A sector fit for the future
Welcome to the 2015 edition of the CMS Electricity guide. This guide has been prepared by experts in CMS offices throughout Europe who have comprehensive knowledge of the electricity sector. As leading advisors in this sector, our professionals are actively engaged in implementing electricity projects, reforms, privatisations, and mergers and acquisitions, which makes them ideally placed to guide clients through the volatile and changing landscape of electricity regulation.
The following chapters are designed to assist in understanding the electricity sector across Europe and provide a general overview of each jurisdiction’s current status. Through exploration of the key features of each jurisdiction, this guide draws out similarities as well as differences across Europe. It does not attempt to offer a detailed academic analysis and legal advice is always recommended when making decisions within the sector.
Working towards a common goal
The 2020 targets have fired up the various EU jurisdictions to look for ways to meet their renewable energy national targets. Most jurisdictions expect to achieve their targets with over half of the EU countries having reached their 2011 interim objectives already. As Europe looks to the 2030 framework and how it shall direct its energy mix in the future, the need for greater harmonisation and cross-border integration remains a dominant topic. The electricity sector continues to take steps toward such integration with further developments expected in the short to medium term.
The Agency for the Cooperation of Energy Regulators (ACER), has established European Network Codes, which will endeavour to unify regulations across Europe. The codes will focus on enabling renewables, ensuring security of supply and enhancing competition to allow for better cross-border connectivity. Most jurisdictions have some interconnected capability but the trend will only be for this to increase further over the coming years.
The challenges faced
Across the jurisdictions, attracting and securing investment has become increasingly more crucial in order to modernise inefficient infrastructure that much of the sector is now operating on. With long established fossil fuel generation closing to make way for new nuclear as well as renewable generation, issues of grid stability and security of supply have come to the forefront. The requirement for additional support for new technologies must be balanced against political desire to drive down costs through market competition. This has led to far reaching legislative changes in European jurisdictions and beyond. Thus, regulatory risk continues to be a concern for governments seeking lower costs for their consumers.
Getting an Expert View
Notwithstanding the common goal that these jurisdictions are pursuing, there are considerable differences between them. This Guide serves as an overview of the structures, regulations, challenges and successes faced by individual jurisdictions and give a picture of the electricity sector as a whole. The industry is a complicated but exciting place to be as it strives against a backdrop of changing geo-political and economic conditions to become a competitive low-carbon sector. Within the sector, and even within individual areas such as renewables, the legal requirements and government arrangements vary. Our CMS experts would be delighted to expand on any aspect of these areas that may be of interest to you and would welcome the opportunity to introduce you to CMS lawyers in other jurisdictions if desired.
Analysis of each European jurisdiction
The chapters in this guide are divided into five sections. Each chapter provides an overview of the electricity sector in the relevant jurisdiction, explores the structure of the electricity market and its key players as well as providing relevant comments on the current issues and drivers. The chapters also consider the electricity sector in its individual components: each of the main activities in the electricity sector (generation, transmission, distribution, supply and electricity exchange/trading) is individually addressed. Our experts provide guidance on the main regulations, key legislation, incentives and recent regulatory changes and each chapter also gives a snapshot of the country’s statistics.
We hope that this guide provides a useful overview of the complex and changing regulatory landscape in the jurisdictions covered. We would like to thank everyone at CMS who has been involved in the process of drafting, editing and producing this guide. As evident from the content, the legal position is apt to change rapidly and often. If you want to make sure that you are up-to-date with the current situation in any jurisdiction of interest, please contact the relevant contributor or the central email address provided at the end of this introduction.
- To read country chapters please click the requested country on the map.
- To read EU chapter please scroll down.
- At the bottom of this page you will find the glossary.
1.1.1 One of the key objectives of the European Union (EU) is the creation and establishment of a single European internal market.
