July 10 2017 brussels

July 10, 2017

In its last issue before the summer break, Energy Post Weekly takes stock of where the EU institutions stand with their deliberations on new rules for renewables, bioenergy, the electricity market and Energy Union governance for 2030. This is the second part of a comprehensive update before Brussels shuts down for the summer. It also comes just after Estonia took over the rotating 6-month EU presidency from Malta on 1 July and laid out its priorities for the second half of the year. Top of the list is electricity market design.

Estonia has quadrupled the size of its energy team in Brussels (to 4) and plans to more than double the number of expert meetings with other member states (to twice weekly) to make serious progress on the European Commission’s Clean Energy Package from last November. Like Malta before it, Estonia is taking on the 6-month rotating EU presidency for the first time. It is coordinating its work with the two Presidencies that will succeed it: Bulgaria on 1 January 2018 and Austria on 1 July 2018.

Estonia: Electricity market design is closest to our hearts

Estonia’s number one energy issue is electricity market design. As an Estonian presidency source puts it: “Market design is closest to our hearts. It is the best way to enable more renewables deployment and the best driver for more energy efficiency.” Market design will be the primary focus of Estonia’s informal energy ministerial in Tallinn on 20 September.

In practical terms however, market design is the least advanced of all the files in the Clean Energy Package. First in line is energy efficiency, on which Malta still managed to secure a Council position on 26 June (see our story last week). Negotiations will start with the European Parliament and Commission after the former adopts its own position in October. Next up are renewables and a new governance framework for the Energy Union (more on those below). Only after that will market design dominate the debate. The whole Package needs to be wrapped up by early 2019, before the current Parliament and Commission finish their mandates in spring and autumn respectively.

Since market design ultimately underpins the entire energy system – including what’s possible on the energy efficiency and renewables fronts – it makes sense to get this discussion going as soon as possible. Estonia will kick it off in earnest, going through the four relevant legislative proposals – on the wholesale market, retail market, role of regulators and risk preparedness – article by article.

At the same time, the debate is getting underway in Parliament. Arturs Krišjānis Kariņš, the centre-right Latvian MEP who is leading the debate on the main two files – wholesale and retail markets – set out his views on them in June. Market design debates in both Council and Parliament are due this week.

The essence of both Estonia’s and Kariņš’s approach is “market first”. This matches the thinking of the Commission, which aspires to a European-wide energy-only market where the wholesale price is the driver of new investments.

Other characteristics of the market design the Commission has in mind:

• Regulated prices must be phased out.
• Priority dispatch for renewables must be phased out.
• Capacity mechanisms really need to be a last resort.
• National governments have to look beyond their own borders when they make decisions about their energy system.
• All kinds of players – also aggregators – should have access to the various energy markets and responsibility for the impacts they cause, including imbalances.

But: “Countries are different. We are not out to harmonise the whole market,” Thor-Sten Vertmann, the Estonian EU presidency’s chief energy attache, assured a market design conference organised by the Institut français des relations internationales (IFRI) in Brussels on 4 July. “The real message is ‘don’t mess with your neighbours’”.

The need for a regional approach is especially important for the wholesale market he added. “On the retail side, we are much more open to national solutions. It’s hard to see cross-border distortions.” Nevertheless, Vertmann said interventions on the retail side might be justified to really empower consumers and bring down the costs of the energy transition.

Back in Estonia, one-third of all households are on dynamic pricing contracts, saving 50% on their energy bills compared to those on fixed-price contracts (there are no regulated prices in Estonia), according to the Estonian presidency. Almost everyone has a smart meter.

Meanwhile, Kariņš pushes “market first” to new frontiers. Controversially, he proposes to scrap priority dispatch and an exemption from balancing responsibilities even for small (<500kW) renewables and combined heat and power (CHP) producers, for example. SolarPower Europe, representing the European PV industry, has warned that this “ignores the technical and administrative burden related to market-based dispatch for small actors” and said “we need… to create a real competitive market for the outsourcing of balancing responsibilities before imposing them on small players”.

