In the directive 2005/89/EC of the European parliament and of the Council the European Union has established the legislative framework to safeguard security of electricity supply and undertake significant investment in electricity networks in EU's Member States. The Webinar reviews the complex layers of competences established by the electricity security of supply directives, its rationale, purpose and consequences. The key features of the directives are summarized, specifying how are different competences attributed and effectively undertaken across EU's member states, and what is the way forward envisaged in the Energy Union.

1. The Electricity Security of Supply
in the European Union
Fulvio Fontini
Department of Economics and Management
University of Padua, Italy
and
Co-chair ESS TF, ACER/CEER
Ljubljana and Bruxelles

2. Content of the presentation:
1. Electricity S.o.S. in the EU: the framework.
S.o.S. directive
2. The actual shape of S.o.S. in EU
3. Open issues and what’s next?

3. The Electricity S.O.S. in EU is stated in
DIR2005/89/EC. However, the Whole Third
Energy Package (and the subsequent steps)
establishes competences, attributes
responsibilities and identifies bodies
responsible for S.o.S. (e.g. ENTSO-E: TYNDP,
FG and NC –together with ACER-)

4. Electricity S.O.S.: “the ability of an electricity
system to supply final customers with
electricity”  implies (actions taken at) all
levels of the Electricity Supply Chain. Further
made clear: “The relevant market actors
include, inter alia, transmission and
distribution system operators, electricity
generators, suppliers and final customers”

5. Main message of DIR 2005/89/EC:
S.o.S. is a responsibility of MS (“MS shall
ensure a high level of S.o.S. …”)
… but ...
this should not interfere the completion of
the IEM (“MS are to define […] policies on
S.o.S. compatible with the requirements of a
competitive internal market for electricity”)

6. Three key aspects to guarantee S.o.S.:
a) an adequate level of generation capacity;
b) an adequate balance between supply and
demand;
c) an appropriate level of interconnection
between MS

7. An adequate level of generation capacity:
• Needed to provide operational network
security.
• Requires a “common” set of rules (updated
by the TEP prevision)
• It is a duty for TSOs
• They need to have “an appropriate level”
of reserve capacity  no unified or pre-
defined requirement.

8. Other prescription:
• Cooperation among TSOs (updated by TEP:
ENTSO-E)
• Guarantee quality of supply.
• Monitoring and information obligation
(complemented by monitoring obligation
of ACER, but not replaced)

9. an adequate balance between supply and
demand. Implies:
• suitable price signals for generation and
consumption at the wholesale level;
• TSO to ensure that an appropriate level of
generation reserve capacity is available for
balancing purposes and/or to adopt
equivalent market based measures

10. See that it focuses on wholesale, and leave
open different market setting for balancing. It
is one of the area that most require updates
(it has been a focus of ACER/ENTSO-E, both in
unifying frameworks and monitoring
consequences of this. See later)

11. Moreover, a further issue with this key aspect:
an adequate balance between supply and
demand  no load shed. But this has to be
efficient  there will have to be some
optimal load shed. How much? Let’s work out
a bit the theory:

12. From optimal dispatch we have:
(Average) social cost of load shed = ACCp
VOLL = hrc/cf + fl
LOLP ≅ cf = hrc/(VOLL-fl) ≈ hrc/VOLL
Therefore, in different places it is optimal to
have different balance betw. sup. and dem.

13. This shows that the three dimensions are
correlated. Moreover:
• Challenges the need (or opportunity) to
homogenize the minimum level of
adequacy across MS
• Present a trade-off between efficiency
induced by increase interconnection and
opening of capacity markets (and market
coupling as well)

14. an appropriate level of interconnection
between MS.
• It does not refer to level of interconnection
only, but to the whole regulatory
framework to provide correct investment
incentives “to develop networks in order to
meet foreseeable demand from the
market” (however, undetermined what
come first: interconnection or gen. cap.?)