1.1.2 The EU considers that open competition is the best way to achieve sustainably affordable electricity prices, ease of market access for new entrants and competition between market participants from different countries and between generation types. Unbundling vertically integrated utilities has therefore been an EU priority.
1.1.3 An integrated European-wide electricity market is physically restricted by cross-border transmission capacity and commercially restricted by the rules regarding access, dispatching, balancing and settlement. Regulation 347/2013 on guidelines for trans-European energy infrastructure sets out the conditions for identifying the projects of common interest that will be eligible for EU funding under the Connecting Europe Facility, as well as measures to facilitate the timely development and interoperability of trans-European energy networks. The Agency for the Cooperation of Energy Regulators (ACER) and the European Network of Transmission System Operators for Electricity (ENTSOE) are therefore also working towards standardised network codes across EU member states to facilitate access to cross-border capacity.
1.2.1 The 2011 report Energy Priorities for Europe highlighted four key goals for the EU and its member states to strive towards competitive, sustainable and secure energy in Europe:1
- “complete the internal energy market by 2014”. This promotes new market entrants and independent suppliers alongside encouragement for consumers to switch suppliers – legislation to achieve this is described at paragraph 1.4 below;
- end “energy islands” by 2015 by improving greater interconnection and cross border trade – see paragraphs 2.5 and 3.1.13 below;
- boost energy efficiency by cutting the EU annual energy bill by EUR 200b by 2020 and reduce reliance on fossil fuels – see paragraph 3.5 below on environmental protection; and
- encourage greater coordination of external policies, by integrating Southern and Eastern neighbours in the EU energy market, diversifying sources and routes of energy into the EU, and central negotiation of purchase agreements with producers.
In January 2014, the European Commission (EC) published its proposals for an EU framework for climate and energy policy to 2030. The EC intends that the 2030 framework will continue “progress towards a low-carbon economy and a competitive and secure energy system that ensures affordable energy for all consumers, increases the security of the EU’s energy supplies, reduces our dependence on energy imports and creates new opportunities for growth and jobs, by taking into account potential price impacts on the longer term”.2
1.3.1 The source of EU law is a set of international treaties between EU member states pending enactment of an EU constitution.
1.3.2 Amendment of treaties requires the agreement and ratification of every signatory according to their national procedures. The Treaty on European Union (TEU) and Treaty on the Functioning of the European Union (TFEU) have been repeatedly amended by other treaties since they were first signed.
1.3.3 To achieve the treaty goals, implementing laws are enacted by the EU institutions, some of which have direct effect on national law without further implementation and others require transposition into domestic law through the national legislative process.
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1.3.4 The EC is responsible for ensuring that EU law is correctly applied and directives are fully transposed by the required deadline. If a member state fails to comply with EU law, the EC has powers to begin an action for noncompliance and may refer the case to the European Court of Justice.
Internal Market in Energy Packages
1.4.1 EU policy for an internal electricity market (IME) has been introduced in three packages of legislation in 1996, 2003 and 2009. Each package has repeated (and built on) the requirements of its predecessor. The packages have included parallel legislation in respect of the natural gas industry.
1.4.2 Each package has required increased separation of generation and supply functions from the natural monopolies of transmission and distribution. The aim of this “unbundling” is to ensure owners/operators of transmission systems cannot favour their own generation or supply assets over those of their competitors which do not own or operate a network.
Table 2: IME Packages
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1.4.3 Various transmission ownership models are permitted under the Third Energy Package, outside of full ownership unbundling provided safeguards are in place. New entrants must comply with the full ownership unbundling model (see paragraphs 2.2.7 and 2.2.8 below).
Other key electricity legislative packages
1.4.4 Directives, regulations and decisions outside of the IME packages that impact the electricity sector include the Climate and Energy Package (or the 202020 Package) which contains:
- the RED;10
- the EU ETS Amending Directive;11
- the Fuel Quality Directive;12
- the Carbon Capture and Storage Directive;13 and
- the Effort Sharing Decision.14
Structure of generation sector
2.1.1 The EU market is fully opened to new entrants. At this level, member states must adopt a transparent, nondiscriminatory authorisation procedure for commissioning new generation capacity. See paragraph 3.5 below on renewables policy.
