After the World Cup What’s new with EU energy

4th Package?

Dublin, IIEA, 16th July 2018

Jean-Michel GlachantDirector Florence School of Regulation

European University Institute (Florence, Italy)

EU I know, You know

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Overview• 1/ What’s a Package in the EU?

• 2/ What did first 3 Packages bring to EU? 1996-2009

• 3/ What’s new since 3d EU Package, ~10 years ago ?

• 4/ What did lead to 4thPackage? Juncker Commission’s “Energy Union”

• 5/ The two parts of the 4th Package: *the markets **the policies

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1/ What’s a Package in the EU?(slides 5-6)

What’s a Package?

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It is... a Package...•1.1 It packs various areas…as: Gas & Elec; Renewables & Energy Efficiency

•1.2 It packs different types of EU laws...Directives: EU Targets, becoming national rules AFTER being transposed into each country legal frame (Ex: Creation of TSOs & Unbundling)

Regulations: EU rules, becoming immediatly applicable in each country, without any ‘’national Transposition’’ (Ex: EU TSOs ‘’Ten Year Network Development Plan’’; EU Generation Adequacy Assessment)

What’s a Package?

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•1.3 Are different types of EU law implemented the same?…Impossible: EU Laws being transposed > become national laws; implemented by national administrations, special entities (as TSOs & NRAs), players (as companies & consumers). Plus National Decrees of application.

EU Laws being not transposed > are ‘only’ EU Laws; having NO EU administrations, NO EU entities (as TSOs & NRAs), NO EU players (as companies & consumers). They have to be implemented by same 28 national frames like ‘’national laws’’. NO European decrees of application.

Asymetry of implementation… or… …’’European Regulatory Gap’’…

2/ What did first 3 Packages bring to EU? 1996-2009 (slides 8-12)

Grid Level: Member States or EU? 1996 1st Package: negociated or regulated at MS level2003 2nd Package: Regulator at MS level + EU crossborder2009 3d Package: Indep Regulator at MS + EU EN.TSO & ACER +

Grid Codes & Ten Year Development Plans & Gen. Adequacy

Grid Channel: Regulator or Compet. Authority?2007 Sector Enquiry + “smoking guns” policy by DG COMP°Eon, RWE disinvest from grids°2009 Swedish TSO reviews congestion management scheme

(priority national vis à vis Foreigners)> more bidding zones

EU frame building

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EU frame building

Market Level: Member States or EU? 2003 2nd Package: open at MS level + EU crossborder ‘fair’ rules2009 3d Package: more EU EN.TSO + ACER + Codes (Congestion;

Capacity allocation; Balancing energy ) + Regional Initiatives + ‘Market Target Model’ being market coupling with open balancing

Market Channel: Energy Reg. or Compet. Authority?°2005 EU Court suppress LT priority access to elec interco°Basic market rules: free Merchant PX vs reg. Market Coupling°Loose market monitoring from financial regulation capped by

REMIT 2010 specific energy monitoring (ACER+ NRAs)

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Energy Mix Level: Member States or EU? °In EU “Energy Mix” sovereign right of Member States (See Nuclear –

prohibited in Austria / 80% in France; coal in Germany vs UK)°big caveat: RES directives + EU ETS as “voluntarily” constraints for MS’s

Energy MixEnergy Mix Channel: Energy Regulator or Compet. Authority?° EU Court ruling: RES support “Environmental Public Policy” not market-

based BUT support to be notified to DG COMP as “State Aid” (14 Billion in 2010) > DG Comp Guidelines 2014

°Support Schemes (Gov. MS) + Dispatch priority (Ener. Reg)°Regulators involved (Connections; Congestion; Balancing; TSO planning &

incentives; Distribution grid regulation)

EU frame building

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Grids: EU vs US°much more EU rules; but still enforced by MS regulators (no federal regulator FERC)°grid regulation entirely submitted to “market opening”; but still state operated (no regional RTOs - ISOs)°EU mutualisation TSOs&Regulators: EN.TSOs &ACER since 3d Package but NO RTO/FERC proxies°Independence DG COMP vis-à-vis Energy regulators & TSOs

Markets: EU vs US°EU general Target Model + °Regional Initiatives + °ACER + °EN.TSOs + °REMIT: larger frame in the EU; but less depth & strengh

EU frame vs US

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Energy Mix: EU vs US°EU RES scheme + °EU ETS = more comprehensive scheme in EU

Institutions: EU vs US°Strong US energy federal regulator in a smaller area; °No role for US Competition opposite to DG COMP;°US State regulators independent from federal as opposite to EU “ruling” MS regulators; °Strong US Environmental federal Regulator vs EU stronger directives

