Energy Market

Internal market in electricity (from 2021)

Directive (EU) 2019/944 on common rules for the internal market for electricity

It outlines rules for the generation, transmission, distribution, supply and storage of electricity, together with consumer protection aspects, aiming to create integrated competitive, consumer-centred, flexible, fair and transparent electricity markets in the EU.
Among other things, it contains rules on retail markets for electricity, whereas Regulation (EU) 2019/943, which was adopted at the same time, mainly contains rules on the wholesale market and network operation.
It repeals Directive 2009/72/EC (see summary Internal market in electricity) as of 1 January 2021.

Customer rights

The directive clarifies and reinforces existing customer rights and introduces new ones:

right to freely choose a supplier and restrictions on switching and exit fees, except where fixed-price fixed-term contracts are terminated before their end date;
right to access to at least one price comparison tool fulfilling certain trust requirements; compliant privately run tools may be issued a trust mark;
right to join a citizen energy community while retaining full consumer rights, including the right to leave the community without penalties;
right to a dynamic price contract (based on prices in the spot or day-ahead market) from at least one supplier and every supplier with more than 200,000 customers, and right to be provided information about the opportunities and risks involved;
right to an aggregation contract independent of electricity supply;
right to produce, consume, store and sell electricity, individually or through an aggregator*;
right to request the installation of a smart meter within 4 months, while EU countries must ensure a roll-out of smart metering systems, except where it is not yet considered cost-effective;
right of energy-poor or vulnerable customers to targeted protection, but with regulated price-setting only allowed under certain conditions;
right of customers facing disconnection to be given information about alternatives, such as payment plans or a moratorium, well in advance.

Billing

Bills should be clear, correct, concise and presented in a way that makes comparisons easy.
Billing information should be provided at least every 6 months or once every 3 months, if requested, or, where the final customer has opted to receive electronic billing, and at least once a month if meters can be read remotely.

Aggregators

EU countries must:

ensure that aggregators can offer aggregation contracts to customers without those customers having to obtain the consent of their supplier;
ensure the fair participation of aggregators in all electricity markets and that transmission and distribution system operators treat aggregators equally with other market participants, including when they procure services;
establish transparent rules assigning roles and responsibilities to all market participants and set out rules for data exchange between market participants;
establish rules for compensation between aggregators and suppliers where the activation of demand response causes an imbalance; such compensation shall strictly cover resulting costs and the calculation of such compensation may take into account the systemic benefits of demand response.

Citizen energy communities

are shareholder- or member-controlled entities based on voluntary and open participation, which have the right to engage in generation, distribution, supply, consumption, energy efficiency services or charging services for electric vehicles, or provide other energy services to its members or shareholders;
have the right to be connected to distribution grids and be treated in a non-discriminatory manner in terms of regulation or access to all electricity markets;
have the right to share their own electricity production with their members in accordance with a cost-benefit analysis of distributed energy resources;
have the right, where so permitted by the EU country in question, to own, establish, purchase or lease distribution networks subject to the applicable regulations.

Access to data and interoperability

The directive updates rules on access to metering and consumption/generation data by network operators, consumers, suppliers and service providers. Moreover, it envisages that the European Commission will set up in secondary law interoperability rules to facilitate the exchange of data.
Data managers must ensure non-discriminatory access to data from smart metering systems while complying with the data protection rules.

Electromobility

EU countries must establish a regulatory framework to facilitate the connection of electric vehicle recharging points to the distribution network.
Distribution system operators* (DSOs) would only be allowed to own, develop, manage or operate recharging points if no other body has expressed interest in an open tendering procedure, subject to regulatory approval and in line with third-party access rules.

Distribution system operators (DSOs):

are responsible for ensuring the long-term ability of the system to meet demands for the distribution of electricity, including the cost-efficient integration of new electricity generation installations and especially the ones which produce electricity from renewable sources, as well as for providing system users with the information needed for efficient access and use of the system;
must publish network development plans setting out the planned investments for the following 5 to 10 years;
where part of a vertically integrated undertaking, must be independent at least in terms of its legal form, organisation and decision-making from other activities not relating to distribution;
are not allowed to own, develop, manage or operate storage facilities except where certain specific conditions are met.

