Will Rules, Regulation systems, Financial factors reshape the energy sector? Medelec Annual Meeting in Bahrain

1. Florence School of Regulation
& the European Regulation Frame
Prof. Jean-Michel Glachant
Director

2. Overview
2
•1 My Florence School…
•2 Our European ‘Single Market’ Frame...
•3 Electricity as a sector specific European Regulation ...

3. Overview
3
•1 My Florence School…
An interactive Triangle School
Training < | > Policy Dialogue < | > Applied Research

4. • A unique and relevant forum for
Florence School of Regulation (FSR)
Founded in 2004 as a ‘Centre of Excellence’ for *independent discussion and
**dissemination of knowledge in European regulation and policy.
25 people full time; 25 people part-time; 2.5 million Euro / year
Regulators Policy Makers Academics Industry
Unique Forum

5. FSR Energy Model

6. FSR Research

7. FSR Training

8. FSR Energy Areas
FSR
Global
Program
Electricity
Gas
Universal
Access to
Energy
Energy
Innovation

9. Pillar 1: FSR Global Training
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10. FSR Global Training – New & Innovative Onlines
Upcoming Online Training:
+ Regulatory Delivery
(for Brazilian regulators)
+ EU Clean Energy Transition
(for ENTSO-E)
Launching March 2019

11. 11
FSR Global Forum March 2019: dialogue & research already
started in September Washington DC (iDB), in India this month
• Providing electricity access in the global north: Energy poverty & Local energy communities
• Providing electricity access in the global south: Providing first time access & Providing firm and
reliable access
Universal access to energy
• Integration of EVs in to the power market
Electric vehicles
• Integration of flexibility through digitisation
Digitalisation
• Network and market integration in the global north
• Network and market integration in the global south
Regionalisation of electricity markets
• Electrifying the economy through cross-sector nexus
Smart Homes & Smart Cities
• Integration of batteries in to the power market
Electricity storage

12. Contact
Swetha RaviKumar Bhagwat
Swetha.Bhagwat@EUI.eu
+39 55 4685869

13. Overview
13
•1 My Florence School…
An interactive Triangle
Training < | > Policy Dialogue < | > Applied Research
•2 Our European Single Market Frame...
An Internal Market built (step by step) in 4 directions
Goods + Services + Capital (and Euro) + People (and Labour)

14. European Single Market Frame
14
A 50 years ‘‘modular’’ journey, made step by step...
•1) Opening our EU countries borders for goods…
Rome Treaty (1957) Common Market for goods (6 EU countries)
Took us11 years to eliminate tax & non-tax barriers between us, and to
coordinate our customs with non-EU: 1968 Custom Union
>> Big role to VAT as ‘EU good tax frame’: VAT does not ‘cascade’ between
EU countries & companies, + covers our external imports (where they are
consumed) and not our external exports (because not consumed in EU).
•2) Open borders for services..
Started in 1974 (9 EU countries in 1973-80)
>>Made ‘constitutional’ by 2007 Lisbon Treaty (25 EU countries in 2007): no
discrimination by origin among EU companies or individuals

15. European Single Market Frame
15
A 50 years ‘‘modular’’ journey, made step by step...
•3) Open borders for capital…
Directive 1988/361: no control on capital flows between European Member
States
>> Maastricht Treaty 1992 did create our ‘Economic & Monetary Union’,
leading to Eurozone & Euro in 2002, and our common central Bank ECB
•4) Open borders for people..
Step by step: Schengen ‘Border Agreements’ 1985 & 1990; made
‘constitutional’ in Amsterdam Treaty 1999, reinforced by Lisbon Treaty 2007
>> EU citizens now have their ‘EU citizenship’ & can call our ‘European
Court of Justice’ as Supreme Court against each EU government & each
national court

16. Our European Single Market Frame is… flexible
16
Why flexible: our novelties can be shared with our neighbors ...
•5) EU Custom Union…
1995: shared with Turkey for goods (exceptions for coal & steel), not services,
not agriculture
•4) EU ‘Four Directions Open Market’..
1992: shared with Norway & Iceland (Goods + Services + Capital + Labour)
but no Custom Union because no coordination of tariff with Third Party
Countries (+ exceptions for Agriculture & Fishing)

