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‘Clean Energy for all Europeans’EC’s Winter Package - 30 November 2016

Users’ Group – Plenary meeting30 March 2017

Towards an European Energy Union…

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Jean-Claude JunckerPresident of the European Commission

Maroš Šefčovič - Vice-President Energy UnionMiguel Arias Cañete - Commissioner Climate Action & Energy

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Winter Package: What are we talking about?

A new electricity market design

A European approach for adequacy

Introducing Regional Operation Centers

Changing roles and responsibilities

Concerns resulting from the Winter Package proposals

This is just the beginning: Legislative process

Agenda

Winter Package:

What are we talking about?

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Towards a Energy Union:European Commission initiatives 2014-2016

‘Clean Energy for all Europeans’ – Legislative Package

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• Officially released by European Commission on 30 November 2016

• Comprehensive proposals covering different topics, among others:

A new Electricity Market Design,

Security of Supply,

RES

Energy efficiency, E-mobility and Eco-design.

Energy Union Governance,

• Entire scope of the EC’s ‘Winter Package’:

5 Regulations,

4 Directives

3 Communications + 2 reports

Final report of the Sector enquiry on capacity mechanisms (DG COMP)

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Governance of the Energy UnionProposal for Regulation – 30.11.’16

RED II30.11.’16Proposal for Directive

EED II30.11.’16Proposal for Directive

GHG17.07.’15 Proposal Directive (ETS)

20.07.’16 Proposal Regulation Effort Sharing

2020 Targets Third Energy Package SoSGHGDirective 2003/87/EC (ETS)

Decision No 406/2009/EC Effort Sharing

RESDirective 2009/28/EC

Energy EfficiencyDirective 2012/27

Electricity Directive:Directive 2009/72EC

ACER Regulation:Regulation (EC) No 713/2009

Electricity Regulation:Regulation (EC) No 714/2009

Directive 2005/89/EC

NEW

Remark:Certain provisions will be moved

Remark:Certain provisions will be moved

Electricity Directive30.11.’16 Proposal for Directive

ACER Regulation30.11.’16 Proposal for Regulation

Electricity Regulation30.11.’16 Proposal for Regulation

2030 Targets New Electricity Market Design

Risk Preparedness30.11.’16 Proposal for Regulation

NEW

EE BuildingsProposal for Directive30.11.’16

Eco-design Cooling and heatingProposal for Regulation30.11.’16

Winter Package = ‘Clean energy for all

European’

Communications on – 30.11.’16:• Eco-design working plan 2016-2019• Accelerating clean energy innovation• A European strategy on cooperative, intelligent transport systems

Reports on – 30.11.’16:• Energy prices and costs in Europe• Implementation European Energy Programme for Recovery (EEPR) and

the European Energy Efficiency Fund - Funding

Fu

ture

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Act

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EC Sector Inquiry report on CRMs (DG COMP)

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A new electricity market design

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Market distortions: price restrictions

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General rule: removal of price-caps• prices are formed based on demand and supply → Interventions which prevent price formation

are to be avoided

• No maximum limit of the wholesale electricity price unless it is set at the value of lost load

Value of lost load (VoLL)

• MS shall establish a single estimate of the VoLL for their territory, expressed in €/MWh → To be reported to the EC and made publically available. They may establish different VoLL per bidding zone if they have several bidding zones in their territory

and shall update their estimate at least once every five years.

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Market distortions: Dispatching, Redispatching and curtailement

Priority of Dispatch• General rule: Dispatching shall be non-discriminatory and market based → no priority of dispatch

• Exemptions are allowed - Priority dispatching for:

Demonstration projects and RES/high-efficiency cogeneration capacity of less than 500 kW technologies above higher than 15 % total installed generating capacity

Existing RES/high-efficiency cogeneration. Priority dispatch shall no longer be applicable if the generating installation is subject to significant modifications (changes to the connection agreement)

Redispatching and curtailement• The resources curtailed or redispatched shall be selected amongst those submitting offers

using market-based mechanisms and be financially compensated → open to all generation technologies.

• Non-market-based curtailment or redispatching shall only be used if no market alternative is available

• Where non-market-based downward redispatching or curtailment is used it shall be subject to financial compensation by the system operator requesting the curtailment or redispatching

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Bidding zones

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New roles and responsibilities• ACER approves and reviews the bidding zone configurations methodology (proposed by

ENTSO-E)

• The EC shall adopt a decision whether to amend or maintain the bidding zone configuration

• The maximum capacity of the interconnections shall be made available to market participants, complying with safety standards of secure network operation.