Transmission system operators* (TSOs):

must ensure the long-term ability of the system to meet demands for the transmission of electricity, in close cooperation with neighbouring TSOs and DSOs.
shall manage the secure operation of the system including keeping the balance between electricity supply and demand.
are not allowed to own, develop, manage or operate energy storage facilities, under similar conditions as applying to DSOs.

National energy regulators:

must cooperate with neighbouring regulators and with the Agency for cooperation between EU energy regulators on issues including risk-preparedness, allocation of cross-border capacity and to ensure an adequate level of interconnector capacities.
have revised oversight responsibility for regional operating centres and other entities at regional level.

KEY TERMS

Aggregator: a natural or legal person who combines multiple customer loads or generated electricity for sale, purchase or auction in any electricity market.

Distribution system operator: a natural or legal person responsible for operating and developing the electricity distribution system in an area, and its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity.

Transmission system operator: a natural or legal person who is responsible for operating and developing the electricity transmission system in an area, and its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity.

DOCUMENT

Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (recast) (OJ L 158, 14.6.2019, pp. 125-199)

Directive (EU) 2019/944 revises and replaces Directive 2009/72/EC and has to become law in the EU countries by 31 December 2020.It applies from 1 January 2021.

The original Directive 2009/72/EC had to become law in the EU countries by 2011.

Regulation (EU) 2019/941 of the European Parliament and of the Council of 5 June 2019 on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC (OJ L 158, 14.6.2019, pp. 1-21)

Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators (OJ L 158, 14.6.2019, pp. 22-53)

Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (OJ L 158, 14.6.2019, pp. 54-124)

Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and (EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No 525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, pp. 1-77)

Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (OJ L 328, 21.12.2018, pp. 82-209)

Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, pp. 55-93)

Internal market in electricity

Directive 2009/72/EC – rules for the EU’s electricity market

It seeks to introduce common rules for the generation, transmission, distribution and supply of electricity.It also lays down universal service obligations and consumer rights, and clarifies competition requirements.

Rules for the organisation of the sector

The rules for the organisation of the sector are aimed at developing a competitive, secure and environmentally sustainable market in electricity.

EU countries may impose on undertakings operating in the electricity sector public service obligations which cover issues of security and security of supply, regularity and quality of service, price, environmental protection and energy efficiency.

EU countries have to ensure that all customers have the right to choose their electricity supplier and to change supplier easily, with the operator’s assistance, within 3 weeks. They also have to ensure that customers receive relevant consumption data.

Electricity suppliers are obliged to inform final customers about:

the contribution of each energy source;
the environmental impact caused;
their rights in the event of a dispute.
EU countries must put in place an independent mechanism (energy ombudsman or consumer body) to manage complaints or disputes efficiently.

EU countries are also obliged to ensure the monitoring of security of supply. They have to define technical safety criteria to ensure the integration of their national markets at one or more regional levels. In addition, the national regulatory authorities are to cooperate with the Agency for the Cooperation of Energy Regulators to guarantee the compatibility of regulatory frameworks between regions.

Generation

EU countries must define criteria for the construction of generating capacity in their territory taking account of aspects such as:

the security and safety of electricity networks;
the protection of health and public safety;
the contribution made towards the Commission’s ‘20-20-20’ objectives.

Transmission system operation

From 3 March 2012, EU countries had to unbundle transmission systems and transmission system operators.

An undertaking must first be certified before being officially designated as a transmission system operator. A list of transmission system operators designated by EU countries has to be published in the Official Journal of the European Union.

Transmission system operators are mainly responsible for:

ensuring the long-term ability of the system to meet demands for electricity;
ensuring adequate means to meet service obligations;
contributing to security of supply;
managing electricity flows on the system;
providing to the operator of any other system information related to the operation, development and interoperability of the interconnected system;
ensuring non-discrimination between system users;
providing system users with the information they need to access the system;
collecting congestion rents and payments under the inter-transmission system operator compensation mechanism.

Distribution network operation

EU countries must designate distribution system operators or require undertakings that own or are responsible for distribution systems to do so.

Distribution system operators are mainly responsible for:

ensuring long-term capacity of the system in terms of the distribution of electricity, operation, maintenance, development and environmental protection;
ensuring transparency with respect to system users;
providing system users with information;
covering energy losses and maintaining reserve electricity capacity.
EU countries have the option of putting in place a closed distribution system to distribute electricity within a geographically confined industrial, commercial or shared services site.

