Electricity Decentralization in the European Union: Towards Zero Carbon and Energy Transition [2 ed.] 0443159203, 9780443159206

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Electricity Decentralization in the European Union Towards Zero Carbon and Energy Transition

Electricity Decentralization in the European Union Towards Zero Carbon and Energy Transition

Second Edition

Rafael Leal-Arcas et al. Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

Elsevier Radarweg 29, PO Box 211, 1000 AE Amsterdam, Netherlands The Boulevard, Langford Lane, Kidlington, Oxford OX5 1GB, United Kingdom 50 Hampshire Street, 5th Floor, Cambridge, MA 02139, United States Copyright © 2023 Rafael Leal-Arcas. Published by Elsevier Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage and retrieval system, without permission in writing from the publisher. Details on how to seek permission, further information about the Publisher’s permissions policies and our arrangements with organizations such as the Copyright Clearance Center and the Copyright Licensing Agency, can be found at our website: www.elsevier.com/permissions. This book and the individual contributions contained in it are protected under copyright by the Publisher (other than as may be noted herein). Notices Knowledge and best practice in this field are constantly changing. As new research and experience broaden our understanding, changes in research methods, professional practices, or medical treatment may become necessary. Practitioners and researchers must always rely on their own experience and knowledge in evaluating and using any information, methods, compounds, or experiments described herein. In using such information or methods they should be mindful of their own safety and the safety of others, including parties for whom they have a professional responsibility. To the fullest extent of the law, neither the Publisher nor the authors, contributors, or editors, assume any liability for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions, or ideas contained in the material herein. ISBN: 978-0-443-15920-6 For Information on all Elsevier publications visit our website at https://www.elsevier.com/books-and-journals

Publisher: Charlotte Cockle Acquisitions Editor: Edward Payne Editorial Project Manager: Teddy A. Lewis Production Project Manager: Surya Narayanan Jayachandran Cover Designer: Vicky Pearson Esser Typeset by MPS Limited, Chennai, India

Contents List of contributors Acknowledgments Introduction, by Rafael Leal-Arcas

1.

Smart grids in the European Union

xix xxi xxiii 1

Rafael Leal-Arcas, Feja Lasniewska and Filippos Proedrou 1.1 Introduction 1 1.2 Smart grid deployment and the impact on energy security 5 1.2.1 Setting the scene 5 1.2.2 Smart grids: a multivalent instrument 8 1.2.3 The operation of prosumer markets 10 1.2.4 Smart grids and energy security 17 1.2.5 Conclusion 32 1.3 Smart grid regulation 33 1.3.1 Smart metering: paving the way for smarter grids 33 1.3.2 Demand response 45 1.3.3 Electricity storage and electric vehicles 55 1.4 Social, environmental, and ethical issues of smart grids 64 1.4.1 Introduction 64 1.4.2 Smart grids: contributing to the EU collaborative economy 65 1.4.3 Low-carbon transition pathways and smart grids 73 1.4.4 Digital technology, smart grids, and the law 90 1.5 Conclusion 107

2.

Conceptualizing the energy transition in the European Union

111

Rafael Leal-Arcas

3.

2.1 Introduction 2.2 Progress on energy decentralization

111 114

Energy decentralization and energy transition in Belgium

119

Rafael Leal-Arcas 3.1 Smart grids and meters 3.2 Electric vehicles

119 124 v

vi

Contents

3.3 3.4 3.5 3.6 3.7

4.

Demand response Storage Interconnection Concerns about data protection Conclusions

Energy decentralization and energy transition in Greece

126 127 128 129 131

135

Rafael Leal-Arcas 4.1 4.2 4.3 4.4 4.5 4.6

5.

Smart grids and meters Electric vehicles Demand response Storage Interconnection Concerns about data protection

135 138 140 141 143 145

Energy decentralization and energy transition in Spain 149 Rafael Leal-Arcas 5.1 5.2 5.3 5.4 5.5 5.6 5.7

6.

Regulatory framework for the electricity market Smart grids and meters Electric vehicles Demand response Storage Interconnection Concerns about data protection

Energy decentralization and energy transition in Italy

149 154 156 160 161 162 164 167

Rafael Leal-Arcas Regulatory framework for the electricity market Smart grids and meters Electric vehicles Demand response Storage Interconnection Concerns about data protection

167 170 173 174 175 176 177

Energy decentralization and energy transition in Bulgaria

179

6.1 6.2 6.3 6.4 6.5 6.6 6.7

7.

Mariya Peykova and Rafael Leal-Arcas 7.1 General overview 7.1.1 Greenhouse gas emissions and targets 7.1.2 Renewable energy 7.1.3 Smart grid status

179 179 181 182

Contents

7.2 Energy profile 7.2.1 Energy mix, production, and reliance on imports 7.2.2 Main market participants 7.3 Governance system 7.3.1 Relevant institutions 7.3.2 Government approach to smart grids 7.4 Electricity market 7.4.1 Regulatory framework 7.4.2 Liberalization of the market and the status of unbundling in the country 7.4.3 Energy security dimension 7.5 Smart metering systems 7.6 Demand response 7.7 Data protection 7.7.1 Current legal framework 7.7.2 Third-party control 7.7.3 The effects of smart metering on the current legal framework 7.7.4 Consumer protection 7.7.5 Protection from cyber attacks 7.8 Electric vehicles and storage 7.8.1 Electric vehicles 7.8.2 Storage 7.9 Conclusions

8.

Energy decentralization and energy transition in Poland

vii 182 182 184 186 186 189 189 189 191 194 196 197 198 198 199 200 200 201 202 202 204 206

209

Victoria Nalule and Rafael Leal-Arcas 8.1 General overview 8.2 Energy profile 8.2.1 Energy resources in Poland 8.2.2 Energy transition and greenhouse gas emissions 8.3 Governance system: political decentralization and energy competences 8.4 Electricity market 8.4.1 Regulatory framework 8.4.2 Energy security dimension 8.5 Renewable energy sources’ generation 8.6 Smart grid and smart metering systems 8.7 Electric vehicles and storage 8.7.1 Legislation 8.7.2 E-Buses 8.7.3 Energy storage 8.8 Data protection 8.9 Demand response and energy efficiency 8.10 Conclusion

209 210 212 216 218 220 220 222 224 230 233 234 236 237 237 238 240

viii

Contents

9.

Energy decentralization and energy transition in France

241

Pinar Kara and Rafael Leal-Arcas 9.1 General overview 9.1.1 An overview on greenhouse gas emissions and renewable energy sources 9.1.2 A general overview on the current status of smart energy systems 9.2 Energy profile 9.2.1 Market participants 9.2.2 Production and consumption of energy 9.2.3 Energy strategy 9.3 Governance system 9.3.1 Relevant institutions 9.3.2 Research and projects on smart grids 9.4 Electricity market 9.4.1 Regulatory framework 9.4.2 Energy security dimension 9.5 Smart metering systems 9.6 Demand response 9.7 Data protection 9.8 Electric vehicles and storage 9.8.1 Electric vehicles 9.8.2 Storage 9.9 Conclusions

10. Energy decentralization and energy transition in Finland

241 241 244 245 245 246 248 249 249 251 253 253 254 255 256 258 260 260 261 262

265

Pinar Kara and Rafael Leal-Arcas 10.1 General overview 10.1.1 An overview on greenhouse gas emissions and renewable energy sources 10.1.2 Current status of smart energy systems 10.2 Energy profile 10.2.1 Market participants 10.2.2 Sources of energy 10.2.3 Consumption of energy 10.2.4 Energy strategy and European Union targets 10.3 Governance system 10.3.1 Relevant institutions 10.3.2 Research and projects on smart grids 10.4 Electricity market 10.4.1 Regulatory framework 10.4.2 Energy security dimension

265 265 267 268 268 269 270 272 272 273 275 277 277 280

Contents

10.5 10.6 10.7 10.8

Smart metering systems Demand response Data protection Electric vehicles and storage 10.8.1 Electric vehicles 10.8.2 Storage 10.9 Conclusions