2.1.2 Under the First Energy Package, a choice between authorisation and/or competitive public tendering for the construction of new generating capacity was permitted. The Second Energy Package restricted the tendering procedure to situations where the total generating capacity being built under authorisation (or the energy efficiency/demandside management measures being taken) was insufficient to ensure security of supply.15
2.1.3 The Third Energy Package has added the 2020 renewables and emissions reduction targets to member states’ authorisation procedure criteria and preserved the ability to launch a tendering procedure if security of supply becomes a concern.16
2.1.4 The authorisation process must be nondiscriminatory, but separate processes may be used for small decentralised and/or distributed generation, or within major new infrastructure land use permit procedures.17
2.1.5 The Large Combustion Plants Directive18 (and relevant provisions of the Industrial Emissions Directive19) require combustion plants (such as fossil fuel power stations, metal works and refineries) with a rated thermal input of 50MW or greater to comply with strict emission limit values to restrict the emission of waste gases containing sulphur dioxide, nitrogen oxides and particles. Member states may opt out a limited number of plants which breach these limits provided a transitional national plan for the progressive reduction of emissions is in place. As a result, many large coal fired power stations will be decommissioned by 2015.
Structure of transmission sector
2.2.1 The majority of member states have one TSO.20
2.2.2 The First Energy Package obliged each member state to designate a TSO to ensure operation, maintenance and development of the transmission system and interconnections with other systems. Designation required functional unbundling of transmission activities from other activities not relating to the transmission system.
2.2.3 These “unbundling rules” were introduced with a view to avoiding:
- discrimination between users of the transmission system;
- crosssubsidisation between the different business operations of Vertically Integrated Undertakings (VIUs); and
- distortion of competition.
2.2.4 In the Third Energy Package, a vertically integrated undertaking “means an electricity undertaking or a group of electricity undertakings where the same person or the same persons are entitled, directly or indirectly, to exercise control, and where the undertaking or group of undertakings perform at least one of the functions of transmission or distribution, and at least one of the functions of generation or supply of electricity”.
2.2.5 The Second Energy Package imposed an obligation on TSOs within VIUs to be independent in terms of their legal form, organisation and decision-making from nontransmission related activities by 1 July 2004.
2.2.6 The Third Energy Package requires transmission ownership unbundling, so that transmission is separately owned from generation and supply.
2.2.7 However, derogations from the Full Ownership Unbundling (FOU) model have been permitted in some cases for TSOs that have direct or indirect interests in generation and/or supply assets where the authorities consider that the TSO cannot realistically prefer its generation or supply assets due to the small size or remote location of the generating interests.
2.2.8 Further exemptions to full ownership unbundling may apply where a transmission system was owned by a VIU on 3 September 2009 (the date of the Third Energy Package) provided one of the alternative accepted models is met. The alternative acceptable models are illustrated in Table 3 below.
2.2.9 TSOs and Distribution System Operators (DSOs) must procure the energy they use to cover losses and reserve capacity, where they have such a procurement function, according to transparent, non-discriminatory and market based procedures. Any rules adopted by TSOs (and DSOs if relevant) for balancing the system must be objective, transparent and non-discriminatory, including rules for charging users for energy imbalance.
Table 3: Alternative acceptable models
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2.2.10 Entities from outside the EU may control a transmission system or a TSO if they comply with the unbundling requirements. In such cases, certification of a TSO must demonstrate that the security of energy supplies in the member state and the EU generally will not be put at risk.
2.2.11 Member states have chosen different models depending on their pre-existing domestic circumstances, with many transmission systems applying for certification under the ITO Model and fewer choosing the ISO Model.
