COMMISSION STAFF WORKING DOCUMENT Evaluation Report covering the Evaluation of the EU's regulatory framework for electricity market design and consumer protection in the fields of electricity and gas Evaluation of the EU rules on measures to safeguard security of electricity supply and infrastructure investment (Directive 2005/89) Accompanying the document Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast), etc.

EN EN
EUROPEAN
COMMISSION
Brussels, 30.11.2016
SWD(2016) 412 final
PART 1/2
COMMISSION STAFF WORKING DOCUMENT
Evaluation Report
covering the
Evaluation of the EU's regulatory framework for electricity market design and
consumer protection in the fields of electricity and gas
Evaluation of the EU rules on measures to safeguard security of electricity supply and
infrastructure investment (Directive 2005/89)
Accompanying the document
Proposal for a Directive of the European Parliament and of the Council on common
rules for the internal market in electricity (recast)
Proposal for a Regulation of the European Parliament and of the Council on the
electricity market (recast)
Proposal for a Regulation of the European Parliament and of the Council establishing
a European Union Agency for the Cooperation of Energy Regulators (recast)
Proposal for a Regulation of the European Parliament and of the Council on risk
preparedness in the electricity sector
{COM(2016) 861 final}
{SWD(2016) 410 final}
{SWD(2016) 411 final}
{SWD(2016) 413 final}
Europaudvalget 2016
KOM (2016) 0863
Offentligt
2
Table of Contents
1. Executive Summary ........................................................................................................... 4
1.1. Background and purpose of the evaluation................................ 4
1.2. Key findings ............................................................................... 4
2. Introduction........................................................................................................................ 7
2.1. Scope of the evaluation .............................................................. 7
2.2. Purpose of the evaluation ........................................................... 9
3. Background to the evaluated initiatives ............................................................................. 9
3.1. Objectives of the Initiatives........................................................ 9
Objectives of the Third Electricity Package............................... 9
3.1.1.
Objectives of the Security of Electricity Supply Directive...... 11
3.1.2.
3.2. Description of the initiatives .................................................... 12
Third Electricity Package......................................................... 12
3.2.1.
Security of Electricity Supply Directive .................................. 16
3.2.2.
4. Evaluation logic................................................................................................................ 17
5. Evaluation Method ........................................................................................................... 18
6. Implementation of the initiatives and state of play .......................................................... 20
7. Answers to the evaluation questions ................................................................................ 22
7.1. Effectiveness ............................................................................ 22
Market integration, competition and investments.................... 23
7.1.1.
Consumer empowerment and protection.................................. 43
7.1.2.
Security of Electricity Supply Directive .................................. 48
7.1.3.
7.2. Efficiency ................................................................................. 51
7.3. Relevance ................................................................................. 53
The 2009 market design is not fully adapted to new market
7.3.1.
realities 53
The Third Package does not provide regulatory solutions to
7.3.2.
address perceived lack of investment into generation...................................................... 55
The significant increase in uncoordinated state interventions . 56
7.3.3.
Increased interconnection and decarbonised market require
7.3.4.
closer TSO and NRA cooperation.................................................................................... 59
Consumers participation and protection................................... 60
7.3.5.
Distribution and flexibility....................................................... 61
7.3.6.
Security of Electricity Supply Directive .................................. 64
7.3.7.
7.4. Coherence................................................................................. 66
Internal Coherence ................................................................... 66
7.4.1.
External Coherence .................................................................. 67
7.4.2.
Security of Electricity Supply Directive .................................. 70
7.4.3.
7.5. EU value added ........................................................................ 72
Value added of EU market framework .................................... 72
7.5.1.
Security of Electricity Supply Directive .................................. 75
7.5.2.
Assessing the case for continuing EU-intervention ................. 77
7.5.3.
8. Conclusions...................................................................................................................... 77
Annex 1 – Procedural Information ........................................................................................... 81
Annex 2: Stakeholder consultation ........................................................................................... 82
1. EXECUTIVE SUMMARY
1.1. Background and purpose of the evaluation
This Evaluation supports the concomitant Impact Assessment aimed at improving the EU
regulatory framework governing the internal electricity market ("Market Design Initiative").
The Evaluation analyses to what extent the existing legislation was successful in achieving its
goals1
. In contrast, the purpose of the Impact Assessment is to identify and weigh options for a
future reform of the regulatory framework.
As set out in the Evaluation Roadmap2
, this Evaluation will focus on developments in
electricity markets which have been subject to a several legislative reforms in the past 20
years. The latest reform of the regulatory framework – which is the object of this evaluation -
dates back to 2009 and is commonly referred to as the 'Third Energy Package'. The package
followed on a first and second set of landmark energy legislation adopted in 1996 ('First
Energy Package') and 2003 ('Second Energy Package') respectively.
The Third Energy Package pursued the general objective of completing the internal energy
market and moving towards a competitive, secure and sustainable Energy Union. It covers in
particular five main areas:
 unbundling energy suppliers from network operators;
 strengthening the independence of regulators;
 establishing the Agency for the Cooperation of Energy Regulators (ACER);
 enhancing cross-border cooperation between transmission system operators and the
creation of European Networks for Transmission System Operators;
 open, fair retail markets and consumer protection.
This Evaluation also analyses the effects of the Security of Electricity Supply Directive (SoS
Directive)3
as adopted in 2005 to establish some first rules on security of supply in electricity,
and which has in the meantime been complemented and partly superseded by the Third
Energy Package of 2009 and by other legislation4
.
1.2. Key findings
Tangible progress
Overall and within the scope of the two evaluations carried out, the evaluation's findings
support the view that the Third Package has positively contributed to competition and
performance of the internal electricity market, delivering tangible market benefits that have
translated into added net social welfare.
1
See in detail the Commission's "Better Regulation Guidelines", SWD(2015)111 of 19.5.2015.
2
Evaluation Roadmap " Evaluation of aspects of the regulatory framework of the EU electricity markets – AP
2015/ENER/061"; http://ec.europa.eu/smart-
regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf
3
Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures
to safeguard security of electricity supply and infrastructure investment, OJ L 33, 4.2.2006, p. 22–27.
4
Evaluation Roadmap " Evaluation of the Directive 2005/89/EC on security of electricity supply – AP
2016/ENER/032"; http://ec.europa.eu/smart-
regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf
Although only a handful of years have passed since the entry into force of the Third Energy
Package in 2011, the evaluation showed that the initiative to further increase competition and
to remove obstacles to cross-border competition in electricity markets has generally been
effective, and that active enforcement of the legislation has led to positive results for
electricity markets and consumers.
The reinforced unbundling rules had a positive effect on competition and helped to limit
problems of market foreclosure. Markets are in general less concentrated and more integrated
than in 2009. The new rules aiming at removing barriers to cross-border trade and to enhance
cooperation between transmission system operators and regulators contributed to increased
liquidity of electricity markets and a significant increase in cross-border trade, resulting in
more competitive wholesale markets and contributing to lower wholesale prices.
As regards retail markets, the set of new consumer rights introduced by the Third Energy
Package have clearly improved the position of consumer in energy markets. The new rules
enabled consumers to make better use of emerging competition between different suppliers in
many countries, and switching between different suppliers increased. Also, consumers have
access to a single point of contact for queries and to alternative (supplier-consumer) dispute
settlement services while self-generation and smart technologies started to spread in several
markets.
Remaining obstacles
However, in other fields the success of the rules of the Third Package in developing the
internal electricity market further to the benefit of customers remains limited.
On wholesale markets, persisting barriers to cross-border trade and unused interconnector
capacities resulting notably from insufficient cooperation between national grid operators and
regulators on the shared use of interconnectors. The national perspective of the involved
parties still prevents effective cross-border solutions in many cases and limits possible cross-
border flows.
With regards to retail markets, competition performance could be significantly improved.
Electricity and gas prices still vary significantly from Member State to Member State for non-
market reasons, and prices have risen steadily for households as a result of significant
increases in non-contestable charges in recent years (network charges, taxes and levies). Poor
competition, as evidence through a range of market structure and conduct indicators, may help
to explain lacklustre consumer satisfaction and engagement in the energy markets, as well as
the slow deployment of innovative retail products such as dynamic price supply contracts. A
number of Member States still practice some form of blanket price regulation for electricity
and/or gas – a practice that may cause gross market distortions.
With regard to consumer protection, rising energy poverty, as well as lack of clarity on the
most appropriate means of tackling consumer vulnerability and energy poverty, hamper the
further deepening of the internal energy market. Switching related fees such as contract
termination charges continue to constitute a significant financial barrier to consumer
engagement. In addition, poor consumer satisfaction with energy bills, and poor awareness of
information conveyed in bills5
suggests that there may still be scope to improve the
comparability and clarity of billing information.
5
European Commission (2016), ' Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU ',
New developments were not addressed by the existing rules
While the principles of the Third Energy Package achieved its main purposes (e.g. more
supplier competition), new developments in electricity markets led to significant changes in
the market functioning in the last five years and dampened the positive effect of the reforms
for customers.
The commitment to decarbonize the economy led to a steep increase of energy generated
from renewable energy sources (RES). The physical nature of renewable electricity generation
– more variable, unpredictable and decentralized than traditional generation – had important
practical consequences on electricity markets and grid operation. As most RES generation can
only be predicted shortly before the actual production (due to weather uncertainties), effective
short-term markets play a key role today. Most electricity from RES is produced decentrally
and fed into the local distributions grid. The market design rules of the Third Package,
however, are based on the predominant generation form of the last decade, i.e. central, large-
scale fossil fuel-based power plants.
In parallel, we have seen a dramatic increase of state interventions into the electricity market.
Sub-optimal rules for the support of RES generation had the unintended effect to distort the
wholesale market price signal. Uncertainty about the ability of the new market to incentivise
sufficient investments led many Member States to introduce national subsidies aiming at
protecting existing generation or triggering new (so-called Capacity Mechanisms). These state
interventions had a significant impact on the market price signals of the market to guarantee
lower consumer prices investment signals and to limit cross-border trade. State interventions
also translated into higher transmission tariffs, ultimately neutralising the positive
developments on wholesale electricity markets and driving up prices for end customers at the
retail level. The volumes of electricity trade affected by such state interventions contracted
under such mechanisms have increase significantly in the last years, with increasing impacts
on functioning of the internal electricity market.
Equally dramatic changes have taken place on the technological side. Power exchanges (PX)
and market coupling are facilitating wholesale trading while digitalisation of energy markets
and metering increasingly allows to use so-called 'demand response' solutions, enabling the
demand of industry, businesses and households to participate in electricity markets. However,
the current legislation has not been effective in removing the primary market barriers
especially for independent demand response service-providers and creating a level playing
field for them. Nor was it designed to address currently known challenges in managing large,
commercially valuable consumption data flows. In addition, technological progress allows
distribution system operators to reduce network investments by locally managing the
challenges posed by increasing amounts of distributed RES E directly connected to
distribution systems. However, outdated regulatory frameworks prevent them from operating
more innovatively and efficiently. And the increased use of online comparison tools is
changing the way consumers interact with the retail market. The nature of the transformation
of Europe's energy system and the gap in the existing legislation to deal with these changes
has been clearly confirmed by stakeholders.
Overall, the Third Package partially fulfilled its original mission and created a stable market-
based approach on which however further legislation should be built on. However, retail level
competition could be significantly improved, and consumer protection strengthened further in
order to ensure that the full benefits of the internal market can be passed through to all EU
consumers. Moreover, the existing rules are not fully adapted to deal with the recent changes
in electricity markets effectively. The direction and speed of such changes had not been fully
foreseen by the Third Package, creating a clear rationale to update market rules so that they
may be able to cope with the reality of today's energy system.
In the area of security of electricity supply, the evaluation finds that the objectives that
inspired SoS Directive are still relevant. But the Directive itself was quickly overruled by
newest EU rules and had a limited impact on the security of electricity supply in Europe.
Moreover, its objectives match only partially the current needs on security of supply in
Europe, in particular concerning risk preparedness. Indeed, the Directive failed to address
emergency related aspects, i.e. how to make sure that Member States are aware and duly
prepared to all kind of security of supply risks, that they clarify roles and responsibilities in
case of emergency and that they take into consideration the potential cross border impact
when adopting safeguard measures.
2. INTRODUCTION
2.1. Scope of the evaluation
The evaluation covers four EU Directives and Regulations concerning the electricity sector,
namely the three forming the so-called "Third Electricity Package", adopted in 2009, as well
as the Directive on Electricity Security of Supply (SoS Directive), adopted already in 2005.
The main evaluated acts are:
 Directive 2009/72 of the European Parliament and of the Council of 13 July 2009
concerning common rules for the internal market in electricity and repealing Directive
2003/54/EC, OJ L 211, 14.8.2009, p. 55–93 (henceforth the "Electricity Directive");
 Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13
July 2009 on conditions for access to the network for cross-border exchanges in
electricity repealing Regulation (EC) No 1228/2003, OJ L 211, 14.8.2009, p. 15–35
(henceforth "Electricity Regulation");
 Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13
July 2009 establishing an Agency for the Cooperation of Energy Regulators. OJ L 211,
14.8.2009, p. 1–14 (henceforth "ACER Regulation");
 Directive 2005/89 of the European Parliament and of the Council of 18 January 2006
concerning measures to safeguard security of electricity supply and infrastructure
investment, OJ L 33, p.22 (henceforth, "Security of Supply or SoS Directive").
The EU regulatory framework for gas markets6
will only be evaluated partly, namely only for
those provisions which concern common "horizontal" topics in electricity and gas legislation,
such as the provisions on governance (e.g. rules on the European Agency for the Cooperation
of Energy Regulators (ACER)), as well as open and fair retail markets, smart meters and
consumer protection rules7
.
6
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in natural gas and repealing Directive 2003/55/EC OJ L 211, 14.8.2009, p. 94–
136 ("Gas Directive") and Regulation (EC) No 715/2009 of the European Parliament and of the Council of
13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation
(EC) No 1775/2005 OJ L 211, 14.8.2009, p. 36–54 ("Gas Regulation").
7
See e.g. Articles 5-9 of the Electricity and Gas Regulations. Parallel provisions can also be found in the
Directives, see e.g. Articles 4, 5, 6 and 39 of the Electricity Directive and the corresponding Articles 5, 7, 8
and 43 of the Gas Directive.
Recent EU legislation on transparency (e.g. the Regulation (EU) No 1227/2011 on wholesale
energy market integrity and transparency - "REMIT"8
) or on infrastructure (e.g. Regulation
(EU) No 347/2013 on guidelines for trans-European energy infrastructure9
- "TEN-E
Regulation") will not be subject of this evaluation, but considered in separate evaluations. The
evaluation will take into account, where possible, recently adopted delegated acts under
comitology rules (e.g. the CACM Guideline10
, the Requirement for Generators network
code11
).
For further details see the two published Evaluation Roadmaps (henceforth, "the Evaluation
Roadmaps"):
 Evaluation of aspects of the regulatory framework of the EU electricity markets – AP
2015/ENER/06112
;
 Evaluation of the Directive 2005/89/EC on security of electricity supply – AP
2016/ENER/03213
.
The evaluation is based on a several comprehensive monitoring reports on the functioning of
the implemented market legislation14
, as well as on a number of specific public consultations
issued by the Commission to verify the effects of its legislation (see the consultative
communications "Launching the public consultation process on a new energy market design"
(COM(2015) 340 Final)15
, "Delivering a new deal for energy consumers" (COM(2015) 339
Final)16
, as well as two public consultations on "Risk preparedness in the area of security of
electricity supply"17
and "Retail Energy Markets"18
. Other consultations via public events
such as forums and conferences have also contributed to gather feedback from stakeholders
on the functioning of the Third Energy Package. For instance, a High Level Conference on
electricity market design took place on 8 October 2015 in Florence. The Florence Forum was
8
Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on
wholesale energy market integrity and transparency, OJ L 326, 8.12.2011, p. 1–16
9
Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines
for trans-European energy infrastructure and repealing Decision No 1364/2006/EC and amending
Regulations (EC) No 713/2009, (EC) No 714/2009 and (EC) No 715/2009, OJ L 115, 25.4.2013, p. 39–75
10
Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and
congestion management, OJ L 197, 25.7.2015, p. 24–72
11
Commission Regulation (EU) 2016/631 of 14 April 2016 establishing a network code on requirements for
grid connection of generators, OJ L 112, 27.4.2016, p. 1–68
12
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf
13
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf
14
See (2012 monitoring report; 2014 Monitoring Report; Energy Union Communication 2015); "Report on the
progress concerning measures to safeguard security of electricity supply and infrastructure investment"
COM (2010) 330 final.
15
http://ec.europa.eu/energy/sites/ener/files/documents/1_EN_ACT_part1_v11.pdf
16
https://ec.europa.eu/energy/sites/ener/files/documents/1_EN_ACT_part1_v8.pdf .
17
https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-
supply of 15 July 2015
18
https://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market.
set up to discuss the creation of true internal electricity and gas markets in Europe19
. The
Third Energy Package and its implementation was discussed in this stakeholder forum at
several occasions.
2.2. Purpose of the evaluation
This evaluation provides the basis for the impact assessment for the initiative to review the
existing EU electricity market design rules20
, including the creation of a new framework on
security of electricity supply21
("Market Design Initiative"). It seeks to contribute to the
formulation of an adequate and effective policy response to the challenges electricity markets
are currently facing.
The evaluation will assess whether the abovementioned EU rules introduced in 2006 and 2009
have been successful in meeting their stated objectives, in particular achieving a better-
functioning internal electricity market and ensure a higher level of security of electricity
supply. The evaluation will analyse the effectiveness, efficiency, coherence, relevance and EU
added value of the relevant measures in relation to the objectives strived by the Third
Electricity Package and the Security of Electricity Supply Directive. In view of some recent
changes in electricity markets (see in detail below), the evaluation will also analyse the
possible relevance of these changes for EU electricity market regulation and verify to what
extent the electricity market rules adopted in 2006 and 2009 and the EU internal energy
market framework are able to respond to the energy sector's new challenges and to meet
current and future expectations on security of supply in Europe.
3. BACKGROUND TO THE EVALUATED INITIATIVES
3.1. Objectives of the Initiatives
Objectives of the Third Electricity Package
3.1.1.
Prior to the EU's liberalisation initiatives, electricity was produced, purchased, transported
and sold mostly by domestic, state-controlled monopoly companies. Competition in electricity
markets was almost absent, with only limited cross-border exchanges of electricity. This,
however, led to manifold problems in terms of cost-efficiency and security of supply.
The EU has taken the initiative to gradually liberalise EU energy markets and to create
internal electricity market ("IEM"). The process started with the adoption of the First
Electricity Directive in 199622
. The liberalisation initiative brought some first successes, but
19
The participants are national regulatory authorities, Member States, the European Commission, transmission
and distribution system operators, electricity traders, consumers, network users, and power exchanges. The
Forum convenes once or twice a year.
20
Commission's legislative initiative on "market design and regional electricity markets, and coordination of
capacities to ensure security of supply, boosting cross-border trade and facilitating integration of renewable
energy, including review of the Agency for the Cooperation of Energy". Agenda Planning reference:
2016/ENER/007.
21
Agenda Planning reference: 2016/ENER/026.
22
The Directive provided for a partial market opening, giving new energy suppliers a possibility to transport
their energy on grids owned by the incumbent companies, under conditions to be negotiated with the
incumbent (so-called “negotiated Third Party Access”). The biggest consumers (e.g. industrial consumers)
were given the right to choose their supplier. Knowing about the incentives of suppliers to use their grids to
avoid competition, the Directives also required grid owners to create separate accounting for their grid
business, and to nominate a dedicated management for their grids which should not be active in
progress remained limited. In 2003, a Second Electricity Package was therefore adopted to
stimulate the development of competition in electricity markets23
.
Despite good progress in some individual countries, the Commission’s systematic sector
inquiry into the energy sector from 2005-200724
revealed that significant obstacles to
competitive cross-border markets remained, and that consumers could still not fully benefit
from liberalisation. Incumbent companies - mostly still state owned - had managed to
maintain their dominant positions and tried to avoid competition from domestic and foreign
companies. They notably systematically used their control over their electricity grids to avoid
competition from new energy suppliers. The results of the sector inquiry triggered the
Commission’s proposal for a comprehensive Third Electricity Package. The new legislation
mainly aimed at addressing the problems identified in the Sector Inquiry25
, namely:
 market concentration and market power in wholesale and retail markets;
 vertical foreclosure (in particular the inadequate unbundling of network and supply);
 lack of market integration (cross border and national);
 lack of transparency;
 insufficient independent regulatory oversight;
 distorted price formation mechanisms (regulated prices and cross-subsidies); and
 downstream market foreclosure (access to consumers).
The identified problems harmed competition, leading to unnecessarily high prices and
limiting choice for consumers. Incomplete and inefficient unbundling rules for TSOs26
prescribed by the Second Directive resulted in structural conflict of interest. Insufficient
unbundling of networks from the competitive parts of the sector (vertical integration) resulted
in lack of investment in infrastructure and discriminatory conduct on the supply and
production markets downstream and upstream from network activities. Consequently, the
Commission recommended taking urgent action with regard to some key areas of the
regulatory framework27
.
The overarching objective of the Third Energy Package was to complete the internal market
for electricity and gas. Within this objective the EU intended to improve competition in the
production/supply businesses (“management and accounting unbundling”). Member States were obliged to
provide for basic regulatory oversight of these rules.
23
The Second Package replaced the right for grid owners to negotiate grid access rules freely with potential
grid users and introduced regulated Third Party Access rules. For this purpose, every Member State had to
create national energy regulators to determine grid access tariffs and other access conditions, and to better
detect discriminating practices by incumbents- The new Package also reinforced the existing loose
unbundling rules by imposing a legal separation between grid and production/supply business (“legal
unbundling”). It also prescribed a mandatory path for full market opening until 2004 (for non-household
customers) and 2007 (for household customers).
24
http://ec.europa.eu/competition/sectors/energy/2005_inquiry/index_en.html
25
See also: Impact assessment for the Third Package (SEC(2007) 1179/2)
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52007SC1179
26
See in this context also the numerous antitrust investigations of the Commission between 2006 and 2009,
identifying systematic problems of network foreclosure and ineffective unbundling rules (see eg. cases .g.
E.ON http://europa.eu/rapid/press-release_IP-09-1099_en.htm or RWE http://europa.eu/rapid/press-
release_MEMO-07-186_en.htm?locale=en).
27
COM (2006) 841, Communication from the Commission, Prospects for the internal gas and electricity
market.
electricity sector through better regulation and unbundling aimed at removing obstacles
resulting from the fact that most established national incumbent electricity suppliers were
vertically integrated28
and could use the control over their electricity grids to keep off
potential new competitors. The goal of improving competition was coupled with improving
security of supply, inter alia by strengthening the incentives for sufficient investment in
transmission and distribution capacities.
The Third Energy Package's objectives in the area of retail markets and consumer
empowerment were: (i) to enable effective consumer choice and boost competition through
the availability of transparent, comparable and reliable information on prices, costs, energy
consumption, fuel mix and environmental impact of electricity suppliers; and (ii) to
enable/incentivize energy savings through sufficiently frequent feedback to consumers about
(the cost of) their energy consumption. In order to guarantee consumer choice, the Third
Package provides that all customers shall be free to buy electricity/natural gas from the
supplier of their choice as from 1 July 200729
.
At the same time the Third Energy Package sought to ensure protection of vulnerable
consumers and to mitigate the problem of energy poverty. This objective was put in place to
facilitate the decision by Member States to proceed with electricity and gas market
liberalisation, as it was recognised by the legislators that actions to protect vulnerable
consumers were needed in the context of liberalising the European energy market30
.
In a broader context, the Third Energy Package also served the overall goals as formulated in
the EU’s 2020 Strategy (or so-called "Lisbon strategy") for smart, sustainable and inclusive
growth31
.
Objectives of the Security of Electricity Supply Directive
3.1.2.
As concerns security of energy supply, the first two liberalization packages of 1996 and 2003
contained only rudimentary rules. Directive 2003/54/EC32
was based on the assumption that a
stable regulatory framework would facilitate the necessary investments in new generating
capacity and networks, thereby contributing to security of supply. It contained a mere
obligation for Member States to monitor security of supply issues, so that appropriate
measures could be taken if security of supply was compromised. Finally, Member States were
allowed to take safeguard measures in the event of a "sudden crisis" in the energy market.33
28
In a vertically integrated company multiple steps in the typical distribution process are consolidated. In other
words, a vertically integrated company performs tasks of a producer, distributor and retailer.
29
Article 33 of the Electricity Directive and Article 37 of the Gas Directive
30
As stated in paragraph (2) of the Directive 2003/54/EC concerning common rules for the internal market in
electricity, which says that "important shortcomings and possibilities for improving the functioning of the
market remain, notably concrete provisions are needed to ensure a level playing field in generation and (..)
ensuring that the rights of small and vulnerable customers are protected (…)."
31
COM (2010) 2020, Communication from the Commission, Europe 2020, A strategy for smart, sustainable
and inclusive growth.
32
Directive 2003/54/EC of the European Parliament and the Council of 26 June 2003 concerning common
rules for the internal market in electricity OJ L 176, 15.7.2003, p.37
33
For more details about the baseline situation on Security of Supply, see the "Note of DG Energy &
Transport on Directives 2003/54/EC and 2003/55/EC on the Internal market in Electricity and Natural Gas –
Measures to secure electricity supply", dated 16/01/2004.
Between 2000 and 2003, several incidents (blackouts in California in 2000-2001; European
heat wave in 2003; several blackouts in Europe, especially one in Italy, that affected 55
million of Europeans and lasted up to 24 hours) raised concerns about the lack of cooperation
between European grid operators and network adequacy (i.e. having sufficient transmission
capacities available at all times), but also on the market ability to deliver the required
demand/supply balance (e.g. following the nuclear phase out decision in Germany in 2001).
With electricity markets growing together and increasing interdependences between national
grids, it turned out that some more concrete rules on how to safeguard security of supply and
to manage emergency situations were needed, notably to avoid that national measures would
endanger security of supply in neighboring countries. A closer integrated market necessitated
indeed more aligned, transparent and non-discriminatory security of supply policies at
national level, the absence of which could lead to problems with security of supply and
distortions of competition.34
The SoS Directive therefore came in to complement the Second Package rules with the
objective to safeguard the security of electricity supply so as to ensure the proper functioning
of the internal market for electricity. However, its provisions were not prescriptive enough
and were soon superseded by new EU rules35
.
3.2. Description of the initiatives
Third Electricity Package
3.2.1.
The Third Electricity Package followed up on the liberalisation steps in the two "packages"
from 1996 and 2003. It built upon key concepts established in the previous packages (e.g.
Third Party Access to networks, unbundling, regulatory oversight, right to choose a supplier)
and developed these further in order to create a regulatory framework that would allow for
integrated and competitive EU electricity wholesale and retail markets, to the benefit of
consumers.
The legislation of the Third Energy Package covers five main areas:
1. unbundling energy suppliers from network operators;
2. strengthening the independence of regulators;
3. establishment of the Agency for the Cooperation of Energy Regulators (ACER);
4. cross-border cooperation between transmission system operators and the creation of
European Networks for Transmission System Operators;
5. open, fair retail markets and consumer protection.
(1) Unbundling is the separation of energy supply and generation from the operation of
transmission or distribution networks. It is based on the assumption that if a single company
operates a transmission or distribution network and generates or sells energy at the same time,
34
Commission Staff Working Paper, Extended Impact Assessment, (COM(2003) 740 final).
35
Directive 2005/89/EC was to be implemented by 24th
February 2008. By then, the Commission had already
adopted its proposal for a Third Package (that would be adopted in 2009) and new guidelines for trans-
European energy networks (TEN-E) were in place, introducing the concept of 'project of European interest'
and strengthening project coordination (Decision No 1364/2006/EC of the European Parliament and of the
Council of 6 September 2006 laying down guidelines for trans-European energy networks and repealing
Decision 96/391/EC and Decision No 1229/2003/EC).
it may have an incentive to obstruct competitors' access to infrastructure or the market. This
prevents fair competition in the market and can lead to higher prices for consumers. Under the
Third Package, unbundling for transmission system36
operators must take place in one of three
ways, depending on the preferences of individual EU countries:
 Ownership Unbundling where all integrated energy companies sell off their gas and
electricity networks. In this case, no supply or production company is allowed to hold
a majority share or interfere in the work of a transmission system operator
 Independent System Operator (ISO) where energy supply companies may still
formally own gas or electricity transmission networks but must leave the entire
operation, maintenance, and investment in the grid to an independent company
 Independent Transmission System Operator (ITO) where energy supply companies
may still own and operate gas or electricity networks but must do so through a
subsidiary. All important decisions must be taken independent of the parent company
The relevant provisions concerning distribution system operators require legal unbundling of
those operators that serve more than 100,000 customers.
Member States may decide not to apply unbundling rules to DSOs serving less than 100.000
customers, in which cases only accounting unbundling applies. It is the discretion of Member
States whether or not to apply this threshold or to set a lower threshold.
(2) A competitive internal energy market cannot exist without independent regulators who
ensure the application of the rules. The Commission's assessment of the role of regulators in
2007 showed a number of deficiencies: the effectiveness of regulators was frequently
constrained by a lack of independence from government and insufficient powers. Under the
Third Package, the requirements for national regulators have undergone a number of changes.
Specifically: (1) regulators must be independent from both industry interests and government.
They must be their own legal entity and have authority over their own budget. National
governments must also supply them with sufficient resources to carry out their operations;
(2) regulators can issue binding decisions to companies and impose penalties on those that do
not comply with their legal obligations; (3) electricity generators, gas network operators, and
energy suppliers are required to provide accurate data to regulators; (4) regulators from
different EU countries must cooperate with each other to promote competition, the opening-up
of the market, and an efficient and secure energy network system. In order to support the
implementation of the Directive, the Commission issued an interpretative note on the energy
regulatory authorities37
.
(3) In order to help the different national regulators cooperate and ensure the smooth
functioning of the internal energy market, the EU established the Agency for the Cooperation
of Energy Regulators (ACER). ACER is independent from the Commission, national
governments, and energy companies. Its work involves:
 drafting guidelines for the operation of cross-border gas pipelines and electricity
networks
 reviewing the implementation of EU-wide network development plans
36
Transmission System Operators (“TSOs”) are high voltage/high pressure grids which transport the main
electricity over long distances. Distribution System Operators (“DSOs”) are usually smaller grids, often at
regional or local level, mainly for the distribution to end customers. Unbundling requirements exist also for
DSOs (basically legal, functional and accounting unbundling for all TSOs with more than 100000
customers).
37
https://ec.europa.eu/energy/sites/ener/files/documents/2010_01_21_the_regulatory_authorities.pdf
 deciding on cross-border issues if national regulators cannot agree or if they ask it to
intervene
 monitoring the functioning of the internal market including retail prices, network
access for electricity produced from renewables, and consumer rights
(4) The Third Electricity Package also created a framework for the co-operation of
Transmission System Operators ("TSOs") by creating the European Network for Transmission
System Operators for Electricity ("ENTSO-E"). Before the reform, national transmission
system operators were responsible for ensuring electricity and natural gas is effectively
transported through pipelines and grids in a secure manner, without any legal framework for
the coordination of their activities. Due to the cross-border nature of Europe's energy market,
they must work together to ensure the optimal management of EU networks. These
organisations develop standards and draft network codes to help harmonise the flow of
electricity and gas across different transmission systems. They also coordinate the planning of
new network investments and monitor the development of new transmission capabilities. This
includes publishing a Europe-wide ten year investment plan to help identify investment gaps
every two years.
(5) In order to pursue the objective of consumer empowerment, the Third Energy Package
contains provisions on a number of aspects related to electricity and gas supplies, such as
switching and contract termination fees, billing of electricity and gas consumption38
, the right
to receive information on energy consumption, and quickly and cheaply resolve disputes.
With regard to consumer protection, the Third Energy Package prescribes the Member States
to define the concept of vulnerable consumers at the national level at the national level, adopt
the measures to protect such consumers and to address energy poverty.
An important tool to enable competition and consumers' choice in the retail sector is the
default prohibition of applying regulated prices39
. Regulated prices are unlawful under current
Gas and Electricity Directives as interpreted by the Court of Justice40
, unless they form part of
a public service obligation (PSO) imposed on undertakings in electricity or gas sector and
fulfil specific conditions prescribed by the Third Package.
Smart metering is a crucial measure to allow taking informed decisions by consumers. In
recognition hereof, provisions were included in the Gas Directive 2009/73/EC and in the
Electricity Directive 2009/72/EC fostering the smart metering roll-out and targeting the
active participation of consumers in the energy supply market, through (i) transparency
38
The issue of billing is also addressed by Energy Efficiency Directives (addressed in this evaluation in order
safeguard coherence), as well as in the Renewable Energy Directive (addressed in the REFIT for that Directive).
39
A regulated supply price is considered as a price subject to regulation or control by public authorities (e.g.
governments, NRAs), as opposed to being determined exclusively by supply and demand. This definition
includes many different forms of price regulation, such as setting or approving prices, standardisation of prices
or combinations thereof.
40
The Court of Justice has ruled that supply prices must be determined solely by supply and demand as opposed
to State intervention as from 1 July 2007 (See: Case C-265/08, Federutility and others v Autorità per l’energia
elettrica e il gas). The Court based its interpretation on the provision stating that Member States must ensure that
all customers are free to buy electricity/natural gas from the supplier of their choice as from 1 July 2007 (Article
33 of the Electricity Directive and Article 37 of the Gas Directive interpreted in light of the very purpose and the
general scheme of the directive, which is designed progressively to achieve a total liberalisation of the market in
the context of which, in particular, all suppliers may freely deliver their products to all consumers.
provided by the meter (timely and accurate information on consumption: predictability of
costs, awareness), (ii) third party access to data and interoperability (facilitate competitive
offers at the customer end, facilitate system integration, lower cost) and (iii) due regard to best
practises (for instance installation of in-home displays, connection to home automation, self-
consumption, etc.)41
.
The intervention logic table from the Impact Assessment for the Third Package42
illustrates
the relationship between the measures and the structural problems addressed by the respective
measures.
Table 1: Intervention logic table
Problems
Measures
Market
concentratio
n
Vertical
foreclosur
e
Lack of
market
integration
and
cooperation
(cross-border
and national)
Lack of
transparenc
y
(insufficient
info e.g. on
generation &
capacities)
Distorted
price
formation
(e.g. regulated
prices, cross-
subsidies)
Downstrea
m
market
foreclosure
(access to
customers)
Secure grid
investments
& cross-
border
connections
TSO
unbundling
Improves TPA
and thus
market entry
tackles
problem at
the root
facilitates TSO
cooperation
and mergers
eliminates
preferential
information
flows
eliminates
cross subsidies
N/A Promotes e.g.
interconnectio
n
investment
Strengthen
NRA
To ensure level
playing field;
To better
monitor
unbundling
obligations
To monitor
management
of
interconnectio
n capacity
To monitor
transparency
obligations
To monitor
cross-subsidies
and determine
tariffs
To monitor
access to
customer data
To monitor
investment in
grid &
generation
ACER Indirect effect Indirect
effect
closes
regulatory
cross-border
gap, oversees
ETSO+/GTE+
oversees
ETSO+/GTE+
Indirect effect Indirect effect To assess
crossborder
Art. 22
requests
ENTSO-E To improve
interconnectio
n and create
larger markets
To develop
common
rules on
TPA and
grid
connection
To develop
market and
technical
codes,
coordinate grid
operation
To develop
market and
technical
codes, rules
on trading &
transparency
To improve
interconnectio
n and thus
liquidity
N/A 10-year
investment
plan, security
and reliability
rules
Transparenc
y
obligations
To facilitate
market entry
To
overcome
information
advantage
of
integrated
To facilitate
market entry
tackles
problem at the
root
To reveal
cause of price
deformation
To overcome
information
advantage of
integrated
groups
To increase
network
security &
reliability
DSO
unbundling
To improve
market entry
strengthen
resources of
DSOs
NRA to
monitor
transparency
obligations
To strengthen
compliance
officers, NRA
to
to eliminate
brand con-
fusion; NRA
to
N/A
41
These provisions were then complemented with provisions under the Energy Performance in Buildings
Directive 2010/31/EU, and the Energy Efficiency Directive 2014/32/EU which amongst others added demand
response as a specific means for energy efficiency benefits via novel energy services based on smart metering
data.
42
SEC(2007) 1179/2 Commission Staff Working Document, Accompanying the legislative package on the
internal market for electricity and gas COM(2007) 528 final, COM(2007) 529 final, COM(2007) 530 final,
COM(2007) 531 final, COM(2007) 532 final, SEC(2007) 1180, Impact Assessment, page 91-92.
Security of Electricity Supply Directive
3.2.2.
The adoption of the Security of Electricity Supply Directive in 2006 was a first attempt to
provide the EU with a framework on security of electricity supply. The Directive came at a
point in time where a comprehensive set of energy acquis was already in place (2nd IEM
package, RES, EE, infrastructure guidelines), but rules addressing specifically supply security
and secure operation of the electricity system were still missing.
The SoS Directive required Member States to lay down an appropriate and stable framework
which would facilitate security of electricity supply, as a precondition for the proper
functioning of the internal market for electricity. It mainly contained principles to ensure
security of supply and stable grid operation without undue distortions of the internal market,
e.g. by an adequate level of generation capacity, an adequate balance between supply and
demand, and an appropriate level of interconnection between Member States. It also required
a national regulatory framework that guarantees stable investments in networks, as well as
some reporting obligations on national security of supply policies.
The SoS Directive came to complement the framework set by the Second Package and,
together with it, provided a co-ordinated set of basic rules for the following issues:
1. Requirement for a stable and transparent wholesale market design - facilitating
generation investment and energy efficiency measures in a competitive market
framework, and preventing MS from intervening in the markets,
2. Ensuring that network operation rules are agreed and adhered to by transmission
system operators,
3. Providing for the maintenance and renewal of transmission and distribution networks,
4. Introduction of a monitoring and reporting system for important interconnection
projects.
The table below presents an overview of the 4 issues outlined above:
Table 2: Overview of security of supply measures
Relevant
legislation
Stable and transparent
wholesale market design -
facilitating generation
investment in a
competitive market
framework
Ensuring network
operation rules are
agreed and adhered
to by transmission
system operators
Providing for the
maintenance and
renewal of
transmission and
distribution
networks
Introduction of
a monitoring
and reporting
system
D 2005/89 Art 3(2)(g), Art 5 Art 4(1), 4(3), 4(4) Art 4(2), 6(1) Art 6(2), 7
D 2003/54 Art 3, Art 6, Art 7 Art 24 Art 23(2) Art 4
Art 28(1)(c)(d)
R 1228/2003 Art 5, 8(4) Art 6(6)
Source: DG ENER
The obligations imposed on Member States as well as the Directive's rationale are illustrated
in the following intervention logic scheme:
Figure 1: Intervention logic scheme for security of supply
Source: DG ENER
4. EVALUATION LOGIC
The evaluation logic is framed under five different evaluation categories: Effectiveness,
Efficiency, Relevance, Coherence and EU added Value (Figure 2). Effectiveness considers
how successful the initiatives have been in achieving or progressing towards their objectives.
This will be done by comparing the objectives with the actual effects generated by the
initiatives (outputs, results, and impacts). Efficiency considers the relationship between the
resources used (inputs) and the effects generated by the Directives (outputs, results, and
impacts). Relevance looks at the relationship between the needs and problems of the
electricity sector and the objectives of the legislation . Coherence looks for evidence of
synergies or inconsistencies between the Directives and other EU policies which are expected
to work together. EU added value assesses whether action continues to be justified at the EU
level and looks for changes which it can reasonably be argued are due to EU intervention,
rather than any other factors. For each of these categories a series of evaluation questions, set
out in the mandate, are given (see the published Evaluation Roadmaps). These questions are
presented under Section 7 for each category.
Figure 2: Fitness Check evaluation logic
5. EVALUATION METHOD
The Evaluation Roadmaps were prepared in October 2015 and made publicly available43
.
Since 2001, the European Commission has reported yearly on the progress and
implementation of the internal electricity market. Indeed, since the adoption of the Electricity
Directive, Article 47 legally obliges the Commission to monitor the application of the
Directive and to submit an overall progress report to the European Parliament and the Council
on an annual basis. Such monitoring and reporting has been conducted yearly44
. The findings
and conclusions of these reports have fed into the present Evaluation. Moreover, several
studies have been conducted by external experts on behalf of the European Commission to
assess in detail different aspects of the implication if the Third Energy Package on the
electricity market45
.
As the implementation of the rules of the Third Energy Package is ongoing (e.g. adoption of
last network codes and implementation of adopted network codes), the evaluation was based
on the status quo of the implementation46
. Throughout the evaluation period, legal documents,
position papers, studies, reports, statistical data and other pieces of written evidence were
reviewed. The evaluation made use of a number of studies prepared for the Impact
Assessment in support of the proposal for a new Market Design. These make up a bulk of
close to 30 studies, most of which carried by independent parties and covering a range of
43
Supra note.
44
https://ec.europa.eu/energy/en/topics/markets-and-consumers/single-market-progress-report
45
See the list of the studies with reports carried out for the European Commission in the field of energy market
https://ec.europa.eu/energy/en/studies?field_associated_topic_tid=42
46
However, problems in the implementation, such as the difficulties amongst Member states to agree on
network codes, provided evidence in itself which was used for the evaluation.
different methodologies, including both qualitative and quantitative aspects47
. For detailed
information on the content, authors and how to access such studies we refer the reader to
Annex V of said Impact Assessment.
Kex data (such as raw market data) are based on data supplied by ACER, which acts as
primary collector of market data from EU Member States and carries a responsibility to make
the data comparable across time and geographies.
In addition, two specific stakeholder consultations48
were launched on the 15 July 2015 in the
form of a consultation on the future initiative on electricity market design49
and on risk
preparedness50
. The stakeholder consultations ended in 9 October 2015. They were open to
EU and Member States' authorities, energy market participants and their associations, SMEs,
energy consumers, NGOs, other relevant stakeholders and Citizens.
A wide public consultation51
on a new energy market design (COM(2015)340 was conducted
from 15 July 2015 to 9 October 2015. It was open to EU and Member States' authorities,
energy market participants and their associations, SMEs, energy consumers, NGOs, other
relevant stakeholders and citizens. The public consultation on a new market design aimed at
obtaining stakeholder's views on how fit the current regulatory framework is to meet the
challenges that the market faces and on how the issues may need to be addressed in a redesign
of the European electricity market.
As regards representativeness and quality, the Commission received 320 replies to the
consultation. About 50 % of submissions come from national or EU-wide industry
associations. 26% of answers stem from undertakings active in the energy sector (suppliers,
intermediaries, customers), 9% from network operators. 17 national governments and several
national regulatory authorities submitted also a reply. A significant number of individual
citizens and academic institutes participated in the consultation.
A public consultation on risk preparedness in the area of security of electricity supply was
organized between July 15th and October 9th 2015. This public consultation aimed at
obtaining stakeholder's views in particular on how Member States should prepare themselves
and co-operate with others, with a view to identify and manage risks relating to security of
electricity supply.
47
For some aspects concerning supplementary evidence, only preliminary results were available at the time of
the Evaluation; however, since more than one study was investigating main issues (for example
competitiveness or liquidity of short-term markets), the robustness of the Evaluation was not put into
question.
48
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
49
The Commission issued two Communications - (COM(2015) 340 Final) "Launching the public consultation
process on a new energy market design" and (COM(2015) 339 Final) "Delivering a new deal for energy
consumers" – as well as a public consultation on risk preparedness in the area of security of electricity
supply
50
https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-
supply
51
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
The consulation resulted in 75 responses including public authorities (e.g. Ministries, NRAs),
international organizations (e.g. IEA), European bodies (ACER, ENTSO-E) and most relevant
stakeholders, including SMEs, industry and consumers associations, companies and citizens.
The following paragraphs provide a summary of the responses.
The results of the public consultations have been discussed in the Inter-Service Steering
Group (ISG) (it was decided to use the same ISG for both evaluations: SoS and Electricity
Market Design).
A study52
was carried out to analyse risk preparedness policies in the Member States.
For detailed information about the studies and documents that constituted the basis for this
Evaluation as well as methodologies applied thereto, we refer also to Annex 1 and 2 of this
Evaluation.
6. IMPLEMENTATION OF THE INITIATIVES AND STATE OF PLAY
Given the complex nature of the Third Energy Package, the Commission has assisted Member
States in the process of the implementation of the new rules, e.g. by discussing draft
legislative measures and implementation solutions with the national governments and
regulators (as well as with ACER, ENTSO-E and other stakeholders) on an on-going basis
since its adoption. This intensive implementation cooperation has proven efficient to prevent
deficiencies at national level at an early stage as well as to resolve existing incompatibilities
between national and EU legislation. In order to facilitate the implementation of the Third
Energy Package, the Commission has also issued a number of interpretative notes, providing
guidance to national authorities and stakeholders concerned53
.
Several Member States were nevertheless reluctant to transpose all required provisions of the
Third Electricity Package on time (i.e. by 3.3.2011). The Commission has therefore also
resorted to formal legal action where required.
In a first step ("transposition checks"), the Commission opened 19 infringement proceedings
against 19 Member States to ensure full transposition of the Electricity Directive between
September and November 2011. Non-resolved cases were followed up in 2012-2013 by
sending reasoned opinions and referrals to Court. At present, all of the infringement
proceedings for partial transposition of the Electricity Directive have been closed as the
Member States achieved full transposition in the course of the proceedings.
In a second step ("non-conformity checks"), focus has been put on possible incorrect
transpositions or EU law incompatible application of the Third Electricity Package. Priority
was given to violations having the highest impact on the functioning of the internal market,
e.g. incomplete unbundling of transmission activities from production or supply, violations of
the principle of independence of national regulators, or disregard of consumer protection
rules. On this basis, the Commission opened so-called "EU-Pilot" cases against a number of
52
Review of current national rules and practices relating to risk preparedness in the area of security of
electricity supply, prepared by VVA for DG Energy. (Contract ENER/B4/ADM/2015-623/SI2.717165).
53
Interpretative notes are available at http://ec.europa.eu/energy/en/topics/markets-and-
consumers/market-legislation.
Member States54
. In parallel, it carried out a structured dialogue with the Member States so as
to resolve the identified implementation problems. In many cases, such dialogue with national
governments has brought satisfactory solutions and the "EU-Pilot" cases could be closed.
However, as of 1st
July 2016, 8 of these EU Pilot cases have resulted in infringement
procedures where, inter alia, violation of EU electricity market rules is at stake. Further EU-
Pilots cases remain open and might lead to more infringement procedures.
In parallel to these systematic non-conformity procedures, the Commission has also acted on
an ad hoc basis, following up on specific non-conformity problems of which the Commission
became aware through complaints from individuals or undertakings, or emanating from
contacts with National Regulators or based on the Commission's own assessment. Here again,
the Commission first opened EU-Pilot cases against the respective Member States. If the issue
raised was not resolved at the EU-pilot phase, the Commission opened an infringement
procedure. As of 1st
July 2016, two such infringement procedures are still pending.
At the time of writing, some form of price regulation exists in 17 Member States55
.
A regulated end-user price is considered as a price subject to regulation or control by public
authorities (e.g. governments, NRAs), as opposed to being determined exclusively by supply
and demand. This definition includes many different forms of price regulation, such as setting
or approving prices, standardisation of prices or combinations thereof.
Price regulation for non-households has been systematically challenged via infringements
while price regulation for households56
has not been yet subject to infringement procedures.
Price regulation for non-households has been challenged by the Commission as a priority due
to the more important market distortion that the regulation of prices for large and potentially
most active consumers represents – after all these consumers cover an important amount of
energy sold on the market.
Deregulating household prices may be politically unpopular as regulation in Member States is
often justified by social policy objectives and/or lack of competition and refocussing the
support only to those in need (such as energy poor) would reduce the access of middle and
high income groups to the discounted prices. Therefore an informal approach via bilateral
consultations with Member States was initially preferred to discuss reasonable and sustainable
alternatives to price regulation and accompanying measures. However, infringement actions
against price regulation for households are not excluded in the follow-up to informal
consultations.
The Commission published a detailed report on its enforcement activities in relation to the
Third Electricity Package (see the document Enforcement of the Third Internal Energy
Market Package (SWD(2014) 315 final57
).
The regulatory framework of the Third Package has also created new Commission
competences to verify the implementation of EU market rules. It created a competence for the
54
EU Pilot is a scheme designed to resolve compliance problems without having to resort to infringement
proceedings. It is based on a website which the Commission and national governments use to share
information on the detail of particular cases, and give governments a chance to remedy any breaches through
voluntary compliance.
55
BG, HR, CY, DK, FR, UK, EL, HU, IT, LT, LI, MT, PL, PT, RO, SI, ES.
56
And other comparable customers such as SMEs, schools, hospitals etc.
57
https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex6_0.pdf. Figures
presented here are updated, to the extent necessary.
Commission to provide an opinion on draft decisions of national regulators who have to
decide whether national TSOs can be considered as compliant with unbundling rules (so-
called "certification" of TSOs, see Article 10 and 11 of the Electricity Directive). The
Commission has provided opinions in more than 100 cases since 2009. The Third Package
gave the Commission also the competence to decide on the compatibility of national
exemptions from EU rules in case of investments into major new infrastructure (see Article 17
Electricity Regulation). To the extent pertinent, the experience gained from these ex-ante
approval procedures will be fed into the evaluation (see "Effectiveness" section).
Regarding security of electricity supply, Member States had to implement SoS Directive by
24th February 2008. The Commission issued an interpretative note, meant to help Member
States in implementing the Directive58
. Non-transposition infringement procedures were
opened in 2008 against 17 Member States. Between 2009 and 2010, Member States produced
comprehensive correlation tables reflecting the transposition in their national legislative
frameworks, which served as a basis for the Commission when carrying out systematic
conformity checks. Ultimately, no infringement procedure was opened on non-conformity
with the SoS Directive. This was, on the one hand, due to the fact that the SoS Directive
contains, apart from monitoring and reporting obligations, only a few, rather general,
obligations, often in the form of broad principles to be respected. On the other hand, the
"Third Package", which entered into force in 2009, superseded some of the rather general
provisions of the SoS Directive (e.g. notably concerning grid operation, grid investment or
congestion management rules).
Accordingly, the Commission received only a limited number of complaints related to this
Directive. None of these led to the opening of an infringement procedure on security of
supply related issues. The progress report on the SoS Directive59
published on 2010
concluded that Member States had implemented the provisions of the Directive either through
the creation of new legislative provisions or the use of existing provisions emanating from
other European legislation.
7. ANSWERS TO THE EVALUATION QUESTIONS
This section summarises the main findings in relation to the analysis of each of the questions
set out in the Evaluation Roadmaps. Questions are either dealt with individually or have been
combined where there are significant overlaps in information justifying a unified approach.
Additional key provisions of the Third Package - not covered by the questions - have also
been evaluated, although more briefly.
7.1. Effectiveness
The effectiveness evaluation aims at verifying whether the Third Energy Package and the
Electricity Security of Supply Directive have been achieving their objectives. This is being
done by comparing the intended objectives with the actual effects generated in the various
areas under consideration.
58
The note was sent to Member States and is not publicly available.
59
COM (2010) 330 final, Report on the progress concerning measures to safeguard security of electricity
supply and infrastructure investment.
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1467289040003&uri=CELEX:52010DC0330
For the Third Energy Package, two aspects were analysed in particular, namely to what extent
the new legislation removed competition problems, contributed to increased market
integration, better coordination and stimulated grid investments (7.1.1.) and to what extent the
new provisions improved the situation for consumers in terms of consumer protection (7.1.2.).
As concerns the Electricity Security of Supply Directive, the analysis focussed on whether the
general rules of the Directive have effectively increased security of supply and risk
preparedness (7.1.3.).
Market integration, competition and investments
7.1.1.
- To what extent have wholesale markets become more competitive?
- To what extent has market integration already been achieved? To what extent has
cooperation between TSOs and regulators evolved?
- What factors contributed hereto in particular or prevented this?
Reduced competition and foreclosure problems through strengthened unbundling
In order to further promote competition on the electricity markets, the Third Energy Package
strengthened the unbundling rules to completely remove any conflict of interest between
generators and suppliers on the one hand and transmission system operators on the other hand.
With the aim of ensuring structural independence of network operation, the Directive foresees
three unbundling models: ownership unbundling, the independent system operators (ISO) and
the independent transmission operator (ITO).
Following the expiry of the transposition deadline on 3 March 2011, the Commission has
systematically assessed all national transposition measures. As of July 2013, regarding
electricity, 16 Member States had implemented ownership unbundling, 6 Member States had
implemented the ITO framework, and one Member State the ISO framework.
Compliance with unbundling requirements is monitored at national level by the national
regulatory authorities, under a procedure set out in Articles 10 and 11 of the Electricity
Directive. Under this procedure, national regulatory authorities are required to submit their
draft decisions on the certification of transmission system operators to the Commission. The
Commission then adopts an Opinion on the draft decision within a period of two months.
National regulatory authorities are obliged to take utmost account of the Commission's
Opinion when adopting the final certification decision. This notification procedure ensures a
high degree of consistency in the interpretation of the rules on unbundling for transmission
system operators, and thereby increases legal certainty for Member States, transmission
system operators and other stakeholders. The certification procedure pursuant to Article 10 of
the Electricity Directive has been successfully implemented in practice. In the period of 3
March 201260
until 31 May 2016, the Commission has issued 127 Opinions on draft
certifications of national regulatory authorities from 26 Member States61
. Of these, 67
Opinions concerned transmission system operators for gas, and 60 concerned transmission
system operators for electricity62
.
60
The application date for the unbundling requirements, as set out in Article 9(1) of Electricity Directive.
61
This includes draft certifications by which a transmission system operator previously certified under the ITO
or ISO model was re-certified under the OU model.
62
The Commission Opinions are available on the website of DG Energy under the following link:
https://ec.europa.eu/energy/sites/ener/files/documents/certifications_decisions.pdf
The positive impact of the reinforced unbundling rules was confirmed by a specific evaluation
of the new unbundling rules, as required by Art. 47(3) of the Electricity Directive. In its report
on the ITO model from October 201463
, the Commission analysed in detail to what extent the
new rules were capable of sufficiently and adequately ensuring the effective separation of
transmission networks from generation and supply interests. According to the Commission's
initial assessment, most requirements related to the ITO model seem to work in practice and
are usually sufficient and adequate to ensure effective separation of the transmission business
from generation and supply activities in the day-to-day business. This assessment was notably
based on the view of national regulators, the network users and compliance officers within the
ITOs. The report confirmed that problems of network foreclosure, which had been an ongoing
concern prior to the adoption of the Third Package64
, had become less frequent after the
introduction of the reinforced unbundling rules.
With regard to DSO unbundling, the intervention mainly aimed at the unbundling of vertical
integrated distribution companies with the objective to ensure non-discriminatory and
transparent third party access in distribution networks, in order to promote competition in the
energy market. There is no evidence that the intervention within the boundaries of the
unbundling requirements, did not achieve the objective of promoting competition in the
market.
According to CEER's data for 24 EU Member States65
there is a total of 2,600 electricity
DSOs operating in across EU. From these DSOs, 2,347 fall under the 100,000 rule and
according to Article 26(4) for these DSOs Member States are not obliged to implement
unbundling provisions under Article 26 of the Electricity Directive. Eurelectric66
also reports
a total number of 2,331 DSOs operating in EU (data for 27 Member States). According to
Eurelectric from this total number 2,148 DSOs fall under the 100,000 rule leaving only 183 to
have obligations of unbundling67
.
63
https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex3.pdf
64
See e.g. Communication from the Commission, Inquiry pursuant to Article 17 of Regulation (EC) No
1/2003 into the European gas and electricity sectors (Final report), COM(2006) 851 final, 10.1.2007
http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52006DC0851
and DG Competition report on energy sector inquiry (SEC (2006)1724, 10.1.2007
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52006SC1724
Cases COMP/39.388 – German Electricity Wholesale Market and COMP/39.389 – German Electricity
Balancing market). http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52009XC0213(02)
Case COMP/B-1/39.402 – RWE Gas Foreclosure http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=uriserv:OJ.C_.2009.133.01.0010.01.ENG&toc=OJ:C:2009:133:TOC
Case COMP/39.315 – ENI http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=uriserv:OJ.C_.2010.352.01.0008.01.ENG&toc=OJ:C:2010:352:TOC
Case COMP/39.386 – Long Term Electricity Contracts France http://eur-lex.europa.eu/legal-
content/EN/TXT/?qid=1439992538223&uri=CELEX:52010XC0522(01)
65
"Status Review on the Transposition of Unbundling Requirements for DSOs and Closed Distribution System
Operators" (2013) CEER.
66
"Power Distribution in Europe Facts & Figures", Eurelectric.
67
CEER and Eurelectric numbers only coincide for very few Member States. In some cases the discrepancy is
very high, for instance for the Czech Republic CEER reports 308 DSOs while Eurelectric only 3, also in
Romania 41 (CEER) and 8 (Eurelectric).
According to CEER only around 189 DSOs across EU are legally unbundled. There are no
known cases where Member States have decided to go beyond the provisions of the
Electricity Directive. There is only the exception of Netherlands where ownership unbundling
requirements have been introduced for DSOs.
Increased liquidity and competition leading to lower prices on wholesale markets
The Commission's analyses of the development of the electricity market68
showed that the set
of the different measures of the Third Electricity Package had a positive effect on liquidity
and competition in the wholesale market.
In power markets, Eurostat data on the development of market concentration between 2009
and 2014 indicate new players could enter the wholesale generation and supply market in
several countries, leading to decreasing market shares of the largest generators. This is, for
instance, the case in Belgium, Czech Republic, Germany, Greece and Latvia. The market
concentration, measured by the so-called "Herfindahl Hirschmann Index" (HHI) in the
electricity generation market69
has significantly decreased in several Member States. In
Belgium, for instance, HHI was 7 390 in 2008 and 4 700 in 2013. It has also decreased
slightly in Italy from example going from 1 087 in 2011 to 884 in 2014).
However, in many Member States, the traditional incumbent generation and supply company
holds a dominant position. No significant change in the market can, for instance, be observed
in France, Italy, Poland, Romania and Slovakia. The HHI has stayed constant in many
Member States such as in Ireland (1 150) or Greece (6 844 in 2011 and 6 183 in 2014) in
Spain (around 1 300) or in France (above 8 500). The market share of the largest generator is
still higher than 50% in 10 Member States in 2014 (in 11 Member States in 2011). This
reveals for some Member States the limited progress brought by the Third Package when it
comes to fostering competition through reducing dominant positions and stimulating new
entry.
The Commission's market monitoring reports of 2012 and 2014 showed that more
competition between generators contributed70
to a reduction of the electricity prices at
wholesale level. In 2014, nearly all EU day-ahead wholesale prices prolonged the downward
trend that has been observed since 201171
.
68
European Commission, EU Energy Markets in 2014, SWD (2014) 310 final and SWD (2014) 311 final
accompanying the Communication "Progress towards completing the Internal Energy Market" COM (2014)
634 final of 13 October 2014;
European Commission, Energy markets in the European Union in 2011, Commission Staff Working
Document SWD (2012) 368 final of 15 November 2012 accompanying the Communication "Making the
internal energy market work" (COM(2012) 663 final).
69
The HHI is a commonly accepted measure of market concentration. It is calculated by squaring the market
share of each firm competing on the market and then summing the result numbers the higher the index the
more concentrated the market.
70
Other factors such as subsidies for certain generation technologies combined with regulatory dispatch rules
or changes in energy demand have also contributed to this development. However, the decrease in electricity
prices has been higher than the decrease for other energy prices, see e.g. Commission Communication
COM(2012) 663 final, p. 4.
71
ACER market monitoring report 2014 :
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx;
Figure 3:
Cross-border electricity trade has increased…
The general objective of the Electricity Directive, as set out in its Article 1 to improve and
integrate competitive electricity markets in the EU. In order to measure progress towards
market integration, market concentration, the volume of cross-border trade as well as the
development of market coupling should be looked at.
One of the main issues at the time of adoption of the Third Package was the lack of sufficient
rules and necessary coordination to permit cross-border trade to work effectively. Data on
cross-border trade show that cross-border trade in electricity between most EU countries
has increased and so has the use of interconnectors – the share of imports in the total
electricity available for final consumption has grown in 23 Member States between 2008 and
2012. Despite a decline in EU electricity demand between 2008 and 2014, traded volume of
electricity increased in Europe between 2008 and 201472
.
72
ACER market monitoring report 2014 :
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
Figure 4:
Source: ACER market monitoring report 2015, p. 150
Since 2009, electricity national markets have notably grown together through the
development of so-called "market coupling", a coordinated form of electricity trading over a
central platform which aggregates all bids and offers, thereby optimising electricity flows
almost EU-wide73
. The Third Package paved the way for market coupling, which has in the
meantime been made legally binding though implementing legislation74
. Today, 19 Member
States representing 86% of the EU's energy consumption are connected via the common
platform.
Figure 5:
Source: http://www.nordpoolspot.com/globalassets/download-center/pcr/pcr-presentation.pdf
73
Market coupling ensures that interconnectors are more efficiently used by simultaneously clearing their
capacity with all bids and offers into the day-ahead auction. Before interconnectors were coupled, traders
had first to secure capacity ahead of time on the interconnector and then offer or bid into the power
exchanges on each end of the interconnector (Source: Booz & Company final Report: "Benefits of an
integrated European energy market").
74
Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and
congestion management, OJ L 197, 25.7.2015, p. 24–72
Evidence shows that market coupling increased the convergence of wholesale prices
between neighbouring markets in the EU75
.
Figure 6: Illustration on price convergence after introducing market coupling between Romania, Czech
Republic, Hungary and Slovakia
Source: ENTSO-E, https://www.energy-
community.org/portal/page/portal/ENC_HOME/DOCS/3736161/179B1C2EE4372E9CE053C92FA8C0C45E.PDF
By making more cross-border capacities available, market coupling is also beneficial for
cross-border competition, the integration of renewables and security of supply.
The Commission had found frequent evidence of "underinvestment" in cross-border
interconnections76
. One of the aims of the Third Package was therefore to improve security of
supply by strengthening incentives for sufficient investments in transmission. To make this
possible the Third Package foresees measures to monitor more closely through regulators
whether TSOs carry out the adequate investments (for example Article 37 of the Electricity
Directive77
and the unbundling provisions on investment monitoring – Article 22 Electricity
Directive), and to encourage closer coordination between TSOs as regards their investments
(e.g. long term planning for the development of their systems through a ten-year network
development plan as required by Article 22 of the Electricity Directive). Data show that
investments into cross-border infrastructure are likely to increase further in the current
decade78
.
75
See also example the study from CIGRE, Market coupling, facing a glorious past, 2016
76
See for example : Commission Decision of relating to a proceeding under Article 102 of the Treaty on the
Functioning of the European Union and Article 54 of the EEA Agreement (Case COMP/39.315 – ENI)
http://ec.europa.eu/competition/antitrust/cases/dec_docs/39315/39315_3019_9.pdf
77
Article 37 Electricity Directive "Duties and powers of the regulatory authority": "1. The regulatory
authority shall have the following duties:[...] (g) monitoring investment plans of the transmission system
operators, and providing in its annual report an assessment of the investment plans of the transmission
system operators as regards their consistency with the Community-wide network development plan referred
to in Article 8(3)(b) of Regulation (EC) no 714/2009; such assessment may include recommendations to
amend those investment plans[.]"
78
Final Report by Roland Berger strategy consultants, " The structuring and financing of energy infrastructure
projects, financing gaps and recommendations regarding the new TEN-E financial instrument, July 2011:
https://ec.europa.eu/energy/sites/ener/files/documents/2011_ten_e_financing_report.pdf
Figure 7: Comparison of past and planned future TSO investments [EUR billion]
(Source: Annual reports of TSOs, interviews, Roland Berger research)
…but significant barriers to cross-border trade remain
A report of the European Court of Auditors from 201579
commented the on effects of the
Third Package as follows "While the aim of unbundling and other measures was to create the
regulatory conditions for an internal energy market, a liberalised and competitive market has
often not emerged. This is because many governments and incumbent energy companies have
continued to restrict third-party network access through regulations and technical
restrictions".
Indeed, while the measures of the Third Electricity Package clearly had a positive impact in
the development of cross-border trade, important barriers to the trade of electricity across
borders are still in place. One key barrier to cross-border-trade remains the uncoordinated use
of interconnectors, leading to a limitation of available cross-border capacity. Even where
interconnection capacity between countries is physically available, TSOs do often not make
this capacity available to the market. According to recent ACER analyses, up to 75% of the
physically available interconnector capacity cannot be used because of such practices. At
some borders, cross-border capacities offered by TSOs have even been reduced to 0 or close
to zero, although a large physical interconnection is in place (e.g. at the German/Polish or
German/Danish border80
). The main motivation for TSOs to reduce existing cross-border
capacities and not to make all capacities available to the market is to avoid problems in the
internal grid of the TSOs. It is the TSOs task to guarantee stability of the electricity grid. If
the internal grid capacity is not sufficient to transport all energy produced, TSOs need to take
measures to ensure grid stability ("congestion management"). Such measures can for example
79
Special Report of the European Court of Auditors, "Improving the security of energy supply by developing
the internal energy market: more efforts needed", 2015:
http://www.eca.europa.eu/Lists/ECADocuments/SR15_16/SR_ENERGY_SECURITY-EN.pdf
80
ACER market monitoring report 2014 : page 162
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
consist in so-called "re-dispatch" (e.g. paying generators to de- or increase their generation
against a compensation payment), or in the reduction of interconnector capacities. ACER
showed in its analysis that TSOs systematically reduce interconnector capacity to deal with
internal congestion problems81
. One main reason for the increasing reductions of cross-border
capacities is the significant increase of volatile generation from wind and sun. If the internal
grid is not strong enough to accommodate this renewable energy production (e.g. in peak
times of strong winds or sun), imports are often reduced or stopped82
. This is also the result of
a bidding zone configuration which is not yet optimised within the EU83
.
Also uncoordinated national state interventions in the form of renewables support schemes
or capacity mechanisms have reduced the effectiveness of the measures of the Third Package
and introduced new barriers to cross-border trade, as evidenced in the Commission's
comprehensive report of 2014 on this issue84
. Support schemes which do not take into account
that continental Europe is connected though a synchronised grid can lead to reductions of
cross-border flows and lead to problems to transport energy in neighbour states85
. National
state aid for generators in the form of capacity mechanism reduced also cross-border
electricity exchanges, as most capacity mechanism are not open to production from foreign
countries86
.
Another problem is the lack of adequate and efficient investment in electricity infrastructure
to support the development of cross-border trade87
. ACER's recent monitoring report and
other reports on the EU regulatory framework stress that the incentives to build new
interconnections are still not optimal. In the current regulatory framework, TSOs earn money
from so-called congestion rents88
. If TSOs reduce congestion between two countries, their
revenues will therefore decrease. The Third Package has identified this dilemma and
addressed through obliging TSOs to use congestion rents either for investments in new
interconnection or to lower network tariffs. Experience with this rule has, however, shown
81
See footnote above.
82
While other measures would be available which would not limit cross-border flows (e.g. "redispatch"),
ACER showed that TSOs prefer to limit cross-border capacity to costly redispatching measures.
83
ACER market monitoring report 2014 : page 162
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
84
Communication from the Commission, Delivering the internal electricity market and making the most of
public intervention, C(2013) 7243 available at
http://ec.europa.eu/energy/sites/ener/files/documents/com_2013_public_intervention_en_0.pdf
85
See for a description of the so-called "loop-flow problem" the ACER market monitoring report 2014 p. 163.
86
See the Commission's interim report of the sector inquiry into capacity mechanisms, p. 14
http://ec.europa.eu/competition/sectors/energy/state_aid_to_secure_electricity_supply_en.html
87
ACER market monitoring report 2014 and 2015
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
88
Price differences between bidding areas occur when the surplus volume in one or more bidding area is
greater than the total export capacity from this/these areas. The sales and purchase curves then have to be
balanced taking the transmission capacity into account. This will lead to a relatively low price in the surplus
area and a relatively high price in the deficit area – utilizing the maximum capacity between the areas. These
price differences generate an ownerless income on the spot market trading flow from the area with a lower
price to the area with a higher price. In specific situations the spot market flow on single connections may
also flow from an area with a higher price towards an area with a lower price, thus generating an ownerless
cost. This income (or cost) is referred to as the congestion rent and is allocated to the TSOs as owners of the
transmission grid.
that most TSOs prefer to use congestion rents to lower their tariff to investing into new
interconnectors89
.
Cooperation between TSOs increased…
The creation of ENTSO-E and ENTSO-G as a cooperation bodies for European TSOs has
intensified the cooperation between TSOs across Europe and within regions. The ENTSOs
have notably worked intensively on developing draft text proposals for so-called "network
codes", i.e. implementing legislation for more coordinated grid operation and trading rules.
Based on the ENTSOs work and other stakeholders' input, the Commission was in a position
to adopt a large number of implementing Regulations under comitology rules since 200990
.
ENTSO-E has also delivered the required input for a more coordinated infrastructure
planning91.
According to the results of the Commission's stakeholder consultations on the
ENTSO's work on network codes (see the Consultation on the establishment of the annual
priority lists for the development of network codes and guidelines92
) and the ENTSOs role in
general, stakeholders consider the creation of the ENTSOs as a step into the right direction for
more TSO cooperation. Also recent reports from ACER93
confirm that both ENTSOs have
achieved a good level of performance since their establishment by the Third Package.
Implementing legislation adopted under the new Third Package provisions on "network
codes" have further strengthened cooperation between TSOs. These network codes oblige
TSOs to find common solutions for problems which require action of several neighbouring
TSOs (e.g. to coordinate redispatch measures in order to limit negative impact on neighbours)
and created new regional groupings of TSOs within which TSOs have to cooperate94
.
…but cross-border trade is still hampered by insufficient TSO coordination
However, the evaluation has also identified some shortcomings in the regulatory framework
created for ENTSOs. A common concern raised by stakeholders in consultations95
relates to a
possible conflict of interest in ENTSO-E’s role – being at the same time an association called
to represent the public interest, involved e.g. in network code drafting, and a "lobby
organisation" of commercial operators with an interest to expand the own business. Indeed,
89
ACER 2016 Report on Congestion at Interconnection points in 2015
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%202016%20Repor
t%20on%20Congestion%20at%20IPs%20in%202015.pdf
90
The network codes which have been adopted or on in preparation can be found at:
http://ec.europa.eu/energy/en/topics/wholesale-market/electricity-network-codes
91
European Network of Transmission System Operators for Electricity, Ten-Year Network Development Plan
2014,
https://www.entsoe.eu/major-projects/ten-year-network-development-plan/tyndp-
2014/Documents/TYNDP%202014_FINAL.pdf
92
http://ec.europa.eu/energy/en/consultations/consultation-establishment-annual-priority-lists-development-
network-codes-and
93
ACER Report, "Energy Regulation: A Bridge to 2025 Conclusions Paper", 19 September 2014
See also recent annual activity reports of ACER :
http://www.acer.europa.eu/official_documents/publications/pages/publication.aspx
94
See Article 15 on capacity calculation regions in the Commission Regulation (EU) 2015/1222 of 24 July
2015 establishing a guideline on capacity allocation and congestion management.
95
See contributions to the market design public consultation from EUROPEX, ACER, CEER and E-
Control,,Eurelectric for example
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
the Commission had to rework some draft network codes in order to ensure that the interest of
all stakeholders and consumers are taken into account in a balanced manner. Stakeholders
argued that independence and transparency requirements should therefore be reinforced, and
regulatory oversight over the ENTSOs should be reinforced96
. Stakeholders also suggested in
this context that the process for developing network codes should be revisited in order to
provide a greater a balance of interests and ensure optimal results for the internal market.
Despite the creation of ENTSOs as coordination body for TSOs, significant problems through
insufficient coordination remain. While being connected through a synchronised grid and
albeit electricity is traded EU-wide via market coupling, today 42 individual TSOs decide
separately about the flows of electricity within this synchronised grid. TSOs tend to maximise
benefits within their grid area and to disregarding negative effects outside their grid area.
Stakeholders and ACER criticise that this leads to sub-optimal results and hampers cross-
border trade97
. To accommodate the need for coordination across TSO areas, Regulation (EC)
No 714/2009 established regions for the coordination of capacity calculation, capacity
allocation and secure network operation. These regions were further developed in one of the
subsequently adopted network codes called 'CACM Regulation'98
. The frequent individual
and uncoordinated reductions of interconnector capacities through individual TSOs described
above show that coordination between TSOs is still underdeveloped. According to the ACER
2014 Market Monitoring Report, progress in coordinating capacity calculation is very limited
and varies from region to region. It concludes that there is still significant scope for
improvements in the area of capacity calculation coordination and that the inefficiencies of
the current methods are probably one of the main obstacles to further market integration. The
new obligations for regional coordination between TSOs on electricity trading and system
operation issues are likely to improve the situation.
In addition, TSOs have voluntarily launched so-called Regional Security Coordination
Initiatives in the recent years (e.g."Coreso" and "TSC"99
) covering a greater part of the
European interconnected networks aiming at improving TSO cooperation by providing a set
of services to national TSOs and maintaining or increasing security of operation of European
interconnected networks. This RSCI approach is widely recognised as a positive step
forward100
and is further formalised in European legislation with the new Guideline on
System Operation which received a positive vote from Member States on 4 May 2016101
.
96
ACER Report, "Energy Regulation: A Bridge to 2025 Conclusions Paper", 19 September 2014
97
See Eurelectric position paper: "Optimal use of the transmission network a regional approach" , June 2016
http://www.eurelectric.org/media/278462/eurelectric_report_congestion_management_-2016-2210-0009-
01-e.pdf
98
Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and
congestion management
99
TSOs have a long tradition of cooperation. In the early 2000s, they voluntarily set up regional entities to
provide them with regional data and calculations - the now called Regional Security Coordinators. RSCs
complement the TSOs own data and support the TSOs' decision-making on which actions to take to secure
their grid while integrating more and more volatile generation and with more and more cross-border
exchanges.
100
European Parliament, Report on Towards a New Energy Market Design (2015/2322(INI), Committee on
Industry, Research and Energy, 21.6.2016.
ENTSO-E Policy paper Future TSO Coordination for Europe, November 2014
https://www.entsoe.eu/Documents/Publications/Position%20papers%20and%20reports/141119_ENTSO-
E_Policy_Paper_Future_TSO_Coordination_for_Europe.pdf
101
https://ec.europa.eu/energy/en/topics/wholesale-market/electricity-network-codes
However, given the economic importance (and distributive effects) of the decisions TSOs
have to agree on, experience has shown that voluntary cooperation between TSOs was not
able to overcome the problems that block progress in the internal electricity market (e.g.
definition of fair bidding zones, effective cross-border curtailments). Absent robust rules on
regional TSO cooperation in the Third Package (including decision-making rules), only
limited progress could be achieved on issues requiring a compromise between TSOs.
A clear majority of stakeholders who responded to the public consultation is in favour of
closer cooperation102
between TSOs. Stakeholders mentioned different functions which
could be better operated by TSOs in a regional set-up and called for less fragmentation in
some important parts of the work of TSOs.
Regulatory independence and cooperation between regulators has improved…
As concerns the newly introduced rules on the reinforcement of independence of national
regulators, the Commission's systematic compliance checks showed that the detailed
provisions on how to guarantee regulatory independence were implemented in most Member
States. The independence rules even go beyond the requirements in other areas such as
competition103
.
The Third Package also created a new coordination body for regulators, the Agency for the
Coordination of Energy Regulators (ACER). The evaluation has shown that ACER's activity
has provided tangible benefits for EU citizens. Since its creation in 2011, ACER has
coordinated the work of 28 national regulators and moderated their discussions within
working groups and the Board of Regulators, monitored EU markets as well as the activities
of the ENTSOs, and provided valuable advice on regulatory issues, notably in the process of
the development of network codes.104
. The positive impact of ACER on market functioning
has been acknowledged by most stakeholders. Since its creation through the Third Package,
ACER has also been given new tasks, namely in the field of market supervision in the
framework of the "REMIT"-regulation and infrastructure planning, in the framework of the
new "TEN-E"-regulation105
.
...but problems with regulatory independence and coordination remain
The Evaluation showed that despite clearer rules on regulatory independence, many
governments try to interfere in competence areas reserved to independent regulators. The
Commission has opened several infringement procedures for non-conformity of Member
State legislation as regards national regulatory authorities, notably concerning attempts from
national governments to interfere in areas which are deliberately reserved to the competence
102
As reflected in the contributions of ACER and CEER, IFIEC, the IEA and Eurelectric for example
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
103
SWD(2014) 231 final: "Enhancing competition enforcement by the Member States' competition authorities:
institutional and procedural issues", recital 27.
