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Third Energy Package

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The European Commission and the Parliament set up a milestone for the process of integration of EU energy markets, releasing a set of comprehensive Directives and Regulations aiming at fostering the completion of the internal energy markets, the so called “third energy package”:
• Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54
• Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55
• Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (ACER)
• Regulation (EC) No 714/2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003
• Regulation (EC) No 715/2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005

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Third Energy Package

  1. 1. Third Energy Package Fulvio Fontini Department of Economics and Management University of Padua, Italy and Co-chair ESS TF, ACER/CEER Ljubljana and Bruxelles
  2. 2. The third energy package (t.e.p.). Content of the presentation: 1. What is that we are talking about? 2. The status quo of electricity and gas market before the t.e.p. and the need to provide a comprehensive regulatory framework. 3. The fundamental pillars of the t.e.p. 4. The Target Models for electricity and gas. 5. What’s next? the way beyond the t.e.p.
  3. 3. The third energy package is a verbal shortcut that refers to a package of a coherent set of directives and regulations issued by the European Commission and the Parliament, aiming at fostering the completion of the internal energy markets (of the EU). 1) What is the Third Energy Package
  4. 4. It is composed of the following (1/2): 1) What is the Third Energy Package • Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55. • Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54. • Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (ACER).
  5. 5. It is composed of the following (2/2): 1) What is the Third Energy Package • Regulation (EC) No 714/2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003. • Regulation (EC) No 715/2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005.
  6. 6. • The t.e.p. has generated a (vast) secondary legislation and official documents, act, opinions and so on, by several bodies (ACER, CEER, NRAs, etc.) 1) What is the Third Energy Package • It has been approved in 2009, entered in force in 2011 (18 month after approval).
  7. 7. • Why do a “third” package? There existed several pieces of legislation: a first electricity Directive and a first gas Directive (1996 and 1998) allowed the opening of the electricity and gas market and a gradual introduction of competition. Focus was on non discrimination. 2) The status quo before the Third Energy Package
  8. 8. • A second electricity directive and a gas Directive (2003), whose main aspects were unbundling and third party access, the need for independent National Regulatory Authorities (NRAs), two deadlines for the liberalisation of electricity and gas retail markets (2004 for large consumers and 2007 for small ones). 2) The status quo before the Third Energy Package
  9. 9. • The aim was (and still is) setting the proper framework in order to make the electricity and natural gas markets fully effective and create a single EU gas and electricity market. 2) The status quo before the Third Energy Package
  10. 10. • The economic rationale is that full liberalization and opening to competition enhance efficiency and allow for a full integration of the market. Benefits are keeping prices as low as possible and increasing standards of service and security of supply. 2) The status quo before the Third Energy Package
  11. 11. The (by then) existing legislation and the Internal Energy Market acquis communautaire: • set up the milestone for liberalization of energy sector. • Allowed recurring to EU competition law to reach the Single European Market in electricity and gas. 2) The status quo before the Third Energy Package
  12. 12. However, several aspects where left out: 2) The status quo before the Third Energy Package  No common technical regulation;  Not possible to tackle cross border transportation/transmission issues (and affect contract clauses);  No clear possibility to splitting vertical integrated industries;  No full empowerment of NRAs.
  13. 13. • As a consequence, the integration process was delayed or seriously hampered: there were still large vertically integrated industries (Politt, 2007), energy markets were still National (limited and inefficient use of cross border capacity in electricity [Jamasb and Politt, 2005] and transmission facilities in gas [Holz, 2009], difficult to deal with cross-border issues. 2) The status quo before the Third Energy Package
  14. 14.  Unbundling and the establishment of independent transmission companies (ISO and ITO). 3) The fundamental pillars of the Third Energy Package  Role and functioning of National Regulatory Authorities (NRAs).  The definition of power and competences for new and re-shaped existing European bodies (ENTSO E/G, ACER).  The definition of non-discriminatory rules and procedures to foster market integration, based on Framework Guidelines and Network Codes.  Market Monitoring.