2.2.12 The certification and continuous monitoring of a TSO’s compliance with one of the models is determined by the national regulator, taking into account the Commission’s opinion. The Cross-Border Regulation 2009 also contains additional rules for the unbundling provisions of the Third Energy Package relating to the procedure for certification of TSOs.
Tasks of transmission system operators
2.2.13 Designated TSOs under the IME packages are responsible for ensuring the system meets reasonable demands for the transmission of electricity, contributing to security of supply through adequate transmission capacity and reliability, managing energy flows on the system, ensuring the availability of necessary ancillary services, ensuring fairness between system users, providing system information and granting third-party access.24 Additional tasks apply under the ITO Model.
2.2.14 These tasks are not required of a TSO which has delegated the tasks to an operator where the TSO has been certified and designated “transmission system operator” in name only for the purposes of the Third Energy Package.
2.2.15 EU member states are obliged to ensure the implementation of a system of regulated third party access to the transmission and distribution systems (see below) based on published tariffs, applicable to all customers, applied objectively and without discrimination between system users.25
2.2.16 The EC has called for investment in infrastructure to grow transmission capacity, interconnection between key locations and solutions for small isolated systems.
2.2.17 EU funding programmes have provided financial aid for electricity networks and storage projects of strategic benefit, notably the Trans-European Networks in the Energy sector programme (TEN-E).26
Structure of distribution sector
2.3.1 The First Energy Package introduced the obligation on EU member states or undertakings owning transmission systems to designate one or more DSOs to maintain a distribution system in an allocated area.27
2.3.2 The Second Energy Package required DSOs which were part of a VIU to be independent (in terms of their legal form, organisation and decision making) from other non-distribution activities.28 The Third Energy Package has retained these requirements.29
2.3.3 The Third Energy Package has not required ownership unbundling of distribution but requires DSOs to prevent confusion regarding their separation from the generation/supply business of the VIU.30 The Third Energy Package is clear that legal unbundling for distribution does not prevent combination of a TSO and DSO, provided the structure is compliant with the TSO unbundling requirement.31
Tasks of DSOs
2.3.5 DSOs are required to maintain a secure, reliable and efficient distribution system with due regard for the environment and not to discriminate between individual system users or classes.
2.3.6 DSOs must procure sufficient energy to cover energy losses and reserve capacity according to transparent, nondiscriminatory and market based procedures (an opt-out for closed distribution systems serving an industrial site or similar exists). Where the DSO is responsible for balancing the system, rules adopted for that purpose must also be objective, transparent and nondiscriminatory.34 Connection to their networks must be under terms approved by the national regulator.35
Structure of supply sector
2.4.1 The IME packages have not been prescriptive on procedures for appointing retail market participants. There is no requirement for open procedures for new entrants (unlike generation) or certification procedures (unlike transmission and distribution).
2.4.2 EU member states must ensure that all customers are entitled to have their electricity provided by a supplier (subject to the supplier’s agreement) regardless of the member state in which the supplier is registered, as long as the supplier follows the applicable trading and balancing rules.36
2.4.3 The Third Energy Package requires EU member states to publicise their rules regarding retail market contractual arrangements, settlement and metering. The rules must be designed to facilitate customers’ and suppliers’ access to networks.37
2.4.4 The Third Energy Package requires EU member states to ensure that a customer can change its supplier within three weeks and gives large, nonhousehold customers the right to contract simultaneously with several suppliers.38
2.4.5 The Third Energy Package requires EU member states to ensure that all household customers enjoy universal service, defined as the right to be supplied with electricity within their territory at prices that are reasonable, easily and clearly comparable, transparent and nondiscriminatory. To ensure universal service, member states may appoint a supplier of last resort.39
Public service obligations
2.4.6 Since the First Energy Package, member states have been permitted to impose public service obligations (PSOs) on undertakings, usually suppliers, concerning matters such as security, regularity, quality and price of supply and environmental protection. The Second Energy Package and the Third Energy Package extended these matters to include energy efficiency, energy from renewable sources and climate protection.40
2.4.7 To reduce the potential effect of distorting competition and slowing down the genuine openingup of the market, PSOs are required to be clearly defined, transparent, non-discriminatory and verifiable.41
2.4.8 EU member states are also obliged to protect final customers by protecting vulnerable customers from disconnection, and those in remote areas, and ensuring transparency regarding contractual terms and conditions.42 Each member state shall define the concept of vulnerable customers which may refer to energy poverty and, inter alia, to the prohibition of disconnection of such customers in critical times.
