In this Energy Flash we give an overview of the package and discuss the challenges ahead and the many controversies surrounding the Clean Energy Package.
Politician uddhav thackeray biography- Full Details
Winter package is coming
1. Experts with Impact™ FTI Consulting Inc. • 1
Authors
- Arne Koeppel
- Constantine Levoyannis
- Ivan Pozgaj
- Mateusz Stankiewicz-Szynka
The 2016 Winter Package is the most important deliverable of the European Commission’s Energy Union project,
contributing to all its dimensions: Energy security, integrated energy market, energy efficiency, decarbonisation and R&D
and innovation. Its size (1000 pages of core text) is as impressive as its ambition. This package aims at nothing less than
creating the framework for an energy system that is able to deliver the post COP21 energy transition and cope with the
fundamental shifts in energy generation and consumption. Among the highlights of the so-called ‘Clean Energy Package’,
the proposals aspire to deliver on the European Commission’s promise of putting the consumer at the heart of the
European energy market as well as the move towards a system based on decentralised generation of renewable energy
and a 30% binding energy efficiency target by 2030 at EU level.
What’s in it?
To achieve these ambitions the European Commission (EC) has published a package of
eight legislative proposals mainly covering energy efficiency, renewable energy and
electricity market design. In order to ensure effective implementation and oversight of the
package the EC has also published a Governance proposal, that puts in place a system of
reporting and review for the whole Energy Union project.
In particular, the new rules on electricity market design are critical to ensuring the proper
functioning of the energy market overall. It addresses the different drivers of the energy
system such as market forces, market intervention, the role of the consumer and the overarching ambition to make the EU a leader in
renewable energy and energy efficiency. Altogether the EC adopted a technology neutral approach in which it is mainly left to the market to pick
the winners, a preference for electric vehicles and diminished support for first generation biofuels being the exceptions.
Getting this all right will be a formidable challenge for the EC and co-legislators in the European Parliament and the Member States. Green
stakeholders and civil society already began damning the package before it was even published. However, when presenting the package on 30
November Commission VP for Energy Union Maroš Šefčovič and Commissioner for Energy Arias Cañete, could take out some steam by
countering some of the strongest arguments with several important changes compared to the many drafts that were leaked some weeks ago.
Winter Package is Coming
December 2016
2. Winter Package
Experts with Impact™ FTI Consulting Inc. • 2
The fact that the different proposals are interlinked is a strength of
the package but also makes it particularly complex. In order to
understand the EC’s plans and how they should work the proposals
need to be seen in conjunction with each other.
Electricity Market Design
The proposals for the new electricity market design are supposed
to create a market based framework that supports the overall
objectives of decarbonisation, energy efficiency and leadership in
renewables while preventing market distortions. Not an easy task
considering the major shift from a centralised energy system
mainly based on fossil and nuclear energy. The new electricity
market design is poised to rely more on renewable energy sources,
energy efficiency measures and decentralization. To make the
plans work the framework needs to incentivize the necessary
investments, not only in renewable generation but also in
infrastructure development and storage capacities. These needs
are enormous and ultimately the measure of success will be
determined by the profitability of the business models that
encourage these investments in addition to their functionality.
Main elements
The vision of the EC is a flexible energy market that allows trading
on spot market prices. Consequently, price signals would drive the
market to react to shifting energy demands and fluctuating
renewable energy generation. Price caps for the wholesale market
will be removed so that prices reflect the real value of electricity.
The consumer will have a critical role. The framework will allow
consumers to adapt consumption to price signals and even to
generate income by simply consuming or saving energy at the right
time (demand response). In addition consumers are encouraged to
generate their own energy which they can then sell on to the grid.
Consumers and aggregators
There is no doubt that the role of consumers is considerably
strengthened. Many provisions empower and encourage
consumers to become active participants in the market. Contracts
need to meet high standards of consumer protection, consumers
will have the right for flexible supply contracts that reflect spot
market prices, and have the possibility to switch suppliers without
punitive costs. Consumers also have the right to obtain accurate
data about their consumption and production and to have access
to comparison tools. Active consumers will have the right to
generate, store, consume and sell self-generated electricity without
being subject to undue procedures or charges – thus becoming
producers as well as consumers (prosumers). In addition local
energy communities will be entitled to establish community
networks, manage them and purchase and sell electricity.