11. Energy decentralization and energy transition in the Republic of Ireland

ix 282 283 285 286 286 289 290

293

Gemma Kate Fearnley and Rafael Leal-Arcas 11.1 Overview 11.2 Energy profile 11.2.1 Energy mix 11.2.2 Market and market players 11.2.3 Transmission system 11.2.4 Distribution system 11.3 Governance system 11.3.1 Energy strategy 11.3.2 Integration of governance and energy strategy 11.3.3 Reflections on the governance system 11.4 Regulatory framework and the energy security dimension 11.4.1 Regulatory framework 11.4.2 Energy security dimension 11.5 Smart metering scheme 11.5.1 The Irish National Smart Metering Programme 11.5.2 Smart Metering Regulatory Framework 11.6 Demand response 11.6.1 Role of the transmission system operator 11.6.2 Role of the distribution system operator 11.6.3 Smart meters, demand response, and the smart grid 11.7 Data protection 11.8 Electric vehicles and electricity storage 11.8.1 Electric vehicles 11.8.2 Electricity storage 11.9 Conclusions

12. Energy decentralization and energy transition in Estonia

293 295 295 299 301 302 303 303 305 309 310 310 316 319 319 320 322 322 324 325 325 326 326 329 330

333

Chana Gluck and Rafael Leal-Arcas 12.1 Energy profile 12.1.1 Energy dependency 12.1.2 Renewable energy production

333 334 335

x

Contents

12.2

12.3

12.4

12.5 12.6 12.7 12.8

12.1.3 Predictions for the demand in renewable energy 12.1.4 Gas production 12.1.5 Interconnection lines with Estonia’s neighbors Governance system 12.2.1 Relevant institutions in the energy sector 12.2.2 Tariff structures 12.2.3 Proposals to save energy 12.2.4 General planning in the energy sector 12.2.5 Transmission and distribution network services 12.2.6 Planned structural reforms in the electricity sector Energy regulatory framework 12.3.1 Interconnection 12.3.2 Organisation of the Estonian energy market Smart homes/smart meters 12.4.1 Estonia’s legislative portfolio related to smart metering systems 12.4.2 Energy security considerations: interplay between Estonian policies and policies issued by the European Commission Data protection Electric vehicles 12.6.1 Market penetration of electric vehicles Demand response Conclusions

13. Energy decentralization and energy transition in Slovenia

336 337 337 339 339 340 341 342 343 343 343 345 346 348 349

350 351 355 355 358 360

361

Stanislava Boskovic and Rafael Leal-Arcas 13.1 Slovenia 13.1.1 Energy profile 13.1.2 Energy mix in Slovenia 13.1.3 Governance system: support schemes and selection bases 13.1.4 Electricity market 13.1.5 Smart metering systems 13.1.6 Demand response 13.1.7 Data protection 13.1.8 Electric vehicles and storage 13.2 Conclusions

14. Energy decentralization and energy transition in Croatia

361 361 361 371 374 380 382 384 385 389

391

Stanislava Boskovic and Rafael Leal-Arcas 14.1 General overview 14.2 Energy profile

391 391

Contents

xi

14.2.1 Energy mix in Croatia 14.2.2 Transmission system operator Governance system 14.3.1 Relevant institutions Electricity market 14.4.1 Regulatory framework 14.4.2 Energy security dimension 14.4.3 Renewable energy Smart metering systems Demand response Data protection Vehicles and storage 14.8.1 Electric vehicles 14.8.2 Storage Conclusion

391 393 394 394 395 395 396 400 400 401 402 402 402 405 405

15. Energy decentralization and energy transition in Austria

407

14.3 14.4

14.5 14.6 14.7 14.8

14.9

Muhammad Syed Abubakr Karimabadi and Rafael Leal-Arcas 15.1 Energy profile 15.2 Governance system 15.3 Electricity market 15.3.1 Transmission system operators 15.3.2 Distribution system operators 15.3.3 Supply 15.3.4 Ownership 15.4 Smart metering systems 15.4.1 Overview 15.4.2 Landis 1 Gyr projects 15.4.3 Other projects 15.4.4 Applicability 15.4.5 Pricing 15.4.6 Data concerns 15.4.7 Direct load control 15.4.8 Prosumers 15.5 Data protection 15.5.1 Current law 15.5.2 Smart grids 15.5.3 Challenges 15.6 Demand response 15.6.1 Mechanisms 15.6.2 EU review 15.7 Electric vehicles 15.7.1 Overview 15.7.2 Taxation 15.8 Storage 15.9 Conclusion

407 409 409 410 410 410 411 411 411 412 413 413 414 414 415 415 416 416 416 418 418 418 419 420 420 421 422 423

xii

Contents

16. Energy decentralization and energy transition in Luxembourg

425

Muhammad Syed Abubakr Karimabadi and Rafael Leal-Arcas 16.1 Energy profile 16.1.1 Renewable energy 16.1.2 Future 16.1.3 Energy security 16.2 Governance system 16.3 Electricity market 16.3.1 Overview 16.3.2 Wholesale markets 16.3.3 Retail markets 16.4 Smart metering systems 16.5 Demand response 16.6 Data protection 16.7 Electric vehicles 16.7.1 Rollout 16.7.2 Reform 16.8 Storage 16.9 Conclusion

17. Energy decentralization and energy transition in Denmark

425 426 426 426 427 428 428 429 429 429 430 431 432 432 432 433 434

435

Marius Greger and Rafael Leal-Arcas 17.1 General overview 17.2 Energy profile 17.2.1 Brief history of Denmark’s energy policy 17.2.2 Energy profile—electrical energy 17.2.3 Highlighted challenges 17.3 Governance system 17.3.1 Legislation 17.3.2 Authorities 17.3.3 National and regional transmission 17.3.4 Public service obligation and smart metering 17.3.5 Interstate cooperation 17.4 Electricity market 17.4.1 Regulatory framework 17.4.2 Energy security dimension 17.5 Smart metering systems 17.5.1 Smart meter penetration 17.6 Demand response 17.7 Data protection 17.7.1 Digitalization to promote smart grids 17.7.2 Danish data protection and smart meters

435 435 435 437 440 443 443 444 445 445 446 447 447 451 453 454 456 458 458 458

Contents

17.7.3 Consumer safeguarding 17.7.4 Concerns of smart meters 17.8 Electric vehicles and storage 17.8.1 Electric vehicles 17.8.2 Storage 17.9 Conclusion

18. Energy decentralization and energy transition in Sweden

xiii 460 461 461 462 465 467

469

Hanna Knigge and Rafael Leal-Arcas 18.1 General overview 18.2 Energy profile 18.2.1 Electricity 18.2.2 Consumption 18.2.3 Challenges 18.2.4 Smart grid’s current status 18.3 Governance system 18.4 Electricity market 18.4.1 Electricity trade 18.4.2 Regulatory framework 18.4.3 Green certificates 18.4.4 Distributed electricity production: solar 18.4.5 Distributed electricity production: other 18.4.6 Energy security dimension 18.5 Smart metering systems 18.6 Demand response 18.6.1 Explicit demand response 18.6.2 Implicit demand response 18.7 Data protection 18.7.1 Information security 18.8 Electric vehicles and storage 18.8.1 Electric vehicles 18.8.2 Storage 18.9 Conclusion

469 471 472 473 477 479 481 486 487 488 489 492 496 498 501 502 503 504 506 508 510 510 515 517

19. Energy decentralization and energy transition in Hungary

521

Andrew Filis and Rafael Leal-Arcas 19.1 Introduction 19.2 Hungary’s electricity market 19.2.1 Key figures concerning energy and electricity in Hungary 19.2.2 Key characteristics and structure of Hungary’s electricity market 19.2.3 Policy responsibility and regulation 19.2.4 Geopolitical considerations

521 522 522 525 529 531

xiv

Contents

19.3 How “smart” is Hungary’s electricity system? 19.3.1 Research and development—investments and funding 19.3.2 Smart grids 19.3.3 Smart metering 19.3.4 Demand-side policies/demand response 19.3.5 Self-generation 19.3.6 Electric vehicles 19.3.7 Storage 19.3.8 Data privacy and protection considerations 19.4 Conclusion 19.4.1 Recommendations

