On 5 November 2013, the EU Commission published its long-awaited Guidance to Member States on state intervention in electricity markets.
The Guidance is structured as a Communication on delivering the internal electricity market, accompanied by four staff working documents on:
- the design and reform of national support schemes for renewable energy;
- the design of adequate generation capacities to ensure the continuous supply of electricity when generation fluctuates;
- the enhancement of the role of the consumer; i.e. demand-side response, and
- the use of renewable energy cooperation mechanisms.
Although the guidelines are not legally binding for the Member States, they are meant to make state intervention in the electricity market more effective, to offer the principles which the Commission will apply when assessing future enforcement of the EU state aid rules, and also to serve as the basis for a future proposal for EU energy legislation.
Key principles for support schemes for renewable energy
- Investors’ legitimate expectations should not be frustrated by retroactive changes to existing support schemes, as such changes have altered investors’ confidence and reduced investments in the sector.
- As technologies mature, support should be adjusted downwards or phased out. Any additional support that is necessary should only supplement the market price, not replace it. The Commission proposes replacing the feed-in tariffs with feed-in premiums and quota obligations, which will eventually force producers to respond to market prices.
- Introducing a tendering process for developing new capacities. The tendering will reveal the costs of different technologies, stimulate competition, and steer the development of new capacities where they make sense geographically and where they are needed.
- The support scheme should focus more on R&D.
- Expose the renewable energy generators to the rules of the balancing market, use of interconnectors and grid connections charges and grid use rules so that the costs can be passed to all electricity producers, including renewable energy generators.
Key principles for the design of adequate generation capacities
- The Commission takes a conservative approach with regard to additional generation capacities. It recommends that market forces should first determine whether there is a need for investments in additional generation capacities. Only if there are doubts as to the market delivering generation adequacy and security, then an objective, facts-based and comprehensive assessment of generation adequacy is recommended. The assessment should also address the impact on the Internal Energy Market and has to be consistent with ENTSO-E generation adequacy assessment.
- In November 2012, the Electricity Coordination Group was set up with the view of assessing the need of generation adequacy and intensifying cooperation among the Member States. Based on the work of the Electricity Coordination Group, the Commission may propose new legislation.
- If generation adequacy issues are identified, the next steps should be to look at alternative measures that can address this issue, such as demand response (smart meters and smart grids), the removal of regulatory failures (regulated wholesale and retail prices, subsidies for fossil fuels and nuclear), as well as effective intraday and balancing rules.
- If these alternative measures fail to solve the problem, a credible one-off tendering procedure or a market-wide capacity mechanism could be further considered. The Commission prefers the tendering procedure that would also include demand-side response technologies.
- The mechanism to ensure generation adequacy should be open to all capacities and include those from other Member States, not only the national capacities of any one individual Member State.
Key principles for demand response measures
- The retail market needs to be reorganised in a way that consumers can benefit from and are incentivised to participate in the energy market, so that the consumers can be billed based on wholesale market price signals and not on consumption profiles.
- The first step is to remove the regulated prices for end consumers to allow the development of dynamic pricing.
- The Commission is currently analysing the cost-benefit analyses and smart metering roll-out plans received from the Member States and will present a Benchmarking Report by the end of 2013.
The Communication and the Staff Working Documents can be accessed here