>> US implementation stronger but Scope smaller (except for Competition; embedded into US FERC or PUCs)

EU frame vs US

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3/ What’s new since 3d EU Package~10 years ago ? (slides 14-26)

3d Package key novelties

• 1- The Third Package creates EU Bodies>mutualisation of NRAs at EU level (ACER)>mutualisation of TSOs at EU level (ENTSOs)

• 2- The Third Package gives legal duties to these EU Bodies>ACER managing cross-border conflicts between NRAs;issuing Framework Guidelines for ENTSOs codes rules & methodologies

>ENTSOsTenYearsNDPlan; Generation Adequacy; Network Codes rules & methodologies

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3d Package key novelties

• 3- The Third Package gives Commission power in process of Codes & Guidelines proposals

>EU will have a common set of European market & network rules IF:1-ACER defines Framework Guidelines2-ENTSOs define Codes or Guidelines (i.e plus further metholdologies)3- ACER agrees ENTSOs compliant Framework Guidelines4-Commission agrees with results, proposes to Council (Member States) experts to vote (‘’Comitology’’) And 5-Parliament does not veto

IF all of this works > Network Codes become “Commission Regulation” What you & me can call a proper “European regulation” > detailed

rules mandatory in all EU, with no transposition by countries

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3d Package key novelties

• 4- This Third Package ‘’EU Market & Network Codes & Guidelines’’: implemented; by whom?

>NO big novelties under the sun:

¤ The National regulators (NRAs) and ¤ The National TSOs still have the de facto monopoly of implementation of the new EU regulation (NO EU regulator; no EU or regional TSO)

> ¤ + New small brother: NEMOS – ‘Nominated Electricity Markets Operators’ (from ComReg2015) to perform Market Coupling (Day Ahead or Intraday)

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Network Codes (Table from 2015)

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Requirements

for Generators

Comitology Process

(entered 2013)

• Size-dependent, technical requirements for Power Generating Modules

• Common framework of obligations for Network Operators to

appropriately make use of the Power Generating Facilities’ capabilities

Demand

Connection

Comitology Process

(entered 2014)

• European rules on how demand interacts with the transmission system

• Ensure effective contribution to the stability of the power system by all

distribution networks and demand facilities

• Clarify the role that demand response will play in contributing to the

deployment of RES

HVDC

Connection

ACER

recommendation

submitted (2014)

Manage HVDC lines and connections:

• Determine contribution to system security

• Promote coordinated development of the infrastructure

Operational

Security

ACER

recommendation

submitted (2013)

Framework for maintaining a secure interconnected European electricity

transmission system: common, legally binding principles and rules for

operating electricity transmission networks

Operational Security requirements and principles; Data exchange;

provisions for training of System Operator Employees

Network Codes (Content Overview 2015)

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Network Codes (Overview in 2015)

Operational

Planning &

Scheduling

ACER

recommendation

submitted (2013)

Common time horizons, methodologies and principles allowing to carry out

coordinated Operational Security Analysis and Adequacy analysis to maintain

Operational Security and support the efficient functioning of the European

internal electricity marketLoad

Frequency

Control &

Reserves

ACER

recommendation

submitted (2013)

• Formalised harmonised system frequency quality targets

• Objective and harmonised requirements regarding Load-Frequency-

Control (LFC) and Reserves

Emergency &

Restoration

Submission to ACER

(2015)

Procedures and remedial actions to be applied in the Emergency, Blackout and

Restoration states

Capacity

Allocation &

Congestion

Management

Definitive adoption

expected in 2015

Rules that will introduce an EU Target Model: single approach to cross-border

electricity trading

• for cross-border capacity allocation in day-ahead and intraday

timescales. Outlines the way in which capacity will be calculated across

the different zones

• for congestion management

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Network Codes (Overview in 2015)

Forward

Capacity

Allocation

ACER

recommendation

submitted (2014)

Design and operation of the markets in which the right to use cross-border

capacity is sold in advance

Electricity

Balancing

Resubmission to

ACER (2014)

Steps for transforming balancing markets to a set of regional markets and later

a pan-European market

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EU regulatory framework

"REGULATION"

SECONDARY

LEGISLATION

PRIMARY

LEGISLATION

Treaty

(Art. 194)

DecisionsRegulation

(EC) 714/2009

GuidelinesNetwork

Codes

Directive

2009/72/EC

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More on Network Codes

>Network “Codes”[Connection] 3 Codes

>>Network “Guidelines”[Market] 3 Guidelines > with Methodologies to be added (special process for methodologies; can be regional, pan-EU; stakeholder consultation + NRAs approval with ACER if not). Difficulty but flexibility

