Regulation on the internal market for electricity and Directive on common rules for the internal market in electricity

(February 2017) The CEZ Group´s long-term priority is to achieve a well-functioning integrated electricity market which together with the EU ETS provides for reliable investment signals in order to boost investment into low-carbon sources.

Proposal for a Regulation on the internal market for electricity (recast Regulation 714/2009) – COM(2016)861

a) Equal level-playing field for all entities both on supply and demand side

The CEZ Group welcomes the provisions of Article 3, stating that all sources shall participate on equal footing in the market (Art.3, point 1-i) and that electricity generation and electricity supply undertakings may enter and exit the market based on their own assessment of financial and economic situation (Art. 3, point 1-m). Recital 11 from our point of view correctly points out that vast exceptions from dispatching rules or balancing responsibility may distort the market and hinder effective decarbonisation.

In contrary to this principle, Article 11 preserves priority dispatch for small RES and CHP, which is not in line with Commission´s earlier declarations that priority dispatch should be gradually removed for all sources. Rules for participation of small sources on the market need to be adapted with growing share of distributed generation connected at the low / medium voltage levels, to ensure truly equal level-playing field for all sources, including small ones.

The CEZ Group believes that the last curtailment rule for RES and CHP, as stated under Article 12, is not in line with the overarching goal of achieving an equal level-playing field for all the sources, as it positively discriminates RES and CHP against other players on the market. Article 12 should also clarify what is meant under “market-based” and “non-market based” redispatch and curtailment...

b) Removing price restrictions on the wholesale market

The CEZ Group deems removing any price restriction on the wholesale market a step in the right direction. In this context we believe the provision allowing price floor set at a value of minus 2000 € or less, applicable to bidding and clearing in all timeframes, including balancing energy, should be clarified. We would like to note that the provision is in a contradiction with Art. 47 of draft Commission Regulation establishing a guideline on electricity balancing, which does not allow for other restrictions to balancing energy prices than value set at VoLL.*

*) 2. Balancing energy prices, including bidding and clearing prices, shall not be floored or capped below the value of lost load.

c) Trading

The CEZ Group welcomes provisions of Article 6, according to which the market rules shall maximize the ability of market participants to contribute to avoid system imbalances.

On the other hand, the CEZ Group notes that introducing 15-minutes imbalance settlement period as suggested by Article 7 may be difficult for less liquid markets, this obligation may bring inadequate burden for respective market participants. To avoid this, the regulation should either allow for even longer transitional period for these markets, or fully allow participants from these markets to participate in neighboring liquid markets (i.e. via market coupling).

Cross-zonal capacity allocation (Article 15) should be fully market-based, fixed allocation of capacity to certain timeframes should be avoided. Regulation also ought to define all the terms used thorough it in Article 2 “Definitions”, we inter alia miss definition of counter-trading.

d) Capacity remuneration mechanisms

The CEZ Group welcomes that under the Regulation, prior to introducing capacity mechanisms (CRM),the Member States shall remove all the regulatory distortions. The CEZ Group also supports that the introduction of such mechanisms is possible only if there will be an adequacy concern identified in common European resource adequacy assessment. Capacity mechanisms should be technology-neutral and opened across borders.

From our point of view, design principles for capacity mechanisms, as stated in Article 23, shall also include “exit clause” for all mechanisms, including existing ones, in case the situation on the market improves.

Even if the strategic reserve may be considered a specific type of a capacity mechanism, the CEZ Group believes that the provisions binding Member States to allow for participation of cross-border capacity in CRM (Art. 21) should be applicable to all types of CRMs, including strategic reserves. The CEZ Group appreciates that according to Article 24 also existing CRMs shall comply with new rules. Nevertheless, the CEZ Group thinks that the deadline for this compliance shall be clearly stated in the regulation.

e) Harmonization of tariffs, network codes

The CEZ Group considers the Commission´s attempt to cover a number of political issues by delegated acts very problematic, as the procedure of adopting delegated acts can never ensure for the same transparency and Member States´ involvement in the legislative process as the ordinary legislative procedure.

Furthermore, harmonization of distribution network tariffs, as suggested by Articles 16, paragraphs 9 and 10, and Article 55, paragraph 1-k, from our point of view contradicts the principles of proportionality and subsidiarity.

f) European DSO entity

The CEZ Group strongly welcomes the establishment of the EU DSO entity. To ensure its effective operation, the Regulation should further specify the conditions for participation of DSOs in the EU DSO as well as provisions concerning its funding. The CEZ Group believes that Article 50 shall clearly stipulate that NRAs shall recognize costs related to the participation of DSOs in the entity. Suggested wording “Regulatory authorities shall approve those costs only if they are reasonable and proportionate“ from our point of view does not sufficiently guarantee recognition of the costs. We consider provisions of Article 49 on unbundling of DSOs irrelevant, as the unbundling is already being covered by Directive 72/2009. We also believe that rules shall ensure proportional representation of all the Member States in the EU DSO entity.

g) Regional Operational Centers and Balancing

Recital 35 states that Regional Operational Centers shall carry out functions which exclude real time operation of the electricity system and functions where their realization brings added value compared to functions performed at national level.

We believe that the energy security aspect shall be taken into account as well. Member States (TSOs) are responsible for securing electricity supplies. Energy security shall always prevail over regionalization. In this context, calculation and procurement of ancillary services (balancing energy and reserves) should be in competence of national TSOs. In case ROC would assume this role, it would also have to take over the responsibility over security of supply and over any damage caused by mismanagement. This is currently not the case in the regulation.