20. Energy decentralization and energy transition in Cyprus

532 533 535 536 538 539 540 542 543 545 545

549

Mariya Peykova and Rafael Leal-Arcas 20.1 Introduction 20.2 The smart grid: a vehicle to a more sustainable energy system 20.3 Cyprus electricity market 20.3.1 Key players 20.3.2 Legal and regulatory framework 20.3.3 Liberalization of the market and the status of unbundling in the country 20.3.4 Energy security dimension 20.3.5 Electricity interconnections 20.4 Smart metering systems 20.5 Demand response 20.6 Data protection 20.6.1 Current legal framework 20.6.2 Third-party control 20.6.3 The effects of smart metering on the current legal framework 20.6.4 Consumer protection 20.6.5 Protection from cyberattacks 20.7 Electric vehicles and storage 20.7.1 Electric vehicles 20.7.2 Storage 20.8 Conclusions and recommendations

21. Energy decentralization and energy transition in Lithuania

549 550 550 551 551 553 554 556 556 558 559 559 560 561 563 564 567 567 568 570

573

Marius Greger and Rafael Leal-Arcas 21.1 Introduction: Lithuania, a population in major decline 21.2 The Lithuanian electrical grid 21.2.1 Setting the scene

573 575 575

Contents

21.3 21.4 21.5 21.6 21.7 21.8

21.9

21.2.2 Energy governance and smart grid optimization 21.2.3 Proactive consumer participation 21.2.4 Support schemes 21.2.5 LitGrid—the transmission system operator Achieving energy democratization Smart metering systems Demand response Cross-border relations and power grid synchronization Data protection in smart grids Electric vehicles and storage 21.8.1 Electric vehicles 21.8.2 Storage Conclusion

22. Energy decentralization and energy transition in Romania

xv 576 578 579 580 582 583 585 588 590 592 592 595 596

599

Andrew Filis and Rafael Leal-Arcas 22.1 Introduction 22.2 Romania’s electricity market 22.2.1 Key figures concerning energy and electricity 22.2.2 Key characteristics and structure of Romania’s electricity market 22.2.3 Policy and regulatory responsibility 22.2.4 Other considerations 22.3 How “Smart” is Romania’s grid? 22.3.1 Smart grid investment and research and development 22.3.2 RES electricity generation and self-generation 22.3.3 Smart metering 22.3.4 Zero- and low-emissions mobility 22.3.5 Storage 22.3.6 Demand response 22.3.7 Additional “smart” solutions 22.3.8 Cyber-security, privacy, and data protection 22.4 Conclusion 22.4.1 Recommendations

23. Energy decentralization and energy transition in Malta

599 600 600 606 614 617 619 619 621 623 623 626 626 628 628 630 632

637

Victoria Nalule and Rafael Leal-Arcas 23.1 Introduction 23.2 Energy mix 23.3 Laws and institutions relevant in the decarbonization efforts in Malta

637 639 640

xvi

Contents

23.4 Electricity in Malta and energy competences 23.4.1 Electricity interconnections and distribution 23.4.2 Political decentralization and energy competences 23.5 Renewable energy generation 23.6 Smart grid and smart metering systems 23.7 Electric vehicles and storage 23.8 Data protection 23.9 Demand response and energy efficiency 23.9.1 Energy efficiency 23.9.2 Demand response 23.10 Conclusion

24. Energy decentralization and energy transition in Slovakia

642 642 643 644 646 647 649 651 651 653 654

655

Brian Burstein and Rafael Leal-Arcas 24.1 Introduction 24.2 Energy profile 24.2.1 Overview of the Slovakian energy market 24.2.2 Electricity market 24.3 Decentralization efforts: where does Slovakia stand? 24.4 Smart metering systems 24.5 Electric mobility 24.6 Demand response 24.7 Electricity storage 24.8 Data protection 24.9 Conclusions and recommendations 24.9.1 Smart grids 24.9.2 Electric vehicles 24.9.3 Demand response 24.9.4 Storage 24.9.5 Data protection

25. Energy decentralization and energy transition in the Czech Republic

655 656 656 661 663 665 668 671 672 674 676 676 678 679 680 680

683

Maria Eugenia Mattera and Rafael Leal-Arcas 25.1 Introduction 25.2 Overview of Czechia’s electricity market 25.2.1 Key figures of Czechia’s energy sector 25.2.2 Key aspects of the electricity sector 25.3 Toward a decentralized and smart electricity sector 25.3.1 Interconnection 25.3.2 Consumer’s empowerment 25.3.3 Smartening of the electricity grid 25.4 Conclusions and recommendations

683 684 684 689 692 693 696 700 713

Contents

xvii

26. Energy decentralization and energy transition in Latvia 721 Danai Papadea and Rafael Leal-Arcas 721

26.1 Introduction 26.2 Energy, electricity, and smart grids in Latvia: developments and concerns 26.2.1 Latvia’s electricity market 26.2.2 How smart is Latvia’s electricity system? 26.3 Conclusion and recommendations

722 722 729 740

27. Energy decentralization and energy transition in Portugal

741

Filipa Santos and Rafael Leal-Arcas 27.1 Introduction 27.2 Energy profile 27.2.1 Overview of Portugal’s energy market 27.2.2 Electricity market 27.2.3 Place in the market for different energy sources 27.3 The liberalization of the Portuguese electricity market 27.4 Regulatory framework 27.4.1 Regulators 27.4.2 Regulated activities 27.5 Smart metering systems 27.6 Electric mobility 27.7 Demand response 27.7.1 Control of heating, ventilation, and air-conditioning (HVAC) systems in public buildings 27.7.2 Control of HVAC loads in banks 27.7.3 Control of industrial loads 27.7.4 EDP Distribuic¸a˜o pilots 27.8 Electric storage 27.9 Data protection 27.10 Portugal’s electricity interconnections within the European Union 27.11 Conclusions and recommendations

28. Energy decentralization and energy transition in the United Kingdom

741 743 743 747 753 755 757 757 758 759 760 762 763 765 766 766 767 769 771 773

779

Gemma Kate Fearnley and Rafael Leal-Arcas 28.1 Overview 28.2 Energy profile 28.2.1 Energy mix 28.2.2 Market and market players 28.2.3 Transmission system 28.2.4 Distribution system

779 781 781 786 790 793

xviii

Contents

28.3 Governance system 28.3.1 Energy strategy 28.3.2 Integration of governance and energy strategy 28.4 Regulatory framework and energy security 28.4.1 Regulatory framework 28.4.2 Energy security dimension 28.5 Smart metering systems 28.6 Demand response 28.6.1 Great Britain 28.6.2 Northern Ireland 28.6.3 Reflections on demand response 28.7 Data protection 28.8 Electric vehicles and energy storage 28.8.1 Electric vehicles 28.8.2 Energy storage 28.9 Conclusion

29. Innovative finance for sustainable energy

793 793 795 799 799 808 811 814 814 819 820 820 823 823 825 829 833

George Thanos, Michalis Kanakakis and Rafael Leal-Arcas 29.1 Introduction and methodology 29.2 Decentralized energy: archetype business models and barriers 29.2.1 A generic value network for smart grids 29.2.2 The EU paradigm—EU project WiseGRID 29.2.3 Analysis of archetype business models for a decentralized smart grid Index

