proportionate way as explained above. For example, the proposed measures to incentivise the use of long-term contracts such as power purchase agreements and two-way contracts for differences may lead to increased administrative costs and burden for undertakings and national administrations. However, the envisaged economic impacts will positively benefit businesses and consumers.
The measures envisaged to improve the liquidity and integration of markets may also generate some short-term impact on businesses, as these would have to be adapted for new trading arrangements. These are however considered minimal compared to the current framework, as the economic gains of the reform would largely surpass any short or long-term administrative reorganisation.
The measures envisaged to strengthened consumer empowerment, rights and protections will expand duties and obligations placed on suppliers and network operators with the objective to improve choice, increase protection and facilitate active market participation by consumers, notably households. However, the additional burdens are minimal because these frameworks are being rolled out across Europe and therefore streamlining of rules is needed.
The measures envisaged to improve the REMIT framework may increase reporting obligations on certain market participants, albeit in a proportionate way. These are however considered minimal compared to the current framework as the gains in terms of quality of market monitoring and surveillance would surpass any short or long-term administrative costs.
4. BUDGETARY IMPLICATIONS
The budgetary impact associated to the proposal on improving the EU’s electricity market design concerns the resources of the European Union Agency for the Cooperation of Energy Regulators (ACER) and of DG Energy which are described in the Legislative Financial Statement accompanying the proposal. Essentially, for the new tasks to be carried out by ACER 4 additional full time equivalent (FTE) for ACER from 2025 onwards, as well as corresponding financial resources will be required. DG Energy’s workload will increase by 3 FTE.
The budgetary impact associated to the proposal amending REMIT concerns the resources of the European Union Agency for the Cooperation of Energy Regulators (ACER) and of DG Energy which are described in the Legislative Financial Statement accompanying the proposal. Essentially, the new tasks to be carried out by ACER, especially regarding the enhanced investigatory powers require a phasing in of 25 additional full time equivalent (FTE) in ACER from 2025, as well as corresponding financial resources, although most of the additional staff will be funded by fees. To this end Commission Decision (EU) 2020/2152 of 17 December 2020 on fees due to ACER for tasks under REMIT will need to be adapted. DG Energy's workload will increase by 2 FTE.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The Commission will monitor the transposition and compliance of Member States and other actors with the measures that shall be ultimately adopted and take enforcement measures if and when required. For monitoring and implementation purposes, the Commission will notably be supported by ACER, in particular in relation to the REMIT Regulation. The Commission will also liaise with ACER and the national regulatory authorities in relation to the Electricity Regulation and the Electricity Directive.
Moreover, to facilitate the implementation, the Commission will be available for bilateral meetings and calls with Member States in case of specific questions.
• Explanation of the specific provisions of the proposals
The amendments concerning the Electricity Regulation provide clarifications to the scope and subject matter of the Regulation, emphasising the importance of undistorted market signals to provide for increased flexibility as well as the role of long-term investments to mitigate the volatility of short-term market prices on the electricity bills of consumers including energy intensive industries, SMEs and households. It clarifies certain main principles for trading in the day-ahead and intraday markets. It provides for new rules concerning the procurement by TSOs of demand response in the form of a peak shaving product and rules allowing transmission system operators and distribution system operators to use data from dedicated metering devices. It sets out new rules concerning forward electricity markets, to improve their liquidity. It includes new rules aiming to clarify and incentivise the role and use of longer-term contracts in the form of power purchase agreements and two-way contracts for difference. It provides for new rules regarding the assessment of the flexibility needs by Member States, the possibility for them to introduce flexibility support schemes and design principles for such flexibility support schemes. It also introduces new transparency requirements for transmission system operators as regards the capacity available for new connections in the grid.
The amendments concerning the Electricity Directive provide for new rules on the protection and empowerment of consumers. The amendment regarding Free Choice of Supplier introduces new requirements to ensure that customers are able to have more than one supplier on their premises, by enabling multiple meters (sometimes called submeters) for a single connection point.
The amendments regarding consumer empowerment and protection ensure that customers are offered a variety of contracts that best fits their circumstances, by ensuring that all customers have a least one fixed term, fixed price offer. Furthermore, customers must be provided with clear pre-contractual information in relation to these offers.
A new right for households and small and medium sized enterprises is also established to participate in energy sharing- that is the self-consumption by active customers of renewable energy generated or stored offsite either from facilities they own, lease, rent in whole or in part or which has been transferred to them by another active customer.
Important new protections for customers are also introduced to ensure continuous supply of electricity– including the requirement for Member States to appoint suppliers of last resort who take responsibility for the customers of failed suppliers and protection from disconnection for vulnerable customers. Suppliers will also be required to put in place risk management to limit the risk of failure, by implementing appropriate hedging strategies. These will be overseen by national regulatory authorities.
The amendments to the Electricity Directive introduce new transparency requirements for distribution system operators as regards the capacity available for new connections in the grid. It clarifies the role of regulatory authorities regarding the single allocation platform established in accordance with Regulation (EU) 2016/1719.
The amendments concerning REMIT Regulation adapt the scope of REMIT to current and evolving market circumstances by inter alia extending the scope of data reporting to new electricity balancing markets and coupled markets as well algorithmic trading. It ensures stronger, more established and regular cooperation between energy and financial regulators, including ACER and ESMA regarding derivative wholesale energy products. It will as well improve process for the collection of inside information and market transparency by enhancing the oversight of ACER and adjustment of inside information definition. Amendments to REMIT Regulation enhance supervision of reporting parties such as Registered Reporting Mechanisms (RRMs) and persons professionally arranging transactions (PPATs). Amendments improve data sharing possibilities between ACER, relevant national authorities and the Commission. REMIT amendment introduces stronger role for ACER in investigations of significant cross-border cases to fight against the REMIT breaches. It also sets-out the framework for harmonisation of fines set by regulatory authorities at national level.
The amendments concerning the ACER Regulation aim to clarify the role of ACER as regards the single allocation platform established in accordance with Regulation (EU) 2016/1719 and as regards the new rules introduced in the Electricity Regulation concerning forward markets and flexibility support schemes. It also clarifies the role and competences of ACER in accordance with the amendment to REMIT Regulation. The amendment RED II aims to clarify the scope of application of the rules concerning the types of direct price support schemes for renewable energy sources that Member States may introduce.