• Counter-trading and redispatch, including cross-border redispatch, shall be used to maximise available capacities unless it is demonstrated that it is not beneficial to economic efficiency at Union level

• TSOs shall not limit the volume of interconnection capacity to be made available to other market participants in order to solve their own, internal congestion inside their own control area or as a means of managing flows on a border between two control areas observed even without any transaction.

Capacity calculations

Balancing

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Balancing responsibility• All market participants shall aim for system balance and shall be financially responsible for

imbalances they cause in the system.

• They shall either be balance responsible parties or delegate their responsibility

• Exemptions for balance responsibility: demonstration projects

RES and high-efficiency cogeneration of less than 500 kW (transition phase is foreseen)

installations benefitting from support approved by the Commission

• By 1 January 2025, the imbalance settlement period shall be 15 minutes in all control areas

Access to the balancing market• General rule: Access to all market participants individually or through aggregation.

• Marginal pricing for balancing energy. The imbalances shall be settled at a price that reflects the real time value of energy.

• Reserve and balancing capacity sizing and procurement on a regional level with support provided by ROCs

• TSOs shall publish close to real-time information on the current balancing state of their control areas, the imbalance price and the balancing energy price.

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Demand response and the role of aggregators

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• TSOs and DSOs treat demand response providers, including independent aggregators, on the basis of their technical capabilities and in a in non-discriminatory manner in all organised markets.

Obligation for MS to establish a regulatory framework:• The regulatory framework of the MS shall have at least the following elements:

the right for each aggregator to enter the market without consent from other market participants; transparent rules clearly assigning roles and responsibilities to all market participants; transparent rules and procedures for data exchange between market participants aggregators shall not be required to pay compensation to suppliers or generators; conflict resolution mechanism between market participants.

• In order to ensure that balancing costs and benefits induced by aggregators are fairly assigned to market participants MS may exceptionally allow compensation payments between aggregators and balancing responsible parties → Such exceptional compensation payments shall be subject to approval by the NRA and monitored by ACER.

A European approach for Adequacy

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A European resource adequacy assessment

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• MS shall monitor resource adequacy within their territory based on the EU resource adequacy assessment

• ENTSO-E will submit to ACER for approval:

1. A draft methodology for the European resource adequacy assessment carried out on bidding zone level covering at least all MS

is based on appropriate scenarios including an economic assessment

takes in account of the contribution of all resources and import and export possibilities;

includes scenarios without existing or planned capacity mechanisms;

is based on a market model using the flow-based approach;

applies probabilistic calculations

applies at least the following indicators: EENS and LOLE

identifies the sources of possible resource adequacy concerns (network and/or a resource constraints).

2. A draft methodology for calculating: the VoLL , the "cost of new entry" and the reliability standard expressed as EENS and the LOLE

• TSOs provide data to ENTSO-E to carry out the European adequacy assessment every year. → The results of the annual assessment will need to be approved by ACER

Important:EU adequacy assessment will become binding for MS and as such ‘replace’ national or regional assessments

Definition of a reliability standard

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• MS applying capacity mechanisms shall have a reliability standard in place indicating their desired level of security of supply in a transparent manner.

• The reliability standard shall be set by the NRA based on a methodology to be defined by ENTSO-E using the value of lost load and the cost of new entry.

• The parameters determining the amount of capacity procured in the capacity mechanism shall be approved by the NRA.

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Capacity Remuneration Mechanisms (CRMs)

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General rule: • If the European resource adequacy assessment (see previous slide) has not identified a resource

adequacy concern, MS are not allowed to apply their capacity mechanisms.

Cross-border participation in capacity mechanisms

• Mechanisms other than strategic reserves shall be open for direct cross-border participation on equal conditions.

• Direct participation of interconnectors is excluded

• Capacity providers shall be able to participate in more than one mechanism for the same delivery period( consistent for the penalty regime)

Design principles for capacity mechanisms• Proposed mechanism consulted with its electrically connected neighbouring Member States.

• Generation emitting 550 gr CO2/kWh or more shall not be committed in capacity mechanisms → transition period for 5 years.

Existing mechanisms should be adapted in accordance with provision of this Regulation

Introducing Regional Operation Centres (ROCs)

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Geographical scope of the ROCs

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• Six months after entry into force of the Regulation, ENTSO-E shall submit to ACER a proposal defining system operation regions covered by ROCs on the basis of the following criteria and taking into account existing regional security coordinators:

grid topology, including the degree of interconnection and of interdependency of the power systems

the synchronous connection of the systems;

the size of the region shall cover at least one capacity calculation region;

the geographical optimization of balancing reserves.