2.4.9 An annex to the Second Energy Package, amended in the Third Energy Package, comprises a list of minimum measures for customer protection under retail contracts.
2.4.10 Final customer energy bills must also show the contribution of each energy source to the overall fuel mix of the supplier over the preceding year and include information on the environmental impact resulting from the electricity.43
Structure of trading market
2.5.1 The IME packages require wholesale competition across EU electricity markets, but have not been prescriptive in respect of the form of trading arrangements that must be adopted.
2.5.2 The Second Energy Package facilitated competition in trading markets by imposing increased dispatching and balancing obligations upon TSOs. The dispatch of generating installations and use of interconnectors must be determined on the basis of criteria which are objective, published and applied in a nondiscriminatory manner which ensures the proper functioning of the internal market in electricity.44
Third party access
2.5.3 The First Energy Package had permitted three methods for suppliers, generators and other customers to access the transmission and distribution systems. EU member states which had a single buyer model for the sale and purchase of electricity could retain this model but with some safeguards or choose either a system of regulated third party access or negotiated third party access. The Second Energy Package retained only the regulated third party access procedure, and the Third Energy Package has not changed this.
2.5.4 There is currently no single market for the trade of electricity in the EU. The interconnection of European countries is not yet sufficient to support this. The Second Energy Package and Third Energy Package have attempted to improve this (see paragraph 3.1.11 below).
2.5.5 The EC monitors the traded volume of power on European trading platforms and cross-border physical power flows in the EU.
2.5.6 Privately held electricity trading exchanges compete to facilitate the trading of:
- wholesale power;
- transmission congestion;
- products transferring financial risk (e.g. electricity futures and options);
- ancillary services; and
- carbon emissions trading products.
2.5.7 The system operator in each country will balance the system and record generation and consumption, whilst power exchanges facilitate and record the trading. Markets are generally licensed by national regulators.
2.5.8 The EU is broken into seven regions for trading arrangements. The member states in each of these regions are required by the Cross-border Regulation 2009 to operate a common method for allocation of capacity in that region:45
- Northern Europe (Denmark, Sweden, Finland, Germany and Poland);
- Italy (Italy, France, Germany, Austria, Slovenia and Greece);
- Central Eastern Europe (Germany, Poland, Czech Republic, Slovakia, Hungary, Austria and Slovenia);
- South-West Europe (Spain, Portugal and France);
- UK, Ireland and France;
- North-West Europe (Benelux, Germany and France); and
- the Baltic states (Estonia, Latvia and Lithuania).
2.5.9 Major European wholesale markets include countries which are not in the EU but have acceded to the European Economic Area in certain limited areas, for example Nordpool comprises Norway, Sweden, Finland, Denmark, Estonia and Lithuania.
