The EC has reiterated its support for the complete elimination of energy price regulation, arguing that energy poverty should instead be addressed through the imposition of social tariffs during any transition period.
Regulated energy prices have received a lot of attention from industry associations and the media in the lead-up to the finalisation of the ‘Clean Energy for All Europeans’ Package. Of the 28 Member States of the EU, eight maintain fully or partially regulated retail prices for energy.
Historically, price regulation has served two purposes. On the one hand, it has protected residential and even wholesale consumers from tariff increases at a time when estimated 50 million European households continue to experience energy poverty. On the other hand, price regulation has long served as a national policy tool designed to ensure the economic viability of established domestic production in an increasingly competitive European marketplace. It thus acts as a kind of subsidy for incumbent utilities, which may be struggling to adjust their operating models to meet the demands of energy markets in transition.
Price regulation will inevitably act as a barrier to the increase in market penetration for RES because the more renewables connected to the grid, the greater the need for demand-response solutions to the ‘peak-load problem’ given that storage solutions are not widely available in the current market.
In a briefing note published in November 2016, to coincide with the publication of the “Clean Energy for All Europeans” Package proposal, the EC states that “dynamic electricity price contracts reflecting the changing prices on the spot or day-ahead markets will allow consumers to respond to price signals and actively manage their consumption.”
In October 2018, lawmakers reached a provisional agreement at technical trilogue level on parts of the EC’s proposed electricity market rules that will oblige energy retail companies with more than 200,000 clients to provide at least one offer comprising dynamic price contracts (see news of 23 October 2018: ‘Important provisional agreements for the “Clean Energy for All Europeans” Package’). The EC has nonetheless reiterated its support for the complete elimination of energy price regulation, arguing that energy poverty should instead be addressed through the imposition of social tariffs during any transition period.
In a Euractiv interview the Director for the Internal Energy Market at DG Energy, Klaus-Dieter Borchardt, states “2-3% of peak demand is activated as demand-side management in Europe [but] by 2030, the EC hopes that this figure could grow to at least 10% of peak demand or 50 GW- leading to benefits of €5.6 billion per year.”