Insights and Positions on Regulated Retail Prices Nektaria Karakatsani, RAE, Greece 2 nd CSEE Energy Policy Forum, Budapest, 30.5.2017
CEER: Fostering energy markets, empowering consumers Independent voice for 35 European energy regulators Promotes competitive, secure and sustainable markets for consumers Champions sound energy regulation with stakeholders, incl. policy-makers Supports NRAs and encourages best practices: Putting consumers at the heart of energy policy: CEER-BEUC 2020 Vision Training Academy Workshops, e.g. international events on security of supply Papers, reports, benchmarking
European Energy Markets: The Challenge of Adaptation Liberalised Markets Renewables Growth Competition Consumer choice Demand-side and prosumer growth at DSO level Dispersed and Variable Low marginal cost Often small-scale at DSO level RES > 28% of EU demand 260 GW of RES, >10 GW DRS New Technology Smart Meters Smart Grids Smart Heating Electric Vehicles Internet of Things Data Management Cybersecurity Digitalisation 3 Ds : Decarbonisation Decentralisation
Electricity price (euro cents/kwh) Gas price (euro cents/kwh) ACER / CEER Market Monitoring Report In 2015, retail energy prices dropped, except for electricity households. Average level: 20.78 cents/kwh, 1.7% yearly increase (28% since 2008). Electricity and Gas post-tax price trends for household and industrial consumers in Europe over 2008-2015 (euro cents/kwh) 24 8 22 20 18 16 14 12 7 6 5 4 3 10 2008 2009 2010 2011 2012 2013 2014 2015 Electricity HH prices Electricity IND prices 10 11 12 13 14 15 16 17 18 19 20 21 Gas HH prices Gas 012345678 IND prices 2008201020122014 2 4
Share of non-contestable charges keeps increasing RES induce lower wholesale prices, feeding into consumer bills. But, subsidies and other levies have risen, squeezing competition effects. Better market functioning being partially offset by govermental interventions. Household Energy Bill Composition, ACER/CEER MMR 5
NHH Energy Retail in Europe Several retail markets still price regulated. In these cases, the competition index is lower on average. More choice for consumers where prices have been liberalized for longer. We recommend price deregulation once the market is competitive. Malta We support facilitating new supplier entry by reducing barriers. We advocate consumer protection and empowerment. Cyprus NH H Malta Non-regulated prices Cyprus Regulated prices for the household segment Regulated prices for the entire retail market NHH NH H Malta Non-regulated pric Regulated prices f Regulated prices f
Regulated Retail Prices: Facts and Developments Definition: Prices subject to regulation or control by public authorities (e.g. NRAs, governments), as opposed to being determined exclusively by supply and demand. Condition: If they apply to consumers that are not defined as vulnerable. Different forms: Setting or approving prices, standardization of prices, or combinations. Heterogeneous methods. Differentiation: A clear roadmap or not for phasing out regulated prices. 12 Countries (2015): households - Bulgaria, Cyprus, Denmark, France, Hungary, Lithuania, Malta, Poland, Portugal, Romania, Slovakia and Spain. 9 countries: industrial market segments as well. EU households under regulated prices decreased from 54% in 2008 to 35% in 2015. This mainly reflects progressive liberalization of household segment in Spain (- 48%), Portugal (- 65%) and Italy (-100%).
R Price Regulation: Diverse conditions, including the presence or not of a phase-out roadmap Electricity Gas Regulated prices for the entire retail market Regulated prices for the household segment Regulated prices for the entire retail market with roadmap for their removal Regulated prices for the household segment with roadmap for their removal Non-regulated prices with (potential) ex-ante intervention Non-regulated prices
Despite extension of regulated transitory tariffs until 2017, The switching rates that emerged are amongst the highest in EU (27%). Even if switching to non-regulated prices is possible, most households remain under regulated prices 100% in Bulgaria, Lithuania, Romania and Slovakia. Even if regulated prices apply for less than 95% of household consumers (as in Denmark, France, Portugal and Spain), retail markets exhibit: higher concentration ratios fewer average net entries fewer offers per supplier available in capital cities higher average annual mark-ups. The Portuguese case: A success story Introduction of a phase-out roadmap. Evidence from Competition Indicators and Case Studies The regulator contributed through various measures aimed at: removing barriers to entry, improving competition, simplifying switching and increasing transparency.
