Energy, EU – Baltic States, Legislation, Society

European energy policy, or so-called energy union, is one of the main Commission’s projects; the EU has launched European energy union strategy at the end of February 2015. It contains five key dimensions: internal market, energy efficiency, decarbonisation, energy security as well as research and innovation.

There is another aspect in the energy union, some call it “the sixth dimension”, concerning citizens. The Energy Union Strategy has been designed with citizens at its core, where citizens take ownership of the energy transition, benefit from new technologies to reduce their bills, participate actively in the market, and where vulnerable consumers are protected.

Empowering and involving citizen-consumers and communities will be the key element in unlocking the full potential of the “green energy” transition strategy; a successful Energy Union requires the trust of citizens.

Miguel Arias Cañete, Commissioner for Climate Action and Energy has been over thirty years defending public interests: first in the Andalusian Parliament, then in the Spanish Parliament, then in the European Parliament and also as Minister for Agriculture and Environment in Spain.

Presently, he is the European Commissioner for climate action and energy, thus defending European citizens’ energy interests.

Creating a “New Deal” for European consumers

The “new EU energy deal”, according to the Commissioner includes three key areas.

·                     Market reform – in particular linking the retail and wholesale markets closer together;

·                     Access to information, especially on prices and costs, both at a member state level, and for individual consumers, and;

·                     Consumer choice – covering the choice of energy supplier, the choice to feed energy back into the grid or the choice to group together with other citizens to strengthen consumer power.

European energy challenges

The gas and electricity sectors have undergone a huge transformation in the last twenty years.

EU legislation has helped promote open markets, cross-border wholesale trade, and greater competition.

Competition on the wholesale market has brought more choice and kept prices in check in some European retail markets. There are significant switching rates in several EU states: Portugal held the European record in 2013 with one in four customers changing electricity supplier, whilst Ireland led on gas with over one in six changing. In the UK, switching rates for both electricity and gas were above 10 per cent.

See: http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_Report_2014.pdf, p. 69.

This shows that some consumers have a genuine choice of suppliers and products, and are taking advantage of this.

However, in many EU states reforms have yet to reach consumers. For example, switching between suppliers remains complex and overly-bureaucratic for many people, and can take months. In some countries the average is sixty days , well above the EU legal maximum of 3 weeks.

See: above mentioned ACER Market Monitoring Report (2014), p.219.  

Some citizens already go further than switching; some of them generate their own electricity. However, too often citizens who self-generate are not allowed to feed their electricity back to the grid. Others are forced to do so, and when they do, they often get a poor deal, argued the Commissioner. A failure in organizing an efficient demand-side energy response costs the EU citizens up to €100 billion a year (almost €200 for every citizen in the EU). One in ten people cannot afford to properly heat or power their homes, which is unacceptable in a modern, developed economy. Source: Eurostat (SILC-Survey 2013).

Energy metering

Many EU states are regulating retail prices, which blocks new entrants from entering the market. This fails to help those most in need, and ultimately chokes competition.

Besides, there is the technology issue: advanced smart home appliances are on the market but are rarely used; often they cannot communicate with other devices.

Millions of European homes rely on century-old analogue metering; they have no way of knowing their real energy consumption in any one day.

If the EU member states shall live up to their commitments, three quarters of citizens will have a smart meter by 2020, solving this problem. The question is, whether these meters are designed truly for the citizens and not just for the suppliers?

As is seen in the ACER Market Monitoring Report (2014), about one third of EU citizens (or 28 per cent) does not have smart meters (according to the member states’ commitments for 2014). That means about 140 million Europeans are with the old-aged models.

The challenge is that presently an average European energy consumer remains, on the whole, passive; and a passive consumer is a wasted opportunity.

Suggested solutions

In order to assist EU consumers in moving from passive customers to active participants in the energy market the Commission needs a new, comprehensive approach that would tackle problem from every angle.

First of all, it is about retail market reform, which is an integral part of the three key issues: energy market reform, access to information, and consumer choice.

In the market reform, the Commission’s approach to regulate the wholesale markets has created more diversity, and more competition, argued the Commissioner. It is time to bring the benefits from wholesale markets to the retail markets by smashing down the wall that separates dynamic wholesale markets from static retail markets in many countries. Suppliers should offer consumers contracts that mirror fluctuations in the price of electricity in the wholesale markets.

Consumers who want to profit from the ups and downs of prices in intraday markets should be able to do so, suggested the Commissioner. And added: when the wind is blowing strong, consumers could buy electricity cheaper; when the sun does not shine, appliances could adapt to save people money. This will help balance supply with demand.

In some EU states, contracts based on spot prices already available; e.g. in Sweden and Finland, consumers use them to save up to 30% on their energy bills. These benefits should be brought to all European citizens. National regulators should work with Distribution System Operators to ensure such tariffs are available. They should also develop model contracts that could be used across the EU, and report their findings back.  

