June 17, 2016
BRUSSELS INSIDER by Sonja van Renssen
Europe’s struggle to give Power to the People
June 17, 2016
Europe is at a loss on how to engage the energy consumer, EU Sustainable Energy Week in Brussels showed. France wants to try smart meters, but consumers are barely interested. Germany doesn’t think much of smart meters. Meanwhile in Florence at the Electricity Regulatory Forum real ideas for reform came up: reorganise the distribution system operators (DSOs), give consumers the right to real-time pricing, give aggregators a legal framework. Sonja van Renssen on how Europe is trying to give Power to the People.
This week was EU Sustainable Energy Week, also known as EUSEW. This is “the biggest event dedicated to energy efficiency and renewables in Europe”, said a European Commission official at the opening. It’s an annual orgy of policy debates, awards, workshops, tours and networking that’s been organised by the Commission’s Executive Agency for SMEs since 2006. It actually runs for a month, not a week, and its activities stretch beyond the EU capital. But EUSEW’s beating heart is without doubt its policy conference here in Brussels, hosted on the Commission’s own premises. The theme this year: “Power to the consumer”.
Same old chat in Brussels
So where were the big announcements? Where was the cutting edge debate? Where was the future of Europe’s retail energy market being decided? It turns out that this was happening in Florence, at the Electricity Regulatory Forum, not in Brussels at EUSEW. The Florence Forum was set up in 1998 to discuss Europe’s internal electricity market. Its members include the Commission, national regulators and governments, network operators and users, and consumers, traders and exchanges. It meets once or twice a year.
In Brussels, EU Energy and Climate Commissioner Miguel Arias Cañete and Commission Vice-President Jyrki Katainen, in charge of jobs, growth, investment and competitiveness, held keynotes in which they told us nothing new. Sure, it was good to hear that energy projects are taking the biggest chunk of funds for infrastructure and innovation in the Commission’s investment plan for Europe (Efsi). But this was news from two weeks ago. Meanwhile, there was no mention by Cañete of the Commission’s current work to model energy efficiency targets for 2030 of 30%, 33%, 35% and 40% as well as the 27% so far backed by member states. Or that it is engaging in a discussion over whether this target should be binding after all, perhaps at European level the way the 2030 renewables target is.
Power to the DSOs (and utilities)
The juicy stuff was going on in Florence. There, there was a concrete discussion underway about how to restructure the European power market, at both retail and wholesale level. Remember that the Commission is due to come out with proposals to redesign the power market by the end of the year. It kicked off the debate last summer; it was then that it introduced the idea of a “New Deal” for consumers. In Florence, the Commission started giving some concrete examples of how it plans to realise this, a source on the ground told Energy Post.
Perhaps most strikingly, the Commission wants to create a single official body for distribution system operators (DSOs) at European level, à la ENTSO-E for transmission system operators (TSOs). This body would not bring together individual DSOs, but the four trade associations that already exist for them: Eurelectric (the relevant bit of it), GEODE, EDSO for Smart Grids and CEDEC. The new body would have a formal role in developing the network codes that govern European electricity networks.
Sensible, you may think, but consider this: although the EU has mandated ownership unbundling for TSOs, it does not require the same of DSOs. In other words, these low-voltage or “last mile” network operators may sometimes be none other than the big utilities we know – with an agenda of their own when it comes to rules for market access and consumer engagement.
There is no obvious solution to this dilemma. The Commission has no appetite for another round of forced unbundling (the Netherlands is an exception to have gone down this road alone), nor does it want to continue coordinating with four associations. Perhaps the answer is to create two separate DSO bodies, suggests one stakeholder: one to lobby, another to take on official tasks. By the same logic, TSOs should create a lobby body separate to ENTSO-E. That separation already exists for gas, through Gas Infrastructure Europe (GIE) and ENTSO-G.