833 835 835 838 840 865

List of contributors Stanislava Boskovic WiseGRID Project, Queen Mary University of London, London, United Kingdom Brian Burstein WiseGRID Project, Queen Mary University of London, London, United Kingdom Gemma Kate Fearnley WiseGRID Project, Queen Mary University of London, London, United Kingdom Andrew Filis WiseGRID Project, Queen Mary University of London, London, United Kingdom Chana Gluck WiseGRID Project, Queen Mary University of London, London, United Kingdom Marius Greger WiseGRID Project, Queen Mary University of London, London, United Kingdom Michalis Kanakakis Athens University of Economics and Business, Athens, Greece Pinar Kara WiseGRID Project, Queen Mary University of London, London, United Kingdom Muhammad Syed Abubakr Karimabadi WiseGRID Project, Queen Mary University of London, London, United Kingdom Hanna Knigge WiseGRID Project, Queen Mary University of London, London, United Kingdom Feja Lasniewska School of Oriental and African Studies, University of London, London, United Kingdom Rafael Leal-Arcas Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia Maria Eugenia Mattera WiseGRID Project, Queen Mary University of London, London, United Kingdom Victoria Nalule WiseGRID Project, Queen Mary University of London, London, United Kingdom Danai Papadea WiseGRID Project, Queen Mary University of London, London, United Kingdom Mariya Peykova WiseGRID Project, Queen Mary University of London, London, United Kingdom

xix

xx

List of contributors

Filippos Proedrou University of South Wales, Cardiff, United Kingdom Filipa Santos WiseGRID Project, Queen Mary University of London, London, United Kingdom George Thanos Athens University of Economics and Business, Athens, Greece

Introduction By Rafael Leal-Arcas

This book is divided into 29 chapters. The purpose of Chapter 1 is to provide an analysis of smart grids in the European Union (EU) as a way forward to reach sustainable energy. It does so by assessing the energy security, regulatory, and social and ethical aspects of smart grids in the EU. This chapter represents a significant milestone in the upscaling of the various aspects of smart grid technology across the EU. It deals with smart grid deployment and their impact on energy security with a view to a stronger role of prosumers in the energy market. It also analyzes smart grid regulation. Specifically, it examines the existing legal frameworks that impact smart grids in the EU. It outlines existing EU Directives and assesses the level of implementation of these Directives in various EU member states. This chapter also assesses the extent to which the existing legal frameworks facilitate the development of smart grids and proposes areas of further regulatory consideration. The chapter then explores the social and ethical dimensions of smart grids in the context of the collaborative economy, the circular economy, and digital technology, including cybersecurity and data management issues. Chapter 2 examines the status of energy decentralization in the EU. It discusses why it is in the EU’s interest to decentralize its energy markets and analyzes the situation in several EU member states. This chapter specifically focuses on electricity markets and looks at how decentralization is taking shape with regard to these markets. Chapters 3 6 analyze the regulatory environment in some EU jurisdictions (Belgium, Greece, Spain, and Italy) to identify to what extent it is conducive to decentralization. It then looks at how things stand in terms of new tools and technologies to facilitate decentralization, such as smart grids and meters, electric vehicles, demand response, and storage. In these chapters, it is also explored how these four specific EU member states are progressing towards deployment of these tools and technologies, and the specific needs and regulatory barriers in each. It also offers recommendations for how regulation can be more encouraging. These four chapters also discuss electricity interconnections in the EU as a vital step towards decentralization that will boost energy security and energy efficiency. Lastly, these four chapters include a detailed examination of data protection concerns that arise from the advent of new technologies that collect personal information, such as

xxiii

xxiv

Introduction

smart grids, and assess current regulation on data protection and identify areas for improvement. The EU is working on several key goals related to energy, including greater energy efficiency, greater use of renewable energy, and increased energy security across the EU. Decarbonization encompasses all of these goals, and different EU member states are at different stages when it comes to progress on decarbonization. Chapters 7 10 examine progress in four EU countries (Bulgaria, Poland, France, and Finland) and identify specific measures being taken in this regard. From promoting electric vehicles to deploying smart grids and smart meters, new projects and initiatives are underway. However, each country has its own particular set of barriers and opportunities when it comes to decarbonizing the energy sector, related to financing, regulation, technology, and other factors. These four chapters also examine these factors as well as success factors and models for replication across the EU. Furthermore, they look at the role of regulation and how it can be adapted to create conditions more conducive to effective and sustainable decarbonization. Energy is a key concern for every country, as it is inextricably linked with economic growth and sustainable development. As the world transitions to 21st century approaches to energy, numerous challenges arise to the forefront. These challenges include the crucial need for clean and renewable energy and transitioning away from fossil fuels, energy efficiency, energy security, and affordable energy for all. Achieving these goals involves innovation, investment, smart policies, and technological advancement. Chapters 11 and 12 examine how two countries—the Republic of Ireland and Estonia—are faring towards achieving the abovementioned objectives. Both countries have implemented relevant measures and policies, such as the deployment of smart meters and grids, demand response, and promoting electric vehicles. However, both still need to take steps to accelerate progress. Many of their schemes could serve as models for other countries seeking to effectively decarbonize. The EU 2020 Energy Strategy calls for reducing the EU’s greenhouse gas emissions, increasing the share of renewable energy, and achieving significant energy savings. All EU countries must also increase the share of renewable energy in their transport sectors. EU member states are at various stages of compliance. Chapters 13 16 analyze the situations in Slovenia, Croatia, Austria, and Luxembourg. They analyze relevant governance structures in each country and identify where regulation is conducive to the above goals and where it is acting as a barrier. Given that deregulation and decentralization are part of achieving the EU’s energy strategy, these chapters examine where each of the four countries stands on that front and what specific initiatives and projects are underway towards greater deregulation and decentralization. Such initiatives include rollouts of smart metering systems and of

Introduction

xxv

electric vehicles as well as launching demand response schemes. These four chapters also address relevant data protection concerns. Chapters 17 and 18 examine energy regulation in two EU Scandinavian countries, respectively: Denmark and Sweden. These two chapters analyze regulation in both countries aimed at promoting renewable energy, increasing energy security, and achieving decentralization via technology such as smart meters and smart grids. These chapters also identify current barriers to achieving these goals. Progress on electric vehicles is addressed as well as on storage systems. As data protection is a key concern with the advent of smart grids and smart meters, these chapters analyze regulatory considerations regarding data privacy and protection, both at the EU level and specifically within Denmark and Sweden. These chapters provide recommendations for both countries, respectively, such as the need for further deregulation and greater financial commitments, among others. In line with the EU’s energy and climate targets for 2030, the European Commission has put forward a vision of an integrated energy system capable of delivering energy efficiency and a low-carbon economy. The increasing digitalization of the energy system will serve as the vehicle to a carbon-free, decentralized, and democratized system of energy generation and transmission. The introduction of smart grids across EU member states will contribute to the shift towards a more sustainable energy system. Chapters 19 21 will assess the eligibility and readiness for the implementation of smart grids in three jurisdictions of the EU, respectively: Hungary, Cyprus, and Lithuania. The main focus of these three chapters is the electricity market in these jurisdictions. It is in this context that these three chapters will assess the extent to which the regulatory framework in these countries is favorable to the successful implementation of smart-grid technology. Chapters 22 and 23 aim to provide useful insights into Romania’s and Malta’s electricity sector, respectively, and critically assess the extent to which their current state is conducive to EU “smart grid” objectives of energy decentralization and decarbonization. The respective chapters conclude that Malta has embraced reforms aimed at diversifying the energy sector, including the deployment of renewable energy sources, electric vehicles, smart meters, and smart grids, all of which are aimed at tackling climate change challenges. In the case of Romania, it enjoys relative energy independence and security vis-a`-vis its EU peers, but also other neighboring countries; however, it remains one of the most energy-intensive and polluting EU member states. At the same time, Romania’s performance in relation to increasing the share of renewable energy sources in energy consumption and electricity production places it among the leaders at the regional and EU levels, particularly in terms of wind-generated power. Chapters 24 and 25 explore the current picture of Slovakia’s and the Czech Republic’s domestic energy market, respectively, the national reality concerning decentralization efforts as well as their suitability to achieve it.