See: ACER commissioned a study on DSF at: http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/References/DSF_Final_Report.pdf.

Better price structures should go hand in hand with better infrastructure; the physical network shall be ready for consumers to profit from flexible pricing. For this, Distribution System Operators need the right incentives to invest in smart solutions. These incentives must also guarantee reliable networks.

This is a difficult balancing act, argued the Commissioner, as network charges already account for a third of energy bills; the new investments should not pile unnecessary costs on to consumer bills; they must be efficient. The Commission will benchmark that efficiency, so it is clear who is setting the gold standard. This will be to the benefit of consumers, as well as the Distribution System Operators.

Many of the problems of investment can be overcome with greater cooperation between Distribution and Transmission system operators (DSO&TSO). Both are striving for smoother and smarter networks. DSOs should do more to innovate and solve local problems at local level – sharing the burden with the TSOs.

The two groups should work in tandem to keep the grids in shape at the lowest cost. This involves everything from forecasting and balancing to managing consumption peaks and valleys.

The Commission’s aim is to formally launch this platform later in 2015, which will be a firm step towards proper data management and active information exchange between the two sets of regulators.

Access to information

The above mentioned measures, taken together are supposed to create a workable market for consumers. However, the consumers need the right information at their fingertips, i.e. access to information; no consumer will change their behavior unless they understand what's in it for them.

Consumers need access to information that is clear, understandable and reliable while delivered in real-time. A big success story in this field has been the energy labeling directive.

For example, EU energy label is widely used when buying a more efficient washing machine, fridge, or television: more than 85% of consumers check the Energy Label when purchasing an appliance, helping them to save up to €450 a year on their energy bills.

These clear labels allow consumers quickly understand how efficient a product would be. However, the energy labeling directive is currently under review, and the Commission is finding ways to give even greater clarity to consumers.

At the end of 2015, the Commission will also add labels for space heaters, which account for hundreds of euros a year on some consumer's bills.

Human “energy rights”

On a daily basis, consumers need most an access to information about how much energy they are using, at what time, and at what cost; this is the only way for them to see the cost impact of everyday changes.

For heating, simple tools like wirelessly-controlled thermostats can give customers real-time information about their heating use. This can significantly reduce the cost of heating and cooling, which accounts for 70% of the total household energy bill. The EU heating and energy strategy will look at ways to reduce consumer heating bills.

On electricity, the EU has already a target: 80% of households to be equipped with a smart meter by 2020. There is a clear picture of what a smart meter should be able to do: following extensive consultations, Commission concluded that every meter should have features that help both the operator/supplier and the consumer. That means the meters should give updated readings at least every fifteen minutes, which the consumer has access to. Otherwise people will remain just as in the dark about their electricity use as before.

The consumers should also support advanced contracts: there is no point changing the market rules if consumers don't have the tools to take advantage. In short, meters shouldn't just give consumers information; they should help people do something useful with that information. Without this, they are being short-changed.

Therefore, the Commission intends to monitor the functions of smart meters in the member states (if states agree).

There is an open question of whether consumers have the right to a smart meter? Should they be able to choose to buy one if they are not included in national roll-out plans? These are the questions for the member states to address.

People will only trust new technologies like smart appliances if they know their data is secure.

Data should only be shared with the clear consent of the consumer and its security must be guaranteed.

This is an issue that affects many industries. The Commission is preparing a consistent legislative framework on two pillars: 

= the Network Information Security Directive, that will require critical infrastructure operators to assess the risks and ensure security, and

= revising the Data Protection Regulation, that will ensure a high level of protection for consumers and enhanced control over their own data.

The EU legislation on these issues will only come into force in two years at the earliest, argued the Commissioner.

The energy industry should be one of the first to come up with its own controls, well in advance of any compulsory requirements. The Commission has already started the preparations: in October 2014, it issued a recommendation for member states to use templates in order to protect personal data in smart grid and metering systems.

See: Recommendation on the Data Protection Impact Assessment Template (DPIA Template) for Smart Grid and Smart Metering Systems, October 2014.

During the next 18 months the Commission intends fine-tune the system as data protection matters for consumers. Even with the rollout of secure, safe smart meters, bills will continue to play a part in informing people about how much energy they use.

The average consumer spends ten minutes a year thinking about their energy use; most of that happens when they look at their bills.

Many would appreciate better, simpler and more accurate bills – both for gas and for electricity.

A good bill should allow consumers to easily compare what they are paying against other offers in the market. And it should allow people to compare their usage with other consumers. After all, there is no better incentive to save than a bit of friendly competition. The member states need clarity across the industry on what information bills should include. The New Deal for consumers will tackle this challenge, promised the Commissioner.