104
ACER also provided first opinions on contentious regulatory questions at the request of national regulators
under Article 7(4) of the ACER Regulation, see ACER Opinion 09-2015 on the compliance of NRAs´
decisions approving methods of cross-border capacity allocation in the CEE region, 23.9.2015
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Opinions/Opinions/ACER%20Opinio
n%2009-2015.pdf
105
In particular ACER received a key role in in the monitoring of trading activity in wholesale energy products
to detect and to prevent trading based on inside information and market manipulation, as well as in the
energy network planning by participating on the process for the selection of Projects of Common Interest
(PCIs) and their regulatory treatment.
of independent regulators, such as the setting of adequate transmission tariffs106
. Also the
2015 Special Report of the European Court of Auditors107
stated that problems with
regulatory independence still hamper the internal market and identified three main problems
in the operation of the NRAs. Regarding their independence, they underline that the principles
set out in the Electricity Directives are not always followed. They illustrate this with examples
in Member States where the heads of regulatory bodies are not selected in a transparent
manner and provided with sufficient freedom to operate. The Court of Auditors also mentions
the existence of restrictions to the scope of their powers. They mention for instance that some
governments still retain for themselves (at least partially) certain regulatory powers, notably
of tariff setting which are of the competence of the NRA based on the Electricity Directive.
This has been addressed by the Commission through the opening of several infringement
procedures against Member States. Another concern relates to the level of resources available
to the different NRAs which vary considerably from one NRA to another, staff ranging from
21 to more than 200. Some NRAs are for instance better equipped than others to participate in
international cooperation and in the work of ACER for instance.
The evaluation identified also deficits in the regulatory set-up of ACER that hamper the
internal market. One of the problems relates to the fact that ACER remains largely an
advisory body without tangible decisions powers. Indeed, none of the very few decision
powers ACER was given in the Third Package (e.g. concerning infrastructure exemption
decisions108
) have to date been exercised. This has created problems in the implementation of
the network codes. Some technical features require a common regional method (e.g. a
common algorithm for the market coupling process). However, while a regional group of
TSOs can decide by majority on proposals for such methods, ACER cannot approve this
method. Instead, each individual regulator has to approve the common method individually.
Only after this procedural step, ACER can decide (using its arbitration function under Article
8 of the ACER Regulation) on this method. This has already caused significant delays in the
implementation of the CACM regulation109
. Unlike in other EU agencies, Member States
retain a decisive role within ACER. National regulators chair the main decision body ("Board
of Regulators"). It is not the independent ACER director or a group of directors who take
decisions within ACER (as in similar EU agencies110
), but national regulators, voting with a
106
The Commission plans to conduct a specific study on the subject of national regulatory authorities and their
independence in the course of 2017.
107
Special Report of the European Court of Auditors, "Improving the security of energy supply by developing
the internal energy market: more efforts needed", 2015:
http://www.eca.europa.eu/Lists/ECADocuments/SR15_16/SR_ENERGY_SECURITY-EN.pdf
108
See Art. 8 and 9 of the ACER Regulation.
109
On 17 May 2016, the ACER has been informed by the NRAs, that they could not reach a unanimous
decision on the definition of capacity calculation regions. (ACER Consultation document "The definition of
capacity calculation regions", PC_2016_E_02 of 22 June 2016).
http://www.acer.europa.eu/Official_documents/Public_consultations/PC_2016_E_02/PC_2016_E_02%20on
%20the%20capacity%20calculation%20regions.pdf
110
See for example the ESMA Agency: Regulation (EU° No 1095/2010 of the European Parliament and of the
Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and
markets Authority), amending Decision No 716/2009/EC and repealing Commission decision 2009/77/EC,
OJ L 331, 15.12.2010, p. 84.
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02010R1095-20140523
Or the EASA Agency : Regulation (EC) No 216/2008 of the European Parliament and of the Council of 20
February 2008 on common rules in the field of civil aviation and establishing a European Aviation Safety
Agency, and repealing Council Directive 91/670/EEC, regulation (EC) No 1592/2002 and Directive
2004/36/EC, OJ L 079 19.3.2008, p. 1.
two-thirds majority. Experience with this rule has shown that a "blocking minority" of only
1/3 of the regulators can veto regulatory proposals, which led to failure or delays of regulatory
initiatives111
.
Consumer electricity and gas prices vary significantly for non-market related reasons, and
have risen steadily for households
The first observation on electricity and gas consumer prices is that these vary significantly
between different MS. Denmark (30.38 euro cents/kWh) remains the country with the highest
electricity household post-tax prices (POTP), more than three times the POTP charged to
electricity households in Bulgaria (8.63 euro cents/kWh), the country with the lowest POTP in
Europe. Household gas prices in 2014 remained lowest in Romania (3.14 euro cents/kWh
post-tax), and highest in Sweden (11.61 euro cents/kWh), where considerably higher taxes
and charges are levied. A wide range of factors contribute to this including the sources and
kinds of energy consumed, the level of regulatory intervention in price setting, differing levels
of competition and the different taxes and levies applied112
.
The second observation is that industrial consumers pay, in general, between two to three
times less for their electricity and gas than household consumers do. This is due to a number
of factors, including industry's greater ability to benefit from scale economies (higher levels
of consumption), the fact that industry is less burdened by non-contestable charges, and the
fact that industry may benefit from better market information and bargaining power vis-à-vis
suppliers than household consumers.
The third pertinent observation, illustrated in the chart below, is that electricity and gas prices
for household consumers rose steadily between 2008 and 2014. Most recently, between 2013
and 2014, post-tax prices (POTP) for electricity and gas supplied to households increased on
average by 2.6% and 2.1%, respectively. In contrast to household prices, industrial prices
remained largely stable between 2008 and 2014, even declining between 2013 and 2014.
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1459786766853&uri=CELEX:02008R0216-20160126
111
Such as in the case of the proposed network code on gas tariff harmonisation, where a minority of Member
States could prevent that ACER tables a proposal.
112
Unless stated otherwise, the figures and analysis presented in the remainder of this section are drawn from
the 2014 ACER Market Monitoring Report. ACER/CEER (2015), Market Monitoring Report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitorin
g_Report_2015.pdf
Figure 8: Electricity and gas POTP trends for household and industrial consumers in Europe – 2008-2014
(euro cents/kWh)113
An analysis of the price components reveals the main drivers of rising household prices in the
period 2008-2014. Figure 9 below shows that household electricity prices were greatly
influenced by non-contestable charges (i.e. taxation and network charges) in most MS during
this period. These currently make up, on average, 40% of the total bill in electricity and more
than 50% in gas. Since 2008, and particularly over the last few years, non-contestable charges
have significantly increased in many MSs, especially as a result of costs related to support
schemes for renewable energy sources (RES). The fact that industrial electricity consumers
are less burdened by non-contestable charges helps explain why their electricity POTPs
decreased in a number of Member States during the period 2008-2014, albeit to a limited
extent (Figure 10).
Figure 9: The compounded annual growth rate (CAGR)114
of the electricity POTP, energy component and
non-contestable part of POTPs for households in Europe – 2008–2014 (%)115
113
Source: Eurostat (29/08/2015) and ACER calculations. Note: The figure is based on bi-annual data provided
by Eurostat for consumption bands: DC: 2,500 – 5,000 kWh (electricity households), D2: 20-200GJ (gas
households), IE: 20,000-70,000 MWh (electricity industrial consumers) and I5: 1,000,000-4,000,000 GJ
(gas industrial consumers).
114
CAGR is calculated by taking the nth
root of the percentage of the year-on-year demand growth rate for the
period analysed, where n is the number of years in the period being considered (in this case, the sixth root).
115
Source: Eurostat (29/08/2015) and ACER calculations. Note: Consumption band: DC: 2,500-5,000 kWh
(electricity households).
Figure 10: The CAGR of the electricity POTP, energy component and non-contestable part of POTPs for
industry in Europe – 2008–2014 (%)116
Retail electricity and gas markets for households remain concentrated in most Member
States
Figure 11 below shows a high concentration in retail electricity and gas markets for
households at the national level in the majority of MS, measured by the concentration ratio
CR3.117
The cumulative market shares of the three largest electricity and gas suppliers for
households is more than 70% in the majority of countries, including those with a large
number of nationwide suppliers (i.e. those with a bigger ‘bubble’). As a result, the retail
household market for small competitors is above 30% in only 8 out of 29 countries in
electricity and in 5 out of 25 countries in gas, while the rest of the market is held by three
dominant suppliers. CR3 values above 70% and low numbers of main suppliers are indicative
of possible competition problems.
Figure 11: Market share of three largest suppliers (CR3) and the number of main suppliers and number
of nationwide suppliers in retail markets for households – 2014118
116
Source: Eurostat (29/08/2015) and ACER calculations. Note: Consumption band: IE: 20,000-70,000 MWh
(electricity industrial consumers).
117
The sum of the market shares of the three largest suppliers in a market, and the number of main suppliers i.e.
suppliers with market shares equal to or higher than 5%.
118
Source: CEER National Indicators Database (2015).
As regards the trend, Figure 12 below shows that there has been little change in these CR3
values since 2009, with decreases of 10% or more recorded only in the Czech Republic’s
electricity and gas household markets, the Swedish electricity and the Spanish gas market.
The comparable CR3 data for retail markets for non-households show that non-household
markets are much less concentrated than household markets in many MS.
Figure 12: CR3 in the retail electricity and gas markets for households in the EU MSs and Norway – 2014
and change from 2009–2014 (%)119
To summarize, retail electricity and gas markets for households are highly concentrated in
more than 2/3 of MS – a situation that has remained largely unchanged for the last five years.
In the non-household sector, market concentration is less pronounced, although still generally
high.
Retail margins seem to be increasing more than expected in some Member States
In contrast to non-contestable charges, wholesale electricity and gas prices, as demonstrated
earlier in this section, generally decreased between 2008 and 2012 (Figure 3). Mark-ups
determine the extent to which these falling wholesale prices were passed through to
consumers. They help explain why the CAGR of the energy component of household
consumer bills is positive in 15/28 MS (Figure 10), in spite of the general trend of falling
wholesale prices.
119
Source: CEER National Indicators Database (2015).
Figure 13: Average annual mark-ups in electricity and gas retail markets for households from 2008 to
2014 for electricity and from 2012 to 2014 for gas – (euros/MWh)120
Figure 13 above shows that household mark-ups vary greatly between the MS. On the one
hand, mark ups in Member States who practice price regulation (BG, HU and HR, for
example) tend to show the lowest retail margins – as low as minus 10% in the case of RO. On
the other hand, mark-ups in several MS seem to be higher that could in principle be expected,
posing questions about the extent of real price competition. This observation is reinforced by
the fact that mark-ups for both electricity and gas household prices in non-regulated markets
have shown an increase over the last six and three years, respectively (Figure 14, below) – a
trend that cannot be easily explained by other changes in the market during these periods.
Figure 14: Relationship between the wholesale price and the energy component of the retail price and
evaluation of mark-up in household segments in countries with non-regulated retail prices from 2008 to
2014 for electricity and from 2012 to 2014 in gas (euros/MWh)121
Whilst the variety of products is improving in some dimensions, it is lagging in others
Although low prices are the most commonly thought of way for firms to attract consumers,
firms may also seek to distinguish their products by other means. These may include quality
120
Source: ACER Database, Eurostat and European power exchanges data (2015) and ACER calculations.
121
Source: ACER Database, Eurostat, NRAs and European power exchanges data (2014) and ACER
calculations. Note: Gas data are available only for the period 2012-2014.
of service, convenience, an environmentally sustainable product, or any other non-price
aspect that adds value for consumer. The diversity of products available in a market is
therefore also a good indication of the health of competition.
Although challenging to quantify precisely, the data suggest that 'choice' for consumers in
European capitals widened between 2012 and 2014122
, with a greater variety of offers
available. The increasing diversity and variety of offers is a sign of more innovation in the
sector, and helps raise consumer interest in the market.
Green electricity and gas offers continue to make strides in the market. By the end of 2014,
in total, almost one third of all electricity offers and almost one quarter of gas offers were
marketed as green. Dual-fuel offers (electricity and gas), comprised more than 35% of all
offers on price comparison tools in Amsterdam, Brussels, Dublin, Lisbon, London and Paris –
capitals with traditionally higher consumption of gas. And at the end of 2014, approximately
6% of all electricity and 12% of all gas offers presented in the price comparison tools across
Europe included an additional service,123
up from 4% and 7% respectively from just the
previous year.124
The type of pricing of the offer (i.e. fixed, spot-based or variable) remains one of the most
visible features of energy products. Although there is diversity in this dimension, there is
certainly scope for improvement. Fixed-price offers account for the majority of all electricity
and gas offers in Europe, in spite of the fact that spot-based electricity offers – where
available – were consistently found to be the cheaper. This point is developed further in this
Section along with shortcomings in consumer access to companies offering demand response
services.
Many Member States still practice some form of price regulation
The analysis in this section focuses solely on the regulation of the energy component of retail
prices and excludes any discussion on the regulation of network prices125
.
The regulation of electricity and gas prices limits consumer choice, restricts competition, and
discourages investment. This is particularly true for markets where retail end-user prices are
set below costs (i.e. without taking into consideration wholesale market prices and other
supply costs). Artificially low regulated prices (even without pushing them below costs) limit
market entry and innovation, prompt consumers to disengage from the switching process and
consequently hinder competition in retail markets. In addition, they may increase investor
uncertainty and impact the long-term security of supply. Furthermore, regulated prices (even
when set above costs) can act as a pricing focal point which competing suppliers are able to
122
ACER market monitoring report 2014 :
http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
123
Free-of-charge services and/or products enticing consumers into a contract (i.e. supermarket points or
similar, membership points, air miles, gifts in kind, free insurance cover, maintenance services); or payable
services and/or products complementing the electricity and gas offers against additional payment (insurance,
boiler maintenance, home insulation, etc.).
124
Source: ACER Database.
125
Transmission and distribution tariffs are addressed in separate parts of this Evaluation and IA (annexes
2(1).3 and 1(c)3). Unlike distribution and transmission tariffs which are regulated according to the Third
Energy package provisions, the energy component of end user prices shall be in principle set by supply and
demand according to existing acquis, exceptions being allowed under certain conditions (article 3(2) of
Electricity and Gas Directives).
cluster around and – at least in markets featuring strong consumer inertia – can also consider-
ably dilute competition.
This policy choice has meant addressing through infringements the more important market
distortion created by the regulation of prices for larger and potentially most active consumers
who use most of the energy sold on the European market (more than 70% of total electricity
consumption and close to 60% of the total gas consumption)126
. In addition, the Commission
has opted initially for an informal approach via bilateral consultations with Member States to
discuss reasonable and sustainable alternatives to price regulation and accompanying support
for vulnerable consumers. However, infringement actions against price regulation for
households are not excluded in the follow-up to informal consultations.
Cross-referencing the MS who practice price regulation against the indicators covered in this
Section is suggestive of the gross distortions to the market that can result from this practice.
Observable tendencies include lower consumer prices and mark-ups for household prices in
MS that regulate prices, higher market concentration (Figures 11 and 12), lower switching and
consumer satisfaction (Figures 15 and 16 below), and lower levels of retail competition
performance overall.
Figure 15: Average switching rates in countries with and without regulated electricity and gas prices –
2008–2013 and 2014 (%)127
126
In 2014, non-residential customers consumed 1.921.153 out of the total 2.706.310 Gigawatt-hour
electricity consumption and 1.506.185 Gigawatt-hour out of the total 2.578.779 Gigawatt-hour of gas
consumption – Eurostat data, 2014.
127
N.B. figure does not include IT. Source: CEER National Indicators Database.
Shortcomings of current demand response
The available evidence available generally suggests that the demand response provisions
currently in place have been less effective than intended. The provisions have not been
effective in removing the primary market barriers especially for independent demand response
service-providers and creating a level playing field for them. Instead the heterogeneous
development of demand response has led to fragmented markets across the EU. This is mainly
due to the high degree of freedom the existing provisions leave to Member States. As such in
many Member States, the roles and responsibilities for aggregators are not defined, suppliers
are able to prevent independent DR service-providers from entering the market by not
granting them access to their customers, and significant 'compensation' payments from
aggregators to BRPS and/or suppliers risk to overcompensate those parties and diminish the
business case for Demand Response. At the same time, rules and technical requirements at
national balancing, wholesale and capacity markets often prevent flexibility products from
entering those markets which forms another barrier for incentive based demand response. This
seems to be slowly changing, in particular for the balancing markets where the TSOs have
started to adapt the requirements. However, the design of more favourable requirements at
national level will in the longer term not be sufficient from the perspective of an integrated
energy market.
It can be concluded that the different treatment especially of independent DR service-
providers in national energy markets as well as of flexibility products in electricity markets
risk undermining the large-scale deployment of DR needed as well as the functioning of the
internal energy market.
Slow and uneven deployment of smart metering
Commitment to smart metering is not uniform across the EU; the roll-out is overall
progressing in a rather conservative manner, at different speeds and operational environments
across the Member States.
The least ambitious deployment and slowest pace for rolling-out is noted in the gas sector.
Seven Member States only intend to roll-out by 2020 in total 45 million gas smart meters,
corresponding to 40% of EU consumers; so far as little as a 1.5% penetration rate has been
achieved, as explained earlier. Moreover twelve Member States concluded in their CBAs that
for now the costs outweigh the benefits; others intend to install smart metering systems only
for selected groups of consumers or have reached no binding decisions yet128. This is
coherent with the observation that the business case for gas is more challenging given that the
expected benefits are either less significant than for electricity, or do not apply129.
For electricity, still a majority of Member States intend to proceed with large-scale
deployment by 2020. So far, 19 Member States have committed to rolling out close to 200
million smart meters for electricity by 2020, to at least 80% of households in 17 of these
nations, and close to 23% in 2 countries that are rolling out to a specific segment of
consumers. But Member States are at different stages of the process when it comes to actual
installations. Only four have completed so far the roll-out in electricity, while the target date
of 2020 is approaching.
128
SWD(2014) 189
129
The fact that gas can be held in storage while the supply and prices of gas do not vary much over short time periods,
makes the expected advantages of smart metering more modest than for electricity – [SWD(2014) 189 and EP briefing
(September 2015) on smart electricity grids and meters in the EU Member States
The current slow advancement (which is to peak much later than originally foreseen) , the low
diffusion rates achieved to date (21% for electricity, and just 1.5% for gas in the EU-28), and
the recurring delays in national roll-out programmes, further widen the gap to delivery.
The deployment of smart metering in Member States, which is not as ambitious as originally
intended, can be credited to a certain extent to the legislation in place, even though it is
difficult to quantify it. However it should not be forgotten that in a number of cases it has
been influenced by other factors, e.g. market drivers, regulatory environments.
Conclusions
Overall, the Third Package partially fulfilled its original mission and created a stable market-
based approach on which however further legislation should be built on. In particular, it can
be concluded that:
 The strengthening of unbundling rules has had a positive effect on competition
with new players entering the market, except in some Member States where the
incumbent still holds a dominant position.
 Market integration has improved with the increase of cross-border electricity
trade. National markets have grown together since 2009 thanks notably to
market coupling. However, obstacles to further integration still exist due to
uncoordinated state interventions and inefficient use of interconnectors.
 Cooperation between TSOs and between regulators has improved, but needs to
evolve further.
 Retail level competition has progressed in some Member States, while it remains
limited in others, mainly where price regulation is still in place. Overall, the
linkage between wholesale and retail markets could be improved to enable the
pass-through of the price signals to the consumers and trigger demand response.
Consumer empowerment and protection
7.1.2.
- To what extent have consumers been properly empowered, including been given
effective freedom of choice to purchase electricity from their supplier of choice;
- Are consumers sufficiently protected, what is the level of consumer satisfaction?
This evaluation addresses three aspects of the existing acquis that cover consumer
engagement and protection: The measures on vulnerable and energy poor consumers; the
measures on fees related to switching energy suppliers; and the measures on billing.
Consumer satisfaction and engagement in energy markets could be improved
Although subjective, consumer satisfaction is a valuable indicator on the extent to which
competition in the market is working for customers and whether suppliers are responding
adequately to changing consumer preferences.
In terms of consumer satisfaction, the data indicate that there is clearly scope for
improvement. According to the 10th
edition of Consumer Scoreboard,130
which is based on
130
DG Justice and Consumers' ‘Consumer Markets Scoreboard’ provides at the EU-wide level a quantitative
assessment of how different markets worked for consumers The 10th edition of Consumer Market
Scoreboard published is available at:
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/10_edition/index_en.htm.
consumer survey131
and expressed in a composite Market Performance Index (MPI),132
electricity services rank 28th
and gas services 22nd
among the 31 markets for services across
the EU. Therefore, both markets can be considered low performing from the consumer
standpoint. The figure below illustrates the large differences between the top-ranking and
bottom-ranking countries in the markets for electricity and gas services, measured by the
composite indices MPI and MPIsc.133
This variance is particularly marked for electricity
markets.
Figure 16: Overall performance of markets for electricity and gas services by country – 2013 and change
on 2012 (index)134
The switching rate135
is perhaps the most direct indicator of consumer engagement with the
market and of the choice available on the retail market. Although switching is affected by a
range of other factors (regulated prices, the difference in price between offers on the market
and trust in new suppliers, for example), the switching rate provides an important quantitative
measure of the effectiveness of the Articles in the Electricity and Gas Directives – albeit an
indirect one. At the same time, other factors that may influence the switching rate besides
131
The 2013 edition of the Market Monitoring Survey is available at:
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/market_monitoring/index_en.htm
. The ‘Market Monitoring Survey’ which has been used as the main statistical source for the Scoreboard has
been produced annually from 2010 to 2013. However, from 2013, it will be available only every other year
and therefore as data for 2014 are lacking and data for 2013 are used instead.
132
The MPI is a composite index based on the results of survey questions on four key aspects/components of
consumer experience: (1) expectations (i.e. the extent to which the market lives up to what consumers
expect); (2) the ease of comparing goods or services; (3) consumers’ trust in suppliers to comply with
consumer protection rules; and (4) the experience of problems and the degree to which they have led to
complaints. These four aspects of consumer experience are equally weighted when creating the overall
score.
133
MPIsc is the MPI supplemented with ‘choice’ and ‘switching’ components and is used only in markets where
it is possible to switch services and providers.
134
Source: DG Justice and Consumers (2014).
135
The percentage of consumers who change suppliers in any given year.
status quo bias/inertia are – according to consumers surveyed – linked to the difficulty of
finding out what the right tariff would be for them (21%) or the fact that they will have to
manage their account online (3%) in order to get cheaper tariffs. Thus, removing certain
market barriers could lead to more effective consumer choice. The following figure shows
that while switching rates have generally increased since 2008, they remain relatively low in
the EU-28 at around 6%.
Figure 17: Switching rates for electricity and gas household consumers in 2014, annual average 2008–
2013136
Contract exit fees represent a salient potential barrier to switching, since they tend to increase
the threshold for consumers to switch due to the perceived diminished potential savings
available. These are addressed in more detail in Annex 3 of this Evaluation.
Switching and exit fees
Thanks to these provisions on switching and exit fees, the switching process itself is mostly
free for the consumer. However, contractual conditions may sometimes include additional
charges related to switching. These include exit fees, administrative costs, start-up costs for a
new or short-term service137
.
Exit (termination) fees are applied to cover, inter alia, the costs of leaving a fixed-term and/or
fixed-price contract early (as sometimes occurs in MS including NL and UK), as well as to
recoup the costs of administrative services, equipment, discounts and/or other incentives
provided at the beginning of the contract. While exit fees provide suppliers more flexibility in
136
Source: CEER National Indicators database
137
Charges for short term contracts are justified often by need to cover administrative costs, while at the same
time they encourage customers' loyalty.
the range of tariffs they are able to offer, they render comparisons and switching more
difficult for consumers. Price comparison tools that do not cover exit and other fees associated
with switching are therefore not complete.
In a recent survey of ten MS, 21% of suppliers responded that a customer would be charged a
fee or similar other charge for cancelling his or her energy contract. Contractual obligations
and administrative hurdles can disproportionately discourage consumers from switching
because of a cognitive bias called 'loss aversion' – a tendency to strongly prefer avoiding
losses to acquiring gains. This is exacerbated by the fact that incorrect assumptions also deter
action. 56% of consumers in a recent electricity study survey responded that they could be
charged a fee for switching or did not know whether or not they would be charged.
Given the persistently low levels of switching and consumer engagement in the energy sector
(see sections above), there may therefore be scope to further restrict the use of switching and
exit fees charged to consumers for changing suppliers. Any such fees should be proportionate
to avoid consumer detriment and avoid lock in to a particular contract.
For a detailed analysis, see the accompanying Thematic Evaluation on Switching Fees in
Annex.
Billing
In terms of effectiveness, it is impossible to quantify the extent to which the provisions in the
Electricity, Gas and Energy Efficiency Directives have made positive contributions towards
these objectives, given the multiple and complex other factors that also affect their
achievement (the unbundling of network operations and introduction of energy efficiency
targets, inter alia), the absence of precise indicators and the scarcity of data. It was, however,
possible to identify certain gaps, problems and opportunities for potential improvement in the
legislation – notably, the following.
The latest ACER Market Monitoring Report stated that the average electricity and gas
consumer in their countries is only able to compare prices to a limited extent. The average
score was 4.8 and 5.0 on a scale from 1 to 10 for electricity and gas respectively.138
These
poor figures are backed by a recent Commission survey that found that just 40% of EU
respondents strongly agreed that the electricity bills of their electricity company were easy
and clear to understand.139
Correspondingly, the largest share of consumer complaints
reported to the Commission between 2011 and 2014 were related to billing (30%).140
With regard to comparability and clarity of billing information, the relatively low degree of
satisfaction of electricity and gas customers and the high number of complaints related to
billing suggests that there is still room for improvement and that further action might be
required to this end either at national or EU level. There are several factors that could be
contributing to this.
138
ACER (2015) Market Monitoring report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitorin
g_Report_2015.
139
European Commission ([ongoing]), ' Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU ', [link].
140
Recommendation 2010/304/EU is addressed to all third-party complaint bodies (national authorities,
consumer organisations, etc.) and calls on them to classify complaints according to a common taxonomy and
to report the data to the Commission.
There is a widespread divergence in national practices with regards to some billing elements –
in particular information on energy sources and consumer rights – that would appear to
indicate a lack of implementation of certain billing requirements in the Electricity and Gas
Directives. Some Member States have gone beyond EU legislation when setting out billing
requirements in national legislation. This has in some cases caused additional confusion at the
level of the consumer.
Finally, certain elements of the current legislative framework around metering are complex
and open to interpretation with regard to the nature and scope of key obligations – for
example, the precise meaning of phrases such as "information on actual time of use". This
may be making it more difficult for consumers to gain access to information on their
consumption levels. Many consumers continue to receive bills based on estimated
consumption, either as a result of annual meter reading or because they do not have individual
household meters. This does not enable consumers to manage their consumption effectively,
for example, by reducing it, resulting in potentially higher bills than necessary.
For a detailed analysis, see the accompanying Thematic Evaluation on Billing and Metering in
Annex 3.
Vulnerable and energy poor consumers
The measures were to some extent effective in getting Member States to define the concept of
the vulnerable consumer and to adopt measures to protect those in this category. The
measures have tended to be predominantly at the level of welfare provision and social policy,
and not so much at the level of energy policy measures. They were also successful in bringing
the issue of energy poverty to the attention of some Member States.
Given the absence of a common EU definition of consumer vulnerability, the implementation
of the consumer protection provisions resulted in an uneven level of consumer protection
across the EU Member States. This result is naturally more pronounced regarding energy
poverty where obligations for measures in the Directives had some caveats and were not
accompanied by any common definition or a requirement for defining the concept at national
level. In addition, there have been shortcomings in the definition of the role of National
Regulatory Authorities (NRAs) in the protection of vulnerable consumers and in monitoring
of electricity and gas disconnections.
Finally, the provisions have not been effective in assisting Member States in addressing the
problem of energy poverty. Even though, recent external research141
indicates that energy
poverty and consumer vulnerability are two distinct issues, the provisions in the Electricity
and Gas Directives refer to energy poverty as a type of consumer vulnerability. This
categorisation leads to an incorrect expectation that a single set of policy measures from
Member States can address both problems simultaneously.
Whilst precise data on the topic remains limited, rising levels of energy poverty as well as
lack of clarity on the most appropriate means of tackling consumer vulnerability and energy
poverty constitute a barrier to the further deepening of the internal energy market. The need to
address the problem seems pressing given that some form of retail energy price regulation, in
some cases intended to protect vulnerable and energy poor consumers, still exists in 17 MS,
and levels of market concentration remain high in some liberalised markets.
141
Energy poverty and vulnerable consumers in the energy sector across the EU: analysis of policies and
measures. 2015. Insight_E
For a detailed analysis, see the accompanying Thematic Evaluation on Consumer
Vulnerability and Energy Poverty – Annex 3 of this document.
Conclusions
Switching rates have generally increased since 2008, they remain relatively low in the
EU-28 at around 6%. However, the analysis demonstrates that exit fees and lack of
information remain a problem. About 20 % of suppliers would charge a customer a fee
or similar other charge for cancelling his or her energy contract. Furthermore, 56 % of
consumers responded that they could be charged a fee for switching or did not know
whether or not they would be charged. Comparison tools were used by 64% of EU
consumers who had compared tariffs of different electricity companies.
Current provisions on consumer protection have proved to be a partial success as
Member States have defined the notion of vulnerable consumers and adopted some
measures to protect them. In general, this is a good direction for regulation with regard
to consumers' benefits from the internal market. However, protection of vulnerable
consumers in Member States is uneven. Moreover, energy poverty across the EU is
growing while data on the scale and drivers of energy poverty is missing.
Security of Electricity Supply Directive
7.1.3.
- To what extent have the objectives of Directive 2005/89 (i.e. a high level of security of
supply, a better functioning of the internal market) been achieved?
- To what extent would these objectives have been achieved in the absence of Directive
2005/89?
The SoS Directive was proposed by the Commission in December 2003, where Member
States were still working on the implementation of the Second Directive. Strong motivation
for coming up with this proposal were blackouts in both the EU (especially the one in Italy)
and US, which highlighted the need for clear operational standards for transmission networks
and the need for correct maintenance and development of the network. Generation adequacy
was also tested by both a cold winter in the Nordic region and a very hot summer all over
Europe. Although the supply chain performed well, the evidence showed the need for a
regulatory framework on investment in generation and demand management.
The SoS Directive was a good example of the Commission's swift reaction to a specific
problem: while Italy's blackout intervened in the night of 27 to 28th September 2003, the
Commission was able to table a legislative proposal by the end of the year.142
This proposal
represented a big step forward, especially if one considers that it was made at a time where
there was no recognised EU policy on energy.143
This also explains why its provisions are not
prescriptive enough and limit themselves to set objectives and enounce general principles.
The limitations of this Directive were soon highlighted by different stakeholders. The
European Economic and Social Committee, in its opinion144
on the Commission's proposal,
142
COM(2003) 740 final, of 10 December 2003.
143
The Directive, indeed, was based on Article 95 of the EC Treaty, allowing the European Union to adopt
measures for the approximation of national rules related to the establishment and functioning of the internal
market.
144
TEN/173 of 28 October 2004.
asked to be cautious before modifying the 2nd
package rules (point 3.1) but also criticised that
the proposed Directive did not really address the existing concerns regarding security of
supply (point 3.2) and suggested that the general provisions in Article 3 were "relevant
features of any good national energy policy and widely implemented. Presenting them as
provisions in a directive may lead to confusion of responsibilities". MEP Chichester's report
on the proposal very directly states that "It is no secret that the original Commission proposal
has not found favour with either the Parliament or the Council".145
Events such as those that were at the origin of the SoS Directive were certainly not the last
ones,146
and less than ten months after the publication of the SoS Directive in the Official
Journal, Europe suffered, on 4th
November 2006, a generalised blackout that affected 15
millions of European citizens. The disturbance, which started in North Germany, ended up
affecting large parts of the European interconnected power systems. This blackout highlighted
the existence of a series of regulatory gaps, as identified by the European Regulators Group
for Electricity and Gas (ERGEG, ACER's predecessor).147
On 8th
of February 2007, the
Commission's press release (IP/07/187) summarised the event as follows: "Three main
reasons appear to have caused the blackout. Firstly, E.ON Netz, the German electricity
transmission system operator which was at the origin of the fault, was not able to monitor
whether the grid was operating securely; secondly, other European transmission system
operators did not receive information on the actions taken by the German transmission
operator; and thirdly, insufficient investment both at the level of reliability and the operation
of the grid." As a matter of consequence, the Commission announced that the necessary
improvements of the regulatory framework would be put forward.
The SoS Directive was therefore quickly caught up by the discussions on internal market
measures proposed by the Commission already in 2007 and that led to the adoption of the
Third Package.
The SoS Directive, in its Article 9, asked the Commission to monitor and review the
application of the Directive and to submit a progress report to the European Parliament and to
the Council in 2010. In its progress report,148
the Commission made an overview of ongoing
activities on security of supply, referred to the benefits that the implementation of the Third
Package would bring along and explained some of the future evolutions in the European
electricity system, that would require massive investments and appropriate incentive schemes
for delivering the necessary investments in generation and transmission in a timely manner.
One should recognise that the progress report contained very little about the SoS Directive, as
such, and a lot about the future regulatory changes.
145
Report on the proposal for a directive of the European Parliament and of the Council concerning measures to
safeguard security of electricity supply and infrastructure investment (FINAL-A6-0099/2005), Committee
on Industry, Research and Energy, Rapporteur: Giles Chichester, p. 30
146
For an overview of blackouts, their impacts and lessons learnt, see the 2011 Report on the analysis of
historic outages, prepared under the SESAME project https://www.sesame-
project.eu/publications/deliverables/d1-1-report-on-the-analysis-of-historic-outages/view
147
ERGEG Final Report, The lessons to be learned from the large disturbance in the European power system
on the 4th of November 2006 Ref: E06-BAG-01-06
148
"Report on the progress concerning measures to safeguard security of electricity supply and infrastructure
investment" COM (2010) 330 final.
This was not surprising, because the Third Package had in the meantime clarified the role of
NRAs and TSOs, reinforced TSO co-operation by putting into place ENTSO-E (responsible,
among other tasks, of adopting every 2 years a Community wide ten-year network
development plan, including a generation adequacy outlook), and provided for the
harmonization of the technical standards and operating procedures for the electricity system
through the establishment of network codes and guidelines. Network codes and guidelines,
once adopted, become an integral part of the Third Package. Network codes and guidelines
are currently at different stages of the adoption procedure. From an electricity Security of
Supply perspective, the most relevant are those related to the operation of the electricity
system (System Operation Guidelines, expected to be adopted early 2017) and on Emergency
and Restoration (currently under discussions in the committee of Member States
representatives).
Work on infrastructure projects had also evolved since the adoption of the SoS Directive,
mainly based on Regulation No 347/2013 on guidelines for trans-European energy
infrastructure. In 2013, the European Union identified 248 energy infrastructure Projects of
Common Interest (PCIs). This list was reviewed and up-dated in 2016 and will then be
reviewed again every other year. An Energy Infrastructure Forum was set up and convened
for the first time in 2015 in Copenhagen as a framework to discuss the major issues relating to
infrastructure and EU energy policy.
Under these circumstances, and based on additional analysis and research made by the
Commission's services, it is fair to conclude that the SoS Directive had only a limited impact
on the electricity sector in general and on the security of electricity supply in particular. This
statement is based on the following considerations:
- The Directive imposes Member States a series of open-ended obligations, which gave
large freedom for implementation and are therefore hardly enforceable (e..g. Art. 5(1)
"Member States shall take appropriate measures to maintain a balance between the
demand for electricity and the availability of generation capacity").
- The Directive was quickly (but only partially) superseded by further EU rules, which
addressed in particular the role of TSOs in the area of security of supply and the need
for infrastructure investments. The new rules do not address, however, the role
governments have to play when it comes to setting standards, identifying risks, and
taking the necessary measures to prevent & manage crisis situations.
- The Directive has received a limited treatment in the specialised literature. Thorough
literature research shows that references to this Directive in articles and comments are
marginal.149
- The limited number of complaints received indicates the lack of awareness about the
Directive and confirms that its content is not precise enough to support
citizens/companies rights. According to the Commission's records (database CHAP),
potential breaches to this Directive were claimed in only 5 complaints, always as
ancillary claim to main breaches to other Directives of the second/third internal energy
149
The consultation of the Commission's bibliographic database produced only 2 results for bibliography
mentioning the Directive in their summary. Analysis of the Directive provisions were only found in
Christopher Jones e.a. EU Energy Law. Volume I. Internal Energy Market, and in Henrik BjØrnebye,
Investing in EU Energy Security, Kluwer Law International.
packages or, in one occasion, the RES Directive. None of these complaints led to the
opening of an infringement procedure based on the SoS Directive.
- The SoS Directive did not give rise to any infringement procedure on the
Commission's own initiative neither (other than the 17 cases for non-communication
of the transposing measures referred to in point 6). The reason was the general nature
of its obligations and the adoption of the Third Package, making more efficient to
address issues of non-compliance under the new more precise rules.
- The limited European case-law interpreting its provisions: Only the "Castelnou
case"150
, originated in a Commission's state aid decision challenged by a company,
gave the Court of Justice the opportunity to construe some provisions of the SoS
Directive, whereby it confirmed that "Directive 2005/89 confines itself, in essence, to
setting the objectives (Article 1) and the factors to take into consideration when
drafting and implementing measures to safeguard security of supply (Article 3)"
(recital 206).
- Last, but not least, the SoS Directive has not been the subject of any parliamentary
question. To our knowledge, it was mentioned in only one occasion.151
It can be concluded that the SoS Directive has not been effective in the achievement of
the objective pursued. Indeed, the incident of November 2016, one year after its
approval, highlighted the existence of a series of regulatory gaps on security of supply in
terms of monitoring, information exchange and insufficient investments. Most of these
gaps have been addressed by further EU rules.
7.2. Efficiency
- In qualitative terms, to what extent are the costs proportionate to the benefits achieved?
- Are there areas where there is potential to reduce inefficiencies particularly regulatory
burden and simplify the intervention (the issue of streamlining planning and reporting will
be dealt with elsewhere)?
- Are there areas where the current regulatory framework for the EU's electricity markets
could be streamlined and optimised?
Undoubtedly, the detailed rules for TSOs, DSOs, generators and suppliers, and in particular
the respective monitoring obligations for national regulators, led to some additional
administrative costs for undertakings (e.g. for unbundling compliance monitoring) and for
regulators (e.g. through increased tasks in monitoring and deciding on implementation details
of the Third Package). This constituted a significant additional burden given the moderate size
of many National Regulatory Authorities ("NRAs"). Half of the 28 NRAs have less than 100
staff members152
. Generally, the level of resources available to different NRAs varies
150
Judgment of the General Court (Second Chamber) of 3 December 2014, Case T-57/11, Castelnou Energía,
SL,vs European Commission
151
It was mentioned in the Commission's answer to the Written Question E-010039/13, by MEP Marc
Tarabella on 10 September 2013.
152
See overview per Member state in "EU Energy Markets in 2014"
http://ec.europa.eu/energy/sites/ener/files/documents/2014_energy_market_en.pdf
considerably. As underlined by the Court of Auditors153
, the number of people dealing with
energy issues in NRAs visited during their audit ranged from 21 (Estonia) to more than 200.
However, given a value of the EU the electricity sector of more than € 1.000 billion in 2014154
and the significant potential economic losses due to distortions of competition, the cost for
monitoring are considered negligible by stakeholders who rather call for stronger regulatory
oversight. This is made clear in the responses to the public consultation where there is notably
significant support for increasing ACER's powers by many stakeholders155
(e.g. oversight of
ENTSO-E activities or decision powers for swifter alignment of NRA positions).
Certain regulatory measures contained in the Third Package, such as unbundling have had a
cost for electricity stakeholders. The implementation of the unbundling requirements for all
TSOs certainly entailed costs for these companies. However these are difficult to quantify and
no detailed aggregated data on the cost of these organisational changes required by the
unbundling measures exist. The Commission's report on the impact of its unbundling reform
from October 2014156
showed that cost effects did not play a significant role for stakeholders.
The possibility for a Member State to choose between three unbundling models has provided
some flexibility which may have contributed to keep the costs related to the organisation
changes relatively limited. Indeed, it may be assumed that the Member States have opted for
the unbundling model which was the closest to the existing organisational structure of their
TSOs.
ENTSO-E is financed almost exclusively by fees collected from its members i.e. the TSOs. In
2015, its budget was of 17 000 k€ to be divided by the 41 TSOs from 34 countries. ENTSO-E
also holds as members TSOs from the Energy Community from countries which are not part
of the EU. The public consultation157
has not gathered any remarks on the cost or budget of
ENTSO-E. The fees paid by the TSOs to ENTSO-E appear to be of an acceptable level and
justified by the benefits that the TSOs enjoy from the existence of such an organisation whose
task is inter alia to defend their interests.
To the exception of the budget of ACER, no EU funds have been used to implement the
measures of the Third Energy Package.
Regarding ACER, its budget is almost exclusively financed by an EU budget subsidy. While
initially foreseen to be of approximately 6 to 7 million euros158
ACER's annual budget in
2015, amounted to 10 513 574 euros. Similarly the staff of ACER was foreseen to be
approximately 40-50 people while it is now 69 (ACER Establishment plan 2016). This
increase, both is budget and staffing reflects the gradual increase in tasks and duties attributed
to ACER, notably in consecutive legislation (e.g REMIT and TEN-E) ACER's financing has
153
Special Report 16/2015 by the European Court of Auditors, Improving the security of energy supply by
developing the internal energy market: more efforts needed, 2015
http://www.eca.europa.eu/en/Pages/DocItem.aspx?did=34751
154
The value is calculated using the turnover of the EU electricity sector which was estimated at 1.182 bn € in
2014 (based on Eurostat data), representing around 8% of the EU-28 GDP.
155
See for example the answers to the public consultation on the Market Design Initiative from Europex, E-
Control, IFIEC, IEA, Eurelectric, EFET, EUROPEX. https://ec.europa.eu/energy/en/consultations/public-
consultation-new-energy-market-design
156
https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex3.pdf
157
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
158
Impact assessment for the Third Package (SEC(2007) 1179/2)
http://ec.europa.eu/smartregulation/impact/ia_carried_out/docs/ia_2007/sec_2007_1179_en.pdf.
been facing different challenges as the tasks of the Agency have grown over the years. While
its budget has increased since its establishment, it is still seen as unsufficient by ACER itself.
The Director of ACER has been requesting additional staff over the years but these have not
been granted in full by DG BUDG. In addition ACER has been given the possibility to collect
fees under the Third Package. Article 22 of the ACER Regulation provides that fees shall be
due to the Agency for requesting an exemption decision and the fees shall be set by the
Commission. Since the establishment of ACER no such exemption decision was requested
and until now, the Commission did not set such fees.
Overall, it can be concluded that the new rules of the Third Energy Package have
generated additional administrative costs for undertakings and regulators. However
these are not perceived as too heavy by stakeholders and appear to be counterbalanced
by the benefits they generate notably through the increase in competition in the sector.
Security of Electricity Supply Directive
- To what extent have the interventions been cost effective?
- Is the administrative burden imposed on Member States and economic operators (e.g.,
through the reporting obligation contained in Article 7) justified?
- Is there room for simplification?
- Could the legislation have been better enforced/implemented?
The SoS Directive limited itself, in essence, to setting the objectives and the factors to take
into consideration when drafting and implementing measures to safeguard security of supply.
That means that it set a general framework on security of supply, but left it by and large to
Member States to define their own security of supply standards and policies within certain
limits. Because of the general terms of its provisions, it is estimated that the cost of the
intervention was a limited one, because it required limited legislative efforts (as confirmed by
CEER 2009 report) and did not imply specific actions by Member States.
Concerning the additional requirements on reporting imposed by Article 7, in connection
with the obligation to monitor security of supply imposed in Article 4 of Directive
2003/54/EC and in the Electricity Directive, the administrative burder of the reporting
obligation set in Article 7 is negligible.
Therefore, it can conclude that due to the limited number of obligations, largely
referring to mere reporting, the administrative burden remain limited.
7.3. Relevance
The evaluation of the effectiveness and efficiency of the Third Electricity Package showed
that the new rules clearly had a positive effect on markets and for consumers. However, with
a view to some fundamental changes in electricity markets since 2009, the evaluation needs
to assess if the Third Package framework is still sufficient to deal effectively with future
challenges of the sector.
The 2009 market design is not fully adapted to new market realities
7.3.1.
- The 2030 targets imply that the share of electricity generated from RES is likely to
reach up to 50% of electricity produced. Under which conditions can the current
electricity market facilitate the integration of such increasing levels of RES, also
considering that it is primarily decentralised?
Europe's power system is in the midst of profound changes. The European Union's policy to
fight global warming requires the electricity systems to shift from a generation mix that is
mostly based on nuclear and fossil fuels to a virtually decarbonised power sector by 2050159
.
This shift in the means employed to generate electricity from wind and solar has already
started to take place and is expected to become still more pronounced towards 2030.
On the political side, a renewed commitment at both European and global level to
decarbonize the economy means that the uptake of generation from renewable energy sources
(RES) has been on an upward trend ever since, and is promised to increase further.
The physical nature of renewable electricity generation – more variable, unpredictable and
decentralized than traditional generation – has important practical consequences for the way
electricity is traded, priced, and how grid operators can operate the electricity grid in a safe
and efficient manner. While at the time of the Third Package electricity was mainly produced
in central, large-scale fuel-based power plants, a market design with a large part of electricity
produced from variable wind and solar sources requires different rules. Effective short-
term markets and prices that reflect actual scarcity played a minor role in the Third
Package, but are now key for the functioning of the market. The Third Package clearly
lacks rules for the development and functioning of short markets as well as rules that
would enable the development of peak prices reflecting actual scarcity in terms of time and
location.
Despite the importance played by market coupling since 2009 in the further integration of
European markets (leading to price convergence and increase of exchanges between Member
States), the Third Package does not mention market coupling. Similarly, power exchanges
which play a critical role in the energy market are not addressed by the Third Energy Package.
Since variable energy production needs significant backup energy for times without wind and
sun, cooperation in organising this backup across member states is crucial to save unnecessary
costs for consumers. Also the safe management of the EU-wide connected electricity grid
requires closer cooperation between grid operators. While some progress has been made in
the Third Package on cross-border cooperation, notably with the creation of ACER and the
ENTSOs, close regional cooperation between TSOs and regulators is a key feature of a
"decarbonised" electricity market, and the current do not reap the full benefits of cooperation.
Equally dramatic changes have taken place on the technological side. Digitalisation of energy
markets increasingly allows the use of so-called 'demand response' solutions, enabling
industrial, business and household customers' demand to participate in electricity markets.
However, the current legislation has not been effective in removing the primary market
barriers especially for independent demand response service-providers and creating a level
playing field for them. The same goes for insufficient EU-wide deployment of fit-for-purpose
smart metering that can support novel energy services and products of value also to
consumers as well as enable the consumers to take active participation in the market.
In addition, technological progress allows distribution system operators to reduce network
investments by locally managing the challenges posed by increasing amounts of distributed
RES E directly connected to distribution systems. However, outdated regulatory frameworks
prevent them from operating more innovatively and efficiently.
159
See table under paragraph 2.1
In parallel, we have seen a partial comeback of state interventions as Member States began
introducing new types of national schemes aimed at protecting existing generation. The most
important such examples are support schemes for electricity produced from renewable energy
sources and so-called Capacity Mechanisms (CMs). Sub-optimal rules to support renewable
generation had the unintended effect to deter price signals or limit cross-border trade. State
interventions also translated into higher transmission tariffs, ultimately neutralising the
positive developments on wholesale electricity markets and driving up prices for end
customers at the retail level. The volumes of electricity trade affected by such state
interventions contracted under such mechanisms have increase significantly in the last years,
with increasing impacts on functioning of the internal electricity market. Further, whilst the
Third Energy Package contains provision on transmission tariffs, their level and design still
differ significantly between Member States. This has the potential to distort price signals.
In addition, the worldwide financial and economic crisis in 2008 has depressed economic
output - and therefore energy demand - in a way that had not been foreseen. This decline in
energy demand, in combination with the politically intended decarbonisation of the generation
fleet, had a significant effect on the business case of fuel-based generators and raised the
question whether market arrangements are fit to deliver needed investments to decarbonize the
economy on the required scale.
Overall, the rules of the Third Energy Package appear to be insufficient to cope with
such current levels of RES. Different rules appear needed to ensure in particular the
development of short term markets and the emergence of prices that reflect actually
scarcity. Rules to ensure closer cooperation of grid operators are also insufficient as they
stand.
The Third Package does not provide regulatory solutions to address
7.3.2.
perceived lack of investment into generation
- Does the market (still) provide a proper framework for investments in electricity
assets? Are there barriers to investment, in particular in new technologies?
- Does the EU electricity market constitute a favourable investment climate for
electricity assets? To what extent does it create a level playing field for investments
in the operation of RES, conventional generation, demand response or storage?
Generation adequacy is not addressed in the Third Energy Package. Consequently, there are
no common generation adequacy rules at EU level. However the Commission underlined in
its Communication on public interventions that "even if it might be legitimate for generation
adequacy standards to be different against the background of differing circumstances in
Member States, the system reliability in interconnected markets is interdependent160
". This is
why the Commission has felt the need to develop some guidance form Member States
wishing to put in place generation adequacy measures through a Communication on State Aid
Guidelines161
.
160
C(2013) 724 Communication from the Commission, Delivering the internal market and making the most of
public interventions, 5 November 2013;
161
SWD(2013) 438, Commission Staff Working Document, Generation Adequacy in the internal electricity
market - guidance on public interventions, 5 November 2013
Communication from the Commission — Guidelines on State aid for environmental protection and energy
2014-2020, OJ C 200, 28.6.2014, p. 1–55
The Interim Report of the sector inquiry on capacity mechanisms162
conducted this year by
DG Competition provides an analysis of the current investment climate in electricity
generation. The increase in generation capacity coupled with decreasing demand have led to
increasing gaps between peak demand and generation capacity, which points to overcapacity.
This has in turn led to decreasing electricity wholesale prices since 2011.
"The generation capacity of new renewable energy usually has lower running costs than
conventional coal- or gas-fired power plants. As a result the conventional power plants do
not produce as often as they did in the past, especially in markets with a high proportion of
renewable energy. The intermittent character of renewable sources of electricity creates
uncertainty regarding the frequency of price spikes that help conventional technologies to
recoup their investment costs."
In recent years, many unprofitable power plants plan to mothball and close. This is especially
the case for flexible gas fired power plants that have become more expensive to run compared
to less flexible lignite and coal.
Normally, well-functioning wholesale markets should provide price signals necessary to
trigger the right investment, However, the ability of markets to do so is debated today because
today's electricity markets are characterised by uncertainties as well as by a number of market
and regulatory failures which affect price signals; These include low price caps, renewable
support schemes, the lack of short term markets and lack of demand response operators.
Overall, the Third Energy Package does not ensure sufficient incentives for private
investments in the new generation capacities and network because of the minor attention
in it to effective short-term markets and prices which would reflect actual scarcity.
The significant increase in uncoordinated state interventions
7.3.3.
- To what extent can the current regulatory and governance framework respond to the
risk that, in an increasingly integrated market, national policies create negative spill-
over effects?
State aid support in the field of energy has increased tremendously since the Third package
was adopted. Indeed, EU Member States have primarily relied on dedicated policy
instruments to support the deployment of renewables. These instruments take the form of
operating aid or investment aid. In parallel, based on perceived or real generation adequacy
concerns, several Member States have introduced generation adequacy measures. These
measures often take the form of either dedicated generation assets kept in reserve or a system
of market wide payments to generators for availability when needed, referred to as capacity
mechanisms (CMs).
In 2009, state interventions concerning renewable energy support schemes or capacity
mechanisms played a limited role in the market, as renewables accounted only for 19% of
electricity produced in 2009163
and CMs had been in place only in a limited number of
countries. Since then this share has increased to 27.5% in 2014.
162
http://ec.europa.eu/competition/sectors/energy/state_aid_to_secure_electricity_supply_en.html
163
Eurostat data : http://ec.europa.eu/eurostat/statistics-explained/index.php/Energy_from_renewable_sources
Today, renewable support schemes and capacity mechanisms disregard market rules (priority
of dispatch, balancing exemptions, missing cross-border participation, etc.) leadsing to major
malfunctions of the market.
On Capacity Mechanisms
Regarding capacity mechanisms, the Third package (Art 8 of the electricity directive)
recognises the need for tendering of new capacity if markets are not able to deliver the right
level of generation adequacy to safeguard security of supply. It provides a legislative
framework for providing for new capacity or energy efficiency/demand-side management
measures through a tendering procedure or any procedure equivalent in terms of transparency
and non-discrimination.
Since variable energy production needs significant backup energy for times without wind and
sun, cooperation in organising this backup across member states is crucial to save unnecessary
costs for consumers.
As reflected in the Sector Inquiry on capacity mechanisms led by DG Competition, the
heterogeneous development of capacity mechansims has led to fragmented markets across the
EU. This is mainly due to the high degree of freedom the existing provisions leave to Member
States as they are neither detailed nor instructive. The Sector Enquiry highlights that "The
different types of capacity mechanisms are not equally well suited to address problems of
security of supply in the most cost effective and least market distortive way."
In particular, these mechanisms may lead to distortions if their design affects natural price
formation in the energy market (e.g. bids of energy) and therefore alter production decisions
(operation of power generating plants) and cross-border competition164
Capacity mechanisms
may also influence investment decisions (investment in plants and their locations), with
potential impacts in the long term165
..
CMs may also cause a number of competition concerns. In this respect, the DG Competition's
Interim report on the Sector Inquiry identifies substantial issues in relation to the design of
CMs in a number of Member States. First, many Capacity mechanisms do not allow all
potential capacity providers or technologies to participate, which may unnecessarily limit
competition among suppliers or raise the price paid for the capacity166
. Second, capacity
mechanisms are also likely to lead to over-compensation of the capacity providers – often to
the benefit of the incumbents – if they are badly designed and non-competitive. In many
Member States the price paid for capacity is not determined through a competitive process but
set by the Member State or negotiated bilaterally between the Member State and the capacity
provider. This creates a serious risk of overpayment167
. Third, the inquiry revealed that
164
For instance, a possible distortion is when generators in a CM market, receive (capacity) payments which
are determined in a way that affects their electricity generation bids into the market, while in a neighbouring
"energy-only" market generators do not. This may tilt the playing field for generators on either sides of the
border.
165
For instance, if contributions from cross-border capacity are not appropriately taken into account, they may
lead to over-procurement of capacity in countries implementing CMs, with a detrimental impact on
consumers
166
In some cases, certain capacity providers are explicitly excluded from participating or the group of potential
participants is explicitly limited to certain providers. In other cases, Member States set requirements that
have the same effect, implicitly reducing the type or number of eligible capacity providers. Examples are
size requirements, environmental standards, technical performance requirements, availability requirements,
etc.
167
In Spain for example, the price for an interruptibility service almost halved after a competitive auction was
introduced.
capacity providers from other Member States (foreign capacity) are rarely allowed to directly
or indirectly participate in national capacity mechanisms168
. This leads to market distortions
as additional revenues from capacity mechanisms remain reserved to national companies.
This is particularly problematic in case of dominant national incumbents whose dominant
position may even be strengthened by a national capacity mechanism. Lastly, although there
is a challenge to design penalties that avoid undermining electricity price signals which are
important for demand response and imports, where obligations are weak and penalties for
non-compliance are low, there are insufficient incentives for plants to be reliable.
All in all, as reflected in the Sector Inquiry, "A patchwork of mechanisms across the EU risks
affecting cross border trade and distorting investment signals in favour of countries with
more 'generous' capacity mechanisms. Nationally determined generation adequacy targets
risk resulting in the overprocurement of capacities unless imports are fully taken into
account. Capacity mechanisms may strengthen market power if they, for instance, do not
allow new or alternative providers to enter the market. Capacity mechanisms are also likely
to lead to over-compensation of the capacity providers – often to the benefit of incumbents – if
they are badly designed and non-competitive." All of these issues can undermine the
functioning of the internal energy market and increase energy costs for consumers.
To conclude, given the widespread use of state aid in European electricity markets today and
the potential for state aid measures to create market inefficiencies and distortions, the rules of
the Third package remain important and relevant today; but to protect them and make them
effective, new rules are necessary on market compatible RES support schemes and capacity
mechanisms.
On RES support schemes and regulatory exemptions
In 2009, the majority of Member States were promoting renewable energy production either
by green certificate regimes or quotas (23 Member States), or by feed-in-tariff system (21
Member States). Premiums were used in 7 Member States and tendering was not common
practice at the time169
.
Member States retained full discretion over their use of support schemes, including their
design, structure and the level of support. The EU legislative framework, including the 2009
RES Directive170
, provided no guidance on how or when using support schemes, nor even on
their eventual revision or reform. As a result, each and every Member State provided its own
support, used different models for support schemes and all Member States started off by
excluding non-domestic renewables from access to the support schemes. Not all national
support schemes were found to be equally efficient and responsive to market signals
168
For example, Portugal, Spain and Sweden appear to take no account of imports when setting the amount of
capacity to support domestically through their CMs. In Belgium, Denmark, France and Italy, expected
imports are reflected in reduced domestic demand in the CMs. The only Member States that have allowed
the direct participation of cross-border capacity in CMs are Belgium, Germany and Ireland. For more
details, see annex 5.2.
169
Renewable Energy: Progressing towards the 2020 target, COM (2011) 31
170
Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of
the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC
and 2003/30/EC (Text with EEA relevance)
OJ L 140, 5.6.2009, p. 16–62
When these limitations started to become apparent, the Commission issued Guidance on RES
support schemes design and their reform in 2013171
. The move towards more market-based
support mechanisms was then further complemented by the Guidelines on State aid for
Environmental Protection and Energy ('EEAG')172
and both paved the way for the design of
future support schemes, which should be market-based and granted through a competitive
process. For this, the EEAG set two major deadlines in 2016 and 2017, respectively for
market-based support and competitive bidding, which is already in place in 13 Member
States173, 174
.
Increased interconnection and decarbonised market require closer TSO
7.3.4.
and NRA cooperation
- Does the current regulatory and governance framework still provide sufficient scope
for fostering necessary market integration, and effective prevention of distortions and
secure operation of the integrated electricity system?
Since the adoption of the Third Package in 2009, the increasing share of variable renewable
energy sources and decentralised generation in the electricity mix resulting from the
implementation of the 2020 and 2030 targets, together with closer market integration,
especially in shorter market time intervals, resulting from the implementation of network
codes and guidelines, have made system operation much more interrelated than it was in the
past. Indeed, interconnection flows can vary hugely from one hour to another depending on
weather and market conditions, impacting security of supply.
TSOs play an increasingly important role in facilitating market integration with processes
such as capacity calculation or balancing markets where coordination across borders is
essential. As analysed in the ACER Market Monitoring Report175
, there is a high amount of
cross-border capacities that remain unused even in case of significant price differences. The
increasing volatility of flows might even deteriorate the situation if more efficient methods are
not employed.
These evolutions require much deeper regional coordination of TSOs and NRAs.
As regards TSO regional coordination, driven by the lessons learnt from the serious electrical
power disruption in Europe in 2006, European TSOs have pursued enhancing regional
cooperation and coordination. To this end, TSOs have voluntarily launched Regional Security
Coordination Initiatives in the recent years (the most prominent are Coreso and TSC, launched
in 2008) covering a greater part of the European interconnected networks and aiming at
improving TSO cooperation and maintaining or increasing security of operation of European
interconnected networks. Moreover, in a multi-lateral agreement between all the European
171
"European Commission guidance for the design of renewable energy support schemes", 2013, SWD (2013)
439 final
172
"Guidelines on State aid for environmental protection and energy 2014-2020", OJ 2014/C 200/01
173
DE, ES, ET, FR, HR, HU, IT, LT, LV, MT, PT, SL, SK
174
RES-Legal
175
ACER/CEER (2015), Market Monitoring Report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitorin
g_Report_2015.pdf
TSOs signed in December 2015, nearly all have agreed to make participation in these RSCIs
obligatory.
The RSCI approach is widely recognised as a positive step forward and has been further
formalised in European legislation with the new Commission Regulation establishing a
guideline on electricity transmission system operation. The Guideline mandates the creation of
Regional Security Coordinators (RSCs) covering the whole of Europe to perform five relevant
tasks at regional level as a service provider to national TSOs.
Even with the creation of RSCs, the current framework for system operation is largely based
on the national approach, given that it follows the design established during the times of
existence of vertically integrated utilities, based on a national power system. This is also
reflected by the fact that typically the network of each Member State is managed by one TSO,
regardless of the geographical size of the country, valid for e.g. France and Slovenia.
The challenges the EU power system will be facing in the medium to long term are pan-
European and cannot be addressed and optimally managed by individual TSOs,
rendering the current legal framework concerning system operation unsuitably adapted
to the reality of the dynamic and intermittent nature of the future electricity system and
putting to question whether the mandated regional cooperation of TSOs via RSCs is fit
for purpose in the post 2020 context.
The institutional framework currently applicable to the internal energy market as set
out in the Third Package is based on the complementarity of regulation at national and
EU-wide level. In view of the developments since the adoption of the Third Package as
described above, the institutional framework, especially as regards cooperation of NRAs
at regional level, will need to be adapted to ensure the oversight of entities with regional
relevance (e.g., RSCs). Moreover, as the European energy markets are more and more
integrated, it is crucial to ensure that ACER can function as swiftly and as efficiently as
possible. In addition, the implementation of the Third Package has highlighted areas
with room for improvement concerning the framework applicable to ACER and the
ENTSOs.
Consumers participation and protection
7.3.5.
- Does the current regulatory provide sufficient scope to ensure that final consumers can
actively participate in the market, and are optimally protected?
At the time of drafting both the Second and Third energy packages, consumer bills and pre-
contractual information formed the basis of consumer comparability, as consumers would be
given the possibility to measure up individual offers against their current supply contract.
Since then, the use of online comparison tools has risen significantly across the EU. Over
time the continuation of this trend might challenge the relevance of the EU intervention if it is
not adapted to also reflect new ways of consumer-market interaction.
Well-designed, reliable and transparent online comparison tools do the number-crunching
necessary to accurately compare the costs of each offer for individual consumers. 64% of EU
consumers who had compared tariffs of different electricity companies now say they had used
comparison tools to do so. Behavioural experiments show that comparison tools significantly
increase the number of cheaper offers consumers are able to identify compared with
contacting individual providers directly.
In addition, rising energy prices and stagnant wage growth mean that there are growing levels
of energy poverty within the EU. Since 2000 expenditure on energy services for the poorest
households in the EU has increased by 50%, reaching almost 9% of their total budget on
average. And in 2014, the gap in the share of expenditure spent on domestic energy services
between the average and the poorest households increased to three percentage points176
.
These developments have provoked strong political interest in the issues of consumer
vulnerability and energy poverty, and may suggest that the existing provisions on these topics
in the acquis need to be revisited to be relevant in the current context.
Consumer vulnerability will remain relevant as some drivers of vulnerability are
permanent. Energy poverty problem is likely to grow in the future if no policy measures
are adopted.
Distribution and flexibility
7.3.6.
- Are the roles carried out by DSOs, and their incentives, still fit-for-purpose given the
increased need to integrate variable distributed generation?
- Are the existing provisions for demand response ("demand-side management")
sufficient for ensuring cost effective levels of flexibility?
DSOs
Developments in the retail market such as the deployment of smart metering systems and the
increasing importance of data will call for a more active and neutral role of DSOs, and put
into question the continued relevance of the existing legislation.
Whereas previously, larger-sized generation capacity was mainly connected to the
transmission grid, RES-E is often smaller in scale and connected to the medium and low
voltage grids. In meeting 2020 targets some Member States are already experiencing a high
penetration of RES with an increasing number of the resources being variable (wind and
solar). A large share of these resources in many cases is connected to distribution grids (low
and medium voltage). According to available data this number is estimated to be as high as
90% (e.g. in Germany)177
.
Technological progress allows distribution system operators to reduce network investments
by locally managing the challenges this presents. However, outdated regulatory frameworks
prevent them from operating more innovatively and efficiently. For example, EU provisions
which aimed to enhance the DSOs position in using demand side management and energy
efficiency measures in planning their networks were not proved to be effective. Also DSOs
should be in a position to use innovative tools in order to avoid costly investments and operate
their networks more efficiently in only few Member States. The resulting inflexibility of
distribution networks significantly increases the cost, in particular terms of investment needs,
for integrating larger RES E.
176
Working Paper on Energy Poverty, 2016. Vulnerable Consumer Working Group.
177
Based on data from the EvolvDSO Project (FP7/2007-2013).
Figure 18: The level of electricity grid fees for households (DC band) in EU member states depending on the current
share of RE electricity generation.
The increasing more decentralised connection of electricity production units will imply that
distribution system operators will have to manage low and medium voltage grids more
actively than previously, when such management was only required at the transmission
system level.
There is a common view among DSOs and other stakeholders that in order for DSOs to cope
with this increasing number of variable RES-E they should become more active in managing
their networks. This would involve the use of flexible resources in order to alleviate short-
term and long-term congestions. Moreover, it would require investments in smarter grid
elements.
For more information see the Annex on DSOs.
The original objectives of current DSO unbundling requirements still correspond to the
EU objective of a competitive internal energy market and given, the growing importance
of DSOs, strong enforcement needs to continue.
The introduction of smart metering systems will generate more granular consumption
data and new business opportunities in retail market. Moreover, the integration of more
RES-E generation at distribution level will require a more active management of the
network from DSOs. Even if current provisions partially cover those challenges, the
circumstances have changed significantly since the adoption of the Third Package.
Consequently, the upcoming market framework requires further definition of tasks for
DSOs.
Demand-side response
The current EU legislation (Art 25.7 of the Electricity Directive together with Art. 15 of
Energy Efficiency Directive) recognises the need to make electricity demand more flexible in
order to enable the energy system to better cope with variable RES and new loads, as well as
to reduce the need for related capacity investments. It provides a legislative framework for
demand response, obliging Member States to ensure that demand response providers are
treated in a non-discriminatory manner.
The evidence available generally suggests that these provisions have been less effective in
achieving their stated objectives than intended. The provisions have not been effective in
removing the primary market barriers especially for independent demand response service-
.02
.04
.06
.08
.1
Euro/kWh
RE share <= 10% RE share > 10%
2008 2010 2012 2014 2015 2008 2010 2012 2014 2015
Source:
DG ENER, refe, mercados, indra
DC: grid fees and RE share
grid fees
providers and creating a level playing field for them. Instead the heterogeneous development
of demand response has led to fragmented markets across the EU. This is mainly due to the
high degree of freedom the existing provisions leave to Member States. As such, a host of
market barriers exist in many Member States: The roles and responsibilities for aggregators
are not defined, suppliers are able to prevent independent demand response service-providers
from entering the market by not granting them access to their customers, and significant
'compensation' payments from aggregators to Balance Responsible Parties and/or suppliers
risk to overcompensate those parties and diminish the business case for Demand Response.
As for consumers reacting directly to changes in retail prices (also referred to as price based
(or implicit) demand response) there is no binding EU legislation in place, and dynamic price
contracts for residential consumers are currently only widely available in four Member States.
In the absence of this, two major barriers to enabling price based demand response have
emerged: low access to fit for purpose smart meters and (relatedly) the lack of supply
contracts with dynamic prices linked e.g. to the spot market.
Under the Electricity (and Gas Directives), MS have some discretion on the extent to which
they roll out smart meters based on national Cost Benefit Analyses (CBAs). They only have
the obligation to roll out smart meters for electricity to at least 80% of consumers by 2020 if
these national CBAs are positive. This has contributed to the partial deployment of smart
metering systems. To date, 19 Member States have committed to rolling out close to 200
million smart meters for electricity by 2020, meaning that up to 72% of EU consumers should
have a smart meter by this date178
. However, only 21% of consumers had smart meters as of
2014 (the latest reliable data we have from ACER), raising doubts over whether these national
rollout plans are achievable.
Moreover, the legislative provisions in the aforementioned Electricity and Gas Directives are
silent on the practicalities/specifications for reaching the ultimate requirement to roll-out
systems that shall assist the consumers' 'active participation' in the energy supply market.
There is therefore a risk that the systems being rolled-out may not be fit for purpose and not
bring all the desired benefits to consumers and the market as a whole – including facilitating
price- and incentive-based demand response.
Partly as a result of these deficiencies, price signals in real time are currently not passed
to final consumers, resulting in inflexible demand patterns. This is also reflected in the
slow uptake of demand response in Europe. According to recent analyses, the current
theoretical demand response (or flexibility) potential accounts for approx. 100GW of
which up to 40GW could be economically activated. However, currently only approx. 21
GW (predominantly in the industrial sector) are activated indicating that the demand
response potential is underutilised.
178
The Commission Report COM(2014) 356 “Benchmarking smart metering deployment in the EU-27 with a
focus on electricity”, as also recently updated in the Smart Grids Task Force EG1 Report: “Status report based
on a survey regarding Interoperability, Standards and Functionalities applied in the large scale roll-out of smart
metering in EU Member States”, October 2015. COM(2014) 356: http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=COM%3A2014%3A356%3AFIN; and accompanying (country fiches) SWD(2014) 188:
http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:52014SC0188; (analysis of data) SWD(2014) 189:
http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:52014SC0189; Smart Grids Task Force EG1 report:
https://ec.europa.eu/energy/sites/ener/files/documents/EG1_Final%20Report_SM%20Interop%20Standards%20
Function.pdf
In summary it can be concluded that the existing measures have been partly effective in
removing barriers for the participation of industry in demand response but have not
been effective in removing barriers for the participation of the residential and the
commercial sector. This is of great concern as by 2030 demand response potential is
expected to increase to approx. 160GW by 2030 with the increase mostly driven by the
residential sector and the uptake of electric vehicles and heat pumps. As the existing
provisions have not been efficient in removing barriers for the commercial and
residential sector the gap between demand response potential and activated demand
response is likely to further increase in the future unless those barriers are removed.
For a detailed analysis, see the Annex on Demand Response and Smart Metering
Systems.
Security of Electricity Supply Directive
7.3.7.
- To what extent is the intervention still relevant?
- Do the objectives of the Directive and related EU rules still correspond to the needs of
security of electricity supply, taking into consideration the evolution of the electricity
markets over the past 10 years?
The objectives that inspired the SoS Directive are still relevant for improving the security of
electricity supply in Europe: (1) setting the conditions to facilitate a stable investment climate;
(2) clarifying roles and responsibilities; (3) guaranteeing a safe and secure system operation;
(4) maintaining the balance between supply and demand, and (5) appropriate regulatory
framework for investments.
All these objectives also inspired the Third Package rules, which benefitted from the lessons
learnt especially the 2006 blackout (that started in Germany and cascaded across Europe) and
certainly improved Europe's preparedness to cope with crisis resulting from predictable
events, such as those resulting from the unavailability of generation / transmission units or
adverse weather conditions.
Since the 2006 blackout, Europe has luckily not experienced any widespread incident. The
2012 cold spell or the 2003 and 2015 heat waves had adverse impacts on the electricity
sectors of some Member States (France, Poland), and those effects were sufficiently
addressed at national level. In 2011, Cyprus suffered a serious emergency situation following
an explosion in a military naval base which seriously damaged nearly all generation units of a
nearby power station.
Well-functioning electricity markets offer the best guarantee for security of supply, both in
the long term (by securing the necessary investments in networks and capacity) and in the
medium and short-term (by securing an optimal matching of demand and supply). But the
question arises: are internal market rules enough to guarantee the supply of citizens with
electricity in any event and face to any risks?
The Third Package recognises that, in exceptional circumstances, market mechanisms and
operational rules might not suffice, and therefore allows Member States to adopt safeguard
measures "in the event of a sudden crisis in the energy market and where the physical safety
or security of persons, apparatus or installations or system integrity is threatened". These
safeguard measures need to be notified to the Commission, which may ask the MS to amend
or withdraw the measures. Especially in case of simultaneous crisis, uncoordinated national
safeguard measures can jeopardise the effectiveness of emergency and remedial actions taken
at operational level, and the risk of cascading effect and a generalised black-out cannot be
excluded.
The results of a recent study179
show a fragmented and diverse framework in relation to
obligations concerning security of supply. In particular, the existing practices differ across
Europe regarding (a) monitoring and assessment of security of supply issues, (b) measures to
deal with emergency situations and (c) definition of roles and responsibilities.
This patchwork of security of supply rules across Europe stands in stark contrast with the
reality of today's interconnected electricity market. Whilst so far, electricity crises have been
relatively limited, there is no guarantee that, where a cross-border incident occur, Member
States will have to the tools to address it effectively and efficiently.
Whilst all Member States monitor and assess possible risks related to security of supply and
take measures to prevent and mitigate such risks, national rules and practices turn out to be
very different. First, Member States have different understandings of what constitutes a risk
related to security of supply and methods for assessing and addressing such risks vary
considerably. There is also no common agreement on what the desired level of security of
supply should be. The study results indicate that 23 Member States describe and differentiate
between various categories of risks, but the approach followed to assess them differs
considerably across these states, and different actors are involved. Further, whilst most
Member States have plans in place to prevent and deal with electricity crisis situations, the
content and scope of these plans veries considerably. A majority of Member States provide a
legal definition of emergency but with varying levels of detail. In addition, existing national
plans tend to focus on the national situation only. Cross-border co-operation between Member
States in the planning phase is scarce and where it takes place at all, it is often limited to co-
operation at the level of TSOs.
The SoS Directive was conceived as a complement to the market rules, in the absence of a
clear Treaty mandate on security of supply. Today, Article 194 of the Treaty on the
Functioning of the European Union (TFEU) clearly states that the Union policy on energy
shall aim, in the spirit of solidarity between Member States, to ensure security of energy
supply in the Union. In practice, this means that Member States, system operators, the energy
industry and all other stakeholders have the duty to work closely together to ensure a high-
level of energy security for European citizens and companies, but also that Member States
should be assured that in situations of tight supply, they can rely on their neighbours.
However, whilst electricity markets are increasingly intertwined within Europe, there is no
common European framework on security of electricity supply. National authorities tend to
decide, one-sidedly, on the degree of security they deem desirable, on how to assess risks and
on what measures to take to prevent or mitigate them.
In their replies to the public consultation180
, most of the respondents acknowledged that
security of supply should be considered as a matter of common concern, because countries are
increasingly dependent on one another and measures taken in one country can have a
179
Risk Preparedness Study - "Review of current national rules and practices relating to risk preparedness in
the area of security of electricity supply" (2016), prepared for DG Energy of the EC.
https://ec.europa.eu/energy/sites/ener/files/documents/DG%20ENER%20Risk%20preparedness%20final%2
0report%20May2016.pdf
180
Consultation on risk preparedness in the area of security of electricity supply.
https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-
supply
profound effect on what happens in neighbouring states and in electricity markets in general.
They acknowledged that the SoS Directive does not offer the right framework for addressing
this inter-dependence.
In the absence of clear rules and procedures, agreed in advance, on issues such as how to
prevent and mitigate cyber-attacks, how to communicate across Member States in crisis
situations, what measures to take to prevent a further deterioration of a critical situation,
actions taken within one Member State can have serious negative effects elsewhere.
Therefore, it can conclude that the SoS Directive intervention is not relevant today as it
does not match the current needs on security of supply. The current needs result from
the clear TFEU mandate and, in particular, concerning risk preparedness to make sure
that Member States are aware and duly prepared to security of supply risks, clarify
roles and responsibilities in case of emergency and provide clear rules on the conditions
under which Member States may adopt safeguard measures.
7.4. Coherence
Under this section the evaluation aims at verifying both internal and external coherence of the
Third Energy Package. The former (internal coherence) includes consistency and
interdependence of various regulatory measures adopted under the Third Package. The latter
(external coherence, in turn, means checking coherence of the Third Package with other
pieces of legislation relevant for the energy sector namely:
- Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009
on the promotion of the use of energy from renewable sources and amending and
subsequently repealing Directives 2001/77/EC and 2003/30/EC ("RES Directive");
- Directive 2012/27/EU of the European Parliament and of the Council of 25 October
2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and
repealing Directives 2004/8/EC and 2006/32/EC ("Energy Efficiency Directive");
- Directive 2005/89/EC of the European Parliament and of the Council of 18 January
2006 concerning measures to safeguard security of electricity supply and
infrastructure investment ("Electricity Security of Supply Directive").