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Introduction

These two chapters assess the current situation of new technologies, namely, smart grids, electric mobility, demand response, and electricity storage technologies. Further, these chapters look at data protection concerns in the development of new technologies. These chapters then critically analyze the relevant novel policies in place and projected promising policies for the oncoming years in terms of encouraging regional cooperation, interconnection, consumer empowerment, decentralization, and the deployment of new technologies towards a more secure and “smarter grid.” These chapters conclude that Slovakia depends largely on its domestic production of nuclear energy and the import of primary energy sources to meet its primary demand. In such a position, the implementation of decentralized electricity generation becomes a priority. In terms of legal environment, Slovakia offers remarkable and suitable conditions to continue developing new technologies in the energy sector. Its regulatory framework presents a valuable basis— although not developed enough—to drive this paradigm shift. As for Czechia’s electricity sector, it is highly competitive, enjoys a relatively low energy dependence (compared to the average of EU countries), and its high level of grid interconnection contributes to energy security. However, in terms of smartening and decentralization, there is still room for policy improvement. Chapters 26 and 27 explore the electricity sector of Latvia and Portugal, respectively, the EU’s policy on clean energy, electricity, and smart technologies, the relationship developed between them, and the feasibility of smart grids’ and other new tools and technologies’ popularization in the context of the Latvian and Portuguese electricity markets. As member states of the EU, Latvia and Portugal must follow the decentralization agenda while increasing their use of encouraging renewable energy sources and establish better interconnection of electricity between their respective neighboring member states. In this context, these chapters explore the electricity market of Latvia and Portugal, respectively, taking into account promising policies introduced by the EU that aim to incorporate new technologies such as storage solutions and the creation of smart grids. The chapters look at how the priority of decentralized energy is being achieved in Latvia and Portugal. These chapters explore the current domestic energy market in both countries, the current remarkable achievements in energy decentralization in terms of policy and legislation, as well as unique obstacles that have become apparent. These two chapters also assess new technologies and novel projects introduced to incentivize or further develop such technologies, namely, smart metering systems, electric mobility, demand response, and electricity storage technologies. These chapters also look at data protection concerns, the interconnection between the electricity markets of Portugal and Spain, and the possibility of a place in the market for the new clean energy sources. The chapters conclude respectively the domestic reality in both countries and outline a set of recommendations to facilitate the introduction of new

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technologies in the energy sector and how to further implement the decentralization of the electricity market. Achieving greater renewable energy usage, energy efficiency, and energy security are practically universal goals today. Key emerging trends to this effect include the promotion of electric vehicles, the deployment of smart grids and smart meters, as well as the technology and regulation to encourage storage and demand response mechanisms. Overall, there is a move towards greater flexibility, with consumers having more control over their electricity usage and costs. Chapter 28 examines the United Kingdom as a case study. It explores where the UK stands in terms of introducing tools and technologies for decentralization, including electric vehicles, smart grids, and demand response mechanisms. It also examines regulation in the United Kingdom to assess how conducive it is for decentralized energy. In addition, this chapter identifies specific concerns related to data protection stemming from smart metering and analyzes relevant regulations in this regard. Finally, Chapter 29 introduces business models to illustrate the roles of multiple actors in a decentralized smart grid system. It identifies interactions between the various players, the tools they will manage, the added value in using the functionalities of such a system, and ways to maximize profits for those involved. Rafael Leal-Arcas

Chapter 1

Smart grids in the European Union Rafael Leal-Arcas1, , Feja Lasniewska2,† and Filippos Proedrou3,‡ 1

Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia, School of Oriental and African Studies, University of London, London, United Kingdom, 3 University of South Wales, Cardiff, United Kingdom 2

1.1

Introduction

The 20th century was characterized by a top-down approach to the governance of climate change mitigation and energy. The 21st century, however, offers a bottom-up approach.1 One of the megatrends of the 21st century is the shift to this bottom-up approach in the democratic2 implementation of



Professor of Law, Alfaisal University (Riyadh, Kingdom of Saudi Arabia). Jean Monnet Chaired Professor in EU International Economic Law. Member, Madrid Bar. Ph.D., M.Res., European University Institute; J.S.M., Stanford Law School; LL.M., Columbia Law School; M. Phil., London School of Economics and Political Science; J.D., Granada University; B.A., Granada University. Some of the ideas in this chapter were presented at two roundtables: “The 35th Round Table on Sustainable Development,” OECD Headquarters, Paris, France, 28 29 June 2017 and “The Future of International Energy Governance,” Vanderbilt University Law School, Nashville, Tennessee, the United States, 28 29 April 2017. I have also benefited from discussions with colleagues at the 2nd Yale Sustainability Leadership Forum, which took place in September 2017 at Yale University. † Teaching Fellow, School of Oriental and African Studies, University of London, United Kingdom. ‡ Research Fellow in Social Policy (International Affairs), University of South Wales; Ph.D., Democritus University of Thrace; M.A., University of Warwick; B.A., Aristotle University of Thessaloniki. Research assistance of Bernardo Rangoni is acknowledged. 1. See generally Leal-Arcas, R., 2017. Sustainability, Common Concern and Public Goods, 49 Geo. Wash. Int’l L. Rev. 801. 2. The term “democratic” is used in the true sense of the term, namely that power remains with the people. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00022-0 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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climate change mitigation plans3—a creation of the Paris Agreement on Climate Change,4 which has become the locomotive of climate action. The same is true in energy governance, where we are witnessing an energy democratization in the decentralization of energy security governance and the creation of new actors such as prosumers.5 This chapter aims to explain why we are witnessing a paradigm shift in the governance of international economic law, broadly defined, and how citizens can play a greater role to make this transition more solid.6 In other words, we seek to explain the shift

3. Several factors exacerbate climate change. For instance, increasingly, the world is experiencing frequent cases of floods, and they are predicted to increase exponentially. One cause is global warming. Warmer seas evaporate faster, and warmer air can retain more water vapor, which provokes the violence of storms and the intensity of heavy rains. See How to Cope with Floods, The Economist, Sept. 2, 2017, at 11. Also, eating meat from animals has negative effects on climate change. See Feed as Well as Food, The Economist, Sept. 2, 2017, at 13. 4. The Paris Agreement on Climate Change is one of the four major legal instruments used to mitigate climate change. The other three are the UN Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol, and the Copenhagen Accord. The UNFCCC distinguishes itself because its objective (Article 2) is qualitative, not quantitative (namely it does not provide any guidance about temperature reduction in numerical terms) See Res, G.A. 48/189, United Nations Framework Convention on Climate Change (Jan. 20, 1994). Another feature that makes the UNFCCC a prominent legal document of climate change mitigation is the principle of common but differentiated responsibilities (Article 3.1). See id. The Kyoto Protocol imposes legally binding obligations to reduce greenhouse gas emissions to specific countries (so-called Annex I countries). See Kyoto Protocol to the United Nations Framework Convention on Climate Change (Dec. 10, 1997), U.N. Doc FCCC/CP/1997/7/Add.1, 37 I.L.M. 22 (1998). Unlike the Kyoto Protocol, the Copenhagen Accord is not legally binding, which means that it is a political agreement to mitigate climate change. Moreover, unlike the UNFCCC, the Copenhagen Accord provides a quantitative objective, namely “to hold the increase in global temperature below 2 Celsius.” (See Copenhagen Accord, z 2 (Dec. 18, 2009) FCCC/CP/2009/L. The Paris Agreement on Climate Change is more flexible than the UNFCCC in that it does not create categories of countries, but instead offers nationally determined contributions to mitigate climate change. 5. Leal-Arcas, R., Proedrou, F., 2017. Prosumers: New Actors in EU Energy Security, 48 Netherlands Y.B. of Int’l L. 139, pp. 139 172. 6. See for instance the development at the subnational level in the United States, where cities and states, via their mayors and governors, are determined to implement the Paris Agreement on Climate Change, despite the decision of the federal government to withdraw from it. See Lumb, D., 61 US Cities and Three States Vow to Uphold Paris Climate Agreement, Engadget, (June 1, 2017), https://www.engadget.com/2017/06/01/61-us-cities-and-three-states-vow-to-uphold-parisclimate-agreem/. See also an open letter to the international community and parties to the Paris Agreement from the US state, local and business leaders by a bottom-up American network called We Are Still In, at http://wearestillin.com/. Similarly, see the role of the US Alliance at US Climate Alliance, https://www.usclimatealliance.org/, or America’s Pledge at https://www. bloomberg.org/program/environment/americas-pledge/, both platforms committed to fight climate change. Other ways in which citizens can have a greater involvement in the energytransition phenomenon is in solar energy, where people could install solar panels on the roof of their houses. This option would solve the delicate debate over where to place wind farms as part of the energy-transition phenomenon.