Having led the global
climate action in recent
years, Europe is now showing
example by creating the
conditions for sustainable
jobs, growth and investment.
In order to protect vulnerable customers and address energy
poverty, Member States will still be able to interfere in price setting
but only for the supply of vulnerable households.
Aggregators will be important players. They participate in the
market by combining the electricity load of multiple customers and
offer them for sale, purchase or auction in the market. They are
practically an intermediary between customers and the electricity
market, making it less complicated for the customers to profit from
the electricity system. The position of aggregators is also
strengthened considerably through the proposal.
In order to enable the market to deal with shifting energy
consumption and generation, demand response is a further critical
element. Through demand response customers are incentivized
financially to lower or shift their electricity use at peak times. The
framework provides rules for market participants that offer
demand side response services.
The proposal takes an important step in empowering the
consumer, however it must be taken into account that not all
consumers will be willing or able to adapt to that more demanding
role. It will be a challenge to get the full support of consumers and
make them understand the potential benefits for them.
The role of data
All these schemes could not work if there is no real time data on
supply and demand. This requires smart meters with specific
functionalities, but also management of that data as well as a
system that allows for fair access to the consumer data while
respecting data protection rules. Having access to the data is a
pre-requisite for participating in the market.
Consumers can demand the installation of smart meters if there is
no systematic and planned roll-out. Member States need to name
eligible parties that have access to the data of the final customers
with their explicit consent. Third parties e.g. aggregators need to
get access to this data in a non-discriminatory manner.
In order to ensure that consumers are supportive of the framework
they must trust the system and how their data is dealt with. That is
why Member States need to choose eligible parties and cannot
leave it to the market alone.
Key legislative proposals of the Winter Package
- Directive on common rules for the internal market in
electricity (recast)
- Regulation on the electricity market (recast)
- Directive on the promotion of the use of energy from
renewable sources (recast)
- Regulation on the Governance of the Energy Union
- Regulation on risk-preparedness in the electricity sector
- Directive on Energy Efficiency
- Directive on Energy Performance in Buildings
Maroš Šefčovič, Vice-President Energy Union
3. Winter Package
Experts with Impact™ FTI Consulting Inc. • 3
Distribution systems
Distribution System Operators (DSOs) will have an important role in
the overall system, ensuring that infrastructure requirements are
met. The grids need to connect new generation capacity, enable
spot market trading, demand side response, participation of the
prosumers etc. Moreover, the grids also need to accommodate
electric mobility and charging points. To this end DSOs need to
present network development plans to regulatory authorities with
planned investments for the next 5-10 years. In order to guarantee
competition, DSOs will not be allowed to own, develop, manage or
operate energy storage facilities. DSO services are to be
transparent, non-discriminatory and market-based ensuring
effective participation of all market participants including
renewable energy sources, aggregators and demand response. In
order to guarantee an efficient use of the grid DSOs need to
cooperate with Transmission System Operators (TSOs). The EC also
recognises the importance of electricity storage and the EC and
ACER will develop binding guidelines and network codes.
Dispatching and curtailment
In order to keep the base load at the right levels, generated energy
needs to be dispatched or curtailed, depending on whether the
load in the grid is too high or too low. TSOs, that are responsible for
maintaining base load, must dispatch in a non-discriminatory
manner but must give priority to small installations using
renewable energy, high efficiency co-generation or emerging
technologies. Existing installations using renewable energy or high
efficiency co-generation will continue to benefit from priority
dispatch. This provision is very controversial as it arguably favours
a move away from a market based approach and technology
neutrality. Renewable advocates on the other hand argue that
renewables need to enjoy full priority dispatch in order to
incentivise investments. Indeed it will be critical to find a balanced
solution that does not cause market distortions with unwanted
side effects, such as making the most efficient gas power stations
unprofitable.
