Clean Energy for all Europeans

Clean Energy for all Europeans EC s Winter Package - 30 November 2016 Users Group Plenary meeting 30 March 2017 Towards an European Energy Union Jean-Claude Juncker President of the European Commission Maroš Šefčovič - Vice-President Energy Union Miguel Arias Cañete - Commissioner Climate Action & Energy 2 1

Agenda 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 3 Winter Package: What are we talking about? 2

Towards a Energy Union: European Commission initiatives 2014-2016 5 Clean Energy for all Europeans Legislative Package 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) 6 3

Future situation (start 2019) Actual situation GHG Directive 2003/87/EC (ETS) Decision No 406/2009/EC Effort Sharing GHG 17.07. 15 Proposal Directive (ETS) 20.07. 16 Proposal Regulation Effort Sharing NEW 2020 Targets Third Energy Package SoS RES Directive 2009/28/EC RED II 30.11. 16 Proposal for Directive Remark: Certain provisions will be moved Energy Efficiency Directive 2012/27 EED II 30.11. 16 Proposal for Directive Remark: Certain provisions will be moved Governance of the Energy Union Proposal for Regulation 30.11. 16 Electricity Directive: Directive 2009/72EC Electricity Directive 30.11. 16 Proposal for Directive ACER Regulation: Regulation (EC) No 713/2009 2030 Targets New Electricity Market Design ACER Regulation 30.11. 16 Proposal for Regulation Electricity Regulation: Regulation (EC) No 714/2009 Electricity Regulation 30.11. 16 Proposal for Regulation EC Sector Inquiry report on CRMs (DG COMP) Directive 2005/89/EC Risk Preparedness 30.11. 16 Proposal for Regulation NEW Winter Package = Clean energy for all European EE Buildings Proposal for Directive 30.11. 16 Eco-design Cooling and heating Proposal for Regulation 30.11. 16 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 7 A new electricity market design 4

Market distortions: price restrictions 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. 9 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 10 5

Bidding zones 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 Capacity calculations 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. 11 Balancing 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. 12 6

Demand response and the role of aggregators 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. 13 A European approach for Adequacy 7

A European resource adequacy assessment Important: EU adequacy assessment will become binding for MS and as such replace national or regional assessments 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 15 Definition of a reliability standard 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. 16 8

Capacity Remuneration Mechanisms (CRMs) 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 17 Introducing Regional Operation Centres (ROCs) 9

Geographical scope of the ROCs 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). 19 Tasks of ROCs Enlargement of the tasks to be performed by the ROCs Decision-making powers Recommendations If outsourced to the ROCs coordinated capacity calculation creation of common system models identification of regional crisis scenarios 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 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 post-operation and post-disturbances analysis and reporting 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 between transmission system operators training and certification tasks related to the seasonal adequacy outlooks 20 10

ROCs - Governance Important: ROCs will become separate legal entities, under NRA regulatory oversight, with decision-making powers over TSOs 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) 21 Changing roles and responsibilities 11

Transmission System Operators (TSOs) 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 23 ENTSO-E (1/2) 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) Deliverables Timing Topic 1. Proposal defining system operation regions covered by regional operational 6 months after entry into force ROCs centres 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 24 12

ENTSO-E (2/2) Deliverables Timing Topic 5. Methodology for calculating the maximum entry capacity for cross-border 12 months after entry into force CRM participation 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 12.Proposal for a methodology for identifying the most relevant electricity crisis scenarios in a regional context 13.Identification of the most relevant crisis situations (on the basis of the approved methodology) 14.Proposal for a methodology for assessing short-term adequacy, namely seasonal adequacy as well as week-ahead to intraday adequacy, Upon request of the Commission Network codes 2 months after entry into force Risk preparedness 10 months after entry into force Risk preparedness 2 months after entry into force Risk preparedness 25 National Regulatory Authorities (NRAs) 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 grid that promotes energy efficiency and the integration of RES (report every 2 years + right to include recommendations) 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 26 13

ACER: Tasks and responsibilities Important New tasks for ACER on: Bidding zones EU adequacy XB CRMs NC and Guidelines ROCs 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. 27 DSOs: Role and tasks 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. 28 14

DSO-TSO cooperation 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. 29 EU DSO 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. 30 15

Network codes: Development process (1/2) 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. 31 Network codes: Development process (2/2) 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. 32 16

Tariffs 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. 33 Concerns resulting from the Winter Package proposals 17

Concerns resulting from the Winter Package proposals (1/3) 1 Regional operation centres (ROCs) 1 ROC per System Operation Region (SOR) Transfer of tasks from TSOs to ROCs (including decision making powers) Governance and regulatory oversight 2 Limitation on the role of and ownership by TSO Prohibition for the TSO to own or manage assets that deliver ancillary services (AS) 35 Concerns resulting from the Winter Package proposals (2/3) 3 Adequacy: a European adequacy assessment as sole basis for the applicability of CRMs at national level European adequacy assessment should be used as basis for the applicability of CRMs at national level Exemption for cross-border participation to a CRM for Strategic Reserve (SR) 4 A changing electricity market design, with new roles and responsibilities 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 36 18

Concerns resulting from the Winter Package proposals (3/3) 5 Limitation of the use of congestion income Congestion income should be used to invest in interconnectors (and the maintenance thereof). 6 An empowered EU level which will impact national decisions and implementation Several methodologies and procedures will be decided on by ACER at EU level which require national decisions and implementation 37 This is just the beginning: legislative process 19

Winter Package: upcoming legislative process 2016-2019 Note: Timeline is a best estimate based on currently available information 39 Q&A In case of questions, let us know! @Roxanne.vandezande@elia.be 20