Finally, the states need a better understanding on a national level of how taxes and levies are affecting consumer prices and competition. As part of the Energy Union package, the Commission will produce reports every two years on energy prices that will show, in detail, the impact of subsidies and taxes.

This information should be out in the open, for consumer think tanks, consumer groups and citizens to scrutinise as people have the right to know what they pay for actual energy, and what they pay for other costs.

This will be a step towards eventual phasing out regulated prices below the cost of energy. Open, market-based prices are the best way to reward active consumers and generate investment. They are also the strongest defense against tariff deficits, which simply delay costs, and benefit nobody in the long term.

The Commissioner underlined that “phasing out regulated prices do not mean phasing out support to vulnerable consumers; that support is essential but it must be targeted only to those who need it”. There are best practices for helping vulnerable consumers which are far less costly than general price regulation. Together these steps will make people aware of what they are paying for, at what time and at what price.

They will help people see right away, and not just once a year, how they can bring down their bills. Be it by turning down the thermostat, creating their own energy or changing their contract.

Consumer choice

But information counts for nothing without the power to act on it, which means a consumer choice.

The “new deal” will provide for consumers:

·                     The power to choose who they pay their bills to;

·                     The power to decide how they use electricity that they generate;

·                     And the power to act alone, or as part of a collective group.

As to the issue of choosing who they pay their bills to, the situation shall be the following: energy suppliers provide a service, and if someone can do it better, for less money, people should be able to change with the click of a mouse.

For example, in the UK, the government and regulators have made great strides in making switching easier; many other member states are moving in the same direction.

Since 2009, the EU law requires that supplier switching should be easy, free and carried out within three weeks of a request from the consumer (this is still not the case in too many EU states). The Commission will benchmark existing practice and enforce current law in cooperation with national regulators.

Apart from time, trust is also crucial in switching: every time a consumer switches and ends up losing money they lost faith in the process; consumers should trust that comparison tools will help them avoid this.

So as part of the New Deal, the Commission will look at ways of making comparison tools more transparent and more reliable.

Some people are going beyond switching and choosing to generate, store and partially sell their own electricity. For example, in Germany 35% of installed renewable energy sources are owned by private individuals and 11% by farmers.

Reference: German Agency for Renewable Energy, 2013.

Getting the incentives right, this can act as a balancing tool for the grid overall, and so should be encouraged. Most of all, consumers should not face barriers if they go down this path. There should be no obligation to sell electricity to third parties. In short, if one generates electricity, then it belongs to the producer.

On the other hand, people with their own generation often still need to keep their connection to the grid as a back-up. Of course, they will need to contribute to grid costs in a fair manner. Tariff systems should be designed to ensure this from the outset. This will avoid the need for extra charges, which could be perceived as penalising self-consumption. EU states need to address these issues and remove barriers to self-generation through national legislation.

The Commission will also play its part, and provide guidance on this matter in the near future.

Just as some consumers want to generate their own electricity individually, others want to group together in their dealings with energy suppliers.

Many consumers see a benefit in delegating their decisions to intermediaries, who act on their behalf. They should be free to do this, argued the Commissioner.

In some member states, collective schemes and community initiatives, including switching campaigns and micro generation cooperatives, have already taken off. For example, citizens in Belgium have set up a cooperative with 47 000 members and full ownership of their renewable energy installations.

These initiatives are a growing part of the future market design; they should be encouraged and become an option for as many consumers as possible.

Conclusions

The “New Deal for Consumers” will include a number of concrete measures to put consumer at the heart of the energy market.

·                     First, the EU will make switching easier with better transparency and reliability of price comparison tools;

·                     Second, the EU we will reform the market to bring in demand side flexibility;

·                     Third, the EU will encourage network investment by DSOs and further roll-out of smart meters by benchmarking best-practice;

·                     Fourth, the new deal will create a new platform linking DSOs and TSOs;

·                     Fifth the EU will publish reports every two years on national energy prices;

·                     Sixth, the “deal” will provide guidance on self-generation.

The Commission and the member states together can create a new deal for all Europe's consumers which finally mean: a market that works for consumers, not just producers; a new phase of open and freely available information; and consumers with full powers to make their own choices.

Further information sources:

= http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_Report_2014.pdf;

= Eurostat (SILC-Survey 2013);

= ACER commissioned a study on DSF in: http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/References/DSF_Final_Report.pdf;

= Recommendation on the Data Protection Impact Assessment Template (DPIA Template) for Smart Grid and Smart Metering Systems in October 2014;

= German Agency for Renewable Energy, 2013.

Source: European Commission, Speech -15-4596 by Miguel Arias Cañete, Commissioner for Climate Action and Energy at the Citizens Energy Forum (Business Design Center, London), 12 March 13, 2015. In:

http://europa.eu/rapid/press-release_SPEECH-15-4596_en.htm?locale=en