Two other suggestions that the Commission reportedly made in Florence are that consumers should have a right to real-time or dynamic (market-based) pricing and that aggregators (which pool together demand from different consumers and sell it as demand response) need a legal framework that guarantees them direct access to the market. Today, independent aggregators often have to negotiate market access with a supplier that has no interest in giving it to them. The Commission remains undecided on whether the aggregator would in future nonetheless have to pay a fee to the supplier to compensate for its impact on the market.
Consumers don’t care
Back in Brussels meanwhile, EUSEW delegates were getting a reality check of how far there is to go in “power to the consumer”. At a “Complaints of the Future” workshop organised by NEON, the National Energy Ombudsmen Network (an independent, not-for-profit Europe-wide network of ombudsmen and mediation services for the energy sector), the French Ombudsman’s Managing Director Frédérique Coffre said: “Consumers have no idea what they consume. They are not interested.” She added: “Unless they can’t pay”.
French consumers don’t compare different offers even though they could save up to 10% on their bills. When they do switch, they wonder whether it was worth it. More and more price comparison websites are cropping up, but many of these are actually linked to energy companies that pay a commission for new clients, Coffre said. In response, the French government has recently set up a framework to force sites to explain their comparison tools and how they are funded. A Commission official at the NEON workshop said that Brussels is looking to mandate at least one reliable price comparison website per country as part of its retail market reform.
Smart meters vs. cooperatives
Coffre looks to the roll-out of smart meters to improve consumer information and energy use. Smart meters for electricity (called “Linky”) started being deployed in France at the end of 2015. Smart meters for gas are due to follow in 2017. All this adds up to a considerable investment: €5 billion for electricity and €1 billion for gas. The money is coming (entirely for electricity, partly for gas) from economies generated for the DSOs, for example through fewer site visits.
What will do it do for consumers? Decrease billing disputes and put an end to underestimated bills, is Coffre’s first answer. What about actually saving energy? “Our experience is too recent to draw conclusions,” she says. Not only has the roll-out only just begun but accompanying measures such as an Internet portal to enable access to daily consumption data, consumption alerts, in-house visual displays etc have yet to be deployed. “And the energy suppliers don’t propose any new offers or services yet,” she says.
In Germany, the government is rolling out smart meters despite a cost-benefit analysis that came out negative. The Federation of German Consumer Organisations (VZBV) has modelled the impact of this roll-out and its representative Isabelle Buscke confirmed at the NEON workshop that the results are “very disappointing” (see study here, only in German). “We’re looking outside the smart meter debate,” she said. Buscke believes that prosumers and community renewables and efficiency projects are better at getting people involved. Gert de Block, Secretary General of CEDEC, argued for a role for the Commission in facilitating cooperatives not only to buy but also to generate energy.
Complaints of the future
What customers care about most is the number on their bill, say the ombudsmen. Nearly half of the close to 100,000 disputes that NEON’s members handled in 2015 related to billing (bear in mind that NEON only has five members so far and that results vary per country; in 2015 three-quarters of all its disputes came from the UK for example). The ombudsmen are wary of a “New Deal” that gets too complex. Coffre warned of a “tariff jungle” once dynamic pricing kicks in (though is a variable electricity tariff simply like a variable mortgage?). Buscke said: “The more complex things get, the more you will see vulnerability.” She suggested too that privacy could take over the top slot from billing disputes in future.
In fact, member states are going for whatever option suits them. As De Block pointed out, France is building an industrial policy around smart meters; Italy introduced them to combat fraud; and Sweden is doing it because of a lot of electric heating (i.e. large electricity bills so even small savings count) plus DSO site visits there really do take a lot of travel.
The challenge for the Commission is to come up with a mix of legislative and non-legislative proposals that benefit consumers everywhere. It is focusing on three kinds of engagement: switching provider, demand response and prosumers. An impact assessment of all the options out there is underway. In the meantime, NEON has developed a draft Consumer Code. But all the rules in the world don’t necessarily change culture. The key question is what policies and strategies might modify our energy culture over time? The energy transition won’t succeed until it changes. “Power to the consumer” can’t start until we understand that consumer.