17. Flexibility of European Market Frames
17

18. Overview
18
•1 My Florence School…
An interactive Triangle
Training < | > Policy Dialogue < | > Applied Research
•2 Our European Single Market Frame...
An Internal Market with 4 dimensions
Goods + Services + Capital (and Euro) + People
•3 Energy as a sector specific European Regulation ...
With 3 components
Laws + Harmonization via various Entities + Common Codes

19. A logical order of electricity opening
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•1 PPA… (Morocco)
*The integrated utility buys entry of private generators with PPAs
** bears all the risks and LT consequences of these PPAs
•2 Wholesale Market... (Turkey)
*The grids are separated from generation & supply
**The generators invest as they wish (capacity, location & technology) but
have to find consumers
•3 Wholesale Market open at grid interconnections ... (EU)
*Bordering grids are jointly responsible for efficient delivery of X-B market
**Foreign generators expect fair & transparent allocation of grid capacity,
congestion management, imbalance settlement

20. Grid regulation
1996 1st Package
Optional: Grid access &tariffs negociated / regulated at MS level
2003 2nd Package
Regulator at MS level + Harmonization EU crossborder rules
2009 3d Package
Regulator Indep at MS + Obeying EU Law
+ new EU bodies EN.TSO & ACER to produce single common
rules (the 1st code: 2015)
EU electricity laws step by step: Grids
20

21. EU electricity laws step by step: Markets
Market Regulation
1996 1st Package: only big industry consumers + Single Buyer
2003 2nd Package: full retail opening at MS level + EU
crossborder ‘fair’ rules for trade
2009 3d Package: EU EN.TSO + ACER to produce Codes in
which will be designed our ‘EU Market Target Model’
°Market monitoring derived from financial regulation set by
REMIT 2010 specific energy monitoring (ACER+ NRAs)
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22. Energy Mix
° “Energy Mix” is sovereign right of each EU Member State (See Nuclear –
prohibited in Austria / 80% in France; Coal in Germany, Poland vs UK)
°BUT: Political deals between governments at EU ‘Council’ can move that
>> RES directives + EuTS CO2 as “voluntarily” constraints put on MS’s
Energy Mix
*Ending (in 2008) with targets for Year 2020
20% GHG + 20% RES + 20% EnerEff
**In (2018) with targets for Year 2030
40% GHG + 32% RES + 27% EnerEff
EU electricity laws step by step: Energy Mix
22

23. DG Comp or EU Court
Grid regulation
2007 DG COMP Sector Enquiry: Eon, RWE disinvest from grids
Market regulation
2005 EU Court suppress LT priority access to elec interco
2009 DG COMP Swedish TSO reviews congestion management
scheme (stops priority national vis à vis Foreigners) > more
bidding zones within Sweden
Energy Mix
EU Court ruling: RES support is “Environmental Public Policy”
not market-based; to be notified to DG COMP as “State Aid”
(14 Billion in 2010)
> DG Comp ‘RES Support’ Guidelines 2014
EU energy regulation: The entities
23

24. Florence Forum for Electricity Regulation
Forum of voluntary regulation, led by DG Energy – EU
Commission (& created in my Institute in 1998)
>> European associations as: Eurelectric, ETSO, EFET, IFIEC,
and CEER
>> Non-binding regulatory decisions (but) Gentlemen agreement
+ Club pressure + Influence vis-à-vis European Commission
>> 33d Forum in May 2018
EU energy: The entities
24

25. EU Bodies created by 2009 3d Package: ACER, ENTSO-E
*ACER gathers all national energy regulators
**ENTSO-E gathers all TSOs (incl. Norway, Switzerland, etc.)
Both have rules & duties set by strict EU Law
ACER arbitrates X-B conflicts between national regulators; sets
principles for Codes & Guidelines
ENTSO-E does Ten Year Development Plans; Gen. Adequacy
study; drafts Codes & Guidelines (with methodologies)
>> Grid Codes are “European single & common rules’’ for grid
operation (TSOs) & market operation (NEMOs)
>> They give EU its ‘Market Target Model’ (2015-2023)
EU energy: The entities
25