Internal Coherence
7.4.1.
- Are the various measures comprised in the Third Package properly working
together or not?
- Does the ineffectiveness of certain measures compromise the effectiveness of other
components?
General speaking, the Third Energy Package provisions are working together well.
However, the Commission has spotted several provisions which would need to be either
deleted because obsolete or never used or modified because unclear or confusing.
More precisely, regarding ACER, the report prepared by ACER in 2014, "Energy Regulation:
A Bridge to 2025 Conclusions Paper"181
recommends that the Agency be given adequate
181
http://www.acer.europa.eu/official_documents/acts_of_the_agency/sd052005/supporting%20document%20t
powers to fulfil effectively the important monitoring responsibilities assigned to it in the
ACER Regulation, in particular, in respect of information gathering. There seems to be a
mismatch between the monitoring tasks and the powers of the Agency to request information
from NRAs, TSOs, and ENTSOs.
Regarding ENTSO-E, some stakeholders who replied to the public consultation on the market
design initiative mention a possible conflict of interest in ENTSO-E’s role – being at the same
time an association called to represent the public interest, involved e.g. in network code
drafting, and a lobby organisation with own commercial interests – and ask for measures to
address this conflict. This could be considered as incoherence within the Electricity
Regulation which entrust, in its Article 6, ENTSO-E to play a key role in the elaboration of
the network codes, ENTSO-E being at the same time a representation of national TSOs which
represent their own interests. This issue has also been underlined in the report prepared by
ACER in 2014, "Energy Regulation: A Bridge to 2025 Conclusions Paper"182
.
With regard to protection of vulnerable consumers, the main discrepancy between the
Electricity and Gas Directive arises from Universal Services (Article 3 (3) of the Electricity
Directive). The right to universal service does not exist for gas. This limits some provisions
related to the protection of vulnerable consumers in the gas sector. Member States are not
obliged to ensure certain protection to all vulnerable consumers, but only to those already
connected to the gas system. The reason is that a piped gas network for consumers is not
available throughout every EU MS.
The Third Package's provision on allowing regulated prices in specific cases adhere to
difficulties with carrying out the overarching objectives of the EU regulatory framework:
introducing competition and enabling consumer choice.
External Coherence
7.4.2.
- To what extent is the Third Package coherent with other measures affecting the
electricity sector, such as the Renewable Energy (RES) Directive, the Energy
Efficiency Directive and the Electricity Security of Supply Directive?
Dispatch
The Third Package Electricity Directive sets out in its Article 32 the general principle of non-
discriminatory access to the network. The system of access to the electricity network has to
be based on tariffs which are applied without discrimination to all network users.
Similarly, the Electricity Directive of the Third Package contains in its Article 15 the general
principle of non discriminatory dispatching. Dispatching of the electrcity produced by the
different generators within a Member State must be dispatched in the network by the TSO on
the basis of criteria approved by the NRA. These criteria may take into account economic
precedence of electricty and should be applied in a non-disciminatory manner.
In terms of access to and use of the electricity grid, the Renewable Energy Directive lays
down that Member States shall ensure that, priority access or guaranteed access to the grid-
system of electricity produced from renewable energy sources is safeguarded. In terms of
o%20acer%20recommendation%2005-2014%20-
%20%20energy%20regulation%20a%20bridge%20to%202025%20conclusions%20paper.pdf
182
See footnote above
dispatching to the system, Member States must require system operators to ensure that when
dispatching renewable energy electricity installation to the system, they have priority over
other installations. Similarly, Member States may also require the system operator to give
priority when dispatching generating installations producing combined heat and power (CHP).
These measures – clearly aiming at encouraging within a Member State the development of
renewable energy sources and CHP – is a positive discrimination in favour of renewable
energy producers. Consequently, the general non-discriminatory access principle of the Third
Package is contradicted by the priority access granted to renewables in the Renewable Energy
Directive.
When the priority access provisions of the RES Directive were developped, renewables
represented only a small proportion of installed generation capacity and these were a less
mature technology. This special treatment was in a way justifiable and had a limited impact
on the electricity system as a whole.
However, in view of the increasing share of RES E, this has resulted in a situation where in
some Member States very high shares of power generation are coming from "prioritized"
sources183
. In view of the EU target for at least 27 % of renewable energies in final energy
183
The comparison of Germany and Denmark, two Member States with high shares both of RES-E and CHP, is
helpful to assess the deficiencies of systems based on strong priority dispatch and priority access principles.
Taking the example of Denmark, an average of 62 % of power demand in the month of January 2014 has
come from wind generation alone (http://www.martinot.info/renewables2050/how-is-denmark-integrating-
and-balancing-renewable-energy-today) and the share of annual demand covered by wind power has risen
from 19 % in 2009 to 42 % in 2015 (http://www.energinet.dk/EN/El/Nyheder/Sider/Dansk-vindstroem-
slaar-igen-rekord-42-procent.aspx). Adding to this the share of 50.6 % of CHP in total Danish power
generation.
(https://ec.europa.eu/energy/sites/ener/files/documents/PocketBook_ENERGY_2015%20PDF%20final.pdf,
p. 183), which makes Denmark one of the Member States with the highest share of CHP (http://www.code2-
project.eu/wp-content/uploads/Code-2-D5-1-Final-non-pilor-Roadmap-Denmark_f2.pdf;), in many periods
almost all generation would be subject to "priority dispatch". Finally, it may be necessary to add certain
generation assets which are needed to operate for system security, e.g. because only they can provide certain
system services (e.g. voltage control, spinning reserves), further limiting the scope for fully market based
generation. However, in Denmark, market incentives on generators are set in a way that drastically reduces
the impact of priority dispatch. Almost all decentralized CHP plants and a large number of wind turbines
would be exposed to and are not willing to run at negative prices. As CHP are not shielded from market
signals by national support systems, they have strong incentives to stop electricity generation in times of
oversupply. The integration of a high share of RES-E and CHP in parallel has been successful to a
significant extent because CHP are not built and operated on the basis of a "must run" model, where heat
demand steers electricity generation. To the contrary, CHP plants have backup solutions (boilers, heat
storage), and use these where this is more efficient for the electricity system as expressed by wholesale
prices.
Taking the example of another "renewables front runner", Germany, "must run" conventional power plants
have been found to contribute significantly to negative prices in hours of high renewable generation and low
load, with at least 20 GW of conventional generation still active even at significantly negative prices (See:
http://www.netztransparenz.de/de/Studie-konventionelle-Mindesterzeugung.htm). Financial incentives are
so that many conventional plants generate even at significantly negative prices, with many power plants
switching off electricity generation only at prices around minus 60 €/MWh. This increases the occurrence of
negative prices, worsening the financial outlook for both renewable and conventional generators, and can
increase system stress and costs of interventions by the system operator. This is not due to technical reasons
– also in Germany, CHP plants generally have backup heat capacities, which are already necessary to
address e.g. maintenance periods of the main plant, or could technically install these. While it may be
economically and environmentally efficient to run through short periods of low prices (to avoid ramping up
or down), this is no longer the case where the market is willing to pay a lot for electricity being not
generated. Excess electricity is in these situations not very efficiently generated, but essentially a waste
product. While there is a wide range of reasons for conventional generation to produce at hours of negative
prices (e.g. very inflexible technologies such as nuclear or lignite which need a long time to reactivate),
approximately 50 % of the plants in such a situation in Germany had at least the capability for parallel heat
consumption (which according to PRIMES EuCo27 projections would require 47 % of gross
final electricity consumption to come from renewable energy), the high share of priority
dispatch and priority access-technologies will increasingly occur in other Member States.
This can have very significant impact on the well-functioning of the electricity market. It
affects the level playing field between technologies, renders assets non-responsive to price
signals and undermines the market's price signals and flexibility and the efficiency of the
market outcome. Moreover, where the majority of assets benefit form priority dispatch, the
mesure in effect becomes meaningless when viewed from the perspective of its intially
intended objective and can have unintended negative effects, such as unnecessary curtailment
of RES E.
Balancing
The principles applicable to balancing as set out in Article 15 of the Electricity Directive are
similarly not in coherence with other existing rules and practices applicable in many Member
States. Balancing responsibility refers to the obligation of market actors to deliver/consumer
exactly as much power as the sum of what they have sold and/or purchased on the electricity
market. Balancing responsibility implies that the costs of the balancing actions taken by the
transmission system operator are generally to be compensated by the market parties which are
in imbalance. Article 15 of the Electricity Directive requires that TSOs adopt rules on
balancing which are non discriminatory. However, in some Member States, certain types of
power generation (notably wind and solar, but possibly also other technologies) are excluded
from this obligation or have a differentiated treatment. Whereas many Member States already
foresee some balancing responsibility for RES generators (2013: 16 Member States) this is
not yet the case for all Member States, and the degree of balancing responsibility differs
considerably between Member States.
Demand response
The provisions of the Third Package on demand response are fully coherent with other
legislative provisions within the electricity directive, the energy efficiency directive (EED),
the renewable energy directive (RED) and the energy performance of buildings directive
(EPBD). As all of those directives currently undergo revisions this coherence needs to be
continuously ensured to allow demand response to a) enable the integrating of renewables
efficiently into the electricity system in line with the RED, b) contribute to energy savings in
line with the EED, c) participate as a resource in the electricity markets, d) be considered
when capacity mechanisms are established, e) be supported under the distribution tariff
design.
Smart metering
In terms of coherence – internally & with other EU actions – even though no clear
contradictions could be pointed out, the evaluation has identified some room for
improvement. Linking of the term 'actual time of use' in Article 9(2a) and Article 9(1) of the
EED to smart metering provisions erroneously restricts the functional requirements of the
targeted set-ups and raises questions about coherence with the framework for promoting smart
production, and approximately 8-10 % of conventional plants still producing at such moments were found to
be heat-controlled CHP generation (Consentec, "Konventionelle Mindesterzeugung – Einordnung, aktueller
Stand und perspektivische Behandlung", Abschlussbericht 25. Januar 2016, p. vii and 25).
meters. There is therefore a need to clarify that a wide range of functionalities is in fact
promoted, as those recommended by the Commission, that go much beyond the capability of
just 'actual time of use' information which usually refers to advanced, and not smart, metering.
Moreover, to ensure coherence, avoid any further confusion and unnecessary administrative
burden for updating the related provisions in different legislative documents, it is advised to
consider that all existing requirements and any future legislative interventions on smart
metering be consolidated/embedded in one single legal act.
Metering and billing
Whereas no direct contradictions with other provisions and actions have been identified, it
may seem incoherent or at least confusing that, as explained above, the minimum frequency
of billing is (qualitatively) regulated in the Electricity and Gas Directives and quantitatively
regulated in the EED for all but smart electricity and gas meters. Most importantly, the latter
(EED) results in what would seem to be an unjustified difference between those customers of
electricity/gas and thermal energy forms, respectively, who have equipment allowing for
automatic/remote readings: whereas customers with smart electricity or gas meters should
expect to have at least monthly information (cf. the Commission's interpretation of the IEM
provisions), consumers whose consumption is measured with "smart" heat meters or heat cost
allocators are only entitled to information 2 or 4 times a year (assuming that the cost-
effectiveness condition has not been used to deviate from it). It would seem more logical that
where supplies are measured using remotely readable equipment, and where marginal costs of
more frequent information are therefore very small, the minimum frequency would be the
same regardless of the energy form, and that this be clearly spelled out.
Security of Electricity Supply Directive
7.4.3.
- To what extent is this intervention coherent with other interventions which have similar
objectives and with wider EU policy?
- In particular what is the coherence between this Directive and the provisions contained in
the Third Package?
Many provisions of the SoS Directive have been superseded by more recent EU legislation, in
particular the Third Package and the SoS Directive could therefore be considered as an
intermediate step between the Second and the Third Package. The SoS Directive was not
prescriptive, but rather set general principles that whould inspire Member States' policies on
SoS.
Its provisions represented a forerunner for some measures that were later on developped in
successive EU rules, as illustrated by the following references:
 The need to define roles and responsibilities of competent authorities, NRAs, TSO and
market actors (Article 3(1) SoS Directive), which is a basic requirement of the EU
rules on the promotion of renewables, on energy efficiency and of the guidelines on
energy infrastructures.
 The possibilities for cross-border cooperation (Art. 3(2)(c) SoS Directive) are a
essential feature of the third package, and in particular of the Electricity Regulation.
They are in the essence of the infrastructure guidelines and can also play a role in the
promotion of renewables (e.g. in the form of joint support schemes foreseen in
Directive 2009/28).
 The need for regular maintenance and, where necessary, renewal of the transmission
and distribution networks, to maintain the performance of the network (Art. 3(2)(d)
SoS Directive), is further elaborated among the TSOs duties in the Electricity
Directive (as complemented by the Network Codes and Guidelines).
 The importance of ensuring proper implementation of the EU rules on promotion of
renewables and cogeneration (Art. 3(2)(e) SoS Directive).
 The importance of encouraging energy efficiency and the adoption of new
technologies, in particular demand management technologies, renewable energy
technologies and distributed generation (Art. 3(3)(c) SoS Directive).
 The importance of removing administrative barriers to investments in infrastructure
and generation capacity.
Special attention deserves Article 4 of the SoS Directive, which deals with "Operational
network security" and represents a truly "embryo" of what will become, more than a decade
later, the EU Guidelines on System Operation and the Network Code on Electricity
Emergency and Restoration.
The SoS Directive certainly anticipated later regulatory developments, without contradicting
them, as shown by the fact that later rules did not required amending of repealing the
Directive. To this extent, it can be considered as consistent with the remaining internal energy
market rules, with the rules on energy efficiency and on promotion of renewables, as well as
with the European guidelines on energy infrastructure.
However, a comparison of the SoS Directive with the equivalent rules existing in the gas
sector raises strong coherence concerns.
In the gas sector, issues related to the security of supply "at broad" (understood as a natural
consequence of a truly competitive energy market) are covered through the relevant internal
market rules (Gas Directive and Gas Regulation). For its part, Regulation No 994/2010184
, and
to some extent also its predecessor (Directive 2004/67)185
, directly adresses risk preparedness
issues. In the terms of recital 3, "this Regulation aims at demonstrating to gas customers that
all the necessary measures are being taken to ensure their continuous supply, particularly in
case of difficult climatic conditions and in the event of disruption". Regulation No 994/2010
created a transparent mechanism, in a spirit of solidarity, for a coordinated response to an
emergency at national, regional and EU levels. To this end, it provides for a definition of
protected customers, it sets up common infrastructure and supply standards, it introduces the
requirement to prepare risk assessments, preventive action plans and emergency plans and
defines different crisis levels, among other provisions. All these provisions aim at increasing
the degree of emergency preparedness at national and EU level in the gas sector. Regulation
No 994/2010 is currently in the process of being reviewed, based on the experience.186
Contrary to the gas sector, the SoS Directive limits itself to anticipate future market related
developments but does not address risk preparedness as such.
The EU electricity sector therefore lacks a basic act that would enounce basic principles and
184
Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October 2010 concerning
measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC (OJ L 295/1).
185
Council Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas
supply (OJ L 127/92).
186
Commission Proposal for a Regulation of the European Parliament and of the Council concerning measures
to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010 (COM(2016) 52 final).
impose basic obligations and clear procedures aiming at guaranteeing coordinated response in
case of emergency.
The absence of clear rules guaranteeing a coordinated action by all relevant players when it
comes to preventing and managing crisis situations, seriously weakens the EU's ability to deal
with large-scale electricity crisis situations. There is a stark contrast between the reality of
today's electricity networks, which are increasingly integrated, and the fact that so far Member
States identify risks and take action to manage and prevent them on a purely national basis, by
reference to their own sets of rules and procedures.
While EU risk preparedness has evolved and improved over the past years in the gas sector,
this has not been the case in the electricity sector.
This state of affairs can also lead to undue and unnecessary market interferences. In fact,
Article 42 of Directive 2009/72/EC grants Member States wide powers to take safeguard
measures in the event of a sudden crisis in the energy market. Such measures must cause the
least possible disturbance in the functioning of the internal market and must not be wider in
scope than is strictly necessary to remedy the difficulties. The provisions on safeguard
measures were introduced in the internal energy market rules from the very beginning, but
were never modified, and the current SoS Directive does not offer rules about the governance
aspects linked to the safeguard measures and the necessary coordination in case of crisis.
As the SoS Directive was not prescriptive but rather set general principles on security of
supply, it can be considered that the SoS Directive is consistent with other interventions
which have similar objectives, in particular with the Third Package. However, the
content and approach of the SoS Directive are not consistent with the EU rules on
security of supply in the gas sector and therefore match only partially the current needs
on security of supply in Europe, in particular concerning risk preparedness.
7.5. EU value added
This section aims to determine value resulting from the Third Package (as determined by
‘Effectiveness and Efficiency’ section) compared to what could have been achieved by
Member States at national and/or regional levels. It includes the added value of the
institutional bodies established at EU level by the Third Package: ENTSO-E and ACER.
Value added of EU market framework
7.5.1.
- What is the additional value resulting from the Third Package compared to what
could be achieved by Member States at national and/or regional levels?
Unbundling
The legal and functional unbundling of TSOs that were vertically integrated with production
and supply activities, provided for under the Second Package, did not succeed in ensuring
equal access to the networks for all suppliers. Reinforced common rules on TSO unbundling
introduced by the Third Package in order to foster competition on the grid could only be
adopted at EU level. If fragmented national rules had been in place, distortions would have
emerged in the synchronised electricity grid in a similar way as today's fragmented state
interventions distort the market. Common unbundling rules were needed to ensure a level
playing field.
With regard to DSOs, the large majority of the Member States have not set unbundling
requirements beyond those of the Electricity Directive, demonstrating that the intervention
was necessary in order to structure the EU energy sector in such way so as to pursue the wider
objectives of the internal market, to promote competition and economic growth.
Access to cross-border infrastructure
At the time the Third Package was adopted the legal framework did not allow for a proper and
efficient regulation of the cross border issues relating to gas and electricity network access.
The fact that access to cross border interconnectors was often granted in a preferential manner
showed that rules were insufficient. This is why the Third Package aimed at a modification of
existing EU legislation and at the creation of new frameworks for cross-border co-operation
which could legally and practically only be achieved at the European level. The challenges
could not be addressed as efficiently by individual Member States. Fostering a more efficient
and integrated EU electricity market and ensuring a more co-ordinated policy response to
security of supply clearly required harmonised and coordinated approaches by all Member
States.
The increase in cross-border trade (see subsection 7.1 on Effectiveness) clearly shows that the
Third Package has meant a major step in regulating cross-border interconnectors. This is
clearly an issue that could only be regulated at EU level.
Similarly, as Member States' networks became increasingly interconnected via infrastructure,
there was a clear need for more cooperation between neighbouring TSOs. This could clearly
only be achieved by supranational measures. This is especially true as regards the need for a
coordinated approach to infrastructure development in particular with relevance for security
of supply. This has called for the development of ENTSO-E and the establishment of a ten
year network development plan. The coordination rules for TSOs and NRAs introduced by
the Third Package were needed to avoid fragmented uncoordinated decisions which could
hamper the effective functioning of the internal market.
Metering and billing
In a single market for energy there is a strong case for suppliers being subject to similar if not
identical obligations and rules, and for consumers to enjoy the same basic rights and be
provided with comparable and recognisable information wherever they live and wherever they
purchase their energy from. More generally, the delivery of a New Deal for energy consumers
as part of the Energy Union includes providing consumers with frequent access to partially
standardised, meaningful, accurate and understandable information on consumption and
related costs. Guaranteeing certain minimum standards in terms of the frequency and content
of billing and billing information therefore contributes to realising the Energy Union and
meeting EU goals on energy efficiency and greenhouse gas reductions.
The provisions addressing consumer information in the Electricity and Gas Directives are
essential for protecting consumers in the internal energy market at the retail level. They play
an important role in ensuring the benefits of the internal market in energy can be enjoyed by
all consumers, and help to create a level-playing field for suppliers and other retail market
actors across the EU. Whereas there are currently still very few if any examples of cross-
border supply in the retail market, a common base of energy consumer rights is a precondition
for that to develop over time.
Customer protection
In terms of the EU added value, while some Member States had already been protecting their
vulnerable energy consumers prior to the EU intervention, others have taken action as a result
of the EU intervention.
Conclusions
Overall, it can be concluded that the subjects covered by the examined legislation such
as unbundling, cross-border cooperation, interconnectors, are topics which legally and
practically could only be regulated at EU level. Similarly cooperation between
neighbouring TSOs and NRAs needed to avoid fragmented uncoordinated decisions.
Regulation could only happen at supranational level.
Harmonised approach to metering and billing as well as consumer protection provisions
safeguard the level playing field for suppliers and provide equal rights for energy
consumers. It also facilitates providing cross-border services.
- What is the value added of ENTSO-E and ACER?
The regulatory framework and rule-making process for energy policy has been enriched in the
Third Energy Package by creating ACER and ENTSO-E. ACER provides a framework for
institutionalised cooperation between national regulators. ENTSO-E, in turn, constitutes a
cooperation platform for transmission system operators.
Both ACER and ENTSO-E have become important partners in discussions on regulatory
issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively. They are
both crucial actors in the adoption process of the network codes. In its Communication
Delivering the internal electricity market and making the most of public intervention, the
Commission underlined that ACER and the ENTSOs have played a key role in the progress
towards a functioning internal energy market. The Commission recently made an evaluation
on the first years of functioning of ACER and has concluded that the agency has become a
credible and respected institution playing a prominent role in the EU regulatory arena and
focusing on the right priorities187
.
An external evaluation of ACER was conducted in 2014188
. It concluded that ACER’s
governance and management structure is widely considered to be appropriate for the Agency's
current role. It also concluded that the Agency’s working methods represent significant value
added thanks to numerous informal interactions with associations and other stakeholders.
Also their on-going publishing of all relevant documents is highly appreciated from the
market participants. In 2014 the vast majority of stakeholders consulted for this ACER
evaluation reported the Agency to be understaffed. However, the Agency was able to carry
out most of the activities planned in the work plans. The report also concluded that
deliverables produced by ACER bring value to all stakeholders by informing them of key
market and regulatory developments.
As regards ENTSO-E, improving security of supply by strengthening incentives for
investment in transmission and distribution capacities required a tighter cooperation between
national TSOs. Through the setting up of ENTSO-E, the Third Package made this cooperation
easier and smoother. Such an EU-wide structure could only be created thanks to EU
intervention.
However, the implementation of the Third Package has highlighted the existence of a number
of shortcomings concerning the framework applicable to ACER and the ENTSOs. See notably
187
https://ec.europa.eu/energy/sites/ener/files/documents/20140122_acer_com_evaluation.pdf
188
Commission Evaluation of 22.01.2014 of the activities of the Agency for the Cooperation of Energy
Regulators (ACER) under article 34 of Regulation (EC) 713/2009 – C(2014) 242 final.
section 7.1.1 on the need to reinforce the independence and transparency requirements
applicable to this ENTSO-E and the possible conflict of interest in ENTSO-E’s role.
Also, it is important to note that ACER acts primarily through recommendations and
opinions. As pointed out above, the agency has limited decision-making powers. However, in
some instances, fragmented national regulatory oversight has proved to be inefficient for
cross-border issues related to the electricity and gas system (e.g. market coupling).The lack of
a stronger governance and regulatory framework for cross-border issues constitutes a barrier
for the integration of the energy markets.189
In this regard, there is consensus among market
parties and stakeholders that ACER should indeed be enabled to more efficiently oversee the
development of the internal energy market and deal with cross-border issues.
The 29th meeting of the European Electricity Regulatory Forum of 9 October 2015
underlined, as a conclusion, "the need for analysing and further elaborating the roles, tasks,
responsibilities and consider possible governance structures of ACER and ENTSO-E" and
stressed "the need to observe and consider possible governance structures for other bodies,
including DSOs and power exchanges, and for NEMO cooperation."
Overall, ACER and ENTSO-E have become key partners in discussions on regulatory
issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively.
However, a number of shortcomings concerning their framework have been identified
which need to be resolved.
Security of Electricity Supply Directive
7.5.2.
- What is the additional value resulting from the EU intervention compared to what
could have be achieved by Member States at national and/or regional levels in the
absence of the Directive?
As already explained (mainly under the effectiveness criterion), the provisions of the SoS
Directive, as such, were quickly superseded by successive EU rules and they therefore had a
limited impact on Member States policies. One can therefore argue that, to the extent that the
SoS Directive anticipated what would become the Third Package, the added value resulting
from this intervention is close to zero (as the relevant Member States policies were based on
the Third Package provisions and would have been the same in the absence of the SoS
Directive).
Beyond those rules which were already overtaken by the Third Package, the SoS Directive
limited itself to providing a very general framework on security of electricity supply, and left
it by and large to Member States to define their own security of supply standards. This has
resulted in a pachwork of security of supply rules across Europe which make difficult to
189
Study for the ITRE Committee of the European Parliament "Energy Union: Key Decisions for the
Realisation of a Fully Integrated Energy Market", 15 March 2016 "In several regional or EU-level projects
(e.g. market coupling projects, (…)) national authorities, TSOs, regulators and energy exchanges of
different Member States need to cooperate. However, as they are primarily responsible for their own
national gas and electricity system and market they are not always sufficiently motivated to also take
supranational interests into account. […] This leads to complex and slow decisional and implementation
processes for most cross-border projects, resulting in delayed implementations (e.g. the intra-day markets’
coupling project)." In this context, different stakeholders argue for stronger governance at the EU level.
For example, EPEX Spot states the need to accompany the electricity target model by appropriate
governance architecture at European level, applicable on Market Coupling activities, which will be crucial
to ensure an efficient day-to-day operation of such complex mechanisms.
http://www.europarl.europa.eu/RegData/etudes/STUD/2016/578968/IPOL_STU(2016)578968_EN.pdf
compare the situation in the different Member States, limit cooperation and imperil trust and
confidence in neigbhouring Member States. Unco-ordinated approaches to security of supply
may also distort the internal electricity market (e.g premature market intervention) and put at
risk the security of supply of neighbouring Member States (e.g. export bans).
As mentionned when assessing the coherence criterion, the SoS Directive failed to adress risk
preparedness issues. The conclusions of the fact finding Study carried out to analyse risk
preparedness rules and practices in the EU describe the constellation of national approaches in
this area:
 Although all twenty-eight Member States have a general obligation to monitor the
security of electricity supply, only nine countries have a explicit legal obligation to
carry out a risk assessment. National entities responsible for risk assessment and role
allocation vary across the Member States.
 Not all Member States define the types of risks or they do so in a (very) general
manner. There exists a patchwork of types of risks covered under the assessments in
the Member States, and they are described in various levels of detail.
 Research shows a fragmented and diverse framework on security of electricity supply.
While all Member States take into account risk preparedness considerations to some
extent, the fact is that only ten Member States set clear obligations to draw up risk
preparedness plans.
 While TSOs have, in general, a central role in the adoption of risk preparedness plans
or measures, the responsible national entities and TSOs exact role varies significantly.
 The type of preventive measures envisaged varies significantly across Member States.
The large majority of countries focus on the adoption of market measures in their
preventive framework (primarily measures directed at supply / demand, operational
security and energy efficiency). In seven other countries, the information available
does not allow for a categorisation of measures.
 The time horizons covered by the different measures vary significantly across the
Member States and no overall trend can be identified; they can vary from one year to
fifteen years. Some Member States set no limits of validity for their measures, others
have a system of continuous updates while at least eleven countries do not specify
time horizons.
 The study could not identify any formal bilateral agreements at Ministerial level (only
at TSO level).
 There is no common definition of "emergency". This could potentially lead to
disparate reactions of Member States in various emergency events.
 Market suspension measures are foreseen in all Member States by national legislation
or operational plans but to different extents. This could potentially lead to dissimilar
responses between Member States, which could potentially have consequences for
neighbouring countries. In some countries, limitations to cross-border trading
capacities are foreseen. Two Member States specifically include explicit legal
provisions (law or regulation) on export bans.
The results of this Study are conclusive about the lack of a coordinated approach in the Union
on security of supply and risk preparedness, as well as about the heavy consequences that
differing rules and practices may have in case of emergency. The SoS Directive did not
contain any specific rule on risk preparedness and coordination; as for the monitoring and
reporting obligations, they were understood by Member States in such a narrow way that the
Commission lacked the relevant information and had to contract an ad hoc fact finding study
in order to get the right picture on the risk preparedness policies in the 28 Member States.
The results of the public consultation confirmed the need for further action at EU level to
harmonise Member States approaches possibly through the preparation of risk preparedness
plans based on common templates, to make sure that each Member State takes appropriate
security of supply measures and cooperates with and takes account of others, in line with the
Energy Union objectives.
It can be concluded that the added value of the SoS Directive has been very limited as it
created a general framework but left it by and large to Member States to define their
own security of supply standards. This has resulted in a patchwork of security of supply
rules across Europe. Having the SoS Directive in place has no added value, both from
the perspective of the internal market rules and from the perspective of the risk
preparedness..
Assessing the case for continuing EU-intervention
7.5.3.
- To what extent do the objectives addressed by the Third Package and the SoS Directive
continue to require EU-intervention?
Despite the positive developments generated by the examined legislation, there is still very
limited coordination between national TSOs, often restricted to very specific subjects or
situations. Similarly, there is still very limited use of cross-border capacity in increasingly
important areas such as RES aggregation and generation adequacy.
Indeed, the recent increase of decentralised electricity generation and RES calls for continued
EU action to to improve the functioning of the internal electricity market and enable
maximum cross-border trading to happen. Further EU-action is also necessary in order to
enhance the transparency in the functioning of the electricity markets and avoid
discrimination between market parties.
Today's uncertainty about future investments in generation capacity and uncoordinated
government interventions also calls for continued EU action.
In relation to SoS, the necessity of EU action is based on the evidence that uncoordinated
national approaches not only lead to the adoption of suboptimal measures but that they also
make the impacts of a crisis more accute. Given the interdependency between the electricity
systems of Member States, the risk of a blackout is not confined to national boundaries and
could directly or indirectly affect several Member States. Therefore, the actions SoS and crisis
situations cannot be defined only nationally, given the potential impact on the level of security
of supply of a neighboring Member State and/or on the availability of measures to tackle
scarcity situations.
National policy interventions in the electricity sector have direct impact on neighbouring
Member States. This even more than in the past as the increasing cross-border trade, the
spread of decentralised generation and more enhanced consumer participation increases spill-
over effects. No State can effectively act alone and the externalities of unilateral action have
become more important. This clearly calls for a continuation of EU action to reach the
objectives of the Third Energy Package and of the SoS Directive.
8. CONCLUSIONS
In this evaluation the Commission services have assessed if the Third Energy Package and the
Security of Electricity Supply Directive are fit for purpose by examining their performance
against five criteria: relevance, effectiveness, efficiency, coherence and EU added value. The
results of the evaluation will be used by the Commission to inform future decisions in relation
to EU energy policy. In particular, this evaluation provides the basis for the impact assessment
for the initiative to review the existing EU electricity market design rules, including the
creation of a new framework on security of electricity supply (the Market Design Initiative).
The main results of the Evaluation can be summarised as follows:
Effectiveness
The various public consultations conducted as well as the studies used provide a good picture
of the effectiveness of the analysed legislation. Based on these elements it can be concluded
that the reinforcement of unbundling requirements has had a positive effect on competition
with new players entering the electricity market. However in some Member States the
incumbent still holds a dominant position. Market integration has improved with a clear
increase in cross-border trade since 2009. However, uncoordinated state interventions and
inefficient use of interconnectors still constitute obstacles to further integration. Cooperation
between TSOs and regulators through ENTSO-E and ACER respectively has improved, but
remains insufficient.
On the retail side, competition still needs to significantly improve to ensure that the full
benefits of market integration are passed on to EU consumers. Our evaluation has identified
price regulation as one of the major reasons for status quo or little progress in this area.
Consumer protection provisions in the analysed legislation prove to be partially fit for
purpose. Member States have defined the notion of vulnerable consumers and adopted
measures to protect them. However, their protection is uneven between Member States.
Energy poverty is growing across the EU. On this point, it appears that data is lacking in order
to fully analyse the scale and the drivers of energy poverty.
The evaluation also concludes in the ineffectiveness of the SoS Directive in achieving the
objectives pursued. Regulatory gaps exist as regards monitoring, exchange of information and
insufficient investment. However, most of these gaps have already been address in subsequent
EU regulatory measures.
Efficiency
There is limited quantitative information available at the EU scale to underpin an assessment
of administrative burden and, more generally, of efficiency of the legislation analysed.
Overall, it can be concluded that the new rules of the Third Energy Package have generated
additional administrative costs for undertakings and regulators. However these are not
perceived as too heavy by stakeholders and appear to be counterbalanced by the benefits they
generate notably through the increase in competition in the sector.
On security of electricity supply, the evaluation also concludes that due to the limited number
of obligations of the SoS Directive, largely referring to mere reporting, the administrative
burden remain limited.
Relevance
Electricity markets have changed significantly in the last five years, with variable renewable
energy production becoming increasingly important. The market-oriented rules of the Third
Energy Package are still highly pertinent to cope effectively with the challenges of the new
market. Market-based energy prices that are able to take into account the rapid changes of
demand and response and cross-border trade are even more crucial than in 2009. However,
the existing rules are not sufficient to cope with the increasing levels of variable renewable
generation. Different rules are needed to ensure in particular the development of short term
markets and the emergence of prices that reflect actual scarcity. The market design of the
Third Energy Package does also not ensure sufficient incentives for private investments in
new generation capacities. Regarding the institutional framework, it appears that the
challenges the EU power system will be facing in the medium to long term are regional or
pan-European and cannot be addressed and optimally managed by individual TSOs, rendering
the current legal framework concerning system operation unsuitable The institutional
framework, especially as regards cooperation of NRAs at regional level, will need to be
adapted to ensure the oversight of entities with regional relevance (e.g., RSCs). Moreover, as
the European energy markets are more and more integrated, it is crucial to ensure that ACER
can function as swiftly and as efficiently as possible.
In the area of retail markets and consumer empowerment, the objective of enabling consumers
to actively participate in the market will remain the key, multi-dimensional challenge. Firstly,
with regard to ability to react to price signals, existing measures have been partly effective in
removing market barriers for the participation of industry in balancing and flexibility services,
including demand response; but have not been effective in removing barriers for the
participation of the residential and the commercial sector. Secondly, further progress is
needed in the area of billing information, comparison tools and consumers' ability to easily
switch suppliers. In consequence smart metering deployment – a key development facilitating
consumer empowerment in the above-mentioned areas – remains a very relevant policy area.
Also, the functions of DSOs need further definition and enhanced regulatory oversight in
order to deploy inter alia local flexibility markets and non-discriminatory management of
consumer data. Progress towards lifting regulated prices blocking competition and consumers'
choice should also continue. Last, but not least, consumer vulnerability will remain relevant
as some drivers of vulnerability are permanent.
The SoS Directive intervention is no longer relevant today as it does not match the current
needs on security of supply. The current needs result from the clear TFEU mandate and, in
particular, concerning risk preparedness to make sure that Member States are aware and duly
prepared to security of supply risks, clarify roles and responsibilities in case of emergency and
provide clear rules on the conditions under which Member States may adopt safeguard
measures.
Coherence
General speaking, the Third Energy Package provisions are working together well. However,
the Commission has spotted several provisions which would need to be either deleted because
obsolete or never used or modified because unclear or confusing.
The general non-discriminatory access principle and non discriminatory dispatching of the
Third Package is contradicted by the priority access granted to renewables in the Renewable
Energy Directive.
Regarding the SoS Directive, it was not prescriptive but rather set general principles on
security of supply. It can be considered that the SoS Directive is consistent with other
interventions which have similar objectives, in particular with the Third Package. However,
the content and approach of the SoS Directive are not consistent with the EU rules on security
of supply in the gas sector, and therefore match only partially the current needs on security of
supply in Europe, in particular concerning risk preparedness.
EU-added value
Overall, the needs and rationale for EU level action through the electricity legislation remain
valid. The transnational nature of the subjects covered such as cross-border cooperation and
interconnectors justify EU level action as an effective way to achieve the objectives of the
Third Energy Package. These are topics which legally and practically could only be regulated
at EU level. Similarly cooperation between neighbouring TSOs and NRAs needed to avoid
fragmented uncoordinated decisions.
ACER and ENTSO-E have become key partners in discussions on regulatory issues and fulfil
a useful task in the coordination of NRAs and TSOs, respectively. However, a number of
shortcomings concerning their framework have been identified which need to be resolved.
EU-wide framework for introducing competition on retail markets and enabling consumers'
choice is beneficial for providing level playing field for energy generators and suppliers as
well as to benefit the consumers. It also facilitates providing cross-border services.
Regarding the SoS Directive, its added value has been very limited as it was quickly
superseded by the Third Package and only created a general framework but left it by and large
to Member States to define their own security of supply standard. Whilst electricity markets
are increasingly intertwined within Europe, there is still no common European framework
governing the prevention and mitigation of electricity crisis situations. National authorities
tend to decide, one-sidedly, on the degree of security they deem desirable, on how to assess
risks (including emerging ones, such as cyber-security) and on what measures to take to
prevent or mitigate them. Having the SoS Directive in place has no added value, both from
the internal market perspective and from the perspective of the risk preparedness.
ANNEX 1 – PROCEDURAL INFORMATION
DG ENER is leading this evaluation.
Reference to Evaluation Roadmaps: AP 2015/ENER/061190
and AP 2016/ENER/032191
.
The Commission has conducted a number of wide public consultations on the different policy
areas covered by the present evaluation which took place between 2014 and 2016. In addition
to the public consultations, it has organised a number of targeted consultations and workshops
with stakeholders throughout 2015 and 2016192
.
A wide public consultation193
on a new energy market design (COM(2015)340 was
conducted from 15 July 2015 to 9 October 2015. It was open to EU and Member States'
authorities, energy market participants and their associations, SMEs, energy consumers,
NGOs, other relevant stakeholders and Citizens This public consultation aimed at obtaining
stakeholder's views on: on the issues that may need to be addressed in a redesign of the
European electricity market. These issues include: (i) improvements to market functioning
and investment signals; (ii) market integration of renewables; (iii) linking retail and wholesale
markets (iv); reinforcing regional coordination of policy making, between system operators
and of infrastructure investments; (v) the governance of the internal electricity market; and,
(vi) an European dimension to security of supply. A summary of the responses is available on
the Commission's website194
. This public consultation served as a basis for this evaluation as
it put into light the shorthcomings of the current legislative framework.
A public consultation on risk preparedness in the area of security of electricity supply was
organized between July 15th and October 9th 2015 and resulted in 75 responses including
public authorities, international organizations (IEA), European bodies (ACER, ENTSO-E)
and most relevant stakeholders – companies and associations. This public consultation aimed
at obtaining stakeholder's views in particular on how Member States should prepare
themselves and co-operate with others, with a view to identify and manage risks relating to
security of electricity supply. A summary of the responses is available on the Commission
website.195
This consultation helped to identify the current shortcoming of the Electricity
Security of Supply Directive.
Generation adequacy related issues were also the subject of a public consultation conducted
from 15 July 2015 to 9 October 201515 November 2012 to 7 February 2013 through the
"Consultation on generation adequacy, capacity mechanisms, and the internal market in
electricity". It was open to EU and Member States' authorities, energy market participants and
their associations, and any other relevant stakeholders, including SMEs and energy
consumers, and citizens. It aimed at obtaining stakeholder's views on ensuring generation
190
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf
191
http://ec.europa.eu/smart-
regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf
192
For more information on the consultation process, please refer to Annex 2
193
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
194
https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
195
https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-
supply
adequacy and security of electricity supply in the internal market. A summary of the
responses is available on the Commission's website. 196
A public consultation dedicated to retail energy markets197
was conducted from 22 January
2014 to 17 April 2014. It was open to all EU citizens and organizations including public
authorities, as well as relevant actors from outside the EU. This public consultation aimed at
obtaining stakeholder's views on the functioning of retail electricity and gas markets with
focus on market functioning, design and consumer participation (demand response, self
consumption). A summary of the responses is available on the Commission's website.198
Several reports and Communications have been used the draft the present evaluation, inter
alia:
- "Delivering the internal electricity market and making the most of public
interventions" (C(2013) 7243). This Communication was accompanied inter alia by a
Commission Staff working document (SWD(2013) 438) entitled "Generation
Adequacy in the internal electricity market – guidance on public intervention";
- Communication on the "Progress towards completing the Internal Energy Market"
COM(2014) 634 final. This Communication emphasized that energy market
integration has delivered many positive results but that, at the same time, further steps
are needed to complete the internal market.
- Special Report by the European Court of Auditors "Improving the security of energy
supply by developing the internal energy market: more efforts needed". This special
report made nine recommendations to reap the benefits of market integration199
;
- Interim report of the sector inquiry on capacity mechanisms, accompanied by a
Commission Staff working document (SWD(2016) 119 final). The interim report
points out that there is a lack of proper and consistent analysis of the actual need for
capacity mechanisms. It also appears that some capacity mechanisms in place could be
better targeted and more cost effective. It emphasizes the need to design capacity
mechanisms with transparent and open rules of participation and a capacity product
that does not undermine the functioning of the electricity market.
No external expertise was used except for the external studies mentioned in footnotes in the
text.
ANNEX 2: STAKEHOLDER CONSULTATION
For the a detailed description and summary of the stakeholder consultations used for this
evaluation, please refer to Annex 2 of the Impact Assessment on the Market Design Initiative.
196
https://ec.europa.eu/energy/en/consultations/consultation-generation-adequacy-capacity-mechanisms-and-
internal-market-electricity
197
https://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market
198
https://ec.europa.eu/energy/sites/ener/files/documents/Charts_Public%20Consultation%20Retail%20Energy
%20Market.pdf
199
http://www.eca.europa.eu/en/Pages/DocItem.aspx?did=34751


EN EN
EUROPEAN
COMMISSION
Brussels, 30.11.2016
SWD(2016) 412 final
PART 2/2
COMMISSION STAFF WORKING DOCUMENT
Evaluation Report
covering the
Evaluation of the EU's regulatory framework for electricity market design and
consumer protection in the fields of electricity and gas
Evaluation of the EU rules on measures to safeguard security of electricity supply and
infrastructure investment (Directive 2005/89)
Accompanying the document
Proposal for a Directive of the European Parliament and of the Council on common
rules for the internal market in electricity (recast)
Proposal for a Regulation of the European Parliament and of the Council on the
electricity market (recast)
Proposal for a Regulation of the European Parliament and of the Council establishing
a European Union Agency for the Cooperation of Energy Regulators (recast)
Proposal for a Regulation of the European Parliament and of the Council on risk
preparedness in the electricity sector
{COM(2016) 861 final}
{SWD(2016) 410 final}
{SWD(2016) 411 final}
{SWD(2016) 413 final}
Europaudvalget 2016
KOM (2016) 0863
Offentligt
2
ANNEXES AND EVALUATION FICHES
ON SPECIFIC ASPECTS OF RETAIL MARKETS
FOR ELECTRICITY AND GAS
3
Contents
1. Annex 3: Details on the consumer vulnerability and energy poverty provisions in the
2009 Electricity and Gas Directives........................................................................................... 7
1.1. Executive Summary ................................................................... 7
1.2. Introduction................................................................................ 9
Purpose of this evaluation .......................................................... 9
1.2.1.
Overview of EU acquis related to vulnerable consumers and
1.2.2.
energy poverty 10
1.3. Scope of this evaluation ........................................................... 12
1.4. Background to the initiative ..................................................... 13
Description of the initiative and its objectives......................... 13
1.4.1.
Baseline .................................................................................... 15
1.4.2.
1.5. Evaluation Questions................................................................ 16
1.6. Method ..................................................................................... 16
1.7. Implementation state of play (Results)..................................... 18
State of play as regards implementation .................................. 18
1.7.1.
Problems and issues identified ................................................. 18
1.7.2.
1.8. Answers to the evaluation questions ........................................ 19
1.9. Conclusions.............................................................................. 29
1.10. Stakeholder consultation .......................................................... 31
1.11. Member States definitions of vulnerable consumers ............... 32
1.12. Member States definitions of energy poverty .......................... 35
2. Annex 4: Details on the EU Framework For Switching and Exit fees ............................ 38
2.1. Executive Summary ................................................................. 38
2.2. Introduction.............................................................................. 39
Purpose of this evaluation ........................................................ 39
2.2.1.
Summary of EU acquis related to switching fees .................... 39
2.2.2.
2.3. Scope of this evaluation ........................................................... 40
2.4. Background to the initiative ..................................................... 40
Description of the initiative and its objectives......................... 40
2.4.1.
Baseline .................................................................................... 41
2.4.2.
2.5. Evaluation Questions................................................................ 42
2.6. Method ..................................................................................... 42
2.7. Implementation state of play (Results)..................................... 44
State of play as regards implementation .................................. 44
2.7.1.
Problems and issues identified ................................................. 44
2.7.2.
2.8. Answers to the evaluation questions ........................................ 45
Electricity and Gas Directives.................................................. 45
2.8.1.
4
2.9. Conclusions.............................................................................. 56
2.10. Stakeholder consultation .......................................................... 58
3. Annex 5: Details on the EU Framework For Metering and Billing of Energy
Consumption ............................................................................................................................ 60
3.1. Executive Summary ................................................................. 60
3.2. Introduction.............................................................................. 62
Purpose of this evaluation ........................................................ 62
3.2.1.
Overview of EU acquis related to metering and billing........... 62
3.2.2.
Scope of this evaluation ........................................................... 63
3.2.3.
3.3. Background to the initiative ..................................................... 64
Description of the initiative and its objectives......................... 65
3.3.1.
Baseline .................................................................................... 68
3.3.2.
3.1. Evaluation Questions................................................................ 69
3.2. Method ..................................................................................... 69
3.3. Implementation state of play (Results)..................................... 70
State of play as regards implementation .................................. 70
3.3.1.
Problems and issues identified ................................................. 71
3.3.2.
3.4. Answers to the evaluation questions ........................................ 72
Electricity and Gas Directives.................................................. 73
3.4.1.
EED .......................................................................................... 87
3.4.2.
Billing (information) and frequency ........................................ 95
3.4.3.
3.5. Conclusions.............................................................................. 99
3.6. Stakeholder consultation ........................................................ 103
3.7. REFIT assessment of the Renewable Energy Directive –
Provisions related to Guarantees of Origin (GOs) ............................................................. 108
3.8. Main sources used for the analysis......................................... 111
3.9. Details on Commission proposals.......................................... 113
3.10. Billing practices and regulation per country .......................... 115
4. Annex 6: Details on The EU Framework For Smart metering roll-out and use of smart
meters ..................................................................................................................................... 120
4.1. Executive Summary ............................................................... 120
4.2. Introduction............................................................................ 122
Purpose of the evaluation ....................................................... 122
4.2.1.
Scope of the evaluation .......................................................... 123
4.2.2.
4.3. Background to the initiative ................................................... 124
Description of the initiative and its objectives....................... 124
4.3.1.
4.4. Evaluation Questions.............................................................. 127
4.5. Method ................................................................................... 129
5
4.6. Implementation state of play (Results – description of current
situation ) 130
4.7. Answers to the evaluation questions (Assessment of current
situation) 140
4.8. Conclusions (Gap Analysis)................................................... 150
4.9. Summary of smart metering provisions are found in the
following EU Directives: 153
4.10. Smart metering roll – out ....................................................... 155
5. Annex 7: Details on the EU framework for Demand Side Flexibility (DSF)................ 162
5.1. Introduction............................................................................ 162
5.2. Background to the initiative ................................................... 162
Why Demand response........................................................... 162
5.2.1.
Legislative Background.......................................................... 164
5.2.2.
Main objectives of the European legislation.......................... 165
5.2.3.
5.3. Evaluation Questions.............................................................. 165
5.4. Method ................................................................................... 167
5.5. Implementation / state of play................................................ 168
Implementation of EU legislation in Member States............. 168
5.5.1.
5.6. Uptake of Demand response in MS........................................ 168
Theoretical potential of Demand Response ........................... 168
5.6.1.
Current Situation in Member States....................................... 170
5.6.2.
5.7. Answers to the evaluation questions (Assessment of current
situation) 178
EU-added value...................................................................... 188
5.7.1.
Other evaluation criteria......................................................... 189
5.7.2.
5.8. Conclusions (Gap Analysis)................................................... 190
5.9. Annex: Demand-Side participation in energy markets in the
Member States 193
6. Annex 9: Evaluation Fiche on Distribution System Operators...................................... 197
6.1. Introduction............................................................................ 197
6.2. Background to the initiative ................................................... 197
6.3. Evaluation Questions.............................................................. 198
6.4. Method ................................................................................... 200
6.5. State of play and implementation (Results – description of
current situation and development since 2009).................................................................. 200
State of play............................................................................ 200
6.5.1.
Implementation of existing measures..................................... 204
6.5.2.
6.6. Answers to the evaluation questions (Assessment of current
situation) 205
6
6.7. Conclusions (Gap Analysis)................................................... 207
7
1. ANNEX 3: DETAILS ON THE CONSUMER VULNERABILITY AND ENERGY POVERTY
PROVISIONS IN THE 2009 ELECTRICITY AND GAS DIRECTIVES
1.1. Executive Summary
Key notes:
 Uneven protection of vulnerable consumers across the EU
 Insufficient measures to prevent energy poverty
This Annex presents a more detailed thematic evaluation of existing provisions in EU law
relating to the specific themes of consumer vulnerability and energy poverty. The
evaluation is one of a series of evaluations looking at certain themes that have been carried
out to inform the follow-up of the Communication on The public consultation process on a
new energy market design and on Delivering a new deal for energy consumers adopted by the
Commission in July 2015.
The protection of vulnerable and energy poor consumers is regulated in the 2009 Electricity
and Gas Directive contained in the Third Energy Package.
The legislators' original objectives of these provisions were in summary:
1. To ensure protection of vulnerable consumers by having Member States define
the concept of vulnerable consumers and implement measures to protect them.
2. To mitigate the problem of energy poverty by having Member States address
energy poverty, where identified1
, as an issue.
These provisions were put in place to facilitate the decision by Member States to proceed with
electricity and gas market liberalisation, as it was recognised by the legislators that actions to
protect vulnerable consumers were needed in the context of liberalising the European energy
market.2
In fact, while progress has been achieved in liberalisation of the energy markets
across the EU, 17 Member States still apply some form of price regulation in their electricity
and gas markets. Growing energy poverty levels and the need to protect vulnerable consumers
are often quoted as a justification for maintaining price regulation in the retail energy markets.
The provisions on vulnerable and energy poor consumers in the Electricity and Gas
Directives have been partially effective.
They were effective in getting Member States to define the concept of a vulnerable consumer
and to adopt measures to protect those in this category. The legislation was partially
successful by bringing the issue of energy poverty to the attention of some Member States. It
can be argued that, for some Member States, the inclusion of provisions on consumer
vulnerability in the Electricity and Gas Directives provided the necessary guarantees on
consumer protection to proceed in synchronization with the opening of retail energy markets.
1
Cyprus, France, Slovakia, Ireland and the UK have defined energy poverty in their national legislation.
2
As stated in alinea (2) of the Directive 2003/54/EC concerning common rules for the internal market in
electricity, which says that "important shortcomings and possibilities for improving the functioning of the market
remain, notably concrete provisions are needed to ensure a level playing field in generation and (...) ensuring that
the rights of small and vulnerable customers are protected (…)."
8
However, given the absence of a common EU definition of consumer vulnerability, in the
Electricity and Gas Directive, the implementation of the provisions resulted in uneven
consumer protection across the EU Member States. The result is even more pronounced in
the case of energy poverty where a general obligation for action exists but only if energy
poverty is identified as a problem. In addition, the evaluation identified shortcomings in the
implementation of the provisions on the National Regulatory Authorities's role (NRAs) in the
monitoring of electricity and gas disconnections.
Finally, the evaluation also identified that the provisions in the legislation have not been
effective in assisting Member States in addressing the problem of energy poverty. Despite
recent external research indicating that energy poverty and consumer vulnerability are two
distinct issues (Insight_E, 2015), the provisions in the Electricity and Gas Directives refer to
energy poverty only as a component of consumer vulnerability. While vulnerability and
energy poverty often relate to each other3
, vulnerable households are not necessarily energy
poor4
and vice versa. This categorisation leads to a simplistic expectation that a single set of
policy measures from Member States would automatically address both problems
simultaneously. This will instead depend on how vulnerability is defined and the variations in
the Member States are significant in this respect.
Figure 1: Effectiveness of policy measures on vulnerable and energy poor consumers
Growing levels of energy poverty as well as lack of clarity on the most appropriate
means of tackling consumer vulnerability and energy poverty constitute a barrier to the
further deepening of the internal energy market.
3
For example, a citizen suffering from a disability which unable her to work is likely be vulnerable and because
of her low income is also likely to find paying for her energy bill difficult.
4
Energy poverty is a more confined concept capturing households in low income and high energy expenditure.
Needs
Policy measures
Current situation
Protection of vulnerable consumers
Addressing energy poverty
Member States to
define the concept of
vulnerable consumers
and adopt measures to
protect them
Each Member State has its own explicit
or implicit definition of vulnerable
consumers
Member States have adopted measures to
protect vulnerable consumers
The level of protection for vulnerable
consumers across the EU is uneven.
Member States to
address energy poverty
where identified
Some Members have identified energy
poverty as a problem
Some Member States have introduced
measures to tackle energy poverty
The level of energy poverty across the
EU has substantially increased based on
available data
Prioritisation of
vulnerable consumer
protection in the
context of electricity
market liberalisation
Increasing energy
poverty across the EU
acts as a barrier to the
completion of the
Internal Energy Market
9
With regard to efficiency, it is likely that the benefits derived from defining consumer
vulnerability at the Member State level and implementing well-targeted measures to protect
them outweighed the costs of setting up such a policy. This should entail savings to public
budgets and reduce fiscal pressure where it allows replacing protection measures benefiting
the entire or disproportionately large parts of population without distinction to those in real
need.
In relation to relevance, the data indicates that consumer vulnerability in the energy market is
an increasingly relevant policy issue, as factors such as old age and poor health are major
drivers of the problem. Without EU action, some Member States may find difficulties in
striking a balance between consumer protection and market liberalisation which may appear
as conflicting objectives. In fact, some Member States have already expressed interest in the
Commission providing informal guidance on good practices in addressing energy poverty
when phasing out regulated prices and opening markets5
.
Looking at coherence, the evaluation has not identified any inconsistencies or elements of
legislation working against the objectives of the provisions on vulnerable and energy poor
consumers. Nevertheless, as described previously, the lack of clear definitions of the concepts
and caveat in obligations regarding energy poverty stand in contrast to the call for decisive
action in the Electricity and Gas Directives.
In terms of the EU added value, while some Member States had already been protecting their
vulnerable energy consumers prior to the EU intervention, others have taken action as a result
of the EU intervention. Similar added value could be expected from EU intervention on
energy poverty. Commission’s recent talks with individual Member States (e.g. BG, FR) and
in stakeholder forums demonstrate also a clear interest towards sharing of good practices at
EU level.
1.2. Introduction
Purpose of this evaluation
1.2.1.
The purpose of this evaluation is to take stock of the actual performance and continued
relevance of existing EU legal provisions on vulnerable consumers and energy poverty so
as to evaluate what is working, what is not, and why. This is done as a follow-up to The
public consultation on a new energy market design6
and the Communication on Delivering a
new deal for energy consumers7
.
5
For instance the European Commission assisted the Ministry of Energy of Bulgaria in accessing good
international practices in the area of vulnerable consumer protection and tackling energy poverty as part of the
Bulgaria-EC Technical Working Group on Electricity Market Liberalisation. As a result of this work the
Ministry of Energy and the Ministry of Social Affairs of Bulgaria proposed a scheme for protection of vulnerable
consumers in the context of electricity market liberalisation which is includes transitional social tariffs,
safeguards against disconnections and a winter heating allowance. The scheme is now under public consultation.
6
COM(2015) 340 final
7
COM(2015) 339 final
10
Overview of EU acquis related to vulnerable consumers and energy
1.2.2.
poverty
The Electricity and Gas Directives8
contain the following key provisions related to
vulnerable consumers and energy poverty.
Recital (45)
Member States should take the necessary measures to protect vulnerable customers in the
context of the internal market in electricity. Such measures may differ according to the
particular circumstances in the Member States in question and may include specific measures
relating to the payment of electricity bills, or more general measures taken in the social
security system.
Recital (45) highlights the responsibility of Member States to put in place measures to protect
vulnerable consumers in the context of market liberalisation.
Article 3(7)9
Member States shall take appropriate measures to protect final customers, and shall, in
particular, ensure that there are adequate safeguards to protect vulnerable customers. In this
context, each Member State shall define the concept of vulnerable customers which may refer
to energy poverty and, inter alia, to the prohibition of disconnection of electricity to such
customers in critical times. Member States shall ensure that rights and obligations linked to
vulnerable customers are applied. In particular, they shall take measures to protect final
customers in remote areas.
Article 3(7) states the need for Member States to provide a definition of vulnerable consumers
so that adequate protection can be provided.
Article 3(8)10
Member States shall take appropriate measures, such as formulating national energy action
plans, providing benefits in social security systems to ensure the necessary electricity supply
to vulnerable customers, or providing for support for energy efficiency improvements, to
address energy poverty where identified, including in the broader context of poverty. Such
measures shall not impede the effective opening of the market set out in Article 33 or market
functioning and shall be notified to the Commission, where relevant, in accordance with the
provisions of paragraph 15 of this Article. Such notification may also include measures taken
within the general social security system.
8
Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in electricity and repealing Directive 2003/54/EC, http://eur-lex.europa.eu/legal-
content/EN/ALL/?uri=CELEX:32009L0072
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules
for the internal market in natural gas and repealing Directive 2003/55/EC, http://eur-lex.europa.eu/legal-
content/EN/ALL/?uri=CELEX:32009L0073
9
Article 3 point 3 is the analogous provision in the Gas Directive.
10
Article 3 point 4 is the analogous provision in the Gas Directive.
11
Article 3(8) states the need for Member States to consider appropriate measures to address
energy poverty. Although the type of measures will be determined by Member States
themselves. Energy efficiency improvements and social security measures are equally
presented as possible policy areas, while National Action Plans rather appear as implementing
tools. It is specified that no measures should impede the opening of electricity and gas
markets11
.
The 2010 Energy Efficiency of Public Buildings Directive (EPBD)12
and the 2012 Energy
Efficiency Directive (EED) 13
also contain reference to energy poverty.
 EPBD: Recital 20 states that Member States should provide to the European
Commission with a list of measures to reduce market barriers and encourage
investments to increase energy efficiency in buildings contributing to reduce energy
poverty.
 EED: Article 7 states that Member States shall set up an energy efficiency obligation
scheme. The scheme may include requirements with a social aim in the saving
obligations they impose, including by requiring a share of energy efficiency measures
to be implemented as a priority in households affected by energy poverty or in social
housing14
.
The Unfair Commercial Practices Directive15
is the overarching piece of EU legislation
regulating unfair commercial practices in business-to-consumer transactions. It applies to all
commercial practices that occur before (i.e. during advertising or marketing), during and after
a business-to-consumer transaction has taken place. The Unfair Commercial Practices
Directive complements other EU legislation that regulates specific aspects of unfair
commercial practices.
Article 5(3) of the Unfair Commercial Practices includes a fully harmonised concept of
"vulnerable consumers":
Commercial practices which are likely to materially distort the economic behaviour only of a
clearly identifiable group of consumers who are particularly vulnerable to the practice or the
underlying product because of their mental or physical infirmity, age or credulity in a way
which the trader could reasonably be expected to foresee, shall be assessed from the
perspective of the average member of that group. This is without prejudice to the common and
legitimate advertising practice of making exaggerated statements or statements which are not
meant to be taken literally.
11
Insight_E (2015) 'Energy poverty and vulnerable consumers in the energy sector across the EU: analysis of
policies and measures'.
12
Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy
performance of buildings. Avaliable at:http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:153:0013:0035:EN:PDF
13
Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy
efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and
2006/32/EC, http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32012L0027
14
Article 7(7) a: include requirements with a social aim in the saving obligations they impose, including by
requiring a share of energy efficiency measures to be implemented as a priority in households affected by energy
poverty or in social housing.
15
Directive 2005/29/EC concerning unfair business-to-consumer commercial practices
12
The interplay between this provision and Article 3(7) of the Electricity Directive and Article
3(3) of the Gas Directive is regulated by Article 3(4) of the Unfair Commercial Practices
Directive. This provision clarifies that where sector-specific EU law is in place and its
provisions overlap with the provisions of the UCPD, the corresponding provisions of the
sector-specific EU rules will prevail. Consequently, within the scope of the Electricity
Directive and the Gas Directive, Member States should provide definitions of vulnerable
consumers.
1.3. Scope of this evaluation
This evaluation is based on the five Better Regulation criteria (effectiveness, efficiency,
relevance, coherence and EU-added value). It considers simplification, burden reduction
potential, and the quantification of costs and benefits, only implicitly or to a limited extent,
given its partial scope, the multiple and complex other factors affecting the objectives studied,
and the limited data available.
The scope of the evaluation covers the following elements:
Electricity and Gas Directives
 General evaluation of the performance/continued relevance of Article 3(7) and 3(8)
of the Electricity Directive. This covers definition and protection of vulnerable
consumers and the obligation to address energy poverty where identified.
 General evaluation of the performance/continued relevance of Article 3(3) and 3(4)
of the Gas Directive. This covers definition and protection of vulnerable consumers
and the obligation to address energy poverty where identified.
The main discrepancy between the Electricity and Gas Directive with respect to the protection
of vulnerable consumers arises from Universal Services (Article 3 (3) of the Electricity
Directive). The right to universal service does not exist for gas. This limits some provisions
related to the protection of vulnerable consumers in the gas sector. Member States are not
obliged to ensure certain protection to all vulnerable consumers, but only to those already
connected to the gas system. The reason is that a piped gas network for consumers is not
available throughout every EU MS.
The EED and the EPBD articles and recitals relevant to energy poverty are assessed as part of
the separate evaluation of the EPBD and the EED. In the evaluation of the EED Article 7, the
social aim in the saving obligation is considered relevant as the need to address energy
poverty continues. In terms of coherence, the evaluation finds that Article 7 creates the space
for addressing energy poverty under the saving obligation. The evaluation of the EPBD cites
energy efficiency in buildings as a tool to address energy poverty. In terms of relevance,
addressing energy poverty is included as one of the goals the Directive contributes to achieve.
The evaluation also notes that regarding coherence, even though several Member States are
implementing programmes to improve the energy performance of the homes of those in
lower-income, these actions remain a stand-alone instrument without any broader strategy at
the national or even EU level16
.
16
Alleviating Fuel Poverty in the EU, 2014, BPIE
13
1.4. Background to the initiative
This section identifies the objectives behind the existing provisions on vulnerable consumers
and energy poverty in the Internal Energy Market (IEM) legislation based on the legislative
texts (including their recitals) and on the related Commission proposals and preparatory
documents accompanying the latter such as Impact Assessments (IAs). At the end of the
section, we describe the intervention logic behind the legislative provisions.
Description of the initiative and its objectives
1.4.1.
Legislation prior to the Third Energy Package
A provision calling on Member States to protect vulnerable consumers was introduced in the
Second Energy Package17
in 2003. The recitals accompanying the Directives show that
consumer protection was an integral part of the plans to liberalise and to deepen the internal
energy market for electricity and gas. In this context it is worthwhile to note that the
requirement to protect vulnerable consumers at the Member State level was inserted by the
co-legislators.
The recitals of the Second Energy Package acknowledged that the protection of vulnerable
consumers was one of the shortcomings of the functioning of the internal energy market and
constituted an area for possible improvement. The text called on Member States to take the
necessary measures to protect vulnerable consumers in the context of the internal energy
market, whilst providing full flexibility for the Member States to act according to their
national circumstances. Specifically, it stated that within these protective measures, Member
States could opt for measures to help vulnerable consumers avoid disconnections.
The Second Energy Package also recognised several energy consumer rights18
, which apply to
all consumers, including vulnerable ones. The Directives, nonetheless, make no reference to
energy poverty.
The 2007 Commission proposal for the new Electricity19
and Gas Directive20
(i.e. Third
Energy Package) continued to argue in favour of guaranteed consumers rights and freedom to
choose suppliers in the context of energy market liberalisation. The proposal indicated that
the provisions regarding vulnerable consumers included in the Second Energy Package
were incorrectly applied in some Member States. Thus, to ensure their correct
implementation, it proposed to define binding guidelines on the protection of vulnerable
consumers. However, the final text adopted by the co-legislators includes no reference to
these binding guidelines21
.
The Third Energy Package: the Electricity and Gas Directives
17
Second Energy Package.Available at: http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A32003L0054 and http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=URISERV%3Al27077
18
Second Energy Package. E.g. Electricity Directive - Annex A 'Measures on consumer protection'.
19
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1447425243567&uri=CELEX:52007PC0528
20
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1447425326195&uri=CELEX:52007PC0529
21
The reference to the guidelines is likely to have been erased from the text as a result of the negotiations
between the co-legislators.
14
The Electricity and Gas Directives included in the Third Energy Package contain some of the
legal text which already appeared in the Second Energy Package but also new provisions and
references to energy poverty.
The following elements remained largely unchanged:
 Member States are responsible for the protection of vulnerable consumers (Electricity
Directive Recital 45).
 Member States have the flexibility to choose the measures to protect vulnerable
consumers. These measures may include support to afford payments to energy bills or
support within the social security system (Electricity Directive Recital 45 and Article
3; point 7 - Gas Directive Article 3 point 3).
 Safeguards against disconnection are presented as a possible measure not addressing
but defining vulnerable consumers (Electricity Directive Article 3; point 7 – Gas
Directive Article 3 point 3).
New elements:
 In relation to vulnerable consumers and disconnections:
o In addition to the previous obligation to protect vulnerable consumers,
Member States have to define the concept of vulnerable consumers. When
defining this concept, Member States can refer, inter alia, to energy poverty or
prohibition of disconnection to such customers in critical times (Electricity
Directive Article 3; point 7 - Gas Directive Article 3 point 3).
o Energy regulators are given a specific role to monitor the protection of
vulnerable consumers (Electricity Directive Recital 37; Article 36; point h –
Gas Directive Article 40; point j).
 In relation to energy poverty:
o The term energy poverty appears as a new concept in the recitals and the
provisions. The term energy poverty also appears in subsequent energy
legislation such as the 2010 EPBD and the 2012 EED. However, the term
energy poverty is not defined in any of the Directives.
o Energy poverty is acknowledged as a growing problem and Member States
affected by this problem are requested to include measures22
to address energy
poverty. (Electricity Directive Recital 53; Article 3; point 8 – Gas Directive
Recital 50; Article 3 point 4).
The intention of the legislators was, within the limits of subsidiarity, to improve the protection
of vulnerable consumers by requesting Member States to define the concept. The idea being
that once the concept of vulnerable consumer was defined at the Member State level, the
Commission would be able to assess the degree and effectiveness of the protection.
When assessing the potential impacts of the Electricity and Gas Directive in the Third Energy
Package, the 2007 Commission's IA23
said that the Commission would keep under constant
22
Measures such as (i) formulating energy action plans; (ii) providing benefits in social security system; (iii)
support for energy efficiency improvements not all Member States are affected by this problem.
23
Commission Staff Working Document, Accompanying the legislative package on the internal market for
electricity and gas. Impact Assessment. http://ec.europa.eu/smart-
regulation/impact/ia_carried_out/docs/ia_2007/sec_2007_1179_en.pdf
15
review the retail markets to assess the effects of liberalisation on households, in view of
increasing consumers’ confidence in the energy market. It also pointed to the existing
protection of vulnerable consumers in the form of a recognition of the concept of universal
service for electricity within the Electricity Directive. The IA concluded that the cost of
provisions on vulnerable and energy poor consumers will depend on the legislative details and
means of implementation of the protective measures at the Member State level.
Baseline
1.4.2.
The 2007 Electricity and Gas Directives were fundamental to the liberalisation of the EU's gas
and electricity sectors and the deepening of the internal energy market. For the liberalisation
process to be successful, it needed to be accompanied by the strengthening of consumer
rights, including measures to protect vulnerable consumers, as stated in alinea (2) of the
Directive 2003/54/EC concerning common rules for the internal market in electricity and
repealing Directive 96/92/EC, which says that "important shortcomings and possibilities for
improving the functioning of the market remain, notably concrete provisions are needed to
ensure a level playing field in generation and (..) ensuring that the rights of small and
vulnerable customers are protected (…).".
Without these protective measures, it is unlikely that many Member States would have
proceeded with liberalising their energy markets at the same speed and to the same extent.
And without energy market liberalisation, significantly fewer EU energy consumers would
have been able to benefit from market competition in terms of broader choice, lower energy
costs and higher standards of service.
In the absence of the Third Energy Package, the Second Energy Package would have
continued to apply. However, as mentioned before, the Second Energy Package had not
proven to consistently lead to adequate protection of vulnerable consumers across the EU.
Figure 2: Intervention Logic Diagram illustrating the subject of this evaluation
16
1.5. Evaluation Questions
This evaluation aims, for each of the sub-themes within the scope, to answer the following
questions:
1. What is the current situation?
2. How effective has the EU intervention been?
3. How efficient has the EU intervention been?
4. How relevant is the EU intervention?
5. How coherent is the EU intervention internally and with other (EU) actions?
6. What is the EU added value of the intervention?
1.6. Method
This evaluation has been carried out in-house by the Commission services. The following
activities and studies have provided key inputs:
17
 DG ENER commissioned Insight_E24
to assess how Member States define the
concept of vulnerable consumer and energy poverty, and the measures implemented to
address these issues. The report25
lists and critically appraises the definitions of
consumer vulnerability and energy poverty across the EU. The report also contains
analysis of the measures to protect vulnerable consumers and to tackle energy poverty.
 Insight_E is currently undertaking a follow-up study in which measures of protection
for vulnerable consumers across Member States will be appraised. In addition, the
report will look in detail into three specific measures, among which safeguards against
disconnections which are assessed in this evaluation. Interim results have been used in
this evaluation as the final report is not yet finalised.
 The Vulnerable Consumer Working Group chaired by DG ENER produced a
guidance document on vulnerable consumers26
which provides a comprehensive
analytical framework for the identification of drivers of consumers' vulnerability. The
document also provides details of existing Member State instruments and practices.
The Vulnerable Consumer Working Group under Citizens Energy Forum produced
furthermore a Working Paper on Energy Poverty27
of which findings also informed
this evaluation.
 DG ENER led an initiative together with DG ESTAT to carry out an ad-hoc data
collection on energy expenditure in Member States by income quintiles. The analysis
of the data shows the increasing proportion of expenditure dedicated to pay for
domestic energy services, particularly by low-income households.
 DG JUST commissioned a study on consumer vulnerability28
. The aim of the study
was to explore and better understand the multiple causes of consumer vulnerability.
The study proposes a new definition of consumer vulnerability and identifies the main
drivers of consumer vulnerability in key markets of the European Union. The energy
sector is one of three sectors studied in-depth.
 DG JUST commissioned a study on the functioning of retail electricity markets for
consumers in the EU. The study looks at consumers’ perceptions of prices and
reported affordability in retail electricity markets. Initial findings from the 2015
electricity study were published in November 2015 together with the State of the
Energy Union 2015 Communication29
.
24
Insight_E is a multidisciplinary energy think-tank formed by partners from academia, research centres and
consultancies.
25
Insight_E (2015) 'Energy poverty and vulnerable consumers in the energy sector across the EU: analysis of
policies and measures'. Available at:
https://ec.europa.eu/energy/sites/ener/files/documents/INSIGHT_E_Energy%20Poverty%20
%20Main%20Report_FINAL.pdf
26
VCWG (2013) Available at:
http://ec.europa.eu/energy/sites/ener/files/documents/20140106_vulnerable_consumer_report.pdf .
27
VCWG (2016) Working Paper on Energy Poverty. Available at:
https://ec.europa.eu/energy/sites/ener/files/documents/Working%20Paper%20on%20Energy%20Poverty.pdf
28
European Commission (2016). Available at:
http://ec.europa.eu/consumers/consumer_evidence/market_studies/vulnerability/index_en.htm-
summit/2015/files/ener_le_vulnerability_study_european_consumer_summit_2015_en.pdf
29
http://ec.europa.eu/priorities/energy-union/state-energy-union/index_en.htm; see in particular "Energy
Consumer Trends 2010 – 2015", SWD(2015) 249 final, 18.11.2015, http://ec.europa.eu/priorities/energy-
union/state-energy-union/docs/swd-energy_consumer_trends_en.pdf
18
 The Agency for the Cooperation of Energy Regulators (ACER)30
produces annual
Market Monitoring Reports (MMR)31
. ACER reports, published annually since 2011,
provide an in-depth coverage of issues such as protection of vulnerable consumers,
number of vulnerable consumers and number of disconnections across EU Member
States32
. The findings of these reports have been used extensively in this evaluation.
 The Council of the EU conducted a survey of the Member States on the scope of
consumer vulnerability which gave input to Council conclusions on the subject in June
2014. The conclusions of this survey provided information on the Member States'
experiences when implementing the provisions evaluated in this document.
1.7. Implementation state of play (Results)
State of play as regards implementation
1.7.1.
Electricity and Gas Directives
Enforcement action undertaken by the Commission in relation to the internal energy market
legislation is ongoing. Procedures are set out in detail in "Enforcement of the Third Internal
Energy Market Package (SWD(2014) 315 final)".33
As of 20 January 2016, all of the infringement proceedings for partial transposition of the
Electricity and Gas Directive have been closed. The focus is now on addressing incorrect
transposition or bad application of the Third Energy Package at the Member State level, with
priority being given to violations which have the highest impact on the functioning of the
internal market, including unbundling, independence, powers and duties of the national
regulatory authorities and consumer protection. On this basis, the Commission has opened
structured dialogues ("EU Pilot34
") with a number of Member States. As of 20 January 2016,
eight of these dialogues have been followed by infringement procedures.
Problems and issues identified
1.7.2.
In September 2011 the Commission opened 38 infringement proceedings against 19 Member
States to ensure full transposition of the Electricity and Gas Directives. Non-resolved cases
were followed up in 2012 by sending reasoned opinions and referrals to Court.
30
The Agency for the Cooperation of Energy Regulators (ACER) is an agency created by the ACER Regulation.
ACER's duties include monitoring and reporting on the internal electricity and gas markets.
31
ACER Market Monitoring Report. Available at: http://www.acer.europa.eu/electricity/market
20monitoring/Pages/default.aspx
32
The data used for compiling ACER's annual report is provided by national regulatory authorities for energy
(NRAs), the European Commission and the European Networks of Transmission System Operators (ENTSOs).
The members of the Administrative Board of ACER (Article 12(7) of the ACER Regulation) and ACER's
Director (Article 16(1) of the ACER Regulation) act independently of the Commission and other interests.
33
https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex6_0.pdf. Figures
presented here are updated.
34
Structured dialogue between the Commission and the Member State concerned is carried out via ‘EU Pilot’.
This is a scheme designed to quickly resolve compliance problems without having to resort to infringement
procedures for the benefit of citizen and business.
19
The two Directives have been now transposed by all Member States. The Commission closed
all the non-communication cases.
Structured dialogues with Member States as well as infringements on incorrect transposition
or bad application are currently ongoing. As of 20 January 2016, 8 of the structured dialogues
have resulted in infringement procedures where, inter alia, violation of the EU electricity and
gas consumer provisions is at stake.
So far, based on the preliminary findings of the conformity checks, Electricity Directive
Article 3 point 7 and Gas Directive Article 3 point 3 on the protection and definition of
vulnerable consumers seems to be the more problematic issues with regard to the
implementation of the provision in five Member States35
.
In relation to the Electricity Directive Article 3 point 8 and Gas Directive Article 3 point 4 on
the measures to address energy poverty where identified, the conformity checks found issues
with regard to the implementation in two Member States.
1.8. Answers to the evaluation questions
In this section we first describe the current situation with respect to consumer vulnerability,
energy poverty and disconnections across the EU. Secondly, the evaluation questions are
addressed for each of the key provisions within the scope of the evaluation.
What is the current situation?
Article 3 of the Electricity and Gas Directives states that Member States shall take appropriate
measures to protect final customers, and in particular, shall ensure that there are adequate
safeguards to protect vulnerable consumers. In this context, each Member State should define
the concept of vulnerable consumers, which may refer to energy poverty and, inter alia, to the
prohibition of disconnecting to such customers in critical times.
