European Union: European Commission Releases "Clean Energy Package"

On 30 November 2016 the European Commission published its "Winter Package" containing proposals for new rules for a consumer-centered clean energy transition. The 500 page Winter Package had been eagerly awaited by the energy industry since it was to contain the major energy regulations for 2020 onwards. As expected, the most substantial measures and amendments proposed concern renewables and energy efficiency in the European Union. In addition, the electricity market design is proposed to be amended.

The proposal for a revised Renewable Energy Directive

The proposal for a revised Renewable Energy Directive (RED) aims to increase investor certainty while at the same time working towards efficient climate and energy targets. For that purpose, the proposal identifies six key areas for action:

1. Further deployment of renewables in the electricity sector

The revised RED extends its scope referring to new elements such as the Union binding overall target, self-consumption of renewable energy, greenhouse gas (GHG) emissions saving criteria for biofuels, bioliquids and biomass fuels. On a procedural level it establishes a permit granting process for renewable energy (RES) projects with one designated authority ("one-stop-shop") and a maximum time limit for the permit granting process. Similarly, it introduces a simple notification to distribution system operators (DSOs) for small scale projects, and a specific provision on accelerating permit granting process for repowering existing renewable plants. However, it remains to be seen whether these new procedures will result in acceleration of RES permitting in reality. Evidently, the new rules are very similar to the procedural rules of the TEN-E Regulation which provides for an accelerated permitting process in favour of Energy Infrastructure Projects of Common Interest (PCIs), however, in practice, the expected acceleration effects regularly failed to materialise. The idea of a simple notification process for repowering projects sounds exciting. However, public consultation requirements under the Aarhus Convention will still need to be observed and, therefore, recognised environmental NGOs and neighbours will need to have the right to request a review of the fulfilment of the notification requirements (such as the absence of significant environmental impact).

As expected, the Winter Package also provides for new regulations applicable to national RES support schemes. RES support schemes need to be market-orientated and cost-effective. Moreover, access to RES support schemes should be granted in a competitive manner, for instance by auctioning. In any case, the guidelines on state aid for environmental protection and energy will need to be properly observed when establishing new RES support schemes.

2. Increasing renewables in the heating and cooling sector

One of the major innovations of the revised RED is the proposed mainstreaming of renewable energy in heating and cooling (H&C) installations. This proposal aims to exploit the renewables potential in the heating and cooling sector, ensuring a cost-efficient contribution by the sector to target achievement, and to create a larger market for RES-H&C across the EU. Accordingly, designated energy suppliers for heating and cooling are required to achieve an annual increase of 1 % in the share of renewable energy in their total annual sales volume until 2030. Most importantly, Member States may use established structures under the national energy efficiency obligation schemes set out in Article 7a of Directive 2010/27/EU to implement and monitor the measures set by the suppliers.

3. Decarbonising and diversifying the transport sector

In the transport sector, the revised RED establishes an EU-level obligation for fuel suppliers to progressively increase the share of renewable and low-carbon fuels from 1.5 % in 2021 to 6.8 % in 2030, including at least 3.6 % of advanced biofuels. Indirect Land-Use Change (ILUC) issues are addressed by introducing a cap on the share of biofuels and bioliquids produced from food or feed crops, starting at 7 % in 2021 and decreasing to 3.8 % in 2030.

4. Renewable self-consumers

Consumers are being empowered by being entitled to carry out self-consumption while maintaining their rights as consumers, and not being considered as energy suppliers, although they are entitled to sell their excess production to other consumers. Notably, this also applies to self-consumers living in the same multi-apartment block, or located in the same commercial site or "closed distribution" system. As a consequence, self-consumers would be exempted from various supplier obligations, eg from paying certain energy levies (such as the "Ökostrompauschale" or "EEG-Umlage" or "KWK-Umlage"), which will most probably encourage private investments into small-scale RES installations. The aforesaid privileges may raise legal concerns in light of the principle of equal treatment.

5. Sustainability criteria for bioenergy

The revised RED requires that sustainability criteria for biofuels are improved, including that (new) advanced biofuels emit at least 70 % fewer GHG emissions than fossil fuels. Further, it introduced a new sustainability criterion on forest biomass in order to ensure that the production of woodfuel continues to be sustainable. Additionally, it is foreseen that solid biomass and biogas used in large heat and power plants (above 20MW fuel capacity) is extended. Finally, large heat and power plants are required to reach efficiencies above 80 % by using highly efficient combined heat and power technology. Existing plants regularly fail to achieve this high level of efficiency.

6. Timely and cost effective achievement of binding EU targets

The Union binding overall target is to ensure a renewable energy share amounting to at least 27 % in 2030. However, it needs to be noted that this target is an EU-level binding target only, and is not to be translated into national targets. In order to achieve that target, the revised RED establishes the 2020 national targets as a baseline, which means that Member States cannot go below their 2020 national targets from 2021 onwards. It further lays down financial support schemes for electricity from renewable sources. Moreover, a gradual and partial opening of support schemes to cross-border participation in the electricity sector is established which includes, inter alia, opened tenders, joint tenders, opened certificate schemes or joint support schemes.