15. • Decision on investment on interconnection
to be agreed by TSOs (updated by TEP:
TYNDP)
• TSO are to maximize ATC and provide full
transparency of capacity calculation
(updated by CACM: FBCM)
• MS have monitoring responsibilities

16. How’s the situation like in EU? CEER report:
Assessment of electricity generation adequacy in
European countries.
Summary:
1) TSO are responsible to provide operational SoS
(short run). But how are monitoring responsibilities
shared? Attributed to TSOs in EU MS, except to the
government in BE and LX and NRAs, in FI, MA, LT, SP

17. 2) “Appropriate level” of generation capacity. Is there
a metrics that specifies what an acceptable resource
adequacy performance is? (called reliability
standard)

18. 3) Which metrics, if any?

19. 4) Different methodologies to estimate S.o.S.
Probabilistic approach = estimate the probability of a
reliability metric, based on occurrencies (e.g.
temperatures, unforeseen unavailability of plants,
variable generation, etc.)
Deterministic approach = estimate a pre-defined
amount of excess power and/or energy at all times

20. Moreover, the generation adequacy assessments
concentrate on the capacity needed in different time
horizons, but do not consider flexibility and balancing
mechanism issues to ensure operational reliability.

21. Monitoring responsibilities to TSOs, effort to
coordinate among TSOs and the TEP prevision 
coordinated assessment and forecast of operational
security and adequacy: ENTSO-E Scenario Outlook
and Adequacy Forecast.
However, CEER report: 11 out of 22 MS do not take
into account SO&AF at national level because of
timing inconsistency.

22. It is hard to align MS responsibilities on S.o.S. with
the IEM target and the European Energy Security
strategy (“talking and acting as just one”).
• Because different procedures, status quo,
responsibilities
• Because of different needs (operational or long-
term, RES penetration or mothballing, etc.), and
different willingness to pay
• Different degrees of interconnections

23. This derives form and induces a new wave of
uncoordinated new set of rules/legislation set up at
National level:
• Introduction of Capacity Remuneration
Mechanism in electricity
• Uncoordinated framework for balancing
responsibilities for RES and limited cross border
exchange of balancing

25. Uncoordinated
framework for
balancing and RES
responsibilities

26. Limited use
of Cross-
border
capacity for
balancing

27. Different market
rules for balancing
(limiting market
power but not
providing correct
price signal)

28. A “regional” (uncoordinated?) trend towards
harmonization of balancing
• TERRA (coordinating cross-border in GB,
FR, SP, PT, IT) through a pro-active
approach (g.c.t. 1 hour, active role of TSO,
limited re-dispatching)
• EXPLORE (coordination of DE, AT, NL, BE),
reactive approach (g.c.t. 15’, market-
based exchange, re-dispatching)

29. Going beyond third energy package: European
S.o.S. Strategy. Implies:
• Speeding up for the 10% interconnection
target for electricity (currently at 8%). 15%
target for 2030
• Accelerating investments in key European
infrastructures (PCI)

30. 4. The structure of COM(2014) 330. b) the
eight key pillars

31. What’s next? Energy Union. 5 aspects:
• Energy security and solidarity
• A fully integrated European energy market
• Energy Efficiency as a tool to limit energy
demand
• Economy decarbonization
• Research, innovation and competitiveness
4. The structure of COM(2014) 330. b) the
eight key pillars

32. Relevant aspects for S.o.S.:
• ban of regulated retail prices. (Rationale –
e.g., ACER MMR Report 2014, 2015:
regulated retail price  reduced (retail)
competition  higher mkt power for
demand side at wholesale lev.  reduced
entry (and innovation) at wholesale 
reduced S.o.S.
5) What’s next? Energy Union

33. Revision of DIR 2005/89/EC In which direction?
• EC to set the admissible level of load shed at
European level taking into account all
sources (including RES), interconnections
and DSR.
• Limits to (and perhaps a blueprint for an
European) National CRM.

34. • More institutional role for Regional
Initiatives and other fora e.g. (pentalateral
initiative).

Relevant for infrastructure dimension of
S.o.S. (towards Regional S.o.S.?)

35. End of presentation.
Thank you.
(now time for Q&A)
For further contacts:
Fulvio.fontini@unipd.it