3.1.1 Under the IME Directives, each member state must establish one or more national regulatory authorities (NRAs). The Third Energy Package requires a single, senior authority which is independent from any market interest and does not take direct instructions from government or any other public or private entity when carrying out its regulatory tasks.46
3.1.2 Under the Third Energy Package, NRAs must ensure compliance of electricity undertakings with relevant EU law. NRAs are also critical for guaranteeing non-discriminatory access to the network. They are responsible for setting or approving the terms and conditions (or at least the methodologies) for:
- connection and access to national networks, including transmission and distribution tariffs;
- balancing services; and
- access to cross-border infrastructure, including the procedures for the allocation of capacity and congestion management (subject to exemptions).47
3.1.3 The ability to challenge NRA decisions on conditions or tariffs is limited. The Third Energy Package provides for short time periods and that complaints shall not have suspensive effect.48
3.1.4 The NRA must have the power to impose penalties for non-compliance with the Third Energy Package or any relevant legally binding decisions of the NRA (or of ACER). Penalties for a TSO or VIU can be up to 10% of the company’s annual turnover.49
Cooperation between NRAs
3.1.5 NRAs are required to cooperate for optimal management of the network and must coordinate the development of network codes for TSOs and European market participants.
3.1.6 On 11 November 2003, the European Regulators Group for Electricity and Gas (ERGEG) was established. This evolved into the Council of European Energy Regulators (CEER) and ACER in 2009 pursuant to the Third Energy Package.
3.1.7 ACER is responsible for overseeing the NRAs and monitoring compliance with the Third Energy Package guidelines.50
3.1.8 CEER remains a complementary forum dealing with related issues.
3.1.9 ENTSO-E was established under the Third Energy Package and is the EU forum of 41 TSOs from 34 countries responsible for coordination between TSOs. Its major project is the development of the European network codes. It also provides non-binding Ten Year Network Development Plans and reports on generation adequacy from a European perspective. On 28 May 2013, ENTSO-E also called for a framework to be put in place to recognise the specific financial needs of TSOs building the transmission infrastructure required for EU policy goals to be met.
3.1.10 In general, EU member states are obliged to ensure that connection rules and technical safety criteria are defined and that publicly available rules establish the minimum technical design and operational requirements for the connection to the system of generating installations, distribution systems, directly connected consumers, interconnector circuits and direct lines. The technical rules are aimed at ensuring the interoperability of networks and must be objective and non-discriminatory.51 Under the Third Energy Package, ACER is tasked with making recommendations towards greater compatibility of these technical rules.52
3.1.11 The Second Energy Package and Third Energy Package provide for agreement at EU level of conditions for access to neighbouring networks for cross-border exchanges of electricity. Neighbouring third countries such as Norway and Switzerland also participate in these negotiations. The Cross-Border Regulation 2009 replaced and expanded the Cross-border Regulation 2003 to govern and stimulate cross-border trade.53
3.1.12 Under the Cross-Border Regulation 2009, ACER is providing the frameworks for unified pan-European codes, with ENTSO-E and market participants formulating the detail. Each code will become legally binding with the status of a regulation after its adoption by the EC following a consultation process.54The network codes are detailed in Table 4 below.
Table 4: Network Codes
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3.1.13 Other aspects of the Cross-Border Regulations 2009 include:
- an Inter-Transmission System Operator Compensation (ITC) mechanism to compensate national TSOs for losses caused by cross-border flows of electricity, and the cost of making infrastructure available to host such flows;55
- charges applied by TSOs for access to networks must not be discriminatory, nor distancerelated;56
- a requirement to provide information on available transfer capacity from market participants to the TSOs – the EC may request information from national regulators or from undertakings directly, and impose fines of up to one percent (1%) of annual turnover for failures to comply;57
- the establishment of general principles of congestion management and allocation of capacity; and
- an exemption of certain new interconnectors for limited periods from the requirements for unbundling of transmission,58 open third party access59and supervision of tariffsetting by national regulators60. (this is aimed at reducing the risk profile of otherwise unfundable privately owned interconnectors).
3.1.14 Member states (or their NRAs) are required by the Third Energy Package to “strongly recommend” that electricity undertakings optimise the use of electricity.61
3.1.15 To assist, EU member states must ensure the implementation of intelligent metering systems to assist the active participation of consumers in the electricity supply market. Member states are required to prepare a timetable for implementation, however, they have up to ten years for implementation.62
3.1.16 The EU is keen for member states to smarten their electricity networks in a way which is compatible with a unified internal electricity market. Smart grid standards have been officially requested by the EC63 and are being developed by the three European standardisation organisations: CEN (European Committee for Standardization), CENELEC (European Committee for Electrotechnical Standardization) and ETSI (European Telecommunications Standards Institute).