Consumer Vulnerability36
a) Definitions across Member States
Member States take different approaches to the transposition of the obligation to define the
concept of vulnerable consumers.
ACER MMR identifies explicit and implicit definitions at the Member State level.
Explicit definition of consumer vulnerability may refer to a list of criteria defining
vulnerability, such as personal or household characteristics, or specific economic conditions
which are specified in national law. In roughly half of the Member States the definition of
energy consumer vulnerability refers to aspects of low income, bad health, or critical
35
Specific guidance about the drivers of vulnerability and the population likely deemed vulnerable was
published by the European Commission and the Vulnerable Consumers Working Group. The document is
available at: http://ec.europa.eu/energy/sites/ener/files/documents/20140106_vulnerable_consumer_report_0.pdf
36
Throughout the evaluation we use the term consumer vulnerability or vulnerable consumer in the context of
energy markets, which differs from the definitions of consumer vulnerability used in other markets or Directives.
20
dependence on energy for life support. In some Member States, an additional reference is
made to the energy consumption of a vulnerable households e.g. by reference to an upper
limit of power or consumption level over a certain period (for instance, Portugal and Spain).
Most explicit definitions also include references to existing social security laws with respect
to eligibility criteria. This underlines the embedded character of the concept of vulnerable
consumers in a wider social protection agenda37
.
Some Member States argue that the eligibility criteria of existing national social protection
already capture the essence of the concept of vulnerable consumers38
and opted for implicit
definitions of consumer vulnerability. Implicit definitions, which are more difficult to grasp,
are usually not encoded in law. Instead vulnerable consumers are supported by a wider social
security net.
Insight_E (2015) 39
provides another categorisation of the concept of vulnerable consumers.
Based on their research, the most common type of definition of vulnerable consumers adopted
across EU Member States is based on receipt of social welfare whereby a consumer is
automatically defined as vulnerable based on the eligibility criteria used for the receipt of
social welfare. Other Member States define vulnerable consumers based on the difficulty to
afford basic energy services. Four Member States specifically refer to health and disability
while other Member States refer to a broad range of socio-economic groups, which may
include income, age or health characteristics.
Table 1: Insight_E (2015) Categorisation of vulnerable consumer definitions
Definition type Member State
Energy affordability (low income / high
expenditure)
FR, IT, SE
Receipt of social welfare BG, CY, DE, DK, EE, FI, HR, HU, LT,
LU, MT, PL, PT, SI,
Disability / health CZ, NL, SK, IE
Range of socio-economic groups AT, BE, ES, GR, RO, UK
Source: Insight_E (2015) "Energy poverty and vulnerable consumers in the energy sector across the EU: analysis of policies
and measures".
Different categories in definitions of vulnerable consumers result in significant
differences among Member States with regards to the coverage of the definition of
vulnerable consumers and, as a consequence, differences in the share of the population
defined as vulnerable. For instance, while all households are de facto considered potentially
vulnerable in Luxembourg, only consumers with health issues, connected to life-support
equipment, qualify as vulnerable in the Czech energy market. Furthermore major differences
exist among Member States with regards to the level of support that vulnerable consumers
receive.
b) Consumer vulnerability rates across the EU
37
ACER (2015) Annual Report of the Results of Monitoring the Internal Electricity and Natural Gas Markets in
2014. Page 119.
38
ACER (2015) Annual Report of the Results of Monitoring the Internal Electricity and Natural Gas Markets in
2014. Page 117.
39
Insight_E (2015) identifies the definition of vulnerable consumers in Member States national legislation.
Annex 3 includes these definitions.
21
Findings from the latest ACER MMR suggest that the level of consumer vulnerability across
the EU is stable, with the exception of Greece and France where the number of consumers
benefiting from social tariffs has noticeably increased in the last year. However, the report
also highlights that solid conclusions cannot be drawn on the exact rates and variation in
energy consumer vulnerability because of incomplete and incomparable data.
Figure 3: Share of vulnerable customers in electricity and gas - 2013-2014 (%) (ACER
MMR)
22
The ACER MMR also pointed out that only a minority of Member States were able to report
figures on the precise number of vulnerable consumers.
Energy poverty
a) Definitions
As of today, Cyprus, France, Ireland, UK and Slovakia define the issue of energy poverty in
their legislations. The definitions focus on identifying groups facing problems of affordability
in maintaining necessary energy services, heating in particular, in their homes. In addition,
such definitions often consider various energy carriers, such as electricity, gas and coal.
Annex 4 shows the official and unofficial definitions in use across the EU. The Commission
is aware of on-going activities in several other Member States to introduce definitions of
energy poverty in national legislation.
b) Energy poverty across the EU
Growing levels of energy poverty have provoked strong political interest in the issue of
consumer vulnerability and energy poverty within the European Parliament4041
, the
Committee of the Regions42
, and the Economic and Social Committee43
, as well as
broader stakeholder community including think tanks and consumer associations.
Since 2000 expenditure on energy services for the poorest households in the EU has increased
by 50%, reaching almost 9% of their total budget on average, driven mainly by energy prices
rising faster than household disposable income44
.
In 2014, the gap in the share of expenditure spent on domestic energy services between the
average and the poorest households increased to three percentage points.
Figure 4: EU average - share of households' budget spent on domestic energy services45
40
European Parliament. Committee on Industry, Research and Energy. Delivering a New Deal for Energy
Consumers. (2015/2323(INI)). Rapporteur: Theresa Griffin.
41
European Parliament. Committee on Employment and Social Affairs. Report on meeting the antipoverty target
in the light of increasing household costs. (2015/2223(INI)). Rapporteur: Tamás Meszerics.
42
Committee of the Regions (CoR) (2014) Opinion of the Committee of the Regions - Affordable Energy for
All. Official Journal of the European Union, C 174/15.
43
European Economic and Social Committee (EESC) (2011) Opinion of the European Economic and Social
Committee on ‘Energy poverty in the context of liberalisation and the economic crisis’ (exploratory opinion).
Official Journal of the European Union, C 44/53.
44
Source: Eurostat (Electricity prices for domestic consumers; Gas prices for domestic consumers; disposable
income of households per capita; period 2010 – 2014).
45
The figure represents the EU average including all Member States with the exception of Austria and Denmark
due to lack of data availability at the time of writing.
23
Source: National Statistical Authorities of EU Member States
Other Eurostat indicators draw similar conclusions. For example, the number of European
citizens saying that they were unable to keep warm during winter shows a similar upward
trend. Yet, the incidence of this indicator changes across Member States. While more than one
in four citizens in Bulgaria, Greece, Portugal and Lithuania felt their homes were cold during
winter, in Denmark, Luxembourg, Austria, Finland and Sweden just less than 3% of the
population felt that way.
Disconnections
Safeguards against disconnections due to non-payments are one of the most frequently
used instruments to protect vulnerable and energy poor consumers. Insight_E (2015)
estimates that 20% of the Member States use disconnection safeguards as their primary
measure for protection of vulnerable and energy poor consumers. 25 Member States have in
their legislation some kind of provision against disconnections either during winter, targeted
to specific group, or general and preventative safeguards (Insight_E (2016)). Popular
safeguards against disconnections include an extended notice procedure, the involvement of
social support institutions in disconnections processes, and similar hurdles for suppliers and
Distribution System Operators (DSOs) to prevent premature disconnections of their non-
paying customers46
.
The ACER MMR shows that in 2014 disconnection rates were highest in Portugal (5.6%
electricity and 4.0% gas), Italy (4.0% electricity and 2.1% gas), Malta (2.8% electricity and
no data for gas) and Greece (2.5% electricity and 1.7% gas). In other Member States,
disconnection rates were significantly lower.
The ACER report also states that the availability of data on disconnections remains
limited. This is despite the fact that the Electricity and Gas Directives state that Member
46
ACER (2015) Annual Report of the Results of Monitoring the Internal Electricity and Natural Gas Markets in
2014. Page 119.
24
States have to provide for disconnection data to be collected by National Regulatory
Authorities (NRAs)47
.
In addition, the ACER report points that looking just at disconnection rates may lead to
premature conclusions as many households, unable to keep warm during winter, decide to
self-disconnect to avoid falling into arrears or debt. This situation is particularly important in
Great Britain, Belgium, Poland or Ireland48
.
It is important to note that, once disconnected, consumers face additional costs and waiting
times to ensure reconnection. Having been disconnected from the electricity and gas grid, it
takes between 5 and 76, and an average of 25 days, to be reconnected to the network49
.
Disconnections are also particularly problematic for vulnerable consumers because of their
dependency on electricity and gas due to for example the need to be connected to medical
equipment; and the barriers when interacting with the market.
To summarise, there is currently a broad divergence in Member States, both with
regards to the definition of vulnerable consumers and to the measures adopted to
protect them.
While a degree of difference is justified by the variety in national circumstances,
significant differences in the level of protection of vulnerable consumers across EU
Member States.
Even though levels of consumer vulnerability seem stable, energy poverty is a growing
problem and is increasingly being discussed in its own right. Safeguards against
disconnections represent one of the most popular measures to protect vulnerable
consumers and to mitigate the impacts of energy poverty.
How effective has the EU intervention been?
This section considers how effective EU action has been in achieving its objectives. The main
objectives of the provisions in the Electricity and Gas Directives in relation to vulnerable
consumers and energy poverty were to:
 Incentivise protection of vulnerable consumers at the Member State level through:
 Getting the Member States to define the concept of vulnerable consumers
 Getting the Member States to address energy poverty where identified as an issue.
 Facilitate the decision by Member States to proceed with electricity and gas market
liberalisation
EU action has successfully encouraged Member States to define the concept of vulnerable
consumers as all Member States have a definition of vulnerable consumer in their
legislation. However, the coverage of the group defined as vulnerable, as well as the
47
ACER (2015) Annual Report of the Results of Monitoring the Internal Electricity and Natural Gas Markets in
2014. Page 115.
48
ACER (2015) Annual Report of the Results of Monitoring the Internal Electricity and Natural Gas Markets in
2014. Page 116.
49
ACER (2015) Annual Report of the Results of Monitoring the Internal Electricity and Natural Gas Markets in
2014. Page 144.
25
associated protective measures vary widely across Member States.50
The wide range of
definitions of consumer vulnerability across Member States highlights the variety of problems
and challenges around vulnerability in the energy market across Member States. Whilst
variety of definitions is not a problem per se, it can be noted that the definition of consumer
vulnerability has a bearing on the type of action that follows. This in turn led to unequal level
of energy consumers' protection across EU Member States.
It must be noted that EU action has not been fully effective in ensuring that Member States
effectively address the problem of energy poverty. As outlined previously, the level of energy
poverty across the EU has increased substantially over the past 15 years. Moreover, only
a small minority of Member States have decided to define the concept.
While tackling energy poverty is mainly a Member State issue, EU action can incentivise
adequate identification and propose most appropriate solutions to the problem of energy
poverty. However, current legislation is not effective in that respect as it does not assist
Member States in defining energy poverty and refers to the problem of energy poverty only
as a sub-category of the problem of consumer vulnerability – which in today's context is
too restrictive.
It is important to recognise that energy poverty and consumer vulnerability are two distinct
issues. Consumer vulnerability51
is driven by consumer characteristics such as age, number of
dependents, health, ability to interact with the market, behavioural characteristics,
employment, or access to shops or the internet. Energy poverty, on the other hand, is driven
by poor energy efficiency of dwellings and high energy prices correlated with stagnating or
falling wages. This difference is not recognised in the Electricity and Gas Directives as both
issues are treated simultaneously and none of the terms is identified, thus providing limited
assistance to Member States.
It must also be noted that a study carried out for the purpose of this evaluation, Insight_E
(2015), argues in favour of recognising that the issues of vulnerable consumer protection and
energy poverty are distinct. The report argues that consumer vulnerability and energy poverty
can affect different energy consumer groups, and require different measures. The overlap
between the concept of consumer vulnerability in energy markets and energy poverty depends
on the definition of consumer vulnerability used in each of the Member States. When
vulnerable consumers are narrowly defined, for example by defining vulnerable consumers as
those in need of access to electricity to power their medical devices, the overlap is limited.
Price regulation constitutes a barrier for liberalisation and potential cross-border
integration of the electricity and gas markets in a number of Member States - the
argument being that electricity and gas price regulation constitutes a form of protection
against energy poverty. In fact while some progress has been achieved in liberalisation of the
energy markets across the EU, 17 Member States still apply some form of price regulation in
their electricity and gas markets. Growing energy poverty levels and the need to protect
vulnerable consumers are often quoted by Member States as a justification for maintaining
50
While some Member States had already previously defined vulnerable consumers in their legislation, others
introduced such as definition after the Third Energy Package.
51
European Commission (2016) concluded that consumer vulnerability refers to the risk of negative outcome on
consumers' well-being. Available at:
http://ec.europa.eu/consumers/consumer_evidence/market_studies/vulnerability/index_en.htm..
26
price regulation in retail energy markets where energy suppliers may abuse their market
power to increase prices.
In that context any future legislative changes could look into reinforcing EU assistance/action
on energy poverty and propose appropriate tools for addressing energy poverty which enable
Member States to phase-out regulated prices.
How efficient has the EU intervention been?
This section looks at the relationship between the resources used by Member States to
implement the provisions on vulnerable consumers and energy poverty in the Electricity and
Gas Directives and the changes generated by the intervention.
There is no data available to assess this question quantitatively. Yet, it is likely that the
benefits derived from defining consumer vulnerability at the Member State level and
implementing measures to protect them outweigh the costs of setting up such a policy.
The cost of defining vulnerable consumers is likely to have been limited as in many of the
Member States, the definition of vulnerable consumers is linked to other social security
benefits. The administrative cost of delivering protection to vulnerable consumers is also
likely to have been limited as many Member States choose to address consumer vulnerability
through their general welfare system, thus limiting additional costs.
The end cost of protecting vulnerable consumers depends on the level of support and remains
at the discretion of the Member States. Consequently, the rate between costs and benefits will
depend on factors such as how adequately Member State definition of vulnerable consumer
captures vulnerability, the type of protective measures, and the means to implement these
measures.
The same logic applies to the costs of executing the provisions on energy poverty in the
Electricity and Gas Directive52
.
In this context, it is important to stress that it is unlikely that Member States would have
proceeded to implement the liberalisation of their energy markets without strong guarantees
on the rights of consumers, including vulnerable consumers.
The distributional impact of costs and benefits associated with Member State execution of the
provisions on vulnerable consumers and energy poverty depends on whether the protective
measures were financed through general taxation or passed on to consumers. Assuming a
progressive system of taxation, it is likely that measures financed through the energy bill have
a more regressive effect than if financed through general taxation.
While the overall benefits of energy market liberalisation accrue to all consumers, the main
beneficiaries of the protective measures for vulnerable consumers are those who qualify for
the support. Conversely, those bearing the cost (though taxes or duties in the energy bill) and
who do not receive the benefits, will be worse off. However, the overall benefits of market
52
Article 3 point 8 states the need for Member States to consider appropriate measures to address energy
poverty, as it relates to electricity and gas consumers.
27
liberalisation to all consumers are likely to outweigh the costs of funding the measures to
protect vulnerable and energy poor consumers.
How relevant is the EU intervention?
This section looks at the relationship between the needs and problems in society and the
objectives of the articles in the Electricity and Gas Directives relevant to vulnerable
consumers and energy poverty.
EU action on vulnerable consumers and energy poverty is driven by the need to protect
vulnerable and energy poor consumers. These objectives were identified by earlier legislative
initiatives as a shortcoming of electricity and gas market liberalisation, as measures to ensure
an effective finalisation of the internal energy market. Both objectives are still relevant.
Evidence quoted previously shows that the problem of energy poverty across the EU is
growing despite action by some Member States to address vulnerable energy consumers.
A number of Member States also see consumer vulnerability and energy poverty as a barrier
for electricity and gas market liberalisation. Therefore the protection of vulnerable consumers
and actions to address energy poverty are still a relevant area for EU intervention in the
context of the completion of the internal energy market.
EU intervention is further justified by the variability in the definitions of consumer
vulnerability and in the type of protective measures adopted at the Member State level, which
leads to unequal consumer protection across the EU.
Recent research suggests that consumer vulnerability in the energy market will continue
to be a relevant policy issue in the future53
as a substantial share of those characterised
as vulnerable consumers may continue to find difficulties to interact with the market
due to social, behavioural or cognitive drivers. While general consumer protection
measures such as consumer rights will continue to be maintained, specific provisions for
vulnerable consumers will also be needed to ensure that vulnerable consumers can also
benefit from the internal energy market.
Energy poverty is also likely to continue to be an important policy issue in the future. In
recent years, energy prices have risen faster than household disposable income54
. This has
been particularly problematic for low-income households. If this trend continues, it is likely
that the level of energy poverty in the EU will grow, which creates an even stronger case for
EU intervention to deliver adequate tools for the Member States to address the problem of
energy poverty without obstructing the completion of the internal energy market through
practices such as electricity and gas price regulation.
How coherent is the EU intervention internally and with other (EU) actions?
This section looks at the coherence between various provisions on vulnerable consumers and
energy poverty. It assesses the internal coherence of the Electricity and Gas Directives and the
53
European Commission (2016) Available at:
http://ec.europa.eu/consumers/consumer_evidence/market_studies/vulnerability/index_en.htm
54
Source: Eurostat (Electricity prices for domestic consumers; Gas prices for domestic consumers; disposable
income of households per capita; period 2010 – 2014).
28
external coherence in relation to other provisions on vulnerable consumers and energy
poverty included in the EED and Commission actions outside legislation.
As previously explained, when defining vulnerable consumers, Member States can make
reference to energy poverty and/or limitation of disconnections. Insight_E (2015) concluded
that consumer vulnerability and energy poverty are distinct issues which need to be targeted
by different measures. Although both terms are highlighted in the Electricity and Gas
Directives, they are not defined and it is not made clear that energy poverty and
consumer vulnerability are two distinct issues which require different solutions.
In relation to the measures to address vulnerability and energy poverty, the Electricity and
Gas Directives suggest limitation to disconnections as a measure characterising vulnerability.
In the absence of a more precise description of the measures, some Member States have opted
to continue with price regulation. This un-targeted measure has had a negative impact on
customer choice, competition, and the development of the internal energy market and the
Energy Union.
Article 7 of the Energy Efficiency Directive provides the main instrument for the EU to
encourage Member States to tackle energy poverty. This article states that Member States
shall set up an energy efficiency obligation scheme. This scheme may include requirements
with a social aim including by requiring a share of energy efficiency measures to be
implemented as a priority in households affected by energy poverty or in social housing.
Nonetheless, only four Member States (Austria, France, Ireland and the UK) have
added this element in their energy efficiency obligation schemes.
Additionally the Commission has been taking action to assist Member States to meet their
obligations under EU law by identifying good practices and supporting exchange of
information among stakeholders and Member States representatives on how to alleviate
consumer vulnerability and energy poverty in the most cost-effective way.
The Commission also finances energy efficiency improvements, in particular through the
structural funds to increase efficiency in buildings which are likely to help reducing energy
poverty.
What is the EU added value of the intervention?
EU-added value looks for changes due to EU intervention. The analysis of this evaluation
question is limited to qualitative assessment given the difficulties to identify a counter-factual
i.e. to quantify what would have happened without EU intervention.
The provisions on consumer vulnerability and energy poverty in the Electricity and Gas
Directives ensure that all EU Member States have some level of protection for vulnerable
energy consumers. While it is true that some Member States had been already protecting their
vulnerable energy consumers prior to EU intervention, others have been brought to take
action as a result of EU intervention. Annex 355
includes the definitions of vulnerable
consumers and links to the national legislation. The table shows that some Member States
55
Additional details on national legislation can be found in Insight_E (2015). Available at:
https://ec.europa.eu/energy/sites/ener/files/documents/INSIGHT_E_Energy%20Poverty%20-
%20Main%20Report_FINAL.pdf
29
enacted laws to transpose the Electricy and Gas directive which include a definition of
consumer vulnerability in energy markets.
More importantly the consideration of consumer vulnerability and energy poverty in the
Electricity and Gas Directives is key for all EU citizens, including vulnerable and energy poor
consumers, to enjoy the benefits of the internal energy market. At the same time, having both
concepts in the EU legislation creates a more level-playing field for energy suppliers and
other retail market actors across the EU. Furthermore, it is also a necessary accompanying
measure for Member States to continue the completion of the internal energy market.
Energy affordability is one of the pillars of the energy union. The completiton of the energy
unions bring benefits but also costs to Member States. It is fundamental that the EU and
Member States understand the impact of these policies upon European citizens and their
ability to afford adequate energy services. Hence, the focus on energy poverty at the EU level
and the need to address energy poverty where identified, as well as, the inclusion of energy
poverty in the EED and the EPBD.
1.9. Conclusions
The legislators' original objectives behind the provisions were as follows:
 To ensure protection of vulnerable consumers by getting the Member States to
define the concept of vulnerable consumer and implement measures to protect
them.
 To mitigate the problem of energy poverty by getting the Member States to
address energy poverty where identified as an issue.
When setting these two objectives, the legislators also wanted to facilitate the decision by
Member States to proceed with electricity and gas market liberalisation. However, 17
Member States still apply some form of price regulation in their electricity and gas markets.
Growing energy poverty levels and the need to protect vulnerable consumers are quoted by
Member States as a justification for maintaining price regulation in the retail energy markets.
Effectiveness
The evidence available and considered in this evaluation suggests that the provisions in the
Electricity and Gas Directive related to consumer vulnerability and energy poverty were
partially effective.
EU action has successfully encouraged Member States to define the concept of vulnerable
consumers in their legislation and to adopt measures to protect vulnerable consumers. The
provisions have also brought the issue of energy poverty to the attention of some Member
States. These provisions helped Member States to liberalise their retail energy markets
bringing considerable benefits to all consumers in the form of competitive prices and higher
standards of services.
It is nevertheless possible to identify certain unintended consequences and areas of potential
improvements.
30
With respect to consumer vulnerability, whilst the variety of definitions is not a problem per
se, research shows that the definition of consumer vulnerability has a bearing on the type of
action that follows. This in turn led to unequal level of consumer protection across the EU.
With respect to energy poverty, the evaluation demonstrates that even though most Member
States have correctly implemented the provisions on consumer vulnerability, the problem of
energy poverty has not been effectively mitigated. While recent research indicates that energy
poverty and consumer vulnerability are two distinct issues, the provisions in the Electricity
and Gas Directives refer to energy poverty as a type of consumer vulnerability. This led to an
incorrect expectation that a single set of policy tools can address both problems
simultaneously.
This evaluation also identifies shortcomings in the effectiveness of the provisions referring to
the role of National Regulatory Authorities (NRAs) in the protection of vulnerable
consumers and monitoring of electricity and gas disconnections.
Efficiency
There is little evidence but good reason to assume that the intervention has been efficient
in terms of the proportionality between the overall benefits and the costs of the resources
deployed to fulfil the objectives of the provisions.
The cost of defining and protecting vulnerable consumers is likely to have been limited, as in
many Member States, consumer vulnerability is linked to other social security benefits.
Relevance
Overall the key provisions remain highly relevant. For the Energy Union to be completed,
strong consumer protection for all consumers and especially for the vulnerable ones is needed.
Evidence suggests that consumer vulnerability and energy poverty will continue to be
increasingly relevant policy issue in the future. On one hand, a substantial share of those
characterised as vulnerable consumers have permanent characteristics that make them
vulnerable. On the other hand, energy poverty is likely to continue growing as energy prices
have risen faster than disposable income, particularly for low-income households.
Coherence
In terms of coherence, the evaluation has not identified any inconsistencies or elements in
the legislation working against the objectives of the provisions on vulnerable and energy
poor consumers.
Nevertheless the misidentification of consumer vulnerability and energy poverty as the same
issue in the Electricity and Gas Directives means that expected combined impacts are not
occurring and energy poverty grows while Member States take action to protect vulnerable
consumers.
Lack of a definition of energy poverty in the Electricity and Gas Directives, the EED and the
EPBD makes the implementation of the provisions unclear and ambiguous.
EU added-value
31
The provisions addressing consumer vulnerability in the Electricity and Gas Directives are
essential for protecting vulnerable consumers in the internal energy market at the retail level.
While it is true that some Member States had been already protecting their vulnerable
energy consumers prior to EU intervention, others have been brought to take action as a
result of EU intervention.
1.10. Stakeholder consultation
This evaluation has benefitted from input from the following processes involving
stakeholders:
1. Consultation on the retail energy market
http://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market
2. Meetings of the Vulnerable Consumer Working Group between April and
December 2015.
Consultation on retail energy market - results
Below are summarised in graphic form a quantitative summary of the feedback from the
consultation referred to in point 1 above in so far as retail energy market and the protection of
vulnerable and energy poor consumers are concerned.
Please five your opinion on the relative importance of the following factors in helping
residential consumers
o) Protection of vulnerable consumers
In your opinion, which of the following factors will be the main drivers of future developments
in the retail market?
Meetings of the Vulnerable Consumer Working Group
32
The Vulnerable Consumer Working Group56
is a stakeholder group chaired by the European
Commission and attended by industry, consumer organisations, Member State and regulators
representatives and academia. The group provided input to the European Commission in
various aspect of this evaluation. In particular, this evaluation draws from the Guidance on
Vulnerable Consumers and the Working Paper on Energy Poverty.
1.11. Member States definitions of vulnerable consumers
Member State Definition of vulnerable consumers
Austria The concept of vulnerable customer is implemented through a series of protection
mechanisms for clearly identified groups of people/households according to social
security and energy laws.
Belgium Flanders: Cf. national definition of "sociale maximumprijs". In Flanders, vulnerable
customers are those customers that are entitled to get the social tariff. National legislation
defines the preconditions to get the social tariff.
Brussels: The Brussels Region applies the definition of vulnerable customer such as
defined in the Directive. The categories recognised by the national Government as
vulnerable ones are also recognised in the Brussels Region. The Brussels Region
recognises two extra categories of customers as vulnerable: 1) which are recognised as
vulnerable customers by local public aid centres and 2) ones that meet certain criteria
defined in the regional legislation in terms of revenues and number of persons composing
the household and whom are on that basis recognised as vulnerable customers by the
Brussels regional regulator. For the two additional categories recognised in the Brussels
Region the 'statute' of vulnerable customers is linked to a limitation of power supply and
is limited in time and ceases once the customer has paid off his debt to his supplier.
Federal: The definition of the concept of vulnerable customers is implicitly recognized
by the energy law and/or social security system in my country; The energy law/legal
framework explicitly states what groups of customers are regarded as “vulnerable” based
on personal properties of customers (disability).
Bulgaria Social Assistance Law through Ordinance No. RD-07-5 as of 16 May 2008 for provision
of targeted benefits for heating is given once a year to Persons or families whose average
monthly income in the last six months is lower or equal to differentiated minimum
income; these citizens are eligible for heating benefits according to Art. 10 and 11.11
From July 2012, vulnerable customers are defined in the Energy Act.*
Croatia In its valid and effective wording, the Energy Act does not define ‘vulnerable customer’;
for consumers who can be regarded as ‘socially disadvantaged’, certain measures for
their protection and support for their rights are provided for at the level of generally
applicable legislation in the domain of social security law
Cyprus The definition of vulnerable customers is determined in a Ministerial decree (CEER
2013). Additional public assistance is provided to recipients to satisfy special needs,
including “heating 170 euro per annum”. Recipients include persons with disability and
medically confirmed patients treated abroad for a period not exceeding six months;
persons with disability studying in an educational institution in Cyprus or abroad (for a
period not exceeding by more than one year the normal period of their course) to obtain
qualifications that will help them become independent of public assistance; and persons
under the care of the director of the Social Welfare Services (SWS) when they become
18 years old and enrol in an educational institution in Cyprus or abroad in order to obtain
56
The documents presented in the meetings of the working group are published. Available at:
https://ec.europa.eu/energy/en/events/citizens-energy-forum-london
33
qualifications that will help them become independent of public assistance
Czech
Republic
There is a legal term "protected customer" such as hospitals and ill people dependant on
life-support equipment.
Denmark There are no specific provisions regarding vulnerable consumers in energy law; instead
this issue is dealt with in social legislation.* However the principal of universality exists
where every citizen has a right to social assistance when affected by a specific event.
Various schemes in existence for short and longer-term support to unemployed, social
security for the non-working.
Estonia A household customer to whom subsistence benefit has been awarded pursuant to section
22(1) of the Social Welfare Act: A person living alone or a family whose monthly net
income, after the deduction of the fixed expenses connected with permanent dwelling
calculated under the conditions provided for in subsections 22 (5) and (6) of this Act, is
below the subsistence level has the right to receive a subsistence benefit. Subsistence
level is established based on minimum expenses made on consumption of foodstuffs,
clothing, footwear and other goods and services which satisfy the primary needs.
Finland In the energy market act there are defined in connection to the disconnection of the
electricity. Also in the constitution there is a concept of basic rights and social security
legislation defines the target groups.
France Special tariffs are reserved for households with an income below or equal to a threshold
of entitlement to supplementary universal health cover. These tariffs are available for
both electricity and natural gas consumers. From the end of 2013, these social tariffs
were further extended to cover all households with an annual reference fiscal income per
unit (revenu fiscal de reference) lower than EUR 2,175. The number of households
benefitting from the social tariff is expected to increase from 1.9 million to 4.2 million,
equivalent to 8 million people.*
Germany Vulnerable customers eligible for support are in line with the social security system
(CEER 2013). Additional support is provided in terms of consumer protection in line
with the Third Energy Package.*
Greece Groups of customers defined under the Energy law:
(a) The financially weak customers suffering from energy poverty.
(b) Customers who themselves or their spouses or persons who live together, rely heavily
on continuous and uninterrupted power supply, due to mechanical support.
(c) Elderly who are over seventy years old, provided they do not live together with
another person who is younger than the above age limit.
(d) Customers with serious health problems, especially those with severe physical or
mental disability with intellectual disabilities, severe audiovisual or locomotor problems,
or with multiple disabilities or chronic illness who cannot manage their contractual
relationship with their Supplier.
(e) Customers in remote areas, especially those living at the Non Interconnected Islands.
Hungary Vulnerable customers' shall mean those household customers who require special
attention due to their social disposition defined in legal regulation, or some other
particular reason, in terms of supplying them with electricity.
Ireland A vulnerable customer is defined in legislation as a household customer who is:
a) critically dependent on electrically powered equipment, which shall include but is not
34
limited to life protecting devices, assistive technologies to support independent living and
medical equipment, or
b) particularly vulnerable to disconnection during winter months for reasons of advanced
age or physical, sensory, intellectual or mental health.
Italy Several measures aim to protect customers (vulnerable household customers, utilities,
activities relating to 'public service’, including hospitals, nursing homes and rest, prisons,
schools and other public and private facilities that perform an activity recognized of
public service as well as household customers that require electricity-powered life-
support equipment with severe health problems). Italian decrees establish the “social
bonus” (a social support program) defined by the Government for the benefit of
electricity customers whose annual income does not exceed a certain threshold (set up by
the law and certified by equivalent economic situation indicator, that takes into account
income, assets, the characteristics of a family by number and type). The “social bonus” is
a discount (annual amount fixed the same in the free market or in the enhanced protection
regime) of the electricity bill each year, dependent upon the use, number of people in the
family, and climate zone
Latvia There is no clear definition of vulnerable consumers yet, but plans exist to introduce
several measures to inform and support vulnerable consumers.*
Lithuania The persons to whom according to the procedure established by the Laws of the Republic
of Lithuania social support is granted and/or social services are provided can be defined
as socially vulnerable customers. The list of socially vulnerable customers and the groups
thereof and/or additional social guarantees, related to supply of electricity, which are
applied to such customers or their groups, are set by the Government or its authorized
institution. Developing the definition (list) of vulnerable consumers is currently under
discussion.
Luxembourg All customers are de facto considered as potentially vulnerable in Luxembourg.*
Malta Vulnerable consumers are supported through social policy. Recipients of social security
are eligible for support
Netherlands Legislation states that a household consumer for whom ending the transport or the supply
of electricity or gas would result in very serious health risks for the domestic consumer or
a member of the same household of the household customer is regarded as vulnerable,
and thus disconnection is not permitted, unless a case of fraud has been proved
Poland The energy law states that vulnerable customer of electricity is a person who is eligible to
housing allowance (income support) because the level of its income is lower than a
certain degree. That means that the concept of vulnerable customers is based on poverty.
Portugal The concept is defined in the energy sector law and corresponds to that of economically
vulnerable customers which correspond to people receiving certain social welfare
subsidies (social security system) with some contract limitations (e.g. contracted power).
These customers have access to a social tariff.
Romania Vulnerable customers are defined as household consumers with low income within the
limits laid down in the Ordinance 27/2013*
Slovakia The concept for the protection of consumers fulfilling conditions of the energy poverty
was in preparation in 2013. Act on Energy Industry defines vulnerable household
electricity customer as a strongly disabled person and whose vital functions are
depending upon the offtake of electricity and uses electricity for heating. The DSO keeps
records of vulnerable customers and can disrupt electricity distribution only after
previous direct communication of these electricity customers with the DSO.
35
Slovenia Social support is provided to households through a minimum income to
households/individuals without an income or an income below the official level.
Spain The concept of vulnerable costumers has only been defined so far for electricity
customers. Vulnerable customers should fulfil at least one of the following criteria: a
large family or a family where all members are unemployed; be low voltage consumers
(less than 1 kV) with contracted demand lower than or equal to 3 kW; or a pensioner
older than 60 years with a minimum level pension. Vulnerable customers’ electricity
tariffs are reduced by means of a “social bonus”, which sets their tariffs at the July 2009
level. As of December 2012, 2,544,170 customers were defined as vulnerable.
Sweden Vulnerable customers are defined as persons who permanently lack ability to pay for the
electricity or natural gas that is transferred or delivered to them for non-Commercial
purposes.
United
Kingdom
Ofgem have defined vulnerability as when a consumer’s personal circumstances and
characteristics combine with aspects of the market to create situations where he or she is:
-significantly less able than a typical consumer to protect or represent his or her interests
in the energy market; and/or
-significantly more likely than a typical consumer to suffer detriment, or that detriment is
likely to be more substantial
Source: Insight_E (2015)
1.12. Member States definitions of energy poverty
Member State Energy / fuel poverty definition Definition metric
Cyprus Energy poverty may relate to the situation
of customers who may be in a difficult
position because of their low income as
indicated by their tax statements in
conjunction with their professional status,
marital status and specific health
conditions and therefore, are unable to
respond to the costs for the reasonable
needs of the supply of electricity, as these
costs represent a significant proportion of
their disposable income.
Energy poverty is defined in the
Electricity Law. Based on the
provisions of the Law, a Ministerial
Degree is issued specifying the
various categories of vulnerable
consumers and the corresponding
measures to protect them.
France Definition according to article 11 of the
“Grenelle II” law from 12 July 2010:
Is considered in a situation of energy
poverty “a person who encounters in
his/her accommodation particular
difficulties to have enough energy supply
to satisfy his/her elementary needs, this
being due to the inadequacy of resources or
housing conditions.”
A quantitative threshold is missing.
Slovakia Energy poverty is defined as a condition
when average monthly household
expenditures for the consumption of
electricity, gas and heat, represent a
significant share of the average monthly
household income.
According to the Concept for the
protection of consumers fulfilling
conditions of energy poverty, issued
by the Regulatory Office, the
Statistical Office provides
information on average monthly
household expenditure for energy
36
Member State Energy / fuel poverty definition Definition metric
consumption and household income.
A household can be considered as
energy poor if disposable monthly
income is lower than the minimum
monthly disposable household
income threshold.
The threshold is published on the
website of the Ministry of Labour,
Social Affairs and Family of the
Slovak Republic, the Regulatory
Office for Network Industries and on
message boards of labour, social
affairs and families, municipalities
and municipal authorities.
Ireland Energy poverty is a situation whereby a
household is unable to attain an acceptable
level of energy services (including heating,
lighting, etc) in the home due to an
inability to meet these requirements at an
affordable cost.
Spends more than 10% of its
disposable income on energy services
in the home.
UK (England) A household to be fuel poor if (i) their
income is below the poverty line (taking
into account energy costs); and (ii) their
energy costs are higher than is typical for
their household type (DECC 2013).
Low income, high consumption
(LIHC). Two criteria include (i) fuel
costs are above the median level, and
(ii) residual income net of fuel cost
spend is below the official poverty
line. This applies in England, while
other constituent countries use the
10% threshold metric.
Note that England continues to report
the 10% threshold metric for
comparison, which is that a fuel poor
household is one which needs to
spend more than 10% of its income
on all fuel use to heat it home to an
adequate standard of warmth (21⁰C
in living room, and 18⁰C in other
rooms as recommended by WHO.
UK (Scotland) A household is in fuel poverty if, in order
to maintain a satisfactory heating regime, it
would be required to spend more than 10%
of its income (including Housing Benefit
or Income Support for Mortgage Interest)
on all household fuel use (Scottish
Executive 2002).
The definition of a 'satisfactory
heating regime' as per for Wales
(below)
UK (Wales) Fuel poverty is defined as having to spend
more than 10 per cent of income (including
housing benefit) on all household fuel use
to maintain a satisfactory heating regime.
Where expenditure on all household fuel
exceeds 20 per cent of income, households
are defined as being in severe fuel poverty
(Welsh Assembly Government 2010).
As stated. The definition of a
'satisfactory heating regime'
recommended by the World Health
Organisation is 23°C in the living
room and 18°C in other rooms, to be
achieved for 16 hours in every 24 for
households with older people or
people with disabilities or chronic
illness and 21°C in the living room
and 18°C in other rooms for a period
of nine hours in every 24 (or 16 in 24
over the weekend) for other
households.
37
Member State Energy / fuel poverty definition Definition metric
UK (Northern Ireland) A household is in fuel poverty if, in order
to maintain an acceptable level of
temperature throughout the home, the
occupants would have to spend more than
10% of their income on all household fuel
use (DSDNI 2011).
'Acceptable' level as per WHO
'satisfactory heating regime'
Source: Insight_E (2015)
38
2. ANNEX 4: DETAILS ON THE EU FRAMEWORK FOR SWITCHING AND EXIT FEES
2.1. Executive Summary
Keynotes:
 Influence of current EU regulatory framework on switching rates is rather
positive, but impossible to quantify
 Consumers are dissatisfied with comparability and clarity of billing information
This Annex presents more detailed explanations on the evaluation of existing provisions in
EU law relating to switching and exit fees in energy markets. The evaluation was carried out
to inform the review of the Internal Energy Market Directives, and the follow-up of the “New
Deal for Energy Consumers” Communication adopted by the Commission in July 2015 as
part of the Market Design Initiative.
Switching fees are regulated by provisions in the Electricity and Gas Directives57
. The
legislators' original objectives behind the consumer-related provisions – including those
around switching and exit fees – were in summary:
1. To enable effective consumer choice and boost competition, and more
specifically offer every EU consumer the possibility to choose his/her
electricity and gas supplier freely between any EU company;
2. To ensure competitiveness in retail market pricing;
3. To enable easy price comparison for - inter alia – households
4. To create consumer incentives to save energy.
In terms of effectiveness, the evidence available and considered in this evaluation generally
suggests that the provisions in the Electricity and Gas Directives are likely to have made
positive contributions towards these objectives.
Nevertheless, the legislation may not have been fully implemented in all Member States.
The deadline for transposing the Electricity and Gas Directives was 3 March 2011, giving
Member States ample time for implementation.
It is thus clear that there is still significant room for improvement and that further action
might be required to this end. Two issues in particular should be addressed.
First, further restricting switching-related fees would enable consumers to - inter alia -
better manage their energy costs, avoid lock-in with a particular supplier, and ensure their
rights are guaranteed.
Secondly, the current framework remains both complex and open to interpretation with
regard to the nature and scope of certain key obligations. This could be addressed by
revisiting certain aspects of Annex I of the IEM.
57
Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in electricity and repealing Directive 2003/54/EC, http://eur-lex.europa.eu/legal-
content/EN/ALL/?uri=CELEX:32009L0072
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules
for the internal market in natural gas and repealing Directive 2003/55/EC, http://eur-lex.europa.eu/legal-
content/EN/ALL/?uri=CELEX:32009L0073
39
In terms of efficiency, there is no evidence or any reason to assume that the provisions
considered have not been efficient in terms of the proportionality between impacts and
resources/means deployed.
With regard to relevance, all provisions remain highly relevant.
In terms of coherence, the evaluation has highlighted that the legislation could be clearer in
terms of setting out final customer rights, such as Article 3(7) of the IEM. Annex I of the
IEM should clearly define which switching activity should be cost-free and which switching
activity should incur costs. For example, free-riding customers who switch simply to benefit
from different energy companies’ offers should be discouraged from doing so as this may
cause detriment to final customers as a whole in terms of higher costs. In addition, where the
contract has included the provision of or payment for, say, micro-generation capacity
(photovoltaic panels, etc.), the supplier should be reimbursed appropriately for this
investment.
Finally, as regards the EU added-value of provisions for free switching, the evaluation has
identified no reason to question that. Healthy levels of consumer engagement and retail
competition are key to ensuring the rollout of new products and services that will help the
energy system become more flexible, and build demand for innovative energy products. In
addition, the provisions addressing consumer information in the Electricity and Gas
Directives are essential to ensure that the benefits of the internal energy market are passed on
to all EU consumers.
2.2. Introduction
Purpose of this evaluation
2.2.1.
The purpose of this evaluation is to take stock of the actual performance of existing EU
legal provisions on switching fees in the context of the follow-up on the Communications on
a new energy market design58
and on Delivering A New Deal for Energy Consumers59
(hereinafter referred to jointly as the Market Design - "MDI"), and of the parallel review of
the Electricity and Gas Directives. At the same time, the evaluation presents an opportunity to
look critically at provisions where problems have already been identified in the course of the
ongoing work with transposition and implementation of the Directives.
Summary of EU acquis related to switching fees
2.2.2.
The Electricity and Gas Directives contain the following key provisions:
 Art. 3 Public service obligations and customer protection
o 3(5) Non-discrimination towards customers
o 3(7) Consumer protection and easy switching
 Annex I Consumer protection
o 1(b) Free customer withdrawal from contracts if new conditions are not
accepted
o 1(e) No customer charges for changing supplier
58
COM(2015) 340 final
59
COM(2015) 339 final
40
2.3. Scope of this evaluation
The scope of the evaluation covers the following elements:
Electricity and Gas Directives
 A specific evaluation of the performance/continued relevance of Art 3(5) and 3(7) of
the Electricity Directive with regards to switching-related fees: This covers non-
discrimination towards consumers, consumer protection and easy switching.
 A general evaluation of the performance/continued relevance of Annex I 1(b) and
Annex I 1(e) of the Electricity Directive: These address the applicability of
switching-related fees.
2.4. Background to the initiative
This section seeks to establish the objectives behind the existing provisions on switching fees
in the IEM legislation based on the legislative texts (including their recitals) as well as the
Commission proposals and preparatory documents accompanying the latter (impact
assessments).
Description of the initiative and its objectives
2.4.1.
The Commission's proposal for the Electricity and Gas Directives
The switching fee provisions in the current Electricity and Gas Directives were introduced in
the Second Energy Package in 2003 as an integral part of measures making all consumers free
to choose their supplier and to switch free of charge.
Although the 2007 Commission proposals for the Electricity and Gas Directives did not
include new provisions on switching fees, they reiterated that the existing universal public
service60
requirements in Article 3 of the legislative texts were there "to make sure that all
consumers can benefit from competition." The Commission's Impact Assessment
accompanying the 2007 proposals61
stated that one of the specific objectives of the broader
effort to improve consumer protection was "[e]nabling easier price comparisons".
The Electricity and Gas Directives as finally adopted by the co-legislator
The recitals of the 2003 Electricity and Gas Directives as finally adopted by the co-
legislators following the co-decision process reinforce the objectives identified by the
Commission to a large extent. The co-legislators:
 Inserted a recital stating that the ability of electricity and gas customers to choose their
supplier freely was fundamental to the freedoms which the Treaty guarantees
European citizens (Recital 4) – a point reiterated elsewhere in the recitals.62
60
Sometimes known as 'universal service' - the practice of providing a baseline level of services to every
resident, most commonly through a regulated industry.
61
http://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2007/sec_2007_1179_en.pdf
62
Recitals 20 and 18 of the Electricity and gas Directives respectively.
41
 Reinforced a recital on standards of public service to include the right for household
customers and, where Member States deem it appropriate, small enterprises "to be
supplied with electricity of a specified quality at clearly comparable, transparent and
reasonable prices" (Recital 24)
The provisions and recitals on the freedom to choose suppliers, to change supplier at any time,
and the right to clear, comparable information remained largely unchanged by the co-
legislators in the 2007 Directives.
The European Parliament stated “Member States shall ensure that the eligible customer is in
fact easily able to switch to a new supplier.” in its Resolution of 18/6/08. “Effectively”
replaced easily at some point but “easily” was the final wording.
To summarise, the switching provisions in the electricity and gas markets Directives have
remained largely unchanged since they were first proposed/adopted in 2001/2003. The
wording of Article 3(7) has however been changed with the addition of the word “easily”:
“Member States shall ensure that the eligible customer is in fact easily able to switch to a new
supplier.” Whilst no specific reference to switching-related fees was made, legislative texts
and supporting documents reveal that the broader objectives of the Commission and co-
legislators around the consumer-related provisions were to:
 Enable effective consumer choice and boost competition, and more specifically offer
every EU consumer the possibility to choose his/her electricity and gas supplier freely
between any EU company;
 Ensure competitiveness in retail market pricing;
 Enable easy price comparison for - inter alia - households;
 Create consumer incentives to save energy.
Baseline
2.4.2.
The 2003 and 2007 Electricity and Gas Directives were fundamental to the liberalisation of
the EU's gas and electricity sectors and the completion of the internal market. In their
absence, it is not likely that many Member States would have proceeded with liberalising their
energy markets at the same speed and to the same extent. Therefore, it is likely that
significantly fewer EU energy consumers would have been able to benefit from market
competition in terms of:
 increased efficiency and competitiveness;
 lower energy supply costs.
Figure 1: Intervention Logic Diagram illustrating the subject of this Annex
42
2.5. Evaluation Questions
This evaluation aims, for each of the sub-themes within the scope, to answer the following
questions:
1. What is the current situation?
2. How effective has the EU intervention been?
3. How efficient has the EU intervention been?
4. How relevant is the EU intervention?
5. How coherent is the EU intervention internally and with other (EU) actions?
6. What is the EU added value of the intervention?
2.6. Method
This evaluation has been carried out in-house by the Commission services. The following
activities and processes have provided the key inputs:
Electricity and Gas Directives
 ACER is an agency created by the ACER Regulation. ACER's duties include
monitoring and reporting on the internal electricity and gas markets. By the end of
43
2015, ACER will have published four annual Market Monitoring Reports63
that
provide in-depth coverage of relevant issues such as consumer empowerment and
protection, supplier switching and consumer information.64
 DG JUST (formerly DG SANCO) has commissioned two consecutive studies on the
functioning of retail electricity markets for consumers in the EU (2010, 2015).65
These major studies investigate whether a well-functioning electricity market is in
place for consumers in the EU. They also examine the extent to which consumers are
able to make informed and empowered choices and what motivates behaviour in the
electricity market – evidence pertinent to evaluating the billing and metering measures
put in place by the Electricity Directive.
 In addition, DG JUST's (and formerly DG SANCO's) consumer scoreboards66
are an
important source of information on how the single market is performing for EU
consumers.
 The Council of European Energy Regulators (CEER) is a not-for-profit association
through which Europe's national energy regulators cooperate and exchange best
practice. It has recently produced a position paper on early termination fees,67
presenting recommendations on how to interpret the switching fee provisions in the
Electricity and Gas Directives and how switching-related fees should be regulated at
the EU level.
 The European Consumer Complaints Registration System - ECCRS (DG JUST).
In May 2010 the Commission adopted the "Recommendation on the use of a
harmonised methodology for classifying and reporting consumer complaints and
enquiries". The Recommendation is addressed to any body that is responsible for
collecting consumer complaints, or attempting to resolve complaints, or giving advice,
or providing information to consumers about complaints or enquiries, that is a third
party to a complaint or enquiry by a consumer about a trader68
. Consumer complaints
collected by consumer handling bodies are a key source of information on the
functioning of consumer markets across EU, in particular on problems faced by
consumers. As the data will be directly comparable across the EU, this should allow
for a faster, better targeted, evidence-based policy response at the EU or the national
level to real problems experienced by consumers.
63
http://www.acer.europa.eu/electricity/market 20monitoring/Pages/default.aspx
64
The data used for compiling ACER's annual report is provided by national regulatory authorities for energy
(NRAs), the European Commission and the European Networks of Transmission System Operators (ENTSOs).
The members of the Administrative Board of ACER (Article 12(7) of the ACER Regulation) and ACER's
Director (Article 16(1) of the ACER Regulation) act independently of the Commission and other interests. For
sector-specific consumer issues, ACER also draws on data from the Commission's Consumer Scoreboard.
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/10_edition/index_en.htm
65
http://ec.europa.eu/consumers/consumer_evidence/market_studies/retail_energy/index_en.htm
66
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/index_en.htm
67
http://www.ceer.eu/portal/page/portal/EER_HOME/Whats_new/C16-CEM-90-
06_CEER_early_termination_fees_final_17%20May%202016.pdf
68
http://ec.europa.eu/consumers/consumer_evidence/data_consumer_complaints/docs/consumer-complaint-
recommendation_en.pdf
44
2.7. Implementation state of play (Results)
State of play as regards implementation
2.7.1.
Electricity and Gas Directives
Enforcement action undertaken by the Commission in relation to the Third Energy Package is
ongoing. Procedures are set out in detail in "Enforcement of the Third Internal Energy Market
Package (SWD(2014) 315 final)".69
As of 30 September 2015, all of the infringement
proceedings for partial transposition of the Electricity Directive have been closed. The focus
is now on addressing the incorrect transposition or bad application of the Third Energy
Package, with priority being given to violations which have the highest impact on the
functioning of the internal market, including unbundling, independence, powers and duties of
the national regulatory authorities and consumer protection. On this basis, the Commission
has opened EU Pilot cases against a number of Member States (see further details below).
Problems and issues identified
2.7.2.
In September 2011 the Commission opened 38 infringement proceedings against 19 Member
States to ensure full transposition of the Electricity and Gas Directives. Non-resolved cases
were followed up in 2012 by sending reasoned opinions and referrals to Court. The two
Directives have been now transposed by all Member States. The Commission closed all the
non-communication cases.
EU Pilots and infringements on incorrect transposition or bad application are currently
ongoing. As of 1 December 2015, eight of these EU Pilot cases have resulted in infringement
procedures where, inter alia, violation of the EU electricity and gas consumer provisions is at
stake. However, they do not specifically address the issue of switching (exit) fees.
Annex I(1)(a) 5th indent of Directives 2009/72/EC 2009/73/EC on whether withdrawal
from the contract without charge is permitted has been raised in an EU Pilot with three
Member States. Annex I(1)(e) on not being charged for changing supplier has been raised
in an EU Pilot with one Member State. Annex I(1) has been raised in its entirety in several
EU Pilots.
The findings of a mystery shopping exercise70
carried out between 11 December 2014 and 18
March 2015 also suggest that the implementation and/or enforcement of some measures
addressed in this evaluation may be an issue in certain Member States. 4% of mystery
shoppers were told they may be charged fees related to switching other than exit fees, which
are contrary to the provisions in the Electricity and Gas Directives. Such fees may include
administrative costs, start-up costs for a new or short-term service, or security deposits (Text
Box 1 below). This finding is notable because EU legislation ensures that consumers "are not
69
https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex6_0.pdf. Figures
presented here are updated, to the extent necessary.
70
Mystery shopping or a mystery consumer or secret shopper, is a tool used externally by market research
companies, watchdog organizations, or internally by companies themselves to measure quality of service, or
compliance with regulation, or to gather specific information about products and services. Mystery shoppers
were instructed to analyse one of their own monthly, bi-monthly or quarterly electricity bills.
45
charged for changing supplier".71
As checks by the Commission indicate that this legislation
has been correctly transposed into Member State law, the finding suggests either legal failures
in the EU legislative text that prevent it from fulfilling its intention and/or non-enforcement
by national authorities.
Text Box 1: Examples of “extra charges” when switching mentioned by electricity providers (when being contacted by
phone)72
The responses to the Commission's Consultation on the retail energy market73
conducted in
spring 2014 generally confirm the impression that there's much room for improvement in the
retail market, including when it comes to switching fees. Of a total of 237 responses, 222
responded that transparent contracts and bills were important or very important, 89 indicated
that consumers were not aware of their switching rights, and 180 thought awareness of
consumer rights should be improved. 110 thought that tariffs were too difficult to compare
due in part to contractual conditions, and 128 though that switching offered insufficient
benefits. Just 32 out of 237 respondents agreed with the statement: "There is no need to
encourage switching."
2.8. Answers to the evaluation questions
Below the evaluation questions are addressed for each of the key provisions within the scope
of the evaluation.
Electricity and Gas Directives
2.8.1.
What is the current situation?
71
This reading was recently supported by the body representing the EU's national regulatory authorities – the
Council of European Energy Regulators – who write: "The 3rd
Energy Package Directives clearly state that
switching should be completely free for the customer."CEER (2016), 'Position on early termination fees', Ref:
C16-CEM-90-06, 13 May 2016.
72
European Commission ([ongoing]), 'Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU ', [link].
73
https://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market
• Administration cost (€35) – France
• A service fee (€27.90) – France
• A fee for starting up the service (€27.16) – France
• An administration cost added on the first electricity bill (€27.59) – Italy
• An activation fee – Italy, Poland
• An extra charge of €20.54 on the first bill; no explanation was provided for this
charge – Italy
• A security deposit (€70) – Italy
• A deposit (€77) – Italy
• A fee for contracts of less than one year – Spain
• A yearly charge of 300 SEK/year (or 25 SEK/month) for each new contract –
Sweden
46
Article 3 and Annex I of the Electricity and Gas Directives put forward general switching
requirements. The information below is taken from the ACER 2015 Market Monitoring
Report74
and summarises the current situation for household customers.
“Among the potential barriers to switching, this Report has also identified exit fees, since they
tend to increase the threshold for consumers to switch due to the perceived diminished
potential savings available. However, exit fees in fully competitive retail markets are applied
to cover the costs incurred by suppliers due to early contract termination. Offers which
include exit fees should be made fully transparent on price comparison tools and, for instance,
filterable from other offers by consumers in search of a different deal.” Exit fees tend to be
linked to fixed-price and fixed-term contracts i.e. they represent an early termination fee.
Exit fees in France, Belgium and Italy have been eliminated. In Belgium, this is perceived to
have increased consumer trust in energy markets. In GB, AT, and DE, termination fees cannot
be charged if there is a contract price change. Of 13 capital cities assessed, consumers in
Amsterdam were the most affected by electricity and gas exit fees, LB: presumably because
NL is renowned for its well-functioning switching market, which does not encourage
customer loyalty.
Exit fees may not correspond to the actual cost incurred by the supplier of losing the
customer; LB/GK: they should thus be proportionate.
Interestingly, gas offers tend to specify a contractual period more often than electricity offers.
LB: If the contractual period is not defined then an exit fee (as this should be linked to, for
example, premature cancellation) should not be required. Exit fees are more likely to be
linked to electricity than to gas contracts; this is assumed to be because there is a higher
number of suppliers and of offers in electricity markets.
According to consumer associations and NRAs, factors that prevent electricity and gas
consumers from switching include insufficient monetary gain (see Figure 46 below), which
takes exit fees into account.
74
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_
Report_2015.pdf
47
Figure 47 seems to indicate that there is a strong status quo/loss aversion bias in terms of
switching that could be linked to the exit fee. The net savings represent the savings customers
can make after the deduction of the exit fee. The exit fee charged in NL, IE, and SI appears to
represent a significant barrier to switching.
Finally, one ACER recommendation is that price comparison tools should include mention of
the exit fee, enabling consumers to perform improved searches.
48
The following findings are taken from the 2nd
consumer market study on the functioning of
retail electricity markets for consumers in the EU.
In addition to the exit fees mentioned above, mystery shoppers were advised of a range of
different fees linked to switching, such as an administration cost of €35 and a security deposit
of €70.
49
There is a large disparity in the information provided: mystery shoppers were far more likely
to receive the correct information on exit fees if they called the provider rather than taking the
information from the provider’s website, with the exception of SI. Suppliers thus seem to be
using incorrectly published information as a barrier to switching. In answer to the statement
“you will not be charged for the change” the ratio is 77:42 (calling : website); for the
statement “ a fee for cancelling your current energy deal”, the ratio was the inverse, 7:17. The
proviso is of course the fact that consumers may have signed a contract which mentions that
an exit fee will be charged.
When survey respondents were asked whether they could be charged for the change when
switching electricity company, 45% of respondents answered that no such charges were
allowed, while 17% stated the opposite, and 39% selected the “don’t know” response. Across
the EU28, 3% of respondents stated that one of the main reasons they had not tried to switch
was that they would incur an exit fee from their electricity company. This percentage rose to
7% in IT and GB, and 6% in HR.
In five Member States - Finland (51%), Portugal (52%), Austria (53%), Belgium (59%) and
Germany (67%) - more than half of respondents answered that a consumer should not be
charged when changing electricity company. In eight countries – Hungary (51%), Denmark
(58%), France (60%), Bulgaria (62%), Lithuania (62%), Greece (65%), Luxembourg (70%)
and Iceland (79%), more than half of respondents thought this statement was false.
50
Figure 2: Knowledge of switching rules – no charge when changing electricity company, by country
Q26_2 The following are statements regarding consumer rights in the energy sector. Please indicate whether each statement is true or
false: "If you decide to change your electricity company, you will not be charged for the change“
%, by country, Base: all respondents; Question not asked in Cyprus, Latvia and Malta
Source: Consumer survey
Whereas customers in the majority of MS are currently provided with information on the
consumption period, actual and/or estimated consumption, and a breakdown of the price, there
is a greater diversity of national practices with regards to other potentially beneficial
information, such as switching information, information about price comparison tools, and the
duration of the contract. As outlined above, the duration of the contract is essential when it
comes to charging exit fees.
However, the inquiries/complaints data collected through the European Consumer Complaints
Registration System show an increasing trend over the last years of consumers complaints
related to unclear invoice/bill for electricity or gas.
To summarise, there is currently a high level of divergence in Member States with regard to
policy measures concerning exit fees, and the level of those fees. This would appear to
indicate a lack of implementation of certain requirements of the Electricity and Gas
Directives.
How effective has the EU intervention been?
To recap, the major objectives of the Articles in the Electricity and Gas Directives relevant to
switching fees were:
 To enable effective consumer choice and boost competition, and more specifically
offer every EU consumer the possibility to choose his/her electricity and gas supplier
freely between any EU company
 To ensure competitiveness in retail market pricing
 To enable easy price comparison for - inter alia - households
 To create consumer incentives to save energy
In terms of consumer choice, consumer organisations responding to the latest ACER Market
Monitoring Report stated that the average electricity and gas consumer in their countries is
only able to compare prices to a limited extent. The average score was 4.8 and 5.0 on a scale
51
from 1 to 10 for electricity and gas respectively.75
These poor figures are backed by a recent
Commission survey that found that just 40% of EU respondents strongly agreed that the
electricity bills of their electricity company were easy and clear to understand.76
Correspondingly, the largest share of consumer complaints reported to the Commission
between 2011 and 2014 were related to billing (30%)77
.
Figure 3: Reasons for electricity and gas consumer complaints 2011 - 2015 (in % in a
database with 28.490 cases)78
Information on energy sources appears to be one specific area of concern. Article 3(9) of the
Electricity Directive requires suppliers specify the contribution of each energy source to the
overall fuel mix of the supplier over the preceding year in or with consumer bills.
The consumer switching rate is perhaps the most direct indicator of consumer engagement
with the market and of the available choice. Although switching is affected by a range of
other factors (regulated prices, the difference in price between offers on the market and trust
in new suppliers, for example), it offers an important quantitative measure of the effectiveness
of the Articles in the Electricity and Gas Directives – albeit an indirect one. At the same time,
other factors that may influence the switching rate besides that status quo bias/inertia are,
according to consumers surveyed, linked to the difficulty of finding out what the right tariff
would be for them (21%) or the fact that they will have to manage their account online (3%)
in order to get cheaper tariffs. Thus, removing certain market barriers could lead to more
75
ACER (2015) Market Monitoring report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_R
eport_2015.
76
European Commission, ' Second Consumer Market Study on the functioning of retail electricity markets for
consumers in the EU '.
77
Recommendation 2010/304/EU is addressed to all third-party complaint bodies (national authorities, consumer
organisations, etc.) and calls on them to classify complaints according to a common taxonomy and to report the
data to the Commission.
78
Source: DG JUST.
30
16
10 9
7
5
2 1 1 0 0
20
0
5
10
15
20
25
30
35
52
effective consumer choice. The figure 7 shows that while switching rates have generally
increased since 2008, they remain relatively low in the EU-28 at around 6%.
Figure 4: Switching rates for electricity and gas household consumers in 2014, annual
average 2008–201379
At a broader level of analysis, enabling consumer choice can be seen as means of improving
consumer satisfaction. Here, the data indicate that there is clearly scope for improvement.
According to the 10th
edition of Consumer Scoreboard,80
which is based on consumer survey81
and expressed in a composite Market Performance Index (MPI),82
electricity services rank
79
Source: CEER National Indicators database
80
DG Justice and Consumers' ‘Consumer Markets Scoreboard’ provides at the EU-wide level a quantitative
assessment of how different markets worked for consumers The 10th edition of Consumer Market Scoreboard
published is available at:
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/10_edition/index_en.htm.
81
The 2013 edition of the Market Monitoring Survey is available at:
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/market_monitoring/index_en.htm.
The ‘Market Monitoring Survey’ which has been used as the main statistical source for the Scoreboard has been
produced annually from 2010 to 2013. However, from 2013, it will be available only every other year and
therefore as data for 2014 are lacking and data for 2013 are used instead.
82
The MPI is a composite index based on the results of survey questions on four key aspects/components of
consumer experience: (1) expectations (i.e. the extent to which the market lives up to what consumers expect);
53
28th
and gas services 22nd
among the 31 markets for services across the EU. Therefore, both
markets can still be considered low performing frmo the consumer standpoint.
Figure 5: Overall performance of markets for electricity and gas services by country – 2013
and change on 2012 (index)83
The figure above shows large differences between the top-ranking and bottom-ranking
countries in the markets for electricity and gas services, measured by composite indices MPI
and MPIsc.84
This is particularly true for the electricity markets.
With regard to the second of the three objectives – boosting competition in retail markets –
evidence clearly indicates that retail market competition has increased in the EU since the
articles relevant to billing and metering were introduced in the Second Energy Package.
However, there have also been a great number of other relevant measures put in place at the
same time as part of the broader effort to liberalise EU energy markets. These include
(2) the ease of comparing goods or services; (3) consumers’ trust in suppliers to comply with consumer
protection rules; and (4) the experience of problems and the degree to which they have led to complaints. These
four aspects of consumer experience are equally weighted when creating the overall score.
83
Source: DG Justice and Consumers (2014).
84
MPIsc is the MPI supplemented with ‘choice’ and ‘switching’ components and is used only in markets where
it is possible to switch services and providers.
54
unbundling rules and limits on price regulation. This makes it impossible to quantitatively
gauge the competition gains brought about by the articles on billing and metering.
There is a similar situation for the last of the three objectives – creating consumer incentives
to save energy. There is evidence to show that there has been progress in recent years.85
However, as numerous EU energy efficiency policy measures have been put in place in
parallel during the period in question, it is again impossible to quantitatively disambiguate the
individual contribution to these gains by the measures introduced in the Second Energy
Package. Qualitatively, however, we can estimate these gains to be relatively minor as also
acknowledged in the Energy Efficiency Directive, where Recital 32 expressly states that the "
impact of the provisions on metering and billing in Directives 2006/32/EC, 2009/72/EC and
2009/73/EC on energy saving has been limited. In many parts of the Union, these provisions
have not led to customers receiving up-to-date information about their energy consumption,
or billing based on actual consumption at a frequency which studies show is needed to enable
customers to regulate their energy use..".
To summarise it is difficult to say how much the billing articles in the Electricity and Gas
Directives have contributed to their stated objectives, inter alia because these objectives were
not accompanied by indicators and it is hence difficult to judge upon achievement. However,
their impact on energy savings have most certainly been quite limited, whereas their impact
on enabling easier and more effective consumer choice can be judged at least a partial
success. Areas for potential further improvement in this sphere may include ensuring the
provision of key information elements to further improve clarity and comparability, reducing
the volume of information presented in bills, as well as improving the provision and quality of
information on energy sources.
How efficient has the EU intervention been?
There is no data available to assess this question quantitatively, but given that the overall
impact may have been rather limited, both the effects and the costs likely have been so too.
Consumer bills are currently heavily regulated beyond the requirements imposed by the
Electricity and Gas Directives in most Member States.86
How relevant is the EU intervention?
At the time of drafting both the Second and Third energy packages, consumer bills and pre-
contractual information formed the basis of consumer comparability, as consumers would be
given the possibility to measure up individual offers against their current supply contract.
Since then, the use of online price comparison tools has risen significantly across the EU.
Over time the continuation of this trend might challenge the relevance of the EU intervention
if it is not adapted to also reflect new ways of consumer-market interaction. Well-designed,
reliable and transparent price comparison tools do the number-crunching necessary to
accurately compare the costs of each offer for individual consumers. In the future it will be
85
See f.ex. COM(2015) 574 final " Assessment of the progress made by Member States towards the national
energy efficiency targets for 2020 and towards the implementation of the Energy Efficiency Directive
2012/27/EU as required by Article 24 (3) of Energy Efficiency Directive 2012/27/EU"
86
European Commission' Second Consumer Market Study on the functioning of retail electricity markets for
consumers in the EU '.
55
increasingly important to ensure that bills provide all the key inputs that consumers need to be
able to use comparison tools.
A recent study found that 64% of EU consumers who had compared tariffs of different
electricity companies said they had used comparison tools to do so. It also showed that
comparison tools – which grants access to the offers of a larger number of providers-
significantly increased the number of cheaper offers consumers were able to identify
compared with contacting individual providers directly.87
Comparison tools are likely to become even more important as the retail market for energy
matures. Between 2012 and 2014, ‘choice’ for consumers in European capitals widened, with
a greater variety of offers being available. However, the ability of consumers to compare
prices can be hampered by the complexity of pricing and the range of energy products, as well
as by an increasing number of offers and their bundling with additional free or payable
services.88
ACER has therefore recommended that: "To improve consumer switching behaviour and
awareness further, National Regulatory Authorities (NRAs) could become more actively
involved in ensuring that the prerequisites for switching, such as transparent and reliable
online price comparison tools and transparent energy invoices, are properly implemented."89
It is important to emphasise that in the context of the general efforts to move energy markets
from simple commodity markets (for kWhs) towards energy an services market, "transparent
and reliable price comparison tools" need to be able to assess contracts from a holistic
perspective that integrates broader aspects including energy efficiency improvement actions
or services, differences in energy sourcing qualities (greenness) etc.
How coherent is the EU intervention internally and with other (EU) actions?
The provisions on switching in the Electricity and Gas Directives are not contradicted
elsewhere in the EU acquis. However, the current framework remains both complex and open
to interpretation with regard to the nature and scope of certain key obligations.
The consumer protection provisions in the Electricity and Gas Directives regulate switching
fees. Largely unchanged since their 2001/2003 introduction, these provisions state that
“customers are not to be charged for changing supplier”.
However, the following text regarding contract exit fees was added in 2007: contracts must
specify “whether withdrawal from the contract without charge is permitted”. It weakened the
initial provision by affirming the permissibility of certain switching-related charges without
87
From twice to twenty times, depending on the Member State. European Commission , ' Second Consumer
Market Study on the functioning of retail electricity markets for consumers in the EU '.
88
ACER (2015) Market Monitoring report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_R
eport_2015 p.40, 100.
89
ACER (2015) Market Monitoring report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_R
eport_2015 p.10.
56
explicitly addressing whether the legislation addressed all switching-related charges in
categorically exhaustive manner.
What is the EU added value of the intervention?
The provisions addressing consumer information in the Electricity and Gas Directives are
essential for protecting consumers in the internal energy market at the retail level.They play
an important role in ensuring the benefits of the internal market in energy can be enjoyed by
all consumers, and help to create a level-playing field for suppliers and other retail market
actors across the EU. Whereas there is currently still very limited if any examples of cross-
border supply in the retail market, a common base of energy consumer rights is a precondition
for that to develop over time.
2.9. Conclusions
The legislators' original objectives behind the provisions can be summarised as follows:
 To enable effective consumer choice and boost competition through the availability
of transparent, comparable and reliable information on prices, costs, energy
consumption, fuel mix and environmental impact of electricity supplies
 To enable/incentivize energy savings through sufficiently frequent feedback about
(the cost of) their energy consumption
Effectiveness
The evidence available and considered in this evaluation suggests that the provisions in the
IEM and EED together are likely to have made positive contributions towards the
achievement of both of these objectives, although it is impossible to quantify this.
With regard to comparability and clarity of billing information, the relatively low degree
of satisfaction of electricity and gas customers and the high number of complaints related to
billing suggests that there is still significant room for improvement and that further action
might be required to this end.
This said, the EED generally contains the most specific and detailed provisions in the area of
metering and billing, and not just as regards energy savings but also as regards comparability.
As the deadline for its transposition is also relatively recent (mid 2014) and since some of the
key obligations therein have later deadlines for actual application, it is generally speaking
too early to draw too many conclusions as regards the effectiveness of the current
legislative framework. In particular, the requirement for heat meters or heat cost allocators in
multi-flat/purpose buildings is not mandatory before the end of 2016, and the minimum
frequencies on billing were only mandatory as of 1/1-2014.
It is nevertheless already now possible to identify certain areas of potential improvements.
With respect to the EED there was clearly stated intention to clarify the pre-existing
requirements contained in the IEM and in the 2006 Energy Services Directive (ESD) as their
effect on the second objective was considered to have been too limited. This intention has
only partially been met given that the current framework remains both complex and open
to interpretation with regard to the nature and scope of certain key obligations. From this
57
perspective, there might be a case already now for revisiting certain aspects of EED Art. 9(1),
Art.9(3), Art. 10(1) and of Annex VII.
With regard to disclosure of energy sources, the evidence available suggests that the way the
current requirements are implemented is not sufficient to match the intentions: a rather high
share of citizens seem to either not find or notice disclosure information with their
billing information. While this in some instance may be due to bad application/non-
enforcement, it also points to a potential for making such information more accessible and
visible. The fact that a high share of gas offers carry "green" labels or claims despite biogas
injection still being very limited further puts a question mark over the effectiveness of what is
in fact amounts to a voluntary/unregulated regime, given there currently is no disclosure
obligation for gas as there is for electricity.
Efficiency
There is neither any evidence, not any reason to assume that the intervention hasn't been
efficient in terms of the proportionality between impacts and resources/means deployed. The
major reason for thist is that the obligations are modest in ambition.
Relevance
Overall the key provisions remain highly relevant. Switching-related fees continue to be
faced by around 20% of EU electricity consumers, and a lesser, although still significant
number of gas consumers. There is still a need to regulate their application.
Coherence
The evaluation has highlighted that the legislation could be clearer in terms of setting out final
customer rights, such as Article 3(7) of the IEM. Annex I of the IEM should clearly define
which switching activity should be cost-free and which switching activity should incur costs.
For example, free-riding customers who switch simply to benefit from different energy
companies’ offers should be discouraged from doing so as this may cause detriment to final
customers as a whole in terms of higher costs. In addition, where the contract has included
the provision of or payment for, say, micro-generation capacity (photovoltaic panels, etc.), the
supplier should be reimbursed appropriately for this investment.
EU added-value
Delivering a New Deal for energy consumers as part of an Energy Union with consumers at
its heart means, inter alia, removing barriers to consumer engagement with the market and
driving competition between energy supplier and service providers. Healthy levels of
consumer engagement and retail competition are key to ensuring the rollout of new
products and services that will help the energy system become more flexible, and build
demand for innovative energy products. Reducing financial barriers to switching to the
minimum amount practicable therefore contributes to realising the Energy Union and meeting
EU goals on energy efficiency and greenhouse gas reductions.
In addition, the provisions addressing consumer information in the Electricity and Gas
Directives are essential for protecting consumers in the internal energy market at the retail
level. They play an important role in ensuring the benefits of the internal market in energy can
be enjoyed by all consumers, and help to create a level-playing field for suppliers and other
retail market actors across the EU. Whereas there are currently very few, if any, examples
58
of cross-border supply in the retail market, a common base of energy consumer rights
that helps national rules converge over time is a precondition for that to develop. With
the perspective of developing an internal retail market where customers one day might even
shop cross-border, the common definition of minimum requirements for information on
consumers creates an added value. But even in absence of cross-border supplies at retail level,
common minimum requirements allow service providers to develop standard solutions
and create economies of scale, leveraging the internal market of 500 mio consumers.
2.10. Stakeholder consultation
Below are summarised in graphic form a quantitative summary of the relevant feedback from
the consultation on the retail energy market90
.
Retail market public consultation - results
Please give your opinion on the relative importance of the following factors in helping
residential consumers and SMEs better control their energy consumption and costs.
ACER/CEER Annual Report concludes that consumers are dissatisfied with the information
they receive in their contract and in their billing information. The report also shows the
frequency with which consumers switch from one energy supplier to another. This varies
between 0% to 14,8% in the EU Member States.
In your opinion, what are the key factors that influence switching rates?
90
http://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market
59
Please indicate if you agree or disagree with the following statements concerning ways to
increase consumers' interest in comparing offers and switching to a different energy supplier.
60
3. ANNEX 5: DETAILS ON THE EU FRAMEWORK FOR METERING AND BILLING OF
ENERGY CONSUMPTION
3.1. Executive Summary
This Annex presents more detailed information on provisions in EU law relating to the
specific theme of metering and billing of energy consumption. The evaluation is one of a
series of such evaluations looking holistically at certain themes that have been carried out to
inform the review of the Energy Efficiency Directive and the follow-up of the “New Deal for
Energy Consumers” Communication adopted by the Commission in July 2015 as part of the
Market Design Initiative.
Metering and billing of energy consumption is regulated by provisions in the Internal
Energy Market Directives ("IEM") for electricity and gas and in the Energy Efficiency
Directives (EED). In addition, provisions on guarantees of origins of electricity produced
from cogeneration and renewables included in the latter and in the Renewable Energy
Directive (RED), respectively, are of relevance for the obligation (in the Electricity
Directive) to disclose the energy sources of electricity supplies to customers.
The legislators' original objectives of these provisions were in summary:
3. To enable effective consumer choice and boost competition through the
availability of transparent, comparable and reliable information on prices,
costs, energy consumption, fuel mix and environmental impact of electricity
suppliers
4. To enable/incentivize energy savings through sufficiently frequent feedback
to consumers about (the cost of) their energy consumption
It is important to stress, however, that this evaluation does not purport to be an evaluation
of all aspects of the policies of relevance to the objectives. It is "part of a bigger puzzle",
and further evaluation work, including on smart metering for electricity and gas, will be
reported separately as part of the Market Design Initiative.
In terms of effectiveness, the evidence available and considered in this evaluation generally
suggests that the provisions in the IEM and EED together are likely to have made some
contributions towards both of these objectives, although it is impossible to quantify this
given the multiple and complex other factors that also affect these objectives' achievement,
the absence of precise indicators and the scarcity of data.
The deadline for the EED transposition is relatively recent (mid 2014) and some of the key
obligations therein have later deadlines for actual application. Until the national transposition
measures are in place, have been verified to be in conformity with the requirements of the
Directive and have been applied by market players on the ground, it is generally speaking
too early to draw many firm conclusions as regards the effectiveness of the current
legislative framework.
It is nevertheless already now possible to identify certain gaps, problems and potential
improvements.
With regard to comparability and clarity of billing information, the relatively low degree
of satisfaction of electricity and gas customers compared to other services markets and the
61
high share of complaints related to billing suggests that there is still room for improvement
and that further action might be required to this end either at national or EU level.
Specifically with respect to energy savings there was clear intention at the time of the EED
proposal to clarify the pre-existing requirements on metering and billing that were then
contained in the Energy Services Directive ("ESD"), and in the IEM legislation. This intention
has only partially been met given that the current framework remains complex and open to
interpretation with regard to the nature and scope of certain key obligations. This could
be addressed by revisiting certain aspects of EED Articles 9-11 and of Annex VII.
