Martin Šik, CEER Vice President

EaP Workshop, Budapest, 14 June 2018

CEER reflection: Role of and challenges

for NRAs resulting from the 3rd energy

package and the clean energy package

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Agenda

• Overview of CEER

• Gas

• Electricity

• Sector coupling

• Regulators’ views on Clean Energy package

CEER: Fostering energy markets,

empowering consumers • Independent voice for 36 European energy

regulators

• Promotes competitive, secure and

sustainable markets for consumers

• Champions sound energy regulation with

policy-makers and stakeholders

• Supports NRAs and encourages best

practices:

► Training Academy

► Workshops

► Papers, reports, benchmarking

► Works with ACER

Putting consumers at the heart of

energy policy:

CEER-BEUC 2020 Vision

Members from: 27 EU Member States

Iceland

Norway

Observers from:

Switzerland

Former Yugoslav Republic of Macedonia

Montenegro

Kosovo

Bosnia and Herzegovina

Moldova

Georgia 4

CEER Members and Observers

CEER’s 3D Strategy for 2019 to 2021

D3: Dynamic Regulation

Challenges Manage penetration of renewables in

the market impact on network designs,

technical functioning, and adequate

security of supply

Steer efficient investment low-price

wholesale energy markets, market-

based approach to best manage risk.

Cybersecurity identify and

manage the potentially increased

threat to security of supply

associated with digitalisation

(and decentralisation)

Opportunities Adequate system resilience and security of

supply reduction of consumption and

diversification of energy sources

Management of peak demand and its

consequences on network investment.

New business models flexible

energy system, leveraging an

information technology driven

energy market, for example smart

grids, new services to consumers,

more internet-based business

models.

People’s involvement in the energy system

through local energy production

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CEER Work Programme 2019

• Legislative and policy developments, including the Clean Energy

Package

• Future role of gas (drawing on FROG report) in the market and how

regulation should develop to assist necessary innovation.

• Distribution Systems

► How digitalisation and decarbonisation will affect distribution networks and

their operation, including flexibility

► How regulation could develop in a dynamic way to keep pace with the

changing role of DSOs

…Based on our 3D strategy | join our public consultation

Key Areas related to SoS

CEER on Security of Supply

• European energy regulators promote market-based

solution for security of supply Well developed market

can deliver desired security of supply at the least cost

► Let energy follow price signals as long as possible before

resorting to interventions

► Full implementation of the 3rd Package and Network

Codes completion of the Internal Energy Market is a

crucial basis for good level security of supply in the EU

• Coordination and joint planning at least at a regional

level

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CEER Position on Solidarity

• CEER provides guidelines focussing on the organisation of

the solidarity mechanism, the price setting mechanism and

the reallocation of gas volumes for solidarity

►Solidarity kicks in when the gas is not buyable anymore

►No need for new entities to organise solidarity

►Solidarity gas volumes cannot be predefined

►European gas market is the reference market

►Gas price of last gas trade as reference for solidarity gas

►Non-used transmission capacity for solidarity

►Fair compensation to avoid strategic behaviour 8

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Sector coupling…

• Whole system approach (WSA) – CEER believes this approach can be

fruitfully used in the electricity and gas sectors

• TSOs and DSOs as well as other market actors must be involved

• However, DSOs must remain as a neutral market facilitator

• Several features to be considered:

► The WSA is based on a wider vision of the network system as part of the entire value

chain

► Societal net benefit is the main criteria of the WSA

► WSA supports an efficient “system transformation” due to distributed resources

► WSA requires NRAs to take into consideration life - cycle costs

► WSA helps in minimising inefficiencies

• The role of natural gas in decarbonisation efforts

… but different markets face

different issues Electricity Gas

Local generation and consumption Most gas is imported and transported across borders

Cross-border capacity used for optimization purposes (market coupling) Cross-border capacity key for supplying final customers

Highly meshed networks – little control over physical flows More linear networks where gas flows along well identified paths

Limited storage capacity; production and demand have to match at all

times

Can be stored in large volumes – substantial storage capacity already in

place

Exchange trading, TSO more active role in balancing OTC and exchange trading, TSO residual balancer

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Issues

Challenges for system operation due to increasingly intermittent

renewable electricity production

Challenges for asset management and revenue recovery in context of

non increasing gas consumption

Missing money and capacity mechanisms Decreasing average network usage, but increasing peak demand +

supply diversification for security of supply requires infrastructure

investment in challenging climate

Network congestion – price spreads No congestion – price spreads reducing and converging

Different solutions are needed !

► Increased integration in the wholesale market

► Need for more volatile prices

► Conventional power plant investment

• System adequacy & capacity remuneration mechanisms:

► To address residual resource adequacy concerns in Member States

► A key element is a coordinated adequacy assessment for ensuring SoS

► Should provide a clear, transparent and credible framework to the market and for investors and

should allow cross-border participation

► Future compliance of existing mechanisms 11

Electricity challenges

• Effective implementation of the existing legal and regulatory framework

• Congestion management and bidding zones – suboptimal

• Challenges of increased penetration of renewables

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Centralised or Decentralised?

What we know

• Distribution is increasingly important with decentralised RES,

more demand-side, electric vehicles…

• Desire to enable more active consumers (prosumers)

What we don’t know

• The future. Who can accurately predict fossil fuel prices or new

technology?

Thoughts

• Decentralised generation should be facilitated, based on the

economics

• Things can change and change again!

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Clean Energy Package

• Energy regulators broadly welcomed the Clean Energy package

• Our Overview Paper of January 2017 highlighted key issues; further

developed in a series of White Papers

Key CEER Clean Energy

Positions

Electricity Market Design

All participants should have balance responsibility

Allow scarcity pricing - remove price restrictions; rise to value of lost

load (VOLL) as determined by NRAs

No minimum interconnector target and allow congestion income to

reduce domestic network tariffs

Maintain flexibility for non-frequency ancillary services

Concern in relation to some bidding zone process/issues and

capacity allocation and congestion management

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Networks

Distribution is increasingly important with decentralised RES, more demand-

side, EVs…

DSO is a neutral market facilitator: storage & EV charging are competitive

activities

Maintain flexible local solutions rather than EU network tariff harmonisation /

Network Code

Better planning and coordination:

TSOs/DSOs to consult and take responsibility for network plans

Regulatory discretion is better than exemption for plans of small and integrated DSOs

Have requirement for EU DSO and ENTSO-E to coordinate

TYNDP and NDPs subject to regulatory approval

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Key CEER Clean Energy

Positions

www.ceer.eu