3.2.1 The Nuclear Safety Directive64 requires each member state to establish and maintain a national legislative, regulatory and organisational framework and a competent regulatory authority to govern licensing and safety of nuclear installations.
3.2.2 The European Nuclear Safety Regulators Group (ENSREG) is the coordinating body in the EU’s parallel community for nuclear energy. It was established in 2007 as a highlevel group of senior officials from national nuclear regulators which advise the EC and provide reports to the Council and the European Parliament to contribute nuclear safety objectives.65
3.2.3 Following the Fukushima Daiichi incident in Japan in March 2011, ENSREG and the EC conducted a review of European nuclear safety legislation and stress tests. No reactors were required to close but detailed recommendations for safety improvements were made by the EC along with a new periodic review proposal. Accordingly, a member state may impose 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.66 However, such measures must be notified to the other member states and the EC and cannot distort competition or adversely affect trade.
Fusion and fission
3.2.4 In 2007 the EU established a Joint Undertaking for the International Thermonuclear Reactor Experiment (ITER) and development of Fusion Energy – Fusion4Energy – to demonstrate, along with other international partners, the viability and sustainability of fusion power.67 No EU regulations or directives regarding the future regulation of fusion energy have been proposed.68
Unbundling of accounts
3.3.1 Since the First Energy Package, electricity undertakings have been required to keep separate accounts for their transmission and distribution activities with a view to avoiding discrimination, cross-subsidisation and distortion of competition.69
Information provision to the EU
3.3.2 NRAs and the EC may request from TSOs, generators and suppliers any information relevant for the fulfilment of their tasks for the designation of TSOs.70
3.3.3 Member states must notify the EC of the technical rules they establish and their possible effect on national and international competition, in accordance with general EU law which has a procedure for the provision of information in the field of technical standards and regulations.71
Market integrity and transparency
3.3.4 Financial market participants and traders have specific regulatory requirements in the energy sector. Council Regulation (EU) No. 1227/2011 on wholesale energy market integrity and transparency (REMIT) entered into force, in part, on 28 December 2011. It seeks to provide an EUwide legislative framework to prevent market abuse and increase price transparency in wholesale energy trading, with the aim of protecting end consumers. The implementation of REMIT is ongoing and ACER continues to publish annual reports detailing work programmes and progress.72
Table 5: The three areas of REMIT
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3.4 As part of the 2030 policy framework, the EC’s aim is to establish competitive, affordable and secure energy. The EC proposes a set of key indicators to assess progress over time and to provide a factual base for potential policy response. These indicators relate to, for example, energy price differentials with major trading partners, supply diversification and reliance on indigenous energy sources, as well as the interconnection capacity between member states.
Environmental public service obligations for electricity undertakings
3.5.1 Under the IME packages, member states may impose PSOs on undertakings operating in the electricity sector in the general economic interest, which may relate to environmental protection, including energy efficiency, energy from renewable sources and climate protection.73
Renewable energy targets
3.5.2 EU directives have been passed to support international agreements in respect of global climate change, and member states have also agreed ambitious environmental policies for Europe beyond global targets.
3.5.3 The EU’s main objective is to reduce its emissions of greenhouse gases by 20% below 1990 levels by 2020 and to increase the share of energy from renewable sources consumed in the EU to 20% of the EU’s final consumption of energy by that date.
3.5.4 The RED is the cornerstone of the EU’s legislative drive to help the EU reach the 2020 targets. The RED had to be transposed by member states by 5 January 2010. It follows a similar structure to the first renewables directive in 2001 and requires each member state to reach a specific renewable energy target.