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from the core (i.e., centralized approaches to governance) to the crowd (i.e., decentralized, self-organizing approaches to governance).7 Sustainable energy is a burning issue in the world where 1.2 billion people still have no access to electricity.8 One solution for sustainable energy is better governance of energy trade.9 Energy security, or access to energy at an affordable price, is one of the main problems humanity faces.10 Without access to energy, people and countries cannot develop their potential. Today’s environmental challenges are driving a shift from fossil fuels toward clean and renewable energy, that is, energy from sustainable sources, as opposed to conventional sources such as oil, natural gas, and coal.11 These three necessities—energy that is affordable, secure, and clean—can be encompassed by the term “sustainable energy.” This transition away from fossil fuels will, however, come at a cost.12 Others argue that the goal of sustainable energy should be “to curb global warming, not to achieve 100% renewable energy.”13 One way to enhance energy security could be through greater energy efficiency, which may prove more effective than the deployment of renewable energy when it comes to reducing greenhouse gas (GHG) emissions.14 Trade provides another way: north-eastern Germany is not very industrialized and therefore does not consume much energy, which is needed in south Germany and other more industrialized parts of the country. Here is where trading energy can help enhance energy security. The purpose of this chapter is to provide an analysis of smart grids in the European Union (EU) as a way forward to reach sustainable energy. It does so by assessing the energy security, regulatory, and social and ethical aspects of smart grids in the EU. We ask the question whether the level of deployment of smart grids, the degree of their current regulation, and their social and ethical dimensions are adequate to make the transition to a low-carbon economy happen. We argue that there is still a long way to go before we reach a desirable outcome. This chapter represents a significant milestone in the upscaling of the various aspects of smart grid technology across the EU and pushes the frontiers of its existing regulatory regimes. Thus a detailed evaluation of regional and local15 regulatory frameworks is provided to 7. For a similar approach to explain how work happens, see Mcafee, A., Brynjolfsson, E., 2017. Machine, platform, crowd: harnessing our digital future. 8. See Energy Access Database, Int’l Energy Agency, https://www.iea.org/energyaccess/database/. 9. Leal-Arcas, R., et al., 2016. Energy Security, Trade and the EU: Regional and International Perspectives. 10. Leal-Arcas, R., 2016. The European Energy Union: The Quest for Secure, Affordable and Sustainable Energy. 11. Massai, L., 2011. European Climate and Clean Energy Law and Policy. 12. 100% Renewable Energy: At What Cost?, The Economist, July 15, 2017, at pp. 58 59. 13. Renewable-Energy Targets: A Green Red Herring, The Economist, July 15, 2017, at p. 10. 14. See id. 15. For an analysis of how transformation can happen locally, see Hopkins, R., 2013. The Power of Just Doing Stuff: How local action can change the world.

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ensure the successful realization of smart grid deployment in various EU jurisdictions. This chapter discusses, among other issues, the role of electric vehicles (EVs) in decarbonizing the transport sector. Research shows that, if all new cars were electric, they would make up 90% of the world’s two billion cars by 2040, thereby saving 11 billion barrels of oil every year (or almost half of annual global production) and 4.7 billion tons of CO2 (this figure excludes emissions and oil used to make electric cars).16 This plausible reality raises questions such as: how can consumers influence the vehicle industry to make them go electric?17 And how can mobility become renewable? Some European governments seem to be moving firmly in the direction of EVs: in July 2017, the UK government announced that it would ban the sale of new cars that run solely on petrol or diesel by 2040.18 The French government spoke in similar terms in its own announcement.19 Carmakers are heading in the same direction: Volvo announced in 2017 that all Volvo cars will be electric or hybrid as of 2019.20 BMW, Porsche, and Audi have electric models that will enter the market by 2020.21 Outside of Europe, although no timeline has been suggested, China’s government would like to move toward a ban on gas vehicles, which will have profound implications for global carmakers, given China’s market size.22 This Chinese move is quite promising as China has some of the world’s biggest battery producers and is very active in electronics manufacturing.23 Morgan Stanley, an investment bank, expects that, of the one billion cars on the road, half will be powered by battery by 2050, since the price of batteries is decreasing.24 Moreover, when it comes to GHG emissions, aviation and shipping are two key players in the transportation sector—they are responsible for GHG emissions equivalent to those of some countries that are major GHG emitters.25 For the mitigation of climate change, electric or hybrid engines in aviation and shipping would be very effective. For instance, hybrid planes, with a capacity of 100 passengers, could take off 16. See A Flash in the Sky, The Economist, July 15, 2017, at pp. 16 17. 17. All of this said, in the case of cars, their sales are falling because better cars and roads mean longer car life, which means fewer new-car sales, and it is a headwind for electric vehicles. See Stock, K., The Real Reason Car Sales Are Falling, Bloomberg (Aug. 2, 2017), https://www. bloomberg.com/news/articles/2017-08-02/the-real-reason-car-sales-are-falling. 18. Business, The Economist, July 29, 2017, at p. 8. 19. See id. 20. Vaughan, A., All Volvo Cars to be Electric or Hybrid from 2019, The Guardian (July 5, 2017), https://www.theguardian.com/business/2017/jul/05/volvo-cars-electric-hybrid-2019. 21. Cleaning Up Cars, The Economist, Sept. 30, 2017, at p. 31. 22. Electric Cars in China: Zooming Ahead, The Economist, Sept. 30, 2017, at p. 68. 23. See id. 24. However, battery production is not emissions free. See Charge of the Battery Brigade, The Economist, Sept. 9, 2017, at pp. 63 64. 25. Leal-Arcas, R., 2013. Climate Change and International Trade.

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and land using jet engines; but, during the cruise, they could make use of electrically powered engines.26 Similarly, lighter electric engines for aviation have been developed. This chapter is divided into five sections. After this short introduction, Section 1.2 deals with smart grid deployment and its impact on energy security. Section 1.3 analyses smart grid regulation. It examines the existing legal frameworks that impact smart grids in the EU. It outlines existing EU Directives and assesses the level of implementation of these Directives in various EU Member States. It also assesses the extent to which existing legal frameworks facilitate the development of smart grids and proposes areas of further regulatory consideration. Section 1.4 concerns the social and ethical dimensions of smart grids, including data management issues. Section 1.5 provides the conclusion of this chapter.

1.2 Smart grid deployment and the impact on energy security 1.2.1

Setting the scene

1.2.1.1 The geopolitical context The global energy market is still monopolized to a great extent by the production, trade, and consumption of oil and gas.27 The EU is no exception to this rule, with a high import ratio of both oil and gas. Unreliable oil producers, geopolitical instability in many oil-rich countries, economic and resource nationalism,28 transportation-related hazards, and the high volatility of international oil prices are constraining importers to face significant risks.29 In the gas sector, the EU is confronting a practically oligopolistic external market with Russia, Algeria, and Norway supplying most of the imported gas.30 Azerbaijan and more distant liquefied natural gas (LNG) suppliers also contribute to the EU’s import portfolio, without changing the EU’s dependence on a few exporters.31 Relations with the most important gas supplier, Russia, have become overtly problematic. This state of play must be 26. Let’s Twist Again, The Economist, Sept. 16, 2017, at p. 82. 27. Int’l Energy Agency, 2016. World Energy Outlook 5, https://www.iea.org/publications/freepublications/publication/WorldEnergyOutlook2016ExecutiveSummaryEnglish.pdf. 28. Economic nationalism is a threat to global sustainable development. 29. Yergin, D., 2011. The Prize: The Epic Quest for Oil, Money & Power. 30. Main Origin of Primary Energy Imports, EU-28, 2005 2015, Eurostat, http://ec.europa.eu/ eurostat/statistics-explained/index.php/File:Main_origin_of_primary_energy_imports,_EU-28, _2005-2015_%28%25_of_extra_EU-28_imports%29_YB17.png. 31. Proedrou, F., 2012. EU Energy Security in the Gas Sector: Evolving Dynamics, Policy Dilemmas and Prospects.

