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EU Energy politics at its best – and worst

By Dave Elliott

A 50% renewable electricity target for 2030 and a radical free market shake up – that’s what is on the cards from the latest EU proposals, with consumers empowered to self-generate and sell power themselves. The European Commission’s recent proposed energy policy changes aim to keep the EU competitive as the clean energy transition changes global energy markets. It also proposes new approaches to empowering and informing consumers, enabling them to self-consume renewable electricity without facing undue restrictions, and ensuring that they are remunerated for the electricity they feed into the grid. It also ‘recognizes energy communities and facilitates their participation in the market’. The EC’s proposal has all still to be agreed, but it’s pretty far reaching, with actions to accelerate clean energy innovation, and encourage public and private investment, and a commitment ‘to modernising the EU’s economy and delivering on jobs and growth for all European citizens’. As part of that there is a strong commitment to renewables: ‘Renewable energy is currently the only decarbonisation option in the power sector which is being deployed at a rate that is close to what is required under long-term scenarios of the International Energy Agency (IEA) to attain the 2◦C target’. That’s in line with the already existing policy to cut CO2 emissions by at least 40% by 2030, with renewables supplying 27% of EU energy and energy efficiency increased by 27%, now proposed to be raised to 30%.

Fleshing out the details, the EC has issued a draft revised Renewable Energy Directive, offering an adjusted framework for renewable energy development up to 2030. There had been national level targets set for renewables for 2020, but that was resisted (by the UK amongst others) for 2030, with only an EU-level binding target set – 27%. In order to achieved that ‘on time and in a cost effective way’ the EC says that, ‘the 2020 national targets will be established as baseline to build on the progress achieved with the current framework. Member States will not be allowed to go below their 2020 targets from 2021 onwards’.  So no backsliding will be allowed, but it’s not clear how a move to higher levels will be achieved.

That clearly is the intent, for all sectors. The EC says it wants to create an enabling framework for further deployment of renewables in the electricity sector, aiming for a 50% contribution by 2030, and also looks to ‘mainstreaming renewables in the heating and cooling sector’ and to decarbonising and diversifying the transport sector. Bioenergy is important in that sector, and for heating, although potentially problematic environmentally. However, the EC proposals strengthen the sustainability criteria – biofuels must create 70% fewer emissions than fossil fuels and solid biomass and biogas used in large CHP plant 80% less by 2021 and 85% less by 2026.

It’s an interesting package of proposals, so far not commented on much in the media, apart from this reaction to the new biomass rules, which were still not seen as tight enough.

However, most of the other parts of the renewables plan seem good, although some will be politically tricky. That’s even more the case when it comes to the EC’s market design proposals, which seem designed to appease the right, and may raise some hackles from the left. It’s worth looking at them in some detail.  At the wholesale level, ‘short term markets will be made overall more flexible and responsive to the rise in variable renewable generation, wholesale price caps will be removed, making prices reflect the real value of electricity in time and location (scarcity pricing) in order to drive investments towards the flexible assets most needed for the system, including demand-response and storage’. 

That all sounds reasonable enough, except that it means energy prices could continually vary. That may not matter to many consumers, indeed some may be able to take advantage of cheap deals, including for any power they can self-generate and sell. That will be possible since consumers and communities ‘will be empowered to actively participate in the electricity market and generate their own electricity, consume it or sell it back to the market while taking into account the costs and benefits for the system as a whole. Every consumer will be able to offer demand-response and receive remuneration, directly or through aggregators. Dynamic electricity price contracts reflecting the changing prices on the spot or day-ahead markets will allow consumers to respond to price signals and actively manage their consumption.’

However, there are some issues with what is in effect a shift to a free market. The EC says that these changes will necessitate ‘the removal of retail price regulation while ensuring the full and appropriate protection of vulnerable consumers’. So, mostly, markets will rule, although targeted price regulation such as social tariffs will be permitted in the interim. But the aim is to ensure that future electricity markets will be able to send clear price signals and will be free of any public intervention, unless with duly justified exceptions, notably to protect vulnerable and energy poor consumers’. Can free markets really be tamed sufficiently, when the aim seems to be to get away from regulation?

There may also be issues with its proposal that ‘dispatch rules will be adapted to the new market reality, creating a level-playing field for larger generation capacities’. That it seems means an end to the priority use of renewables – the ‘must take’ rule that, along with the low marginal costs of renewables, has made it hard for fossil companies to operate profitably. Though there is a sop: ‘Rules on priority dispatch will however be maintained for small-scale renewables and emerging technologies to ensure their development’. But will that be enough to allow renewables to prosper?

Finally, what about balancing, grid congestion and curtailment of renewable surpluses? The EC says ‘Grid bottlenecks on the borders will be minimized, among other things by re-investing congestion revenues into the grid’. So it won’t be an entirely free market – there will be interventions and redistributions. But it will be an EU-wide approach, with, crucially, a capacity market set up to ensure proper attention to the provision of sufficient balancing capacity on an EU-wide basis, so as to take in cross-border exchange options, rather than, as at present, operating suboptimally, just on a national basis.

The latter point seems aimed partly at the UK, and its capacity market subsidies for existing fossil and nuclear plants, rather than for new more flexible supply and demand management and balancing options, including new interconnector links.  The UK approach on this has certainly ruffled some EC feathers, as witness this blast on support for fossil plants from the EU energy commissioner.

However, the UK may well be out of it all soon, so maybe this doesn’t matter. But the ponderous EU system will grind through the EC’s proposals, via MEP debates and votes at the euro-parliament, and then decisions by the Council of Minsters, a process which for the moment the UK is still (just about) party to. That includes the development of the pan-EU Energy Union concept, with a unified energy market and integrated policies, which the EC sees as fundamental to achieving its energy and climate targets:These objectives can only be achieved through a set of coherent and coordinated actions – legislative and non- legislative – at EU and national level. Designing and managing such a broad set of diverse actions requires the Energy Union to establish robust Governance.

For good or ill, it does not seem likely that the UK will play much of a role in this in the years ahead. We will be on the outside, or looking at it more positively, we will be facing outside, although there have been indications that the UK government would prefer to stay inside the EU Emission Trading System. Trying to have its cake and eat it…

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