We support trading at spot and intraday market in short intervals until the actual time of delivery in a way which maximize the opportunity of market players to avoid imbalance. Nevertheless we also have to note that ancillary services are the last barrier standing between the customer and blackout. They cover only limited part of country´s final consumption (approximately 1-2 % of total energy delivered), but precisely in this case the energy security shall be a priority.

TSO shall not be forced to procure certain amount of ancillary services on a cross-border market, which would inevitably lead to allocation of fixed amount of cross-border capacity to balancing market. This would mean blocking of available capacities for day-ahead and intraday and thus reducing the possibilities of market participants to avoid imbalance.

h) Difference between cross-border flows and cross-border transactions

The CEZ Group thinks it would be appropriate to clearly distinguish between cross-border flows (which may be scheduled or unscheduled) and cross-border transactions both in the Electricity Directive and Electricity Regulation, to avoid any confusion.

Proposal for a Directive on common rules for the internal market in electricity (recast Directive 72/2009) – COM(2016)864

a) Ensuring equal level-playing field

The CEZ Group believes that the directive substantially prefers aggregators to other players on the market, even if in reality we cannot separate the role of aggregator from the role of a progressive supplier, which is subject to much stringent rules. The proposal should ensure that the same rules apply to all market players, including active consumers, local energy communities or aggregators.

Article 17 de facto exempts the aggregator from balancing responsibility. Imbalance caused by the aggregator to the supplier is bore by the supplier – and thus by final customers. Respective provisions of article 17 should be amended in a way which clearly state that the aggregator is responsible for imbalances he causes to other market participants (i.e. by clearly allowing compensation payments between aggregator and supplier, and by setting a framework for contracts between aggregator and supplier).

Aggregator shall not endanger operation of the grid and security of electricity supply. Aggregator should respect technical conditions valid for respective connection point / location, to this aim he should e.g. enter into contract with the DSO.

Article 15 should clearly state that the electricity injected to and withdrew from the grid cannot be offset against each other. Existing wording takes into account grid fees only, and therefore does not ensure that policy costs and other fess / levies are being considered accordingly. It may also suggest introducing a G-component.

b) Removing price regulation of electricity supply, energy poverty

The CEZ Group welcomes provisions of Article 5 removing price regulation of electricity supply.

We believe that the directive shall not allow for any exemptions, even in cases of “extreme urgency”. Such cases are not properly defined and there is therefore the risk continuing of unnecessary price regulation.

We also think that the 5-years transitional period is unnecessarily long, given the fact that abolition of price regulation had already been foreseen by the 3rd energy package. The market distortion caused by the price regulation of electricity supply shall be removed as soon as possible.

c) Smart meters

Preserving right of Member States to decide on smart meters deployment on the results of a cost-benefit analysis is from our point of view a right decision. The directive should also address the status of existing (deployed) smart meters.

We believe Article 59 obliging NRAs to assess the performance of DSOs on smart grids every 2 years should be adapted accordingly, to reflect the fact that the Member States have the right, but not the obligation to deploy smart grids. It should either be limited only to countries which decided to deploy smart grids, or deleted.

d) Active operation of the distribution grid

Under Article 32, the Member States shall create a regulatory framework, which motivates DSOs to actively operate their grid. On the other hand, Article 36 stipulates that electricity storage systems shall be primarily owned by other subjects than DSOs.

We believe that DSOs shall have the possibility to own storage systems as a technical mean needed for voltage control. They should also have right to own storage in case there is no functioning market with non-frequency ancillary services in place. Pilot projects and operation of storage in isolated areas shall be permitted as well.

e) Rights of customers

The CEZ Group welcomes strengthening of the consumer´s rights. Nevertheless, the CEZ Group also believes that relevant provisions shall be further clarified.

Under Article 10, suppliers shall inform customers on any change in the price of supply at least one billing period before the change materialize. We would like to note that this may be problematic to put into practice for customers, which opted for one-year billing period (i.e. the supplier would have to announce the change one year in advance).

Further to that, we also think provisions on providing customers with alternatives to disconnection at no extra cost shall be amended. Current wording de facto means that the cost for providing such information would be distributed to all the customers, and thereby customers not paying for their supplies would be favored to others.

The Directive does not stipulate who should bear the costs associated with the introduction of dynamic pricing contract (Art. 11). In practice it is impossible to introduce contracts to customers who do not possess smart meter. However, the directive does not state that only customers, who already have the smart meter installed or requested for it, are eligible for dynamic price contract. There is a lack of clarity on who pays for a smart meter, if customer only requested introduction of dynamic pricing contract, but not an installment of a smart meter itself. Directive should clearly stipulate that the subject who requested for a dynamic pricing contract bear all the costs related to it.

Similarly, the CEZ Group believes that provisions of Article 12 should clearly state that if the customer terminated a fixed-term contract, the supplier may charge fees which are reasonable.

The Directive ought to distinguish between “billing” and “billing information” (Art. 18). Customer should have a right to receive billing information for free with the same periodicity as he receives the bill. If he is interested in receiving billing information more often, he has a right to request it, but should bear associated costs (for instance for sending invoice per paper post).

Annex II, paragraph 1 should provide an explanation on “periodical settlement bills”. Designation of responsibility for preserving historical data on customers´ consumption is missing in paragraph 3. Similarly, point 4 lacks explanation on how to exactly define energy mix of individual customers. In general, respective definitions should be coherent in all the legislative proposals.