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borne in mind insofar as politics and international relations have a crucial influence on energy policies and international trade relations. Diversification of sources, routes, and suppliers has been high on the EU’s agenda. The Southern Gas Corridor32 and a few LNG initiatives are the only tangible steps toward this direction. Nevertheless, these efforts have not produced sea changes in Russia’s pivotal market role.33 The rationale of liberalization and competition is in accordance with the logic of diversification. This is so as both premises aim to create a level playing field for external actors in a market well-shielded from monopolistic structures and practices.34 While the application of the Third Energy Package35 has blocked some of Russia’s future investment moves, it cannot by itself substantially alter the EU’s import portfolio.36 This is mainly due to the fact that Member States and their energy companies are responsible for negotiating and signing supply contracts. Indeed, Gazprom traditionally retains strategic alliances with several European oil and gas companies37 (such as Italy’s ENI, Austria’s OMV,

32. The Southern Gas Corridor is a term used to describe planned infrastructure projects aimed at improving EU energy security by bringing natural gas from the Caspian region to Europe. See Southern Gas Corridor, 2017. Trans Adriatic Pipeline, https://www.tap-ag.com/the-pipeline/thebig-picture/southern-gas-corridor. The Southern Gas Corridor is also known as the Fourth Corridor (the other three corridors running from North Africa, Norway, and Russia). See LealArcas, R., et al., 2015. The European Union and its Energy Security Challenges, J World Energy L Bus, 8(1), 19. 33. Sidi, M., 2017. The Scramble for Energy Supplies to South Eastern Europe: The EU’s Southern Gas Corridor, Russia’s Pipelines and Turkey’s role. In: Bettzu¨ge, M.O., Schro¨der, M., Wessels, W. (Eds.) Turkey’s as an Energy Hub? Contributions on Turkey’s Role in EU Energy Supply, pp. 51 66. 34. Proedrou, F., 2016. EU Energy Security Beyond Ukraine: Towards Holistic Diversification, 21 Eur Foreign Aff Rev, 57, 57 73. 35. The EU’s Third Energy Package is a legislative package for an internal gas and electricity market with the purpose of further opening up these markets in the European Union. It consists of two directives and three regulations: Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity, 2009 O.J. (L 211); Parliament and Council Directive 2009/73/EC, Concerning Common Rules for the Internal Market in Natural Gas and Repealing Directive 2003/55/EC, 2009 O.J. (L 211) 55; Parliament and Council Regulation 714/2009/EC, On Conditions for Access to the Network for Cross-Border Exchanges in Electricity, 2009 O.J. (L 211) 15; Parliament and Council Regulation 715/2009/EC, On Conditions for Access to the Natural Gas Transmission Networks, 2009 O.J. (L 211) 36; and Parliament and Council Regulation 713/2009/EC, Establishing an Agency for the Cooperation of Energy Regulators, 2009 O.J. (L 211) 1. 36. Goldthau, A., Sitter, N., 2015. Soft Power With a Hard Edge: EU Policy Tools and Energy Security, 22 Rev. Int’l Pol. Econ., 941; Goldthau, A., 2016. Assessing Nord Stream 2: Regulation, Geopolitics & Energy Security in the EU, Central Eastern Europe & the UK. 37. It is interesting to note that, as of 2013, 90 companies caused two-thirds of anthropogenic greenhouse gas emissions. See Goldenberg, S., Just 90 Companies Cause Two-Thirds of ManMade Global Warming Emissions, The Guardian (Nov. 20, 2013), https://www.theguardian.com/ environment/2013/nov/20/90-companies-man-made-global-warming-emissions-climate-change.

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France’s Gaz de France, and Germany’s EON Ruhrgas and Wintershall).38 Indeed, Russo-German relations have been remarkably cordial over the last decades, with energy cooperation being at the center of this partnership. Interestingly, the recent fallout between Russia and Ukraine, and Russia’s actions (invasion of Crimea and hybrid war in Eastern Ukraine) that evidently go against fundamental international law principles enshrined in several international treaties, have not resulted in any interruption of Russia-EU gas trade.39 Having said this, several actors within the EU (particularly the European Commission, the European Parliament, and the Member States located in Central and Eastern Europe) are striving to counter Russia’s leverage in the EU energy market.40 While liberalization and diversification can be considered significant roadblocks but not game-changers, the need remains for holistic, innovative energy policies that will curtail the EU’s import dependence and ensuing energy insecurity.41

1.2.1.2 The institutional context The key issue to be considered is how, by whom, and in what ways energy is governed at the EU level. Energy governance can be defined as multilevel management and regulation of energy supply, calling for variable degrees of coordination and cooperation between several actors.42 In the words of Florini and Sovacool, energy governance refers to “collective action efforts undertaken to manage and distribute energy resources and provide energy services,” and can hence serve as “a meaningful and useful framework for assessing energy-related challenges.”43 As a result, international cooperation is crucial for tackling collective-action problems. Regarding EU energy governance, a definite dualism is at play. On the one hand, Member States implement energy policies at the national level. On the other hand, the European Commission sets the energy blueprint at the EU level. In particular, Member States retain their sovereignty in the energy sector on the grounds that energy is a strategic good. Consequently,

38. Aissaoui, A., et al., 1999. Gas to Europe: The Strategies of Four Major Suppliers. 39. Casier, T., 2016. Great Game or Great Confusion: The Geopolitical Understanding of EURussia Energy Relations, 21 Geopolitics 763, 763 78. 40. Goldthau & Sitter, supra note 36; Goldthau, supra note 36. 41. Proedrou, supra note 34. 42. See generally Leal-Arcas, R., et al., 2014. International Energy Governance: Selected Legal Issues. 43. Florini, A., Sovacool, B.K., 2009. Who Governs Energy? The Challenges Facing Global Energy Governance, 37 Energy Pol’y 5239 (2009).

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decisions on the domestic energy mix should lie solely with national authorities.44 Since the Lisbon Treaty, energy has come under the shared competences of the EU and the Member States.45 National energy measures must be designed in conformity with EU policies. Examples of such strategies include the 2020 climate and energy package46 and the 2030 climate and energy framework.47 The Commission has thus pioneered an ambitious climate-change mitigation agenda that is bound to impact the Union’s energy policy.48 EU energy policy is driven by both Member State governments and supranational institutions. It is within this institutional framework that the European Commission is currently fostering research on ground-breaking technologies, the elaboration of forward-looking regulation, the transformation of the traditional energy market toward low-carbon systems, and the establishment of prosumer markets.49 Such schemes are deeply rooted in the EU’s vision to revitalize its energy security.

1.2.2

Smart grids: a multivalent instrument50

Smart grids, together with the promotion and integration of renewable energy generation in the electricity network, bear significant potential for achieving low-carbon energy security, protection from the vagaries of international energy markets, affordable energy costs, enhanced access to energy, existent, and future climate goals, empowerment of citizens, and enhanced competitiveness for the European economy.51 As the International Energy Agency (IEA) underlines, the sweeping renewable energy generation revolution has propelled a profound debate over the design of the evolving power market and electricity security.52 44. Maltby, T., 2013. European Union Energy Policy Integration: A Case of European Commission Policy Entrepreneurship and Increasing Supranationalism, 55 Energy Pol’y 435. 45. Energy, in its wide sense, is expressly referred to as a matter of shared competence between the EU and its Member States. See Treaty on the Functioning of the European Union, art. 4, Oct. 26, 2012, 2012 O.J. (C 326) 1. 46. 2020 Climate and Energy Package, European Comm’n (Jul. 26, 2017), https://ec.europa.eu/ clima/policies/strategies/2020_en. 47. Conclusions of the European Council (Oct. 23, 2014), http://data.consilium.europa.eu/doc/ document/ST-169-2014-INIT/en/pdf. 48. Maltby, supra note 44. 49. Clean Energy for All Europeans, European Comm’n (Nov. 30, 2016), http://europa.eu/rapid/ press-release_IP-16-4009_en.htm. 50. This section draws from Proedrou, F., 2017. Are Smart Grids the Key to EU Energy Security? In: Research Handbook on EU Energy Law and Policy. 51. Smart Grids and Meters, European Comm’n (Sept. 7, 2017), http://ec.europa.eu/energy/en/ topics/markets-and-consumers/smart-grids-and-meters. 52. Int’l Energy Agency, 2016. World Energy Outlook 1, https://www.iea.org/publications/freepublications/publication/WorldEnergyOutlook2016ExecutiveSummaryEnglish.pdf.