26. Network Codes (Table from 2015)
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27. Conclusion
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EU electricity frame made of many parts...with no Central
Regulator
•1 It is a market like all other European ones…
Under the jusridiction of the European Competition Authority DG COMP and
the European Court of Justice ECJ
•1.2 But its specific regulation as electricity grid, market, energy mix... is
very composite
>>3 Packages of Laws (1996, 2003, 2009), 4th coming in 2019
>>Many Ad Hoc decisions from EU Court of Justice or DG COMP
>>33 rounds Florence Forum Gentlemen Regulatory Agreements since 1998
>>12 to 15 Codes & Guidelines, ACER + ENTSO-E, from 2015 to 2023
+ ‘Guidelines Methodologies’ than can be region specific, & approved
directly by national regulators

28. 28
Thank You!
Email: jean-michel.glachant@eui.eu
Twitter: @JMGlachant ~44 000 tweets
Website: http://www.florence-school.eu

29. What’s a Package?
29
It is... a Package...
•1.1 It packs various areas…
as: Gas & Elec; Renewables & Energy Efficiency
•1.2 It packs different types of EU laws...
Directives: EU Targets, becoming national rules AFTER being transposed into
each country legal frame
(Ex: Creation of TSOs & Unbundling)
Regulations: EU rules, becoming immediatly applicable in each country,
without any ‘’national Transposition’’
(Ex: EU TSOs ‘’Ten Year Network Development Plan’’; EU Generation
Adequacy Assessment)

30. What’s a Package?
30
•1.3 Are different types of EU law implemented the same?…
Directive Laws being transposed > to become national laws; implemented
by national administrations, special entities (as TSOs & NRAs), players (as
companies & consumers). Plus National Decrees of application.
Regulation Laws being not transposed > are ‘only’ EU Laws; having NO
EU administrations, NO EU entities (as TSOs & NRAs), NO EU players (as
companies & consumers). They have to be implemented by same 28 national
frames like ‘’national laws’’. NO European decrees of application.
1.4 Other EU rules ‘’Commission Implementing Regulation’’
Network Codes > drafted by ACER (principles) and ENTSO-E (rules /
Methodologies) >> agreed by Comitology (for Guidelines & Codes) >>
implemented as EU Regulation
1.5 Other Methodologies >> ENTSO-E & Nat Reg.

31. In practice: “EU 4th Package” is a pack… of packages
Market Design Pack is made of four proposals:
1- Directive for Internal Market (Retail & Consumers)
2- Regulation for Internal Market ( Network, Resource Adeq, Entso, EIU-
DSO)
3- Regulation for ACER
4- Regulation for electricity risk preparedness
 1 Directive & 3 Regulations
Energy Policy Pack has three proposals:
1- Renewables Energy Package incl. Bioenergy (Directive) > Target RES
2- Energy Union Governance (Regulation)
3- Energy Efficiency (Directive) Performance Buildings (Directive)> Target
EE
> + 1- ETS revision 2021-2030 (Directive) > Target GHG Emissions
 4 Directives & 1 Regulation
31

32. Example: Trilogue Deal 19th-20th June
Council-Parliament-Commission
32

33. Energy Union Governance deal
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Timeline> National Provisional 2030 Plan Ener & Climate sent on 31/12/18 –
Reactions Commission on 30/06/19 – Final National PEC on 31/12/19
Targets> in 2030 EU RES Target is 32% - EU ‘’Reference Points’’ are: in
2022 18% of EU 2030 Target – in 2025 43% - in 2027 65% of EU 2030 Target
>>EU Energy Efficiency Reference Points to be set at same years
Gap Filling Mechanisms
 all Nat gaps with 2020 RES Nat baseline to be covered in 1 year by MS
 In 2022, 2025, 2027: IF EU RES Target not reached, each MS below the
reference points shall act nationally
 For Energy Efficiency no such country Reference Points: Com. Law prop
LT Strategies
Each MS submits LT national strategies (+30 years) in line with Paris
Agreement (1.5°C / 2°C) common to all EU MS

34. ACER proposals from Commission
34
New tasks
 Final proposal Netwok Codes (Entso-e down technical expert + formal
word to EU-DSOs) + Competence methodologies for implementing Codes
& Guidelines
>>> Key to regional regulation. Director’s opinion on genuine regional matter
– Creation of regional sub-Committee ACER Board of Regulators; except if
Board maintains its whole comptence
>> >> Coordination of Regional Operation Centers
>> >>> Supervision of Nominated Electricity Market Operators
>>> >>> Approval of methodologies & proposals for Generation Adequacy &
Elec. Risk Preparedness