Unbundling and transparency of accounts

EU countries and the competent authorities have right of access to the accounts of electricity undertakings but shall preserve the confidentiality of certain information.

Electricity undertakings have to keep separate accounts for their transmission and distribution activities.

Organisation of access to the system

EU countries must organise a system of third party access to transmission and distribution systems. The tariffs based on that system shall be published.

EU countries must also lay down criteria for the granting of authorisations to construct direct lines in their territory, on an objective and non-discriminatory basis.

National regulatory authorities

EU countries must designate a regulatory authority at national level. It shall be independent and exercise its powers impartially. It is mainly responsible for:

fixing transmission or distribution tariffs;
cooperating in regard to cross-border issues;
monitoring investment plans of the transmission system operators;
ensuring access to customer consumption data.

Retail markets

Contractual arrangements, commitment to customers, data exchange and settlement rules, data ownership and metering responsibility must be defined.

Non-household customers may contract simultaneously with several suppliers.

Derogatory measures

An EU country may take the necessary safeguard measures in the event of a sudden crisis in the market or where the safety of persons is threatened. Derogations may also be obtained in the event of operating problems in isolated systems.

Directive 2009/72/EC repealed Directive 2003/54/EC with effect from 3 March 2011.

Smart metering – progress to date

In 2012, the European Commission adopted Recommendation 2012/148/EU. This set out detailed recommendations regarding:

data protection and security,
the methodology for the economic assessment of the long-term costs and benefits for the roll-out of smart metering systems, as well as
common minimum functional requirements for smart metering systems for electricity.

In accordance with Directive 2009/72/EC, EU countries reported to the Commission in 2012 on the results of their cost-benefit analyses regarding the roll-out of smart metering systems. The results of this benchmarking exercise were published in a Commission report in 2014.

BACKGROUND

It applies from 3 September 2009. EU countries had to incorporate it into national law by 3 March 2011.

ACTS

Commission Recommendation 2012/148/EU of 9 March 2012 on preparations for the roll-out of smart metering systems (OJ L 73, 13.3.2012, pp. 9-22)

Report from the Commission: Benchmarking smart metering deployment in the EU-27 with a focus on electricity (COM(2014) 356 final of 17.6.2014)

The EU’s new energy market design — COM(2015) 340 final

The EU wants to provide reliable and affordable energy for its people and attain its 2030 targets. To achieve this, it envisages a transformation of its energy market, including redesigning its electricity market to attract further investment.

This European Commission communication therefore launches a public consultation on the benefits of a new electricity market design in terms of new technology and increased investment.

It emphasises that cross-border, short-term (including intraday) markets are central to an efficient electricity market. These need to be designed with a view to the future energy system, i.e. one that would combine large-scale, cross-border electricity flows and high volumes of variable renewable* production. They would respond to the rapid growth of variable renewables and the need for the secure and stable functioning of the electricity grid.

Infrastructure

— properly interconnected EU energy grid is a key priority for energy security, for more competition and for providing the right signals for investment.
— The principal methods for integrating national electricity markets and diversifying energy sources are projects of common interest (PCIs).

Adaptingmarket design for investment in renewables

— A market with appropriate prices would provide signals for when and where renewable electricity could be generated.
— Flexible and better-integrated short-term markets would help renewable energy producers to compete on equal terms with conventional energy producers, further integrating renewables into the electricity system.
— Renewable energy production can be supported through regional market-based schemes, which address market failures, ensure cost effectiveness and avoid distortions and overcompensation in line with State aid guidelines.

Increasing regional cooperation

— Regional coordination of national policies is a key factor in the EU meeting its 2030 targets to integrate its internal energy market and strengthen energy security.
— More interconnections are needed as the existing system cannot deal with possible new power flows.
— Enhanced regional cooperation between system operators is vital; specifically the roles played by regional security cooperation initiatives (RSCIs) and the European Network of Transmission System Operators.
— Grid expansion at distribution level is needed for the integration of local renewable energies.
— An enhanced role for the Agency for the Cooperation of Energy Regulators (ACER) is required for market oversight and to adopt binding decisions on EU initiatives and cross-border issues.