Cross-border electricity markets
The electricity market design seeks to overcome a fundamental
flaw of the internal energy market: the lack of cross border
electricity trade. Efficient interconnection could solve many issues:
TSOs could tap into a far wider electricity network to ensure
security of electricity supply. There would be more competition and
energy consumers, including large companies, would have access
to renewable energy from neighbouring countries to buy and sell
electricity. However, there are still many obstacles. First of all the
interconnectors have to be built, to that end the EU has a 15%
interconnection target in place, but this would just be the
beginning. The national markets have to be interoperable and
therefore the proposal obliges national authorities as well as TSOs
and DSOs to cooperate and develop common rules. A novelty will
be a DSO entity at European level to achieve better cooperation.
The proposal also encourages cross-border bidding zones. Bidding
zones are geographical areas in which electricity can be traded
without capacity allocation. In addition TSOs have to establish
regional operational centres. The region for which each operational
centre is responsible should be defined according to the
circumstances that allow the most optimal trade within that region
e.g. level of interconnection, interdependency of power systems
etc. The tasks of the regional operational centres include
coordinating capacity allocation and security of supply analyses.
Capacity mechanisms
Capacity mechanisms are among the most controversial issues of
the proposal. Under such a mechanism the owner of the capacity is
remunerated only for making electricity generation capacity
available and not for the consumed electricity. It is argued that
these mechanisms are necessary to ensure that sufficient capacity
is available in cases of shortfalls. On the other hand, these
capacity mechanisms can distort the market to the advantage of
fossil fuel generated electricity that is ideal for covering supply
gaps given the proven technology. Therefore, the Commission
proposes strict conditionality on capacity mechanisms to ensure
that they are only used as a last resort. In addition by setting a
550gr of CO2 per Kw/H emissions ceiling for installations for which
a final investment decision has been made after entry into force of
the Regulation the EC aims to ensure that only efficient power
stations fall under the scheme in the future.
Renewables Directive
The objective of the Renewables Directive is to ensure that the EU
meets its 27% target by 2030. While the purpose of electricity
market design is to accelerate the integration of renewables into
the electricity market, the Renewables Directive provides the rules
and criteria for their support.
Financial support
Member States may support renewable energy financially, but in
doing so should mitigate market distortions. The EU Guidelines on
State Aid for Environmental Protection and Energy provide
important guidance on how to meet these criteria. Accordingly, the
EC considers auctions as the least distortive instruments, followed
by feed-in premiums. Feed-in tariffs should be avoided where
possible and support schemes should be reviewed every four
years.
Support schemes should be increasingly opened to suppliers from
other Member States and in 2030 at least 15% of newly supported
capacity should be open to installations located in other Member
States. The cross border participation can take the form of joint
tenders, open certificate schemes or joint support schemes. Any
retro-active changes to the disadvantage of investors are
prohibited.
Member States should also continue streamlining the
administrative procedures for the authorisation and licensing for
renewables capacity. In order to increase predictability for
investors Member States should publish an allocation plan for
renewable capacity for the following three years. Member States
shall also establish single administrative contact points to
coordinate the entire permit granting process. Notification
procedures are also to be simplified.
Guarantees of Origin
Guarantees of Origin (GoO) certify that power is generated from
renewable sources; one certificate represents the generation of 1
Megawatt hour of electricity. GoOs can be traded independently
from the electricity and a buyer of a GoO can claim to have
4. Winter Package
Experts with Impact™ FTI Consulting Inc. • 4
consumed renewable electricity. Member States can issue and
auction the GoOs and use the revenues to offset the costs of
renewable support. The fact that the proposal includes GoOs for
renewable gases shows that the power-to-gas discussion is gaining
steam. Consumer and environmental organisations are attacking
GoO as greenwashing and that they don’t enable the consumer to
know the footprint of the electricity they purchase. On the other
hand GoO are making the market more flexible and allow
renewable investments also if it is not possible to actually
purchase renewable electricity. The measure of success will again
be whether GoOs can spur investments.
Self-consumption
Mirroring the strong focus of the consumer in the proposal on the
electricity market design, the Renewable Directive gives to
renewable self-consumers the rights to consume and sell their
generated electricity including through power purchase agreement
without any undue obstacles. They will maintain their rights as
consumers and are not to be considered as energy suppliers if the
electricity they feed into the grid does not exceed 10MWh for
households and 500 MWh for legal persons on an annual basis.