The group is happier about Kariņš’s tough approach to capacity mechanisms. He calls for detailed implementation plans from Member States, expresses a clear preference for strategic reserves rather than fully-fledged capacity markets (contrary to the Commission) and limits their approval to five years. He does not touch the Commission’s last-minute addition of a 550gCO2/kWh emission performance standard for capacity mechanisms participants. This has already elicited very diverse reactions from member states. A Commission official at the IFRI event said the limit “basically hits coal power plants” and that this is a problem in particular for Poland.

But Emmanuel Tuchscherer, Director for European Affairs at French energy giant ENGIE, argued at the same conference that “many gas turbines – Open Cycle Gas Turbines or OCGTs – will be directly affected”. Morever, coal plants do not need capacity payments to stay in business he said, while gas plants do. The problem is that OCGTs can provide a big dose of flexibility to help balance out variable renewables. Tuchscherer is advocating for the development of “a methodology” to apply the 550gCO2/kWh standard so that it hits coal, not gas plants.

Meanwhile, on the day of Malta’s energy council on 26 June, a group of 13 energy companies and industry associations launched a “Keep Power Clean” initiative in support of the 550 criterion. The group includes ENI, Gas Natural Fenosa, Statoil and Total (not ENGIE).

A progress report on market design, renewables and energy governance prepared by the outgoing Maltese presidency on 9 June points to many of the above as “areas of concern” for Member States. This includes in particular the phase-out of regulated prices and rules on capacity mechanisms, but also the Commission’s proposal for Transmission System Operators (TSOs) to work cross-border through new Regional Operation Centres (ROCs). At the IFRI event, Secretary General of the European TSO body ENTSO-E, Laurent Schmitt, said Kariņš had done a good job of “re-balancing” the proposals by highlighting the potential to extend existing cooperation structures (think Coreso, SCC and TSCNET) and recognising that security of supply is ultimately defined at national level.

Finally, on the retail side, there is debate in Council over how much intervention the market needs from Brussels. Should energy companies be required to offer dynamic price contracts for example? Do aggregators need a dedicated legal framework? Frauke Thies, Executive Director of the Smart Energy Demand Coalition (SEDC), which represents demand-side players, said on 4 July that the Clean Energy Package does a lot to improve access for new players, but does not go far enough in pushing markets to reveal the value of flexibility. One problem is that most of the electricity retail price is made up of fixed taxes and levies, she pointed out, which are not conducive to shifting consumption patterns.

July 10, 2017

“If we want to move away from subsidies, we need to make the market work, also for renewables,” said Florian Ermacora, Head of Unit for gas and electricity wholesale markets at the Commission, at the IFRI conference in Brussels on 4 July. Much of the future success of renewables hinges on how well they can be integrated into the electricity system. To this end, the EU’s electricity market redesign (see story above) is key to their further roll-out and use. This covers issues like priority dispatch, shorter trading structures and how to get consumers involved in the market as a source of flexibility.

The Commission’s proposal for a new EU renewable energy directive meanwhile, also part of the Clean Energy Package, focuses on targets, support schemes and permitting, and renewables in heating and cooling, and transport. The lead MEP on this file, José Blanco López, a Spanish Socialist, suggested ambitious amendments back in May.

He called for an EU renewable energy target for 2030 of “at least 35%” – up from the Commission’s 27% – and proposed to break it down into national targets the way it is done for 2020. Equally controversially, he re-introduced a – 12% – target for renewables in transport and doubled a proposed target for renewables in heating and cooling to 2% a year. The Spaniard also defended technology-specific auctions – which the Commission wants to scrap – further streamlined permitting procedures, and strengthened plans to open up support schemes across national borders and promote self-consumption.

Many of these proposals are running into resistance from Member States. In a draft set of amendments prepared by the outgoing Maltese EU presidency on 20 June, the Council makes no suggestion to raise the 27% target. Certainly not to revert to national targets. It does not propose to introduce a sectoral target for transport either and indeed a progress report on market design, renewables and governance from 9 June reports that Member States question the need for any targets beyond the 27%. That said, for now they do retain the Commission’s 1% a year proposal for renewables in heating and cooling.