• ACER shall either approve the proposal defining the system operation regions or propose amendments (consultation of ENTSO-E).

Tasks of ROCs

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Decision-making powers Recommendations If outsourced to the ROCs

coordinated capacity calculation creation of common system models identification of regional crisisscenarios

coordinated security analysis consistency assessment of transmission system operators' defense plans and restoration plans

preparation and carrying out of yearly crisis simulations in cooperation with competent authorities

regional sizing of reserve capacity coordination and optimization of regional restoration tasks related to the identification of regional crisis scenarios

calculate the maximum entry capacity available for the participation of foreign capacity in capacity mechanisms

post-operation and post-disturbances analysis and reporting

tasks related to the seasonal adequacy outlooks

facilitate the regional procurement of balancing capacity

regional week ahead to intraday system adequacy forecasts and preparation of risk reducing actions

Outage planning coordination

Optimisation of compensation mechanisms betweentransmission system operators

training and certification

Important:• Transfer of decision making power from

TSOs to ROCs• The EC may add other functions to the

ROCs, not involving decision making power.

• NRAs may decide upon additional decision-making powers

Enlargement of the tasks to be performed by the ROCs

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ROCs - Governance

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• By 31 December 2021, all TSOs shall establish regional operational centres (ROCs)• ROCs shall complement the role of TSO by performing functions of regional

relevance. • ROCs shall execute the functions and issue decisions and recommendations to the

TSOs of the system operation region.• Data transfers:

TSOs shall provide their ROC with the information necessary to carry out its functions. ROCs shall provide TSOs of system operation region with all the information necessary to

implement the decisions and recommendations proposed by the ROCs. • The Management Board shall be composed of members representing the TSOs and of

observers representing the NRAs of the system operation region (NRAs shall have no voting rights).

• Liability: a shift from the TSOs to the ROCs regarding legal responsibility and liability –insurance coverage will be necessary

• ROCs will be under the regulatory supervision of the relevant NRAs of the geographical regions

• ROCs will have reporting obligations towards all authorities (ACER, ENTSO-E, Electricity Coordination Group, NRAs and MS)

Important:ROCs will become separate legal entities, under NRA regulatory oversight,with decision-making powers over TSOs

Changing roles and responsibilities

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Transmission System Operators (TSOs)

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Ownership of storage and provision of ancillary services by TSO

• TSOs shall not be allowed to own, manage or operate energy storage facilities and shall not own or directly or indirectly control assets that provide ancillary services.

• By way of derogation MS may allow TSOs to own, manage or operate such facilities and provide ancillary services if the following conditions are fulfilled: other parties, following an open and transparent tendering procedure, have not expressed their

interest to own, manage or operate such facilities offering storage services to the TSO

such facilities or services are necessary for the TSO to fulfil its obligations and they are not used to sell electricity to the market

the NRA has granted its approval. → The decision shall be notified to ACER and the EC

• The TSO shall perform at regular intervals or at least every five years a public consultation for the required storage services or ancillary in order to assess the potential interest of market parties

ENTSO-E (1/2)

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Deliverables Timing Topic

1. Proposal defining system operation regions covered by regional operational centres

6 months after entry into force ROCs

2. Draft methodology for the European resource adequacy assessment 6 months after entry into force Adequacy

3. Performing the European resource adequacy assessment Yearly assessment Adequacy

4. Draft methodology for calculating:a) the value of lost load;b) the "cost of new entry" for generation or demand response; c) the reliability standard expressed as "expected energy not served"

and the "loss of load expectation"

6 months after entry into force Adequacy

• ENTSO-E should act for the European good and independent from individual national interests or the national interests of transmission system operators

• Significant increase of workload for ENTSO-E: ENTSO-E will need to deliver several deliverables within some very strict deadlines The deliverables are always upon proposition of ENTSO-E Afterwards ACER approval is needed (with the right to amend if its deems necessary)

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ENTSO-E (2/2)

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Deliverables Timing Topic5. Methodology for calculating the maximum entry capacity for cross-border

participation12 months after entry into force CRM

6. Methodology for sharing the revenues 12 months after entry into force CRM

7. Common rules to carry out availability checks 12 months after entry into force CRM

8. Common rules to determine when a non-availability payment 12 months after entry into force CRM

9. Terms of the operation of the registry for eligible capacity providers 12 months after entry into force CRM

10.Common rules to identify capacity eligible to participate 12 months after entry into force CRM

