1 Dec 2016: Please note that this commentary has been edited since it was first published on 30 Nov 2016. Fortum's comments regarding the EU electricity market-related proposals as well as biomass sustainability have been revised. Should you have any questions related to these corrections, please contact Esa Hyvärinen or Merja Paavola (contact information below).
Fortum welcomes the comprehensive and ambitious approach of the EU Commission as presented in the "Smart and Clean Energy Package" published on 30 November 2016. We especially note the original attempt of the Commission to come up with one integrated and streamlined package to ensure that all different streams are mutually supportive, as well as the clear preference for market-based solutions over regulated and subsidised ones.
With this package the Commission takes a major step towards implementing the strategic vision of the EU Energy Union.
The proposed Governance model should remove overlapping policies and measures
The proposed Governance process and the 10-year national integrated energy and climate plans are important tools for ensuring that all member states are doing their share and are moving in the same direction in implementing the EU 2030 energy and climate targets. It should also encourage closer policy coordination and cooperation between member states belonging to the same regional market. The Governance process should also play a crucial role in ensuring that all EU policies and policy measures are mutually supportive but not overlapping and watering down each other.
The ongoing legislative process of the EU emission trading system (ETS), despite not formally part of this package, should be seen as an instrumental element in the package that aims to ensure that the EU 2030 energy and climate targets can be implemented as cost-efficiently as possible. EU electricity market design, renewable policy framework and energy-efficiency legislation should all support the role of the EU ETS as the main instrument to drive decarbonisation in sectors covered by the ETS and not contain obligations or other elements that are overlapping with the EU ETS. Specific measures to promote renewable energy and efficiency should primarily focus on non-ETS sectors.
Competitive power markets promote flexibility, integrate renewables and do not contain regulated prices
Regarding the EU electricity market-related proposals, we believe that fostering well-functioning, flexible power markets should be an essential element towards the emergence of a new market design. Such market design can cope with an increasing share of variable renewable generation and encourages end-consumers to become active market participants. In this respect, we very much support the proposal that suppliers should provide a dynamic contract as part of their offer, as well as the Commission’s reiterated efforts to further deploy smart meters. A clear division of tasks between regulated network operators and commercial actors will become even more important in the evolving flexibility market, and we welcome the related principles concerning, for example, who is allowed to own and operate energy storages.
However, we regret that the Commission's intent to remove priority of dispatch from renewable generation has fallen short of the target even though this privilege has clearly created major inefficiencies in the power markets and has undermined price signals, sometimes even leading to negative prices. We also regret that similar loopholes have been left for renewable energy producers to escape from balancing responsibility. Fortum hopes that this lack of market integration of renewables will be addressed and remedied towards a greater level-playing field during the negotiation between the European Parliament and the Council. Providing a clear signal towards the phase-out of regulated end-users prices and limiting interference in price formation should have come out much stronger in the Commission’s market design proposals.
Biomass sustainability requires common EU-wide criteria
Fortum welcomes the Commission’s proposal to extend on the existing sustainability criteria also for solid biomass fuels and biogas. This concrete proposal is a major step forward in the long-lasted debate and creates predictability and a level playing field for the biomass market. We find the proposed approach flexible, as it enables use of existing legislation and certification schemes. We commend the proposed capacity threshold in the scope of application, consideration of energy efficiency in the criteria and the recognition that biomass remains as a zero-emissions energy source.
Third-party access doesn't belong to competitive heating and cooling markets
The proposed obligation for energy and energy fuel suppliers to increase the share of renewable energy in their heating and cooling sales by at least 1% annually is problematic. It can be seen as an overlapping measure to the EU ETS and should therefore apply only to those parties that operate outside of the EU ETS; two thirds of the heating and cooling sectors still operate outside the ETS.
Another major cause of concern is the de facto imposition of third-party access (TPA) in district heating and cooling systems, for heat or cold that is produced from RES or waste heat or cold. In short, such obligation would require also those member states with competitive heating and cooling market (such as Finland and Sweden) to regulate the sectors, whereas the trend should be towards more commercial-based markets where different forms of heat deliveries compete against each other. Decarbonisation and increased efficiency of heating sector should be of primary importance, not just an increase of the share of renewables in heat supply.
As for the energy-efficiency directive and buildings directive, the proposed 30% binding headline target for efficiency by 2030 is clearly exceeding the target that was agreed on in the context of the EU 2030 energy and climate target framework and it risks distorting the balance especially between the energy efficiency and CO2 reduction target. Furthermore, the target is a static savings target that does not promote much needed flexibility. Increasing the level of ambition in the EU ETS would be a more effective way to increase also energy efficiency in the sectors covered, as most short-term measures to cut CO2 emissions would de facto be to invest either in renewable energy or energy efficiency. We appreciate that the Commission is proposing flexibility for member states in setting the indicative national targets based on primary or final energy consumption, savings or energy intensity.
Further information:
Esa Hyvärinen, Senior Vice President, Public Affairs, tel. +358 40 8262646
Merja Paavola, Vice President, Public Affairs, tel. +358 50 396 1161
Key elements of the package of legal and policy documents that have been published today:
- Communication on "Clean Energy For All Europeans" (COM(2016)860)
- Proposal for a revised electricity regulation (COM(2016)861)
- Proposal for a revised electricity Directive (COM(2016)864)
- Proposal for a revised regulation on a European Agency for the Cooperation of Energy Regulators (ACER) (COM(2016)863)
- Proposal for a revised energy efficiency Directive (COM(2016)761)
- Proposal for a revised energy performance of buildings Directive (COM(2016)765)
- Proposal for a revised renewable energy Directive (COM(2016)767)
- Proposal for a regulation on the Governance of the Energy Union (COM(2016)759)
- Full list