[Operation] both:1 Code: Emergency & Restoration1 GL: System Operation with Regional Security Coordinators (5 mandatory tasks as security assessment; capacity calculation; links with 10 Capacity Calculation Regions ] 22

More on Market GL

Day Ahead & Intraday Markets {CACM GL July 2015}>[Nemos] Nominated Electricity Market Operators to perform Market Coupling; can be a private company or a public entity >[Day Ahead] 2 side blind auction; temporal (def. products) & spatial granularity (bidding zones); min & max prices>[Intra Day] continuous trading; regional auctions if approved NRAs; Gate Closure at least 1h >[Remedial Actions] within Bidding Zones? Between Bidding Zones? Preventive or Curative? What Price?>[LongTerm] Grid investment: within zone? Between Zones? Or Zones review?

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More on Market GL

Balancing Market {EB GL Nov 2017}>[Reserves] SO GL defines 4 reserves (FCR / aFFR, mFFR / RR); also defines reserves sizing

>[Bid Format] duration of Bal. offer; upward / downward joint or separated; minimum bid volume; pay-as-bid or marginal price (EB GL) but FFR & RR cannot be regulated priceStandard products; but specific if…Gate Closure should be harmonized

>[Reactive vs Proactive EB] Reactive: Belgium, German, Austria, in real time (relying on BRPs); Proactive: France, UK, Nordics before RT, according to forecast (less incentives to BRPs) – both SO GL & EB GL neutral24

EU Gaps by J. Vasconcelos (April 2017)

> From our FSR research report Spring 2017‘First-order gap: Lack of Coordination’ • 1- Lack of comprehensive coordination of system planning, further to

the TYNDP• 2- Lack of comprehensive coordination of cross-border investments• 3- Lack of comprehensive coordination of system operation • 4- Lack of a common redispatching approach• 5- Lack of common reserve contracting and cost allocation• 6- Lack of intraday cross-border allocation with auction• 7- Lack of load shedding coordination• 8- Lack of comprehensive coordination for solidarity

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‘Second-order gap: Lack of Harmonisation’ • 9- No harmonisation of common congestion rent allocation scheme• 10- No harmonisation of capacity remuneration mechanisms• 11- No harmonisation of transmission tariffs across countries and TSO

zones• 12- No harmonisation of ‘state aid’ to big energy consumers (through

reduced network tariffs)

(From) “Fig. XX The EU regulatory roadblocks”Florence School research report (April 2017)

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EU Gaps by J. Vasconcelos (April 2017)

4/ What did push for EU 4th Package: Juncker Commission’s “Energy Union”

(slides 28-29)

More?

WhyNot…

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Energy Union is / isn’t…• Is’nt new Institution for EU energy policy: NO institution created• is political “novelty” Commission Juncker deal made with new

Council Pdt Donald Tusk (Former PM Poland) & backed by Chairman Parliament Industry & Energy Committee Jerzy Buzek(Former PM Poland, former Pdt EU Parliament)

• ~ Content unveiled 25th Feb. 2015 Hardly foreseen @Barroso Commission (2013-14) // EnerUnion = about 25 proposals of action

• ~ in touch with EU Council March 2015 EU Council (Heads of State & Gov.) agreed EC go ahead with EnerUnion

• ~ nevertheless a gamble No institution created: Council of ministers &Parliament have to agree each legislative proposal…

• February 2015 Ener.Union Manifesto don’t strictly tie anybody: even Commission can change having seen what blocks / what goes

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5/ The two parts of the 4th Package: *the markets ** the policies

(slide 31-45)

In practice: “EU 4th Package” is a pack… of packages

Market Design Pack is made of four proposals: 1- Directive for Internal Market (Retail & Consumers) 2- Regulation for Wholesale Market3- Regulation for ACER 4- Regulation for electricity risk preparedness 1 Directive & 3 Regulations

Energy Policy Pack has four proposals too: 1- Renewables Energy Package incl. Bioenergy (Directive) > Target RES 2- Energy Union Governance (Regulation)3- Energy Efficiency (Directive) Performance Buildings (Directive)> Target EE4- ETS revision 2021-2030 (Directive) > Target GHG Emissions 4 Directives & 1 Regulation

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More on Market Design proposals

Market Pack is made of 1 Directive & 3 Regulations

1- Directive for Internal Market (Retail & Consumers) 2- Regulation for Wholesale Market3- Regulation for ACER 4- Regulation for electricity risk preparedness