Positions on Regulated Retail Prices European Commission: Obstacle to demand-side participation and retail competition, if not limited in time or applied to exceptional cases based on socio-economic criteria (Energy Union Communication). End-user prices below energy sourcing costs may seem attractive to consumers but only in the short term. Such a policy is a barrier to market entry, and hence, to competition. In markets with persistent negative mark-ups, market participants do not receive the right signals. Negative impacts: For consumers: Barrier for demand response, flexibility provision. For investment: Uncertainty about suppliers return in the long run.
ARCI score Energy Retail in Europe: Diversity in the ARCI score Retail competition and consumer empowerment are still mixed across EU. Industry obtains more benefits than households. ACER Retail Competition Index, Electricity Households, ACER/CEER MMR 9 8 7 6 5 4 3 2 1 0 FI SE GB NO NL CY BG GR 2014 2015 11
Energy Retail in Europe: Diversity in Switching Times Average change of energy supplier time is 14 working days ACER/CEER vision of 24 hours by 2025 Change of Supplier Time, ACER/CEER MMR Report 12
Clean Energy Package Regulators' Overview Paper of 23 January 2017 broadly welcomed the Clean Energy package, highlighting issues for consideration Regulatory White Papers being published on specific wholesale, network and consumer topics 13
Energy Regulators Initial Reactions Maintain and enhance security of supply. Promote competition and avoid cross-subsidies. Promote cost efficiency and sectoral synergies in delivering maximum benefits to consumers. Seven Fundamental Principles Ensure that EU legislation allows flexibility for For a Wellfunctioning innovation and national/regional developments. Energy Consistency with 3 rd Package and NCs implementation. Union Avoid over-regulation, so as not to stifle markets Seven Energy and overwhelm consumers. Union Ensure robust European regulatory system.
Key CEER Retail Positions on Clean Energy Package 24-hour supplier switching process by 2025 if CBA is positive Keep required consumer bill information simple Mandatory sector-specific certification of CTs not recommended We support enabling suppliers to offer dynamic tariffs - but requiring them to be provided could harm retail competition Maintain a flexible approach to Smart Meter roll-out Data interoperability more important for retail functioning than common data standard
/MWh The Dynamics of Wholesale Prices in Greece, Jan 2014 - Mar 2017 80 74,6 SMP Monthly Variation 70 60 50 40 65,6 65,7 63,4 62,5 61,4 60,4 56,9 56,2 56,3 57,6 56,3 53,2 54,6 50,2 49,5 51,9 53,2 51,3 47,8 49,6 50,2 50,9 48,8 48,2 48,0 49,6 51,1 46,2 43,9 40,9 41,2 41,3 42,6 43,2 43,1 39,0 39,1 39,9 30 20 10 0 January February March April May June July August September October November December 2014 2015 2016 2017
Still, consumers were not seeing the effect of wholesale price drop until June 2016, i.e. until legislation on retail reforms (NOME) was introduced. 180 160 140 120 100 80 60 40 20 0 114,23 134,15 Evolution of Retail Tarrifs: Households, 1601-2000 kwh 157,27 164,09 164,09 162,44 2011 2012 2013 2014 2015 2016
NOME Auctions Remedy for asymmetry due to PPC s exclusive access to lignite and hydro. Auctions for alternative suppliers (Incumbent s retail market share: 87.5%). In June 2016, RAE proposed the reserve price (37.37 /MWh), which was adopted via a ministerial decision. RAE approves quantities, products, schedule (quarterly basis, yearly products). 1 st auction: 25 October 2016, 460 MWh/h (highest bid: 37.5 /MWh) 2 nd auction: 31 January 2017, 145 MWh/h (highest bid: 41.14 /MWh) 3 rd auction: 26 April 2017, 145 MWh/h (highest bid: 40.09 /MWh) Benefits should be balanced across consumer categories. Ex-post monitoring of retail market. Competitive charges and revenues per consumer category are submitted to RAE and assessed on a quarterly basis.
2011 2012 2013 2014 2015 2016 July - Consistent Customers December - Consistent Customers NOME Impact on Retail Tariffs Competitive Charges for the Average Consumer 72,7 81,5 94,6 94,6 94,6 94,6 Inelastic competitive charges, not reflecting the drop in wholesale market costs ~1 bil Non-paying bills (2.7 bil arrears) deters the reduction of tariffs for those that pay 15% discount for good payers by Incumbent 80,4 75,5 70,4 68, 0 Offers of Alternative Suppliers