With regard to disclosure of energy sources, the evidence available suggests that the way the
current requirements are implemented is not sufficient to match the intentions: a rather high
share of citizens seem to either not find or not notice disclosure information with their
billing information. Others have doubts about the credibility or added-value of green claims
made. While these problems in some instances may be due to bad application/non-
enforcement, it also points to a potential for making such information more trustworthy,
accessible, visible and easy to understand and compare.
In terms of efficiency, there is little evidence but good reason to assume that the
provisions considered have generally been efficient in terms of the proportionality between
impacts and resources/means deployed, notably due to the built-in cost-effectiveness
conditions in key provisions. In certain cases, these could however be substituted with simpler
and more relevant terms reflecting recent technological and market developments as regards
the availability of remotely readable equipment.
With regard to relevance, most provisions remain highly relevant, although parts of both
the IEM and the EED to some extent have been surpassed by developments and could benefit
from being revisited / updated, as part of the EED review as well as the Market Design
Initiative.
In terms of coherence, the evaluation has pointed to a number of issues where
improvements would seem possible.
One case is the minimum frequency of billing which is regulated by the IEM Directives in a
qualitative way (not making references to quantified frequencies), and by a more specific
quantified provision in the EED but only in so far as non-smart meters are concerned. This
results in what appears to be an unjustified difference in the guaranteed minimum frequency
of provision of information between those customers of respectively electricity/gas and heat
whose consumption is measured with smart/remotely read equipment.
In so far as billing and billing information is concerned, the way Annex VII of the EED is
drafted and referenced could be improved to address certain internal overlaps or
ambiguities as regards the nature and scope of its applicability.
Further coherence questions can be raised as regards disclosure of energy sources:
Firstly, the current disclosure regime is not technology-neutral. Secondly, whereas EU
legislation establishes tools to facilitate electricity-related disclosure for both renewables
and high-efficiency cogeneration, it only stimulates a demand for the former. The
obligation to disclose the fuel mix, enshrined in the Electricity Directive, does not require or
stimulate disclosure of the share of cogeneration. Moreover, even for renewables, the
62
disclosure obligation is not systematically/exclusively met using guarantees of origin,
despite their being available for that purpose, as their use is not mandatory.
Finally, as regards the EU added-value of provisions on metering and billing, the evaluation
has identified no reason to question that. Indeed, in a single market for energy there is a strong
case for suppliers being subject to similar if not identical obligations and rules, and for
consumers to enjoy the same basic rights and be provided with comparable and recognisable
information wherever they live and wherever they purchase their energy from. More
generally, the delivery of a New Deal for energy consumers as part of the Energy Union
includes providing consumers with frequent access to partially standardised, meaningful,
accurate and understandable information on consumption and related costs. Guaranteeing
certain minimum standards in terms of the frequency and content of billing and billing
information therefore contributes to realising the Energy Union and meeting EU goals on
energy efficiency and greenhouse gas reductions.
3.2. Introduction
Purpose of this evaluation
3.2.1.
The purpose of this evaluation is to take stock of the current performance and continued
relevance of existing EU legal provisions on metering and billing so as to evaluate what is
working, what is not, and why. This is done in the context of the follow-up on the
communications on a new energy market design91
and on Delivering A New Deal for Energy
Consumers92
(hereinafter referred to jointly as the Market Design Initiative - "MDI") and as
part of the parallel review of the Energy Efficiency Directive (EED). At the same time the
evaluation presents an opportunity to look critically at provisions where problems have
already been identified in the course of the ongoing work with transposition and
implementation of the EED.
Overview of EU acquis related to metering and billing
3.2.2.
The Electricity and Gas Directives93
contains the following key provisions related to
metering and billing:
 Article 3 Billing and promotional material
o 3(3) Access to comparable and transparent supply options (Electricity only!)
o 3(5)/3(6) Access to consumption data
o 3(9) Disclosure of the overall fuel mix and environmental impact of the
supplier (Electricity only!)
 Annex I Consumer protection
o 1.c) The transparency of applicable prices and tariffs
91
COM(2015) 340 final
92
COM(2015) 339 final
93
Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in electricity and repealing Directive 2003/54/EC, http://eur-lex.europa.eu/legal-
content/EN/ALL/?uri=CELEX:32009L0072
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules
for the internal market in natural gas and repealing Directive 2003/55/EC, http://eur-lex.europa.eu/legal-
content/EN/ALL/?uri=CELEX:32009L0073
63
o 1.d) Consumer payment methods
o 1.i) Frequency of information on consumption and costs
o 2. Intelligent metering systems (smart meter roll-out)
The Energy Efficiency Directive (EED)94
contains the following key provisions:
 Article 9 Metering
o 9(1) Individual metering generally
o 9(2) Requirements related to smart metering
o 9(3) Metering of thermal energy in multi-apartment/purpose buildings
 Article10 Billing information (in conjunction with Annex VII)
o 10(1) Consumption based billing (information) requirement in general (incl. as
regards minimum frequency)
o 10(2) Requirements on consumption information from smart meters
o 10(3) General information and billing requirements pertinent to costs,
consumption and payment
 Article 11 Cost of metering and billing information
o 11(1) Metering and billing generally free of charges
o 11(2) Conditions for pass-through of cost of sub-metering/-billing
In addition the following provisions are of relevance when considering disclosure of energy
sources in bills:
The Renewable Energy Directive (RED)95
contains the following key provision:
 Article 15 Guarantees of Origin (GO)
o 15(1-12) A comprehensive framework for the issuance, transfer, and
cancellation of guarantees of origin for electricity produced from renewable
electricity sources for the sole purpose of disclosure.
The EED contains similar provisions for guaranteeing the origin of electricity produced from
a high-efficiency cogeneration process:
 Article14(10)
Scope of this evaluation
3.2.3.
This evaluation is based on the five Better Regulation criteria (relevance, effectiveness,
efficiency, coherence and EU-added value) in a proportionate way and considers
simplification, burden reduction potential, SMEs and quantification of costs and cost benefit
only implicitly or to a limited extent, given its partial scope, the multiple and complex other
factors affecting the objectives studied and the limited data available.
94
Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy
efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and
2006/32/EC, http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32012L0027
95
Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the
use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC,
http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32009L0028
64
The scope of the evaluation covers the following elements:
Electricity and Gas Directives
 General evaluation of the performance/continued relevance of Article 3(3) of the
Electricity Directive: This covers access to comparable and transparent supply
options, implicitly addressing the information presented in bills, comparison tools,
metering information and pre-contractual information.
 General evaluation of the performance/continued relevance of Article 3(9) of the
Electricity Directive: This addresses the disclosure of the overall fuel mix and
environmental impact of the supplier. The evaluation of the legal text will therefore be
performed together with Article 15 of the RED, which cross references it (see below).
 General evaluation of the performance/continued relevance of Articles 1.c) and 1.i)
of Annex 1 of the Electricity and Gas Directives: These cover key information
presented in consumer bills.
Energy Efficiency Directive
 General evaluation of the performance/continued relevance of Article 9(1):
Substantial experience with implementing this article already exists since it has been
in force longer than the remaining provisions (it was transferred virtually unchanged
into the EED from the 2006 Energy Services Directive).
 EED Article 10(1) and the related annex VII in particular in so far is concerned
minimum billing frequency (identified as possible area for development in MDI) and
comparability of information
EED Articles 9(2) and 10(2) and Annex I point 2 of both the Electricity and Gas Directives
concern requirements specifically for smart electricity and gas meters and will be considered
as part of a separate thematic evaluation on smart meters.
Remaining provisions in Articles 9-11 are not within the scope of the evaluation, except to
the extent justified by:
 Early indications of a need for technical clarifications already emerging from the
ongoing implementation work;
 The need to address overlap/coherence with MDI actions on consumer
empowerment/information/transparency,
The RED has already been subject to a REFIT review, so this evaluation contains the
conclusions from that report for issues related to the GO system. The relevant parts of the
REFIT review are in Annex 3. The REFIT evaluation of the legal text will therefore be
considered together with the evaluation of Article 3(3) of the Electricity Directive, which it
cross references (see above), as will the EED provisions on GOs for high-efficiency
cogeneration.
3.3. Background to the initiative
This section identifies the objectives behind the existing provisions on metering and billing in
the IEM legislation and in the EED based on the legislative texts (including their recitals) and
65
on the related Commission proposals and preparatory documents accompanying the latter
(impact assessments). At the end of the section the intervention logic behind the legislative
provisions on metering and billing is depicted.
Description of the initiative and its objectives
3.3.1.
The Electricity and Gas Directives as adopted by the co-legislator
The recitals of the 2003 Electricity96
and Gas Directives97
as adopted by the co-legislators
following the co-decision process reinforce the objectives identified by the Commission98
to a
large extent. The co-legislators
 Inserted a recital stating that the ability of electricity and gas customers to choose their
supplier freely was fundamental to the freedoms which the Treaty guarantees
European citizens (Recital 4) – a point reiterated elsewhere in the recitals.99
 Reinforced a recital on standards of public service to include the right for household
customers and, where Member States deem it appropriate, small enterprises "to be
supplied with electricity of a specified quality at clearly comparable, transparent and
reasonable prices" (Recital 24).
 Added to the Electricity Directive a recital acknowledging the Commission's intention
to ensure that reliable information on the environmental impact of electricity from
different sources could be made available in a transparent, easily accessible and
comparable manner (Recital 25).
The provisions and recitals on the freedom to choose suppliers and the right to clear,
comparable information remained largely unchanged by the co-legislators in the 2007
Directives. Although the original recital on disclosure was removed in the 2007 Electricity
Directive, the co-legislators reinforced the provisions in the Directive to specify that
information on fuel sources should be clear and, at the national level, comparable.
To summarize, the metering and billing provisions in the electricity and gas markets
Directives have remained largely unchanged since they were first proposed/adopted in
2001/2003. Legislative texts and supporting documents reveal that the major objectives of the
Commission and co-legislators were to:
 Enable easier and more effective consumer choice;
 Boost competition in retail markets;
 Create consumer incentives to save energy.
The Commission's proposal for the EED
The 2011 Commission proposal for an Energy Efficiency Directive100
included a
comprehensive and ambitious set of provisions on metering and billing representing very
96
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32003L0054
97
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32003L0055
98
For details on the Commission proposals see Annex 5.
99
Recitals 20 and 18 of the Electricity and gas Directives respectively.
100
http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52011PC0370
66
significant changes compared to the already existing provisions in the field, namely Article 13
of the Energy Services Directive101
(ESD).
The Commission's proposal was accompanied by detailed analysis of options on metering &
billing102
. The stated specific objective of the proposal as regards the metering and billing
provisions was to "[e]nsure that consumers are empowered with correct, understandable and
regular information on their energy use".
More particularly, there was a clear aim to address problems identified with the application
of Art 13 of the ESD: As the Impact Assessment summarized it: "Because of the vague
wording the provisions did not lead to improvements" with respect to the aim that was to
"ensure understandable and accurate information is provided for consumers via individual
meters and energy bills on a frequent basis."103
Key changes proposed included:
 minimum frequency of consumption based billing of every 1-2 months in most
cases, and
 clarification that individual metering in each flat in multi- apartment buildings
was also required for heating, cooling and hot water.
The EED as adopted by the co-legislator
The recitals of the EED as adopted by the co-legislators following the co-decision process
to a large extent mirror the objectives identified by the Commission despite the operative
provisions being very different. Notably, the co-legislators:
 Retained a recital emphasizing the need to take account of the benefits of cost-
effective technological innovations such as smart meters, albeit without stressing the
need for visualization of cost and consumption indicators (Recital 26).
 Included new recitals with cross-references to the provisions on smart meters in
Directives 2009/72/EC and 2009/73/EC (Recitals 27& 31), and on the appropriate
conditions for using heat cost allocators and sub-metering of heating, cooling and hot
water more generally in multi-apartment buildings (Recitals 28-29).
 Added two recitals expressly acknowledging the insufficient progress and clarity of
the existing provisions and the need for clearer rules:
"(32) The impact of the provisions on metering and billing in Directives
2006/32/EC, 2009/72/EC and 2009/73/EC on energy saving has been limited.
In many parts of the Union, these provisions have not led to customers
receiving up-to-date information about their energy consumption, or billing
based on actual consumption at a frequency which studies show is needed to
enable customers to regulate their energy use. In the sectors of space heating
and hot water in multi-apartment buildings the insufficient clarity of these
provisions has also led to numerous complaints from citizens."
101
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32006L0032
102
http://ec.europa.eu/energy/sites/ener/files/documents/sec_2011_0779_ia_annexes.pdf, p.52
103
http://ec.europa.eu/energy/sites/ener/files/documents/sec_2011_0779_impact_assessment.pdf, p.12
67
(33) In order to strengthen the empowerment of final customers as regards
access to information from the metering and billing of their individual
energy consumption, bearing in mind the opportunities associated with the
process of the implementation of intelligent metering systems and the roll out
of smart meters in the Member States, it is important that the requirements of
Union law in this area be made clearer. This should help reduce the costs of
the implementation of intelligent metering systems equipped with functions
enhancing energy saving and support the development of markets for energy
services and demand management. Implementation of intelligent metering
systems enables frequent billing based on actual consumption. However, there
is also a need to clarify the requirements for access to information and fair
and accurate billing based on actual consumption in cases where smart
meters will not be available by 2020, including in relation to metering and
billing of individual consumption of heating, cooling and hot water in multi-
unit buildings supplied by district heating/ cooling or own common heating
system installed in such buildings.
As regards the possibility to guarantee the origin of electricity from high-efficiency
cogeneration the EED essentially incorporated and updated provisions from Directive
2004/8/EC:
 "(39) To increase transparency for the final customer to be able to choose
between electricity from cogeneration and electricity produced by other
techniques, the origin of high-efficiency cogeneration should be guaranteed on
the basis of harmonised efficiency reference values…."
In short, based on the EED recitals the objective of Articles 9-11 as identified by the co-
legislators was to strengthen the empowerment of final customers as regards access to
up-to-date information on their actual, individual energy consumption at a frequency
enabling them to regulate their energy use, bearing in mind the opportunities associated
with intelligent metering systems as well as the situations where smart meters will not be
available by 2020. There was a clear aim to clarify existing provisions that were considered
unclear and ineffective. The GO provisions in Article14 and the related Annex expressly
aimed at increasing transparency for the final customer to be able to choose between
electricity from cogeneration and electricity produced by other techniques
As adopted, the EED's operational provisions in essence:
 Carried forward without changes the ESD provisions on individual metering (in EED
Article 9(1));
 Added requirements for smart electricity and gas meters (Article 9(2));
 Added new provisions expressly requiring metering of heating/cooling/hot water in
multi-apartment/purpose buildings, and on cost allocation (Article 9(3)), subject to
technical feasibility and cost-effectiveness condition;
 Extended provisions on billing and billing information to include a specified minimum
frequency, and elaborated on billing information requirements (Article10(1), 10(3) and
Annex VII);
 Added new provisions on historical information for customers with electricity or gas
smart meters (Article 10(2));
68
 Carried forward provisions on guaranteeing the origin of electricity produced through
high-efficiency cogeneration from Dir. 2004/08/EC.
Baseline
3.3.2.
The 2003 and 2009 Electricity and Gas Directives were fundamental to the liberalisation of
the EU's gas and electricity sectors and the completion of the internal market. In their
absence, it is not likely that many Member States would have proceeded with liberalising their
energy markets at the same speed and to the same extent. Therefore, it is likely that
significantly fewer EU energy consumers would have been able to benefit from market
competition in terms of:
 increased efficiency and competitiveness;
 lower energy supply costs;
 higher standards of service.
In absence of the EED, ESD provisions from 2006 would have continued to apply. As
mentioned above, these had not proven to consistently lead to the expected improvements.
The detailed issues with the ESD provisions will be further explored below.
As regards guarantees of origin, such were already introduced for electricity from renewables
and from high-efficiency cogeneration in Directives 2004/8/EC and 2001/77/EC, respectively.
The purpose of this evaluation is somewhat atypical in that it has not aimed to evaluate a
single, specific intervention. Rather, it seeks to take stock of the current situation which is the
cumulative outcome of several, past policy developments/legislative processes with different
timing. It does so only in so far as regards metering and billing is concerned and with a
particular focus on coherence and relevance. Consequently, it has been considered less
important to identify a clear baseline, but in the analysis only interventions over the last 1-2
decades have been considered (although there are examples of EU action on metering and
billing even before that104
).
104
Cf. eg. Council Directive 93/76/EEC of 13 September 1993 to limit carbon dioxide emissions by improving
energy efficiency (SAVE)
69
Figure 1: Intervention Logic Diagram illustrating the subject of this Annex
3.1. Evaluation Questions
This evaluation aims, for each of the sub-themes within the scope, to answer the following
questions:
1. What is the current situation?
2. How effective has the EU intervention been?
3. How efficient has the EU intervention been?
4. How relevant is the EU intervention?
5. How coherent is the EU intervention internally and with other (EU) actions?
6. What is the EU added value of the intervention?
3.2. Method
This evaluation has been carried out in-house by the Commission services. No analytical
models have been applied. The main activities and processes which have provided the key
inputs are listed in annex 4.
70
3.3. Implementation state of play (Results)
State of play as regards implementation
3.3.1.
Electricity and Gas Directives
Enforcement action undertaken by the Commission in relation to the Internal Energy Market
legislation is ongoing. Procedures are set out in detail in "Enforcement of the Third Internal
Energy Market Package (SWD(2014) 315 final)".105
As of 20 January 2016, all of the
infringement proceedings for partial transposition of the Electricity Directive have been
closed. The focus is now on addressing the incorrect transposition or bad application of the
Third Energy Package, with priority being given to violations which have the highest impact
on the functioning of the internal market, including unbundling, independence, powers and
duties of the national regulatory authorities and consumer protection. On this basis, the
Commission has opened structured dialogues ("EU Pilot106
") with a number of Member
States. As of 20 January 2016, 8 of these dialogues have been followed by infringement
procedures (see further details below).
Energy Efficiency Directive
As the deadline for transposing the EED was relatively recent (5/6-/2014), the enforcement
action undertaken by the Commission in relation to the EED at this stage mainly concerns
incomplete transposition. As of 20 January 2016 there were still 23 infringement procedures
pending for incomplete transposition of the EED. In addition, the Commission is yet to verify
the conformity of the transposed national measures with the requirements of the Directive.
Importantly, two of the key provisions in Article 9 and 10 of relevance to this evaluation have
later application deadlines than the general transposition deadline as regards certain aspects of
heating, cooling and hot water metering and billing in multi-apartment buildings. Although
certain metering and billing requirements already existed under Article 13 of the Energy
Services Directive, they were further developed in the EED which clarified the difference
between heat cost allocators and individual heat meters and imposed additional metering
obligation for buildings with central heating system, in addition to buildings with district
heating. The obligation for frequent billing in accordance with Article 10(1) only became
mandatory as of 31/12/2014, and the deadline for introducing metering of heating, cooling
and hot water in individual units in multi-apartment/purpose buildings is 31/12/2016. This
provision, of particular importance to owners and tenants in Member States in which large
apartment blocks make up a significant percentage of the residential housing stock, obviously
cannot yet be evaluated fully as the application deadline has not yet passed and it is therefore
impossible to check how the legal obligation has been put into practice.
105
https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex6_0.pdf. Figures
presented here are updated, to the extent necessary.
106
Structured dialogue between the Commission and the Member State concerned is carried out via ‘EU Pilot’.
EU Pilot" This is a scheme designed to quickly resolve compliance problems without having to resort to
infringement procedures for the benefit of citizen and business
71
Problems and issues identified
3.3.2.
In September 2011 the Commission opened 38 infringement proceedings against 19 Member
States to ensure full transposition of the Electricity and Gas Directives. Non-resolved cases
were followed up in 2012 by sending reasoned opinions and referrals to Court.
The two Directives have been now transposed by all Member States. The Commission closed
all the non-communication cases.
Structured dialogues with Member States as well as infringements on incorrect transposition
or bad application are currently ongoing. As of 20 January 2016, 8 of the structured dialogues
have resulted in infringement procedures where, inter alia, violation of the EU electricity and
gas consumer provisions is at stake.
So far, Annex I(1)(d) on consumer choice of payment methods and Annex I(1)(i) on
frequency of information on consumption and costs of both Directive 2009/72/EC and
Directive 2009/73/EC seem to be the most problematic of the articles relevant here. Issues as
regards the non-conforming transposition of Annex I(1)(d) have been raised in structured
dialogues with 5 Member States and 1 Member State has received a Letter of Formal Notice
regarding the transposition of the same provision. As for the Annex I(1)(i) of Directive
2009/72/EC and Directive 2009/73/EC, structured dialogues raising issues as regards the non-
conforming transposition of this provision are currently pending for 5 MS and for one
Member State the procedure is currently at the stage of Letter of Formal Notice.107
Findings of a mystery shopping exercise108
carried out between 11 December 2014 and 18
March 2015 suggest that the implementation and/or enforcement of some measures addressed
in this evaluation may be an issue in certain Member States.
Only 28% of mystery shoppers (including experts) were able to find a contact point where
they could obtain information about their energy rights, as required under Article 3(9)(c) of
the Electricity and Gas Directives.109
In addition, Article 3(9)(a) of the Electricity Directive
requires suppliers to specify the contribution of each energy source to the overall fuel mix of
the supplier over the preceding year in or with consumer bills.110
However, more than a third
(35%) of mystery shoppers in the same study disagreed that their electricity company
informed them about how the electricity they used was produced (scores 0 to 4 on a scale to
10).111
As transposition checks for the directives do not indicate particular irregularities
107
On 13 April the Czech Parliament voted a new Energy Act mainly transposing the Third Package Directives
which was not notified; might contain the presumed non transposed/non-conform provisions
108
Mystery shopping or a mystery consumer or secret shopper, is a tool used externally by market research
companies, watchdog organizations, or internally by companies themselves to measure quality of service, or
compliance with regulation, or to gather specific information about products and services. Mystery shoppers
were instructed to analyse one of their own monthly, bi-monthly or quarterly electricity bills.
109
' 'Member States shall ensure that electricity suppliers specify in or with the bills and in promotional materials
made available to final customers… the contribution of each energy source to the overall fuel mix of the supplier
over the preceding year in a comprehensible and, at a national level, clearly comparable manner…'
110
'Member States shall ensure that electricity suppliers specify in or with the bills and in promotional materials
made available to final customers… information concerning their rights as regards the means of dispute
settlement available to them in the event of a dispute.'
111
This was the case for a majority of respondents in nine EU-28 countries, with the highest level of
disagreement observed in Bulgaria (78%). On the other end of the scale, the proportion of respondents who
72
around these articles, this points to possible interpretation issues or the bad application of the
relevant measures by national authorities.
As regards the EED, only 44% of mystery shoppers were able to find a comparison of the
current energy consumption with consumption for the same period in the previous year,
preferably in graphic form (EED Annex VII 1,2 b)), and only 26% were able to find tips on
saving energy or contact information (e.g. link to a website) (EED Annex VII 1.2 c) / 1.3).112
However, the transposition of the Directive is still incomplete in several Member States and
even where transposition has been completed, further implementation activities are still
ongoing. A preliminary analysis of notified transposition measures carried out for the
Commission indicates that transposition of Articles 9-11 remains very patchy at this stage113
.
On average across all Member States, it seems that only some 44% of the mandatory
provisions of these articles have been fully transposed so far (it is emphasised that this is
based on preliminary analysis).
Several complaints from citizens have also been received by the Commission concerning
implementation of Article 13 of the ESD (which pre-ceded the EED provisions) in multi-
apartment buildings, leading to infringement procedures against a number of Member States.
The responses to the Commission's Consultation on the retail energy market114
conducted in
spring 2014 generally confirm the impression that there's much room for improvement in the
retail market, including when it comes to metering and billing issues. Of a total of 237
responses, 160 didn't consider that consumers have the information they need to use energy
more efficiently, and of those 160 more than half (125) considered that the availability of such
information could be improved "a little" or "a lot" by more frequent and informative billing.
In terms of stakeholder views on the overall adequacy of the current EED provisions on
metering and billing, roughly 3 out of 5 of respondents to the public consultation on the EED
review who had an opinion on this question were satisfied. About 2 out of 5 expressed the
opposite view. Unsurprisingly, utilities were most likely to find the current provisions
sufficient, with 92% of all utility respondents being of this view. In contrast, 2 of every 3
NGOs or consumer organisations expressing an opinion considered the current
provisions to be inadequate to guarantee all consumers easily accessible, sufficiently
frequent, detailed and understandable information on their own consumption of energy.
3.4. Answers to the evaluation questions
Below the evaluation questions are addressed for each of the key provisions within the scope
of the evaluation.
“strongly agreed” (scores 8 to 10) that their electricity company informed them about how the electricity they
used was produced varied between 5% in Bulgaria and 46% in Austria. Germany joined Austria at the higher end
of the country ranking with 45% of respondents who “strongly agreed”.
112
European Commission (2016), 'Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU '.
113
Data reflecting November 2015 status.
114
https://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market
73
Electricity and Gas Directives
3.4.1.
What is the current situation?
The evidence presented in this section draws extensively on survey data, as well as data from
a mystery shopping exercise. The aim of the mystery shopping exercise was to replicate, as
closely as possible, real consumers’ experiences across 10 Member States115
selected to cover
North, West, South and East Europe countries. A total of 4,000 evaluations were completed
between 11 December 2014 and 18 March 2015.116
Whilst data from the mystery shopping
exercise is non-exhaustive, the methodology enables the controlled sampling of a very large
topic area,117
as well as providing insights that would not be apparent in a desktop evaluation
of legislation and bills. Using a behavioural research approach rather than a traditional survey
allowed us to identify what people actually do, rather than what they say they do.
Whereas this evaluation describes the relatively small number of non-prescriptive measures
on energy billing contained in the EU acquis, all Member States have legislation with further
billing requirements (see Annex 5 or an overview of billing practices and regulation per
country). For example, UK electricity and gas suppliers must follow over 70 pages of rules on
the information in bills as part of their current licensing requirements.
In addition to legislative requirements, suppliers communicate and present information in
different ways as a part of their non-price competition with other suppliers. For example,
information may be presented in a certain format for branding purposes, or to target different
customers with different kinds and levels of information to increase consumer satisfaction.
There is therefore currently a broad divergence in Member States with regards to the
individual elements in electricity and gas consumer bills and the total amount of information
in these bills.
115
The Czech Republic, France, Germany, Italy, Lithuania, Poland, Slovenia, Spain, Sweden and the UK.
116
European Commission (2016), 'Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU'.
117
For example, there were over 400 electricity and gas supply offers in Berlin alone in 2014 (source: ACER
Database), making a comprehensive examination of all supply offers in the EU28 impracticable.
74
Text Box 1: Select requirements for UK domestic energy bills118
Figure 2 below from ACER summarizes the information provided to household customers on
their bills. It includes general billing requirements put forward in Article 3 and Annex I of the
Electricity and Gas Directives (for example, information on the single point of contact), as
well as items not covered by EU law (price comparison tools). Whereas customers in the
majority of MSs are currently provided with information on the consumption period, actual
and/or estimated consumption, and a breakdown of the price, there is a greater diversity of
national practices with regards to other potentially beneficial information, such as switching
information, information about price comparison tools, and the duration of the contract.
118
Ofgem (2013) 'The Retail Market Review – Final domestic proposals Consultation on policy effect and draft
licence conditions', pp. 71-108, 130-163 https://www.ofgem.gov.uk/sites/default/files/docs/2013/03/the-retail-
market-review---final-domestic-proposals.pdf
The following information must be grouped together, in a box, distinct from other
information and included on page one of the Bill:
 The standardised title “Could you pay less?”
 Information on cheaper tariffs offered by the supplier and the savings available if
the consumer were to switch.
 A Personal Projection* for the consumer's current tariff.
 A signpost to further tariff information.
 A standardised switching reminder “Remember – it might be worth thinking about
switching your tariff or supplier”.
The following information must be grouped together and included on page two of the
Bill, in a box, distinct from other information, in the following order:
 The standardised title “About Your Tariff”.
 The name of the customer's fuel, current tariff, payment method, any applicable
tariff end date, exit fees and the customer's personalised usage in the last 12
months.
The following information must be provided anywhere on a bill:
 The standardised title “About Your TCR”**.
 The TCR for the customer's current tariff.
 A signpost to where to find independent advice on switching supplier.
* The Personal Projection is a standardised methodology that uses a consumer's actual
or estimated consumption to estimate their projected cost for a particular tariff for the
next year.
** The TCR or 'Tariff Comparison Rate' is used to assist consumers to make an initial
comparison of alternative tariffs. It is similar in nature to the Annual Percentage Rate
used to describe savings, loan and credit agreements.
75
Figure 2: Information on household customer bills in MSs – 2014119
The results of a mystery shopping exercise on the information in energy bills covering ten
representative Member States120
provide a more detailed impression of the differences in
billing practices within the EU. Mystery shoppers were instructed to analyse one of their own
monthly, bi-monthly or quarterly electricity bills for a number of information elements
identified as best practices by the Citizens' Energy Forum's Working Group on e-Billing and
Personal Energy Data Management as well as a number of information elements addressed
(although not always required) by the current Electricity Directive.121
119
Source: CEER Database, National Indicators (2014-2015)
120
The Czech Republic, France, Germany, Italy, Lithuania, Poland, Slovenia, Spain, Sweden and the UK.
121
https://ec.europa.eu/energy/sites/ener/files/documents/20131219-e-billing_energy_data.pdf
76
Table 1: Information included on an electricity bill in a sample of ten Member States - I122
Country
Item Item in
"billing"
evaluation
sheet
%
who
fou
nd
item
on
thei
r
bill
(tot
al)
CZ DE ES FR IT LT
123
PL SE SI UK
Supplier's name Provider’s
name
99
%
96
%
100
%
100
%
100
%
100
%
88
%
100
%
100
%
100
%
100
%
Contact
details (including
their helpline and em
ergency number)
Telephone
number of
customer
service/hel
pline
96
%
92
%
100
%
100
%
100
%
100
%
80
%
93
%
100
%
100
%
97
%
Postal
address of
provider
94
%
92
%
100
%
97
%
100
%
100
%
60
%
100
%
96
%
100
%
83
%
Email
address of
provider
69
%
92
%
95
%
80
%
27
%
37
%
40
%
75
%
84
%
96
%
60
%
Emergency
number
(e.g. to call
in the event
of an
electrical
emergency
or power
outage)
59
%
68
%
8% 97
%
87
%
93
%
28
%
35
%
64
%
40
%
87
%
The duration of the
contract
Duration of
the contract
(e.g. 24
months)
22
%
8% 50
%
27
%
17
%
10
%
0% 5% 40
%
4% 50
%
The deadline for
informing the
supplier about
switching to another
supplier
The period
of notice to
terminate
your
electricity
contract
(e.g. 30
days before
the
intended
termination
date)
19
%
4% 50
%
0% 57
%
0% 12
%
0% 28
%
0% 27
%
122
European Commission (2016), ' Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU.
123
Lithuania stands out as the country where mystery shoppers were the least likely to find each of the items on
their bill. Mystery shoppers in Lithuania (note: all shoppers were clients of Lesto) reported that they do not
receive an electricity bill; they declare usage themselves online (via www.manoelektra.lt - a site dedicated to
Lesto customers) or by means of a paper bill book.
77
Country
Item Item in
"billing"
evaluation
sheet
%
who
fou
nd
item
on
thei
r
bill
(tot
al)
CZ DE ES FR IT LT
123
PL SE SI UK
The tariff name Tariff
name/plan
(e.g. 'Day
& Night
Fix')
80
%
84
%
65
%
57
%
87
%
93
%
60
%
93
%
80
%
76
%
100
%
(A reference to) a
clear price
breakdown for the
tariff (the base price
plus all other charges
and taxes)
A detailed
price
breakdown
for your
tariff (e.g.
division of
total price
in base
price,
network
charge,
etc.)
79
%
92
%
65
%
100
%
83
%
93
%
8% 88
%
92
%
96
%
73
%
The base price of one
energy unit (in
kilowatt hours or
kWh) for the selected
tariff
Base price
per kWh of
your tariff
82
%
68
%
65
%
87
%
93
%
83
%
68
%
83
%
92
%
88
%
93
%
The switching code Switching
code/meter
identificati
on (EAN
or MPAN
code; a
unique
code for
your
electricity
meter)
73
%
96
%
58
%
87
%
87
%
67
%
44
%
78
%
76
%
72
%
67
%
The amount to be
paid, for which
billing period, by
when and how
Amount to
be paid
97
%
100
%
100
%
97
%
97
%
100
%
72
%
100
%
100
%
100
%
97
%
Billing
period (e.g.
15
November
– 14
December
2014)
95
%
96
%
90
%
100
%
97
%
100
%
80
%
93
%
100
%
100
%
97
%
Payment
method
(e.g. direct
deposit,
cheque,
bank
84
%
88
%
100
%
87
%
87
%
87
%
64
%
65
%
92
%
64
%
100
%
78
Country
Item Item in
"billing"
evaluation
sheet
%
who
fou
nd
item
on
thei
r
bill
(tot
al)
CZ DE ES FR IT LT
123
PL SE SI UK
transfer)
Clear information on
how this amount has
been calculated: is it
based on an actual
meter reading or
estimated only?
% of
shoppers
stating that
it not clear
how the
billing
amount
was
calculated
5% 4% 18
%
3% 0% 0% 8% 3% 4% 4% 3%
For calculations
based on actual
consumption: meter
readings and
consumption during
the billing period
(measured in
kilowatt hours or
kWh)
Details
about
consumptio
n during
billing
period (in
kWh)
89
%
95
%
67
%
96
%
100
%
100
%
73
%
95
%
87
%
91
%
95
%
Value of
the meter
reading at
the end of
the billing
period
89
%
90
%
93
%
96
%
86
%
88
%
73
%
95
%
87
%
82
%
95
%
Value of
the meter
reading at
the
beginning
of the
billing
period
88
%
95
%
93
%
96
%
86
%
88
%
73
%
86
%
83
%
91
%
90
%
Where does the
energy come from,
how is it generated,
how environment
friendly is it ("the
fuel mix")
Fuel
mix/energy
sources
(e.g. wind
power,
biomass)
32
%
48
%
45
%
20
%
47
%
43
%
0% 18
%
52
%
40
%
13
%
Information on how
to get tips on saving
energy (e.g. a link to
a website)
Tips on
saving
energy
(e.g. link to
a website)
26
%
8% 48
%
17
%
23
%
20
%
36
%
8% 24
%
20
%
57
%
Information on how
to obtain the bill in
alternative formats
(e.g. in large print)
for consumers with
disabilities
Informatio
n on how
to obtain
your bill in
alternative
format (e.g.
24
%
16
%
8% 23
%
27
%
53
%
28
%
5% 20
%
16
%
50
%
79
Country
Item Item in
"billing"
evaluation
sheet
%
who
fou
nd
item
on
thei
r
bill
(tot
al)
CZ DE ES FR IT LT
123
PL SE SI UK
paper/onlin
e, large
print)
Base (note: figures in grey are
based on a smaller sample):
300 25 40 30 30 30 25 40 25 25 30
Table 2: Information included on an electricity bill in a sample of ten Member States - II124
Country
Information
Item in "billing"
evaluation sheet
% who
found
item on
their bill
(total)
CZ DE ES FR IT LT PL SE SI UK
The contribution of each
energy source to the
overall fuel mix of the
supplier over the
preceding year
13a. Fuel mix/energy
sources (e.g. wind
power, biomass)
32% 48% 45% 20% 47% 43% 0% 18% 52% 40% 13%
Information concerning
the consumer's rights as
regards the means of
dispute settlement
available to them in the
event of a dispute
8b. National contact
information point (or
single point of contact
where you can obtain
information about your
energy rights)
28% 44% 43% 33% 43% 30% 4% 3% 16% 12% 53%
8c. An energy mediator
or third-party assistance
23% 36% 45% 23% 57% 0% 0% 3% 12% 0% 50%
Base: 300 25 40 30 30 30 25 40 25 25 30
The results show a large variation across countries for selected items; for example,
information about the period of notice to terminate a contract was not found on bills in Italy,
Poland, Slovenia and Spain, while in Germany and France, at least half of shoppers had found
such information on their bill (50% and 57%, respectively). These variations may reflect
national differences in consumer preferences and the characteristics of local markets, as
reflected in Member State rules and discretionary billing practices by suppliers. In addition,
the figure illustrates the possible bad application issues.
124
Shoppers were instructed to analyse a monthly or quarterly bill. In the Czech Republic and Germany, a
considerable number of shoppers reported that they only receive an annual bill from their electricity company. In
these countries, 88% (n=22) and 50% (n=20), respectively, of shoppers analysed an annual bill. European
Commission (2016), ' Second Consumer Market Study on the functioning of retail electricity markets for
consumers in the EU.
80
To illustrate another dimension of divergence, the following figure shows information load in
consumer bills in different Member States. This can have a significant impact on consumers'
ability to comprehend their bills.
Figure 3: Information on household customer bills in MSs – 2014 (number of information elements)125
To summarize, there is currently a broad divergence in Member States, both with regards to
the individual elements in consumer bills and the total amount of information in these bills.
The widespread divergence in national practices reflects differences in national legislation and
marketing by suppliers, which may themselves be influenced by consumer preferences and
the characteristics of local markets. To a more limited extent, the divergence may also reflect
the bad application of certain requirements of the Electricity and Gas Directives identified
earlier in the Annex, particularly EU requirements on information on consumer rights and
energy sources.
How effective has the EU intervention been?
To recap, the major objectives of the Articles in the Electricity and Gas Directives relevant to
billing and metering were:
 To boost competition in retail markets;
 To create consumer incentives to save energy;
 To enable easier and more effective consumer choice.
With regards to the first of the three objectives – boosting competition in retail markets –
retail market competition has clearly increased in the EU since the articles relevant to billing
and metering were introduced in the Second Energy Package. However, there have also been
a great number of other relevant measures put in place at the same time as part of the broader
effort to liberalise EU energy markets. These include unbundling rules and limits on price
125
Source: ACER
81
regulation.126
This makes it impossible to quantitatively gauge the competition gains brought
about by the articles on billing and metering.
There is a similar situation for the second of the three objectives – creating consumer
incentives to save energy. There is evidence to show that there has been progress in recent
years.127
However, as numerous EU energy efficiency policy measures have been put in place
in parallel during the period in question, it is again impossible to quantitatively disambiguate
the individual contribution to these gains by the measures introduced in the Second Energy
Package. Qualitatively, however, we can estimate these gains to be relatively minor as also
acknowledged in the Energy Efficiency Directive, where Recital 32 expressly states that the
"impact of the provisions on metering and billing in Directives 2006/32/EC, 2009/72/EC and
2009/73/EC on energy saving has been limited. In many parts of the Union, these provisions
have not led to customers receiving up-to-date information about their energy consumption,
or billing based on actual consumption at a frequency which studies show is needed to enable
customers to regulate their energy use".
In terms of the third of the three objectives – enabling easier and more effective consumer
choice – there exist various data that help us understand how EU consumers perceive their
energy bills and the extent to which their bills are building awareness about energy use. These
data are summarised in the remainder of this section.
Consumer organisations responding to the latest ACER Market Monitoring Report stated that
the average electricity and gas consumer in their countries is only able to compare prices to a
limited extent. The average score was 4.8 and 5.0 on a scale from 1 to 10 for electricity and
gas respectively.128
These mediocre figures are backed by the 2016 Electricity Study that found that one in five
consumers surveyed still disagree that the electricity bills of their electricity company were
easy and clear to understand (note the disparity in individual Member States concerning the
level of understanding with Bulgaria performing worst and Cyprus performing best). This
effect was even more pronounced among mystery shoppers from ten Member States who
were quizzed with their current bills to hand. Here, between 20 and 54% of respondents
disagreed with the statement “My bill is easy to understand”. Correspondingly, 8% of all
consumers who had reported having a problem with their electricity supplier in the past three
years identified problems with billing.129
126
See the Evaluation on the Electricity Directive.
127
See f.ex. COM(2015) 574 final "Assessment of the progress made by Member States towards the national
energy efficiency targets for 2020 and towards the implementation of the Energy Efficiency Directive
2012/27/EU as required by Article 24 (3) of Energy Efficiency Directive 2012/27/EU"
128
ACER (2015) Market Monitoring report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_R
eport_2015.
129
European Commission (2016), 'Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU '.
82
Figure 4: Agreement with statement: “bills of my electrify company are easy and clear to understand”, by country130
Figure 5: Agreement with the statement: “My bill is easy to understand”131
The complaints data collected through the European Consumer Complaints Registration
System indicates the largest share (28%) of consumer complaints reported to the Commission
between 2011 and 2016 were related to billing. Whilst the complaints classified as relating to
"unjustified" or "incorrect" invoicing/billing (10% of all electricity and gas complaints) are
most likely related to billing on estimated rather than actual consumption,132
complaints about
unclear invoices or bills make up around 1% of all electricity and gas complaints in the
system. The category 'other billing complaints' relates to cases where users of the European
Consumer Complaints Registration System did not encode a sub-category, or where their
specific complaint could not be categorised according to the options presented below.
130
Question: "The following question deals with the quality of services offered in the electricity retail market.
Please indicate how much you agree or disagree with each of the following statements, using a scale from 0 to
10, where 0 means that you “totally disagree” and 10 means that you “totally agree”: Bills of [PROVIDER] are
clear and easy to understand." European Commission (2016), 'Second Consumer Market Study on the
functioning of retail electricity markets for consumers in the EU '.
131
Agreement with the statement: “My bill is easy to understand” European Commission (2016), 'Second
Consumer Market Study on the functioning of retail electricity markets for consumers in the EU '.
132
See Thematic Evaluation on Smart Metering.
66 65 61 59 58 56 56 54 53 48 47 45 44 44 43 43 41 40 40 40 38 35 35 35 34 32 28 24 21
58
25
26 21 21 28 26 28 22 29 26
23 28 37 33 33 40 38 40 37 39
26 29 34
46
32 34 37 48
25
43
26
36
8
10
10
12 10 9 18 14 18 28 22 11 20 15 9 14 17 20 17
31 31 29
17
27 30 28
23
49
34
10
29
CY
EE
LT
MT
FI
DE
LV
SK
AT
RO
SI
BE
CZ
SE
NL
UK
IE
EU28
LU
HR
HU
PT
FR
DK
EL
PL
IT
BG
ES
NO
IS
Strongly agree (8 to 10) Agree (5 to 7) Disagree (0 to 4) Don´t know
Q2_7. The following question deals with the quality of services offered in the electricity retail market. Please indicate how much you agree
or disagree with ea h of the followi g state e ts, usi g a s ale fro to , where ea s that you totally disagree a d 10 means
that you totally agree . Bills of [PROVIDER] are lear a d easy to u dersta d.
%, Base: all respondents
5.3.1 Consumers’ views about their electricity bills
20 24 23
15
28
13 14
7 8 3 8
44 40
33
35
24
13
29
23 28
30 23
4 4
3
3
3
7 3 8
12 8
10 10 8
30
12
13 12 10 10
8 12
13 18
12 20 22 33
44
17
38
10
8
7 6
7
4
23
3
12 12
20
10
20 13 13 10 4
13
13
LT
SE
UK
DE
SI
IT
Total
FR
CZ
ES
PL
Completely agree
Agree
Somewhat agree
Neither agree nor disagree
Somewhat disagree
Disagree
Completely disagree
Q14. To what extent do you agree with the followingstatement: y ill is easy to u dersta d ?
%, Base: all mystery shoppers
83
Figure 6: Electricity and gas consumer complaints, 2011-2016133
It therefore appears that whereas a significant percentage of EU consumers have difficulties
understanding their energy bill, problems directly related to bill clarity have not led to a large
number of consumer complaints compared with other issues such as back-billing, unfair
commercial practices, and contractual clauses. However, looking at consumer complaints
alone may be insufficient as complaint levels are influenced by consumer awareness and
expectations, both of which may be low when it comes to energy bills.
Energy bills are the foremost means through which suppliers communicate with their
customers. As such, consumers' ability to correctly answer simple questions about their own
electricity use indirectly reveals the extent to which bills have been effective in providing
information that could facilitate effective consumer choice. The figures show that whereas the
majority of EU consumers report that they know how much they pay for electricity, fewer
were aware of their consumption in terms of kWh, what type of tariff they have, or their
sources of electricity.
Whilst this finding may certainly reflect a lack of consumer interest in this information, the
information facilitates effective consumer choice by helping consumers identify the best offer
in the market and weigh the benefits of switching. Their omission from many bills, as proven
by data, may therefore be impeding the achievement of one of the stated objectives of the
billing provisions in the Electricity and Gas Directives.
133
Source: DG JUST, European Consumer Complaints Registration System.
Unfair Commercial
Practices
16%
Contracts and
sales
11%
Quality of service
8%
Provision of
services
7%
Price / Tariff
7%
Switching
1%
Other issues
22%
Incorrect bill
6%
Unjustified invoicing
4%
Debt collection
2%
Unclear bill
1% Non-issue of invoice
0%
Other billing complaints
15%
Billing
28%
84
Figure 7: Self-reported awareness of electricity use134
Looking deeper into consumer awareness of energy sources, across the EU28, just 24% of
respondents “strongly agreed” (scores 8 to 10) that they knew how the electricity they used
was produced. The proportion expressing strong agreement varied between 12% in the UK
and 51% in Malta. This low level of awareness corresponds with the fact that just 32% of
sampled bills contain this information.
Figure 8: Agreement with statement: “I know how the electricity that I use is produced (e.g. nuclear generation, wind,
gas, solar, petroleum, coal, etc.)”, by country135
134
Question: "Please indicate how much you agree or disagree with each of the following statements, using a
scale from 0 to 10, where 0 means that you “totally disagree” and 10 means that you “totally agree”." European
Commission (2016), 'Second Consumer Market Study on the functioning of retail electricity markets for
consumers in the EU '
135
Question: "Please indicate how much you agree or disagree with each of the following statements, using a
scale from 0 to 10, where 0 means that you “totally disagree” and 10 means that you “totally agree”. "I know
how the electricity that I use is produced (e.g. nuclear generation, wind, gas, solar, petroleum, coal, etc.)."
European Commission (2016), 'Second Consumer Market Study on the functioning of retail electricity markets
for consumers in the EU '.
42%
38%
30%
32%
16%
24%
26%
32%
34%
52%
4.9
5.2
5.8
5.7
7.1
I know how the electricity that I use is produced (e.g. nuclear
generation, wind, gas, solar, petroleum, coal, etc.)
I know how the price I pay for electricity is calculated
I know the main characteristics of the tariff I am on (e.g. whether
I am on a fixed or variable price, the use of renewable energy,
etc.)
I know how much electricity I use (per month, year or any other
frequency) in kWh
I know how much I pay for electricity (per month, year or any
other frequency)
Disagree (0-4) Strongly agree (8-10) Average
EU 28
2.3.1 self-reported awareness
Q1_1 to 5. Please indicate how much you agree or disagree with each of the following statements, using a scale from 0 to 10,
where ea s that you totally disagree a d ea s that you totally agree .
%, EU28, Base: all respondents
85
Notwithstanding these low consumer awareness figures, data from the 2016 Electricity Study
indicate that consumer demand for information on energy sources is nevertheless high. A
behavioural experiment involving 10,056 consumers from 10 EU Member States (CZ, DE,
ES, FR, IT, LT, PL, SE, SI and the UK) tested consumer willingness to switch to a green offer
for extra-costs. 42% of consumers chose a green offer when the premium was low (€1.5/kWh)
and another 37% of consumers when the premium was high (€3/kWh).136
The increasing proportion of green tariffs currently on offer in the EU also shows that
suppliers are responding to this demand: by the end of 2014, almost one third (697) of all
electricity offers and almost one quarter (178) of gas offers in the EU were labelled as
'green'.137
However, there may be scope to facilitate growth in this area. Improving the provision
(availability, ease of access and use) and quality (clarity and comparability) of information on
energy sources in bills may therefore lead not only to enhanced non-price competition and
support the further development of renewable energy capacity, but also to greater overall
consumer engagement and satisfaction with the market. In this respect, expert bodies such as
ACER and CEER have specifically highlighted "the lack of standardisation of how
Guarantees of Origin are used to prove green credentials in different Member states" as an
important issue.138
To summarize, it is difficult to say how much the billing articles in the Electricity and Gas
Directives have contributed to their stated objectives, because of other significant policy
interventions aimed at fulfilling these same objectives, and because these objectives were not
accompanied by specific indicators that would allow us to disentangle causal relationships.
Nevertheless, the analysis presented in this section indicates that there is certainly scope to
further improve the extent to which the billing provisions in the Electricity and Gas Directives
facilitate consumer choice.
How efficient has the EU intervention been?
There are no data available to assess this question quantitatively, but given the narrow scope
and low level of prescription of the billing provisions in the Electricity and Gas Directives,
the costs are likely to have been limited. Consumer bills are currently heavily regulated
136
European Commission (2016), ' Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU '.
137
100% of the electricity production coming from green sources or – in the absence of information on the input
of green sources – if it is labelled as such by the price comparison tool. ACER (2015) Market Monitoring report
2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_R
eport_2015, pp. 42-43. CEER (2015).
138
ACER (2015) Market Monitoring report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_R
eport_2015, pp. 42-43. CEER (2015) Advice on customer information on sources of
Electricity,
http://www.ceer.eu/portal/page/portal/EER_HOME/EER_PUBLICATIONS/CEER_PAPERS/Customers/Tab5/
C14-CEM-70-08_CustomerInfo-Sources%20of%20Electricity_Advice_March%202015_0.pdf
86
beyond the requirements imposed by the Electricity and Gas Directives in most Member
States.139
How relevant is the EU intervention?
At the time of drafting both the Second and Third energy packages, consumer bills and pre-
contractual information formed the basis of consumer comparability, as consumers would be
given the possibility to measure up individual offers against their current supply contract.
Since then, the use of online comparison tools has risen significantly across the EU. Over time
the continuation of this trend might challenge the relevance of the EU intervention if it is not
adapted to also reflect new ways of consumer-market interaction. Well-designed, reliable and
transparent online comparison tools do the number-crunching necessary to accurately
compare the costs of each offer for individual consumers. In the future it will be increasingly
important to ensure that bills enable or even facilitate consumers' use of these online tools to
compare their individual consumption or current tariff to other available offers (e.g. by
providing a code that the consumer can input in the tool to customize the comparison).
The 2016 Electricity Study found that 64% of EU consumers who had compared tariffs of
different electricity companies said they had used comparison tools to do so. It also showed
that comparison tools – which grants access to the offers of a larger number of providers-
significantly increased the number of cheaper offers consumers were able to identify
compared with contacting individual providers directly.140
Comparison tools are likely to become even more important as the retail market for energy
matures. Between 2012 and 2014, ‘choice’ for consumers in European capitals widened, with
a greater variety of offers being available. However, the ability of consumers to compare
prices can be hampered by the complexity of pricing and the range of energy products, as well
as by an increasing number of offers and their bundling with additional free or payable
services.141
ACER has therefore recommended that: "To improve consumer switching behaviour and
awareness further, National Regulatory Authorities (NRAs) could become more actively
involved in ensuring that the prerequisites for switching, such as transparent and reliable
online price comparison tools and transparent energy invoices, are properly implemented."142
It is important to emphasise that in the context of the general efforts to move energy markets
from simple commodity markets (for kWhs) towards an energy services market, "transparent
and reliable price comparison tools" need to be able to assess contracts from a holistic
139
European Commission (2016), ' Second Consumer Market Study on the functioning of retail electricity
markets for consumers in the EU '.
140
From twice to twenty times, depending on the Member State. European Commission (2016), ' Second
Consumer Market Study on the functioning of retail electricity markets for consumers in the EU '.
141
ACER (2015) Market Monitoring report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_R
eport_2015 p.40, 100.
142
ACER (2015) Market Monitoring report 2014,
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_R
eport_2015 p.10.
87
perspective that integrates broader aspects including energy efficiency improvement actions
or services, differences in energy sourcing qualities (greenness) etc.
How coherent is the EU intervention internally and with other (EU) actions?
Whilst the provisions on billing in the Electricity and Gas Directives are not contradicted
elsewhere in the EU acquis, they are complemented and reinforced by various Articles in the
EED and RED, also addressed in the present document. Consolidating, streamlining or
clarifying the respective scope of these articles would make the legislation as a whole easier
to understand and reduce the scope for unintended interactions resulting from subsequent
legislative revisions. This concerns for example the issue of billing frequency (see further
discussion below) but also smart metering requirements (addressed in a separate evaluation
paper).
With regard to disclosure, it is notable that gas deliveries are not subject to disclosure
although this could stimulate consumer demand for green gas supplies (such as biogas
injected in the gas grids) or allow some consumers to choose certain sources over others (if
for example shale gas or LNG was identified separately). Equally it is notable that while the
EED provides a means for guaranteeing the origin of electricity from high-efficiency
cogeneration, there is no disclosure obligation to stimulate the use of that tool.
What is the EU added value of the intervention?
The provisions addressing consumer information in the Electricity and Gas Directives are
essential for protecting consumers in the internal energy market at the retail level. They play
an important role in ensuring the benefits of the internal market in energy can be enjoyed by
all consumers, and help to create a level-playing field for suppliers and other retail market
actors across the EU. Whereas there are currently still very few if any examples of cross-
border supply in the retail market, a common base of energy consumer rights is a precondition
for that to develop over time.
EED
3.4.2.
Article 9(1)
What is the current situation?
Article 9(1) of the EED is, apart from some very minor editorial changes, identical to Article
13(1) of the ESD. Member States have generally transposed and implemented Article 9(1),
which should not be surprising given that they have effectively been under the obligation to
do so since the 2006 adoption of the identical provisions in the ESD.
However, the absence of substantial changes is somewhat paradoxical given that ESD Article
13(1) contained several elements known to be the subject of different interpretations and that
a key objective of the EED, as discussed above in Section 3, was to clarify existing provisions
on metering and billing. In the context of the Concerted Action on the Energy Services
Directive the Member States themselves reported that there is a "large variance in the
88
interpretation of Article 13 of the ESD" and that the Article had "….only limited causal
influence on changes in metering & billing policies"143
.
The areas where particular ambiguities persist are
 The definition of "final customer"
 Meaning of "competitively priced individual meters that accurately reflect the final
customer’s actual energy consumption and that provide information on actual time of
use"
The definition of "final customer"
A ‘final customer’ means according to EED Article 2 (23) "a natural or legal person who
purchases energy for own end use". This definition has given rise to different interpretations
notably in cases where heating and cooling or hot water is purchased collectively by or on
behalf of an association of end-users (for example a group of households responsible for
energy consumption in each of the individual apartments in a multi-apartment building).
Although it is often a housing cooperative that purchases the energy, it is arguably the
individual households who are the end-user (except, perhaps, of energy used for heating
stairwells and similar collective uses). The Commission services have taken the view that the
definition of final customer should be understood as covering those end-users (i.e.
households/tenants) as well as the entity purchasing heating/cooling/hot water on behalf of the
end-users (e.g. a housing cooperative/building owner). However, some Member States (FI,
FR, DE, UK,…) seem to interpret the provisions differently, taking the view that the
individual households in such buildings are not to be considered as final customers if they do
not have a contractual relationship with the energy supply company . This question has
important implications for the effective scope of the obligations in the EED, incl. Article 9(1),
10(1), Article 10(3) and Annex VII. In principle this problem applies to all energy forms, in
practice it is most relevant for thermal energy forms (electricity and gas more rarely, not
being subject to individual supply contracts even in multi-apartment buildings). It is
particularly problematic when it comes to new buildings or major renovations, for which the
obligation in the EED Article 9(1) to fit individual meters is absolute (i.e. technical and
economic conditionalities do not apply), but where the applicability of this absolute obligation
is undermined by the uncertainty about the meaning of the definition of "final customers".
Meaning of "competitively priced individual meters that accurately reflect the final
customer’s actual energy consumption and that provide information on actual time of use"
EED Article 9(1) (and before that ESD Article 13) refers to "competitively priced individual
meters that accurately reflect the final customer’s actual energy consumption and that
provide information on actual time of use." This obligation is challenging to
implement/enforce for a number of reasons:
1. It is not clear what "competitively priced" means. The term "competitively priced" was
presumably used to protect consumers from overly costly solutions imposed by
143
Renner / Martins (2010). Technical Summary Report TSR03 on Informative metering and informative billing,
Concerted Action ESD, http://www.esd-ca.eu/reports/outcomes-2008-2011/technical-summary-reports/tsr03-
individual-metering-and-informative-billing
89
monopolistic utilities. In practice it is unclear precisely how this is to be
interpreted/implemented.
2. It is not clear precisely how/with what time resolution "information on actual time of
use" must be provided. Dating back to the 2006 ESD, it is arguably a reference to one
of the functionalities of what is now commonly referred to as smart meters. However,
firstly the provision of actual time of use data is but one of the recommended/desirable
features of smart meters. Secondly, time of use is typically mostly of relevance for
electricity, and less so for other energy forms144
. Recital 28 to the ESD stated that "
[i]n the context of this Directive, competitively priced individual meters include
accurate calorimeters". Calorimeters are devices to measure thermal energy flows.
3. Thirdly, it is not entirely clear what "individual" meters mean (c.f. the point on the
controversy around the definition of final customers above).
In short, where the provisions aimed to advance the use of sophisticated meters (with time of
use capabilities), the ambiguous wording has meant that few if any Member States have
interpreted it to require smart meters. Where it sought to advance the provision of meters to
end-consumers, many of which are individual households in multi-flat buildings, the
ambiguous definition of final customers has prevented it from doing so consistently.
Eventually this issue may have to be resolved legally, either through an interpretation by the
Court or through legislative changes.
How effective has the EU intervention been?
With respect to the intervention logic, there is a wealth of scientific and technical literature
published over the last 40 years on the influence energy consumption feedback can have on
consumers' decisions and behaviour and the resulting energy savings. By way of example the
following three recent literature review papers/reports provide a useful overview:
Karlin, B., Zinger, J. F., & Ford, R. (2015, September 21). "The Effects of Feedback on Energy
Conservation: A Meta-Analysis". Psychological Bulletin. Advance online publication.
http://dx.doi.org/10.1037/a0039650
Zvingilaite E. and Togeby M. (2015). Impact of Feedback about energy consumption. Ea Energy
Analyses, 15-05-2015. http://www.ea-
energianalyse.dk/reports/1517_impact_of_feedback_about_energy_consumption.pdf
EEA Technical report No 5/2013 – "Achieving energy efficiency through behaviour change: what
does it take?", http://www.eea.europa.eu/publications/achieving-energy-efficiency-through-
behaviour
Individual metering is a necessary precondition for providing any feedback to consumers on
their actual consumption. Billing, on the other hand, is but one way of conveying
consumption feedback. Since utilities anyways bill customers for purely commercial reasons
it is however a low-cost and widely used approach to providing feedback.
The literature mentioned above is generally reporting findings from specific, concrete studies,
programmes and pilot projects. It establishes beyond doubt that feedback on individual actual
144
Admittedly this could change e.g. in the context of increasingly smart and optimised, integrated systems with
electricity and heat storage. At present this is however of very limited practical relevance.
90
consumption, including via billing, tends to trigger enduring savings. The precise impact
depends a lot on the precise modalities, the situation before, the frequency etc.
No evidence is available as regards the total impact of applying the EU acquis on metering
and billing, because there has been no systematic monitoring or reporting of the
implementation of individual metering and consumption based billing, or the extent to which
such practices have been furthered by EU legislation. It is safe to say, however, that to the
extent/where the EU provisions have triggered the installation of individual meters, and
consumption based (frequent) billing, this will have led to savings: this causal link is well
established in the scientific literature.
There is evidence from the work and discussions on implementation in (and between)
Members States to suggest that Article 9(1) of the EED has been less effective than intended
because
a) Key concepts or terms used remain either ambiguously defined or undefined, and are
interpreted differently by different parties.
b) In addition, Member States in many instances have made use of the caveats regarding
technical feasibility and financial reasonableness / proportionality to make broad exceptions.
These conditions may of course be subject to review and possible infringement action from
the Commission as part of its enforcement role.
c) Other provisions meanwhile provide more impetus to reach at least some of its intended
objectives (cf. e.g. Article 9(3)).
This is in line with an assessment of the effectiveness of Art. 13 ESD where the Member
States argued that changes in metering and billing were mainly due to factors other than the
ESD and that the causal influence of Article 13 ESD on the practice of metering and billing in
the Member States was weak145
. The relatively low penetration rate of smart electricity meters
throughout most EU Member States gives an indication of the limited effectiveness of Article
9(1). Whilst time-of-use information can be provided by other types of meters (e.g. dual-tariff
(night/day) meters), and while such meters may not be uncommon in some countries (e.g.
FR), the fact is that most electricity meters throughout the EU remain conventional ones,
despite this provision being in force since 2008 (as part of the ESD).
For gas, even fewer MS have rolled out smart meters, and gas remains dominated by
conventional metering with no time-of-use capabilities. For thermal energy, time-of-use
capable meters are rather the exception than the rule146
, and many individual
dwellings/consumers are still not equipped with individual meters for hot water and heat
consumption.
145
Renner / Martins (2010). Technical Summary Report TSR03 on Informative metering and informative billing,
Concerted Action ESD, http://www.ca-eed.eu/outcomes/outcomes-2008-2011/technical-summary-reports
146
Applications exist e.g. in Finland and Denmark.
91
Figure 9: Share of household customers equipped with smart meters for electricity - 2014
Source: CEER Database, National Indicators (2014-2015)
147
.
In terms of heat metering, it has been estimated that there is a theoretical potential of some 20
million permanently occupied dwellings in multi-unit buildings that are not individually sub-
metered yet148
.
How efficient has the EU intervention been?
As a preface to answering this question it is worth recalling that utilities for commercial
reasons in any case send bills to their customers, and requirements for feedback delivered via
bills therefore entail very marginal or no additional costs except where the additional
information is of a nature that is costly to collect or where the billing process is frequently
repeated. They also in most cases install meters to justify such billing, although there have
historically been exceptions, especially in multi-unit buildings and/or district heating
networks.
Secondly, it is worth recalling that the acquis under consideration in this evaluation does not
require the installation of smart meters (or was at least not interpreted to that effect). The
additional costs of "smart" meters over conventional ones is therefore less relevant here, but it
is central to the evaluation of smart metering provisions that has been conducted and will be
reported elsewhere as part of the forthcoming Market Design Initiative.
There are no data available to assess the cost or efficiency of the EU intervention here
considered quantitatively, but given that most of the key obligations as regards metering and
billing in the current acquis are either expressly subject to cost-effectiveness conditions OR
softly/ /ambiguously worded, Member States have typically integrated
efficiency/proportionality considerations when transposing and implementing the provisions
nationally. It is therefore safe to assume that obligations for enhanced metering and billing
measures generally have only been introduced where there was a sound economic case, and ,
it is therefore very unlikely that the rules have imposed any disproportionate costs.
How relevant is the EU intervention?
147
2014 ACER/CEER annual report on the results of monitoring the internal electricity and natural gas markets
148
Cf. p. 8 of http://iet.jrc.ec.europa.eu/energyefficiency/sites/energyefficiency/files/files/documents/events/2-
castellazzi_heat_metering_setting_the_scene.pdf
92
For the purpose of strengthening consumer empowerment, Art 9(1) is very relevant and would
be even more so if it were to be clarified. The fundamental notion that individual consumers
(incl. households) should have the right at reasonable costs ("competitively priced") to
accurate metering of their own consumption ("individual meters"), and have access to
information on when their actual consumption takes place (i.e. "time of use") remains highly
relevant.
However, in so far as thermal energy supplies are concerned the practical relevance of EED
Article 9(1) has been diminished by the addition of the more precise Article 9(3). As regards
electricity and gas the smartness/capabilities of the meters have since been addressed in more
detail in the context of the smart meter roll out provisions under the IEM legislation (adopted
years after the original ESD provisions) and in a subsequent Commission
Recommendation149
. At least for electricity and gas it would therefore seem appropriate to
update these requirements in the light of these developments to reflect that "time of use" is but
one of several important features of modern meters. For thermal energy, the emergence and
increasingly common market development of remotely readable heat meters and heat cost
allocators should similarly be reflected in order to remain fully relevance.
As regards the lack of individual meters the Commission services are not aware of any
evidence that this is a significant issue for electricity and gas. This said, the presence of even a
simple conventional meter within reasonable reach allowing at least self-checks cannot still be
taken for granted even for electricity, as is evident from a case recently having been the
subject of a ruling by the Court150
. This could suggest that a clearer right without any
conditions or caveats but for something more basic, namely the right to a meter allowing self-
checks, might be at least as relevant going forward.
As regards billing, it should be noted that even where other forms and means of providing
energy feedback (e.g. smart phone apps etc.), consumption information delivered with bills
remains relevant since the various forms of feedback generally are complementary and
reinforce each other. By way of example, research has shown that real-time feedback
(possible only with smart equipment) tends to impact more on behaviour, whereas more
indirect feedback (e.g. with monthly, quarterly or annual bills) tends to impact more on
investment decisions.
How coherent is the EU intervention internally and with other (EU) actions?
The ambiguities in the wording of Article 9(1) raise questions of coherence with other EED
provisions: For example,
 Are "meters …that provide information on actual time of use" to be considered to
mean smart meters of the kind referred to in Article 9(2) (and in the IEM legislation),
or another intermediate category (between smart and simple, conventional meters)?
 Are "Individual consumption meters" for thermal energy referred to in Article 9(3)
also supposed to be "meters …that provide information on actual time of use"?
149
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32012H0148&from=EN
150
Judgment in Case C‑83/14 of 16 July 2015:
http://curia.europa.eu/juris/document/document_print.jsf?doclang=EN&text=&pageIndex=0&part=1&mode=lst
&docid=165912&occ=first&dir=&cid=400263
93
What is the EU added value of the intervention?
Rules to empower consumers and provide adequate consumer protection remain absolutely
critical for the well-functioning and the legitimacy of the EU's internal energy market. The
provisions now contained in Article 9(1) of the EED did, when first adopted as part of the
ESD in 2006, push forward the agenda of individual metering and smart metering at least in
some EU Member States. This said, the current added value has been diminished because of
the various ambiguities and the subsequent developments elsewhere on smart meters. By
being made more precise, it could (re)gain added-value.
EED Article 9(3) Thermal energy in multi-unit buildings: Possible clarifications
Article 9(3) being new (compared to the ESD) and the deadline for achieving its effective
outcome (installation of meters or heat cost allocators in individual units in multi-unit
buildings) only being by 31/12/2016, it is at this stage premature to evaluate Article9(3) as
a whole.
Nevertheless, during the Commission's work overseeing Member States' implementation, a
few areas where technical clarifications could be welcome have emerged and merit attention.
These concern:
 The meaning of "multi-apartment/purpose buildings"
 Technical feasibility and cost-effectiveness criteria for meters and heat cost allocators
 Availability of transparent cost allocation rules
The meaning of "multi-apartment/purpose buildings"
Whereas the Commission services have taken the view that a "multi-purpose building could
be understood as a building occupied by at least two entities that need to share between
themselves the bill for the energy purchased", a different reading is possible. For example, the
French authorities read the (French version of) the provision as referring to buildings with
both dwellings and non-dwelling uses ("immeubles mixtes"). The first reading implies a
broader scope in that buildings containing no dwellings but more than one commercial or
industrial entity (e.g. a shopping mall) would be covered.
It could be considered to clarify this aspect next time the Directive is amended anyways or
through further guidance). From a coherence perspective, and given that the EPBD for the
purpose of building Energy Performance Certificates (EPC) uses the notion of "building
units"151
, it could be considered to align with this so that Article 9(3) metering would be
required wherever EPCs are required, in order to facilitate implementation in Member States
by avoiding the need to use two similar but not identical distinctions. It could also be left to
MS discretion to interpret the precise boundaries in their specific national contexts.
151
In the EPBD "building unit" is defined as "a section, floor or apartment within a building which is designed
or altered to be used separately" - in this regard, 'separate use' could be understood as separate use of energy
(i.e. individual energy metering and billing…) and/or having separate users. "To be used separately" would
therefore mean that different building units have, or are capable of having, different tenants or different owners
and may be billed separately as compared to the building as a whole. In any case, a "building unit" requires an
energy performance certificate of its own, independently from the building as a whole, in accordance with
Article 12(1) and 11(6). For example, if a building were sub divided into self-contained flats, each flat should
have an EPC.
94
Technical feasibility and cost-effectiveness criteria for meters and heat cost allocators
The first part of Article 9(3) is relatively clear, except that the conditionality can be
interpreted/applied in widely differing ways. DG ENER's ongoing contract with "empirica"152
aimed at formulating best practice guidelines for application of these criteria and analyzing
Member States' application of these criteria has revealed that many Member States literally
transpose the criteria into national law without giving further guidance on how to apply them.
In addition, some Member States apply general or broad exemptions based on cost-benefit
analysis carried out on a single average building or a limited range of typical/example
buildings. Very few Member States have adopted specific measures to ensure a building-by-
building assessment of the fulfilment of the criteria, with most leaving it to local actors (heat
suppliers, building managers etc) to assess if the criteria require the provision of individual
meters. This situation could potentially affect the achievement of the policy objective of
ensuring that individual metering and billing is implemented at least where it is cost-effective
and feasible. Depending on the outcome of the ongoing transposition and implementation
process, it could be considered at a later stage to "codify" (some elements of) best practice
approaches in any further, future review of the EED provisions. Doing so now however seems
premature given that the deadline has not even passed yet, which is why progress at this stage
should better focus on encouraging MS to follow best practice based on guidance from the
Commission and through the work on enforcement.
It is noteworthy that respondents to the public consultation on the EED review widely agreed
that it is appropriate for the requirements to be subject to technical feasibility and/or cost
effectiveness conditions – this view was not only shared by 5 of every 6 respondent
expressing an opinion, but also by a majority in each category of stakeholders, including
NGOs who were otherwise most critical as regards the overall adequacy of Articles 9-11.
There was similarly broad agreement that conditions should not be harmonized at EU level,
although NGOs and private respondents were slightly more favorable to this idea.
Availability of transparent cost allocation rules
The last sub-para of Article 9(3) provides that "…Member States may introduce transparent
rules on the allocation of the cost of thermal or hot water consumption in [multi-
apartment/purpose] buildings to ensure transparency and accuracy of accounting for
individual consumption.". Although it is optional ("may") it is nevertheless of some use
because it implicitly recognises that despite the right to be billed based on individual
consumption (Article 10) , occupants of multi-unit buildings may not be billed exclusively on
that basis but also on other factors. This is also significant in the context of the many
complaints from occupants in multi-apartment buildings who, unhappy with the collective
solutions, wish (and sometimes decide) to use individual solutions, and thus do not wish to
pay for the collective solutions.
This topic is also the subject of work under the contract referred to above. Depending on the
outcome produced by empirica, it could be considered to "codify" (some elements of) best
practice approaches in the review of the EED provisions, or simply to encourage MS to
152
Analysis of good practices and development of guidelines for accurate and fair allocation of costs for
individual consumption of heating, cooling and domestic hot water in multi-apartment and multi-purpose
buildings to support the implementation of relevant provisions of the Articles 9-11 of the Directive 2012/27/EU
on energy efficiency – Tender ENER/C3/2013-977
95
follow best practice based on guidance adopted or published by the Commission. In any case
there is a link with the application of Article 10(3) and Annex VII in so far as heating, cooling
and hot water in multi-unit buildings is concerned.
Billing (information) and frequency
3.4.3.
What is the current situation?
The EED provisions on billing contained in Article 10 essentially
1) Define the basic right for customers without smart electricity and gas meters to
accurate billing information based on actual consumption with a certain minimum
frequency (Article 10(1) & Point 1.1. of Annex VII)
2) Define certain minimum information to be provided with billing information, namely
a) Current actual prices and actual consumption of energy
(A.VII point 1.1 a);
b) Comparisons with previous years (A.VII point 1.1 b);
c) Contact information to locate further energy information information/resources/advice
(A.VII points 1.1 c and 1.3);
d) Comparisons with average customers in the same user category (A.VII point 1.1 c).
3) Define certain other rights to request
a) That billing and consumption information to the extent it exists be made available to a
third party energy service provider (Article 10(3) a)
b) Electronic billing (Article 10(3) b)
c) Clear, understandable explanations of how bills are derived (Article 10(3) b)
d) Information/estimates on energy costs in an easily understandable format allowing to
compare deals on a like-for-like basis (Article 10(3)e)
The EED does not specify a minimum billing frequency for supplies metered with smart
electricity and gas meters. Where a smart metering system is available to final customers, the
general provisions of the IEM legislation continue to apply. According to Annex I point 1 i)
of the IED and IEG Directives it is to be ensured that customers "are properly informed of
actual electricity consumption and costs frequently enough to enable them to regulate their
own electricity consumption. That information shall be given by using a sufficient time frame,
which takes account of the capability of customer’s metering equipment and the electricity
product in question". According to an interpretative note published by the Commission on 22
January 2010, the Commission's services consider that where smart meters are installed,
receiving actual consumption based information on a monthly basis would be sufficient
to allow a consumer to regulate his consumption 153
.
It should be stressed that the right/obligation referred to in point 1 above applies only "where
this is technically possible and economically justified". Similarly, the minimum information
referred to under point 2 above is to be provided "where appropriate" according to Annex VII.
The rights listed under point 3 are not subject to such caveats.
How effective has the EU intervention been?
153
http://ec.europa.eu/energy/sites/ener/files/documents/2010_01_21_retail_markets.pdf
96
The Commission does not yet have comprehensive data on the detailed implementation of
EED Article 10. Initial high-level analysis of the current state of transposition suggests that it
is still very incomplete and patchy, although this remains to be confirmed by more in-depth
analysis at country level. In the latest annual report from ACER on the results of monitoring
the internal electricity and natural gas markets154
information on the billing frequency is
available for a range of Member States for 2014, but the new requirements as regards
minimum frequency under the EED took effect only as of 31/12/2014.
Table 3: Frequency of billing information based on actual consumption – 2014
Source: CEER Database, National Indicators (2014-2015) . Note: * Electricity, ** Gas.
Without smart meters With smart meters
Legal In practice Legal In practice
Daily FI*
Monthly BG, EE, LT, SE*
BG*, EE, HR**, LV*,
LT
AT, EE*, ES*, PT*,
SE*
FR, ES*, PT*, SE*
Bimonthly CY*, PT** CY*, ES*, FR, PT** NL NL**
Quarterly
AT, IE, NO*, PT*,
RO**
DK, IE, PT*, RO NO* DK*, EE*, NO*
Triannually FI EL
Biannually HR, RO*, SI HR*, MT*
Annually
CZ, DK, EL, ES*,
FR, HU, NL, PL*,
SE**, SK
LU, NL, SI, SK DK, FR, SE**
As discussed earlier, data collected and reported by ACER shows that a high share of
registered complaints about electricity and gas retail markets are related to billing issues. But
the data are neither specific nor recent enough to reveal if the reasons are related to issued
that were (to be) addressed as part of the EED implementation as of 2015. Whereas the
mystery shopping study referred did contain data from 2015 and suggested that problems
exist, that is also not surprising given the less that complete situation as regards both
transposition and actual implementation.
As regards heating, cooling and hot water, no evidence is available as regards the extent to
which the various information elements are made available to final customers or at what
frequency.
For consumers in multi-unit buildings supplied from central heating, cooling or hot water
systems, these challenges ares compounded by lack of clarity as to whether the requirements
are actually applicable to them at all or not (cf. the discussion in section Error! Reference
source not found. where the consumers/occupants of individual units do not have a direct
contract or commercial relationship with the energy utility. A specific stakeholder
consultation carried out as part of the contract referred to in section Error! Reference source
154
2014 ACER/CEER annual report on the results of monitoring the internal electricity and natural gas markets
97
not found., confirmed that the Annex VII requirements are only considered fully applied by
less than 75% of the respondents (cf. Error! Reference source not found.).
Figure 10: Expert stakeholder responses on the question: "Today in your country, does invoicing of heating, cooling
and hot water, and information provided to tenants on their consumption pattern, generally conform to the
requirements of Annex VII?"
Not surprisingly, a similar proportion of the same stakeholders did not consider that - where
heating and/or hot water is sub-metered - invoices sufficiently transparent and clear, and cost
allocation regarded as fair (cf. ).
98
Figure 11: Expert stakeholder responses to the question: "Where data from heat meters or heat cost allocators are
used to calculate the amount of energy invoiced to residents, are invoices sufficiently transparent and clear, and cost
allocation regarded as fair?"
How efficient has the EU intervention been?