The New Energy Efficiency Measures

The European Commission adopts proposals for a revision of the Energy Efficiency Directive (EED) and of the European Performance of Buildings Directive (EPBD), to bring them up to date with the 2030 energy and climate goals. Notably, the building stock is the largest single energy consumer, with the use of buildings representing 40 % of energy consumption in the EU.¹ Therefore, it is reasonable that in particular, measures tackling the energy efficiency of buildings have been proposed.

1. The Energy Efficiency Directive (EDD)

The EDD prescribes an additional Union binding energy efficiency target for 2030, namely increasing efficiency to 30 %. As the new target is an additional one, the increase of 20 % still has to be achieved by 2020 at the latest. Meeting the 30 % energy efficiency target in 2030 will be ensured, especially by improving and extending policy areas. To meet the target the EDD makes provision for the European Commission to assess progress towards that target and to allow the European Commission to propose additional measures if the Union is not on track to reach the goal. One of the main changes introduced is the extension of the energy savings requirement to 2030. The savings should have a cumulative effect with 1.5 % saved by 2021 and reaching 15 % in the year 2030 (1.5 % times 10 years). As under the existing EDD, the savings requirement can be achieved either by way of Energy Efficiency Obligation Schemes or alternative policy measures. However, Member States who decide to fulfil their energy saving obligations by way of "alternative policy measures" are urged to achieve the energy savings among final customers and, as under the Energy Efficiency Obligation Scheme, they need to put measurement, control and verification systems in place, under which documented audits are carried out on a statistically significant proportion and representative sample of the energy efficiency improvement measures put in place.

With this, alternative measures are put on an equal footing with Energy Efficiency Obligation Schemes. Moreover, improving the financing conditions of energy efficiency and strengthening of minimum requirements for products, vehicles and buildings will ensure the achievement of the energy goal by 2030. Evidently, the latter measures stand in close connection with the proposed adaptions of the EPBD.

Unfortunately, the Package does not contain any eligibility criteria for energy efficiency measures. This might lead to substantial distortions of competition.

2. The Energy Performance of Buildings Directive (EPBD)

EPBD is aimed at energy performance of buildings and supporting the implementation of the "Smart Finance for Smart Buildings Initiative", mobilising private investments for energy efficiency and small scale renewables in buildings at a greater scale.

One main focus of the proposed EPBD therefore is rooted in financial and long-term renovation measures and strategies. Member States must link their financial measures for energy efficiency improvements in the renovation of buildings to the energy savings achieved due to such renovation. These savings will be determined by comparing energy performance certificates issued before and after renovations.

Furthermore, the EPBD proposal streamlines provisions regarding regular inspections. As the provision regarding the obligation on performing inspections of heating systems and air-conditioning systems has not delivered the expected results, the European Commission proposed to replace and concretise the inspection obligations. In this context, the most significant amendment is the distinction between residential and non-residential buildings and the stricter thresholds. In exchange for this streamlining, building automation and control systems are introduced as an alternative to physical inspections to ensure continuous buildings' performance. To sum it up, the bulk of the EPBD proposal intends to adapt the directive to technical progress and to derive advantage therefrom.

New Electricity Market Design

The new market design aims to improve price signals to drive investment in areas where it is needed most, reflecting grid constraints and demand centres, rather than national borders. Therefore, wholesale price caps will be removed, making prices reflect the real value of electricity in time and location (scarcity pricing) and new capacity mechanisms will be implemented in order to ensure security of supply. Capacity mechanisms are support schemes that remunerate generation availability, in addition to any revenue already gained from selling generated electricity on the market. However, generation capacity for which a final investment decision has been made, will only be eligible to participate in a capacity mechanism if its emissions are below 550 grams of CO2 per kWh. Generation capacity emitting 550 grams of CO2 per kWh or more shall not be committed in capacity mechanisms 5 years after the entry into force of the Regulation on the internal electricity market (RIE). As coal-fired power plants release almost more than twice as much as prescribed by the RIE, it appears that at this point the package intends to effectively rule out coal.

It is also proposed to remove priority grid dispatch for new renewables under RED. However, according to the RIE, priority dispatch will remain in place for existing installations, small-scale renewables (electricity capacity of less than 500 kW) and demonstration projects. Notably, this priority dispatch is only to be facilitated where the total capacity of generating installations is less than 15 % of the total installed generating capacity in a Member State.

The most important aspects at a glance

• No binding national RES 2030 targets; however, national 2020 targets have been set as a baseline.
• New criteria for the establishment of RES support schemes.
• Implementation of procedural rules to accelerate RES permitting and repowering.
• Cancellation of priority grid access for new RES installations.
• Binding RES targets for the heating and cooling sector.
• Renewable self-consumers are entitled to sell their excess production to other consumers without being treated as energy supplier (even when using the public network!).
• New sustainability criteria for bioenergy.
• Extension of the energy savings requirement to 2030.
• Member States who decide to fulfil their energy saving obligations by way of "alternative policy measures" (rather than by implementing an Energy Efficiency Obligation Scheme) need to put appropriate measurement, control and verification systems in place.

Footnote

1. European Commission, Review of the Energy Performance of Buildings Directive, including the 'Smart Financing for Smart Buildings' initiative, A legislative proposal and a communication (November 2015).

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