EU Electricity market: the rules
One of the key objectives of the Clean energy for all Europeans package is to update the design of the EU electricity market, given the degree of integration and changes in technology seen in recent years and expected in the years ahead.
The share of electricity produced by renewable energy sources is expected to grow from 25% to more than 50% in 2030, so EU rules therefore have to be updated to facilitate the integration of renewables into the grid.
At the same time, when the sun does not shine and the wind does not blow, electricity must still be produced and delivered in sufficient quantities. Markets need to be improved to meet the needs of renewable energies and attract investment in the resources, like energy storage, that can compensate for variable energy production. The market must also provide the right incentives for consumers to become more active and to contribute to keeping the electricity system stable.
EU Directive and Regulations for electricity
To address these issues, the EU has adopted a new Electricity Directive (EU) 2019/944 and the Electricity Regulation (EU) 2019/943 and introduced a new Regulation (EU) 2019/941 on Risk preparedness, enhancing the role of the Agency for the Cooperation of Energy Regulators (ACER).
Based on the Commission's Clean energy for all European package proposals from November 2016, the new rules were formally adopted in May 2019 and entered into force in the summer of 2019. For the Directive, EU countries have 18 months to transpose the new measures into national law.
One of the key objectives of the Clean energy for all Europeans package is to update the design of the EU electricity market, given the degree of integration and changes in technology seen in recent years and expected in the years ahead.
The share of electricity produced by renewable energy sources is expected to grow from 25% to more than 50% in 2030, so EU rules therefore have to be updated to facilitate the integration of renewables into the grid.
At the same time, when the sun does not shine and the wind does not blow, electricity must still be produced and delivered in sufficient quantities. Markets need to be improved to meet the needs of renewable energies and attract investment in the resources, like energy storage, that can compensate for variable energy production. The market must also provide the right incentives for consumers to become more active and to contribute to keeping the electricity system stable.
EU Directive and Regulations for electricity
To address these issues, the EU has adopted a new Electricity Directive (EU) 2019/944 and the Electricity Regulation (EU) 2019/943 and introduced a new Regulation (EU) 2019/941 on Risk preparedness, enhancing the role of the Agency for the Cooperation of Energy Regulators (ACER).
Based on the Commission's Clean energy for all European package proposals from November 2016, the new rules were formally adopted in May 2019 and entered into force in the summer of 2019. For the Directive, EU countries have 18 months to transpose the new measures into national law.
The new electricity Directive and Regulation are aimed at adapting market rules to new market realities.
The update of the electricity market rules aims to contribute to the goal of being the world leader in the production of energy from renewable energy sources, allowing greater flexibility to accommodate a growing share of renewable energy in the grid.
New CO2 emission limits are set for power plants that receive subsidies, with their phasing out of subsidies to power plants that emit 550g CO2 /kWh or more.
The consumer is better protected in his interests and more involved in this important transition. Member countries are asked to establish transparency, regulation and control mechanisms for electricity supply companies, also providing all contact details for customer assistance.
By allowing electricity to flow freely where it is needed most, the european society will increasingly benefit from cross-border trade and competition. They will guide the investments needed to ensure security of supply while decarbonising the European energy system.
As is well known, the shift to renewable energies and the increase in electrification is essential to achieve carbon neutrality by 2050.
Risk preparedness The newly adopted Regulation (EU) 2019/941 on Risk Preparedness of the electricity sector requires Member States to prepare plans for how to deal with potential future electricity crisis, and put the appropriate tools in place to prevent, prepare for and manage these situations. This initiative followed an independent report from May 2015, which highlighted previous experience showing that Member State responses to potential crises tended to focus on the national context only, disregarding cross-border effects and thereby sometimes even exacerbating the problems, undermining the functioning of the market and driving up energy bills. The EU Regulation requires that Member States, using common methods, identify all possible electricity crisis scenarios at national and regional levels and then prepare risk preparedness plans based on these scenarios. |
Above all, this preparation requires EU countries to cooperate and coordinate with neighbouring member states in a spirit of solidarity. It also establishes a new framework for a more systematic monitoring of security of supply issues via the Electricity Coordination Group.
All in all, the new rules will ensure maximum preparedness against electricity crises and effective management and ensure that markets can work as long as possible.