This should encourage non-energy players to generate renewable
electricity, for example tech companies that can sell excess
electricity from their RES production for data centres.
The Directive also encourages the electricity generation by energy
communities, giving them the status of an SME or a not-for-profit
organisation.
Heating and cooling
The Directive aims to reach an annual increase of renewable
energy for heating and cooling of 1%. Member States may identify
and publish the measures that shall contribute to the objective.
Possible measures include incorporation of renewable energy in
fuel supplied for heating and cooling and direct installation
measures such as the installation of highly efficient heating and
cooling systems.
Biofuels
Biofuels has turned out to be one of the most controversial areas
of renewable support. Environmental NGOs have campaigned
strongly against first generation biofuels i.e. produced from food or
food crops because of their potential impact on biodiversity and in
some instances relatively high carbon intensity.
The EC has reduced the current 7% limit of first generation biofuels
in transport to 3.8% in 2030. Instead the EC wants to support
advanced biofuels, i.e. produced from residues and waste, by
obliging Member States to require fuel suppliers to include a
minimum share of those biofuels which shall be at least 1.5% by
2021 and at least 6.8% by 2030. The Directive also supports the
production of gaseous transport fuels e.g. hydrogen, if renewable
energy is used for their production.
Sustainability criteria for biomass
Already in the first Renewables Directive, biofuels could only be
considered a renewable energy source if they comply with certain
sustainability criteria, in particular a sufficient greenhouse saving
potential and no damage to biodiversity. The new Renewables
Directive also includes sustainability criteria for biomass that are
used for heating and cooling and electricity generation. Wood
pellets are the most relevant form. Biomass from forest must be
harvested in countries that have appropriate laws to ensure a
minimum standard of sustainability. If the country of origin has no
such laws in place the producer must prove a management system
that provides the same level of sustainability. This could be
particularly challenging for producers in the US, the largest supplier
of wood pellets, as the forests are mostly managed privately.
Energy Efficiency
The changes to the Energy Efficiency Directive (EED) introduce the
overall EU target of 30% by 2030. The Member States shall set
indicative national energy efficiency targets, taking into account
the EU 2030 target. The EC will assess the national targets and
evaluate the progress towards those targets. There will be strong
resistance against the 30% target from Member States but the EC
is confident that the overall benefits will win them over.
I'm particularly proud of the
binding 30% energy
efficiency target, as it will
reduce our dependency on
energy imports, create jobs
and cut more emissions.
Member States shall aim to achieve a saving of 1.5 % of annual
energy sales to final customers and continue to do so for the ten
year periods post 2030. One of the main tools to achieve the
savings are energy efficiency obligations, which require energy
companies to achieve the savings of annual sales to the final
customers. In order to reach this target, companies have to carry
out measures which help final consumers improve energy
efficiency. However, the updated Directive makes clear that
Member States can also fulfil their obligations through alternative
measures which are not further specified.
The position of consumers is also strengthened under the EED, for
example they need to be provided with competitively priced meters
and have a strengthened right to clear and accurate information
regarding their heating and hot water consumption.
Energy Performance of Buildings Directive
This Directive aims to benefit of the energy saving potential of
smart technologies in buildings. A long-term renovation strategy to
be submitted by Member States should set out milestones and
measures to deliver on the 2050 goal to decarbonise the national
building stock. Furthermore, the Directive aims to incentivise and
guide investment into the building sector by aggregating projects,
de-risking energy efficiency operations and using public funding to
leverage additional private investments.
Maybe the most striking provision is that all non-residential
buildings that are either new or undergo major renovations and
have more than ten parking spaces need to be equipped with
Miguel Arias Cañete, Commissioner for Energy and Climate
5. Winter Package
Experts with Impact™ FTI Consulting Inc. • 5
charging points for electric cars. New residential buildings with at
least ten parking spots need to be equipped with the necessary
pre-cabling to enable charging points. The EC calculates that this
measure should lead to 6m charging points by 2030.
The Directive also introduces a “smartness indicator” for buildings.
The indicator should cover all aspects that enable energy savings
and the ability of occupants to take part in demand response.
Finally, the Directive contains provisions for large non-residential
and residential buildings to assess the efficiency of equipment
such as boilers and air conditioning. Alternatively non-residential
buildings can be equipped with building automation and control
systems.
