Clean energy package review: Watchword should be 'simplicity'
'Simplicity' should be the watchword for reviewing the clean energy package, writes Peter Styles.
Peter Styles | Photo credit: EFET
The years 1999 to 2001 were the golden era of the new, integrated EU market in wholesale electricity.
Things were so much simpler then. The incumbent utilities had separated their grid operations from their generation and supply businesses, following the first Internal Electricity Market (IEM) Directive in 1996.
The basic elements enabling competition and allowing trade in power to flourish across the continent were in place.
Following 2003's so-called 'second package' we felt that liberalisation would mature and furnish Europe with a stable market framework over the coming years.
But soon things became more complex and, by 2010, it was becoming harder to say that Europe's wholesale electricity market was stable and strong.
So, what do EU policymakers now need to concentrate on in the 'Clean energy for all Europeans' package (CEP), if it is to make a successful contribution to re-establishing European electricity sector liberalisation?
First, let's ensure that this fourth package of IEM legislation helps Europe revert to a truly level playing field in the power market.
The CEP must take a decisive step in remedying distortions caused by artificial privileges enjoyed by renewable electricity generators. Putting an end to priority dispatch, priority grid access and balance responsibility immunity in many member states need not endanger their business model. Any cost disadvantages from which renewable technology suffers as result can be compensated by continued financial support, granted according to auction results.
Second, let's make the internal market truly European by treating both internal and cross-border transactions equally. Current transmission capacity calculation methodologies make it hard to determine the extent to which Transmission System Operators (TSOs) improperly restrict cross-border access to the market.
The CEP brings us the opportunity to re-assert the right of market participants to bid for cross-border transmission access on a forward, day ahead and intraday basis whenever TSOs are able to make capacity available, while respecting physical operating limits.
Third, let's avoid making the electricity market more complex.
Energy markets can price the value of flexible capacity. So the CEP rightly foresees the abolition of price caps and regulated retail tariffs.
However, creating special privileges for demand response aggregators as a new category of actor, as proposed by the Commission, will add complexity and jeopardise a level playing field, without necessarily increasing the contribution of the demand side to flexibility of the system.
Consumers will realise the full benefits of liberalisation only if our wholesale power market functions efficiently. With this goal in mind EU policymakers must resist the temptation to complicate the market design and create new categories of actors or new privileges.
Objectivity, transparency and non-discrimination were the principles underlying the first IEM Directive adopted in 1996. Add the quality "simplicity", and these are still the watchwords to keep in mind in 2017 as we review the shape of the CEP.
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