There are no data available to assess this question quantitatively yet, but given that the
provision themselves (in EED Article 10(1)) contain "caveats" regarding cost-effectiveness, it
is unlikely that the rules have imposed any disproportionate costs.
Even where meters or heat cost allocators are in place, the "cost plus" regulation that is typical
of district heating networks, or internal heating accounts of sub-metered multi-unit buildings
supplied e.g. from a central fuel oil boiler, is often operating on an annual basis. It may thus
be costly or impossible to produce the cost figures that would in principle be required to
produce sub-annual billing information including current energy costs. For this reason focus
on consumption information (in terms of energy) rather than billing information (including
also cost/price data) might be a more realistic option for sub-annual information in these
cases. Depending on how MS have applied the "caveat" in Article 10(1) in this case, this may
have resulted in more or less efficienct outcomes.
How relevant is the EU intervention?
99
With EED Article 10 and Annex VII having been adopted rather recently and aiming to
address some of the problems identified, it clearly remains highly relevant.
How coherent is the EU intervention internally and with other (EU) actions?
Whereas no direct contradictions with other provisions and actions have been identified, it
may seem incoherent or at least confusing that, as explained above, the minimum frequency
of billing is (qualitatively) regulated in the Electricity and Gas Directives and quantitatively
regulated in the EED for all but smart electricity and gas meters. Most importantly, the latter
(EED) results in what would seem to be an unjustified difference between those customers of
electricity/gas and thermal energy forms, respectively, who have equipment allowing for
automatic/remote readings: whereas customers with smart electricity or gas meters should
expect to have at least monthly information (cf. the Commission's interpretation of the IEM
provisions), consumers whose consumption is measured with "smart" heat meters or heat cost
allocators are only entitled to information 2 or 4 times a year (assuming that the cost-
effectiveness condition has not been used to deviate from it). It would seem more logical that
where supplies are measured using remotely readable equipment, and where marginal costs of
more frequent information are therefore very small, the minimum frequency would be the
same regardless of the energy form, and that this be clearly spelled out.
Moreover, the wording of Annex VII in some cases can be considered ambiguous. The use of
the word "should" in Annex VII point 1.1. has led some Member States to consider the
minimum requirements optional/non-binding, although the word "shall" is used in the
operative Article itself (Article 10(1)). In the same vein, there seems to be some overlaps
between the requirements listed in point 1.2 c) and point 1.3 of Annex VII, which both refer
to contact information for external resources that the customer can refer to.
What is the EU added value of the intervention?
Delivering a New Deal for energy consumers as part of an Enery Union with consumers at its
heart means inter alia providing consumers with frequent access to partially standardised,
meaningful, accurate and understandable information on consumption and related costs155
.
Guaranteeing certain minimum standards in terms of the frequency and content of billing and
billing information therefore contributes to realising the Energy Union and meet EU goals on
energy efficiency and greenhouse gas reductions.
3.5. Conclusions
The legislators' original objectives behind the provisions can be summarised as follows:
 To enable effective consumer choice and boost competition through the availability
of transparent, comparable and reliable information on prices, costs, energy
consumption, fuel mix and environmental impact of electricity supplies
 To enable/incentivize energy savings through sufficiently frequent feedback about
(the cost of) their energy consumption
Effectiveness
155
Cf. conclusions in COM(2015) 339 final
100
The evidence available and considered in this evaluation suggests that the provisions in the
IEM and EED together are likely to have made some contributions towards the
achievement of both of these objectives, although it is impossible to quantify this given the
multiple and complex other factors that also affect these objectives' achievement, the absence
of precise indicators and the scarcity of data.
The EED generally contains the most specific and detailed provisions in the area of metering
and billing, and not just as regards energy savings but also as regards the clarity and
comparability of energy bills. The deadline for its transposition is relatively recent (mid 2014)
and some of the key obligations therein have later deadlines for actual application. Until the
national transposition measures are in place, have been verified to be in conformity with the
requirements of the Directive and have been applied by market players on the ground it might
be too early to draw many firm conclusions as regards the effectiveness of the current
legislative framework.
It is nevertheless already possible to identify certain gaps and areas of potential
improvements.
With regard to comparability and clarity of billing information, the relatively low degree
of satisfaction of electricity and gas customers compared to other services markets and the
high share of complaints related to billing suggests that there is still room for improvement
and that further action might well be required to this end, at national or EU level. This
conclusion is corroborated by the findings of the 2016 Electricity Study and the responses to
the Commission's Consultation on the retail energy market conducted in spring 2014. A
specific expert stakeholder consultation confirmed similar issues for centrally supplied
thermal energy in multi-unit buildings: only 1 out of 4 consider that invoices are sufficiently
transparent and clear, and cost allocation regarded as fair by consumers in such sub-metered
buildings.
With respect to energy savings there was a clearly stated intention with the EED to clarify the
pre-existing requirements contained in the IEM and in the 2006 Energy Services Directive
(ESD) as their effect on this objective was considered to have been too limited. This intention
has only partially been met given that the current framework remains complex and open to
interpretation with regard to the nature and scope of certain key obligations. From this
perspective, there is a case already for revisiting certain aspects of EED Articles 9-11 and of
Annex VII, in particular those related to the minimum frequency of provision of information,
the precise nature of that information and the situations in which the requirements are
applicable.
With regard to disclosure of energy sources, the evidence available suggests that the way the
current requirements are implemented is not sufficient to match the intentions: a rather high
share of citizens seem to either not find or not notice disclosure information with their
billing information. Others have doubts about the credibility or added-value of green claims
made. While these problems in some instances may be due to bad application/non-
enforcement, it also points to a potential for making such information more trustworthy,
accessible, visible and easy to understand and compare. Moreover, the fact that a high share
of gas offers carry "green" labels or claims despite biogas injection still being very limited
also puts a question mark over the effectiveness of what is in fact amounts to a
voluntary/unregulated regime, given there is no disclosure obligation for gas as there is for
electricity. Finally, there is increasing demand from energy consumers, particularly the
corporate sector, but also from organisations representing general consumers, for robust
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information on the emissions associated with the energy use. This has resulted in a number of
organisations proposing that the Guarantees of Origin system is extended to cover emissions
such as CO2.
Efficiency
There is little if any evidence but good reason to assume that the intervention has been
efficient in terms of the proportionality between impacts and resources/means deployed. The
major reason for this is that certain obligations are either modest in ambition, unclear in scope
(and therefore not implemented) or qualified with conditions allowing Member States to make
implementation subject to cost-effectiveness/proportionality criteria. A possible exception is
the rules on disclosure where resources have been committed to establish systems allowing
the issuance of guarantees of origin of electricity from renewable energy sources and from
high-efficiency cogeneration under the RES and EED, respectively, but where the disclosure
obligation in the IED does not require their use, thereby missing an obvious opportunity to
use common EU tools that anyways exist.
Relevance
Overall the key provisions remain highly relevant, not least those of the EED which is not
surprising given its relatively recent adoption. This said, parts of both the IEM and the
EED itself have to some extent been surpassed by developments in the market as well as in
the regulation (EED). This concerns notably EED Article 9(1) which carried forward
provisions from the former Energy Services Directive without addressing certain ambiguities,
and without reflecting recent technological and market developments as regards the
availability of remotely readable heat cost allocators and meters. As regards the IEM, the
increasing use of online price comparison tools challenges the relevance, or at least the
completeness, of certain provisions if they are not adapted to also reflect and support new
ways of consumer-market interaction.
Coherence
In terms of coherence, the evaluation has pointed to a number of issues where improvements
seem possible.
Firstly, it must be noted that smart metering is addressed by provisions in both the
Electricity and Gas Directives, in the EED and in the EPBD, as well as by a non-binding
Commission Recommendation. These provisions are the subject of a separate thematic
evaluation reported as part of the Market Design Initiative and not discussed in depth here. It
suffices to say here that whereas no direct contradictions have been identified, this situation
is at the very least confusing and renders it more complex to understand the applicable
requirements. An example is the minimum frequency of billing which is regulated by the
IEM Directives in a qualitative way (not making references to quantified frequencies), and by
more specific quantified provision in the EED but only in so far as non-smart meters are
concerned. This results in what appears to be an unjustified difference in the guaranteed
minimum frequency of provision of information between those customers of respectively
electricity/gas and heat that have remotely readable/"smart" equipment installed: the latter are
not currently sure to fully benefit from the capabilities of the smart equipment (be it heat
meters or heat cost allocators).
102
Secondly, the continued use in the EED (Article 9(1)) of the term "meter…. that provide
information on actual time of use", originating from the 2006 Energy Services Directive,
raises questions about the coherence with the framework for promoting smart meters.
The latter generally aims to promote the roll-out, where cost-effective, of meters with a wider
range of functionalities of which capability to provide time-of-use information is just one.
Thirdly, in so far as billing and billing information are concerned, the way Annex VII of the
EED is drafted and referenced could be improved to address certain internal overlaps
or ambiguities as regards the nature and scope of its applicability. Notably it might be worth
clarifying beyond doubt that the annex is applicable to consumers of thermal energy in multi-
flat/purpose buildings even where they're not directly or individually parties to an energy
supply contract. The precise nature of some of the information elements (comparisons) could
also be clarified.
Finally, two observations can be made as regards disclosure of energy sources:
Firstly, the current disclosure regime is not technology-neutral. Electricity supplies are
subject to disclosure whereas network supplies of gas and thermal energy forms are not. It
might be argued that historically this was justified a) because "gas is just gas" and b) because
thermal energy supplies were not regulated by an internal market directive. However, as gas
supplies are increasingly being diversified to include biogas, gas customers arguably might
also start having an interest in knowing where their gas comes from and use this information
as active consumers. As regards heat, switching supplier is typically not an option in the short
term. Nevertheless, heat consumers – whether supplied from a central boiler in a multi-flat
building or from a district heating network – arguably also could have a legitimate interest in
knowing the source of their energy: at building level this could inform collective decisions to
change energy source when installations have to be renovated. At the level of district heating
networks, this could increase awareness and political pressure over time to transition to using
more efficient and low-carbon sources or upgrading infrastructures in the network.
Secondly, whereas EU legislation establishes tools to facilitate electricity-related
disclosure for both renewables and high-efficiency cogeneration, it only stimulates a
demand for the former. The obligation to disclose the fuel mix, enshrined in the Electricity
Directive, does not require or stimulate disclosure of the share of cogeneration. Moreover,
even for renewables, the disclosure obligation is not systematically/exclusively met using
guarantees of origin, despite them being available, as their use is not mandatory.
EU added-value
Delivering a New Deal for energy consumers as part of an Energy Union with consumers at
its heart means inter alia providing consumers with frequent access to partially standardised,
meaningful, accurate and understandable information on consumption and related costs.
Healthy levels of consumer engagement and retail competition are key to ensuring the
rollout of new products and services that will help the energy system become more
flexible, and build demand for innovative energy products. Guaranteeing certain minimum
standards in terms of the frequency and content of billing and billing information therefore
contributes to realising the Energy Union and meeting EU goals on energy efficiency and
greenhouse gas reductions.
In addition, the provisions addressing consumer information in the Electricity and Gas
Directives are essential for protecting consumers in the internal energy market at the retail
103
level. They play an important role in ensuring the benefits of the internal market in energy can
be enjoyed by all consumers, and help to create a level-playing field for suppliers and other
retail market actors across the EU. Whereas there are currently very few, if any, examples
of cross-border supply in the retail market, a common base of energy consumer rights
that helps national rules converge over time is a precondition for that to develop. With
the perspective of developing an internal retail market where customers one day might even
shop cross-border, the common definition of minimum requirements for information for
consumers creates added value. But even in absence of cross-border supplies at retail level,
common minimum requirements allow service providers and equipment manufacturers
to develop standard solutions and create economies of scale, leveraging the internal market
of 500 million consumers.
Simplification, burden reduction potential, SMEs, and quantification of costs and benefits
From the evaluation it appears very likely that it should be possible to clarify the current
legislative provisions which are somewhat complex and open to interpretations on important
points. This in turn should simplify the task for the public authorities whose task it is to
transpose the rules in national law and ensure their actual implementation and enforcement.
However, also other market players and not least citizens would benefit from clearer and more
coherent rules at the EU level. In terms of burdens for citizens economic operators, including
on SMEs, the existing rules create a net benefit as they are not requiring action where it is not
cost-effective, and are therefore not imposing significant burdens.
3.6. Stakeholder consultation
This evaluation has benefitted from input from the following processes involving
stakeholders:
3. Consultation on the retail energy market
http://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market
4. Consultation on the Review of Directive 2012/27/EU on Energy Efficiency
http://ec.europa.eu/energy/en/consultations/consultation-review-directive-201227eu-
energy-efficiency
5. Three stakeholder workshops on metering and billing of thermal supplies organised by
"empirica" for the Commission
http://www.empirica.biz/projects/energy/details/?projectid=182
6. Three range of workshops organised by the JRC on metering and billing of heat
http://iet.jrc.ec.europa.eu/energyefficiency/tags/heat-metering-and-billing
Retail market public consultation - results
Below are summarised in graphic form a quantitative summary of the relevant feedback from
the consultation referred to in point 1 above.
Please give your opinion on the relative importance of the following factors in helping
residential consumers and SMEs better control their energy consumption and costs.
104
ACER/CEER Annual Report concludes that consumers are dissatisfied with the information
they receive in their contract and in their billing information. The report also shows the
frequency with which consumers switch from one energy supplier to another. This varies
between 0% to 14,8% in the EU Member States.
In your opinion, what are the key factors that influence switching rates?
105
Please indicate if you agree or disagree with the following statements concerning ways to
increase consumers' interest in comparing offers and switching to a different energy supplier.
With the implementation of related provisions in the Energy Efficiency Directive by December
2014, consumers can be billed on the basis of their actual energy consumption and have the
right to access their actual and historical consumption data. Do you think that bills provide
consumers with sufficient information about their consumption patterns?
106
EED review - results
Below are summarised in graphic form a quantitative summary of the feedback from the
consultation referred to in point 2 above in so far as EED Articles 9-11 are concerned, on the
basis of 326 responses. Further details have been published online in a full synthesis report156
.
Overall adequacy: Do you think the EED provisions on metering and billing (Articles 9-11)
are sufficient to guarantee all consumers easily accessible, sufficiently frequent, detailed and
understandable information on their own consumption of energy (electricity, gas, heating,
cooling, hot water)?
156
https://ec.europa.eu/energy/sites/ener/files/documents/Public%20Consultation%20Report%20on%20the%20
EED%20Review.pdf
107
Do you think it appropriate that the requirement to provide individual metering and frequent
billing (Articles 9(1), 9(3) and 10(1)) is subject to it being technically feasible and/or cost
effective?
Should such conditions of being technically feasible and/or cost effective be harmonised
across the EU?
44%
31%
25%
Yes No No opinion
61%
12%
27%
Yes No No opinion
22%
47%
31%
Yes No No opinion
108
How would these conditions of being technically feasible and/or cost effective affect the
potential for energy savings and consumer empowerment?
3.7. REFIT assessment of the Renewable Energy Directive – Provisions related
to Guarantees of Origin (GOs)
This section summarises the evaluation work that has been carried out in relation to Article 15
of the Renewable Energy Directive (Directive 2009/28/EC). This Article relates to the
Guarantees of Origin (GO) system which tracks the origin of renewable electricity and can be
used for disclosure purposes.
Conclusions and recommendations for GOs
The REFIT assessment concluded the following actions:
 Continue to stress the importance of MS to move towards a GO system based on the
European Energy Certificate System (EECS) operated by the Association of Issuing
Bodies (AIB). Also, continue to monitor progress, to ensure full implementation of
this article throughout the EU.
 Assess the option to link GOs to the actual energy stream, after 2020.
 Assess the benefits of following the Best Practice Recommendations formulated by
RE-DISS I and any further recommendations from RE-DISS II22. These include:
extending the use of GOs for all types of power generation; streamlining the use of
tracking mechanisms at MS level; clarifying the relation between support schemes and
the tracking systems used for purposes of disclosure.
 Investigate the possible extension of the use of GOs beyond RES-E and high-efficient
cogeneration to all types of power generation i.e. including electricity from fossil and
nuclear generation.
REFIT assessment
What is the current situation?
The REFIT analysis of the RED summarised the situation with the GO system.
21%
15%
64%
Yes No No opinion
109
Article 15: Guarantees of origin (GOs)
Positive contributions
Key issues and barriers
Transparency on RES generation has increased
and GOs proved to be a useful tool to reduce
fraud and inaccuracies.
Systems throughout the EU have become more
standardised.
There are still barriers to the trade and transfer of
GOs; differences in the comprehensiveness of
procedures and the use of GOs remain.
The administrative burden seems reasonable but
data are lacking and likely to depend on MS
implementation and starting point
How effective has the EU intervention been?
The REFIT analysis showed:
 All MS now have some sort of RES GO system in place with competent bodies
assigned for issuing, transferring and cancelling GOs. The use of GOs for heating and
cooling remains limited as RED does not set a mandatory requirement regarding their
issuance.
 Guarantees of Origin are used for three main purposes: fuel mix disclosure i.e. to
prove how the energy was produced and ensure transparency of the energy data
produced by the system and of the information provided to final consumers; to
determine eligibility for national support schemes - it is up to Member States to decide
whether they want to combine GOs and support schemes; as a traded commodity
between MS.
 Almost all countries use GOs for consumer disclosure purposes and most recognize
GOs from other countries and allow trade, albeit with different conditions.
 The number of GOs issued, traded and transferred has been increasing sharply
between 2010 and 2013 but the trade in GOs remains limited due to barriers to the
trade and transfer of GOs based on the fact that not all Member States are members of
the Association of Issuing Bodies (AIB) and use a system compliant with the
European Energy Certificate System (EECS), which means that GOs from some
Member States are refused by others.
 At this stage there is no specific research which isolates and quantifies the impact that
GOs have had on the level of investment in renewable energy at EU or MS level.
 GOs have proved to be useful tools to reduce fraud and inaccuracies. The
effectiveness of the systems in place to avoid inaccuracy and double-counting has
clearly improved significantly since the first version of the Directive (2001) and even
since 2009. The majority of countries are now compliant with the EECS and have
systems in place to check the validity of the information supplied by GOs. However,
there still remain differences in the comprehensiveness of these procedures and
therefore their likely effectiveness.
 The effectiveness of GOs as a tradable commodity which can support investment in
RES across Europe is less clear. The exclusion of GO use as a compliance means for
meeting national targets reduces their effectiveness in supporting investment across
the EU, because it places the emphasis on domestic (national) measures irrespective of
the opportunity for cheaper investment elsewhere.
How efficient has the EU intervention been?
Efficiency was examined by the REFIT analysis:
110
 The costs of a Guarantee of Origin regime include the development and operation
costs of a registry as well as costs of plant registration and audits and transaction costs
for participants.
 Implementing article 15 of the 2009 Directive will have involved additional costs for
public authorities in order to meet the new mandatory requirements it included.
However, in most countries the system will build on: the existing GO system if one
was implemented in response to the 2001 Directive; or using an existing body as the
responsible authority and allocating it these additional responsibilities in order to limit
additional costs.
 Overall the administrative burden does seem reasonable, although in practice it will
depend on how MS implement the system. The system costs associated with fraud and
double-counting avoidance also need to be viewed in the context of the risks and costs
of fraud and double-counting itself. These costs can be minimised through a
standardisation of GOs across Europe.
 Ultimately the cost efficiency of the system will not only depend on the
implementation and operation costs but also on the volume of GOs issued and traded:
the more GOs are issued the higher the economies of scale achieved and therefore the
efficiency of the system.
 There is no available overview of the costs placed on producers by the various MS
systems at this point.
 The continued standardisation of the GO system at EU level – following the Best
Practice Recommendations formulated by RE-DISS I and any further
recommendations from RE-DISS II - seems to be the best way to maximise the
potential benefits from this Article.
What is the EU added value of the intervention?
The REFIT analysis summarised added value as:
 The article is not directly related to other EU initiatives but GOs might be considered
useful tools as part of the objective for a single internal energy market set out in the
2009 Energy Market Directives. Specifically, the role of GOs in supporting fuel mix
disclosure helps facilitate consumer choice and supplier competition, both of which
are encouraged by the 2009 Energy Market Directives.
 The 2009 RED introduced improvements in the minimum requirements originally set
out in the 2001 Directive. Without further intervention at EU level the situation would
likely have remained unchanged since 2001 with a fragmented system as opposed to
the more standardised (although still not unified) process currently in place.
 The added value of this article in terms of cost-efficiency is limited by the need for
individual MS to meet their renewable targets and the separation between GOs and the
underlying commodity they related to (i.e. energy).
 It is also limited by the presence of other tracking systems in some MS along with
GOs which can create confusion and duplication.
Conclusions
The main conclusions with regards to GOs from the REFIT review are that:
111
 They represent a generally effective tool for auditing purposes and that there is value
in having a consistent approach at EU level. This consistency reduces barriers to
investment (because the market has confidence in the integrity of the GOs across a
standardised system) and transaction costs (because of the efficiency of common
rules). The role of the Association of Issuing Bodies (AIB) and use of a system
compliant with the European Energy Certificate System (EECS) is important in
underpinning the integrity of GOs as internationally traded commodities.
 They could also be a useful tool for creating a voluntary, consumer-driven market for
renewables. The consumer buying a green tariff supply backed up by GOs can be
confident that the corresponding renewable electricity has only been accounted for
once in green supply agreements. However, the decoupling of the electricity and GOs
weakens this benefits since a consumer cannot directly attribute his or her electricity to
a particular renewable source (or indeed any renewable source).
 Despite progress in implementation, improvements are still needed in order to achieve
a consistent system across Europe.
 GO trade is still in its infancy and it is as yet unclear whether it will have net positive
impacts on RES deployment at EU level and, consequently on MS ability of reaching
their targets. There is a potential for conflict between EU level and country level
benefits from the mainstream use of GOs should it happen. This is because the
exclusion of GO use as a compliance means for meeting national targets places the
emphasis on domestic (national) measures irrespective of the opportunity for cheaper
investment elsewhere.
 It is important that all MS continue to move towards a GO system based on the
European Energy Certificate System (EECS) operated by the Association of Issuing
Bodies (AIB). Joining AIB and the EECS can provide guidance for MSs on
developing a system which is compliant with others across Europe, and will facilitate
trade.
 Separating GOs from the energy system itself decreases transparency since the
consumer cannot associate their electricity with a renewable source. This can reduce
the effectiveness of this article as a means to encourage the voluntary market in green
electricity supplies.
 It is worth investigating the possible extension of the use of GOs beyond RES-E and
high-efficient cogeneration (HE cogeneration) to all types of power generation i.e.
including electricity from fossil and nuclear generation. This would help support the
tracking and auditing on non-renewable supplies and underpin the integrity of the
supply mix disclosure statements that inform consumer choices concerning these
generation types.
Finally, the overall future effectiveness of GOs will be improved by continuity of the RED
beyond 2020 (and communicating that continuity), especially to avoid uncertainty in the GO
market as we approach 2020.
3.8. Main sources used for the analysis
Electricity and Gas Directives
 ACER is an agency created by the ACER Regulation. ACER's duties include
monitoring and reporting on the internal electricity and gas markets. By the end of
112
2015, ACER will have published four annual Market Monitoring Reports157
that
provide in-depth coverage of relevant issues such as consumer empowerment and
protection, supplier switching and consumer information.158
 DG JUST published in 2010 (2009 data) a study on the functioning of retail
electricity markets for consumers in the EU ("the 2010 electricity study").159
This
major study examined whether a well-functioning electricity market was in place for
consumers in the EU. It also examined the extent to which consumers were able to
make informed and empowered choices and what motivates behaviour in the
electricity market. The study provided evidence pertinent to evaluating the billing and
metering measures put in place by the Electricity Directive.
 DG JUST commissioned a follow-up study on the functioning of retail electricity
markets for consumers in the EU ("the 2016 Electricity Study"160
) to assess the
development of consumer conditions across the EU28 Member States' (and Norway,
Iceland) electricity markets following the implementation of the Third Energy
Package. The 2016 Electricity Study assesses the extent to which the electricity market
benefits consumers and what is still missing for better consumer outcomes. It also
examines the extent to which consumers are able to make informed and rational
choices corresponding to their energy consumption needs, whether they possess the
necessary tools to compare prices and offers, and what motivates consumer behaviour
in the energy market. The study makes comparisons with the findings of the 2010
electricity study. The findings provide evidence for future policy initiatives and
identify actions needed for further integration of the EU Internal Energy Market.
Initial findings from the 2016 Electricity Study were published in November 2015
together with the State of the Energy Union 2015 Communication.161
The final report
will be published in summer 2016.
 DG JUST published a study on the coverage, functioning and consumer use of
comparison tools and third-party verification schemes,162
which addresses the
possible improvements that can be made to ensure comparison tools are reliable,
transparent and user-friendly and that they benefit consumers given that consumers are
increasingly using such tools to compare offers on the market.
 In addition, DG JUST's (and formerly DG SANCO's) consumer scoreboards163
are
an important source of information on how the single market is performing for EU
consumers.
157
http://www.acer.europa.eu/electricity/market 20monitoring/Pages/default.aspx
158
The data used for compiling ACER's annual report is provided by national regulatory authorities for energy
(NRAs), the European Commission and the European Networks of Transmission System Operators (ENTSOs).
The members of the Administrative Board of ACER (Article 12(7) of the ACER Regulation) and ACER's
Director (Article 16(1) of the ACER Regulation) act independently of the Commission and other interests. For
sector-specific consumer issues, ACER also draws on data from the Commission's Consumer Scoreboard.
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/10_edition/index_en.htm
159
http://ec.europa.eu/consumers/consumer_evidence/market_studies/retail_energy/index_en.htm
160
2nd Consumer market study on the functioning of retail electricity markets for consumers in the EU, EC,
2016
161
http://ec.europa.eu/priorities/energy-union/state-energy-union/index_en.htm; see in particular "Energy
Consumer Trends 2010 – 2015", SWD(2015) 249 final, 18.11.2015, http://ec.europa.eu/priorities/energy-
union/state-energy-union/docs/swd-energy_consumer_trends_en.pdf
162
http://ec.europa.eu/consumers/consumer_evidence/market_studies/comparison_tools/index_en.htm
163
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/index_en.htm
113
 The Council of European Energy Regulators (CEER) is a not-for-profit association
through which Europe's national energy regulators cooperate and exchange best
practice. It has recently produced advice on customer information on sources of
electricity,164
presenting recommendations on how to make the system for disclosing
how electricity has been produced more comprehensive, coherent and reliable.
 The European Consumer Complaints Registration System - ECCRS (DG JUST).
In May 2010 the Commission adopted the "Recommendation on the use of a
harmonised methodology for classifying and reporting consumer complaints and
enquiries". The Recommendation is addressed to any body who is responsible for
collecting consumer complaints, or attempting to resolve complaints, or giving advice,
or providing information to consumers about complaints or enquiries, that is a third
party to a complaint or enquiry by a consumer about a trader165
. Consumer complaints
collected by consumer complaint handling bodies are a key source of information on
the functioning of consumer markets across the EU, in particular on problems faced by
consumers. As the data is directly comparable across the EU, this should allow for a
faster, better targeted, evidence-based policy response at the EU or the national level
to real problems experienced by consumers.
EED
 In so far as metering and billing of thermal supplies is concerned, the work performed
under a service contract166
with the consultants empirica has provided input. Under
this contract two workshops with Member States and stakeholders have been
organised to exchange views on existing and best practices focusing on Member
States' interpretation of "technical feasibility and cost-effectiveness" for the purpose
of the application of Article 9(3) and 10(1).
 Another workshop on heat metering and billing more generally was held with the
assistance of the JRC167
.
 DG ENER's general analysis of Member States' transposition and implementation,
assisted by external consultants.
Reports from the Concerted Actions on the Energy Services Directive and the Energy
Efficiency Directive168
.
3.9. Details on Commission proposals
The Commission's proposal for the Electricity and Gas Directives
164
http://www.ceer.eu/portal/page/portal/EER_HOME/EER_PUBLICATIONS/CEER_PAPERS/Customers/Tab5/
C14-CEM-70-08_CustomerInfo-Sources%20of%20Electricity_Advice_March%202015_0.pdf
165
http://ec.europa.eu/consumers/consumer_evidence/data_consumer_complaints/docs/consumer-complaint-
recommendation_en.pdf
166
Analysis of good practices and development of guidelines for accurate and fair allocation of costs for
individual consumption of heating, cooling and domestic hot water in multi-apartment and multi-purpose
buildings to support the implementation of relevant provisions of the Articles 9-11 of the Directive 2012/27/EU
on energy efficiency – Tender ENER/C3/2013-977
167
Full documentation available here: http://iet.jrc.ec.europa.eu/energyefficiency/node/9072
168
http://www.esd-ca.eu/reports
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The metering and billing provisions in the current Electricity and Gas Directives were
introduced in the Second Energy Package in 2003 as an integral part of measures making all
consumers free to choose their supplier. The 2001 proposal for these directives169
cited
"transparency of information" as a basic right for consumers. A subsequent amended
proposal170
added that "disclosure is important in enabling effective choice".
Although the 2007 Commission proposals for the Electricity171
and Gas Directives172
did
not include new provisions on metering or billing, they reiterated that the existing universal
public service173
requirements in Article 3 of the legislative texts were there "to make sure
that all consumers can benefit from competition." As for the provisions on the frequency of
information on energy costs, these were intended to "create incentives for energy savings".
The Commission's Impact Assessment accompanying the 2007 proposals174
stated that one of
the specific objectives of the broader effort to improve consumer protection was "[e]nabling
easier price comparisons".
The Commission's proposal for the EED
The 2011 Commission proposal for an Energy Efficiency Directive175
included a
comprehensive and ambitious set of provisions on metering and billing representing very
significant changes compared to the already existing provisions in the field, namely Article 13
of the Energy Services Directive176
(ESD).
The Commission's proposal was accompanied by detailed analysis of options on metering &
billing177
. The stated specific objective of the proposal as regards the metering and billing
provisions was to "[e]nsure that consumers are empowered with correct, understandable and
regular information on their energy use".
More particularly, there was a clear aim to address problems identified with the application
of Art 13 of the ESD: As the Impact Assessment summarized it: "Because of the vague
wording the provisions did not lead to improvements" with respect to the aim that was to
"ensure understandable and accurate information is provided for consumers via individual
meters and energy bills on a frequent basis."178
Key changes proposed included:
169
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1447663534789&uri=CELEX:52001PC0125(01).
170
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1447663534789&uri=CELEX:52002PC0304(01)
171
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1447425243567&uri=CELEX:52007PC0528
172
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1447425326195&uri=CELEX:52007PC0529
173
Sometimes known as 'universal service' - the practice of providing a baseline level of services to every
resident, most commonly through a regulated industry.
174
http://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2007/sec_2007_1179_en.pdf
175
http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52011PC0370
176
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32006L0032
177
http://ec.europa.eu/energy/sites/ener/files/documents/sec_2011_0779_ia_annexes.pdf, p.52
178
http://ec.europa.eu/energy/sites/ener/files/documents/sec_2011_0779_impact_assessment.pdf, p.12
115
 minimum frequency of consumption based billing of every 1-2 months in most
cases, and
 clarification that individual metering in each flat in multi- apartment buildings
was also required for heating, cooling and hot water.
3.10. Billing practices and regulation per country179
The regulatory environment in relation to billing is well elaborated across the EU28, Norway
and Iceland. Nonetheless, there is a large variation in how countries choose to approach the
subject, in particular with regards to the extent they are willing to define the content of
electricity bills specifically in the national legislation. Three broad approaches were
identified:
Highly prescriptive (HP) approaches relying on legal instruments or resolutions, which
request a large amount of detail and/or give very specific instructions on what information to
provide in electricity bills.
Legislation which specifies the main information (MI) that must be included in bills, which is
subsequently reinforced by guidance from the regulator (in terms of mandatory information
and format, or best practice guidance).
Legislation that specifies the main information, but leaves electricity providers broad freedom
(BF) to communicate this within their own format.
In the following table, billing practices in each country are described, noting what are
considered to be a highly prescriptive approach (HP), an approach enforcing communication
of main information (MI) and, finally, an approach that allows broad freedom (BF).
Table 4: Billing practices and regulation per country
Austria (MI) Article 81 of EIWOG specifies which information should be presented on the
electricity bill. This provision is further detailed by ordinances from the
regulator, in which suggestions are given as to how to present the mandatory
information, including the energy sources breakdown and the price
components. The contents of the documents (e.g. electricity bill, contract, etc.)
are detailed not only in the Electricity Act, but also in the Renewable Energy
Act, the System Charges Order, the Electricity Duty Act, as well as in
individual Federal states legislation. The ‘DAVID-VO’ Ordinance (Articles 1-
5) specifies the information that electricity suppliers must give to customers.
Belgium
(HP)
Law April, 29th 1999 ‘Loi relative à l'organisation du marché de l'électricite’
details the mandatory information to be present in a consumer’s bill. The
information to be presented in the bill is highly regulated, with 10 mandatory
headings and many mandatory sub-headings which detail the information to be
provided.
Bulgaria (BF) The Bulgarian Consumer Protection Act (Art. 4, Par. 1) outlines a minimum set
of requirements for information to be provided to the customer such as: (1)
information on the composition, (2) the supplier’s contact details, (3) the
trader’s complaint handling process, and 4) arrangements for payment.
179
Source for this annex: European Commission (2016), ' Second Consumer Market Study on the functioning of
retail electricity markets for consumers in the EU.
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Croatia (MI) Articles 49 and 63 of the Act on Electricity Market (Official Gazette, no.
22/13, 95/15 and 102/15) regulate billing. In Croatia, regulations specify that
the supplier needs to deliver an electricity bill that contains the following
elements: the share of the price that is freely negotiated, the share that is
regulated and fees and other charges prescribed by special regulations.
Cyprus (MI) Article 91 (1)(d)(iv) and Article 93 (1)(j) of the Electricity Law 206(Ι)/2015
regulate how the consumption of electricity should be communicated to
consumers. The tariffs of the main energy provider are regulated by the Cyprus
Energy Regulatory Authority (CERA) and they can be found on the website of
the Electricity Authority of Cyprus (EAC).
Czech
Republic
(DF)
Bills for electricity, gas, heat supply and related services are governed by Act
nr. 458/2000 Coll. in articles 11a and 98a. Electricity suppliers are to publish
the conditions and price of electricity supply for households and residential
customers in a way that can be accessed remotely. If increasing the prices for
the supply of electricity, the supplier is obliged to notify the consumer in
advance. In the case of electricity and gas, outstanding charges are billed at
least once a year.
Denmark
(MI)
Regulation of billing information is implemented in Executive Order no.486 of
2007 on electricity billing. However, the Danish Energy Regulatory Authority
has presented an executive order which gives consumers the possibility to
receive a simplified bill. The purpose of this order is to give consumers a better
understanding of the price elements and an incentive to be active on the energy
market. This order was implemented in Danish law in October 2015.
Estonia (MI) Electricity Market Act §75 stipulates the following: “the seller shall submit an
invoice for the electricity consumed to the customer once a month, unless
agreed otherwise with the customer”. It is mandatory for suppliers to include
information not just on consumption but also on emissions and waste (nuclear
and oil shale) as well as dispute resolution options.
Finland (MI) Part III, Ch. 9, 69 § of the Electricity Market Act (588/2013) outlines the legal
requirements with regards to billing imposed by the electricity provider. In the
bill, the provider is to include details on how the price is broken down,
information on the contract’s duration and which dispute-solving tools
consumers have at their disposal.
France (HP) Article 4 of the Regulation 18 April 2012 covers electricity or natural gas bills,
their payment modalities and reimbursement of overpayment (i.e. bill based on
an estimation of the consumption). The bill must include information on over
16 different headings. The website ‘Energie info’, made available by the
National Energy Ombudsman, illustrates and explains this mandatory content
to consumers.
Germany
(MI)
The right to receive clear information on one’s energy contract before signing,
and to be informed in advance if any changes are made to the contract, are
provided for within German law (article 41 EnWG). The EnWG (section IV
art. 40) specifies the content that should be provided to consumers on their
electricity bills. The German Institute for Transparency on Energy (DIFET)
produces certificates for those suppliers that provide consumer-friendly bills.
Greece (BF) The new Code of Electricity Supply regulates the tariffs of electricity suppliers.
Specifically, this code describes what must be included in the bill and how the
bill must be broken down into three different elements: (1) regulated charges;
(2) competitive charges or supply charges; and (2) other charges.
Hungary Law 2013. évi CLXXXVIII. törvény az egységes közszolgáltatói számlaképről
117
(HP) regulates the content of bills. The law gives actual examples of the minimal
information necessary on each bill and also gives examples as to which
elements may be changed or added without infraction. The law also imposes
such details as fonts and font sizes and provides in its annexes a detailed
example of the respective bill in its actual detail. Additionally to the law, the
electricity suppliers also regularly provide a dedicated section on how to read
the electricity bill.
Iceland (BF) Regulation 1050/2004, Art. 42 (referred to in Act 65/2003, Art. 20) lists the
information that must be shown in the invoice sent to customers. Bills shall
show unit prices used for basic account types and quantities of electricity.
Charges levied for the transportation, distribution services and electricity must
be clearly seperated.
Ireland (MI) Statutory instruments S.I. No. 426/2014 Part 4, Art. 6, Art. 7 and S.I. No.
463/2011, Art. 9, regulate the communication of charges and consumption
information to electricity consumers in Ireland. Under Irish law, suppliers must
also inform customers of upcoming price changes at least one month before a
price change comes into effect.
Italy (MI) D.Lgs 93/11 Art. 43(2); L 125/07 Art. 1(6) and Art. 1(5) legislate the
communication of charges and consumption information. Consumers should be
informed of the components relating to supply cost (servizi di vendita),
network cost (servizi di rete), general system charges (oneri generali di
sistema), and taxes (VAT and consumption tax). The regulator has set up
several tools in order to help the consumer understand his bill, most notably a
dedicated webpage ”Your Bill Explained” (la bolletta spiegata) and a
consumer help-desk (lo Sportello per il Consumatore).
Latvia (MI) According to Art. 31 3° of Electricity Market Law, the Public Utilities
Commission (PUC) shall determine what kind of information and to what
extent electricity supplier shall include in their bills and informative materials
that are issued to the consumer. The regulations of the PUC determines that a
bill shall include at least the electricity amount in kWh supplied in billing
period, the amount charged for consumed electricity in euros and the average
electricity price in euro per kWh during the billing period and fees for
electricity distribution system services, other additional services and the
mandatory procurements components and total fees for the billing period for
consumers and other end-users to whom shall be issued invoices regarding
electricity service supply.
Lithuania
(BF)
Law on Energy of the Republic of Lithuania No. IX-884 and Law on
Electricity of the Republic of Lithuania No VIII-1881. Article 31 regulate the
communication of charges and consumption information to electricity
consumers in Lithuania, as well as contractual conditions and changes to
contracts. The consumer is entitled to receive information on conditions of
service and electricity prices and tariffs, reports on prices, contract terms,
conclusion and termination conditions.
Luxembourg
(BF)
Article 2(5) of the Law of 1 August 2007 regulates the communication of
charges and consumption information to electricity consumers in Luxembourg,
as well as contractual terms. With respect to billing, the law states that
electricity providers must transmit to residential customers transparent
information on tariffs and prices.
Malta (MI) Electricity Market Regulations (S.L. 545.16), Art. 8(3) regulates billing. Bills
issued by Enemalta Corporation, Malta’s electricity supplier, must include
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contact details of its subcontractor, ARMS Ltd, which is the company
responsible for meter reading, billing, debt collections and customer care
services. Households should receive bills calculated on actual consumption at
least every six months. For households with a smart meter, these bills based on
actual readings are more frequent. All bills show a breakdown of the price
calculation, the total electricity consumption for that period as well as the
average daily energy consumption, relevant tariffs and CO2 emissions.
Netherlands
(MI)
The Electricity Act, article 95, details the mandatory information to be
provided on an energy bill and some associations provide recommendations for
data presentation. The breakdown of an energy bill concerns supply costs
(“leveringskosten”), network costs and metering costs, and then taxes
(“Belasting”). While using green energy, some taxes are refunded
(“Belastingvermindering”).
Norway (MI) FOR-1999-03-11-301, chapter 7 §7-2 regulates the communication of charges
and consumption information to electricity consumers in Norway. The
regulation is detailed, and lays down stipulations for frequency of billing. For
Internet billing, the bill shall contain a graphical comparison of the annual
consumption of each settlement period with the corresponding period during
the previous year. For paper invoicing, the company’s logo and contact
information must appear on the top of the first page. In both cases, “the invoice
must be clear and easy to understand”.
Poland (MI) The Energy Law, Art. 5. 6a - 6c. regulates the communication of charges and
consumption information to electricity consumers in Poland. Electricity
suppliers are to inform consumers about the fuel supply mix used in the
previous calendar year and about a place where information is available about
the impact of the production of energy on the environment (at a minimum in
terms of carbon dioxide emissions and radioactive waste created). Electricity
suppliers must also inform consumers about the amount consumed in the
previous year and the place where information is available about the average
electricity consumption for each connection group of recipients, energy
efficiency improvement measures and the technical characteristics of energy-
efficient appliances.
Portugal (BF) Art. 54 d) and Art.55 c) and d) of Decree Law of 15 February 2006 regulate the
communication of charges and consumption information to electricity
consumers in Portugal. Under the law, consumers are entitled full and
adequate information to enable their participation in the electricity market,
access information in a transparent and non-discriminatory manner on
applicable prices and tariffs, as well as complete and adequate information in
order to promote energy efficiency and the rational use of resources.
Romania
(HP)
Law 123/2012 (modified in 2014) ART.62 (1) h9
) and art. 145 (4) p) and Law
123/2012 (modified in 2014) ART. 66 (1),(2) regulate the content of bills. The
Energy Authority ANRE has made available to the consumer an explanatory
sample of the components that have to be included in the bill. This model has
been adopted by electricity suppliers, who can also opt to display the same
document at their websites, in order to inform consumers about the contents of
their bill.
Slovakia
(MI)
The supplier of electricity and gas is, according to the § 17 article 14 of the
Law 251/2012, obliged to inform the customer on the invoice or attached
material about the particular components of the energy supply including the
unit price. Information about the composition of the price component has to
119
include the unit price especially for electricity purchase including the
commercial activity of the supplier, distribution, losses during distribution,
system services, system operation and taxes.
Slovenia
(MI)
Beside standard items that must be included in every invoice issued in Slovenia
that are stipulated by the Value Added Tax Act (invoice date, number, invoice
issuer’s contact details, amounts billed, VAT rate,…), consumers also have to
receive certain information in their electricity bills, stipulated within Article 42
of the Energy Act, including the proportion of energy source that supplier used
in preceding year in a way comparison between different suppliers can be
made, the reference source where publicly available data on environmental
impacts, expressed in CO2 emissions and amounts of radioactive waste
resulting from the electricity production in the preceding year, and consumers’
rights related to dispute resolution.
Spain (HP) Law 24/2013 establishes the type of information that should be included in an
electricity bill. This format is mandatory for the suppliers of last resort. The
details of the information are formally listed in the resolution N.5655 of 23
May 2014 of the Ministry for the Industry, Energy and Tourism. The resolution
illustrates in its annex a template to be followed when producing electricity
bills, showing in explanatory graphs and in detailed tables the mandatory
information and its granularity.
Sweden (BF) The Electricity Act chapter 8, §14-16 specifies that an electricity supplier’s
billing shall be clear. It shall contain information on the measured consumption
and current electricity prices that the billing shall be based on. The Swedish
Energy Markets Inspectorate specifies in detail what shall be contained in
electricity bills. The electricity cost consists of two parts: (1) a payment to the
grid operator to stay connected and (2) payment for the actual electricity
consumption and the electricity cost.
UK (BF) The consumers’ right to accurate consumption information is captured in
Condition 31A of the Standard Licence which makes it incumbent on suppliers
to provide customers with electricity consumption information in each bill (or,
within the space of 30 days from a notice of increase in charges in cases where
the latter is issued). In addition, suppliers must send an annual statement to all
customers in a pre-defined format. Schedule 2ZB to the Electricity Act
stipulates that licence-exempt suppliers must also provide consumption data to
customers on an annual basis. Under Condition 12 of the Standard Licence,
suppliers must take meter readings at least once every two years. Condition
21B of the Standard Licence allows customers to read their own meters as
often as they choose. Suppliers are to reflect that reading in the subsequent bill.
The structure of the bill is not fixed by any legislation.
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4. ANNEX 6: DETAILS ON THE EU FRAMEWORK FOR SMART METERING ROLL-OUT AND
USE OF SMART METERS
4.1. Executive Summary
This annex presents the thematic evaluation of smart metering provisions placed in energy
legislation, namely in the Electricity Directive 2009/72/EC (Article 3 (11) and Annex I.2)),
the Gas Directive 2009/73/EC (Article 3(8) and Annex I.2), the Energy Efficiency Directive
2012/27/EU (Article 9(2); Article 10(2); Article (12(2b)) and the Energy Performance in
Buildings Directive 2010/31/EU (Article 8(2)).
These measures promote smart metering roll-out as part of the modernisation of the retail
energy market and target the active participation of consumers in the energy supply market, as
was the original objective of the legislator, intended to be achieved through:
i. transparency provided by the meter (in terms of timely and accurate information on
consumption: predictability of costs, awareness of options and choices);
ii. third party access to data, connectivity and interoperability (to facilitate in practice
competitive offers and exercise of choices at the customer end, but also system
integration, and result in higher efficiencies and lower cost);
iii. due regard to best practises (installation of in-home displays for a direct information
provision, connection to home automation, self-consumption, etc.);
iv. consumer access to schemes that reward flexible consumption, such as demand
response, as a specific means for energy efficiency benefits via novel services that rely
on smart metering data.
The aim of the legislator was not to enforce in a systematic way an EU-wide smart metering
roll-out but to encourage it only in those situations where it is beneficial, economically
reasonable, and therefore appropriate. Accordingly, the provisions instructed: (i) the
deployment of gas and electricity smart metering, potentially as subject to a cost-benefit
analysis; (ii) the target and timing of the operation in the case of electricity; but also (iii) the
function of the systems to be rolled-out, namely to be interoperable, with due regard to
standards and to enable the active participation of consumers in the energy supply market).
The Commission also tabled non-binding Recommendations (EC Recommendation
2012/148/EU and 2014/724/EU) to guide and assist Member States in their choices and in
meeting these obligations in the field.
Despite the progress noted, EU-wide implementation is falling short of the legislator's
intentions. The current advancement is rather slow particularly in view of the fast approaching
2020 original target in the case of electricity, and the gap to delivery may be further widened
by recurring delays in national programmes. In addition, there is a risk that the systems being
rolled-out may not be fit for purpose and not bringing all the desired benefits to consumers
and the market as a whole. This is due to the fact that the legislative provisions in the
aforementioned Electricity and Gas Directives are silent on the practicalities/specifications for
reaching the ultimate requirement to roll-out systems that shall assist the consumers' 'active
participation' in the energy supply market. These requirements were later on to some extent
touched upon, but not sufficiently addressed, in the Energy Efficiency Directive (Directive
2012/27/EU, Article 9(2)). Furthermore, they were prescribed as guiding provisions on
121
functionalities, interoperability, connectivity, and measures for data privacy and security in a
smart metering environment, in follow-up, but not legally binding, Recommendations
(2012/148/EU and 2014/724/EU) tabled by the Commission.
In all cases, the successful roll-out is controlled to large extent by Member States that are
ultimately responsible for the deployment and respective market arrangements, and may or
may not decide to take on-board non-binding guidelines.
In the light of the developments so far, the existing provisions can be assessed as follows.
In terms of effectiveness, the evidence suggests that the smart metering provisions currently
in place have been less effective than intended. This is partly a result of the 'soft'/unspecific
nature of some obligations they lay (i.e. Article 8(2) of the Energy Performance in Buildings
Directive 2010/31/EU), but mainly due to caveats that they contain regarding the assessment
of the cost-effectiveness of the operation, and lack of definition of the concept of 'active
participation' of consumers and of the underlying requirements for this to be realised.
Consequently, enforcing functional requirements for smart metering systems being rolled out
in the EU, and consistently promoting the use of available standards to ensure their
connectivity and 'interoperability', while having due regard to data security and privacy,
would guarantee a coherent, future-proof system able to support novel energy services and
deliver benefits to consumers, in line with the legislator's intentions.
Given that actual field data are scarce, there is not enough evidence at the moment, a part
from cost/benefit projections, regarding the efficiency of the intervention in terms of
proportionality between impacts and resources/means deployed. However, the overall impact
of the current provisions is until now rather limited, and likely so are the effects and costs.
Considering that the provisions themselves contain caveats regarding financial proportionality
/ cost-effectiveness, it seems unlikely that the respective measures have or could impose as
they stand any disproportionate costs. At the same time, and in order to coherently assess the
benefit/cost ratio, more harmonised rules could potentially be tabled on the methodology to
use, along with a requirement to incorporate the functionalities and standardised interfaces
recommended by the Commission in the set-ups considered.
The present analysis shows that the current smart metering provisions in terms of relevance
remain valid, but could be further enhanced, by elaborating them so as to (i) specify how the
term of 'active participation' is to be understood, and realised in practical terms; (ii) include
an obligation to Member States to officially set the minimum technical and functional
requirements for the smart metering systems to be deployed, the market arrangements, and
clarify the roles/responsibilities of those involved in the roll-out. Furthermore, in anticipation
of future demand, and always in the context of realising the internal market also for
consumers, extension of the provisions should be considered. This is to potentially include the
consumer right to request a smart meter (or its functional upgrade), even in those cases where
there is no national roll-out.. Such a framework should examine the possibility of consumer
direct participation in associated expenses for the deployment, and ensure that the
installation/upgrade takes place within a reasonable time upon request and at a cost-reflective
manner (verified by the National Regulatory Authority).
In terms of coherence – internally and with other EU actions – the evaluation has identified
the necessity to clarify that a wide range of smart metering functionalities is promoted, as
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those recommended by the Commission, that go much beyond the capability of just 'actual
time of use' information currently mentioned in the related provisions of the Energy
Efficiency Directive. Moreover, in order to ensure consistency, coherence, and streamline any
future changes in provisions, it is advised to consider that all smart metering requirements be
consolidated/embedded in one single legal act.
Finally, evidence points to the need to eliminate ambiguities and to further elaborate, clarify,
and even strengthened the existing provisions, in order to give certainty to those planning to
invest and ensure that smart metering roll-outs move in the right direction, and regain EU
added-value. This is to be done by (i) safeguarding common functionality, and share of best
practices; (ii)ensuring coherence, interoperability, synergies, and economies of scale, boosting
competitiveness of European industry (both in manufacturing and in energy services and
product provision), and (iii) ultimately delivering the right conditions for the internal market
benefits to reach also consumers across the EU.
4.2. Introduction
Purpose of the evaluation
4.2.1.
The present document intends to assess the performance and continued relevance of the
current EU provisions related to smart metering180
. These provisions which are herein
considered are laid down in the following Directives181
:
 Gas Directive 2009/73/EC182
(Article 3(8) and Annex I.2);
 Electricity Directive 2009/72/EC183
(Article 3 (11) and Annex I.2);
 Energy Efficiency Directive (EED) 2012/27/EU184
(Articles 9(2); 10(2); 12(2b)185
);
 Energy Performance in Buildings Directive (EPBD) 2010/31/EU186
(Article 8(2)).
The findings of this assessment will feed into or complement the evaluation reports to be
prepared in advance for the market design initiative (MDI)187
and for the review of the Energy
180
‘Smart metering system’ or ‘intelligent metering system’ is understood as an electronic system that can
measure energy consumption, providing more information than a conventional meter, and can transmit and
receive data using a form of electronic communication.
181
Annex 1 presents a short description of the related smart metering provisions covered in EU legislation
182
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in natural gas and repealing Directive 2003/55/EC, EUOJ L211, 14.8.2009, pp. 94-
136.
183
Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in electricity and repealing Directive 2003/54/EC, EUOJ L211, 14.8.2009, pp. 55-
93.
184
Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy
efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and
2006/32/EC,, EUOJ L315, 14.11.2012, pp. 1-56.
185
The following recitals in the Energy Efficiency Directive 2012/27/EU are also of relevance to smart metering:
(26), (27), (31), (33), and implicitly (45).
186
Directive 2010/31/EU of the European Parliament and of the Council of 19 May 20102 on the energy
performance of buildings,, EUOJ L153, 18.6.2010, pp. 13-35.
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Efficiency Directive and the Energy Performance in Buildings Directive. These evaluation
reports are expected to provide input into the respective Impact Assessments on potential
legislative actions and will be particularly used in the problem definition and framing of
policy options.
Scope of the evaluation
4.2.2.
The present evaluation covers both natural gas and electricity; however, the analysis focuses
mainly on smart metering in electricity since
i. the potential for added value services enabled by smart metering may be limited due to
the gas nature; for instance gas networks can store large amounts of energy and have
less need for flexibility on the demand side; and as a result,
ii. the expected benefits from implementation in the gas system are lower and the
resulting benefits/cost ratio less favourable;
iii. there is a quantitative target, and a time condition, just for electricity - rolling out 80%
roll-out by 2020 (Electricity Directive 2009/72/EC, Annex I.2);
iv. furthermore, both the market design initiative and most of the provisions of relevance
to smart metering in the EED and the EPBD exclusively focus on electricity.
It is noted that the main provisions for rolling-out smart meters are laid down in the Gas and
Electricity Directive, which are cross-referenced in the respective EED and EPBD articles.
The EED also introduces to a certain extent some functional requirements for the metering
systems in order to make a substantial contribution to energy efficiency and serve consumers'
needs and their energy supply market participation. Accordingly, the present analysis
addresses the degree and speed of deployment in the EU Member States vis-à-vis the target
(as stated in the Electricity and Gas Directives), and the extent to which the
completed/ongoing and/or envisaged roll-outs are fit for purpose. This is understood as smart
metering systems with due regard to available standards188
and best practices (Annex I.2 of
Electricity and Gas Directives), and equipped with the right functionalities189
and connectivity
(both implied in the Annex I.2 of the Electricity and Gas Directives, but more explicitly
stated, yet partly covered under Art 9(2) of the EED). The reason for that is to support the
development of markets for novel energy services, and enable consumers to reap the full
benefits of flexible retail markets. This is argued as such in the Electricity and Gas Directives,
as well as in the EED, and it is to be realised for instance through the consumer participation
187
Market Design Initiative – this is the follow-up to the Communications on a new energy market design
(COM(2015) 340 final) and on delivering a new deal for energy consumers (COM(2015) 339 final).
188
Developed under the mandates M/441 (on smart meters for utilities - electricity, gas, heat and water
applications) and M/490 (electricity smart grids) issued by the Commission to the European Standardisation
Organisations.
189
In practical terms, these are functionalities and technical requirements identified, for both gas and electricity
smart metering systems, in the standard architecture developed by CEN/CENELEC/ETSI under the M/441
standardisation mandate. Moreover, for the specific case of electricity, these are further complemented, and the
complete list is laid down, in the Commission Recommendation of 9 March 2012 on preparations for the roll-out
of smart metering systems (2012/148/EU).
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in demand response schemes and by making efficient use of decentralised renewable energy
sources (for example via self-consumption schemes).
Moreover the present assessment considers the costs related to this deployment (and the
stakeholders paying for them) as well evidence (or forecasts) of benefits from smart metering
such as reduced consumer bills, more flexibility in the market, development of a market for
energy service aggregators, or more demand side response. This is in line with the provisions
for an economic assessment of such a deployment (Annex I.2 of Electricity and Gas
Directives), and in the spirit of rolling-out where is economically reasonable and cost-
effective.
This evaluation intends to find out to what extent the EU legislative provisions on smart
metering can be directly accountable for the changes that happened or are expected (given
that the deployment is on-going) in national markets, and how far other factors, such as
national programmes/policies, technological developments, changes and/or implementation of
other EU pieces of legislation (i.e. EED/EPBD) triggered these impacts.
This evaluation also addresses the question whether the cost benefit assessments carried out in
the past are still relevant, given the technology and price development in the sector of smart
meters since the introduction of the legislation, and lessons learned from recent experiences
from pilot installations.
4.3. Background to the initiative
Description of the initiative and its objectives
4.3.1.
Smart metering can deliver benefits to the energy system190
by supporting its flexible
functioning and enhancing its efficiency through better control and avoidance of unnecessary
grid reinforcements, but it is also of value to consumers. It allows them to get accurate and
frequent feedback on their energy consumption and better manage it in volume and in time,
save energy and lower their bill. Smart metering also minimises errors and delays in their
invoices, and reduces the costs for the operation and maintenance of energy distribution
infrastructure which are ultimately borne by consumers through distribution tariffs. Finally,
smart metering systems are indispensable for some smart home solutions and innovative
services, and essential for measuring the electricity a household supplies to the grid (for
example from a solar panel installed on the roof) and communicate this supply to the grid
manager on a continuous/frequent basis.
Therefore, smart metering is a key element in the development of a modern, consumer-centric
retail energy system which encompasses active involvement of consumers. In recognition
hereof, provisions were included in the Gas Directive 2009/73/EC and in the Electricity
Directive 2009/72/EC fostering the smart metering roll-out and targeting the active
participation of consumers in the energy supply market, through:
i. transparency provided by the meter (timely and accurate information on consumption:
predictability of costs, awareness)
190
COM(2015) 339 final.
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ii. third party access to data and interoperability (facilitate competitive offers at the
customer end, facilitate system integration, lower cost)
iii. due regard to best practises (for instance the installation of in-house displays,
connection to home automation, self-consumption, etc.).
These provisions were then complemented with provisions under the Energy Performance in
Buildings Directive 2010/31/EU, and the Energy Efficiency Directive 2014/32/EU which
amongst others added
v. demand response as a specific means for energy efficiency benefits, supporting the
development of novel energy services based on smart metering data.
These provisions were intended to capitalise on opportunities opened up with smart metering
both for the energy system and for consumers, and to mandate it in such a way as to enhance
the cost-effectiveness of this deployment.
Accordingly, the Electricity and Gas Directives191
require Member States to ensure the
implementation of intelligent metering systems that shall assist the active participation of
consumers in the energy supply market, and encourage decentralised generation192
, and
promote energy efficiency. Article 3 (11) of the Electricity Directive and Article 3(8) of
the Gas Directive explicitly state that “in order to promote energy efficiency, Member
States or, where a Member State has so provided, the regulatory authority shall strongly
recommend that electricity (or natural gas) undertakings optimise the use of electricity (or
gas), for example by providing energy management services, developing innovative
pricing formulas, or introducing intelligent metering systems or smart grids, where
appropriate.”
This implementation may be conditional, according to Annex I.2 of both the electricity and
gas Directive, on a positive economic assessment of the long term cost and benefits to be
completed by 3 September 2012. For electricity, the roll-out can be limited to 80% by 2020 of
those positively assessed cases as potentially indicated in a Cost Benefit Analysis (CBA).
Furthermore, subject to this Cost Benefit Analysis where conducted, Member States are
required to prepare a timetable - for up to 10 years in the specific case of electricity – for the
implementation of smart metering. Finally, Member States, or any competent authority they
designate, are obliged according to the Electricity and Gas Directive (Annex I.2) to “ensure
the interoperability of those metering systems to be implemented within their territories” and
to “have due regard to the use of appropriate standards and best practice and the importance
of the development of the internal market” in electricity or natural gas, respectively.
The recast of the EPBD, adopted in May 2010, obliges (Art 8(2)) Member States to
"encourage the introduction of intelligent metering systems whenever a building is
constructed or undergoes major renovation, whilst ensuring that this encouragement is in line
with point 2 of Annex I to [the Electricity Directive]".
191
Annex I.2 of the Electricity Directive 2009/72/EC and of the Gas Directive 2009/73/EC.
192
Specifically for electricity and linked to smart grid deployment - Electricity Directive 2009/72/EC recital
(27)
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To assist with the preparations for the roll-out, and based on lessons learned and good
practices identified through experiences accumulated in Member States193
, the Commission
adopted the Recommendation 2012/148/EU194
. It aimed at guiding Member States in their
choices, drawing particular attention to (i) key functionalities for fit-for-purpose and pro-
consumer arrangements195
, (ii) data protection and security issues, and (iii) a methodology for
a Cost-Benefit Analysis that takes account of all costs and benefits, to the market and the
individual consumer, of the roll-out.
Following this Recommendation, complementary smart metering provisions were adopted as
part of the Energy Efficiency Directive196
. More precisely these concern, as given in Article
9(2):
a) Provision of time-of-use information and integration of energy efficiency considerations in
the determination of minimum functionalities of smart meter;
b) Security and privacy of smart meters and data communication;
c) Meter ability to account for electricity flows into the grid (negative consumption due to
own production);
d) Availability of metering data on electricity input and off-take (to customer or a third party
designated by him) in easily understandable format;
e) Customer advice in context of smart meter installation.
This was done to "strengthen the empowerment of final customers through smart metering as
regards access to information from the metering and billing of their individual energy
consumption" and was expected to "help reduce the costs of the implementation of intelligent
metering systems equipped with functions enhancing energy saving and support the
development of markets for energy services and demand management"197
. Under the EED
Member States are also required to take appropriate measures to promote and facilitate an
efficient use of energy by small energy customers, including domestic customers. This could
be part of a national strategy, and can include "ways and means to engage consumers and
consumer organisations, during the possible roll-out of smart meters, through communication
193
(i) Based on a review of 219 projects, accounting for a total investment of about €5.5 billion, a joint
ENER/JRC Reference Report: "Smart Grid projects in Europe: lessons learned and current developments" was
issued in 2011;
(ii) Joint Report ‘A joint contribution of DG ENER and DG INFSO towards the Digital Agenda, Action 73: Set
of common functional requirements of the Smart Meter’, October 2011; available online:
http://ec.europa.eu/energy/gas_electricity/smartgrids/doc/2011_10_smart_meter_funtionalities_report_full.pdf;
(iii) European Regulators’ Group for Electricity and Gas. ‘Final Guidelines of Good Practice on Regulatory
Aspects of Smart Metering for Electricity and Gas’, February 2011, Ref.: E10-RMF-29-05.
194
Commission Recommendation (2012/148/EU), OJEU of 13.04.2012, L 73/9.
195
When it comes to functionalities for electricity smart metering, particularly important for residential
consumers are: a readings' update rate of 15 minutes and a standardised interface to transfer and visualise
individual consumption data in combination with information on market conditions and service or price options.
196
Art 9(2), 12(2b) Energy Efficiency Directive (2012/27/EU).
197
Cf. EED Recital 33
127
of cost-effective and easy-to-achieve changes in energy use, and information on energy
efficiency measures"198
Continuing its efforts to guide Member States in their smart metering deployment choices, the
Commission adopted in 2014 the Recommendation 2014/724/EU199
to help mainstream the
consideration for data protection in all smart grid/metering deployment exercises where
concerns in data security/privacy could arise.
In summary, the European legislation instructed: (i) the deployment of gas and electricity
smart metering, potentially subject to a cost-benefit analysis; (ii) the target and timing of the
operation; but also (iii) the function of the systems to be rolled-out (to be interoperable, with
due regard to standards/best practices and to empower consumers). The Commission tabled
also Recommendations to assist Member States to meet these obligations in the field.
4.4. Evaluation Questions
The current evaluation aims to first of all gauge the general progress so far with
implementation and state what is the current situation, and then answer questions on the
performance and continued relevance of the said provisions. The key questions to address are
about the effectiveness, efficiency, relevance, coherence - internally and with other actions, as
well as EU-added value of this intervention.
There follows a list of typical sub-questions and issues to consider in this reflection as part of
the present evaluation exercise.
Effectiveness:
 To what extent have the objectives regarding smart metering in Electricity Directive
2009/72/EC, the Gas Directive 2009/73/EC, the EED 2012/27/EU and the EPBD
2010/31/EU have been achieved?
 To what extent do the observed effects correspond to the original ambition and were there
unintended impacts as well?
 To what extent can the deployment of smart meters in Member States be credited to the
Electricity Directive 2009/72/EC, the Gas Directive 2009/73/EC, the EED 2012/27/EU
and the EPBD 2010/31/EU?
 What factors, and to what extent, influenced the achievements observed, e.g.
technological developments in the sector of smart metering?
Efficiency:
 To what extent are the costs involved justified, given the changes/effects which have been
achieved?
 Which differences in costs or cost projections, as well as benefits across MS can be
observed and what are the reasons for these differences?
198
EED Art 12(2b)
199
Commission Recommendation on Data Protection Impact Assessment Template for Smart Grid and Smart
Metering Systems (2014/724/EU).
128
 Which factors could potentially guarantee a low cost of deployment?
 On whom did or will the costs fall, which stakeholder, and was or will the sharing of
costs be the same in all MS?
 How affordable were or will be the costs borne by different stakeholder groups, given the
benefits they receive(d)?
 To what extent has the intervention been cost effective?
 Are there any benefits in terms of more flexibility/demand side response, or lower
consumer bills that can be observed after smart metering deployment happened?
Relevance:
 To what extent is it still relevant to pursue the achievement of the original objective to
have 80% electricity smart meters rolled-out across Europe by 2020?
 To what extent have the (original) objectives proven to have been appropriate for the
intervention in question?
 How well do the (original) objectives (still) correspond to the needs within the EU?
 How well adapted is the intervention to subsequent technological or scientific advances?
 Are the cost benefit analysis carried out by MS still relevant or did significant cost
reductions etc occur in the meantime?
Coherence:
 To what extent are these interventions coherent with one another (Electricity and Gas
Directive provisions for smart metering with other interventions which have similar
objectives in particular EED, EPBD, upcoming MDI)?
 To what extent is the intervention coherent internally?
 To what extent is the intervention coherent with international obligations?
EU-added value:
 What is the additional value resulting from the EU intervention(s), compared to what
could be achieved by Member States at national and/or regional levels?
 To what extent do the issues addressed by the intervention continue to require action at
EU level?
 What would be the most likely consequences of stopping or withdrawing the existing EU
intervention?
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4.5. Method
The evaluation is performed based on information collected throughout the monitoring of the
implementation of the respective legislation in the EU Member States. Moreover, it draws on
the following data sources and studies carried out:
a. COM(2014)356 Benchmarking smart metering deployment in the EU-27 with a focus
on electricity, and accompanying Staff Working Documents (country fiches:
SWD(2014) 188; data analysis: SWD(2014)189)200
. The analysis is based on the long-
term economic assessments of costs and benefits (CBAs) for smart metering
implementation in electricity and gas performed by Member States, and on their
respective deployment plans.
b. Smart Grids Task Force EG1 Report: Status report based on a survey regarding
Interoperability, Standards and Functionalities applied in the large scale roll-out of
smart metering in EU Member States, October 2015201
.
c. ICCS-NTUA & AD Mercados EMI Study on Cost benefit analysis of smart metering
systems in EU Member States, 25.06.2015202
.
d. ACER/CEER Fourth Energy Market Monitoring Report203
, entitled Annual Report on
the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014,
30.11.2015.
Potential limitations of the analysis may arise from data limitations, as explained below.
a. COM(2014)356; most of the key smart metering roll-out parameters available at this
stage are based on projections and forecasts, as very few Member States have
completed their roll-outs, or got to an advanced stage. Care must be therefore taken in
interpreting results of the countries' comparison analysis, bearing in mind that
divergences may also reflect different starting conditions and local realities.
b. Smart Grids Task Force EG1 Report; this analysis concentrates on the 17 EU Member
States that have so far committed to proceeding with a large-scale roll-out of smart
metering.
200
COM(2014) 356: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2014%3A356%3AFIN;
SWD(2014) 188: http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:52014SC0188;
SWD(2014) 189: http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:52014SC0189
201
SGTF EG1 report on interoperability:
https://ec.europa.eu/energy/sites/ener/files/documents/EG1_Final%20Report_SM%20Interop%20Standards%20
Function.pdf
202
ICCS-NTUA & Mercados smart metering CBA study:
https://ec.europa.eu/energy/sites/ener/files/documents/AF%20Mercados%20NTUA%20CBA%20Final%20Repo
rt%20June%2015.pdf; Annex-
https://ec.europa.eu/energy/sites/ener/files/documents/AF%20Mercados%20NTUA%20CBA%20Annex%20Jun
e%2015.pdf
203
ACER/CEER Market Monitoring Report:
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_R
eport_2015.pdf
130
c. ICCS-NTUA & AD Mercados EMI Study; this investigation concentrated on the
CBAs performed in those countries where the CBA result was reported in the
Commission Report COM(2014)356 as negative or inconclusive; the study also
considered a sample only of those CBAs with positive results. The aim was to better
understand the key drivers of the results in those Member States reporting a negative
or inconclusive finding regarding the cost-effectiveness of smart metering in their
territory.
d. ACER/CEER 2015 Energy Market Monitoring Report; this report presents data on the
number of smart meters rolled-out in EU Member States, for both gas and electricity,
by end of 2014, but it is not sufficiently addressing issues related to the
appropriateness of deployed set-ups in terms of functionalities, interoperability and
connectivity.
4.6. Implementation state of play (Results – description of current situation )
The main references describing the state-of-play with smart metering deployment in the EU,
as well as some key parameters of the Member States' implementation programmes, and the
progress so far on the way to 2020, is the aforementioned Commission smart metering
Benchmarking Report COM(2014) 356 [Reference 1], and the latest ACER/CEER Energy
Market Monitoring Report [Reference 4].
According to data from the Commission Report COM(2014) 356, as also recently updated204
,
to date 19 Member States have committed to rolling out close to 200 million smart meters for
electricity by 2020 at a total potential investment of €35 billion.
 17 Member States - Sweden, Italy, Finland, Malta, Spain, Austria, Poland, UK-GB,
Estonia, Romania, Greece, France, Netherlands, Denmark, Luxembourg, Ireland, and
lately Latvia205
– are targeting a nation-wide roll-out to at least 80% of customers by
2020 (with 13 of them going much beyond the target of the Electricity Directive) –
schedules for implementation are shown in Figure 1 (in section 4.10 of the present
Annex).
 2 Member States – Germany, Slovakia - are moving to deployment in a selected
segment of consumers (to max. 23% by 2020).
 The rest 9 Member States have either decided against at least under current conditions,
or have not made a firm commitment yet for a mass-scale or even a selective roll-out,.
By 2020, it is projected that almost 72% of European consumers will have a smart meter for
electricity206
. Smart meters for electricity are already being rolled out across the EU. As of
2013, nearly all consumers in Sweden, Finland and Italy, were equipped with smart meters.
Malta is more recently added to this list of the completed national roll-outs, while the rest of
the EU countries are proceeding with a pilot phase installation or have just started rolling-out.
Austria, Estonia, Spain and Great Britain have seen an increase in consumers equipped with
204
Smart Grids Task Force EG1 Report: Status report based on a survey regarding Interoperability, Standards
and Functionalities applied in the large scale roll-out of smart metering in EU Member States, October 2015.
205
See Figure 1 in section 4.10.
206
COM(2014)356
131
smart meters from 2013 to 2014, as shown in the latest ACER/CEER Energy Market
Monitoring Report207
. In many of the remaining Member States though, very few consumers
were equipped with smart meters in 2014. These installations all over Europe represent in
total an actual EU-28 penetration rate of 21%208
. There is no data available at this point in
time on how many of these installations have materialised in renovated or new buildings, as
prescribed in Article 8(2) of the EPBD.
Regarding gas, to date only 7 Member States are proceeding with a large scale roll-out while
the rest have either a negative CBA for a wide-scale deployment or have yet to conclude their
assessment209,210
.
 6 Member States – France, Ireland, Italy, Luxembourg, the Netherlands and the UK-
GB have decided to roll-out gas smart meters by 2020 or earlier.
 1 Member State – Austria – has plans to proceed but have yet to take an official
decision
 In 13 Member States - Belgium, the Czech Republic, Denmark, Finland, Germany,
Greece, Latvia, Lithuania, Portugal, Romania, Slovakia, Spain and Sweden – there are
no plans for a mass roll-out.
Based on this Member States' original planning, it is expected that, by 2020, 45 million gas
meters (corresponding to 40% of consumers) will be installed211
; however, so far low
progress has been registered. Available data show that few Member States have rolled out
smart meters for gas. In the Netherlands, the share of consumers equipped with smart
meters for gas increased from 6% in 2013 to 16.2% in 2014, while in Great Britain, the
share increased from 0.5% to 1.9%212
. In France and Belgium, around 1% of consumers
were equipped with smart meters for gas in 2014213
; a lower penetration rate is quoted for
Italy where the final installation target of 60% to households by 2018 was recently
reduced to 50%214
. Overall, approximately 1.5 million gas smart meters have been
installed (by end of 2014) representing a diffusion rate of just 1.5% in the EU-28
Despite the progress noted, these implementation plans, for electricity and gas, are falling
short of the legislation's intentions. The current advancement is rather slow particularly in
view of the fast approaching 2020 original target in the case of electricity, and the progress
gap to delivery may be further widened by recurring delays in national programmes. In
207
See Figure 2 in section 4.10.
208
As calculated based on data from [Reference 2]: 2015 ACER/CEER Market Monitoring Report; and
considering the number of metering points in the EU.
209
See Figure 1 in section 4.10.
210
n.b. there is no gas network in Cyprus or Malta.
211
COM(2014)356
212
2015 ACER/CEER Market Monitoring Report.
213
Idem
214
AEEGSI regulatory decision N. 554/2015/R/gas; 23.11.2015
132
addition, there is a risk that the systems being rolled-out may not be bringing after all the
desired benefits to consumers and the market as a whole.
In all cases, the successful roll-out is controlled to large extent by Member States who are
ultimately responsible for the deployment and respective market arrangements215
, and may or
may not decide to follow the guidelines tabled by the Commission regarding functionalities
and implementation measures for data privacy and security (see EED (Art 9(2b)) and
aforementioned Recommendations).
a. Cost/benefit considerations and level of commitment by Member States
According to the EU provisions, Member States have the option to undertake a CBA to assess
the cost-effectiveness of the operation; and this is an option that the majority of Member
States have taken216
. However, there are no requirements in the legislation, apart from the
guiding provisions in the Recommendation 2012/148/EU, on the comprehensiveness of this
assessment. As a result, some CBAs are less elaborated and less inclusive than others;
negative/inconclusive findings may also appear to be on some occasions driven by thinly
substantiated or particularly conservative assumptions as has been shown in a recent analysis
for the case of electricity217
, which are nevertheless difficult to challenge. Furthermore, a very
small number of Member States have chosen not to undertake or have not communicated yet a
CBA or their plans for the smart metering deployment in their territory, at the risk of missing
the (electricity) target of 2020.
While divergence in key roll-out parameters as shown in Member States' CBA data218
calls
for caution, available data reveals (see Tables) that a smart metering system could cost on
average €200 to €250 per customer. Cost per metering point ranges, in the case of electricity,
from under €100 (€77 in Malta, €94 in Italy) to €766 in the Czech Republic (see Figure 3 in
Annex Section 4.10).
Regarding benefits, smart metering systems are expected to deliver an overall benefit per
customer of €160 for gas and €309 for electricity and average energy savings of 3% (see
Tables). The latter range from an assumed 0% in the Czech Republic to 5% in Greece and
Malta. Of the countries that have completed roll-outs, Finland and Sweden have indicated
energy savings of the order of 1-3%, but no data were available for Italy, or actual field data
from Malta.
Other types of benefits are associated with energy savings219
and peak load shifting220
over
total electricity consumption. Also, when analysing these two indicators, a scattered picture of
215
see sections 2.4 and 2.7 of SWD(2014) 189 accompanying COM(2014) 356
216
See table 2 and Table 14 in SWD(2014) 189
217
ICCS-NTUA & AD Mercados EMI Study on Cost benefit analysis of smart metering systems in EU Member
States, 25.06.2015
218
COM(2014) 356; SWD(2014) 189
219
This is calculated as a percentage with reference to the total electricity consumption (MWh) in a given
Member State.
220
The term ‘peak load transfer’ is defined in the Annex of Recommendation 2012/148/EU as: the Value in EUR
= wholesale margin difference between peak non-peak generation margin (EUR/MWh) * % Peak Load transfer
(%) * total energy consumption at LV (MWh)."