In addition, Member States are very wary of having to open up their support schemes to cross-border participation – a Danish-German PV pilot last year saw Danish bidders take all in a German auction. The Council also wants further discussion about a proposal for a one-stop-shop for permits, how to handle renewable Guarantees of Origin, self-consumption and the definition of “renewable energy communities”.

Don’t expect fast progress on any of these issues. The new renewable energy directive is not a priority for the Estonian presidency and the Parliament is in no hurry either; its position is due in October at the earliest. This is a file that Bulgaria is expected to lead debate on when it takes over the EU presidency in January 2018.

July 10, 2017

One of the biggest challenges in renewables is how to get more of them into transport. And in that context, what to do about biofuels. As an Estonian presidency source put it: “Biomass is the biggest indigenous fuel. We need to figure out how to use it.” The Commission has put its proposals on biofuels into the new EU renewable energy directive. In this, it also extends biofuel sustainability criteria to biomass used for heat or electricity for the first time.

In the Parliament, the environment committee has the lead on this part of the directive (the rest of it falls under the jurisdiction of the energy and industry committee). With Dutch Green MEP Bas Eickhout in charge, the Parliament’s first amendments are all about tightening up the conditions for biofuel – and biomass – use. In Council, in contrast, there is a general reluctance to re-open detailed discussions on a highly complex, controversial subject that only recently appeared resolved with the EU’s 2015 indirect land-use change (ILUC) directive – yet to be transposed into national law by most Member States.

Eickhout’s starting point, set out in a “short justification” accompanying his proposals, is that “from a climate perspective only bioenergy produced from wastes and residues should be promoted”. He does not explicitly propose to hasten the phase-out of “crop-based” biofuels – the Commission has proposed a steadily declining cap from 7% in 2021 to 3.8% in 2030 – but extends this to cover energy crops and says ILUC emissions should be included when calculating biofuels’ greenhouse gas savings. In practice, this would prevent biodiesel from meeting a specified minimum savings threshold.

Eickhout advances the same caution for advanced biofuels, proposing that “indirect carbon factors” based on materials being diverted from current uses to biofuels production are taken into account. He also says it should be possible to remove, not only add, materials to a list of EU-approved feedstocks for advanced biofuels. Eickhout scraps a 3.6% target for advanced biofuels in 2030. He strengthens the proposed sustainability criteria for biomass plants, banning co-firing with fossil fuels and extending the criteria from large- (20MW) to medium-sized (1MW) installations.

But at a debate at the Parliament on 29 June, a Commission official warned that “unduly penalising bioenergy” could jeopardise Member States’ ability to deliver at least 27% renewables in 2030, never mind the higher figures advocated by some MEPs. Paula Abreu Marques, Head of Unit for renewables at the Commission, also argued that Eickhout’s idea to ban certain forest feedstocks, notably roundwood and stumps, for energy was not justified on environmental grounds, nor technically feasible. Other MEPs gave a mixed response to the Green’s plans.

Meanwhile, it looks like Council has yet to really get its teeth stuck into the proposal. Its limited suggestions so far focus on advanced biofuels. It is proposing, for example, to remove a clear restriction on turning used cooking oil and animal fats – vis-a-vis other feedstocks – into biofuels. Going in the opposite direction to Eickhout, Member States also propose to relax the rules around the use of forest biomass, even allowing it to be harvested in protected areas under certain conditions. They want to reduce too the minimum greenhouse gas savings thresholds for biomass use in electricity production, and heating and cooling.

Both Council and Parliament want to do more to promote electro-mobility. In an early progress report from 9 June, the Maltese EU presidency noted that questions were raised about the “near absence” of provisions to stimulate it. Since then, Member States say that the Commission’s proposal for a 6.8% alternative fuels target in 2030 (covering biofuels, and “renewable” gas and electricity) should be raised, based on a multiplier for renewable electricity supplied to road vehicles. That should count 2.5 times its energy content. Eickhout proposes a multiplier of 5, but only wants it to apply to renewable power supplied through dedicated charging stations, not at home, to drive this infrastructure’s roll-out.

