Energy

Commission publishes new market design rules proposal

Commission publishes new market design rules proposal

Thursday, 01 December 2016

On 30 November 2016 the European Commission released a set of proposals on a new rule book for the EU energy market. The proposed reform will enable a clean energy transition to take place, at the best value for consumers.

The rules will allow the energy system to be ready for the rising share in variable renewable energy: by 2030 half of our energy needs will be met by renewables, up from 29% in 2014. Today's energy market rules, however, were designed to meet the needs of yesterday's energy systems, which were characterised by centralised fossil fuel plants with minimal levels of consumer participation.

The ‘rulebook’ sets out general principles and technical details for public authorities and energy market participants, as well as specifying the rights and responsibilities among different energy players.

Through a number of past legislative packages, wholesale energy markets have already seen improvements, as competition has increased and flows of electricity across borders have risen. However, markets are not well adapted for integrating large shares of renewable energy, many EU countries still think of energy supply security on a national level only, while electricity does not always flow to where it is needed most.

On retail markets, the time is ripe for a rise in consumer participation. Recent progress in digital and renewable technologies allows consumers to better control their energy consumption and to produce their own renewable electricity, both of which open new opportunities for savings.

Integrated markets and systems also require EU countries to co-operate more closely when preventing and managing crisis situations.  Up until now, crisis measures are often taken at the national level, taking account of the national context only, and this can undermine market function, entail risks for others and drive up the energy bill. 

The new rules will also help energy supply security strategies work across borders, as well as put consumers at the heart of the energy transition – a key goal of the EU’s Energy Union strategy.

On wholesale markets, the new rules include:

Discriminatory rules will be phased out to allow the electricity market to become a level-playing field for all generation technologies, and all energy companies will have the same obligations in ensuring the grid is balanced. Measures are taken to invest in grid bottlenecks and to use existing networks better. Moreover, short-term markets will be made more flexible and responsive to the rise in renewable energies while demand response – when consumers can make decisions to switch off heating and be paid for doing so, for example – will be improved.

Overall the improved market will create a better investment climate, reducing the need for government interventions to support investments, such as by capacity remuneration mechanisms.

Retail electricity prices will also be increasingly market-based as retail price regulation is phased out. However, social tariffs meeting certain requirements, and price regulation in emergency situations, will still be permitted.

Every customer will be able to request a smart meter and a dynamic price contract reflecting electricity price fluctuations on the spot or day-ahead markets. Furthermore, all EU electricity consumers will get free access to at least one certified energy comparison tool meeting minimum standards. Consumers will also benefit from clearer billing as suppliers will have to prominently display basic information on every energy bill. Finally, charges for switching suppliers will be eliminated to allow greater consumer choice.

National governments will have to ensure that consumers can generate and store or consume their own electricity or sell it back to the grid.  Every consumer will be able to offer demand-response and receive remuneration directly or through aggregators. Energy poverty will be measured at the national level and its root causes addressed through energy efficiency measures.

On the prevention and management of crisis situations, the new rules will set out common methods for identifying and assessing risks, and require EU countries to draw up risk preparedness plans in a regional context. They also include an 'emergency rulebook', requiring EU countries to inform each other of upcoming crisis situations, to keep markets open as long as possible, and to co-operate with each other in a spirit of solidarity with a view to ensuring that the remaining electricity goes there where it is most needed.  

The new rules on market design are part of a package of measures launched by the European Commission on 30 November.

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