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More on Market Proposals

>[Technologies level-playing field] End of ‘must-run’ & ‘dispatch priority’; balancing responsibility for all; entry for ‘demand response’

>[More on short horizon] markets closer to real time; harmonization of balancing reserves & larger balancing zones>[LT Capacity Markets] framed by EU-Wide or regional ENTSO-e assessment; coordinated among neighbors; with harmonised X-B cooperation

>[Crisis Preparation] National & Regional plans for elec. Crisis; Crisis scenarios defined by Regional Centers ROCs

>[old Retail] Phase out retail price regulation; EU definition of energy poverty>[new Retail] Role for aggregators; right to dynamic pricing; to demand response; to self-generation & self-consumption; + legal framework for Energy Communities;

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More on Grids & Acer Proposals

>[DSOs] new roles for DSOs as hosting key generation resources & demand response>[TSOs]°New entity for Tr.S.op: the ROCS;°Harmonisation of tariff methodology & rent congestion use

>>[ACER]°Final role (before Commission) vis-à-vis ENTSO for Network Codes & Guidelines°Say on regionalisation of NRAs decisions°Coordination of ROCs°Supervision of NEMOs°°°BUT NRAs keep full control of ACER decisions (voting rules among NRAs can change)

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But ONLY proposals from Commission

1- Commission has no majority at Parliament, at Council; even within Commissionners.. All to come from deals & opportunity

2- However PPE is strong: Juncker, Spizenkandidat (Head of list), Canete Commissioner, Tusk Pdt Council, Tajani Pdt Parliament, J. Buzek (former Pdt) current Ind Comm + Secretary-General Commission Martin Selmayr

3- At Parliament (Coalition parties: PPE – ALDE- SD – Greens) do common deals avoiding votes in plenary >> Common Position Parliament

4- Similar deals at higher EU level After first vote (Parliament – Council); if both in oppositionIt goes to ‘’Trilogue’’: a tripartite Deal (Commission – Council – Parliament)

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More on the Four Energy Policy Blocks

1- Renewables Energy Package incl. Bioenergy (Directive) -14th June 2018 Target 2030 RES 32% (Revision 2023)

2- Energy Union Governance (Regulation) – 20th JuneNational E&C Plans 2021-2030 –5D - Comments EC

3- Performance Buildings (Directive) – 14th MayEnergy Efficiency (Directive) – 18th June

Target 2030 EE 32.5% (revision 2023)

4- ETS revision 2021-2030 (Directive) 2021-30 with annual reduction -28 Feb Target 2030 GHG Emissions 40% [Covered 43% - non covered 30%] (21 June: ~45%)

4 Directives & 1 Regulation36

Tweet Commissioner Canete, 14th June

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At what time? 14th June - 3.38 am…

Whom shaking hands to whom?

• Jerzy Buzek(Chairman Industry & Energy EU Parliament; PPE; Poland)

> Bulgarian Presidency (of the Council)

• Miguel Canete(Commissioner; PPE; Spain)

> Claude Turmes (Green; Parliament)

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Whom made the deal possible?

• Pepe BlancoS-D Spanish

• Bas EickhoutGreen Belgian

• FederleyALDE Danish

• Sean KelleyPPE Irish

• Tamburrano5 Star italian

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What’s in the deal?

• 32% RES at EU levelAt country level?

• Right to self-consume RES

What trade rules? What grid access & tariff rules?

• Ban on palm oilWhom to pay for?

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13th June: no deal Energy Efficiency

Five general conclusions1# Union Governance EU has 32% RES target; but no ‘burden sharing’ among Member States…

2# Regionalization of TSOs tasksHow to get a really ‘European’ market if each TSO does what if wants with ‘remedial actions’ within its borders, & for ‘borders capacity’ investments?

3# DSOs Europeanization How to get a really ‘European’ market if most generation investments are at DSO level, but the thousands of DSOs free to define connection rules, tariffs, congestion management, etc.?

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Four conclusions as questions

4# ACER governanceWhat to do if national regulators (NRAs), national TSOs, & DSOs do not agree on same rules or same implementation of rules?

5# Regionalization for ‘’More Advanced Market Digitalization’’ (more realistic to go ahead? Closer reality; higher willigness) But: which ‘regulatory oversight’? What regional regulatory decision making & monitoring?

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How to conclude? #I don’t know! # To be seen in 2020-22…

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www.florence-school.eu 47

Thank you for your attention

Email contact: jean-michel.glachant@eui.eu

Follow me on Twitter: @JMGlachant already 42 000+ tweets

My web site: http://www.florence-school.eu