Security of supply

To determine whether its energy systems are adequate, the EU calls for an assessment of the role played by each of the following:

— interconnections between different EU countries’ grids;
— generation of electricity across borders;
— variable renewable production;
— demand response (i.e. incentives to reduce use during periods of peak demand);
— storage possibilities.

This assessment could help decide whether a capacity mechanism is needed. This would involve making separate payments for available capacity rather than paying for electricity delivered.

These payments for available capacity are designed to reward capacity providers for maintaining existing capacity or investing in new capacity. However, the Commission warns that such mechanisms may be costly and distort markets.

EU-level rules could be developed on different EU countries’ participation in capacity mechanisms. The Commission advises that a reference model for a capacity mechanism for use on a regional basis be drawn up. This would facilitate cross-border participation and minimise market distortions.

ACTS

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Launching the public consultation process on a new energy market design (COM(2015) 340 final, 15.7.2015)

Wholesale electricity and gas markets — EU oversight rules

SUMMARY OF:

Regulation (EU) No 1227/2011 — wholesale energy market integrity and transparency

It establishes a framework for monitoring wholesale energy markets*. It aims to prohibit abuses such as insider trading* and market manipulation*.

KEY POINTS

The regulation strengthens the role of the Agency for the Cooperation of Energy Regulators (ACER). ACER’s tasks include the following.

— Monitoring trading activities in the wholesale energy market. This is done by establishing a European register of market participants on the basis of information provided by national authorities.
— Sending an annual activity report to the European Commission. This may include:
— recommendations on how to better implement market rules to improve transparency and integrity;
— an evaluation of whether minimum requirements for organised markets could increase transparency.

Market manipulation

By creating ACER, the regulation seeks to prevent instances of market manipulation such as the following.

— Placing false orders.
— Spreading false information.
— Giving false information to those who provide price assessments or market reports, thus misleading market participants who act on the basis of such information.
— Claiming a different available amount of electricity generation capacity*, transmission capacity* and natural gas to that which actually exists. This has the potential to affect electricity and gas price levels.

Participants

Market participants have to:

— register with a national regulatory authority (NRA);
— provide ACER and the NRA with information so both bodies can monitor trading activities;
— publicly disclose inside information* in a timely manner, including that related to the capacity and utilisation of facilities, production, storage, consumption and transmission of electricity, natural gas or liquefied natural gas (LNG).

Penalties

EU countries must enforce penalties in the event of non-compliance with this regulation. These have to be proportionate and reflect:

— the seriousness of the infringement;
— the damage caused to consumers;
— the potential trading gains from acting on inside information* and market manipulation.

KEY TERMS

Wholesale energy markets: these are markets where energy is traded between energy retailers (such as electricity companies), investment banks and large energy users (for example, steel plants).

Insider trading: when an individual attempts to benefit from trade in a certain product based on information that is not yet public (inside information). Without this information, other traders are at a disadvantage.

Market manipulation: deliberately interfering with the fair operation of a market. This can involve creating false or misleading signals regarding the supply or demand of a certain product, thus affecting its price.

Electricity generation capacity: the capacity to produce electrical energy.

Transmission capacity: the capacity of fixed infrastructure, such as power lines, to transport electricity.

Inside information: information related to a product which has not been made public. If it were to be made public, this could affect the price of the product in question.

ACTS

Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (OJ L 326, 8.12.2011, pp. 1-16)

Wholesale electricity and gas markets — EU oversight rules

Regulation (EU) No 1227/2011 — wholesale energy market integrity and transparency

It establishes a framework for monitoring wholesale energy markets*. It aims to prohibit abuses such as insider trading* and market manipulation*.

KEY POINTS

The regulation strengthens the role of the Agency for the Cooperation of Energy Regulators (ACER). ACER’s tasks include the following.

Market manipulation

By creating ACER, the regulation seeks to prevent instances of market manipulation such as the following.

Participants

Market participants have to:

Penalties

EU countries must enforce penalties in the event of non-compliance with this regulation. These have to be proportionate and reflect:

— the seriousness of the infringement;
— the damage caused to consumers;
—the potential trading gains from acting on inside information* and market manipulation.

Agency for the Cooperation of Energy Regulators

ACTS

Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (OJ L 326, 8.12.2011, pp. 1-16)