S.12. Clean Energy for All Europeans

D.2.4. Energy Market Design

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EU reaches final deal on Clean Energy Package

Friday, December 21, 2018

The sixth trilogue concluded in the early hours of 19 December when EU negotiators reached a final political agreement on the Electricity Directive and Regulation. The deal wraps up a lengthy process of over two years since the EC proposed the “Clean Energy for All Europeans” Package.

The Directive and Regulation are set to shape the European electricity market for the next decade, by better integrating RES, tackling barriers to cross-border trade and setting new rules for trading, balancing and capacity markets. Despite their wide-ranging impact, many observers argue that the newly agreed measures are not ambitious enough in light of the pressing climate action and Paris Agreement’s goal of limiting global warming to “well below 2°C”.

The newly agreed electricity market design files aim to adapt the current market rules to new market realities and to allow electricity to move freely to where it is most needed by setting a 70% minimum availability target for interconnectors. The new market design also aims to “contribute to the EU’s goal of being the world leader in energy production from RES by allowing more flexibility to accommodate an increasing share of renewable energy in the grid”.

According to the EP Rapporteur on the two files, Krišjānis Kariņš, “the agreement is good for the climate and good for the wallet. It will help the transformation to cleaner electricity production and it will make the electricity market more competitive across EU borders. Parliament has succeeded in getting rid of heavy state subsidies, so that the market can do its job of supplying EU industries and households with affordable and secure energy”.

The revised Directive aims to strengthen the role of consumers in the energy transition by “giving them more choice and greater protection (…) through access to smart metres, price comparison tools, dynamic price contracts and citizens’ energy communities”. Moreover, the Directive gives more powers to European consumers by requiring that electricity providers offer them the option to switch providers without extra fees within a maximum period of three weeks (and 24 hours by 2026). Customers must also be able to opt for a dynamic electricity price contract from energy companies with more than 200,000 clients.

One crucial point in the new Directive is that electricity providers will be free to set their own prices, although Member States may still temporarily set regulated tariffs to assist and protect energy-poor or vulnerable households. By 2025, the EC will have to prepare an EU-wide report to assess the progress towards phasing out price regulation.

The revised Regulation aims to bring “stricter and harmonised rules for capacity mechanisms, reconciling thus the EU objectives of security of supply and emission reduction”. Additionally, the Regulation provides for enhanced regional coordination through the so-called Regional Coordination Centres (RCCs), which are expected to “improve market functioning and thereby competitiveness while making the system more stable”. Although the negotiators reached an agreement on the highly debated issue of the future of capacity mechanisms (see news of 17 December 2018: ‘Is it time to rethink capacity market design?’) the details of the new text were heavily criticised by green politicians and activists.

The new Regulation introduces for the first time a CO2 performance limit for power plants eligible to receive subsidies under the capacity mechanism schemes. Plants that emit more than 550g CO2/kWh and start commercial production after entry into force of the Regulation will not receive capacity payments. Additionally, plants that emit more than 550g CO2/kWh and 350kg CO2/kW per year will not receive capacity payments from July 2025. In practice, the 550g rule excludes coal plants from capacity mechanism schemes.

However, under the “grandfathering clause” that negotiators secured with strong support from Poland, neither of the measures will be applied to plants that had a contract before 2020.

Some observers correctly point out that the clause could undermine the efforts “required for a prompt transition to a net-zero emissions economy” and could even hamper the needed acceleration of the transformation of Europe’s electricity sector. The clause allows the most polluting plants to still be eligible under the capacity mechanisms schemes in Member States provide their contracts were signed before 2020. As some point out, this measure could potentially result in 2019 becoming a year of “race for contracts” rather than for an efficient phasing-out of coal subsidies in Europe.

Coming up, the Council and the EP must formally adopt the four remaining files of the Clean Energy Package, which also include in addition to the Electricity Directive and Regulation the Risk Preparedness Regulation and ACER Regulation (see news of November 23: ‘EU negotiators reach agreement on fifth file of the Clean Energy Package’ and December 14: ‘EU negotiators reach agreement on sixth file of the Clean Energy Package’). According to the ITRE Committee Secretariat, the EP Plenary vote on the last four files is scheduled for 25 March 2019.

The Regulations will come into force 20 days after their publication in the Official Journal of the EU, while Member States will have until 31 December 2020 to transpose and implement the Directive.

On 13 November 2018, the EP Plenary rubber-stamped the RESII, Energy Efficiency and Governance files, followed by the Council’s approval on 04 December 2018. A similar schedule was followed with the Energy Performance of Buildings Directive.

Judging from the speed for the adoption of other files and considering that there do not seem to be any major hurdles to the approval of the four remaining files, the legislative acts of the “Clean Energy Package” should all have entered into force by the end of the first half of 2019. Roughly estimated, the first three files should come into force in the first quarter, while the remaining four are expected to enter into force just before the European elections of May 2019.