Empowered consumer in the energy market

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1 Empowered consumer in the energy market Antonio José Coutinho Chairman of EURELECTRIC Retail Customers Committee Member of the Executive Board, EDP Commercial Madrid, 31 st May 2016 Will the Commission s New Deal for Energy Consumers pave the way to their empowerment? Price rewarding flexible consumption, dynamic pricing Reducing energy bills through self-generation and consumption Intermediation and collective schemes Data management, comparison of offers, energy poverty Source: European Commission 2 1

2 Regulated prices are still in place in 14 Member States and will 72% of EU customers in 17 countries really have smart meters by 2020? Source: ACER CEER Source: Joint Research Centre of the European Commission database 3 A standard template for the first page of the energy bill will not enhance but hamper competition Heat map based on eye-tracking and think-aloud 4 2

3 Retailers are already active in distributed energy, including storage 5 Prices provide key incentives to customers 3

4 Customer bills increase due to policy cost & taxes (the WEDGE ) Source: EURELECTRIC, In addition to the WEDGE, there is one more issue All these charges are decided upon by regulators or policymakers and are passed on to suppliers who convey them to customers In liberalised retail markets, retailers package wholesale prices and supply costs to customers 8 4

5 the costs underlying the policy costs and network charges are largely independent from the volume of electricity consumed by customers Charge structure in the bill mostly kwh Underlying costs mostly kw mostly kwh fiscal nature 9 Suppliers mostly pass-through, i.e. they cannot adapt the structure of these charges within their price offers kwh kwh kwh 10 5

6 Recovery of total system costs example of Spain Source: Adapted from Boston Consulting Group based on CNMC, REE, BOE; Both the WEDGE and the MISMATCH create system inefficiencies Electrification Social welfare losses due to distorted investment signals Flexibility 12 6

7 Electrification of heating and cooling is a great opportunity on the way to decarbonisation & demand side flexibility Heating and cooling represents 80% of final energy demand in the residential sector Source: EU Energy, Transport and GHG Emissions Trends to 2050 Reference Scenario 2013, European Commission High policy support costs & taxes in consumers bills hamper electricity s competitiveness against other energy carriers Example of Spain Source: Endesa,

8 With the rise of new technologies at the consumer end, the current charging structure creates artificial incentives Network and policy support paid per each customer under current charging structure defined by the NRA Example based on real figures of a leading European supplier Network and policy support that should be paid per each customer if the charging structure reflected the underlying costs 15 If the cost to price mismatch is not adequately addressed, retail unit prices will keep raising Higher retail prices Increased incentives for selfconsumption & energy efficiency Reduced demand from the grid system Increased pressure to recover total system costs 16 8

9 How to remove regulatory inefficiencies that hamper cost-effective decarbonisation and increase in demand side flexibility? 1. Bringing down the policy support costs of the electricity bill and financing decarbonisation in a less distortive way 2. Charging regulated costs in an efficient way, progressively removing cross-subsidisation: Tiered approach and different levels of granularity 3. Valuing electricity injected to the grid by prosumers at its real value, at the level playing field Free up the bill of policy support cost to minimise societal losses Source: Dansk Energi 18 9

10 2a. Tiered approach as a way to evolve regulated charges to better reflect the underlying cost Example based on real figures of a leading European supplier 19 2b. At the same time, retailers should have more freedom to innovate by packaging regulated charges within their offerings Source: EURELECTRIC,

11 THANK YOU! 21 11