133
the expected positive effects of smart metering roll-out emerges. Expected energy savings
vary from 0% (considered in the CBA of the Czech Republic) and 1% (Poland, Slovakia) to
5% (Greece, Malta), with an average — for all data available — around 2.6% (±1.4%) or 3%
(±1.3%) considering only the data from those countries who have rolled out or are proceeding
with large-scale roll-out. The peak load shifting varies greatly across the Member States;
namely from 0.75% (UK-GB) and 1% (Poland) to 9.9% in Ireland in the cluster of Member
States that are preparing a roll-out, and from 1.2% (in CZ) to 4.5% quoted in Lithuania in the
batch of Member States that are not presently proceeding with large-scale deployment. These
significant differences may be due to (i) different experiences in pilot projects and/or
hypotheses adopted in building the scenarios, e.g. consumers' participation rate in demand
response programmes (time-of-use pricing, etc.), different consumer engagement strategies
(e.g. indirect vs. direct feedback); and (ii) different patterns in electricity consumption, e.g.
presence of district heating, wide-spread use of gas, etc. Indeed, the observable effect of
feedback depends on many and complex factors and available studies and pilots are rarely
designed in a away that allows comparing and disentangling the contributions of each and
every one221
.
It is important to note that to obtain full benefits, particularly consumption-related ones,
greater meter functionality is required. Yet, the CBAs show no direct link between cost and
functionality222
. On the other hand, negative or inconclusive results in the cost/benefit
analyses performed so far showed to be, on a number of cases, highly sensitive to key
variables223
.
Therefore, and in order to accommodate in the near future potentially more favourably
conditions, but also technological change and experience from rollouts, there is a need for
regular revision of costs and benefits. This is particular important in cases where roll out has
been initiated to better understand key cost and benefit drivers, to inform the public of the
accrued benefits, and to adjust the programme where necessary224
.
With these reflections on costs/benefits in mind, it is stressed that the intention of the
legislator225
is not to enforce in a systematic way an EU-wide smart metering roll-out but to
encourage it only in those situations where it is beneficial, economically reasonable, and
therefore appropriate.
221
Cf. E.g. Karlin, B., & Ford R. (2013). "Beyond kWh: A New Tool for Assessing Behavior-Based Energy
Interventions". Report prepared for the International Energy Agency's Demand Side Management Program
(IEA-DSM) Task 24 – Behaviour change in DSM
222
COM(2014) 356 and SWD(2014) 189; also confirmed in [Reference 3] ICCS-NTUA & AD Mercados EMI
Study
223
The German CBA outcome can change dramatically based on the assumed consumption impact, while the
CBAs in Portugal and the Slovak Republic can be interpreted as returning a positive rather than inconclusive or
negative result.
224
[Reference 3] ICCS-NTUA & AD Mercados EMI Study; for instance the UK-GB is periodically updating its
Impact Assessment as informed from data coming from the Foundation Phase of its roll-out programmes; also
the NL, DK, PT have updated respective cbas, while others (e.g. HU, CZ, CY etc.) intend to refine their
assessments based on pilot data they are currently aggregating.
225
Recital (55), Annex I.2 of the Electricity Directive 2009/72/EC; recital (52) and Annex I.2 of the Gas
Directive 2009/73/EC.
134
b. Speed of deployment
Current deployment progress is rather slow. So far close to €6 billion have been invested in
the completed smart metering roll-outs for electricity (IT, FI, SE226
, and MT more recently).
In view of financial constraints or regulatory barriers227
, or field practices in some
countries228
, delays may occur with the already announced or intended roll-outs (for example
official decision pending in PL, RO), which could restrict the extent and ambition of the
programme229
).
In other cases, and in the presence of a negative CBA (for instance for electricity in CZ) under
the current conditions smart metering roll-outs are not likely to get support from public
schemes. There are cases, like PT, where the cost/benefit analysis for smart metering in
electricity turns out positive – even though marginally - but the existing economic situation
still prohibits wide-scale implementation.
Finally, the fate of legacy systems is a challenge that may be holding back developments in
some countries. Therefore, they prefer to 'wait and see' (regarding the developments in
technology, standardisation, but also legislation) before they engage in such a deployment.
Others are already confronted with this issue as they started their roll-out at a time that solid
European standards for smart metering were not available. Member States may fear that
mandatory implementation of new standards or requirements without a sufficiently long
transition period would lead to high cost and stranded investments.
c. Appropriateness of systems rolled-out: functionality, interoperability & interconnectivity
According to the Electricity and the Gas Directive provisions, Member States are required to
roll-out 'interoperable' systems, with due regard to standards, for the 'active participation' of
consumers. None of these terms is explicitly defined in the provisions; and no requirements
are stated on how this function/principle is to be realized. Furthermore, the respective
standards were not available at the moment of the writing of the legislative provisions. This
situation created a climate of uncertainty, resulting in inaction in some cases, or vacuum of
responsibility in others, due to a failure in setting up technical requirements at national level
for the roll-out.
The Commission prompted to rectify the situation by addressing these issues in different fora,
tabling soft legislation (Recommendation 2012/148/EU), complementary provisions in the
EED, and issuing related standardisation mandates to the European Standardisation
Organisations to guide Member States in their choices.
226
For Sweden, a re-deployment is scheduled enabling hourly readings of consumption accessible to customers.
227
For instance in Poland an incentive mechanism for smart metering was suspended by the regulator in the
beginning of this year removing an incentive from DSOs for such investments.
228
In DE, SK the economic analysis, based on current conditions, turns out positive only for a restricted
customer segment (up to max. 23% penetration rate by 2020); in DE delays in stakeholders consultation and
reflection on the technical requirements may further lower this target.
229
See for instance the case with the gas smart metering roll-out in Italy where the target is progressively
lowered (now down to 50% diffusion rate by 2018 (L'Autorità per l'energia elettrica il gas ed il sistema idrico
Delibera 554/2015/R/gas 23.11.2015; http://www.autorita.energia.it/it/schedetecniche/15/554-15st.htm)
135
In the Recommendation 2012/148/EU, Member States were provided with guidance on inter
alia a set of common minimum functional requirements for electricity smart metering, based
on those proposed by standards on smart meters (applicable to both electricity and gas), and
following consultation with Member States and regulators. The recommended functionalities
concern access and frequency of meter readings for the consumer, the network operator
and any third party designated by the consumer. They state that the meters must pro-
vide two-way communication for maintenance and control, support advanced tariff
systems, allow for the remote control of the power supply and/or flow or power
limitation, and provide import/export and reactive metering. Furthermore, the meters
must provide secure data connections, fraud prevention and detection.
Table 3 in section 4.10 shows a comparison of the complete list of these recommended
common minimum functionalities vis-à-vis those included in the EED under Article 9(2) and
those proposed in standards for smart meters230
.
Introducing this set of recommended functionalities, based on those listed in standards
and applicable also for gas, was meant to help Member States to identify common means of
achieving cost-efficiencies in their roll- out plans. This could in turn serve Member States,
metering suppliers and network operators as a common basis for their own cost-benefit
analyses and investments to facilitate the procurement associated with roll-out, and provide
regulators with European reference definitions. Furthermore, these functionalities were
recommended to help secure consumer benefits and contribute to increases in energy
efficiency. They were seen as a means for facilitating the linking of smart metering systems
with standardised interfaces for third party access or equipped with consumer oriented tools
such as in-home displays (IHDs) that combine consumption data and cost information,
encouraging consumer interest in energy saving actions and response to demand, in line also
with the EED provisions.
The Member States were therefore encouraged to take this approach fully into account when
analysing the costs and benefits of the roll-out of smart metering of electricity in line with
Union legislation.
Bearing in mind the legally binding provisions, and using this Recommendation to translate
them into field measures, the smart metering systems to be rolled-out are expected in practice
to be equipped with the desired functionalities for delivering also consumer services and
benefits, and ensuring connectivity and interoperability between the metering infrastructure
and other network platforms in the energy market, in order to encourage consumer interest in
energy saving and demand flexibility actions.
To this end, and given that “Member States...shall ensure the interoperability of those
metering systems to be implemented within their territories and shall have due regard to the
use of appropriate standards” , the systems to be rolled-out must adhere to the relevant
standards issued by CEN-CENELEC-ETSI under the M/441 and M/490 mandates.
Furthermore, they could be equipped with the complete set of the EC recommended
230
Extracted from [Reference 1]: SWD(2014) 189; Table on Correspondence of the smart metering systems
functionalities identified by M/441 with the recommended common minimum functional requirements in
2012/148/EU, for electricity; comparison table extended to include the functional requirements by EED.
136
functionalities (Recommendation 2012/148/EU) which build upon in the case of electricity
those recommended by standards (original ones applicable also to gas)231
.
The EC recommended functionalities are not obligatory. Nevertheless, their application
ensures the set-up of smart metering systems that enable in practice the execution of
operations and delivery of services to consumers that support their active participation which
is in fact a requirement in the legislation. These recommended functionalities, when used,
support the appropriate interfaces that ensure connectivity between the metering and other
network platforms, and enable the provision of energy management services, in line with the
objective of the smart metering deployment and the development of the internal energy
market.
There are recent data232
on the assessment of smart metering systems being rolled-out in
Europe against the aforementioned requirements and desired smart metering features, and in
particular with reference to i) their adherence to appropriate standards and their degree of
interoperability with other components/operations of the energy system, meaning in practice
the implementation of the M/441 and M/490 standardised local interfaces; and ii) the extent
that these smart metering set-ups are equipped with functionalities for the provision of energy
management services, i.e. compliance with the EC recommended, and consumer-benefitting,
functionalities (a)233
, (b)234
and (f)235
(EC Recommendation 2012/148/EU) which can in
practice assist in realising the active participation of consumers which is a binding condition
according to legislation. If one or more of these functionalities are not present, some of the
information which the consumers require to make educated decisions on their consumption
may not be available. If the right communication interfaces in the set-up deployed are not
enabled, then the consumers have no means to exercise their choices, e.g. actively engage in
demand response schemes.
(c.1) Regarding functionalities
According to the EED provisions (Article 9(2a)), Member States must ensure that “objectives
of energy efficiency and benefits for final household customers are fully taken into account
when establishing the minimum functionalities of the meters and the obligations imposed on
the market participants". In doing so, Member States are advised236
, but not legally bound by
the EED (Article 9(2a) and 9(2b) specifically for data protection, privacy and security), to
consider the Commission Recommendation 2012/148/EU on the preparations for the roll-out
of smart metering systems. In any case, it is for Member States to decide which energy
efficiency objectives and which benefits to the final customers are taken into account when
231
CEN/CLC/ETSI/TR 50572 “Functional reference architecture for communications in smart metering
systems”, December 2011.
232
COM (2014) 356 and SWD(2014) 189; Smart Grids Task Force EG1 Report on Interoperability, Standards
and Functionalities, October 2015.
233
Functionality (a): provide readings directly to the consumer and any third party designated by the consumer.
234
Functionality (b): update the readings referred to in functionality (a) frequently enough to allow the
information to be used to achieve energy savings.
235
Functionality (f): support advanced tariff systems.
236
SWD(2013) 448 final: Guidance note on Directive 2012/27/EU on energy efficiency, Articles 9 - 11:
Metering; billing information; cost of access to metering and billing information
137
obliging market participants and setting minimum functionalities for smart meters. Based on
the recently released ACER/CEER Market Monitoring Report, fourteen Member States237
have minimal technical and other requirements for smart meters in their legislation to ensure
benefits to consumers, and therefore there is room for further action. Most of these States
require that smart meters provide information on actual consumption (in line with the
requirements of EED Art 9(2a), make billing based on actual consumption possible238
(EED
Art 10(2)) and may have an interface with the home, for easy access to information for
consumers. In Spain, for instance, and following the Resolution of June 2015, customers
equipped with smart meters are to be billed, as of October 2015, based on metered hourly
consumption and hourly prices, putting an end to the discrepancy between standard
consumption profiles and the actual demand of a given customer which can be quite
significant.
Moreover, EED instructs Member States to ensure connectivity of those meters being rolled
out; it states that they must (Art 9(2c)) "…in the case of electricity and at the request of the
final customer, …[to] require meter operators to ensure that the meter or meters can account
for electricity put into the grid from the final customer's premises". No official data is
currently available attesting to the correct implementation of this provision, as the respective
conformity checks for the EED Directive are not yet completed. The same holds also for the
progress with implementation in Member States of Article 9(2d) and 9(2e) of the EED.
It is worth noting that the full range of the recommended functionalities (Recommendation
2012/148/EU) grasp all aspects of the legislator's intention to empower consumers while
serving the needs of the energy system. In fact, they go beyond (as demonstrated in Table 3 of
section 4.10) the functional requirements set in Article 9(2a, to 2d) of the EED.
Taking stock of the situation at this moment in time, and of the intentions of Member States
regarding the adoption of the full range of the recommended functionalities (Recommendation
2012/148/EU), and comparing with data from the Commission's COM(2014) 356
benchmarking report (data collection in 2013) where 8 Member States only indicated that they
intended to follow them239
, and in particular those benefitting consumers, we observe that
now more Member States implement or plan to implement the recommended
functionalities240
; so progress has been made. In detail, all 17 Member States committed to a
large-scale roll-out intend to implement the consumer-benefitting functionality (a)241
, with
237
See Table 4 in section 4.10 of the present annex (reference: 2015 ACER/CEER Energy Market Monitoring
Report ).
According to the 2015 ACER/CEER Monitoring Report, the following Member States have minimal technical
and other requirements of smart meters in their legislation to ensure benefits for consumers: Austria, Belgium,
Denmark (for gas), Finland, France, Great Britain, Hungary (for electricity), Italy, the Netherlands, Norway (for
electricity), Portugal, Romania (for electricity), Slovenia (for electricity) and Spain (for electricity).
238
See Table 5 in section 4.10 of the present annex (reference: 2015 ACER/CEER Energy Market Monitoring
Report ).
239
See table 8 and table 9 of SWD(2014) 189
240
Smart Grids Task Force EG1 Report: Status report based on a survey regarding Interoperability, Standards
and Functionalities applied in the large scale roll-out of smart metering in EU Member States, October 2015.
241
Functionality (a): provide readings directly to the consumer and any third party designated by the consumer.
138
three (DK, IT, SE) of them indicating to do so in the next planned roll-out. Three Member
States (LV, EE, ES) out of 17 Member States (18%) do not implement functionality (b)242
as
it was specified by the Commission in its Recommendation (with at least 15 minute update
frequency). Two of them (LV, EE) will do so on consumer request. The three Member States
currently not implementing functionality (b) represent approximately 30 million (15%) from
the approximately 200 million meters to be installed in the EU by the Member States by 2020.
However, almost one out of three Member States (namely AT, SE, DK, IE, FI), from those
rolling out will not use the smart metering system to implement functionality (f)243
. In these
cases it is important to understand if consumers will be able to check their consumption per
tariff zone on the meter, if tariff zones are used for billing.
Nevertheless, in most cases technical requirements and therefore smart metering
functionalities as now mentioned by the responsible authorities are neither mandated nor
regulated yet by them, so in the absence of an actual obligation there is a risk that these
functional requirements may not be adhered to in practice.
(c.2) Regarding interfaces/connectivity & interoperability
Based on recently gathered information244
, there is the intention within the majority of those
rolling-out to implement interfaces245
– at home or station level – initially, later or on
consumer request, to support the delivery of the aforementioned functionalities. In practice
these interfaces can be used for the smooth exchange of information and inter-working
between the metering infrastructure and devices, components, processes, or other network
platforms in the energy market (although full smart home interoperability requires additional
standardisation efforts at the level of the interfaces inside the home). Some Member States246
though indicated that they intend to use instead (or complementary to the local interfaces) a
web interface, which may not necessarily be making information available to consumers (or
any third party they designate) in real time.
Furthermore, a majority of Member States have not made additional specifications or profiles
for improving interoperability on these interfaces, as advised by standards, and are therefore
restricting the interoperability they can reach with the systems they are deploying. In addition,
there appears to be within those currently rolling out limited awareness on data exchange
standards and actual requirements between the metering and other network platforms, risking
that the data provided by metering is not in line with the data needed for in-home energy
management.
242
Functionality (b): update the readings referred to in functionality (a) frequently enough to allow the
information to be used to achieve energy savings.
243
Functionality (f): support advanced tariff systems.
244
[Reference 2]: Smart Grids Task Force EG1 Report: Status report based on a survey regarding
Interoperability, Standards and Functionalities applied in the large scale roll-out of smart metering in EU
Member States, October 2015.
245
Only Spain, from the 17 Member States rolling-out in a wide scale for electricity, does not plan to use these
interfaces
246
Seven Member States (DK, EE, ES, LV, IT, MT, RO) indicated that they currently use a web portal as an
alternative or complementary to the home interfaces.
139
In any case, as also with functionalities, there are no minimum technical/communication
specifications officially set nor mandated; as a result there is the risk that such interfaces are
finally not activated, and/or the smart metering set-ups deployed are of limited connectivity
and interoperability, ultimately failing to deliver and serve the interests of the consumers.
d. Deployment arrangements & data handling options
A successful roll-out is very much dependent upon criteria largely decided by Member States,
including also the regulatory set-up for deployment. According to available data COM (2014)
356), the Distributor System Operators (DSOs) are the responsible party for the
implementation, ownership and data handling in the vast majority of Member States
proceeding with a roll-out by 2020.
Smart metering has implications in the market and data handling requirements and options for
the respective transactions that may be calling for new business models and a review of key
stakeholders' relations. There are extra responsibilities to be bestowed on the DSOs in
addition to their 'traditional' ones, and are not necessarily coupled at the moment with an
obligation to share potentially commercial data in a transparent and non-discriminatory way
with third parties (to be designated by consumers). Furthermore, clear roles and
responsibilities for the roll-out, technical specifications and financial arrangements for the
related investments are not yet defined in most of the cases.
This situation creates uncertainties, delays the deployment and could jeopardise the success of
the roll-out.
e. Consumer acceptance & engagement
There are encouraging recent data coming from pilot installations of smart metering systems
indicating that consumers are satisfied with their performance. Approximately 70-90% of
British consumers247
who have received a smart metering system with an In-Home Display
are reportedly satisfied, and most feel that they have already reduced energy consumption as a
result. Evidence suggests that these reductions persist and are not short-term gains only.
Savings after more than two years are even better than in the first year. Nevertheless, the
messages that come out from the pilot installations reinforce the fact that consumers should be
properly informed of their rights and also be made aware from the very beginning of the
opportunities opened up by smart metering, in line with the provisions also of the EED (Art
9(2e)).
At the moment, very few Member States are setting up such communication campaigns, or
intend to systematically monitor the extent of consumer engagement and overall
satisfaction248
247
VaasaETT Report "Assessing the use and value of energy monitors in Great Britain", 03/04/2014.
248
E.g.
(i) UK-GB: see activities under the Smart Energy GB and their recent report monitoring how public opinion and
appetite for smart meters is changing; http://www.smartenergygb.org/national-rollout/about-smart-energy-
gb;
http://www.smartenergygb.org/sites/default/files/Smart%20Energy%20Outlook%20September%202015_0.
pdf
140
4.7. Answers to the evaluation questions (Assessment of current situation)
The legislator's original objective for the smart metering provisions was to enable the active
participation of consumers in the energy supply market. This was meant to happen through:
i. transparency as provided by the smart metering set-ups, in terms of reliable, timely
and accurate information on consumption, predictability of costs, and awareness of
options and choices;
ii. third party access to data, connectivity and interoperability to facilitate in practice
competitive offers and exercise of choices at the customer end, but also system
integration, and result in higher efficiencies and lower costs;
iii. due regard to best practises and tools to ensure the provision of timely and meaningful
information, connectivity, and access to choices (for instance the installation of in-
house displays for a direct information provision, connection to home automation,
self-consumption, etc.);
iv. consumer access to schemes that reward flexible consumption, such as demand
response, as a specific means for energy efficiency benefits via novel energy services
that rely on smart metering data.
As stated earlier, in order to realise this objective the European legislation instructed: (i) the
deployment of electricity and gas smart metering, potentially subject to a cost-benefit
analysis; (ii) the target and timing of the operation in the specific case of electricity; but also
(iii) the function of the systems to be rolled-out (to be interoperable, with due regard to
standards, and to empower consumers). The Commission tabled also non-binding
Recommendations to assist Member States to meet these obligations.
Effectiveness: How effective has the EU intervention been?
Commitment to smart metering is not uniform across the EU; the roll-out is overall
progressing in a rather conservative manner, at different speeds and operational environments
across the Member States.
The least ambitious deployment and slowest pace for rolling-out is noted in the gas sector.
Seven Member States only intend to roll-out by 2020 in total 45 million gas smart meters,
corresponding to 40% of EU consumers; so far as little as a 1.5% penetration rate has been
achieved, as explained earlier. Moreover twelve Member States concluded in their CBAs that
for now the costs outweigh the benefits; others intend to install smart metering systems only
for selected groups of consumers or have reached no binding decisions yet249
. This is
(ii) NL smart metering programme: http://www.metering.com/wp-content/uploads/2014/06/Dutch-Smart-Meter-
Energy-savings-Monitor-final-version.pdf;
https://www.consuwijzer.nl/sites/consuwijzer.nl/files/downloads/Checklist-privacy-besparingsdiensten-slimme-
meters.pdf
(iii) http://www.esd-ca.eu/reports/working-group-executive-summaries/metering-billing-and-information-smart-
meters-and-consumer-engagement].
249
SWD(2014) 189
141
coherent with the observation that the business case for gas is more challenging given that the
expected benefits are either less significant than for electricity, or do not apply250
.
For electricity, still a majority of Member States intend to proceed with large-scale
deployment by 2020. So far, 19 Member States have committed to rolling out close to 200
million smart meters for electricity by 2020, to at least 80% of households in 17 of these
nations, and close to 23% in 2 countries that are rolling out to a specific segment of
consumers. But Member States are at different stages of the process when it comes to actual
installations. Only four have completed so far the roll-out in electricity, while the target date
of 2020 is approaching.
The current slow advancement (which is to peak much later than originally foreseen) , the low
diffusion rates achieved to date (21% for electricity, and just 1.5% for gas in the EU-28), and
the recurring delays in national roll-out programmes, further widen the gap to delivery.
The deployment of smart metering in Member States, which is not as ambitious as originally
intended, can be credited to a certain extent to the legislation in place, even though it is
difficult to quantify it. However it should not be forgotten that in a number of cases it has
been influenced by other factors, e.g. market drivers, regulatory environments.
Some DSOs or legally responsible metering companies, even in the absence of national legal
requirements for a roll-out, have proceeded with the installation of advanced metering
equipment, serving their specific purposes, looking for internal synergetic effects or
responding to customer demand, and accordingly dictating technical requirements and
configurations for the metering systems deployed.
Equally influential has been the regulatory environment or the maturity of the national
framework in place. There are cases where a legal and/or a regulatory framework has been
established to some extent, or is expected to be soon defined, and smart metering may be high
on the agenda of the relevant stakeholders. However, due to lack of clarity in this framework,
and/or in anticipation of developments, or in fear of potentially new binding requirements,
limited action has taken place, or the whole operation was delayed. Such factors could be
holding back in many cases the progress with the roll-outs, or are framing the conditions for
the deployment.
Moreover, there is a risk that the smart metering set-ups being rolled-out may not be fit for
purpose and not bringing after all the desired benefits to consumers and the market as a
whole, given that the legislative provisions are not specific on the practicalities for reaching
the ultimate requirement to roll-out systems that shall assist the consumers' 'active
participation' of consumers in the energy supply market.
Furthermore, in the absence in the current energy provisions of an actual definition of
interoperability in a smart grid environment that these systems are meant to reach, erroneous
interpretations have emerged. So far the interoperability requirement has been understood by
some as holding within a specific distribution network that may be restricted in one region
within a country. In other words, a system installed in a specific distribution network covering
250
The fact that gas can be held in storage while the supply and prices of gas do not vary much over short time
periods, makes the expected advantages of smart metering more modest than for electricity – [SWD(2014) 189
and EP briefing (September 2015) on smart electricity grids and meters in the EU Member States
142
region A of country X may not be interoperable with that installed in region B in country X
(see for instance cases in Spain), or a system in country Y. At the same time, smart meter
manufacturers have focused on interoperability of components within a metering system, so
that different components of different manufacturers could operate together. But
'interoperability' stretches beyond just devices and components, into networks, systems and
applications, and covers the ability to inter-connect as implied in the energy legislation. This
is explicitly defined in recently developed standards251
which unfortunately were not available
to shed light in this issue at the moment of writing of the respective pieces of legislation.
According to standards, there are different dimensions of interoperability, namely (i) technical
at component or hardware level (e.g. the plugs and cables), (ii) at communication level (e.g.
the language to be used), (iii) at information level (e.g. the content to be exchanged), (iv) at
functional level (e.g. the transactions / use cases to be implemented) and finally (v) at
business level (e.g. the business processes to be supported). Consequently, in the presence of
a number of options and combinations, regional differences may arise with respect to
interoperability, as different regions can choose for different standards, which may result in
set-ups that are not necessarily interoperable at national level, or within the EU. This adds
complexity and costs to those, be it for instance energy services/product developers or
aggregators, who would like to trade in different European countries and optimise their
business model.
The lag time in developing the smart grid-related standards since the issuing of the mandates,
and the actual enforcement of the legislative provisions, despite being inevitable, created a
climate of uncertainty that resulted in inaction in some cases, or contributed to a vacuum of
responsibility in others when it came to setting up technical requirements at national level for
the roll-out.
The Commission sought to rectify the situation by addressing these issues in different fora,
tabling soft legislation (Recommendation 2012/148/EU), complementary provisions in the
EED, and issuing related standardisation mandates to the European Standardisation
Organisations to guide Member States in their choices. One of the key choices is the
functionalities that the systems to be rolled-out should have and the technical specifications
they should follow.
Recent data show, as argued earlier, that more and more Member States seem to intent to
implement the recommended functionalities, standards, and required interfaces to deliver
energy management services also for consumer benefit. However, in practice and in most
cases, none of these are mandated or regulated at national level. Furthermore, a majority of
Member States have not made any additional specifications for improving interoperability on
the respective interfaces, nor have set minimum technical/communication specifications,
risking limiting the connectivity and performance of the smart metering set-ups deployed. In
practice: smart meter tenders that come out in most of the cases do not include specific
requirements for functionalities, or interfaces, leaving them to the discretion of those rolling-
251
See Deliverable by M/490 CEN-CLC-ETSI Smart Grid Coordination Group (issued 31/10/2014)
"Methodologies to facilitate Smart Grid system interoperability through standardization, system design and
testing";
ftp://ftp.cencenelec.eu/EN/EuropeanStandardization/HotTopics/SmartGrids/SGCG_Interoperability_Report.pdf .
143
out; this attests to the need to clarify and mandate such requirements at national level prior to
deployment in order to avoid redundant, or unnecessary further, investments.
Moreover, given that we are still in the early stages of deployment, Member States are still
exploring in their pilots, and only few of them have already implemented, best practises and
tools for consumers' awareness, for their eventual engagement in market processes with due
respect to data protection and security, and finally for the systematic feedback on their overall
satisfaction with the operation.
This is one element for a successful roll-out which is largely controlled by Member States that
are ultimately responsible for the deployment and respective market arrangements, and may
or may not decide to take on-board non-binding recommendations tabled by the Commission,
or mandate adherence to technical standards which are in fact of voluntary nature.
Accordingly, there is no clear incentive, and therefore guarantee that the Member States will
positively regard, and ensure, the availability of the full range of recommended functionalities
or interoperability settings that are of essence for connectivity and for delivering consumers'
benefits and enabling their active participation.
We are therefore lacking momentum in the EU since some smart metering systems currently
being considered for installation in Europe may not make after all available to customers
relevant, meaningful and timely information, and tools, for realising the full potential of smart
metering. Enforcing the minimum functionalities on an EU level, and consistently promoting
the use of available standards to ensure connectivity and interoperability, as well as best
practices, while having due regard to data security and privacy, would guarantee a coherent,
future-proof system able to support novel energy services and deliver benefits to consumers.
To summarise, there is evidence to suggest that the smart metering provisions currently in
place have been less effective than intended, mainly due to caveats that the provisions contain
regarding the assessment of the cost-effectiveness of the operation, and lack of definition of
the concept of 'active participation' of consumers and of the underlying requirements for this
to be realised. This may have created a climate of uncertainty, resulting in inaction in some
cases, or a vacuum of responsibility in others and failure in setting up technical requirements
at national level for the roll-out, holding up progress and risking delivery of benefits to
consumers.
Efficiency: How efficient has the EU intervention been?
It is rather difficult to assess at this stage of limited deployment, with field data even from the
very few completed roll-outs to large extent missing, the actual cost/benefit of the roll-out and
to what extent they can be directly linked to the EU intervention. Currently available figures
are in most cases only a forecast and do not represent actual costs or benefits. As the roll-outs
unfold will the consolidated figures become clear.
We can though make some observations and draw initial conclusions looking at the projected
cost/benefits, based on Member States CBAs252
, and indicate how costs are expected to accrue
to different stakeholders, and whether they can be considered proportionate to benefits.
Furthermore, we can comment on what extent the existing legal provisions could still drive
the process.
252
An analysis of Member States CBAs is included in [Reference 1]: EC smart metering Benchmarking Report
144
Cost-effectiveness has been central to the spirit of the provisions for rolling-out smart
metering, and it was stated that the decision for proceeding with deployment could be taken
on the basis of "an economic assessment of all the long-term costs and benefits to the market
and the individual consumer or which form of intelligent metering is economically reasonable
and cost-effective and which timeframe is feasible for their distribution".
Based on the national CBAs, which even though optional were conducted by a majority of
Member States, the outcome is positive for a number of cases where the benefits outweigh the
costs, but not equally favourable for all. Looking at the specifics, the estimated cost of
installing smart meters varies widely between different Member States (for electricity, from
€77 to €766 per metering point). This is partly because of inconsistent methodologies in the
national CBAs and in the absence of specific instructions in the legislation, and in view of
only recommending guidelines tabled by the Commission (EC Recommendation
2012/148/EU). As a result, Member States applied different discount rates and time horizons
to assess the economic viability of smart metering, while the expected lifetime of smart
meters and the speed of implementing the roll-out schemes varied widely. The discount rate
has a significant impact on the assessment of potential smart metering investments as the
costs are incurred predominantly at the beginning of the scenarios considered whereas the
smart intervention often produces benefits in the long-term. Furthermore, it is acknowledged
that differences between national energy transmission systems do have some effect on the
costs and benefits of smart grid-related installations and therefore metering. It should also be
noted that some CBAs, or scenarios considered in them, are rather abstract, or less elaborated
or substantiated than others, and could have more illuminated the assessment of the roll-out
viability should they have been more comprehensive. This raises once again the issue of
possibly developing an even more standardized methodology, and going beyond the setting-
up of principles for the CBA as given in the EC Recommendation 2012/148/EU.
The predominant cost driver, according to a majority of Member States253
, is the meter and
associated installation costs, followed by the data communication costs. Meter related costs
vary significantly across the CBAs, in part reflecting wide divergence in estimates of the type
and cost of the smart meter, differences in labour costs (installation), and complementary
investment identified in some cases (for example, meter boards and wiring). At the same time
data communication costs vary with the range in communications technologies being
considered across the Member States254
. In particular, overall costs are highly sensitive to the
extent to which GPRS255
and UMTS256
are adopted. While the appropriate choice of
communications technology is location-specific, advances in the cheaper PLC (Power Line
Communications) technology increasingly support its widespread use for data transfer, where
feasible257
, thus contributing to a lower overall expenditure for the deployment.
253
SWD(2014) 189 accompanying the COM(2014) 356; and [Reference 3] ICCS-NTUA & AD Mercados EMI
Study
254
See table 24 [SWD(2014) 189] on communication infrastructure options considered in smart metering roll-
outs in Member States
255
GPRS: General Packet Radio Service
256
UMTS: Universal Mobile Telecommunications System
257
[Reference 3] ICCS-NTUA & AD Mercados EMI Study
145
In an attempt to reduce capital and operational costs, some countries (see for instance, UK-
GB, NL, IE) have decided in favour of joint roll-outs of electricity and gas, and are thus
exploiting economies of scale (in communication, data management, customer information
campaigns, installation etc.). Moreover, in a joint roll-out synergies between electricity and
gas smart metering systems may arise in the telecommunication infrastructure or in data
handling where for instance a central data hub can serve both systems.
Regarding benefits, it is anticipated that, based on the CBAs projections and as stated earlier,
smart metering systems will deliver to consumers cost savings in the longer run, with an
overall average benefit per customer of €160 for gas and €309 for electricity. In general, some
caution is needed in interpreting these figures given the different methodologies used to
estimate benefits258
and the different items included in the evaluation: in fact, several Member
States only accounted for the benefit associated with the DSO rolling out and not for the
consumers’ benefit or other benefits accruing to the society as a whole259
.
The benefit attributed to the DSO is in general easier to estimate, as smart metering primarily
implies savings in meter reading operations, switching, non-technical losses etc. In addition,
advanced metering infrastructure allows for more accurate billing of electricity consumption,
reducing complaints and litigations, to which a monetary value for the DSO can be calculated.
The benefit for consumers, besides the part arising from more accurate billing information, is
instead more difficult to estimate, as it also depends on the actual involvement of consumers
themselves in for example demand response mechanisms, time-of-use pricing, etc. This can
be also confirmed by the low number of countries from those proceeding with the electricity
smart metering roll-out that provide an estimate in their CBAs— as a percentage — for such a
benefit. Based on the estimates available, an average energy savings of 3%260
(Tables 1, 2 in
section 4.10) is calculated, while some report that certain types of consumers could be able to
reduce energy costs up to 12%261
, as pilot installations have shown. But data from countries
that have completed roll-outs are rather modest indicating savings in the order of 1 to
maximum 3%. This has prompted some Member States to decide to roll-out smart meters only
to those with high energy usage, arguing that this is the way to reduce the costs of deployment
while keeping the average savings higher (see case of DE, SK).
In most countries (and relative to the electricity deployment arrangement of the country), the
smart metering investment and installation cost appears as an upfront cost for the DSO in the
initial stage of the deployment; however, later fully or partly passed to the final consumer
258
ICCS-NTUA & AD Mercados EMI Study
259
A list of the top three cost and benefits considered by Member States in their cost/benefit assessments for the
rolling-out of smart meters in their territory is given in Tables 25 and 30 of the SWD(2014) 189 accompanying
COM(2014) 356.
260
This is also consistent with the findings of the Energy Demand Research Project carried out by four energy
suppliers in the UK, on behalf of the Office for Gas and Electricity Markets (see House of Commons Library
Research Briefing, Smart Meters, 2014);
http://researchbriefings.files.parliament.uk/documents/SN06179/SN06179.pdf
261
OECD Digital Economy Paper, ICT Applications for the Smart Grid: Opportunities and Policy Implications,
2012; http://www.oecd-ilibrary.org/science-and-technology/ict-applications-for-the-smart-grid_5k9h2q8v9bln-
en
146
through network tariffs262
, with the exception of the UK-GB where the cost is faced by the
energy supplier. At the same time, in a number of Member States263
the DSO is reported as
the first/large direct beneficiary of the electricity smart metering, and electricity losses
reduction (technical and commercial), or avoided meter reading and operations costs as key
drivers for smart metering roll-outs. Also, energy suppliers are beneficiaries of the smart
metering roll-out; their benefits come from more and easier prcedure-wise switching, reduced
call centre costs, etc.
Furthermore, consumers' energy saving potential is a strong driver in the Member States'
decisions for smart metering deployment264
. The smart metering infrastructure in itself does
not save energy, but using it correctly (and timely) does. Therefore, consumers have a central
position in achieving energy savings and whether they will accept and the way they will use it
would have a major influence in exploiting the energy saving potential265
. To this end, some
Member States, such as the Netherlands, dedicated particular focus in their analysis on the
consumer behaviour in smart metering acceptance and efficient use.
The energy saving potential, as also argued in the Commission's Smart Metering
Benchmarking Report, is also heavily dependent on the functionality of smart metering
deployed; those systems with broad functionality can yield greater savings in the longer run.
This is due to the fact that they are capable of providing a wider range of information to
customers, at frequently enough intervals to make it meaningful, and more easily accessible,
thereby facilitating their participation in demand side management schemes, such as demand
response. Yet, as stated earlier, only very few Member States from those proceeding with
large scale roll-outs have already mandated the use of the EC recommended functionalities,
and standardised interfaces to ensure interoperability and connectivity of the systems they
deploy, while some early movers used older technology that does not deliver the full range of
desired functions. A particular challenge therefore arises to cost-efficiently upgrade or even
replace legacy, or limited functionality, meters.
Furthermore, current provisions do not dictate an explicit obligation to Member States for
mandating functional requirements. As a result, most of them choose to delegate this task to
DSOs which in many cases own the meters, but may not necessarily pick consumer-
benefitting settings for their systems. Given that deployment costs will at some stage fully or
partly be passed to final consumers through on many occasions network tariffs, it is important
that costs are borne proportionately by all those benefitting from this deployment. National
Energy Regulatory Authorities are the most appropriate entities to ensure this.
To summarise, there is not enough field data available, but rather projections based on
Member States CBAs for smart metering deployment, to assess quantitatively the cost-
262
Reference: SWD(2014) 189 accompanying the EC Smart Metering Benchmarking Report (COM(2014) 356)
263
Such as CZ, DK, EE, FR, IT, LU and RO,
264
SWD(2014) 189: A number of Member States (AT, DE, GR, IE, LT, LV, NL, PL, PT, UK-NI) shed
particular light on this potential in their economic analysis of long-term benefits and costs associated with smart
metering, indicating the energy saving as the major benefit coming out from smart metering roll-out.
265
Another benefit serving consumers, the environment, and the society as a whole, is CO2 emissions reduction
due to first energy savings and then more efficient electricity network operation (reduced technical and
commercial losses).
147
effectiveness and overall efficiency of the operation and of the existing legislative provisions.
However, given that the deployment is rather slow, and most of the large-scale roll-out
campaigns have yet to start unfolding, the overall impact of the current provisions is till now
rather limited, and both the effects and the costs likely have been so too. Importantly, the
provisions themselves contain caveats regarding financial proportionality / cost-effectiveness,
therefore, it is unlikely that the rules have imposed or will impose as they stand any
disproportionate costs.
However, at the same time, and while bearing in mind that the assessment and final decision
for a wide-scale roll-out remain with the Member States, more harmonised rules could
potentially be tabled regarding the methodology to use in order to evaluate the cost-
effectiveness and viability of the operation. Moreover, stronger encouragement should be
given to Member States to adhere to the recommended functionalities and use of standards
and best practices for their smart metering systems. This will accordingly increase the
benefit/cost ratio in the exercise by enabling customers' participation in, and accruing of
benefits from, demand side management schemes or use of distributed energy resources,
Relevance - How relevant is the EU intervention?
For the purpose of ensuring active participation of consumers and their empowerment, the
provisions of smart metering in this legislation remain highly relevant, considering current
needs and problems. For the reasons outlined earlier, there could though be further enhanced,
by elaborating them as to (i) spell out how the term of 'active participation' is to be
understood, and expected to be realised, in practical terms - functionality, connectivity,
interoperability, standards; (ii) issue an obligation to the Member States to officially adopt,
publish and notify the minimum technical requirements for the smart metering systems to be
deployed, the market arrangements, and clarify the roles/responsibilities of those involved in
the roll-out.
With the rationale in mind that smart metering enables participation in demand response
schemes, and can contribute to the functioning of the internal energy market, access to fit-for-
purpose smart metering is fundamental to guarantee the active participation of consumers and
to serve the system as a whole. This is only possible if technologies enabling innovative
energy services are available to all consumers across all Member States, including those that
are currently not rolling-out smart metering at large following a non-favourable assessment.
The current provisions do not account for the occasion where individuals may be asking in the
near future for such an installation possibly triggered by the wish to make use of novel energy
services and products or similar market drivers. It is therefore important that current
legislative provisions be extended to account for this scenario, and instruct that this operation
takes place within a reasonable time upon request and at a cost-reflective manner (verified by
the National Regulatory Authority).
Coherence: How coherent is the EU intervention internally & with other EU actions?
The current smart metering provisions placed mainly in the Electricity and Gas Directives,
and complemented in the EED and the EPBD, work in principal well together towards
achieving the common objective.
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There appears though to be some ambiguity regarding the frequency of information made
available to consumers to enable them to manage their energy in volume and time, and
participate in the energy supply market.
As analysed earlier, the intention of the legislator is to promote smart metering set-ups that
enable the active participation of consumers, and therefore implies that (near) real time
information is made available to consumers; this is in practice grasped by functionalities (a)
and (b) that the Commission is recommending to Member States (EC Recommendation
2012/148/EU) .
Article 9(2a) of the EED instructs Member States to ensure that the "metering systems provide
to final customers information on actual time of use". This does not involve (near) real time
information, but refers to a simple automated meter reading function. Such information can be
made available to consumers with a time delay; it can be useful for them to make changes
concerning their energy consumption patterns, but does not give them the means to receive
and dynamically react to market signals. This requires the activation of 'smart' meter
functionalities that involve the timely delivery of meaningful information to help consumers
become active participants in the market and make themselves, or designated parties on their
behalf, educated choices and proceed in specific actions, e.g. engage in demand response
schemes.
Furthermore, the situation becomes more complicated and issues of coherence, even within
the EED in this respect, are raised. The EED Article 9(1) when referring to the consumers
right to individual metering states "Member States shall ensure that …final customers for
electricity, natural gas, district heating, district cooling and domestic hot water are provided
with competitively priced individual meters that accurately reflect the final customer’s actual
energy consumption and that provide information on actual time of use". The fact that the
provision of 'actual time of use' is also instructed for other forms of energy, whereas is
typically of relevance to electricity, somehow makes the intention of the legislator obscure. In
fact, due to the ambiguous wording few, if any, Member States have interpreted it to require
smart meters266
.
The continued use of the term 'actual time of use' in Article 9(2) restricts the functional
requirements of the systems targeted and raises questions about coherence with the
framework for promoting smart meters.
Moreover, there may be issues of coherence arising when reading smart metering provisions
in the EPBD, in the light of the EED related text. The EPBD Article 8(2) requires Member
States to "encourage the introduction of intelligent metering systems whenever a building is
constructed or undergoes major renovation, whilst ensuring that this encouragement is in line
with point 2 of Annex I to [the Electricity Directive]". However, so far Member States seem to
have given little attention to this part of the EPBD and the Commission services are not aware
of any evidence suggesting that smart meters roll-out plans (or CBA) have given any
preference or priority to this sub-set of buildings. This may be in part due to the rather
soft/unspecific nature of this obligation. It may also be related to the fact that the EED (and
before that the Energy Services Directive) contains a more absolute requirement applicable
266
Reference: internal document "Evaluation of EU provisions on metering and billing of energy consumption",
ENER draft 12/01/2016.
149
whenever "a new connection is made in a new building or a building undergoes major
renovations, as set out in [the EPBD]" to install a "competitively priced individual meters that
accurately reflect the final customer’s actual energy consumption and that provide
information on actual time of use." As discussed in the separate thematic evaluation on
metering and billing, Member States have interpreted this latter provision differently, with
some but not all considering it to imply a need for smart meters.
Overall, there seems therefore to be a case for considering in the context of the EPBD review
more effective and concrete/operational means of encouraging the installation of smart meters
than what the current Article 8(2) constitutes. Moreover, in the context of the EED review the
cross-reference/provision quoted above could also be revisited.
In short, there are no clear contradictions with other EU actions, but overall coherence could
be improved, and associated measures strengthened by for instance clarifying that the
legislator promotes the roll-out of smart metering with a wide range of functionalities going
beyond the capability of providing time-of-use information. This will in practice mean
enforcing by legislation the adherence to the recommended functionalities (as appear in
M/441 standards and in the Commission Recommendation 2012/148/EU for the specific case
of electricity) for all smart metering systems being installed (or upgraded). Moreover, to
ensure coherence, avoid any further confusion and unnecessary administrative burden for
updating the related provisions in different legislative documents, it is advised to consider
that all existing requirements and any future legislative interventions on smart metering be
consolidated/embedded in one single legal act.
EU added value: What is the EU added value of the intervention?
In the context of completing the EU's internal electricity market and making retail work also
for consumers, it remains highly relevant for the EU to ensure a degree of consistency and
alignment, as well as gain momentum, in the deployment and use of smart metering.
The costs of rolling out smart meters - with all the benefits that this can bring for consumers,
network and energy companies, the energy system as well as society and the environment
more widely - will greatly increase if the economies of scale of the EU's internal market are
not properly leveraged. This appears to be a serious risk in the absence of further, urgent
initiatives to standardize systems requirements and functionalities of smart electricity meters.
When originally adopted, the smart metering provisions in the related legislative initiatives
pushed forward the agenda of smart metering at least in a number of EU Member States.
However, given the aforementioned uncertainties and caveats, its current value diminished.
As explained earlier, there is a need now to eliminate ambiguities and to further elaborate and
precise these provisions, to ensure that smart metering roll-outs move in the right direction,
and regain EU added-value. Placing a set of precise EU-wide requirements, preferably in a
single legal act, will result in
 safeguarding common functionality, and share of best practices;
 ensuring coherence, interoperability, synergies, and economies of scale, boosting
competitiveness of European industry (both in manufacturing and in energy service
and product provision), and
150
 delivering the right conditions for the internal market benefits to reach also consumers
across the EU.
4.8. Conclusions (Gap Analysis)
Smart metering is a key element in the development of a modern, consumer-centric retail
energy system which encompasses active involvement of consumers. In recognition hereof,
provisions were included in the Gas Directive 2009/73/EC and in the Electricity Directive
2009/72/EC fostering the smart metering roll-out and targeting the active participation of
consumers in the energy supply market, through:
i. transparency provided by the meter (timely and accurate information on consumption:
predictability of costs, awareness);
ii. third party access to data and interoperability (facilitate competitive offers at the
customer end, facilitate system integration, lower cost);
iii. due regard to best practises (for instance installation of in-home displays, connection
to home automation, self-consumption, etc.);
These provisions were then complemented with provisions under the Energy Performance in
Buildings Directive 2010/31/EU, and the Energy Efficiency Directive 2014/32/EU which
amongst others added
iv. demand response as a specific means for energy efficiency benefits via novel energy
services based on smart metering data.
The intention was to promote smart metering by placing these measures and capitalise on
opportunities it opens both for the energy system and for consumers, and to mandate the
deployment in such a way as to enhance the cost-effectiveness of the whole operation.
Looking at the current situation with smart metering deployment in the Member States,
despite the progress noted, EU-wide implementation is falling short of the legislator's
intentions, in terms of level of commitment, roll-out speed, and purpose.
The least ambitious deployment and slowest pace for rolling-out is noted in the gas sector,
given also that there is no actual target and the business case is more challenging. Seven
Member States only intend to roll-out by 2020 in total 45 million gas smart meters,
corresponding to 40% of EU consumers; so far as little as a 1.5% penetration rate has been
achieved, as explained earlier. The rest have either decided against it given that the calculated
costs outweigh the benefits, or intend to install smart metering systems only for selected
groups of consumers or have reached no binding decisions yet.
For electricity, still a majority of 19 Member States intend to proceed with deployment by
2020. So far they have committed to rolling out close to 200 million smart meters for
electricity by 2020, to at least 80% of households in 17 of these nations, and close to 23% in 2
countries that are rolling out to a specific segment of consumers. But Member States are at
different stages of the process when it comes to actual installations. Only four have completed
so far the roll-out in electricity, which along with installations in other Member States gives a
penetration rate of 21% in the EU-28, while the target date of 2020 is approaching.
The current advancement is rather slow particularly in view of the fast approaching 2020
original target in the case of electricity, and the progress gap to delivery may be further
151
widened by recurring delays in national programmes, in view of financial constraints,
regulatory barriers or field practices. In addition, there is always the risk that the systems
being rolled-out may not be fitted for purpose and not bringing after all the desired benefits to
consumers and the market as a whole, given that the legislative provisions are silent on the
practicalities/specifications for reaching the ultimate requirement to roll-out systems that shall
assist the consumers' 'active participation' of consumers in the energy supply market. These
were later on prescribed as guiding provisions regarding functionalities, interoperability,
connectivity, and measures for data privacy and security in a smart metering environment, in
follow-up, not legally binding Recommendations tabled by the Commission.
In all cases, the successful roll-out is controlled to large extent by Member States that are
ultimately responsible for the deployment and respective market arrangements, and may or
may not decide to take on-board non-binding guidelines.
In the light of the developments so far, the existing provisions can be assessed as follows.
In terms of effectiveness, the evidence available generally suggests that the smart metering
provisions currently in place have been less effective than intended. This is mainly due to
caveats that the provisions contain regarding the assessment of the cost-effectiveness of the
operation, and lack of definition of the concept of 'active participation' of consumers and of
the underlying requirements for this to be realised. This may have created to some extent a
climate of uncertainty, that led to inaction in some cases, or vacuum of responsibility in
others, and failure to set up technical requirements at national level for the roll-out, holding up
progress, and risking delivery of benefits to consumers. As a result, we are lacking
momentum given that some smart metering systems currently being considered for
installation in Europe after all may not make available to customers relevant, meaningful and
timely information, and tools, for realising the full potential of smart metering. Enforcing the
minimum functionalities on an EU level, and consistently promoting the use of available
standards to ensure connectivity and 'interoperability', as well as best practices, while having
due regard to data security and privacy, would guarantee a coherent, future-proof system able
to support novel energy services and deliver benefits to consumers, in line with the legislator's
intentions.
There is not enough evidence at the moment to evaluate the efficiency of the intervention in
terms of proportionality between impacts and resources/means deployed. This is due to the
fact that most of the large-scale roll-out campaigns have yet to start unfolding making the
field data available rather scarce; there are only projections available based on Member States
cost/benefit assessments. In any case, the overall impact of the current provisions is until now
rather limited, and both the effects and the costs have likely been so too. Importantly, the
provisions themselves contain caveats regarding financial proportionality / cost-effectiveness,
therefore, it is unlikely that the rules with such inherent provisions have imposed or will
impose as they stand any disproportionate costs.
At the same time, it is recognised that central to this operation is the ex-ante national
assessment of the economic viability of the smart metering roll-out. While bearing in mind
that the economic viability and final decision for a wide-scale roll-out remains with the
Member States, more harmonised rules could potentially be tabled, beyond the exiting
recommending guidelines, regarding the methodology to use in order to evaluate the cost-
effectiveness of smart metering deployment. Moreover, stronger encouragement should be
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given to Member States to incorporate in their assessments, and later adhere to the
recommended functionalities and use of standards/best practices for their smart metering set-
ups. This will accordingly increase the benefit/cost ratio in the exercise by enabling
customers' participation and accruing of benefits from demand side management schemes or
use of distributed energy resources.
In terms of relevance, the herein evaluated smart metering provisions, considering current
needs and problems, remain highly valid. This said, they could though be further enhanced,
by elaborating them as to (i) spell out how the term of 'active participation' is to be
understood, and expected to be realised in practical terms, namely define requirements for
functionality, connectivity, interoperability, and standards to use; (ii) include an obligation to
Member States to officially set the minimum technical and functional requirements for the
smart metering systems to be deployed, the market arrangements, and clarify the
roles/responsibilities of those involved in the roll-out.
Furthermore, and in view of the fact that smart metering is considered by many stakeholders
as a prerequisite for demand response and active participation of consumers, with all the
benefits that this implies, it seems appropriate that future legislative initiatives examine the
possibility of granting the right for a smart meter to all, even in the absence of a national roll-
out. This is to be done while ensuring that the installation takes place within a reasonable time
upon request and at a cost-reflective manner (verified by the National Regulatory Authority).
Such installation requests could possibly be triggered in the future by availability of novel
energy services and products, or similar market drivers.
In terms of coherence – internally & with other EU actions – even though no clear
contradictions could be pointed out, the evaluation has identified some room for
improvement. Linking of the term 'actual time of use' in Article 9(2a) and Article 9(1) of the
EED to smart metering provisions erroneously restricts the functional requirements of the
targeted set-ups and raises questions about coherence with the framework for promoting smart
meters. There is therefore a need to clarify that a wide range of functionalities is in fact
promoted, as those recommended by the Commission, that go much beyond the capability of
just 'actual time of use' information which usually refers to advanced, and not smart,
metering. Moreover, to ensure coherence, avoid any further confusion and unnecessary
administrative burden for updating the related provisions in different legislative documents, it
is advised to consider that all existing requirements and any future legislative interventions
on smart metering be consolidated/embedded in one single legal act.
Finally, considering the EU added value, it remains relevant to ensure that smart metering
provisions are in place at EU level to guarantee a degree of consistency and alignment,
potentially leverage economies of scale as well as gain momentum in the installation and later
use of smart metering systems. When originally adopted, the smart metering provisions in the
related legislative initiatives pushed forward the agenda of smart metering at least in a number
of EU Member States. However, given the aforementioned uncertainties and caveats, their
current value diminished. There is a need now to eliminate ambiguities and to further
elaborate and precise these provisions, to ensure that smart metering roll-outs move in the
right direction, and regain EU added-value, by (i) safeguarding common functionality, and
share of best practices; (ii)ensuring coherence, interoperability, synergies, and economies of
scale, boosting competitiveness of European industry (both in manufacturing and in energy
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services and product provision), and (iii) ultimately delivering the right conditions for the
internal market benefits to reach also consumers across the EU.
4.9. Summary of smart metering provisions are found in the following EU
Directives:
 Gas Directive 2009/73/EC267
(Article 3(8) and Annex I.2);
o Art 3(8): introduction of intelligent metering systems (or smart grids) where
appropriate and in order to optimise use of gas
o Annex I.2: conditions for rolling out smart metering that shall assist the active
participation of consumers in the gas supply market
 option for a cost/benefit analysis; preparation of timetable for
implementation; condition of ensuring interoperability of the systems to
be rolled out and have due regard to the use of appropriate standards
and best practice, and the importance of the development of the internal
market in natural gas)
o Preamble (52): introduction of smart metering where economically reasonable
and cost-effective based on an economic assessment (rolling-out to those with
a certain amount of consumption)
 Electricity Directive 2009/72/EC268
(Article 3 (11) and Annex I.2);
o Art 3(11): introduction of intelligent metering systems (or smart grids) where
appropriate and in order to optimise use of electricity
o Annex I.2: conditions for rolling out smart metering that shall assist the active
participation of consumers in the gas supply market
 option for a cost/benefit analysis; preparation of timetable with a target
of up to 10 years for implementation; target set to 80% of positively
assessed cases; condition of ensuring interoperability of the systems to
be rolled out and have due regard to the use of appropriate standards
and best practice, and the importance of the development of the internal
market in natural gas)
o Preamble (55): introduction of smart metering where economically reasonable
and cost-effective based on an economic assessment (rolling-out to those with
a certain amount of consumption)
o Preamble (27): [indirectly related] smart grids for the modernisation of
distribution grids and to encourage decentralised generation and energy
efficiency
267
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in natural gas and repealing Directive 2003/55/EC, EUOJ L211, 14.8.2009, pp. 94-
136.
268
Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in electricity and repealing Directive 2003/54/EC, EUOJ L211, 14.8.2009, pp. 55-
93.
154
 Energy Efficiency Directive (EED) 2012/27/EU269
(Articles 9(2); 10(2); 12(2b)270
);
o Art 1 (28): definition of smart or intelligent metering system
o Art 9(2): where and to the extent smart metering is introduced (in line with
2009/72/EC and 2009/73/EC Directives), the following should be ensured
 (a) Provision of actual time-of-use information and integration of
energy efficiency considerations in the determination of minimum
functionalities of smart meter;
 (b) Security and privacy of smart meters and data communication;
 (c) At the request of final customer, meter ability to account for flows
into the grid (from customer's premises) – electricity only;
 (d) At customer's request, availability of metering data on electricity
input and off-take (to customer or a third party designated by him) in
easily understandable format that can be used to compare deals–
electricity only;
 (e) Customer advice and information in context of smart meter
installation particularly about their full potential linked to meter reading
management and monitoring of energy consumption.
o Art 10(2): where electricity or gas (also smart) meters are installed, enable
accurate billing information based on actual consumption, and easy access to
complementary information on historical consumption allowing detailed self-
checks;
 conditions on cumulative data (last 3 years or since start of contract if
this is shorter) and of detailed data (time-of-use for any
day/week/month/year) made available to final customer via internet or
meter interface for last 24 months (or since start of contract if shorter)
o Art 12(2b): may include communication of energy efficiency and energy
management options with smart metering, as part of a national strategy to
promote energy efficient use by small consumers including households
o Preamble (26): when designing energy efficiency improvement measures,
possibilities with smart meters should be considered; smart meters not to be
used for unjustified back billing
o Preamble (27), (31): reference to conditions for rolling-out smart meters stated
in the Electricity and Gas Directives; requirement for provision to final
customers of actual electricity/gas consumption and costs frequently enough to
regulate own consumption
269
Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy
efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and
2006/32/EC,, EUOJ L315, 14.11.2012, pp. 1-56.
270
The following recitals in the Energy Efficiency Directive 2012/27/EU are also of relevance to smart metering:
(26), (27), (31), (33), and implicitly (45).
155
o Preamble (33): reference to the need to clarify requirements for roll-out in the
context of empowering final customers (access to and use of information) and
supporting the development of markets for energy services and demand
management.
o Preamble (45): (related through smart grids); reference to demand response
 Energy Performance in Buildings Directive (EPBD) 2010/31/EU271
(Article 8(2)).
o Art 8(2): introduction of intelligent metering systems (or smart grids)
whenever a building is constructed or undergoes major renovation, in line with
Annex I.2 of Directive 2009/72/EC (only for electricity)
4.10. Smart metering roll – out
271
Directive 2010/31/EU of the European Parliament and of the Council of 19 May 20102 on the energy
performance of buildings,, EUOJ L153, 18.6.2010, pp. 13-35.
156
Figure 1 – Smart metering deployment plans in the EU Member States, for electricity (top
left) and gas (top right) in the light of a national cost/benefit analyses undertaken by the
Member States, and the respective timelines for roll-out in the case of electricity towards 2020
SWD(2014) 189, accompanying COM(2014) 356; respective timelines updated in July 2015, and Latvia added
to the countries proceeding with a wide-scale roll-out of electricity by 2020]
Figure 2: Share of household customers equipped with smart meters for electricity – 2014 (%)
– extracted from 2015 ACER/CEER Energy Market Monitoring Report
157
Figure 3 Normalised cost and benefit values per metering point estimated from the Member
State CBA cost-benefit data in the case of electricity -Reference: COM(2014) 356 & accompanying
SWD(2014) 189
Table 1 Summary statistics — key smart metering roll-out parameters for electricity (based on
Member States’ long-term economic assessments)272
– Reference: COM(2014) 356
Range of values
Average
based on data from
positively assessed cases
Discount rate 3.1 to 10% 5.7% + 1.8% (70%273
)
Lifetime 8 to 20 years 15 + 4 years (56%)
Energy saving 0 to 5% 3% + 1.3% (67%)
Peak load shifting 0.8 to 9.9% n.a.
Cost per metering point €77 to €766 €223 + €143 (80%)
Benefit per metering point €18 to €654 €309 + €170 (75%)
Consumer benefits
(as % of total benefits)
0.6% to 81% n.a.
272
The ‘discount rate’ is applied to costs and benefits of smart metering investments in the respective scenarios
considered. It takes into account the point in time to which the monetary values relate and the risk or uncertainty
of anticipated future cash flows. The discount rate has a significant impact on the assessment of potential smart
metering investments as the costs are incurred predominantly at the beginning of the scenarios considered
whereas the smart intervention often produces benefits in the long-term.
‘Cost per metering point’ and ‘benefit per metering point’ statistics are based on numbers calculated using the
net present value of the respective costs (CAPEX and OPEX) and benefits.
273
This percentage relates to the number of measurements (as part of the data consulted) that fall within the
range of the average value quoted ± the standard deviation given. The data set considered for electricity relates to
the positively assessed cost-benefit analyses from 16 countries that have already completed or will proceed with
large-scale roll-out.
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Table 2 Summary statistics — key smart metering roll-out parameters for gas (based on
Member States’ long-term economic assessments) – Reference: COM(2014) 356
Range of values
Average
based on all data
Discount rate 3.1 to 10% n.a.
Lifetime 10 to 20 years 15 - 20 years (75%)
Energy saving 0 to 7% 1.7% + 1% (55%)
Cost per metering point €100 to €268 €200 + €55 (65%)
Benefit per metering point €140 to €1000 €160 + €30 (80%)
Table 3 Correspondence of the smart metering systems functionalities identified by M/441
with the recommended common minimum functional requirements in 2012/148/EU, for
electricity, and the EED related provisions
[Extracted from SWD(2014) 189 accompanying COM(2014) 356 and updated]
SMART METERING FUNCTIONALITIES for ELECTRICITY
M/441 additional
functionalities
identified in
CEN-CLC-ETSI TR 50572:2011
‘Functional reference architecture for
communications in smart metering
systems"
2012/148/EU common
minimum functionalities
identified in
EC Recommendation of 9 March 2012 ‘on
preparation for the roll-out of smart metering
systems", OJ L 73 p.9
EED requirements
specifically concerning
smart electricity meters
identified in
Directive 2012/27/EC (Art.9(2) and 10(2))
F1 Remote reading of
metrological register(s)
and provision to
designated market
organisations
For the customer:
a) Provide readings directly to the
customer and to any third party
designated by the consumer
b)Update the readings referred to in
point (a) frequently enough to allow
the information to be used to achieve
energy savings
…The rate has to be adapted to the response
time of the energy-consuming or energy-
producing products. The general consensus is
that an update rate of every 15 minutes is
needed at least.
"ensure that if final customers
request it, metering data on their
electricity input and off-take is made
available to them or to a third party
acting on behalf of the final
customer in an easily
understandable format"
"ensure that the metering systems
provide to final customers
information on actual time of use…"
"..ensure that final customers have
the possibility of easy access to
complementary information on
historical consumption [including]..
- cumulative data for at least the
159
three previous years or the period
since the start of the supply contract
if this is shorter..
- detailed data according to the time
of use for any day, week, month and
year. These data shall be made
available to the final customer via
the internet or the meter interface
for the period of at least the
previous 24 months or the period
since the start of the supply contract
if this is shorter
F2 Two-way communication
between the metering
system and designated
market organisation(s)
For the metering operator:
c ) Allow remote reading of meters by
the operator
d) Provide two-way communication
between the smart metering system
and external networks for
maintenance and control of the
metering system
e)Allow readings to be taken
frequently enough for the information
to be used for network planning
F3 To support advanced
tariffing and payment
systems
For commercial aspects of energy
supply:
f) Support advanced tariff systems
F4 To allow remote
disablement and
enablement of supply and
flow power limitation
g) Allow remote on/off control of the
supply and/or flow or power limitation
F5 To provide secure
communication enabling
the smart meter to export
metrological data for
display and potential
analysis to the end
consumer or a third party
designated by the end
consumer
For security and data protection:
h) Provide secure data communication
i) Fraud prevention and detection
"…ensure the security of the smart
meters and data communication,
and the privacy of final customers,
in compliance with relevant Union
data protection and privacy
legislation"
(reg. data and analysis, cf. also entry
above, corresponding to F1)
6 To provide information
via web portal/gateway to
an in-home/building
display or auxiliary
equipment
a) (…) readings provided directly
from the interface of customer’s
choice to the customer and any third
party designated by the consumer …
equipped with a standardised
interface which provides visualised
individual consumption data to the
" detailed data according to the time
of use for any day, week, month and
year… shall be made available to
the final customer via the internet or
the meter interface "
160
consumer.
Note: The smart metering
system may be used for a
further important functionality:
To enable
communication of
AMI components with
devices or gateways
within the home /
building used in the
provision of energy
efficiency and
demand-side
management services.
For distributed generation:
j) Provide import/export and reactive
metering
" in the case of electricity and at the
request of the final customer, they
shall require meter operators to
ensure that the meter or meters can
account for electricity put into the
grid from the final customer’s
premises "
Table 4: Minimum technical and other requirements of smart meters set in legislation and/or
deployed in the field for delivering customer services [Reference 2015 ACER/CEER Energy Market
Monitoring Report]
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Table 5: Frequency of billing information based on actual consumption – 2014[Reference 2015
ACER/CEER Energy Market Monitoring Report]
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5. ANNEX 7: DETAILS ON THE EU FRAMEWORK FOR DEMAND SIDE FLEXIBILITY (DSF)
5.1. Introduction
This evaluation aims at providing an integrated and coherent assessment of the currently
existing legal provisions of relevance for Demand Side Flexibility (DSF). As such it provides
the basis for the evaluation report to be prepared under the market design initiative (MDI).
The evaluation focuses on DSF in the electricity system since the challenges in terms of
increasing flexibility needs are less pronounced for gas, and since both the market design
initiative and most of the key provisions of relevance to DSF in the Energy Efficiency
Directive (EED, 2012/27/EU) and the Electricity Directive (2009/72/EC) exclusively focus on
electricity.
"Demand side flexibility" is for the purpose of this document used interchangeably with
"demand response" to refer to the change in electricity usage by end-users from their normal
or current consumption patterns in response to changes in the price of electricity over time, or
to other signals or incentive payments. Two demand response mechanisms can be
distinguished:
 price-based (or implicit) demand response refers to consumers who choose to be
exposed to time-varying electricity prices and who adjust their consumption according
to real time price signals that reflect the value and cost of electricity and/or
transportation in different time periods;
 incentive-based (or explicit) demand response refers to schemes under which
participating consumers receive direct payments for changing their consumption
patterns. This flexibility (or renouncement of a planned consumption) is then traded in
the wholesale, balancing or capacity market. Such schemes require the presence of
demand response service providers (e.g. aggregators) who initiate the changes in
consumer behaviour and then aggregate and trade flexibility on the markets.
The analysis focusses on addressing the degree and speed of the deployment of Demand
Response in the EU Member States. This analysis forms the basis for the work under the
Impact Assessment where the expected take up of Demand Response is calculated under
differernt policy scenarios and where costs/benefits are analysed that are related to this
deployment.
5.2. Background to the initiative
Why Demand response
5.2.1.
Developing demand response in electricity markets and making it an option accessible to a
wide range of consumers is needed in the context of the current energy system transition. It
can increase system efficiency and reduce the need for building and running peaking
generation units by shifting electricity consumption away from peak hours. It can also provide
cost-effective balancing for intermittent renewable generation and decrease the need for local
network investments in areas with tight network capacity. A more efficient use of
conventional power plants and networks and a better integration of renewables will moreover
lead to primary energy savings. Finally, demand response can increase consumer surplus by
financially rewarding consumers for the value of their flexibility and improving price and
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non-price competition on retail markets. The graph below summarises the concrete benefits
for consumers as well as for the electricity system as such.
Graph 1: benefits of demand Response across the electricity value chain
Source: US Department of Energy, Benefits of demand response in electricity markets and
recommendations for achieving them, February 2006
While a number of studies investigated the potential for demand response, there is little
evidence available as to whether this potential is fully attainable and at what cost. For
example, with regards to peak demand reduction potential, which if sustained leads to lower
investment in peak capacity peak, a review of the literature suggests that while demand
response could conceivably in the long term shave between 15 to 20 percent from peak
demand and 10 percent from energy consumption, the real response may be closer to 1 to 10
percent peak demand reduction and a 0 to 5 percent overall energy consumption reduction274
.
With regards what type of demand response has what potential, it is not clear from the
literature how much of this expected peak demand response is attributable to price-based and
incentive-based demand response, and within these two categories what tool would deliver
what response. Nevertheless, in 2011, the US FERC noted that the vast majority (92%) of
peak reduction potential of the demand side resources will come from incentive based demand
response, at least in the short run, while only 8% would come from priced based programmes.
274
Jacapo Torriti, Peak energy demand and demand side response, 2015.
164
Legislative Background
5.2.2.
Mechanisms to remove the barriers to demand flexibility are set out in the Electricity
Directive. The EED builds on those provisions and elaborates further, promoting its access to
and participation in the market and the removal of existing barriers.
The Electricity Directive refers to demand response measures as a means to pursue a wide
range of system benefits. The Directive clearly identifies demand response as an alternative to
generation to be considered on an equal footing, e.g. when Member States are launching
tendering procedures for new capacity in situations where the system adequacy is insufficient
to ensure security of supply (Art. 8). The Electricity Directive also gives a wider dimension to
demand response for achieving objectives of social and economic cohesion and environmental
protection (Art. 3(10)). Demand response, alongside energy efficiency, is viewed as one of the
measures to combat climate change and ensure security of supply.
Demand response is recognised as a means to provide ancillary services to the system in the
provisions related to TSO tasks (Art. 12(d)), and demand side management/energy efficiency
measures must be considered as an investment alternative in the context of distribution
network development by DSOs planning for new grid capacity (Art. 25(7)).
Moreover, the Electricity Directive establishes that in order to promote energy efficiency,
Member States or, where a Member State has so provided, the regulatory authority must
recommend that electricity undertakings optimise the use of electricity, for example by
developing innovative pricing formulas.
Effective price signals are important to encourage efficient use of energy and demand
response. In this context, recital 45 of the Energy Efficiency Directive (EED) indicates that
Member States should ensure that national energy regulatory authorities are able to ensure
that network tariffs and regulations support dynamic pricing for demand response measures
by final customers. Under Art. 15(1), Member States must ensure that network regulation and
tariffs meet criteria listed in Annex XI of the EED, which i.a. refers to different possibilities
for network and retail tariffs to support dynamic pricing for demand response and incentivise
consumers, such as:
a) Time of use tariffs, whereby electricity prices are set for a specific time period and
known in advance;
b) Critical peak pricing, which requires that time of use prices are in effect for certain
peak days, where prices may reflect the cost of generating and/or purchasing at
wholesale level;
c) Real time pricing, also referred to as ‘dynamic pricing’, whereby electricity prices
may change as often as hourly, exceptionally more often; and
d) Peak time rebates, which are monetary rewards in exchange for participating in the
market.
According to Article 15(4), Member States must ensure the removal of those incentives in
transmission and distribution tariffs that might hamper participation of demand response in
balancing markets and ancillary services procurement.
165
Under Article 15(8), in summary, Member States must comply with the following obligations:
1. Ensure that national energy regulatory authorities encourage the participation of
demand side resources, including demand response, alongside supply in wholesale
and retail markets.
2. Ensure – subject to technical constraints inherent in managing networks - that
TSOs and DSOs treat demand response providers, including demand aggregators
in a non-discriminatory way and on the basis of their technical capabilities.
3. Promote - subject to technical constraints inherent in managing networks - access
to and participation of demand response in balancing, reserve and other system
services markets, requiring that the technical or contractual modalities to promote
participation of demand response in balancing, reserve and other system services
markets - including the participation of aggregators - be defined.
4. Ensure the removal of those incentives in transmission and distribution tariffs that
might hamper participation of demand response in balancing markets and ancillary
services procurement. 275
Member States had to transpose Article 15 of the EED by June 2014.
Main objectives of the European legislation
5.2.3.
The EED recitals (44 and 45) clearly identify the main objectives of the legislator and Art
15.8 translates these objectives into regulatory action. Explicit and implicit demand response
is recognised as an instrument to reduce and/or shift consumption resulting in energy savings
in both final consumption and, through the more optimal use of networks and generation
assets, in energy generation, transmission and distribution. As such the EED aims at
improving the conditions for, and access to, demand response and clearly identifies the need
for equal market entry opportunities for demand side resources alongside generation.
5.3. Evaluation Questions
The analysis in this evaluation will focuses on:
 The transposition of Art 15(8) EED. Here especially the question of the role of
demand response providers and their non-discriminatory market access as well as
access of flexibility products to balancing, wholesale and capacity markets will be
assessed;
 Access to dynamic electricity pricing contract as a prerequisite for price based demand
response.
The measures are evaluated primarily for their effectiveness, coherence and relevance, and
therefore are formulated in identifying to what extent Member States have strived to
275
See also guidance note on EED Art 15 which also covered IED elements http://eur-lex.europa.eu/legal-
content/EN/ALL/?uri=CELEX:52013SC0450
166
implement the measures and how effective and coherent those measures were. Below a
number of sub-questions and issues to consider are listed that form the basis for this
evaluation exercise.
General:
• To what extent have the objectives regarding Demand Response in Electricity
Directive 2009/72 and EED 2012/27 been achieved?
• To what extent do the observed effects correspond to the original ambition and
where there unintended impacts as well?
• Which market barriers still exist for Demand Response?
• Are the existing provisions for Demand Response sufficient for ensuring necessary
levels of flexibility?
Effectiveness:
• Which differences across Member States can be observed and what are the reasons
for these differences?
• Which factors guarantee a beneficial deployment of Demand Response?
• Can the benefits of Demand Response be quantified in those Member States were
Demand Response took off? Are the quantifiable effects in countries outside the
EU?
• On whom (which stakeholder, incl. consumers) did the benefits/costs fall, and was
the sharing of costs/benefits the same in all Member States?
Relevance
• To what extent have the (original) objectives proven to have been appropriate for
the intervention in question?
• How well do the (original) objectives (still) correspond to the needs within the
EU?
• How well adapted is the intervention to subsequent technological or scientific
advances?
• Do current regulations ensure that final consumers can actively participate in the
market?
Coherence
• To what extent is this intervention coherent with other interventions which have
similar objectives in particular EED, EPBD, upcoming MDI ?
• To what extent is the intervention coherent internally?
EU-added value
• What is the additional value resulting from the EU intervention(s), compared to
what could be achieved by Member States at national and/or regional levels?
167
• To what extent do the issues addressed by the intervention continue to require
action at EU level?
• What is the cross border dimension of Demand Response?
• What would be the most likely consequences of stopping or withdrawing the
existing EU intervention?
Other evaluation criteria
• Utility: To what extent do the changes/effects of an intervention satisfy (or not)
stakeholders' needs? How much does the degree of satisfaction differ according to
the different stakeholder groups?
5.4. Method
This evaluation has been carried out in-house by the Commission services. The evaluation
covers measures addressed in both, in the Energy Efficiency Directive and Electricity
Directive. The following data sources were used:
• 2013 SWD on "Incorporating demand side flexibility, in particular demand
response, in electricity Markets" (from electricity market intervention package)276
• Smart Grids Task Force (Expert Group 3) report: "Regulatory Recommendations
for the Deployment of Flexibility"
• Initial legal contractor's checks of EED transposition limited so far on
communication / non communication legal contractor's conformity checks of
Electricity Directive transposition
• JRC report on DR "Demand Response status in EU Member States" (2016)
• ACER/CEER: Annual Report on the Results of Monitoring the Internal Electricity
and Natural Gas Markets in 2014
• Concerted Actions Joint Working Group report on DSF
• External stakeholder reports on DR/DSF in Europe, such as SEDC's report
"Mapping Demand Response in Europe today"
• Impact Assessment support Study on downstream flexibility, demand response and
smart metering, COWI, 2016
Information has also been gathered through direct stakeholder input, e.g.
• Responses to the Commission's communication "Launching the public
consultation process on new energy market design".
• Workshop on Status, Barriers and Incentives to Demand Response in EU Member
States, organised be the European Commission on 23 October 2015.
• Smart Grids Task Force, Expert Group 3 workshop on market design for demand
response and self-consumption, March 2, 2016
• Florence Forum, Session on demand response June 13, 2016
276
http://ec.europa.eu/energy/sites/ener/files/documents/com_2013_public_intervention_swd07_en.pdf
168
5.5. Implementation / state of play
Implementation of EU legislation in Member States
5.5.1.
Member States have transposed the provisions of the EED in different national legal acts.
While a full transposition check has not yet been carried out it can already be seen that
different national provisions have led to a fragmented European market on demand response
with different rules and market opportunities for (independent) demand response service
providers, different market arrangements between service providers and balancing responsible
parties (including compensation payments) and different rules for trading flexibility in the
balancing, wholesale and capacity markets. Accordingly, demand response has only taken off
in a limited number of Member States and its potential remains largely untapped.
5.6. Uptake of Demand response in MS
Theoretical potential of Demand Response
5.6.1.
The current theoretical potential of demand response adds up approximately 120 GW. It is
predicted to increase to approx. 160 GW in 2030277
and will lay mainly with residential
consumers. However, the potential for 2030 will greatly depend on the uptake of new flexible
loads such as electric vehicles and heat pumps in the residential sector.
Graph 2: Theoretical demand response potential 2016
Source: Impact Assessment support Study on downstream flexibility, demand response and smart metering,
COWI, 2016
A detailed analysis of the loads that can be shifted and hence be activated under demand
response schemes has been conducted in preparation of this evaluation and its related impact
277
Impact Assessment support Study on downstream flexibility, demand response and smart metering, COWI,
2016
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Industrial
Commercial
Residential
169
assessment. This analysis has shown that for the industrial sector demand response is mainly
related to flexible loads in electric steel makings. In the commercial sector, a high theoretical
potential exist for ventilation of commercial buildings while in the residential sector mainly
freezers and refrigerators, and the electric heater with storage capacity show a high theoretical
potential.
