EU clean energy

Europe’s new electricity market design moves closer

The new Electricity Regulation and Directive have been approved by the European parliament bringing their implementation closer.
Published: Wed 03 Apr 2019

Europe’s Clean Energy package is finally moving into its closing stages ahead of widespread implementation with its approval by the European parliament. With the further administrative procedures required, the date of application for the Electricity Regulation is 1 January 2020 with the Directive required to be transposed into member states’ national laws within 18 months.

The components newly passed include the new electricity market regulation and electricity market directive as well as regulations on risk preparedness and the Agency for the Cooperation of Energy Regulators (ACER).

With its intent to evolve electricity markets towards a decentralised consumer-centric design and with the support from national regulators, the package should accelerate developments at all levels of energy delivery and use from generation to services behind the meter.

“Today's approval of the new electricity market design will make energy markets more flexible and facilitate the integration of a greater share of renewable energy,” promises Commissioner for Climate Action and Energy Miguel Arias Cañete. “An integrated EU energy market is the most cost-effective way to ensure secure and affordable supplies to all EU citizens.”

The Governance of the Energy Union Regulation, the revised Energy Efficiency Directive, the revised Renewable Energy Directive and the Energy Performance of Buildings Directive have already entered into force last year.

EU electricity market

The preamble of the electricity directive and regulation states the  initiative aims to adapt the current market rules to new market realities, by allowing electricity to move freely to where it is most needed when it is most needed via undistorted price signals, whilst empowering consumers, reaping maximum benefits for society from cross-border competition and providing the right signals and incentives to drive the necessary investments to decarbonise the energy system. It will also give priority to energy efficiency solutions and support the goal of becoming a world leader in energy production from renewable energy sources, thus contributing to the Union's target to create jobs, growth and attract investments.

The regulation on the internal electricity market sets out the key principles to be respected by national energy legislation, as well as the main legal principles for electricity trading rules within different trading timeframes (balancing, intraday, day-ahead and forward markets), including principles for price formation.

The Directive sets out the common rules for the market, based on the general principle that member states have to ensure that the EU electricity market is “competitive, consumer-centred, flexible and non-discriminatory”.

Electricity market rules

Among the provisions are that consumers will have access to smart meters, dynamic pricing and the option to switch provider at no cost within a maximum period of three weeks (and 24 hours by 2026).

On energy poverty, member states will be able to regulate prices temporarily to assist and protect energy-poor or vulnerable households. However, social security systems should be the primary means of addressing this.

Increased cross border flow of electricity is envisaged with the new rules allowing at least 70% of trade capacity to cross borders freely, making it easier to trade renewable energy and support efforts to reach the goal of 32% renewables by 2030.

The rules are also set to phase out state aid to fossil fuels with stricter limits for member states subsidising power stations on stand-by for demand peaks. The measures will apply to all new power plants from the date on which the regulation enters into force and to existing ones from 2025.

Electricity blackouts is another issue addressed and member states will be obliged to draft national plans to assess the risk of shortages and cooperate at regional level. Member states receiving assistance from other EU countries should ultimately bear all reasonable costs associated with this.

Finally, regulation also comes under the spotlight with more tasks and power given to ACER. The organisation is given more responsibility in elaborating and submitting the final proposal for a network code to the Commission. The proposal also includes a formal place for distribution system operators to be represented at EU level, notably in the development of network code proposals. For tasks in a regional context concerning only a limited number of national regulators, a regional decision-making process is introduced.

The next and final steps for the package is formal approval by the Council of Ministers of the EU, after which they will be published in the official journal when they will enter into force.