EU Electricity Market & System: What s new with 4 th Package? Lodz, EEM18

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1 EU Electricity Market & System: What s new with 4 th Package? Lodz, EEM18 Jean-Michel Glachant Director Florence School of Regulation European University Institute (Florence, Italy)

2 EU I know, You know 2

3 Overview 1/ What s a Package in the EU? 2/ What did first 3 Packages bring to EU? / What s new since 3d EU Package, ~10 years ago? 4/ What did lead to 4 th Package? Juncker Commission s Energy Union 5/ The two parts of the 4th Package: *the markets **the policies 3

4 1/ What s a Package in the EU? (slides 5-6)

5 It is... a Package It packs various areas as: Gas & Elec; Renewables & Energy Efficiency 1.2 It packs different types of EU laws... What s a Package? 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) 5

6 What s a Package? 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 6

7 2/ What did first 3 Packages bring to EU? (slides 8-14)

8 EU frame building Grid regulation Level: Member States or EU? st Package: negociated or regulated at MS level nd Package: Regulator at MS level + EU crossborder d Package: Indep Regulator at MS + EU EN.TSO & ACER + Grid Codes & Ten Year Development Plans & Gen. Adequacy Grid regulation 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 8

9 EU frame building Market regulation Level: Member States or EU? nd Package: open at MS level + EU crossborder fair rules d Package: more EU EN.TSO + ACER + Codes (Congestion; Capacity allocation; Balancing energy ) + Regional Initiatives + Market Target Model being market coupling with open balancing Market regulation 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) 9

10 EU frame building 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 Mix Energy Mix Channel: Energy Regulator or Compet. Authority? EU Court ruling: RES support Environmental Public Policy not marketbased 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) 10

11 Grids 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 general Target Model + Regional Initiatives + ACER + EN.TSOs + REMIT: larger frame in the EU; but less depth & strengh EU frame vs US 11

EU frame vs US Energy Mix EU RES scheme + EU ETS = more comprehensive scheme in EU Institutions Strong US energy federal regulator in a smaller area; No role for US Competition opposite to DG COMP;

12 EU frame vs US Energy Mix EU RES scheme + EU ETS = more comprehensive scheme in EU Institutions 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) 12

13 3/ What s new since 3d EU Package ~10 years ago? (slides 14-26)

14 3d Package key novelties 1- Third Package creates EU Bodies >mutualisation of NRAs at EU level (ACER) >mutualisation of TSOs at EU level (ENTSOs) 2- Third Package gives legal duties to these EU Bodies >ACER managing cross-border conflicts between NRAs; issuing Framework Guidelines for ENTSOs codes rules & methodologies >ENTSOs TenYearsNDPlan; Generation Adequacy; Network Codes rules & methodologies 14

15 3d Package key novelties 3- Third Package gives Commission power of Codes & Guidelines proposals >EU will have a common set of European market & network rules IF: 1-ACER defines Framework Guidelines 2-ENTSOs define Codes or Guidelines (i.e plus further metholdologies) 3- ACER agrees ENTSOs compliant Framework Guidelines 4-Commission agrees with results, proposes to Council (Member States) experts to vote ( Comitology ) And 5-Parliament does not veto IF all of this works > It becomes a Commission Regulation What you and me can call a proper European regulation > detailed rules mandatory in all EU, with no transposition by countries 15

16 3d Package key novelties 4- Third Package EU Market & Network Codes & Guidelines implemented by whom? >NO big novelties under the sun: National regulators (NRAs) and 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) 16

17 Network Codes (Table from 2015) 17

18 Network Codes (Content Overview 2015) Requirements for Generators Comitology (entered 2013) Process 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 European rules on how demand interacts with the transmission system Demand Connection HVDC Connection Operational Security Comitology Process (entered 2014) ACER recommendation submitted (2014) ACER recommendation submitted (2013) 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 Manage HVDC lines and connections: Determine contribution to system security Promote coordinated development of the infrastructure 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 18

19 Network Codes (Overview in 2015) Operational Planning & Scheduling Load Frequency Control & Reserves Emergency & Restoration Capacity Allocation & Congestion Management ACER recommendation submitted (2013) ACER recommendation submitted (2013) Submission to ACER (2015) Definitive adoption expected in 2015 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 market Formalised harmonised system frequency quality targets Objective and harmonised requirements regarding Load-Frequency- Control (LFC) and Reserves Procedures and remedial actions to be applied in the Emergency, Blackout and Restoration states 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 19

20 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 Resubmission to Steps for transforming balancing markets to a set of regional markets and later Balancing ACER (2014) a pan-european market 20

21 EU regulatory framework PRIMARY Treaty LEGISLATION (Art. 194) SECONDARY LEGISLATION Decisions Regulation (EC) 714/2009 Directive 2009/72/EC "REGULATION" Guidelines Network Codes 21