All in all, the new rules will ensure maximum preparedness against electricity crises and effective management and ensure that markets can work as long as possible.
Gas, Hydrogen and decarbonised gas market package
The European Green Deal establishes a roadmap for cutting greenhouse gas emissions, while also boosting a modern and resource-efficient economy. It includes a set of initiatives to reach this goal, including the energy system integration strategy and the hydrogen strategy, which set out how to update the energy markets, including the decarbonisation of the production and consumption of hydrogen and methane.
Natural gas (fossil methane) constitutes around 95% of today’s gaseous fuels consumed in the EU. Next to being an energy carrier, gaseous fuels are also a key feedstock for industrial processes and are one of the sources of flexibility for an energy system increasingly based on variable supplies generated from renewable energy sources.
A revision of the current EU rules on gas and hydrogen is needed to ensure that the gas market framework is in line with our Fit for 55 ambition, contributing to the energy and climate targets and writing into legislation the measures outlined in the respective strategies for hydrogen and energy system integration.
Preparatory work and timeline
The review and revision of the Gas Directive 2009/73/EC and Gas Regulation (EC) No 715/2009 is referred to as the hydrogen and decarbonised gas market package.
As a first step, the Commission published a roadmap on the inception impact assessment to collect feedback from stakeholders.
On 26 March 2021, a public consultation on the revision was launched. The feedback from the consultation will feed into the Commission’s preparations of legislative proposals for a new hydrogen and gas markets decarbonisation package. The proposals should be presented before the end of 2021.
In parallel, the Commission will conduct an evaluation of the relevant gas market rules. The evaluation will assess the rules effectiveness, efficiency, relevance, coherence and benefits of action at EU level and, in particular, in reaching the EU decarbonisation targets.
Renewable and low-carbon gases including hydrogen
A greater influx of renewable energy sources, in combination with progress on low-carbon technologies like hydrogen, has meant that gas sectors can more easily be decarbonised – and at a lower cost.
The legislative changes to update EU gas markets therefore mainly focus on how to enable a market for renewable and low carbon hydrogen that allows it to become a key component of the energy sector. It also includes how to facilitate the injection, transmission, distribution and trading of renewable and low carbon gases in the gas grids, in view of the wider energy system integration.
Moreover certain renewable gases might not be connected to any network at all, but could be consumed at the place of production, for instance by small modular electrolysers, or transported by other means, like rail or road, to where they will be used. The scope of the off-grid production compared to production connected to a network depends, among other things, on technological developments and market uptake.
As well as facilitating the transition to renewable and low carbon gases, the proposals will also aim to make the gas market more consumer-friendly, taking into account rapid technological developments and the principles introduced in the 2019 revision of EU electricity market design rules.
In most areas direct electrification will be the most cost-effective and energy-efficient way to decarbonise final energy demand. Indeed, electrification coupled with an increased uptake of renewables, improved energy efficiency and applying the circular economy will deliver most of the emission reductions across the energy system. In certain areas, however, where full electrification is unlikely to be technically or economically viable, gaseous fuels are likely to remain present in the EU’s energy system.
Previous EU Energy market legislation
The previous EU energy market legislation (the "third energy package"), aimed at improving the functioning of the internal energy market and resolving certain structural problems.
The third package entered into force in September 2009. and it covered the following five areas:
1. Unbundling
Unbundling is the separation of energy supply and generation from the operation of transmission networks. If a single company operates a transmission network and generates or sells energy at the same time, it may have an incentive to obstruct competitors' access to infrastructure. This prevents fair competition in the market and can lead to higher prices for consumers.
Under the third energy package, unbundling must take place in one of three ways, depending on the preferences of individual EU countries:
The European Commission publishes guidance documents which explain how these unbundling models should be applied.
Unbundling is the separation of energy supply and generation from the operation of transmission networks. If a single company operates a transmission network and generates or sells energy at the same time, it may have an incentive to obstruct competitors' access to infrastructure. This prevents fair competition in the market and can lead to higher prices for consumers.