11.Proposal for a network codes in line with the relevant framework guidelines + establishment of a drafting committee

Upon request of the Commission Network codes

12.Proposal for a methodology for identifying the most relevant electricity crisis scenarios in a regional context

2 months after entry into force Risk preparedness

13. Identification of the most relevant crisis situations (on the basis of the approved methodology)

10 months after entry into force Risk preparedness

14.Proposal for a methodology for assessing short-term adequacy, namely seasonal adequacy as well as week-ahead to intraday adequacy,

2 months after entry into force Risk preparedness

National Regulatory Authorities (NRAs)

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New or modified tasks of NRAs:

• Ensuring compliance of TSOs, DSOs, any electricity undertakings and other market participants with their obligations under EU law and the network codes and the guidelines (including implementation through national measures or coordinated regional or Union-wide measures)

• Approving products and procurement process for non-frequency ancillary services

• Ensuring that interconnector capacities are made available to the utmost extent

• Measuring the performance of the TSOs and DSOs in relation to the development of a smart gridthat promotes energy efficiency and the integration of RES (report every 2 years + right to includerecommendations)

• With a view to increasing transparency, NRAs shall make available to market parties the detailed methodology and underlying costs used for the calculation of the relevant network tariffs

• Coordinate in cooperation with other involved authorities the joint oversight of: national, regional and European-wide adequacy assessments

entities performing functions at regional level → ROCs

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ACER: Tasks and responsibilities

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New or modified tasks/responsibilities of ACER

• ACER shall (among others): issue opinions and recommendations addressed to TSOs, ROCs and NEMO’s

In the context of the bidding zone review, ACER shall approve and may request amendments to the methodology and assumptions used

approve and amend:

the proposals for methodologies and calculations related to the European resource adequacy assessment

the proposals for technical specifications for cross-border participation in CRMs

the methodologies for identifying electricity crisis scenarios at a regional level and for the short-term adequacy assessments

• Network codes and guidelines: Where the NCs and GLs provide for the development of proposals for terms and conditions

or methodologies for the implementation (and which require an regulatory approval by all regulatory authorities or by all regulators of the concerned region), these terms and conditions or methodologies shall be submitted for revision and approval to ACER.

Before approving ACER shall revise and amend if necessary.

The procedure for the coordination of regional tasks within ACER shall apply

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Important New tasks for ACER on:• Bidding zones• EU adequacy• XB CRMs• NC and Guidelines• ROCs• …

DSOs: Role and tasks

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Use of flexibility in the distribution system: DSOs shall:

procure the energy it uses to cover energy losses and non-frequency ancillary services (steady state voltage control, fast reactive current injections, inertia and black start capability) → through market based procedures

define standardised market products (for the use of flexibility) in order to improve efficiencies in the operation and development of the distribution system, including local congestion management.

exchange all necessary information and coordinate with TSOs

provide system development plan every two years to NRA (derogation is possible by MS)

Data management • In MS where smart metering systems have been implemented and DSOs are involved in data

management, compliance programmes shall include specific measures in order to exclude discriminatory access to data.

Ownership of storage facilities

• DSOs cannot own, develop, manage or operate energy storage facilities unless: during tendering, other parties did not expressed their interest

necessary for efficient, reliable and secure operation

NRA provided approval

• Every 5-years the NRA provide consultation regarding storage ownership.

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DSO-TSO cooperation

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• DSOs shall cooperate with TSOs in planning and operating their networks.

• In particular, TSOs and DSOs shall exchange all necessary information and data regarding: the performance of generation assets and demand side response, the daily operation of their networks and the long-term planning of network investments

• TSOs and DSOs shall cooperate in order to achieve coordinated access to resources such as distributed generation, energy storage or demand response that may support particular needs of both the distribution system and transmission system.

EU DSO

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• Governance: DSOs which are not part of a vertically integrated undertaking or which are unbundled shall cooperate through an

EU DSO entity = mandatory membership DSOs, who wish to participate in the EU DSO entity shall become registered members of the entity = voluntary

membership Entity should be set up 12 months after entry into force of this Regulation with the administrative support of ACER →

comparable to the set up requirements of ENTSO-E

• The areas of work of the EU DSO entity include: Coordinated operation and planning of transmission and distribution networks;

Integration of all resources embedded in the distribution network

Development of demand response;

Digitalisation of distribution networks including deployment of smart grids and intelligent metering systems;

Data management, cyber security and data protection;

Participation in the elaboration of network codes

• Cooperation with ENTSO-E → The EU DSO entity shall cooperate: on the monitoring of implementation of the NC and GLs → role in drafting of the network codes (either by taking

the lead or represented in the drafting Committee)

on and adopt best practices on the coordinated operation and planning of transmission and distribution systems.