The EU renewable energy directive’s provisions on electro-mobility have to be seen in the wider context of efforts to green transport and promote electric vehicles. Last week we reported on the Commission’s failed attempt to mandate a large-scale roll-out of electric vehicle charging points in buildings, through a new energy performance of buildings directive.

Back on 31 May, the Commission also issued the first part of a big transport policy package. This included a proposal to differentiate truck tolls based on CO2 emissions. The second part of this package will follow in November. It is expected to propose: fresh guidance on how to deliver a fit-for-purpose pan-European transport infrastructure (including for electro-mobility), intensified support for battery research, a new car labelling directive to rebuild consumer confidence after Dieselgate and, the political highlight, post-2020 CO2 emission standards for cars and vans. Estonia’s informal energy ministerial on 19-21 September will conclude with a joint session with transport ministers to talk about how to finance trans-European energy and transport networks going forward.

July 3, 2017

As the MEP in charge of “governance” proposals for the Energy Union attempts to turn them into a watertight guarantee that the EU will deliver ambitious climate and energy policies, Member States want to delay and dilute Brussels’s powers to check what they’re up to. In early May, we reported on plans by Green MEPs Claude Turmes and Michèle Rivasi (with Turmes clearly in the driver’s seat) to use the Commission’s governance proposals to set a net zero greenhouse gas emissions goal for the EU for 2050 and identify renewables and energy efficiency “projects of European interest”.

At a debate in the Parliament on 21 June, the Commission official in charge of governance, Hans Bergman, suggested it was too early to discuss a net zero emissions target for Europe or for EU climate policy to be aligned with the Paris Agreement’s aspirational goal of limiting global warming to 1.5 degrees Celsius. The International Panel on Climate Change (IPCC) is preparing a report on 1.5 degrees next year. MEPs from the Parliament’s largest political group, the centre-right EPP, took the opportunity to argue for a market-based approach to attract investments in clean energy. In their report, Turmes and Rivasi propose EU 2030 targets of 45% for renewables and 40% for energy efficiency, to be split down into national goals.

Don’t expect Member States to engage with any of this. In its energy work programme, the Estonian EU presidency recognises that governance “will be the main tool for achieving long-term goals [and] consolidating cross-sectoral efforts”. The new governance regulation “should give clear direction to the energy and climate policy sought by the society, investors and international partners of the EU”. But an Estonian presidency source also said it is “not seen as an interesting file” by Member States. Estonia wants the Council to reach a position on governance by the end of its mandate in December. Alongside market design, governance will be on the agenda of its informal energy ministerial on 20 September.

In a draft set of amendments prepared under the outgoing Maltese EU presidency, Member States have yet to tackle the most controversial part of the proposal – what happens if the EU is not on track to its collective 2030 renewables and energy efficiency targets.

What they do already propose, is to dilute the Parliament’s role in governance by calling for its “close involvement” rather than “full inclusion”. They also want to push back the deadline for first drafts of national climate and energy plans and suggest they should take “due” rather than “utmost” account of any recommendations from the Commission. Several Member States argue that they should not be required to set national objectives for areas that are not governed by quantified EU targets such as those for renewables and energy efficiency. Exempted areas could include energy security, research and innovation, and competitiveness.

At the IFRI conference in Brussels on 4 July, there was a lot of debate not only about the Clean Energy Package but also how it interacts with other policies, notably the EU Emission Trading Scheme (ETS). Several speakers argued that a 30% (rather than 27%) energy efficiency target for 2030 example, will put fresh downward pressure on the ETS price. And make renewables more expensive. The governance regulation is an opportunity to do more to align all of these different policies into a single framework that is flexible enough to allow their recalibration when needed and strong enough to secure results.