3.5.5 The RED required member states to submit a National Renewable Energy Action Plan (NREAP) to the EC by 30 June 2010 to set out member states’ national indicative targets for achieving the EU 2020 targets.
3.5.6 Each EU member state’s targets are set out in the annex to the RED. Progress towards these and the national indicative targets is reviewed by the EC. Although the recession which began in 2007 to 2008 has reduced the consumption of energy and amount of emissions in many countries, there are concerns that the targets may not be achieved in several member states. The EC has recently referred Austria to the Court of Justice of the European Union for failing to fully implement the RED.74 The EC has asked the Court to impose penalties of EUR 40,512 per day.
3.5.7 In January 2013, the EC published a white paper which sets out a policy framework for 2020 to 2030. The white paper is a non-binding proposal for EU action. The 2030 policy framework establishes more ambitious targets to drive further decarbonisation of the European economy, particularly for the electricity sector. In particular, key parts of the framework are the targets to reduce EU domestic greenhouse gas emissions by 40% below the 1990 level by 2030 and increase the share of renewable energy to at least 27% of the EU’s energy consumption by 2030.
Priority access to networks
3.5.8 The RED requires that member states ensure that TSOs and DSOs in their territory give guaranteed or priority access to the transmission and distribution of electricity produced from renewable energy sources. It also imposes an obligation on member states to issue guarantees of origin to enable a supplier to prove to its final consumers the share or quantity of renewable energy, following a request from the renewable energy generator.75
3.5.9 Greenhouse gas emissions trading is one of a number of mechanisms being adopted by the EU to meet its commitments under the Kyoto Protocol to reduce emissions by eight percent (8%) below 1990 levels.
3.5.10 The Emissions Trading Directive established a scheme for greenhouse gas emissions allowance trading within the EU.76 The EU Emissions Trading Scheme (EU-ETS) has been implemented in phases and the Emissions Trading Directive has been significantly amended including by the Climate and Energy (20-20-20) Package (see paragraph 1.4.4 above). It applies to operators of installations with a total rated thermal input exceeding 20MW (except in installations for the incineration of hazardous or municipal waste, or biomass installation units).77
3.5.11 The Emissions Trading Directive requires EU member states to decide upon the total quantity of allowances to allocate for each compliance period and the number to be allocated to each operator. Operators need to calculate and verify their emissions and submit allowances equal to their emissions each year. Excess emissions allowances can be sold; if more are needed, they can be bought from other participants or brokers. For trading and compliance purposes, member states must recognise allowances issued in other member states. Non-compliance is subject to penalties.
3.5.12 At the start of Phase 3 of the EU-ETS, the surplus carbon credits stood at almost two billion allowances, double the level in 2012 created by industrial inactivity following the 2008 recession in Phase 2 of the EU-ETS (2008 to 2012).
3.5.13 As a short term measure, designed to add value back into the system and mitigate the effects of the surplus, the EC decided to postpone the auction of an additional 900 million allowances from 2013 to 2015 and 2019 to 2020 (i.e. “back-load”) when it is expected that demand for carbon credits will have recovered.
3.5.14 However, back-loading is expected to provide only temporary relief. In a draft decision78 published as part of the 2030 policy framework, the EC proposes to establish a market stability reserve. The market stability reserve is designed as an objective and rule-based mechanism on the basis of which auction volumes are adjusted in an “automatic manner” under pre-defined conditions. The proposal is to establish the market stability reserve from the start of Phase 4 in 2021 so as to provide market participants with lend-time to adapt to the introduction of the reserve and to provide sufficient regulatory certainty during Phase 3.
State aid guidelines
3.5.15 In April 2014, the EC adopted new guidelines on state aid for environmental protection and energy.79 These replace the existing guidelines on environmental aid and cover state aid to energy infrastructure, generation adequacy and energy intensive industries. The guidelines provide a framework for state aid to renewable energy sources including requirements for market based support from January 2016 and competitive bidding from January 2017.