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Network codes: Development process (1/2)

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Definition of new possible network codes:

• The EC is empowered to adopt network codes as delegated acts on: ...

rules regarding harmonised transmission and distribution tariff structures and connection charges

rules for non-frequency ancillary services, including steady state voltage control, fast reactive current injection, inertia, short circuit power and black-start capability;

demand response (including aggregation), energy storage, and demand curtailment rules;

cyber security rules;

rules concerning ROCs

Curtailment of generation and redispatch of generation and demand.

Priority list:

• EC shall, after consulting ACER, the ENTSO-E and the other relevant stakeholders, establish a priority list every three years identifying the areas to be included in the development of network codes.

Network codes: Development process (2/2)

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Lead for drafting the code:• The EC may require the EU DSO (instead of the ENTSO-E) to convene the drafting committee

and submit the proposal for a NC to ACER – to be decided in the priority list of the EC

Process• EC shall request ACER to submit to a non-binding framework guidelines (6 months).

• ACER shall submit a non-binding framework guideline to the EC

• The EC shall request ENTSO-E, or EU DSO, to submit a proposal for a NC, which is in line with the relevant framework guideline, to ACER (not exceeding 12 months).

• ENTSO-E, or EU DSO, shall convene a drafting committee to support it in the development process.

• The drafting committee shall consist of representatives of the ENTSO-, ACER, the EU DSO entity, NEMOs (where needed) and a limited number of the main affected stakeholders.

• ACER shall revise the network code and ensure that the network code is in line with the relevant framework guideline and submit the revised network code to the EC within 6 months In the proposal submitted to the EC, ACER shall take into account the views provided by all involved

parties during the drafting of the proposal led by the ENTSO-E or the EU DSO entity and should formally consult the relevant stakeholders on the version to be submitted to the EC.

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Tariffs

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Charges for access to networks

• Tariffs shall grant appropriate incentives to TSOs and DSOs, over both the short and long term, to increase efficiencies

Congestion income

• Can only be used for: guaranteeing the availability

maintaining or increasing interconnection capacities (investments)

Otherwise the revenues should be placed on a separate internal account line for future use on these purposes

• ACER will propose a methodology that will be approved by the EC.• TSOs will need to provide an annual report on use of congestion income.

Convergence DSO/TSO tariff methodologies

• ACER shall provide a recommendation addressed to NRAs on the progressive convergence of transmission and distribution tariff methodologies → NRAs shall take ACERs recommendation duly into consideration when approving or fixing transmission tariffs or their methodologies.

Concerns resulting from the Winter Package proposals

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Regional operation centres (ROCs)

Limitation on the role of and ownership by TSO

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• 1 ROC per System Operation Region (SOR)

• Transfer of tasks from TSOs to ROCs (including decision making powers)

• Governance and regulatory oversight

• Prohibition for the TSO to own or manage assets that deliver ancillary services (AS)

Concerns resulting from the Winter Package proposals (1/3)

Concerns resulting from the Winter Package proposals (2/3)

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Adequacy: a European adequacy assessment as sole basis for the applicability of CRMs at national level

A changing electricity market design, with new roles and responsibilities

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• Exemption for cross-border participation to a CRM for Strategic Reserve (SR)

• European adequacy assessment should be used as basis for the applicability of CRMs at national level

• Inconsistencies with network codes and guidelines occur throughout the Winter Package proposals

• New roles and tasks appointed to DSOs (demand side management, data management, etc.)

• General rule is that transfer of energy should not be compensated by the aggregator

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Concerns resulting from the Winter Package proposals (3/3)

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Limitation of the use of congestion income

An empowered EU level which will impact national decisions and implementation

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• Congestion income should be used to invest in interconnectors (and the maintenance thereof).

• Several methodologies and procedures will be decided on by ACER at EU level which require national decisions and implementation

This is just the beginning: legislative process

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Winter Package: upcoming legislative process 2016-2019

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Note:Timeline is a best estimate based on currently available information

Q&A

In case of questions, let us know!@Roxanne.vandezande@elia.be