22 More on Network Codes General: Codes [Connection] 3 Codes 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] 1 Code: Emergency & Restoration 1 GL: System Operation with Regional Security Coordinators (5 mandatory tasks as security assessment; capacity calculation; links with 10 Capacity Calculation Regions ] 22

23 More on Market GL Day Ahead & Intraday {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? 23

24 More on Market GL Balancing {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 price Standard 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 neutral 24

25 EU Gaps by J. Vasconcelos (April 2017) From FSR research report First-order: 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 25

26 EU Gaps by J. Vasconcelos (April 2017) Second-order: 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) <<Fig. XX The EU regulatory roadblocks from Florence School research report (April 2017)>> 26

27 4/ What did lead to 4 th Package: Juncker Commission s Energy Union (slides 28-29)

28 More? Why Not 28

29 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 EUJ Parliament) ~ Content unveiled 25th Feb Hardly Commission ( ) // 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 29

30 5/ The two parts of the 4th Package: *the markets ** the policies (slide 31-45)

31 In practice: a pack of packages Market Design Package is made of four proposals: 1- Directive for Internal Market (Retail & Consumers) 2- Regulation for Wholesale Market 3- Regulation for ACER 4- Regulation for electricity risk preparedness 1 Directive & 3 Regulations Complemented with four Policy blocks: 1- Renewables Energy Package incl. Bioenergy (Directive) > Target RES 2- Energy Union Governance (Regulation) 3- Energy Efficiency (Directive) Performance Buildings (Directive)> Target EE 4- ETS revision (Directive) > Target GHG Emissions 4 Directives & 1 Regulation 31

32 More on Market Design proposals 1- Directive for Internal Market (Retail & Consumers) 2- Regulation for Wholesale Market 3- Regulation for ACER 4- Regulation for electricity risk preparedness 1 Directive & 3 Regulations 32

33 More on Market Proposals [Tedchnologies level-palying 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; 33

34 More on Grids & Acer Proposals [DSOs] new roles for DSOs as hosting key generation resources & demand response [TSOs] New entity for Tr.Sop: 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) 34

35 But ONLY proposals from Commission 1- Commission has no majority at Parliament, at Council; even within Commissionners.. All deal & opportunity 2-But PPE is strong: Juncker, Spizenkandidat (Head of list), Tusk Pdt Council, Tajani Pdt Parliament + 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; and opposition It goes to Trilogue : a tripartite Deal (Commission Council Parliament) 35

36 More on the Four Policy Blocks 1- Renewables Energy Package incl. Bioenergy (Directive) -14th June 2018 Target 2030 RES 32% (Revision 2023) 2- Energy Union Governance (Regulation) 20th June National E&C Plans D - Comments EC 3- Performance Buildings (Directive) 14th May Energy Efficiency (Directive) 18th June Target 2030 EE 32.5% (revision 2023) 4- ETS revision (Directive) with annual reduction -28 Feb Target 2030 GHG Emissions 40% [Covered 43% - non covered 30%] (21 June: ~45%) 4 Directives & 1 Regulation 36

37 Tweet Commissioner Canete, 14 th June 37

38 At what time? 14 th June am 38

39 Whom shaking hands to whom? Jerzy Buzek (Chairman Industry & Energy EU Parliament; PPE; Poland) > Bulgarian Presidency (of the Council) Miguel Canete (Commissioner; Spain) > Claude Turmes (Green; Parliament) 39

40 40

41 Whom made the deal possible? Pepe Blanco S-D Spanish Sean Kelley PPE Irish Bas Eickhout Green Belgian Tamburrano 5 Star italian Federley ALDE Danish 41

42 What s in the deal? 32% RES at EU level At country level? Ban on palm oil Whom to pay for? Right to self-consume RES What trade rules? What grid access & tariff rules? 42

43 13 th June: no deal Energy Efficiency 43

44 1# Union Governance Five general conclusions EU has 32% RES target; but no burden sharing among Member States? 2# Regionalization of TSOs tasks How to get a really European market if each TSO does what if wants with «remedial actions» within its borders and investments for borders capacity? 3# DSOs Europeanization How to get a really European market if most generation investments arez at DSO level, but thousands of DSOs free to define connection rules and congestion management? 44

45 Four conclusions as questions 4# ACER governance What to do if national regulators (NRAs), national TSOs, & DSOs do not agree on same rules or same implementation of rules? 5# Regionalization of Markets (more realistic to go ahead? Closer reality; higher willigness) But: which regulatory oversight? What regional regulatory decision making & monitoring? 45

46 How to conclude? #I don t know! # To be seen in

Thank you for your attention Email contact: jean-michel.glachant@eui.

47 Thank you for your attention contact: Follow me on already tweets My web site:

ENTSO-E recommendations for Market Design Trilogue negotiations

ENTSO-E recommendations for Market Design Trilogue negotiations ENTSO-E congratulates the Bulgarian Presidency, the European Parliament and the European Commission on the successful conclusion of the first