EU Energy Policy: Slowly Moving in the Right Direction

At the end of 2018, negotiators from the Council of the European Union, the European Commission, and the European Parliament reached a provisional agreement on the new regulatory framework that will define the European electricity market between 2020 and 2030. From a first reading of the agreement, it seems that legislation is catching up with what is happening at a practical level, however, it lacks any leadership ambition.

The directive on electricity will attempt to ensure that Europe’s electricity market is competitive, consumer-centered, flexible, and non-discriminatory. The agreement gives more rights to consumers while protecting vulnerable customers, defining the roles and responsibilities of market participants. In summary, the new legislation will achieve the following: 

• Enable consumers to become prosumers
• Enable consumers to create or join citizens energy communities
• Ensure that customers have access to price comparison tools, smart meters, and dynamic electricity price contracts
• Mandate that switching energy suppliers should take 24 hours at most, by 2026
• Foster renewables integration, with a new target of 32% for renewables in the European electricity mix by 2030
• Increase cross-border power flows
• Increase the use of flexibility and demand response (DR)
• Put an end of subventions for coal after 2025
• Define a general framework around capacity markets, excluding plants that pollute the most

Decentralization

The new legislation scores high on the decentralization theme, significantly increasing consumer rights. It also updates the regulatory environment to allow what is already happening in niche markets or demonstration projects—full participation of citizens in the energy market as prosumers—while protecting citizens without the means to invest in new technologies.

Digitization

Although digitization was not a theme covered in the document explicitly, it is essential to support decentralization and decarbonization. Digitization enables flexibility and DR markets at the local level for fast energy supplier switches and more advanced tariff structures. Where the legislation could improve is in ensuring easy data access while maintaining privacy and security concerns.

Decarbonization

While the legislation hit the right tones for decentralization, and to a good degree on digitization as well, the efforts on decarbonization are at the bare minimum. A 50% increase in renewables could be a significant achievement, but in an age where renewables cost less than the alternatives, not pushing further is a missed opportunity.

Undermining Compromise

The pace of the decentralization, digitization, and decarbonization of the European power system will likely be slowed. The use of a capacity mechanism and the grandfathering clause for capacity contracts that are concluded before December 31, 2019, could undermine the implementation of flexibility and DR markets and keep polluting plants open for the next decade.

While it is understandable that Europe needs to balance between environmental and social needs, there are other, more innovative solutions (like the Spanish government showed with its agreement with unions for retirement for miners, re-skilling for industries, and environmental restoration). The compromise Europe has presented could end up leaving it behind in the energy transition if not implemented correctly by the member states.