  15. 15. Unbundling and the establishment of independent transmission companies (ISO and ITO): 3) The fundamental pillars of the Third Energy Package • Transmission system operators (TSOs) are the companies who operate the networks through which gas and electricity are transported. • The t.e.p. specifies that TSO must be independent, i.e., not have (potential) conflict of interest with other companies in the electricity or gas supply chain.
  16. 16. There are three different admissible setup: 3) The fundamental pillars of the Third Energy Package  Independent System Operator (ISO);  Independent Transmission System Operator (ITO);  Unbundled Operator (UO).
  17. 17. 3) The fundamental pillars of the Third Energy Package  Independent System Operator (ISO): supply company can own the physical network, but it has to leave O&M and investment decision to an independent company. Investments are decided by the Grid Owner (but regulated under the Directive).
  18. 18.  Independent Transmission System Operator (ITO): supply company can own and operate the network. The management of the network must be done by a subsidiary company, which makes all financial, technical and other decisions independently from the parent company. 3) The fundamental pillars of the Third Energy Package
  19. 19.  Ownership Unbundling (OU): transmission and transportation grid is owned and managed by a fully independent company: no supply and production company is allowed to hold a majority share in the company, nor exercise voting rights or appoint board members. Exceptions (to Unbundling and to TPA) possible, when risk is too high and if it favours competition. 3) The fundamental pillars of the Third Energy Package
  20. 20. At present, the three types coexist in Europe in both electricty and gas sector:
  21. 21. Role and functioning of National Regulatory Authorities (NRAs). Independent regulators already established by the second directive, however “experience shows that the effectiveness of regulation is frequently hampered through a lack of independence of regulators from government, and insufficient powers and discretion.” (Dir. 2009/72/EC, c.33). 3) The fundamental pillars of the Third Energy Package
  22. 22. The t.e.p. strengths National Regulatory Authorities, fostering their independence from Government or any other public or private body: members State must guarantee the (effective) independence of NRAs (independent staff, board or top management, budget) making sure they exercise their power impartially and adopt transparent and participative procedures. 3) The fundamental pillars of the Third Energy Package
  23. 23. The t.e.p. spells out a long list of competences and duties of NRAs (c.37, Dir 2009/72/EC): 3) The fundamental pillars of the Third Energy Package • Fixing tariffs (or methodologies); • Monitoring markets, consumers rights and quality, compliance with prescriptions; • Cooperating with other NRAs and ACER; • Several reporting obligations (on its activity, on investment plans).
  24. 24. The definition of power and competences for new and re-shaped existing European bodies: 3) The fundamental pillars of the Third Energy Package  ACER: Agency for the Cooperation of Energy Regulators.  ENTSO: European Network of Transmission System Operator (one for Electricity and one for Gas).
  25. 25. The Agency for the Cooperation of Energy Regulators. 3) The fundamental pillars of the Third Energy Package • Before the t.e.p. there existed a European Regulator Group for Energy and Gas (ERGEG). It was an advisory group set up by NRAs on a voluntary basis, lacked clear power and legal mandate. Its competence have been absorbed by the newly established Agency for the Cooperation of Energy Regulators (ACER).
  26. 26. • The purpose of ACER is to assist National Regulatory Authorities in exercising, at Community level, the regulatory tasks that they performed in the Member States and, where necessary, to coordinate their action. • ACER has its own staff and office in Ljubljana (Slovenia), but works together with NRAs and meets regularly with other stakeholders. It is not an NRA, but is complimentary to them. 3) The fundamental pillars of the Third Energy Package
  27. 27. ACER is composed of a Director, an Administrative Board, a Board of Regulators (and a Board of Appeal). Its mandate: 3) The fundamental pillars of the Third Energy Package  Drafting Framework Guidelines and issue opinions on Network Codes;  Issue opinions on other ENTSO E/G document/plans (the EU wide T.Y.N.D.P. and National D.P.); Issue opinions and recommendations whenever asked (or if needed) to European Parliament and the Commission.
