Electricity sector inquiry

Vestager

Last week it emerged that Competition Commissioner Margrethe Vestager is proposing to investigate the various ‘capacity’ payments paid by national authorities to EU electricity generators. See e.g. Reuters report.

This is significant. If confirmed, it will mark a positive shift in the ‘electricity chapter’ of “energy union” plans announced by Vestager’s colleagues earlier this year. Then in February Šefčovič and MAC spoke of legislation on new (but as yet unspecified) electricity market arrangements being tabled in 2016, preceded only by a consultation exercise this year.

A sectoral inquiry is a necessary and more rigorous approach, since without a solid evidence base there could not be an adequate impact assessment justifying legislative proposals. The inquiry in effect provides the basis for internal market legislative changes to 3rd package common rules (and/or network codes) only to the extent these may be justified under the acquis. (And if none are justified then there’ll be no changes.)

The evidence gathered could (and should) also lead to specific case-by-case decisions under competition law in particular state aid, e.g. the 2-yr-old non-notified incompatible Polish scheme.

Overall the situation is similar to the energy sector inquiry (then electricity AND gas) in 2005-07 prior to the passage and adoption of the 3rd internal energy market (IEM) legislative package in 2007-09 and the conclusion of several company-specific anti-trust cases that ran in parallel. The difference now is that this inquiry will concern state aid issues (capacity payments) rather than anti-trust issues (structural unbundling).

So, what are the legal bases for such a move? First, Article 108(1) TFEU reads:

“The Commission shall, in cooperation with Member States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measures required by the progressive development or by the functioning of the internal market.”

It’s also worth reading all of Articles 107-109 if you have not already done so. Article 109 provides basis for Council to adopt/amend procedural rules i.a. which it last did in 2013.

Second, and more specifically, the 2012-14 ‘State Aid Modernisation’ (SAM) reforms under VP Almunia finally introduced an explicit provision for sector inquires into the basic state aid procedural rules. So Council Regulation 659/1999 Article 20a as amended now reads as follows:

State aid Article 20a new 659-1999Notable in this rule is the option to target some but not all countries (‘choice of addressees’) and the power to target specific companies (‘undertakings’) and associations as well as member states. DG Competition is already wrestling with a number of cases including those from France and Poland. An inquiry with the force of law will force the hand of uncooperative member states.

The new inquiry may be the first time that this new provision is used since its 2013 enactment. (However the FT reports today that a similar inquiry in the banking sector is under preparation (link).

~o0o~

Invitation to Riga, 6 Feb

compo

LEAKED: Latvia’s energy minister Dana Reizniece-Ozola and VP Šefčovič sent the following invite to EU energy ministers last Monday. As elsewhere, “pillars” are now described as “dimensions”, which signals the intention to integrate each part of the whole. Updated Thursday with conference draft agenda.

–oo0oo–

Rīga, 12 January, 2015

Dear Minister,

Europe’s ambition to create a single energy market as well as the long term challenge of climate change have already brought significant changes to the EU energy system. The obvious need to go further requires a new energy policy paradigm. Therefore, the European Council has set the goal of building an Energy Union aiming at affordable, secure and sustainable energy.

Furthermore, European Commission President Jean-Claude Juncker has made a strong case “to reform and reorganize Europe’s energy policy into a European Energy Union with a forward-looking Climate Change Policy“. He has called for us to pool resources, connect infrastructures, diversify our energy sources, reduce energy dependence, and to unite in order to strengthen our negotiating power vis-à-vis third countries.

We have to step up our efforts to complete the internal energy market, be more energy efficient, de-carbonise our economies and develop new ground-breaking technologies.

The time of a resilient Energy Union based on more security, solidarity and trust has clearly come. We have to seize this momentum.

Therefore, we are pleased to invite you or your representative to a defining high-level conference on the European Energy Union. The discussion will take place on February 6, 2015 in Rīga, Latvia. The one day event will include in-depth discussions on the Energy Union’s key dimensions and will be highlighted by special interventions of the Commission Vice-President for Energy Union, the Commissioner for Climate Action and Energy, the Latvian Presidency of the EU Council, the International Energy Agency and many others. A closed Ministerial level session will be organized to which you are kindly invited to participate (format 1+1).

The Latvian Presidency of the EU Council would also like to invite you to attend the Welcome Reception on February 5 from 19:00 to 22:00 in the Small Guild Hall, Amatu iela, 5, Rīga (format 1+1).

Registration opens on January 12 and is required by 20 January by filling in the online registration form automatically sent by NOVENTO accreditation system in a separate e-mail. Please be aware that due to the limitations in number of participants it will be not possible to register after the mentioned deadline. We will be pleased to host the representatives of your institution according to the set quota for a delegation (format 1+2).

For additional information please call […] or email […]. We look forward to welcoming you in Rīga.