Under the third energy package, unbundling must take place in one of three ways, depending on the preferences of individual EU countries:
- Ownership Unbundling: all integrated energy companies sell off their gas and electricity networks. In this case, no supply or production company is allowed to hold a majority share or interfere in the work of a transmission system operator
- Independent System Operator: energy supply companies may still formally own gas or electricity transmission networks but must leave the entire operation, maintenance, and investment in the grid to an independent company
- Independent Transmission System Operator: energy supply companies may still own and operate gas or electricity networks but must do so through a subsidiary. All important decisions must be taken independent of the parent company.
The European Commission publishes guidance documents which explain how these unbundling models should be applied.
Operators that comply with the unbundling rules can apply for certification with their national energy regulator. Every operator in Europe must be certified and the Commission provides its opinion on the certification procedure. These opinions are published by the Commission, and regularly updated.
2. Independent regulators
A competitive internal energy market cannot exist without independent regulators who ensure the application of the rules. Under the third package, the requirements for national regulators have undergone a number of changes. Specifically:
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- regulators can issue binding decisions to companies and impose penalties on those that do not comply with their legal obligations
- electricity generators, gas network operators, and energy suppliers are required to provide accurate data to regulators
- regulators from different EU countries must cooperate with each other to promote competition, the opening-up of the market, and an efficient and secure energy network system.
3. Agency for the Cooperation of Energy Regulators
In order to help the different national regulators cooperate and ensure the smooth functioning of the internal energy market, the EU has established the Agency for the Cooperation of Energy Regulators (ACER). ACER is independent from the Commission, national governments, and energy companies. |
Given the challenges ahead for the EU electricity market – and the changes made in the other parts of the Clean energy for all Europeans package – the role of ACER in the energy market and in the area of security of supply has been enhanced.
Established under the Third energy package, ACER's main role was originally confined to coordination, advising and monitoring. As the new market design rules foresee much more cross-border cooperation, the lack of regional, cross-border oversight was seen as a potential problem, with the risk of diverging decisions and unnecessary delays.
In addition to coordinating the action of national energy regulators, ACER has therefore been granted additional competences in those areas where fragmented national decisions of cross-border relevance are likely to lead to problems for the internal Energy Market. For example, ACER will have oversight on the future regional entities ("Regional Coordination Centers") where TSOs (Transmission System Operators) will be able to decide on those issues where fragmented and uncoordinated national actions could negatively affect the market and consumers. The proposed approach will also streamline regulatory procedures (by introducing direct approval by ACER instead of separate approvals by all national regulators).
National regulators, deciding within ACER on those issues through majority voting, will remain fully involved in the process.
In addition to coordinating the action of national energy regulators, ACER has therefore been granted additional competences in those areas where fragmented national decisions of cross-border relevance are likely to lead to problems for the internal Energy Market. For example, ACER will have oversight on the future regional entities ("Regional Coordination Centers") where TSOs (Transmission System Operators) will be able to decide on those issues where fragmented and uncoordinated national actions could negatively affect the market and consumers. The proposed approach will also streamline regulatory procedures (by introducing direct approval by ACER instead of separate approvals by all national regulators).
National regulators, deciding within ACER on those issues through majority voting, will remain fully involved in the process.
Its work involves:
- drafting guidelines for the operation of cross-border gas pipelines and electricity networks
- reviewing the implementation of EU-wide network development plans
- deciding on cross-border issues if national regulators cannot agree or if they ask it to intervene
- monitoring the functioning of the internal market including retail prices, network access for electricity produced from renewables, and consumer rights.
4. Cross-border cooperation
National transmission system operators are responsible for ensuring electricity and natural gas is effectively transported through pipelines and grids.
Due to the cross-border nature of Europe's energy market, they must work together to ensure the optimal management of EU networks. This is done through the European Network for Transmission System Operators for Electricity (ENTSO-E) and the European Network for Transmission System Operators for Gas (ENTSOG).
These organisations develop standards and draft network codes to help harmonise the flow of electricity and gas across different transmission systems and they coordinate the planning of new network investments and monitor the development of new transmission capabilities. This includes publishing a Europe-wide 10-year investment plan to help identify investment gaps every two years.
5. Open and fair retail markets
The third package included rules designed to benefit European energy consumers and protect their rights. They include the right to choose or change suppliers without extra charges, receive information on energy consumption, and quickly and cheaply resolve disputes.
More about energy consumer rights.