  28. 28.  Deciding on cross-border issues if national regulators cannot agree or ask ACER to intervene. 3) The fundamental pillars of the Third Energy Package  Monitor the functioning of internal electricity and gas markets, including network access for electricity produced from Renewable Energy Sources, retail prices and respect of consumer rights. Issue every year a report (ex ante monitoring). Subsequent legislation has empowered ACER also of ex-post monitoring on energy market integrity and transparency (REMIT) as well as monitoring the implementation of Project of Common Interests
  29. 29. The definition of non-discriminatory rules and procedures to foster market integration, based on Framework Guidelines and Network Codes. • Technical rules that regulates several aspects of electricity and gas supply chain (“who may use infrastructures and how”, “under which conditions”). • Refer to cross-border aspects (but are relevant for internal markets’ design as well) 3) The fundamental pillars of the Third Energy Package
  30. 30. • ACER writes (or has written) the Framework Guidelines, establishing general principles and serve a basis for drafting the Network Codes; 3) The fundamental pillars of the Third Energy Package • ENTSO E/G drafts the Network Codes: “a set of rights and obligations that apply to parties operating in the European energy sector”. The procedure to approve NCs:
  31. 31. • ACER review drafts of NC and issues opinions on them (checking coherence with FG and the aim of the IEM). 3) The fundamental pillars of the Third Energy Package • The Commission and Member States approves the NC (Comitology procedure). NC as regulations, apply directly to the EU Member States without being transposed into national law
  32. 32. The ENTSO E/G: 3) The fundamental pillars of the Third Energy Package A compulsory network of TSO, one for Electricity and one for Gas. The t.e.p. specifies duties and responsibilities of ENTSOs: • Drafting Network Codes (i.e., homogenising technical regulation across Europe). • Drafting (and consulting) the Ten Year Network Development Plan (TYNDP) and the Regional Investment Plans • Providing Reviews and Outlooks
  33. 33. 3) The fundamental pillars of the Third Energy Package Network Codes in Electricity, three big areas: 2. NC related to system operation, i.e., the way system is operated in order to provide SoS. 3. Market related NCs, covering all time-frame of power exchange 1. NC related to connection to transmission grid: both for load and generators.
  34. 34. 3) The fundamental pillars of the Third Energy Package Network Codes in Gas: 2. Harmonized Tariff Structures. 3. Interoperability and Data Exchange 1. Capacity Allocation Mechanisms and Balancing.
  35. 35. 3) The fundamental pillars of the Third Energy Package Source: ACER
  36. 36. • Network codes are major building blocks of the single liberalized electricity and gas European market. 5) The target models • They set up the path towards an integrated market (IEM). However… • Each code addresses a specific aspects of the electricity and gas supply chain: risk of fragmented or incoherent setup.
  37. 37. 5) The target models • NRAs (an the EC) agrees to “explore... the interaction and interdependence of all relevant areas for network codes”, to reach a common (both across stakeholders and across acts/codes) vision of the liberalization process: the “Target Models”.
  38. 38. • The actual stage of implementation of the third package, and the need to go beyond it towards the Energy Union. • Open problem: some EU-wide competence outside the scope of ACER (and of the t.e.p). E.g., security of supply in electricity. This generates a new wave of uncoordinated new set of rules/legislation set up at National level (e.g., introduction of Capacity Remuneration Mechanism in electricity). 6) What’s next? Energy Union
  39. 39. • Decisions on new investments (and more in general contractual power) in gas is still mostly a National issue. • Focus is slowly shifting to monitoring implementation of NC and their adaptation- evolution. Lack of proper mandate. Recent proposal from the Commission: going beyond the t.e.p. towards an Energy Union 6) What’s next? Energy Union
  40. 40. End of presentation. Thank you. For further contacts: Fulvio.fontini@unipd.it 6) What’s next? Energy Union

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