Yours sincerely,

Dana Reizniece – Ozola
Minister of Economics of the Republic of Latvia

Maroš Šefčovič
Vice-President for Energy Union

#energyunion long-list

screen shot

A 7-page internal memo circulated among EC energy officials in November contains a long-list of 40 “key actions” that could or would contribute to “energy union” (whatever that means). Though I will not post the full leaked document here, I’ve made a summary list below to share what is and isn’t part of the EC’s current/recent thinking. I make no comment on the obvious duplications and overlaps. All the usual caveats regarding leaked drafts apply. Nudges in emphasis are my own. A final “energy union” paper is expected next month.

[draft/prospective] KEY EC ACTIONS 2015-16

Priority – supply security
  • explore common purchasing gas
  • (merged) review gas supply security rules, inc. explore reserves obligations
  • closer EC involvement in IGAs with 3rd countries
  • G7 G20 IEA dialogues i.a.
  • diversify fuel supplies; gas corridors & LNG
  • stronger Energy Community
  • discuss external companies via-a-vis internal rules (e.g. Gazprom)
  • assess industrial bases for energy technologies & knowledge
  • assess capacities for renewables growth
Priority – internal market
  • finish adoption of gas & electricity network codes (was due 2014)
  • finish implementation of 3rd package; review 3rd package
  • finish discussion paper re electricity retails markets (was due 2014)
  • accelerate electricity & gas inter-connection plans (PCI & CEF rules)
  • more regional cooperation in electricity; ensure capacity schemes don’t get (further) out of hand
  • progress on smart grids; smart cities
  • explore renewable energy growth strategy
  • explore options to tackle prices, inc taxes, tariffs & levies
  • explore governance options, inc poss stronger ACER role
  • explore 2050 investment stimulation framework
  • (2017-19) Review & prolong state aid guidelines for 2021-2030
Priority – energy savings
  • review of eco-design framework law
  • review of energy labelling framework law
  • review of energy efficiency framework law
  • review of energy performance of buildings framework law
  • review of vehicle CO2 standards regulations (cars, vans & trucks)
  • further deployment of smart meters
Priority – emissions reductions
  • UNFCCC inc COP21 Paris (with EEAS)
  • general revision of EU ETS for 2021-2030 phase 4 (with similar derogations)
  • national 2030 GHG caps for non -ETS sectors (new ‘Effort-Sharing’ Decision)
  • review of renewable energy framework law
  • review of CO2 geological storage framework law
  • review of fuel quality framework law
  • develop biomass & biofuels policy 2021-30
  • 2030 governance
  • coordination with local air pollution laws/standards
  • (2017-19) inclusion of land-use & forestry into GHG rules
Priority – research & innovation
  • Horizon 2020 (& SET Plan)
  • coordinate research with innovation
  • coordinate research with investment and regulation
  • coordinate funding e.g. Horizon 2020, NER300/400
  • external diplomacy
  • 2050 pathways initiative

Correlation Table 2.0

MS nervous smile

Last month I posted a first version of a ‘correlation table’ aiming to show how the elements (or priorities) of a proposed “energy union” fit with basic EU treaty provisions and with other EU policies and laws.

See 15 Nov: Energy policy contains 4 objectives, not 3 or 5.

Since then, incorporating feedback from a variety of people – for which thanks! – I’ve made a new clarified and expanded version of the same table, available in three formats below.

My basic point is that the Union institutions can only act in so far as they are empowered by the EU treaties and therefore that proposed actions must fit with the treaties. Moreover, with “energy union”, we are not starting with a blank page; we must take account of what has already been done over past years, which is substantial.

Further feedback, discussion and sharing as ever welcome.

Corellation Table v2

Click on image to enlarge * PDF VERSIONGoogle Doc

–oo0oo–

 

 

Germany, coal and climate pollution

German coalGerman draft plans to close coal-fired power plants will not lead to any extra cuts in greenhouse gas emissions in Europe. Why? Because Germany has no plans (so far) to reduce the number of ETS allowances that it auctions each year going forward.

In other words, the surplus pollution rights, no longer required by operators of the affected installations, can be bought and used by any of the other 12,000 installations elsewhere in the EU. Allowances bought in one year can also be saved for use in any subsequent year.

Firms operating coal-fired power plants in Poland e.g. will very pleased at the extra surplus allowances available to them, pushing down EU-wide carbon prices even further and thus prolonging by years the time by which they will have to burn less coal and diversify across other energy options.

There’s more

Other important questions remain to be answered in Berlin. Will owners of the closed installations be compensated for further income now forgone? According to press reports, some at least are seeking this. And if this happens, where will the money come from? ETS revenues perhaps? In any case, would such compensation from state resources be subject to state aid control and possible veto by the European Commission?

More interestingly, and perhaps as an alternative to direct compensation payments, if delivery of domestic plans requires German’s ‘Big Four’ companies to conclude with each other, and an effect of which would be to increase profits through higher wholesale domestic power prices, would this not also raise competition i.e. anti-trust concerns with the European Commission?

Lots of ground still to cover in these issues that I don’t think will be answered any time soon.

–oo0oo–