Graph 3: Theoretical potential of demand response per appliance
Source: Impact Assessment support Study on downstream flexibility, demand response and smart metering,
COWI, 2016
0 4000 8000 12000 16000
Aluminum
Copper
Zinc
Chlorine
Mechanical Pulp
Paper Machines
Paper Recycling
Electric Steel
Cement
Calcium Carbide
Air Seperation
Industrial Cooling
Industrial Building Ventilation
Cooling Retail
Cold storage houses
Cooling Hotels/Restaurants
Ventilation Commercial Buildings
AC Commercial Buildings
Storage hot water commercial sector
Electric storage heater commercial sector
Pumps in water supply
Waste water treatment
Residential refrigerators/freezers
Washing machines
Laundry driers
Dish washers
Residential AC
Storage hot water residential sector
Electric storage heater residential sector
Residential heat circulation pumps
MW
Theorertical potential of demand response per
appliance
2030 2020 2010
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Current Situation in Member States
5.6.2.
The EU Demand Response market is still in its early development phase, and this early
development has proceeded very differently across Member States. Apart from the fact that
Member States still show varying levels of market opening and unequal market structures;
Member States have also chosen different approaches to make use of demand side flexibility
and to implement demand response. In fact, while Article 15.8 of the EED formulates
important principles for the market access of demand service providers and demand side
products it has left substantial freedom for Member States to implement these.
In this chapter the main drivers for demand response are analysed. A detailed analysis per
Member State is provided in the documents "Demand Response status in EU Member States"
and in the "impact assessment study on downstream flexibility, price flexibility, demand
response & smart metering".
Explicit Demand Response
For explicit demand response, full customer participation in the electricity markets is a
prerequisite as addressed in the relevant provisions of the EED. However, because of its
complexity only very large industrial consumers can directly engage in the electricity markets
while commercial and residential consumers will in most of the cases need to go through
demand response service providers (aggregators). This requires fair market access for such
aggregators and open balancing, wholesale and capacity markets for flexibility products as
well as for aggregated loads.
a) Market Access for aggregators
The EED stipulates that demand response providers (including aggregators) have to be treated
in a non-discriminatory manner. However, market access and market rules for aggregators are
regulated differently across Europe. In order to ensure full access to the market at least the
following main features should be addressed in national regulation:
 Clear definition of roles and responsibilities of aggregators within the energy market
to ensure legal certainty;
 Clear definition of the relationship between aggregators and Balancing Responsible
Partiess (BRP) that ensures market access of the aggregators at fair conditions. Such
rules are essential to ensure that the BRP (which is often the supplier) has no means
of stopping a competitor (e.g. independent aggregator) for engaging with one of its
customers.
In many Member States such a framework for aggregators is effectively missing or
independent aggregation is legally banned. This applies for Bulgaria, Croatia, Cyprus, Czech
Republic, Estonia, Greece Italy, Malta, Portugal, Spain and Slovakia. But also in Member
States where legislation for aggregators and demand response has been established many
differences can be noted.
To date, France is the only Member State that developed a complete framework for demand
response explicitly enabling independent aggregation by guaranteeing contractual freedom
between the consumer and the aggregator without supplier's consent. A standardised
framework also exists for the compensation mechanisms, however, it is claimed by
171
independent aggregators that this mechanism greatly penalises the aggregator,
overcompensates the BRP and hence renders the business case for independent aggregators
negative.
Other Member States allow (independent) aggregation but at varying degrees. Independent
aggregators are allowed in Belgium, IRE, UK, Germany and Austria albeit not all markets are
effectively opened to them as rules, e.g. in Austria, effectively limit their activity to aggregate
loads of big consumers. In some MS like PL, NL and in the Nordic markets aggregators have
also to become suppliers or offer their services jointly with suppliers but cannot act as
completely independent service providers. In all MS apart from France, UK and Ireland,
explicit consent of the consumer's supplier is required for aggregators to enter into the market.
Equally, in those MS a clear framework for compensation payments is missing and such
payments need to be individually negotiated. As such the incumbent supplier ha smeans to
effectively block market access at least for independent aggregators.
In those MS where regulation on DR and aggregators has been put in place, it has been
implemented in line with the provisions of the EED that does not make explicit reference to
independent aggregators. At the same time it is noted that demand response only takes off in
those MS were independent aggregators are active as suppliers seem to have little incentive to
enter the DR market by themselves or through aggregators.
b) Access of flexibility to the markets
The EED requires Member States to promote access to and participation of demand response
in balancing, reserve and other system services markets inter alia by engaging the national
authorities (or where relevant, the TSOs and DSOs) to define technical modalities on the basis
of the technical requirements of these markets and the capabilities of demand response; these
specifications must include the participation of aggregators.
Technical modalities or requirements can be for example the minimum size of a load, the
activation time or the duration for which a product needs to be provided. Traditionally,
requirements have been designed along the capacities of big generation units, e.g. coal power
plants, thus demand side products naturally face problems to meet these requirements, even if
aggregated. Another aspect is that prequalification requirements often have to be fulfilled per
unit and not at the aggregated level. As the following stock-taking will show, access of
demand resources to the wholesale, balancing and recently capacity markets varies
considerably across Member States.
The analysis of the status quo suggests that in most of the Member States access to the
markets is either up-front restricted or preconditions make it difficult for demand side
products to qualify and compete. In roughly only a third of the Member States demand side
products have fair access to the markets and in even fewer Member States demand response is
actually happening. Generally, the balancing markets tend to be more open to demand side
products than the wholesale markets.
In many Member States, electricity markets are still not fully liberalised and remainders of
monopolistic structures persist, or there are no functioning wholesale and balancing markets
in place at all. Accordingly, demand side resources do not play any role in these countries.
Examples for this situation would be Cyprus, Malta and Croatia. Size is a very important
aspect, too. Luxemburg for example has a joint balancing market with Germany, thus would
need to organise the access of demand response products with the German TSO, for which the
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structures have not yet been established. Having said this, also small countries are able to
explore new ways and implement innovative solutions, like Estonia, where the TSO set up a
data sharing platform which eventually should also be used to facilitate demand response.
But also in many other Member States markets are practically closed and allow for only very
restricted participation of the demand side. Often it is only suppliers or big industrial actors
that are allowed to bid in the markets. In those cases, there are usually very specific demand
flexibility programmes for selected, mainly very large, actors. For example, in Italy, Spain
and Greece interruptibility programmes have been or are being introduced for large industrial
loads. In Italy, these kinds of programmes exist for decades but have been used only rarely; in
Spain the programme will only be launched in 2016. The interruptibility programme in
Greece is linked to a clear and reasonable framework which - if it was extended to smaller
costumers connected to the lower voltage grids – could be a good starting point. In Bulgaria,
Voluntary Agreements between the state agency on the one hand and suppliers and large
industrial customers on the other are envisaged to involve the demand side and this for both,
the wholesale and balancing markets. In Portugal, a handful of very large consumers
participate in the markets; they can even be obliged to shed load in case of system events. A
special case is the Czech Republic where a ripple control mechanism for household electric
appliances was introduced in the 60es to which 40% of the Czech consumers have subscribed
but which hampers the deployment of state-of-the-art smart technologies.
Other countries are one step ahead and have partly opened their markets, while practical
barriers still hamper the market access. The balancing market in Germany for example is in
principle open to demand loads, but heavy prequalification (e.g. extensive testing) and
programme requirements (e.g. bid size) block any major DR-activity. Similarly, practical
barriers, in particular for aggregated demand, hamper access to the – theoretically open –
balancing markets in Slovenia and Denmark and to some degree also in Sweden.
Prequalification procedures and very small remuneration make participation also in Poland's
balancing market unattractive; however, Poland has lately introduced an Emergency Demand
Response Programme which considers specifically demand side resources. The Netherlands
offer some possibilities for demand flexibility provided by retailers to be traded at the
wholesale markets; for the balancing markets there are specific Reserve programmes that
involve (for big consumers even mandatory) participation of demand side resources. Austria
has opened its balancing market to demand response services, but the design of the technical
requirements favour large generators.
There is a group of countries where demand response has already assumed a more important
role. Belgium for example adapted their technical requirements and offers quite a large range
of possibilities for demand side resources to participate in the balancing and ancillary
markets; however some barriers in particular for aggregated load persist while the wholesale
market remains almost fully closed. A different, but interesting case is Finland which is,
together with France and UK, one of the three countries where demand side participation
expands to households and the commercial sector (mainly through steering refrigeration
appliances).
In a slightly different set-up, up-coming capacity markets - while having the potential to
undermine the business case for demand response - can offer new possibilities to demand side
participation. In Ireland for example, so-called prequalified Demand Side Units (DSU) can
receive capacity payments. Italy too has introduced a new regulation in 2014 which foresees
the participation of demand side resources; Greece is currently evaluating the possibility to
173
establish a capacity mechanism with a strong role of demand response. Also the UK's
capacity market is open to demand side bidding; however, the actual design of the
requirements has overall led to a decrease of demand side participation within the capacity
market. More broadly, UK is the only Member States where the volume of demand response
decreased between 2014 and 2015.
Still, UK is one of the few countries where demand response has reached a significant
volume. The market for ancillary services is open to Demand response and a dedicated
Demand Side Balancing Reserve mechanism was established in 2015. Meanwhile, France has
become probably the Member State with the broadest general access of demand response to
both, the balancing and the wholesale market. A general framework is in place that facilitates
demand side participation, which has started to trigger a real activity.
Demand Response is participating in many Member states in the wholeseale energy markets.
The energy markets may represent the highest Demand Response volumes and has been
proved to represent over 10 per cent of peak load in the Nordic markets in terms of volumes
of price sensitive bids in high price periods with high risk of price peaks. In periods with low
prices and low risk of price peaks, the price sensivtive bids may be less than 1 per cent as
shown for the German/Austrian, French and Sanish/Portugees markets. This shows that DR
participation the wholesale markets is very dependent on specific conditions in each MS.
Table 1 below summarizes the amount of incentive based DR found in Member States.
Currently there is no common European methodology to calculate and report Demand
Response participation in the different markets. However, the actual volumes as stated in
literature from 12 Member States is about 15 GW. For Member States that allow incentive
based DR but where no data on volumes is available conservative estimated have been
inroduced. It should also be noted that not all volumes reported in the table below are active
in the markets as some volumes are only offered but rarely activated (this is especially true for
Italy and Spain where high volumes are reported tha are not activiated).
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Table 1: Uptake of incentive based Demand Response
MS DR in
energy
markets
DR in
balancing
markets
DR in
capcity
mechanisms
Current
Estimated
DR in MW
Austria Yes Yes 104
Belgium Yes Yes Yes 689
Bulgaria No No 0
Croatia No No 0
Cyprus No market No market 0
Czech
Republic
Yes
Yes
49
Denmark Yes Yes 566
Estonia Yes No 0
Finland Yes Yes Yes 810
France Yes Yes Yes 1689
Germany Yes Yes Yes 860
Greece No (2015) No 1527
Hungary Yes Yes 30
Ireland Yes Yes Yes 48
Italy Yes No Yes 4131
Latvia Yes No Yes 7
Lithuania unclear No 0
Luxembourg No
information
No
information
Malta No market No market
Netherlands Yes Yes 170
Poland Yes Yes No 228
Portugal Yes No 40
Romania Yes Yes 79
Slovakia Yes Yes 40
Slovenia No Yes 21
Spain Yes No Yes 2083
Sweden Yes Yes Yes 666
UK Yes Yes Yes 1792
Total 15628
Source: Impact Assessment support Study on downstream flexibility, demand response and smart metering,
COWI, 2016
Implicit Demand Response
For implicit Demand Response, smart metering systems as well as the availability of dynamic
pricing contracts linked to the wholesale market are prerequisites. For smart metering systems
roll out plans exist for 17 MS, while in 2 MS a partial roll out is planned and in many of those
MS the functionalities of the smart metering systems (communication interfaces, update
intervals, etc.) may not allow for automatically reacting to price signals (a complete analysis
is provided within the evaluation fiche on smart metering). EU legislation does currently not
impose any requirements on Member States to activating price based (or implicit) demand
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response. In order to activate price based DR the availability of dynamic electricity pricing
offers are a prerequisite to incentivise consumers to adjust their consumption according to the
real time price signal. The ACER/CEER Market monitoring report contains a dedicated
analysis of the competition situation in all MS in the retail market and the different offers
available to the customers. This analysis shows that only in Denmark, Sweden and Finland
dynamic pricing contracts that are linked to the spot market are available to residential
consumers while only in Sweden and Norway such contracts represent more than 10% of all
consumer contracts. In terms of costs for the consumers the ACER/CEER analysis shows that
offers linked to the spot market are slightly cheaper for the consumer than fixed or variable
offers in the same country.
Graph 4: Type of energy pricing of electricity offers in EU MSs capital cities
Source: ACER/CEER market monitoring report (2014)
In addition to the three MS mentioned also in Estonia, Spain, Austria, Belgium, Netherlands
and Germany dynamic pricing contracts are available on the market – at least for certain
consumer groups - which were not yet included in ACER/CEER analysis. However, the
uptake of such tariffs is currently very low (see table 9 in the annex of this evaluation for
details on availability of dynamic and time of use tariffs in Member States).
As a high level estimate for EU, studies and data support current load shifting due to price
based Demand Response (dynamic prices and Time of Use (ToU) prices) ranging from
negligible (most Member States), to around 1% (most Northern European Countries) to 6-7%
(Finland and France, in te latter only ToU tariffs are available). If a value of 1% is applied for
Northern European countries and those with some reported Demand Response (e.g., Spain)
and 6% for Finland and France, the overall load that is shifted due to dynamic and ToU tariffs
to date would be of the order of 5.7GW or 1.2% of peak load. The approx. 5.7 GW demand
response through dynamic and times of use tariff only represents less than 10% of the
potential of more than 70 GW potential for residential and commercial consumers.
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Table 2: Estimate of theoretic residential and small commercial load reduction potential
Member State MW
Austria 1284
Belgium 1775
Bulgaria 644
Croatia 394
Cyprus 134
Czech Republic 1123
Denmark 972
Estonia 173
Finland 1610
France 11551
Germany 12869
Greece 1565
Hungary 1008
Ireland 681
Italy 9303
Latvia 220
Lithuania 302
Luxembourg 80
Malta 61
Netherlands 2557
Poland 3534
Portugal 1165
Romania 1449
Slovakia 692
Slovenia 261
Spain 6623
Sweden 2984
UK 9788
TOTAL 74802
Source: Impact Assessment support Study on downstream flexibility, demand response and smart metering,
COWI, 2016
The analysis shows that price based demand response is currently only possible in very few
Member States and that in the vast majority of MS at least residential consumers are
effectively deprived from participating in implicit demand response schemes that can be
beneficial to them. As such it can be concluded that the policy objective to activate implicit
Demand Response across the EU has not been reached.
Market Barriers for Demand Response
Explicit Demand Response
One main barrier for explicit demand response results from non-favourable conditions for
independent aggregators to access the market. In the majority of Member States consumer
access to Demand Response service providers is problematic; unless they are seeking the
services of their current supplier. Consumers have the right to select any third party provider
of, for example, energy management services. However, in most European markets,
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consumers cannot choose a separate services provider for providing Demand Response at
least not without the supplier's consent. They are therefore restricted to their supplier, or
depend on their supplier’s permission before entering into a contract with a third party
aggregator. Often the supplier is in direct competition with the aggregator, or as an owner of
generation assets may have little interest in uptake of Demand Response, and thus has an
incentive to block the aggregator from doing business with the consumer.
In the majority of the countries examined, the roles and responsibilities are unclear, and do
not allow for direct access of consumers to service providers, therefore they do not offer them
a clear path to market. There is therefore an urgent need to clarify the role of new market
participants, such as third party aggregators, and their interaction with existing market
participants, such as BRPs/suppliers when helping consumers sell their flexibility into the
market.
A further market barrier is the access of flexibility products to the balancing, wholesale and
capacity markets. As already outlined before, technical requirements or "modalities" (as
referred to in the EED expressing that not only technical specifications - "values" - but also
procedures and involvement of actors are included) determine the access possibilities of
demand side products. This starts with the procedures a product or service must undergo to
qualify for the participation in the markets, for example measurement and verification
procedures. If single demand side units have to meet the same procedures as large generation
units, disproportionate costs and efforts will diminish the business case. But also the criteria
for the product itself can facilitate or otherwise de facto rule out participation. For example,
the minimum bid size (or in other words, the minimum size of the sheddable load) is one of
the requirements that typically exclude flexibility provided by residential and commercial
consumers in many markets. Moreover, very short call (activation) times of a few seconds or
excessive delivery periods shut out demand side participation as demand side patterns can
hardly match these requirements278
. The EED therefore required the definition of technical
modalities that would meet the capabilities of demand response. A basic question is for many
of the requirements whether they need to be met at individual or at aggregated level. This has
in particular an impact on the fulfillment of the load size requirements but also the
prequalification (measurement and testing) procedures for example become more
proportionate if they don't have to be carried out for every unit.
Implicit Demand Response
In order to activate implicit demand response, access has to be guaranteed to fully functional
smart metering systems and to dynamic pricing contracts that are linked to the wholesale
market (e.g. spot market) and therefore give a real team price signal. The roll out of smart
metering system is not market driven, but depends on corresponding Member State decisions.
The status of the roll out and the barriers are analysed in a separate evaluation document.
Dynamic pricing contracts will only be offered in those MS where a sufficient number of
consumers has a smart meter with the required functionalities (at least hourly update intervals,
etc.). The roll out of such meters has only been completed in the Nordic countries, where
278
The European standard full activation time is 30 seconds which is usually well sufficient for demand side
products to respond. The standard delivery period in the balancing markets should be 15 minutes while in the
reserve markets 1-2 hours would be appropriate (in some countries up to 12 hours are requested). Minimum
sheddable loads are often established at 5 MW and above which can only be met by large industrial sites or
generation plants.
178
some suppliers already started offering dynamic pricing contracts without any specific
regulatory incentive. Those contracts are on average cheaper for the consumers than fixed
price contracts (see also chapter 6.1) as they do not have to pay a risk premium to the supplier
for fluctuating market prices. Those contracts are also more attractive to the suppliers,
because they are no longer exposed to the risk of fluctuating prices at the wholesale market. It
can therefore be concluded that in a competitive retail market dynamic pricing contracts will
be offered by suppliers once fit for purpose smart metering systems are in place. However, in
less competitive retail markets such offers may not develop without regulatory intervention as
incumbents may generate profit by charging a high risk premium to their consumers.
5.7. Answers to the evaluation questions (Assessment of current situation)
General
To what extent have the objectives regarding Demand Response in Electricity Directive
2009/72 and EED 2012/27 been achieved? To what extent do the observed effects correspond
to the original ambition and where there unintended impacts as well?
The EED recitals (44 and 45) clearly identify explicit and implicit demand response as an
important instrument for improving energy efficiency. It is aimed at an instrument to reduce
and/or shift consumption resulting in energy savings in both final consumption and, through
the more optimal use of networks and generation assets, in energy generation, transmission
and distribution. As such the EED aimed at improving the conditions for, and access to,
demand response by ensuring that NRAs are able to ensure that network tariffs and
regulations incentivise improvements in energy efficiency and support dynamic pricing. The
directive clearly identifies the need for equal market entry opportunities for demand side
resources alongside generation.
Market Access for aggregators
According to SEDC's report "Mapping Demand Response in Europe today" 5 MS (France,
Belgium, Finland, Ireland, Great Britain) have reached a level where demand response is a
commercially viable product. However, only France has fully enabled independent
aggregation by establishing standardised arrangements between BRP and aggregator. In 3 MS
(Sweden, Netherlands, Austria) independent aggregation is established, but still faces
significant barriers. In most other MS only preliminary developments in opening the markets
for demand response and independent aggregation can be observed while in some MS
independent aggregators are effectively banned.
The reasons for the slow development are plentiful and vary from Member State to Member
State. One common obstacle found across Member States is the need to treat demand response
as a generation source (as required for explicit demand response) that leads to a considerable
increase in the complexity of the overall market design that needs to be regulated. The
existing European provisions in the EED may not be sufficiently detailed to guide Member
States to develop all of those aspects in their national regulatory framework.
However, some progress can be noted in comparison with an earlier assessment in 2013.
Those eight MS where commercial offers for DR exist, made significant progress in opening
the markets as envisaged by the provisions of the EED while in some other MS also early
developments can be noted. As such it can be concluded that the provisions in the EED indeed
helped to open up the electricity markets to consumers but that they have not yet proved
179
sufficiently detailed to guarantee this opening across all Member State and provide a level
playing field for demand response service providers in all Member States.
Access of flexibility products to the wholesale market
Overall, positive trends can be observed and quite some Member States have either recently
adapted their requirements for demand side products, or evaluate and even plan to implement
additional mechanisms that would involve demand side resources; this seems to happen
mainly with a view to the balancing, and in some cases, capacity markets. Yet, the markets
develop still rather slowly and in a little systematic, heterogenic way.
The EED requires Member States to ensure the definition of technical modalities through their
National Regulatory Authorities (NRA) or system operators. Accordingly, these requirements
would typically be developed and applied at the level of the national markets, which at a
longer-term perspective might be insufficient to deploy demand response at EU scale.
A first step to align technical specifications was made in the draft Demand Connection Code
(DCC) which is foreseen to lay down inter alia requirements for the grid connection of
equipment providing demand side response services to system operators. The Code defines
for example voltage and frequency ranges within which demand side equipment must be
capable to operate to be eligible for TSO procurement. The EED-provisions and principles
have been considered during the development of the draft DCC, notably regarding the role of
aggregators and the validity of aggregated load as a reference unit.
The positive trends and the recognition of the role of the demand side in the energy system
have certainly been supported by the EED-provisions which put the relevance and the
potential of demand side resources into the right perspective. An increased interest in demand
response will however also be triggered by the actual needs of the Member State to cope with
new generation and consumption patterns.
Consumer access to dynamic electricity price contracts linked to the wholesale market
There is currently limited evidence of consumers directly adjusting their consumption
according to market developments. Most of this activity can be found in France where many
residential consumers are on Time of Use (ToU) tariffs and approx. 6% of the load is shifted.
However, price based demand response on the basis of fluctuating retail prices requires
specific conditions:
• a relevant price difference between peak and off-peak prices that are passed on to
consumers;
• Consumers have access to appliances that permit consumers to easily shift usage
from peak periods to off peak periods, which currently are electric heating, thermal
uses such as water boilers and in the future will also include electric vehicles, heat
pumps and storage:;
• Fully functional Smart Metering systems are installed
These conditions are currently most prevalent in Finland, where there is a sufficient difference
between on-peak and off-peak electricity prices, and many customers have appliances like
electric heaters and hot water tanks, that make it beneficial to shift demand to off-period
periods. Moreover, fully functional smart meters have been rolled out in Finland that allow
for accurate metering adjusted to the intervals of price adjustments. However, as pointed out
180
in chapter 5.6 dynamic electricity price contracts to residential consumers are only available
in very few Member States.
Which market barriers still exist for DR?
According to available documents and the stakeholder responses to the Commission's
communication "Launching the public consultation process on new energy market design",
the following main market barriers can be identified:
For explicit demand response:
 Clear definition of roles/responsibilities for aggregators are missing in many Member
States (e.g. in terms of market access and balancing responsibility);
 independent aggregation remains forbidden in some MS
 Even when roles and responsibilities are defined many Member States restrict
aggregation to suppliers or at least require the consent of the supplier. This effectively
forms a market barrier for independent aggregators and hence competition. However,
in those Member States where independent aggregators have no access to the market
Demand Response is often not offered by the incumbent supplier which suggests that
independent aggregators are indeed needed for exploiting the full potential of Demand
Response;
 In those Member States where independent aggregation is enabled undue
compensation payments that overcompensate the BRP can risk to render the business
case for independent aggregators negative;
 Access of flexibility products to balancing, wholesale and capacity markets is limited
in many Member States.
For implicit Demand response:
 Access to smart metering systems with the full set of functionalities (addressed under
the smart meter evaluation) is currently not available to most consumers. According to
MS roll out plans less than 70% of consumers will have a fully fit for purpose smart
meter installed by 2020;
 Access to dynamic electricity pricing contracts linked to the spot market is only
available in very few MS. However, in competitive retail markets it is likely that such
contracts will be offered when smart meters will have been rolled out.
Are the existing provisions in EU legislation for DR sufficient for ensuring necessary levels of
flexibility?
The uptake of demand response within the EU has been slow compared to for examples the
US and Australia. While this can partly be explained by different market conditions, e.g.
existing overcapacities in the EU compared to shortages in the US and more complicated
attribution of benefits due to the European unbundling regime, many additional market
barriers exist in the EU (see above and chapter 5.6). Those market barriers can persist also in
those MS that correctly transposed the EED. This is especially relevant for market access of
independent aggregators that play an important role in developing flexibility services as
experiences from the US and Australia but also from France and Switzerland have shown.
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While the EED recognises the important role aggregators can play in the market, the directive
does not make any specific reference to independent aggregators. It remains to be verified
whether this leaves scope for Member States to link the role of aggregation to the supplier and
thereby effectively ban independent aggregators. To ensure the uptake of demand response it
may therefore be necessary to explicitly allow independent aggregation and guarantee fair
market access through European legislation.
As regards the access of demand side products to the balancing and other system services
markets, positive trends can be observed. Member States seem to increasingly consider
demand response as a real option to optimise their energy system. However, the opening of
the markets and the adaptation of requirements along the capabilities of demand side products
often happen in a little systematic way and overall too slowly. Moreover and in the longer
term, technical requirements should eventually not be developed for and applied at the
national markets but should be coordinated and finally harmonised to enable cross-border
demand response in integrated energy markets.
For price based demand response the key will be the roll out of fully fit for purpose smart
metering systems. Once those smart meters are available experience from the Nordic market
has shown that suppliers will offer dynamic pricing contracts as it reduces the risk for the
supplier and can be offered at favourable conditions to the consumer. This can then provide
the basis for consumers to participate in Demand Response. However, many EU retail
markets are not fully competitive and incumbent suppliers still have a great market share
and/or prices are regulated. In those markets more legislative intervention may be required to
enforce the offering of dynamic pricing contracts.
Effectiveness:
Which differences across MS can be observed and what are the reasons for these differences?
In terms of potential for demand response great differences exist across Member States with
respect to for example:
• Industrial structure in Member States
• Availability of flexible loads, such electric heating, heat pumps, air conditioning in
residential and commercial buildings, electric vehicles, etc.
The extent to which demand response potential is being used highly depends on the legislative
framework in each Member State. As described in chapter 5, significant differences across
Member States can be observed in many aspects related to DR:
 The role of (independent) aggregators within the electricity system
 The relationship or contractual framework between aggregator and BRP
 Access of flexibility products to the wholesale, balancing and capacity markets
 Roll out of fit for purpose smart metering systems
 Access to dynamic electricity prices for consumers
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The Smart energy Demand Coalition (SEDC) assessed 14 established EU and two non-EU
electricity markets and ranked them in accordance with the following success criteria for
explicit demand response:
 Consumer Access and Aggregation
 Programme Description and Requirements
 Measurement and Verification
 Finance and Penalties
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Table 3: Classification of success criteria for demand response
Score
Consumer Access
and Aggregation
Programme
Description and
Requirements
Measurement and
Verification
Finance and
Penalties
5 Aggregated load is
accepted in a range
of markets,
standardised
arrangements
between involved
parties
are in place –
enabled through an
independent third
party
Programme
requirements
adjusted to enable a
range of resources
(supply and
demand) to
participate in
multiple markets
Requirements are
well defined,
standardised,
proportionate to
customer
capabilities, and
dealt with at the
aggregated level
Payment is fair and
penalties are
reasonable
3 Aggregated load is
accepted only in
limited number of
markets, lack of
standardised
arrangements
between
involved parties
Minor barriers to
demand-side
participation in
market remain,
however
participation is still
possible
Requirements are
under development,
but do not act as a
significant barrier
Payment is
adequate, but
unequal per MW
between supply
and demand;
Penalty structures
create risk issues
for service
providers, but
participation is still
possible
1 Aggregated load is
accepted only in one
or two programmes,
lack of standardised
arrangements
between
involved parties
Significant barriers
remain, creating
major competition
issues for demand-
side resource
participation
Requirements act
as a significant
barrier to consumer
participation
Payment structures
seem inadequate,
unequal pay per
MW between
supply and
demand, penalty
structures create
high risk issues
0 Load is not accepted
as a resource in any
market
Programme
requirements block
demand-side
participation
There are no
measurement and
verification rules
for Demand
Response
participation
Payment structure
inadequate and
non-transparent;
penalty structures
act as a critical
barrier
Source: SEDC's report "Mapping Demand Response in Europe today", SEDC, 2015
In short, the SEDC's list of best practices would be based on:
 Aggregated load being accepted in a range of markets and standardised
arrangements between involved parties put in place (enabled through an
independent third party)
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 Programme requirements are adjusted to enable a range of resources (supply and
demand) to participate in multiple markets
 Requirements that are well defined, standardised, proportionate to customer
capabilities, and dealt with at the aggregated level
 Payment is 'fair' and penalties are reasonable
Their overall results by Member States are presented in the figure below.
Table 4: SEDC assessment of performance of Member States with regards to incentive
based demand response
Source: SEDC's report "Mapping Demand Response in Europe today", SEDC, 2015
As can be seen above, according to the SEDC, even those countries with the most favourable
market rules in place do not score highly on all issues. Therefore this analysis would infer that
market rules can be improved in all of the countries surveyed. In addition, the paper notes that
progress towards greater demand response cannot be assumed and that some countries, in
their opinion, are at risk of taking a step back.
The forerunners in demand response include Belgium, Ireland, France, UK and Finland.
These are also those Member States that already have a higher share of demand response in
their market. Italy and Spain are specific cases where a relevant share of demand response is
present at the market but not activated. It can therefore be concluded that a solid legal
framework is indeed a necessity for demand response to take off.
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Table 5: Current Demand response activation in MW
Member State Price based
Demand Response
Incentive Based
Demand Response
Total
Demand Response
Austria 94 104 198
Belgium 130 689 819
Bulgaria 54 0 54
Croatia 34 0 34
Cyprus 12 0 12
Czech Republic 93 49 142
Denmark 78 566 644
Estonia 15 0 15
Finland 140 810 950
France 841 1689 2530
Germany 930 860 1790
Greece 137 1527 1664
Hungary 88 30 118
Ireland 49 48 97
Italy 699 4131 4830
Latvia 19 7 26
Lithuania 27 0 27
Netherlands 195 170 365
Poland 306 228 534
Portugal 90 40 130
Romania 128 79 207
Slovakia 60 40 100
Slovenia 22 21 43
Spain 537 2083 2620
Sweden 269 666 935
UK 733 1792 2525
TOTAL in MW 5779 15628 21407
Source: Impact Assessment support Study on downstream flexibility, demand response and smart metering,
COWI, 2016
Which factors guarantee a beneficial deployment of DR?
According to the results of the analysis as presented in the previous chapter and according
experiences in the US, Australia and New Zealand, most importantly, clear rules for Demand
Response must exist that are currently not implemented in many Member States. These rules
must among others clearly determine market access rules and financial arrangements for
independent aggregators to ensure on the one hand that they contribute adequately to system
costs they induce while on the other hand must ensure that aggregators are not unduly
charged. Such clear rules are indispensable for the development of demand response and
demand response does not take off in Member States where those rules are not clearly
defined. Fully competitive retail markets are another element that helps the development of
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innovative Demand Response services, while in markets that are dominated by (vertically
integrated) incumbents the incentives for offering those new services are lower.
However, those rules are necessary conditions for Demand response but other market
conditions also have to be in place for Demand Response to take off. For example in many
parts of the US, there is serious shortage of generation capacity and/or grid capacity, which
makes Demand Response a lot more necessary as well as valuable than in countries with
overcapacities. Equally important are relevant price fluctuations (peak prices) in the
wholesale market that are more likely to incur in markets with a high renewables share.
Can the benefits of DR be quantified? Are the quantifiable effects in countries outside the
EU?
There is currently little experience in Europe with respect to demand response which makes
the quantification of benefits of demand response difficult to calculate. A recent study for the
European Commission found that enabling demand response could bring €70-105 billion of
cost reductions a year to Europe in terms of power plant fuel consumption, grid investment
and backup generation. However, other studies have found that certain consumer classes have
such a high willingness-to-pay for on-demand electricity that the benefits of demand response
would be marginal, at best. The expected monetary benefit of demand response as calculated
within the work on the Impact Assessment for the MDI amounts to €4.4 to 5.8 billion net
benefit per year depending on the policy scenario.
The evidence from different markets within the US indicates that the demand side may
provide peak load reductions of 1-2 per cent of peak load in the wholesale market, and 1-6 per
cent of peak load from other incentive based DR (AEMC, 2015). Data from FERC
summarized by AEMC (2015) and ECI (2015) indicates a total incentive based DR of approx.
8 percent of peak load reductions in Pennsylvania, New Jersey, Maryland (PJM) where the
incentive based DR has the largest uptake. However, as for Europe the overall benefits of
demand response are hard to quantify and no reliable, widely accepted data is currently
available.
On whom (which stakeholder, incl. consumers) did the benefits/costs fall, and was the sharing
of costs/benefits the same in all MS? If there are significant differences in costs (or benefits)
between Member States, what is causing them?
The allocation of benefits between different stakeholders is hard to assess because those data
is confidential business data and hence not publicly available. However in principle the
following allocation aspects can be expected:
 Consumers participating in demand response schemes are likely to realise benefits as
they will be awarded for the flexibility they provide to the system. While currently
most offers on the market address industrial or commercial consumers also consumers
with shiftable loads (e.g. heating systems) participate in some countries, e.g. in
Switzerland;
 For consumers not participating in demand response schemes effects can be either
positive or negative. Demand response will reduce the prices on the energy markets
and in competitive retail markets these cost reductions will be passed on to all
consumers. But there is also a minor risk that these consumers will face higher average
prices if the high peak prices will be fully paid by those who are not participating in
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demand response. However, this may be justified as they are charged according to the
costs they induce to the system when consuming at times of low supply;
 Aggregators (either independent or linked to a supplier) offering demand response
services are expected to generate profits;
 Suppliers not offering demand response services may face reduced sales but at the
same time they benefit from lower wholesale prices. The net effect may either be
positive or negative;
 Generators will no longer profit from very high peak prices and will hence likely
suffer losses;
 Marginal generators operating at peak demand times are likely to generate losses as
the very expensive electricity provided by them will no longer be demanded;
 Network operators – both at transmission and distribution level – are expected to
benefit from solutions that offer flexibility and reduce investment costs;
 Manufacturers of smart grid-ready equipment (smart meters, smart appliances, energy
management systems, distributed generation technologies) should be able to benefit
from a deployment of technologies that enable demand response.
Relevance
To what extent have the (original) objectives proven to have been appropriate for the
intervention in question? How well do the (original) objectives (still) correspond to the needs
within the EU?
The original objectives as stipulated in the electricity directive, the renewables energy
directive as well as the energy efficiency directive of creating efficient electricity markets,
efficiently integrating variable renewables into the electricity system and increase energy
efficiency are still valid as confirmed e.g. in the Commission's communication "Launching
the public consultation process on new energy market design" and the stakeholder responses
to that communication.
How well adapted is the intervention to subsequent technological or scientific advances?
The basic technology components exist for the implementation of DR i.e. the necessary
communication technologies, control systems, sensors etc. Since 2008 several demonstration
projects have been completed in European and national RTD programmes e.g. ADDRESS,
LINEAR, E-DEMA, ECOGRID-EU, and Grid4EU. However, particularly for the residential
DR, the validation of positive business cases and the cost of the components are not yet
conducive to large scale roll out. E.g. Ecogrid-EU estimates that the retrofitting of one zone in
a house with an electric radiator would be 160-200 € in a ~100.000 unit rollout. Further
technology developments and in particular cloud connected home automation and appliances
in smart homes will increase the economic benefits of price based demand response. It is
expected that in a 15 year time scale the installation process will be un-necessary because
appliances are already connected to the internet (IOT appliances). In such a case and with a
roll-out to millions of households, the direct cost of DR could be virtually zero 279
. To grasp
the significant potential of DR in legacy appliances it is however necessary to further develop
the business models and validate their integration into the energy system.
279
Deliverable 7.4 EcoGrid EU Replication Roadmap
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Do current regulations ensure that final consumers can actively participate in the market?
While the existing European legal framework allows consumers to participate in the market it
has not yet succeeded in enabling this participation in all Member States. Under the current
legislation consumers do not have access to dynamic pricing contracts in most Member States
while in 23 Member States no dedicated and solid framework for incentive based demand
response exists. In 20 Member States there are currently no commercial demand response
services on the market. According to this analysis, currently consumers in 18 Member States
cannot actively participate in the market. It also needs to be stressed that most incentive based
Demand Response schemes are only available to commercial and industrial consumers which
suggests that residential consumers have no access to Demand Response Services in more
than 18 Member States.
Coherence
To what extent is this intervention coherent with other interventions which have similar
objectives in particular EED, EPBD, upcoming MDI? To what extent is the intervention
coherent internally?
Further developing demand response is fully coherent with the objectives of other priorities in
the field of energy policy as a suited market framework for demand response:
 is an enabler for integrating renewables efficiently into the electricity system. It also
contributes to render energy storage and self-consumption viable;
 is a key factor for increasing energy efficiency with savings of final but mainly
primary energy;
 is a key factor in promoting new products in balancing markets where new rules are
being elaborated under the MDI to increase competition;
 may help to reduce the need for creating capacity markets and will therefore be
considered under the rules for capacity markets to be proposed under the MDI;
 will be needed to make efficient use of existing networks and may reduce the need
for investments in the physical network. Therefore,flexibility is also at the core of the
proposal concerning new distribution tariff rules under the MDI;
 will likely trigger the deployment of smart homes and smart buildings technologies
while these will vice-versa increase the interest of residential and commercial
consumers in participating in demand response programmes. This deployment is
foreseen to be supported by measures to be adopted under the Ecodesign/Energy
Labelling Framework and by new approaches for smart buildings to be proposed in
the context of the review of the EPBD in 2016.
EU-added value
5.7.1.
What is the additional value resulting from the EU intervention(s), compared to what could
be achieved by Member States at national and/or regional levels? To what extent do the
issues addressed by the intervention continue to require action at EU level?
Under the market design initiative (upgrading of the wholesale market) the Commission will
also look into opening national balancing markets where flexibility may then be traded across
borders. Full availability of DR in all Member States will then be crucial for the functioning
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of those cross border balancing markets. Furthermore in a functioning internal energy market
similar conditions must exist for all market actors, including for aggregators.
What is the cross border dimension of Demand Response
Currently commercial demand response offers remain national. This is mostly due to the fact
that balancing and capacity markets are mostly national. Within the ongoing market design
initiative measures will be addressed to open these markets not only to flexibility products but
also to cross border trading which may in the future open up cross border markets for demand
response. These aspects are however part of the market design evaluation fiche.
What would be the most likely consequences of stopping or withdrawing the existing EU
intervention?
In case existing EU legislation on demand response was withdrawn one could imagine, that
some Member States will develop the market while for others there is a risk that demand
response will effectively be banned from taking place by e.g. not allowing (independent)
aggregators on the market (or by putting market barriers that will effectively render any
business case negative) or by banning dynamic pricing contracts. In any case, under such
scenario the full benefits of demand response cannot be realised across Europe.
Other evaluation criteria
5.7.2.
Utility: To what extent do the changes/effects of an intervention satisfy (or not) stakeholders'
needs? How much does the degree of satisfaction differ according to the different stakeholder
groups?
Public consultation shows great support for DR and the need for further action. However,
different stakeholder groups will be affected by stricter European legislation enabling demand
response:
 consumers will rather endorse any measure that will help them to reduce their
electricity bill as long as data privacy is ensured and vulnerable consumers who cannot
shift their consumption are protected from higher electricity prices. Furthermore, it has
to be ensured that participation in demand response remains purely voluntarily to have
support from consumers;
 independent aggregators are likely to endorse any proposal that gives them more
certainty with regards to market access and provide them with standardised
frameworks;
 suppliers may be divided on such proposals:
o independent suppliers may rather support enabling rules for demand response
as it will open new business opportunities also for suppliers. On the other hand
they may oppose a strengthened role of independent aggregators as this will
lead to additional competitors on the market;
o vertically integrated suppliers will rather oppose new legislation on demand
response as demand response competes with their generation assets;
o all suppliers are likely to be against any measure that will oblige them to offer
specific products, such as dynamic electricity pricing contracts as they would
rather see them developing as a competitive business;
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 generators will rather be against any stronger European demand response legislation as
it will create additional competition;
 national regulatory authorities may rather be sceptical about additional EU legislation
as it may affect existing national frameworks and requires adjustments.
5.8. Conclusions (Gap Analysis)
It is the Commission's objective to make electricity demand more flexible to enable the
energy system to better cope with variable RES and new loads as well as to reduce the need
for related capacity investments. The full development of demand response potential will be
crucial in achieving this objective but will only become accessible if all consumer groups
(residential, commercial, industrial) can voluntarily and gainfully engage in demand response.
Current EU legislation recognises this need and provides a legislative framework for
incentive-based demand response obliging Member States to comply with the following
obligations:
1. Ensure that national energy regulatory authorities encourage the participation of
demand side resources, including demand response, alongside supply in wholesale
and retail markets.
2. Ensure – subject to technical constraints inherent in managing networks - that
TSOs and DSOs treat demand response providers, including demand aggregators
in a non-discriminatory way and on the basis of their technical capabilities.
3. Promote - subject to technical constraints inherent in managing networks - access
to and participation of demand response in balancing, reserve and other system
services markets.
Whereas the existing acquis has provisions that aim to ensure incentive-based demand
response providers are treated in a non-discriminatory manner, they potentially allow a degree
of subjective interpretation by MS for example regarding the recognition of independent
aggregators that are not specifically addressed in the existing legislation. To date, price-based
demand response has only been addressed in a non-binding provision in Annex XI of the
Energy Efficiency Directive. In the light of the developments so far, the existing provisions
can be assessed as follows.
In terms of effectiveness, the evidence available generally suggests that the demand response
provisions currently in place have been less effective than intended. The provisions have not
been effective in removing the primary market barriers especially for independent demand
response service-providers and creating a level playing field for them. This is mainly due to
the high degree of freedom the existing provisions leave to Member States. As such in many
Member States, the roles and responsibilities for aggregators are not defined and incumbent
suppliers in many Member States are able to prevent independent DR service-providers from
entering the market by not granting them access to their customers. Significant 'compensation'
payments in some Member States from aggregators to BRPs risk to overcompensate those
parties and diminish the business case for Demand Response. At the same time, rules and
technical requirements at national balancing, wholesale and capacity markets often prevent
flexibility products from entering those markets which forms another barrier for incentive
based demand response.
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The current total theoretical demand response potential amounts to approx. 100 GW of which
only about 21 GW are activated. Approx. 15GW of this Demand Response is provided by
industry under incentive based demand response schemes, while approx. 6GW are provided
by residential and commercial consumers under price based demand response schemes of
which most are under static time of use tariffs (ToU). It is evident form the analysis that this
potential is only activated in those Member states where a framework for demand response
exist while in most Member States demand response does not take place at all or to a
negligible extent.
It can be concluded, that the existing measures have not been effective to remove market
barriers to demand response and demand response potential remains largely untapped,
especially in the residential and commercial sector. The different treatment of independent
Demand Response service-providers in national energy markets as well as of flexibility
products in electricity markets risk that the full demand response potential in Europe will not
be activated and hence the internal energy market cannot function as efficient as possible.
There is currently not sufficient quantitative evidence to fully evaluate the efficiency of the
intervention in terms of proportionality between impacts and resources/means deployed. This
is mostly due to the limited empirical data on the value of demand response in current markets
and the overall benefits it produces to the system. The costs for implementing incentive based
demand response can be considered to be rather minor as it does not require major technical
infrastructure. For price based demand response the installation of smart metering systems –
that have many system benefits themselves that are not accounted for in this evaluation - is
required (for additional information please see evaluation on smart metering). However,
figures from the Impact Assessment study suggest that the overall costs for activating
Demand Response remain rather low and only represent approx. 5% of the additional benefits.
In terms of relevance, the herein evaluated demand response provisions remain highly valid.
Full exploitation of demand response remains crucial to manage the energy transition as it is
an enabler for efficiently integrating variable renewables into the energy system. However, as
pointed out above, the existing provisions have not been effective in deploying demand
response across Europe. According to this analysis consumers in 18 Member States do not
have access to price or incentive based demand response services. And even in those 10 MS
where demand response is in principle enabled some of the DR schemes are only available to
commercial and industrial consumers.
In terms of coherence the evaluation has shown that the provisions on demand response are
fully coherent with other legislative provisions within the electricity directive, the energy
efficiency directive (EED), the renewable energy directive (RED) and the energy performance
of buildings directive (EPBD). As all of those directives currently undergo revisions this
coherence needs to be continuously ensured to allow demand response to a) enable the
integrating of renewables efficiently into the electricity system in line with the RED, b)
contribute to energy savings in line with the EED, c) participate as a resource in the electricity
markets, d) be considered when capacity mechanisms are established, e) be supported under
the distribution tariff design.
Finally, considering the EU added value, it remains crucial to ensure that harmonised
demand response provisions are in place across the EU to guarantee a functioning internal
energy market. Even more because under the upgrading of the wholesale market within the
market design initiative the Commission also addreses the opening national balancing markets
where flexibility may then be traded across borders. Common rules on Demand Response in
192
all Member States will then be crucial for the functioning of those cross border balancing
markets.
Gap analysis
It was the objective of the existing European legislation to put demand response on equal
footing with generation and to ensure that demand response service providers, including
aggregators are treated in a non-discriminatory way. While provisions aiming at realising
those objectives have been put in place in many Member States, the development of Demand
Response across Member States varies significantly and has led to fragmented markets.
Especially the different treatment of independent aggregators across the EU that are expected
to play a crucial role in developing demand response services is a matter of concern. It can
therefore be concluded that additional provisions further specifying the existing provisions are
needed to ensure a harmonised development and enable price and incentive based demand
response across Europe.
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5.9. Annex: Demand-Side participation in energy markets in the Member States
Table 6: Demand Response participation in wholesale energy markets in Member States
Member State Market
place
Day –
ahead
Intra-
day
Comments
Austria EPEX X DR participation is allowed
Belgium
Belpex X X
DR participation is allowed, but only a few large industrial
players are active.
Bulgaria No DR participation and not a well-function market.
Croatia
CROPEX
No DR participation. Plans of launching DA and ID market
in 2016.
Cyprus - - - No wholesale market exists
Czech Republic PXE X X Bids only from BRP, only large consumers are active
Denmark Nord Pool X X Bids only from BRP
Estonia Nord Pool Bids only from BRP, DR participation unclear
Finland Nord Pool X X Bids only from BRP, large consumers are active
France
EPEX X X
Bids accepted from non-BRPs. 1,5 GWH from non-BRP in
2015
Germany
EPEX X
DR participation is allowed in DE, but only large
consumers are active
Greece DR participation is not allowed. Price caps have been
removed.
Hungary HUPX/PXE X X DR from lagre consumers and aggregators take place
Ireland
X X
DR participation by bidding and dispatch. NO BRP, energy
is settled ex-post.
Italy X Bids only from BRP, increasing DR participation.
Latvia
X
DR is allowed in the wholesale market (unclear which
markets exist)
Lithuania Low competition and unclear whether DR takes place at all
Luxembourg No information
Malta - - - No wholesale market exists
Netherlands X X Bids only from BRP
Poland PXE X X Bids only from BRP, low activity
Portugal MBIEL/
OMIE
X X
DR participation is allowed (BRP), but low level of
participation. Price cap on electricity.
Romania
PXE X X
All trade must take place in the market places. DR and
aggregators are allowed, but no activity.
Slovakia CENTREL/
PXE
X X
DR participation (with licence) is allowed. Only large
consumers are active
Slovenia DR participation is not allowed
Spain MBIEL/
OMIE
X X Bids only from BRP, level of participation is not known.
Sweden Nord Pool X X Bids only from BRP, large consumers are active
UK APX &
N2EX
X X Bids only from BRP, limited DR participation.
Source: Impact Assessment support Study on downstream flexibility, demand response and smart
metering, COWI, 2016
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Table 7: Demand Response participation in balancing markets in Member States
(volumes in MW where available)
MS FCR FFR RR Other Comments
Austria No Yes Yes
Belgium 27 321 FFR from 2014, FCR from 2016
Bulgaria No No No
Croatia No No No Mandatory participation from generators
Cyprus - - - There are no such markets
Czech
Republic
No No Yes DR can only participate in RR
Denmark 23 555 Yes
Nordic market for primary and tertiary reserves.
Estonia No No No
Most participants from outside Estonia, FCR provided by
Russia
Finland 100
Max
300
40 Nordic market for primary and tertiary reserves.
France 60 160 1800 Test phase for DR participation
Germany Yes Yes Yes
Low DR participation in balancing markets. Interruptible
loads programme for large consumers
Greece No No No
Hungary No No Yes DR can only participate in RR
Ireland No No No Yes
Italy No No No DR not allowed to participate.
Latvia No No No DR not allowed to participate (FCR provided by Russia)
Lithuania No No No DR not allowed to participate (FCR provided by Russia)
Luxembou
rg
No information
Malta - - - Such markets do not exist
Netherland
s
No Yes Yes
Poland Yes Yes Yes
DR does not participate on equal basis as thermal plants. No
DR participation.
Portugal No No No DR not allowed to participate.
Romania Yes Yes Yes
DR does not participate on equal basis as generation,
participation is low
Slovakia No No YEs
DR can only participate in RR, bilateral contracts for large
industries with TSO or DSO
Slovenia 20
Spain No No No
DR not allowed to participate. DR only from large
interruptible loads
Sweden Yes 10 626 Nordic market for primary and tertiary reserves.
UK 374 Yes
1260
Yes
(2015) DR-RR is established for large consumers to reduce
demand during winter weekdays between 4 and 8 PM
Source: Impact Assessment support Study on downstream flexibility, demand response and smart
metering, COWI, 2016
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Table 8: Demand Response participation in capacity mechanisms in Member States
(volumes in MW where available)
MS
Mechanism
DR
Volume
DR participation
Austria
Belgium Strategic reserve 358 2015-2016 (elia.be)
Bulgaria Over-capacity and no need for capacity mechanisms
Croatia
Cyprus
Czech
Republic
Denmark No reserve/ CM
Estonia No capacity market
Finland Strategic reserve 10
France Capacity market – DR
only
Capacity market to start in 2017 including DR
participation
Germany Interrubtible load
programme
694 Discussions on Capacity market, most likely not
including DR
Greece Interrubtible load
program
Planning for capacity
mechanism
1500
Interruptible loads program from 2016 – consumers >
5MW
Hungary
Ireland Fixed pric per half hour
through the year
Open to all, but with high requirements to participate.
New capacity market planned to include DR.
Italy
Capacity market
Interrubtible loads
4061 Volume from interruptible loads from large industry
(>1 MW). Exploring to include DR in capacity
mechanism
Latvia Capacity market DR included
Lithuania
Luxembourg
Malta No capacity market
Netherlands
Poland Capacity reserves Generation only
Portugal
Romania
Slovakia
Slovenia No Capacity market
Spain Capacity mechanism
Interrubtible loads
2050
Generation only in the CM.
Sweden Strategic reserves 626 42 % DR (2015)
UK Capacity market 174 Open to DR, but low participation
Source: Impact Assessment support Study on downstream flexibility, demand response and smart metering,
COWI, 2016
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Table 9: Price offers for consumers on the electricity market
Member
State
Spot
price
CPP TOU Comments
Austria X X EVU offers TOU, specifically Day-and Night tariffs.
Belgium X X Peak, off-peak and real time tariffs are offered, though no smart
metering roll out.
Bulgaria No reported price-based DR.
Croatia X No price-based DR reported.
Cyprus X TOU tariffs are theoretical available for domestic, commercial and
industrial customers.
Czech
Republic
X TOU tariffs are combined with load control, with space heating and
water heating restricted to off-peak periods with lower tariffs.
Denmark X ToU is available for customers with hourly metering, and mandatory
for those customers connected to grid with a voltage level of 10 kV or
higher.
Estonia X X Off-peak tariffs and real time tariffs are available. However, limited
motivation to participate in DR schemes reported.
Finland X X TOU are commonly used and are combined with smart meters.
France X X System of ToU tariffs in place for more than 40 years. Selection of
available tariff schemes (peak and off-peak, Tempo tariff (CPP tariff)).
Germany X X Mostly Peak (day hours) and Off-peak tariff (night hours) – system
considered in need of redesign, given increase of RE in the energy mix.
Greece X ToU tariff available.
Hungary X ToU available: In addition, "ripple control" provided for some loads.
Load shifting more control- than price- based.
Ireland X ToU tariffs offered, with different load profile for those on the tariff
reported.
Italy X Full smart meter roll out and on-peak and other TOU tariffs are
available.
Latvia X Off-peak tariffs are available, but few incentives exist in distribution or
TSO tariffs
Lithuania X Tariffs are differentiated between day and night.
Luxemb. X TOU tariffs are available.
Malta For non-residential larger consumers there is a day- and night tariff.
NL X X X TOU, CPP, Real Time Pricing and Peak Time Rebate (PTR) are
already an option.
Poland X ToU Tariff available
Portugal X Consumers have access to dynamic prices (since 1997), but most
consumers chose flat tariffs.
Romania X Seasonal and on-peak tariffs are available.
Slovakia X Smaller consumers do not participate in DR (legally allowed, but
probably due to the lack of technology). Larger consumers participate
mostly through incentive-based contracts.
Slovenia X X TOU and CCP are applied in Slovenia.
Spain x X TOU are offered. Wholesale price pass through tariffs apply to some
customers.
Sweden x X TOU are offered to all customers by some grid companies. Mandatory
for customers with main fuses above 80 A. .
UK X ToU tariffs exist for small medium consumers and I&C sector
Source: Impact Assessment support Study on downstream flexibility, demand response and smart metering,
COWI, 2016
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6. Annex 9: Evaluation Fiche on Distribution System Operators
6.1. Introduction
Purpose of the evaluation
The present fiche intends to lay an integrated and coherent analytical foundation for the
evaluation of the current legal provisions of relevance to operation of distribution systems and
Distribution System Operators (DSOs).
It supports the evaluation prepared in advance of the market design initiative (MDI). The
evaluation report will provide input to the Impact Assessment and particularly in the problem
definition and partly on the policy options.
Scope of the evaluation
The present evaluation focuses on evaluating existing measures on tasks and unbundling of
DSOs. The main focus will be on measures envisaged in the Electricity Directive, and in
particular:
 Article 25 regarding the tasks of DSOs
 Article 26 regarding the unbundling framework of DSOs
 Article 41 regarding further tasks which are assigned to DSOs and other market actors
The evaluation will assess the existing measures and the extent to which those measures have
contributed in achieving the objectives of the Electricity Directive (2009/72/EC).
This evaluation will assess to what extent the EU legislation on DSO related issues has
contributed to a competitive market through better regulation, unbundling and reducing
information asymmetry. It will also assess to what extent existing measures have been spurred
any progress towards distribution systems which are able to support the future energy system.
6.2. Background to the initiative
Description of the initiative and its objectives
DSO tasks
Article 25 of the Electricity Directive ('Tasks of distribution system operators') set the core
tasks of DSOs, as well as, specific obligations that DSOs have to comply with. Under these
provisions DSOs are mainly responsible to operate, maintain and develop under economic
conditions a secure, reliable and efficient electricity distribution system. The provisions under
Article 25 are similar with the provisions of Article 15 of the repealed Directive 2003/54/EC.
Except the core tasks, under Article 25(6) the Electricity Directive sets some specific
obligations for e.g. cases where DSOs are responsible for balancing of the distribution system.
Moreover, under Article 25(7) DSOs shall consider measures such as energy efficiency and
demand-side management, in order to avoid investing in new capacity.
According to Article 41 Member States are responsible to define roles and responsibilities for
different actors including DSOs. These roles and responsibilities concern the following areas:
contractual arrangements, commitment to customers, data exchange and settlement rules, data
ownership and metering responsibility.
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DSO unbundling
The provisions of the Electricity Directive concerning unbundling framework of DSOs
(Article 26) are also similar to the ones of the repealed Directive 2003/54/EC, with the level
of unbundling remaining the same (i.e. legal unbundling) and also the threshold of applying
these rules (i.e. 100,000 customers).
Member States can decide not to apply the unbundling rules (no legal/functional unbundling)
on DSOs serving less than 100.000 customers (maximum threshold), in such case only
accounting unbundling applies. It is on the discretion of Member States to apply this threshold
or not, or to set a lower threshold.
The unbundling requirements are classified as follows:
 Full ownership unbundling (ownership separation) is where the DSO is a separate
company to any interests in generation or supply (not required by the Electricity
Directive).
 Legal unbundling is where the DSO is a legally separate entity with its own
independent decision making board, but remains within the umbrella of a Vertically-
Integrated Undertaking (VIU).
- Functional or management unbundling is where the operational, management and
accounting activities of a DSO are separated from other activities in the VIU; and
- Accounting unbundling is where the DSO business unit must keep separate accounts
for its activities to prevent cross subsidisation, from the rest of the VIU.
Article 26(3) includes an additional obligation which seeks to strengthen regulatory oversight
on vertically integrated undertakings and to mitigate communication and branding confusion.
6.3. Evaluation Questions
General:
 To what extent have the objectives regarding DSOs in Electricity Directive
2009/72/EC been achieved?
 To what extent do the observed effects correspond to the original ambition and where
there unintended impacts as well?
 What factors influenced the achievements observed?
 To what extent did different factors influence the achievements observed, e.g. changes
in electricity market, technological developments?
Effectiveness:
 To what extent the intervention had the expected impact on promoting competition?
 Which differences across MS can be observed and what are the reasons for these
differences?
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 On whom did the costs fall, which stakeholder and was the sharing of costs the same
in all MS?
 How affordable were the costs borne by different stakeholder groups, given the
benefits they received?
 To what extent has the intervention been cost effective?
Relevance:
 To what extent have the (original) objectives proven to have been appropriate for the
intervention in question?
 How well do the (original) objectives (still) correspond to the needs within the EU?
 How well adapted is the intervention to subsequent market or technological advances?
Coherence:
 To what extent is this intervention coherent with other interventions which have
similar objectives?
 To what extent is the intervention coherent internally?
 To what extent is the intervention coherent with international obligations?
EU-added value:
 What is the additional value resulting from the EU intervention(s), compared to what
could be achieved by Member States at national and/or regional levels?
 To what extent do the issues addressed by the intervention continue to require action
at EU level?
 What would be the most likely consequences of stopping or withdrawing the existing
EU intervention?
Other evaluation criteria
Utility:
 To what extent do the changes/effects of an intervention satisfy (or not) stakeholders'
needs?
 How much does the degree of satisfaction differ according to the different stakeholder
groups?
Complementarity:
 To what extent do EU policies and interventions support and usefully supplement
other policies (in particular those pursued by the Member States)?
Equity:
 How fairly are the different effects distributed across the different stakeholders /
regions? / genders? / Social groups?
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Sustainability:
 How likely are the effects to last after the intervention ends? It is often hoped that the
changes caused by an intervention are permanent. It can be important to test this
expectation for interventions which have a finite duration, such as particular
programmes.
Acceptability:
 To what extent can we observe changes in the perception of the intervention (positive
or negative) by the targeted stakeholders and/or by the general public?
6.4. Method
The evaluation draws on the following data sources and studies carried out:
a. COM(2012) 663 final 'Making the internal energy market work'
b. COM(2014) 634 final 'Progress towards completing the Internal Energy Market'
c. 'Status Review on the Transposition of Unbundling Requirements for DSOs and
Closed Distribution System Operators', CEER (2013)
d. 'The Future Role of DSOs', CEER (2015)
e. 'Study on tariff design for distribution systems', AF Mercados (2015)
f. 'The role of DSOs in a Smart Grid environment', Ecorys-ECN (2014)
g. 'From Distribution Networks to Smart Distribution Systems: Rethinking the
Regulation of European Electricity DSOs', THINK (2013)
Infringement cases or complaints were also considered to identify any problems in the
implementation or shortcomings in the effectiveness of the measures.
Potential limitations of the analysis may arise from data limitations, as the main scope of the
above policy documents and studies was not the evaluation of measures envisaged under the
third energy package. Therefore, lack of data may occur in some of the areas that this
evaluation covers.
6.5. State of play and implementation (Results – description of current situation
and development since 2009)
State of play
6.5.1.
a. Description of DSO structure across EU
Electricity distribution differs widely across EU Member States in terms of number of DSOs
in each country, voltage level of the distribution system, and tasks of system operators.
According to CEER's data for 24 EU Member States280
there is a total of 2,600 electricity
DSOs operating in across EU. From these DSOs, 2,347 fall under the 100,000 rule and
according to Article 26(4) for these DSOs Member States are not obliged to implement
unbundling provisions under Article 26 of the Electricity Directive.
280
"Status Review on the Transposition of Unbundling Requirements for DSOs and Closed Distribution System
Operators" (2013) CEER.
201
Figure 1: Number of DSOs per Member State
Eurelectric281
also reports a total number of 2,331 DSOs operating in EU (data for 27 Member
States). According to Eurelectric from this total number 2,148 DSOs fall under the 100,000
rule leaving only 183 to have obligations of unbundling282
.
In Member States where there is a high number of DSOs, usually there are two layers of
distribution systems, local distribution systems and then regional distribution systems which
connect local networks with the transmission network. For instance in Czech Republic at
lower voltage levels (110 kV and lower), electricity distribution is provided by three DSOs
with more than 90,000 customers, whose grids are connected directly to the transmission
system. Besides these regional distributors there are also 277 operators of distribution systems
connected only to these three DSOs. These local distribution system operators distribute
electricity within areas specified in their electricity distribution licences.
b. RES integration in distribution networks
In meeting 2020 targets some Member States are already experiencing a high penetration of
RES with an increasing number of the resources being variable (wind and solar). A large
share of these resources in many cases is connected to distribution grids (low and medium
281
"Power Distribution in Europe Facts & Figures", Eurelectric.
282
CEER and Eurelectric numbers only coincide for very few Member States. In some cases the discrepancy is
very high, for instance for the Czech Republic CEER reports 308 DSOs while Eurelectric only 3, also in
Romania 41 (CEER) and 8 (Eurelectric).
202
voltage). According to available data this number is estimated to be as high as 90% (e.g. in
Germany)283
.
There is a common view among DSOs and other stakeholders that in order for DSOs to cope
with this increasing number of variable RES-E they should become more active in managing
their networks. This would involve the use of flexible resources in order to alleviate short-
term and long-term congestions. Moreover, it would require investments in smarter grid
elements.
c. DSO tasks
There are a number of factors which may affect the tasks of DSOs across EU. Structure of
electricity distribution and ownership (i.e. public/private, municipalities etc.), development of
the electricity sector, size of the DSOs, voltage level of distribution grid, are some of these
factors. In this context each Member State has to determine the national regulatory framework
under of course the boundaries set by the Electricity Directive.
According to the Electricity Directive the core tasks of DSOs are to maintain, develop and
operate the distribution network. The Electricity Directive does not assign other specific tasks
to DSOs such as for instance metering activity or data management. The more specific
activities are left to Member States to decide, for instance according to Article 41. Moreover,
according to the Electricity Directive DSOs may also perform balancing activity, this may be
the case for some regional DSOs but no specific data are available.
Therefore, as the EU legislation leaves a quite open framework, there is a variety of tasks that
DSOs are performing depending on the Member State they are operating. For instance, even
activities such as metering or connection of customers which traditionally in the majority of
the Member States are performed by the DSOs, there are few cases (e.g. in UK or DE) where
the activity is open to other market parties.
CEER is grouping existing and future activities under three categories: core activities, grey
area activities (allowed under conditions or not allowed), and forbidden activities284
.
d. Data Handling
The activity of handling metering data in the majority of Member States is associated with the
metering activity. Where DSOs are responsible for the metering activity then they are
responsible of collecting and handling metering data as well.
Table 1 below presents the responsible entity in each Member State for the metering activity
(market regulated/non-regulated), responsible for the smart-metering roll out and also for the
access to data, based on data from smart metering cost benefit analyses (CBAs).
Table 1: Metering and data handling responsibility in Member States
283
Based on data from the EvolvDSO Project (FP7/2007-2013).
284
"The Future Role of DSOs" (2014) CEER.
203
Source: COM(2014) 356 final
According to the data in most of the cases DSOs are the responsible party for metering and for
deploying smart meters, as well as for providing data access. Regarding data access it must be
noted that Finland and Sweden are planning a central data hub under the responsibility of the
TSO.
In general, in countries with a high number of DSOs like for instance Sweden and Finland, it
seems to be a more effective solution to establish a central hub which collects the information
from several DSOs and in this way increase efficiencies in the energy market operations.
On the other hand, as the DSOs are almost always responsible for deploying and operating the
smart metering systems they will participate in data handling as part at least of the data flow.
Therefore, even if DSOs are not assuming the role of a data hub, they will collect
consumption data and pass those data to a central hub, while storing also possibly these data
in their data bases for a time period foreseen in legislation.
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e. Use of flexibility from DSOs
In general, dispatching of generation and use of flexibility resources for e.g. frequency
control, are usually part of TSO tasks. From data presented in a study by AF Mercados et al
(2015)285
regarding the responsibility of DSOs in dispatching of embedded generation, use of
interruptible contracts and other sources of flexibility, it is concluded that in most of Member
States where DSOs can be involved in dispatching this most of the times takes place in times
of emergency (security reasons). In less than 1/3 of the Member States DSOs are using
solutions such as flexibility resources or interruptible contracts in order to address grid
problems.
Implementation of existing measures
6.5.2.
Regarding the implementation of unbundling provisions as already pointed out there is a large
number of DSOs which fall under the de minimis rule. According to CEER only around 189
DSOs across EU are legally unbundled. There are no known cases where Member States have
decided to go beyond the provisions of the Electricity Directive. There is only the exception
of Netherlands where ownership unbundling requirements have been introduced for DSOs.
Moreover, CEER is reporting that it has not identified any major shortcomings in the
implementation of unbundling requirements.
On more specific points CEER reports the following286
:
 "Rebranding of DSOs: It is still too early to fully evaluate the results of unbundling
in terms of rebranding, as the process is on-going. Nevertheless, information received
suggests that several NRAs were still not fully satisfied with the rebranding process. In
very few cases, a DSO has been found to refuse compliance with the rebranding
requirements (and in certain situations, the NRA has exercised its right to commence
legal proceedings against the DSO).
 Resources of DSOs: In general, NRAs remain satisfied that DSOs have sufficient
financial and personnel resources.
 Compliance officers: Overall, NRAs remain satisfied with the compliance
programmes and officers put in place by DSOs. Independent decision-making is
guaranteed via national law, licence agreements or network codes and evaluated in
the annual compliance report sent to the NRAs.
 Closed distribution systems: Most countries do not have closed distribution systems
(as defined in the directives) and only a minority transposed the respective article
(Article 28).
Closed distribution systems vary widely from country to country as in some cases,
specific national rules regulate access conditions and unbundling requirements or
stipulate that there is no obligation to provide public service."
285
"Study on tariff design for distribution systems" (2015) AF Mercados, refE, Indra.
286
"CEER Memo on the transposition of unbundling requirements for Transmission, Distribution and Closed
Distribution Systems Operators" (2014) CEER.
205
6.6. Answers to the evaluation questions (Assessment of current situation)
General:
One of the main objectives of the Electricity Directive was to improve competition through
better regulation, unbundling and reducing asymmetric information. In general, unbundling
measures contribute to the contestability of the retail market and thus facilitate market entry
by third party suppliers.
As discussed in section 5, the Directive puts in place a quite open framework for Member
States to decide on the particular responsibilities for national DSOs setting only their core
tasks, namely, to develop, maintain and operate the distribution network. Regarding the level
of unbundling, the de minimis threshold leaves to Member States with small DSOs the
possibility not to enforce unbundling rules to operators with less than 100,000 customers.
Regarding the unbundling rules, the additional provisions that the third energy package
introduced were limited to branding and communication of DSOs.
According to the impact assessment of third energy package287
the risks of 'less' unbundling
have been briefly assessed and recognised that at that point the benefits of stricter unbundling
rules didn't seem to justify the costs. These risks link to suboptimal switching procedures in
order to deter market entry, competitive advantage which may come from the use of the same
brand name or privileged access to network information, consumption data information and
cross-subsidies. In particular and as regards metering, privileged and priority access to
consumption information for the integrated network company can be a strong advantage.
Furthermore, there is a risk that the supply business of a DSO benefits from cross-subsidies of
the network business of the integrated company, including easier access to capital.
On the other hand, according to the same impact assessment, discrimination for distribution
network access appears to be less relevant than at transmission level, with a possible
exception of small generation connected at distribution level. DSO unbundling is less relevant
with respect to cross-border flows as flows are more local. In the case of smaller DSOs with
few employees are likely to suffer from over-proportionality from loss of synergies.
The above arguments are still valid as there have not been major changes in the structure and
operation of distribution systems across EU in past few years.
CEER is reporting problems in the implementation of branding and communication
requirements under the Electricity Directive. The Commission has taken action towards the
proper implementation of the relevant provisions through compliance checks and
infringement procedures, requesting Member States to ensure a clear separation of identity of
the supply and distribution activities within a vertically integrated undertaking.
Moreover, requirements of Article 1(h) of Annex I have been subject to formal actions against
several Member States.
Some factors that may influence and raise the impact of the foreseen risks are the increased
penetration of RES-E generation at distribution level and introduction of smart metering
systems.
287
SEC(2007) 1179
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Effectiveness:
The fundamental objective of unbundling requirements on vertical integrated companies is to
promote competition in the energy market. The unbundling of network activities from supply
and generation activities has the objective to ensure non-discriminatory and transparent third
party access in distribution networks, and in addition to ensure that the integrated company
does not have any other competitive advantage towards other market parties.
There is no evidence that the intervention within the boundaries of the unbundling
requirements, did not achieve the objective of promoting competition in the market.
As discussed in section 5 there is a quite diverse situation across EU Member States when it
comes to the structure of distribution business, arising from the different ownership regimes,
technical network specifications, energy mix etc. Consequently these differences have
resulted in different responsibilities for DSOs across EU.
At a policy level the Electricity Directive leaves at the discretion of Member States to decide
on the level of unbundling and tasks that DSOs should carry out at a national level.
Some provisions such as Article 25(7) do not impose any obligation on Member States as this
is only an optional provision that Member States could introduce in their national policy
framework. Therefore, this requirement cannot be assessed on its effectiveness in a strict
sense. However, it is clear that the initial aim to enhance the DSOs position in using demand
side management and energy efficiency measures in planning their networks, has not been
achieved. Only in few Member States DSOs are in position to use such tools in order to avoid
costly investments and operate their networks more efficiently.
There is not a cost-benefit analysis regarding the impact of the measures under discussion in
order to assess the share of costs for different stakeholder groups and consequently an
assessment on affordability of those costs.
Relevance:
The original objectives of DSO unbundling requirements and the framework of DSO
responsibilities still correspond to the EU objective of a competitive internal energy market.
There is no evidence that the objectives of those measures were not effective or that they had
an opposite effect of the one initially envisaged.
The introduction of smart metering systems will generate more granular consumption data
and new business opportunities in in retail market. Moreover, the integration of more RES-E
generation at distribution level will require a more active management of the network from
DSOs. Even if the measures had included in a certain extent these developments the focus of
the intervention was not on these new conditions.
Coherence:
The measures which are subject of this evaluation are fully coherent with the objectives of the
internal energy market. Unbundling provisions for DSOs complement the relevant
requirements for TSOs, by providing a transparent and non-discriminatory framework for
third party access also at a retail market level. These provisions are fundamental for the
promotion of competition in the energy market, the entrance of new energy service providers
and the development of new services.
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EU-added value:
The requirements on unbundling are fundamental for the promotion of competition in the
internal energy market. There is no evidence that Member States would proceed to
unbundling of the electricity sector and distribution networks without the intervention. The
large majority of the Member States have not set unbundling requirements beyond those of
the Electricity Directive, demonstrating that the intervention is necessary in order to structure
the EU energy sector in such way so as to pursue the wider objectives of the internal market,
to promote competition and economic growth.
Provisions which are relevant to DSOs have the characteristic of a permanent effect and are
fundamental for the objectives of the internal market.
6.7. Conclusions (Gap Analysis)
One of the main objectives of the Electricity Directive was to improve competition through
better regulation, unbundling and reducing asymmetric information. In general, unbundling
measures contribute to the contestability of the retail market and thus facilitate market entry
by third party suppliers.
The risks of less unbundling link to suboptimal switching procedures in order to deter market
entry, competitive advantage which may come from the use of the same brand name or
privileged access to network information, consumption data information and cross-subsidies.
On the other hand, discrimination for distribution network access appears to be less relevant
than at transmission level, with a possible exception of small generation connected at
distribution level. DSO unbundling is less relevant with respect to cross-border flows as flows
are more local.
CEER finds that in general the implementation of unbundling rules has been satisfactory288
.
Regarding the implementation of the measures, CEER is reporting problems in the
implementation of the provisions related to branding and communication. The Commission
has taken action towards the proper implementation of the relevant provisions through
compliance checks and infringement procedures, requesting Member States to ensure a clear
separation of identity of the supply and distribution activities within a vertically integrated
undertaking.
Some of the factors that may influence and raise the impact of the foreseen risks are the
increased penetration of RES-E generation at distribution level and introduction of smart
metering systems.
In terms of effectiveness, the intervention mainly aimed at the unbundling of vertical
integrated distribution companies with the objective to ensure non-discriminatory and
transparent third party access in distribution networks, in order to promote competition in the
energy market. There is no evidence that the intervention within the boundaries of the
unbundling requirements, did not achieve the objective of promoting competition in the
market.
The Electricity Directive leaves at the discretion of Member States to decide which level of
unbundling will apply for small DSOs (less than 100,000 customers) and the detailed tasks
288
"Status Review on the Implementation of Distribution System Operators’ Unbundling Provisions of the 3rd
Energy Package" (2016) CEER.
208
that DSOs should carry out at a national level. There is a quite diverse situation across EU
Member States when it comes to responsibilities of DSOs across the EU.
Provisions which aimed to enhance the DSOs position in using demand side management and
energy efficiency measures in planning their networks did not prove to be effective. Only in
few Member States DSOs are in position to use such tools in order to avoid costly
investments and operate their networks more efficiently.
In terms of relevance, the original objectives of DSO unbundling requirements and the
framework in which Member States can decide on the responsibilities of operators still
correspond to the EU objective of a competitive internal energy market. The implementation
of smart metering systems (wide scale roll-out in 17 Member States) will generate more
granular consumption data and new business opportunities in the retail market. Moreover, the
introduction of more RES-E generation at distribution level will require a more active
management of the network from DSOs. Even if the measures under the Electricity Directive
had included to a certain extent these developments the focus of the intervention was not on
these new needs that is estimated to grow with the completion of smart metering systems and
the installation of distributed RES-E.
In terms of coherence, the measures are fully coherent with the objectives of the internal
energy market. Unbundling provisions for DSOs complement the relevant requirements for
TSOs, by providing a transparent and non-discriminatory framework for third party access
also at retail market level. These provisions are fundamental for the promotion of competition
in the energy market, the entrance of new energy service providers and the development of
new services.
In terms of EU-added value, the requirements on unbundling are fundamental for the
promotion of competition in the internal energy market. Provisions which are relevant to
DSOs have the characteristic of a permanent effect.
Gap analysis
With the deployment of smart metering systems across EU Member States a large amount of
data will be available to DSOs. This development requires a closer assessment and
consideration of specific measures.
In terms of DSO responsibilities, it is clear that there is a wide variety of roles and tasks for
DSOs across the EU. This situation does not allow for the application of a uniform set of
responsibilities for all DSOs, as such measure would have a disproportionate effect on the
different DSOs across the EU, based mostly on the variety of distribution voltage levels and
number of connected customers.
It seems however appropriate to enhance the role of DSOs when it comes to additional tools
such as the use of flexible resources in order to improve their efficiency in terms of costs and
quality of service provided to system users. Such measures however could only be introduced
with the parallel introduction of suitable provisions which prohibit DSOs to take advantage of
their monopolistic position in the market by clarifying their role in specific activities. In the
absence of such measures the DSOs could foreclose the market and reduce the benefits for the
system users, leading to an inefficient allocation of resources and reduction of social welfare.