One of the key parts of the third energy package, effective from 3 March 2011, is the Commission Regulation on conditions for access to the network for cross-border exchanges in electricity (714/2009EC) (the "Regulation"). No enabling legislation is required to give the Regulation legal effect in the UK. The Regulation is the basis for the creation of the various network codes which will be legally binding on all market participants in all Member States. It is vitally important therefore that all market players are alive to the network code process, engage in that process and in so doing, seek to influence the outcome.
Network codes – scope and opportunity to shape future landscape
The areas to be covered by the network codes are wide reaching and include network security and reliability rules; network connection rules; third party access rules; capacity allocation and congestion management rules, transparency rules and balancing rules. Importantly, the scope of the network codes is to cover "cross border issues and market integration issues". This reference to market integration means that the scope of the rules will cover more than purely cross border issues and as such, relevant at a national level.
The codes will require to comply with overarching framework guidelines that are being prepared by Agency for the Cooperation of Energy Regulators (ACER) (at the request of the European Commission). These guidelines are to "contribute to non-discrimination, effective competition and efficient functioning of the market" and as such, the codes that sit beneath these guidelines should do likewise. Once the framework guideline has been approved by the Commission, ACER will request that European Networks of Transmission System Operators (ENTSO-E) prepare the network codes generally within a period of 12 months. Critically, ENTSO-E is obliged to "conduct an extensive consultation process, at an early stage and in an open and transparent manner, involving all relevant market participants" while preparing network codes.
If market participants (e.g. renewable generators) are to have an influence on the content of these codes, which will be legally binding upon them, it is imperative that they meaningfully participate in the consultation process. In so doing, they should be mindful of what the codes are required to achieve (e.g. effective competition and be non-discriminatory). If the codes fail in this respect or indeed against any other legal requirement (for example, in the renewables directive) these representations should be made. If market players fail to engage with the process, the rules that govern how they operate may not be as favourable as they might otherwise have been.
In terms of timing, the formal network code consultation processes will commence during 2011 after the Regulation, which took effect on 3 March 2011. The work programme which was published by ENTSO-E in October 2010 provides useful information in terms of the network code preparatory work currently being undertaken and also, the indicative schedule of network code deliverables and timings for relevant consultations. ENTSO-E and European Regulator Group for Electricity and Gas (ERGEG) have already begun work on the most important market integration codes (referred to as the "as if phase").
In this context, work is being undertaken on a pilot code on 'Grid connection with a special focus on wind generation' which aims to harmonise the structure of national connection codes. There have been stakeholder workshops held to discuss the content of this code although the formal consultation process is to follow this year. It is envisaged that the preparatory work that has been undertaken by both ERGEG (in producing the draft framework guideline) and ENTSO-E in preparing the draft code will facilitate a smooth and reasonably quick transition to adoption of the network code. To the extent that relevant stakeholders have not already been involved in that process, they should want to ensure that they engage during the formal process both in respect of the market integration codes and all others to follow.