Eco-design
The package also includes the Eco-Design Working Plan that
includes a list of new product groups (building automation and
control systems, electric kettles, lifts, refrigerated containers, hand
dryers, high pressure cleaners and photovoltaic systems) and how
ecodesign will contribute to circular economy objectives such as re-
usability, reparability and recyclability of products. For the
ambitions of the clean energy package the new minimum energy
efficiency requirements for air heating and cooling products are
essential.
Clean Energy Innovation
The ambitions of the package are only achievable with important
technological advances and a broad adoption of smart energy
technologies. All this will require huge investments from both the
private and the public sector.
The Commission proposal on the revision of the EU Emission
Trading System (ETS) is putting forward an Innovation Fund
(InnovFin) as a successor to the current NER 300 facility. Swift
implementation of the Innovation Fund should support
investments into highly innovative low-carbon technologies for
energy-intensive industries, as well as for renewable energy and
carbon capture, storage and use.
The EC and the European Investment Bank will also set up a
Cleaner Transport Facility to support the deployment of alternative
energy transport solutions. Projects may also be eligible for the
Connecting Europe Facility or the European Fund for Strategic
Investment guarantee, while EIB financial products and advisory
services will be made available to public and private entities.
The EC is working towards at least doubling the budget of the
InnovFin Energy Demonstration Projects schemes for first-of-a-kind
low-carbon technologies in renewables and hydrogen fuel cells.
Finally, the Commission intends to deploy more than EUR 2 billion
from the Horizon 2020 program for the following four objectives:
- Decarbonising the EU building stock
- Strengthening EU leadership on renewables
- Developing affordable and integrated energy storage
solutions
- Electro-mobility and a more integrated urban transport
system
Governance Framework
To bring this myriad of proposals together, the EC has put forward
a regulation on Governance. The EC contends that the majority of
energy and climate challenges facing the Union cannot be met
through uncoordinated national action. To achieve a fundamental
transformation of the energy system, the EU Energy Union needs
strong Governance ensuring that policies and measures at various
levels (national, local, regional, EU level) are coherent,
complementary and sufficiently ambitious with respect to five
pillars of energy union (energy security, internal energy market,
energy efficiency, decarbonisation, research innovation and
competitiveness). For this reason, the EC believes that an
overarching legal governance framework is necessary to ensure
that Member States live up to the commitments agreed in Paris
and also with respect to the EU 2030 climate and energy targets.
Through a governance framework, the EC hopes to create a sense
of accountability on the part of Member States by monitoring their
activity and progress. Theoretically, should the installation of a
functioning, coordinated and effective governance framework be
successful, industry can be reassured of more business certainty
as it pertains to receiving signals from the EU and Member States
on where to invest – as policy objectives at EU and national level
should be aligned and going in the same direction across the
continent, at least in the long term.
The key instrument to ensure alignment and coherence will be the
National Energy and Climate Plans that the Member States need to
produce for ten year periods with the first plan to be published by
2019 for the period 2021-2030.
In the plans Member States have to outline national objectives,
targets and contributions for each of the five dimensions of the
Energy Union and the measures they use to achieve those.
The Regulation specifies minimum reporting standards for each of
the five dimensions and also the reporting format. For the climate
targets the Regulation requires every two years an Integrated
National Energy and Climate Progress Report to inform about
policies and progress towards the climate targets.
As of 2021 the EC will assess the progress towards the energy and
climate targets, at EU and also at Member State level on a bi-
annual basis. If appropriate the EC will issue recommendations to
Member States to ensure the achievement of the objectives of the
Energy Union. The annual State of the Energy Union Report will
remain the central reporting instrument of the EC to publish its
assessment and recommendations regarding the Member States’
progress towards the Energy Union objectives.
Conclusions
Whether this package goes too far or not far enough depends on
the perspective from which one approaches the proposals put
forward. However, regardless of perspective, this is by far the most
far reaching and ambitious reform package of the European energy
system tabled to date.
The energy industry and the relevant parts of the EC have been
under intense scrutiny following the landmark Paris agreement to
present a package that matched the ambition of the COP21
agreement. The package could be dubbed too ambitious in that it