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What makes the ongoing energy transition different from previous ones is the parallel change in both the energy and digital technology sectors. The contemporary energy transition is characterized by common changes in integrated systems.53 As such, the scope and scale of this transformation are ubiquitously potent and unprecedented. This transition basically concerns the electricity sector. This industry expands exponentially at the cost of other sectors and is projected to account for an increasing percentage of energy consumption growth, from 25% in the last 25 years to nearly 40% by 2040.54 The electricity industry fosters crucial spillovers to other sectors as well. The transportation sector, with the use of EVs as an inherent part of the grid, is an indicative example. Verbong, Beemsterboer, and Sengers highlight the differences between the old and the emerging energy system as follows: “[it] will be more hybrid, in terms of the location and type of generation; lower carbon because of a larger contribution of renewable energy sources (RES); more complex and vulnerable; and less hierarchical.”55 These changes are bound to profoundly impact society at large and energy users in particular.56 Indeed, smart grids can serve a multitude of goals, such as spearheading economically optimal performance; fostering energy market competition; managing energy consumption and efficiency; achieving maximum possible carbon emissions reductions; maximizing network efficiency; fomenting system and technology safety, security, and resilience; altering and cleaning the energy mix; creating storage capacity and new technologies in the storage sector; expanding to the transportation sector through electric, plug-in vehicles; democratizing the energy systems; and empowering citizens/customers. Smart grids are not only being deployed in the EU, but in several other countries as well, most prominently in China, Japan, South Korea, and the United States.57 It is important to stress that there are different drives for the rollout of smart grids in each case. The frequent outages in the US electricity system, usually caused by aging infrastructure, have motivated the substitution of the conventional grid with smart grids.58 China’s main preoccupation

53. Int’l Energy Agency, 2017. Perspectives for the Energy Transition: Investment Needs for a Low-Carbon Energy System. 54. Id. at p. 3. 55. Verbong, G.P., Beemsterboer, S., Sengers, F., 2013. Smart Grids or Smart Users?: Involving Users in Developing a Low Carbon Electricity Economy, 52 Energy Pol’y 117, 123. 56. Id. 57. See generally Int’l Trade Admin., 2017. Smart Grid Top Markets Report Update, January 2017. 58. Preventing Blackouts: Building a Smarter Power Grid, Sci. Am. (Aug. 14, 2017), https:// www.scientificamerican.com/article/preventing-blackouts-power-grid/.

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has been with air quality and pollution.59 Smart grids have been part of the answer to this environmental question. The EU is set to proceed with the large-scale rollout of smart grids to fight climate change and improve energy efficiency to hit climate and energy goals set for the next several decades.60 In this context, smart grids are not per se climate policy instruments, but speak to a wider set of goals.61 As Eid, Hakvoort, and de Jong put it, the way power markets evolve depends on “the innovators’ and designers’ imagination producing market designs and outcomes better aligned with their political and value preferences.”62

1.2.3

The operation of prosumer markets

From the 1990s onwards, the EU electricity sector underwent a transition from vertically organized electricity companies that controlled production, transmission, distribution, and supply activities, to the unbundling of these services.63 Transmission system operators (TSOs)64 were responsible only 59. As a result, China has been very active in climate action in recent years and intends to do so in years to come. See, for instance, China’s ambition to spend over $360 bill on renewables by 2020. Forsythe, M., China Aims to Spend $360 billion on Renewable Energy by 2020, N.Y. Times (Jan. 5, 2017), https://www.nytimes.com/2017/01/05/world/asia/china-renewable-energyinvestment.html?mcubz 5 0; on wind energy, China’s investment has been remarkable, see Evans, S., Mapped: How China Dominates the Global Wind Energy Market, Carbon Brief (Apr. 19, 2016), https://www.carbonbrief.org/mapped-how-china-dominates-the-global-wind-energymarket; see also Lacey, S., China Adds More than 5GW of Solar PV Capacity in the First Quarter of 2015, Green Tech Media (Apr. 21, 2015), https://www.greentechmedia.com/articles/ read/china-adds-more-than-5gw-of-solar-pv-capacity-in-the-first-quarter-of-2015#gs.pgeEFKg. On solar energy, in 2017 China opened the world’s largest floating solar plant, see Brandon, S., China Just Switched on the World’s Largest Floating Solar Power Plant, We Forum (June 2, 2017), https://www.weforum.org/agenda/2017/06/china-worlds-largest-floating-solar-power/, and built a 250-acre solar farm shaped like a giant panda, see Garfield, L., China Just Built a 250acre Solar Farm Shaped Like a Giant Panda, Sci. Alert (July 6, 2017), http://www.sciencealert. com/china-just-built-a-250-acre-solar-farm-shaped-like-a-giant-panda. 60. Eid, C., Hakvoort, R., de Jong, M., 2016. Global Trends in the Political Economy of Smart Grids: A Tailored Perspective on ’Smart’ for Grids in Transition, 1 19 (United Nations University World Institute for Development Economics Research Working Paper 2016/22). 61. See id. 62. Bressand, A., 2013. The role of markets and investment in global energy. In: Goldthau, A. (Ed.) The Handbook of Global Energy Policy, 15, p. 25. 63. Understanding Electricity Markets in the EU, European Parliament (Nov. 2016), http://www. europarl.europa.eu/RegData/etudes/BRIE/2016/593519/EPRS_BRI%282016%29593519_EN.pdf. 64. A Transmission System Operator (TSO) can be defined as a natural or legal person responsible for operating, ensuring the maintenance of and, if necessary, developing the transmission system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity. See Parliament and Council Directive 2009/73/EC, Concerning Common Rules for the Internal Market in Natural Gas, art. 2(4), 2009 O.J. (L 211) 94, and Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity, art. 2 (4), 2009 O.J. (L 211) 55.

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for the balancing of the load and its transmission from large electricity production plants at high voltage levels. From there, distribution system operators (DSOs)65 distributed electricity to every corner. As we move to an electricity sector comprised multiple large and small producers, virtual power plants (VPPs), and decentralized energy production, the role, rationale for, and competences of the TSOs remain mired in uncertainty. DSOs, on the other hand, seem well-placed in the new energy setting. Indeed, according to the European Commission’s proposed internal electricity market directive, their role will be significantly enhanced, principally when it comes to coordinating and managing the energy produced by the new decentralized energy producers.66 DSOs are anticipated to absorb the energy thus produced, manage the load, and efficiently distribute electricity to households, and corporate premises.67 The digitalization of services through advanced metering infrastructure (AMI) will massively facilitate their upgraded role.68 This being the case, one could anticipate the TSOs’ reaction and their pledge for a place in the sun. This potential friction raises questions as to how the competences of the new actors are going to be divided in the new energy landscape.69 Energy policy goals and correspondingly relevant national jurisdictions will play a pivotal role in moving the transition forward. Top-down, bottomup, and hybrid (both top-down and bottom-up)70 energy policy blueprints mandate variable leeway for different actors across the energy chain. Some aspects can be legally binding and perhaps commissioned to specific market players 65. A Distribution System Operator (DSO) can be defined as a natural or legal person responsible for operating, ensuring the maintenance of and, if necessary, developing the distribution system in a given area and, where applicable, its interconnections with other systems and for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity or gas. See Parliament and Council Directive 2009/73/EC, Concerning Common Rules for the Internal Market in Natural Gas, art. 2(6), 2009 O.J. (L 211) 94, and Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity, art. 2(6), 2009 O.J. (L 211) 55. 66. Commission Proposal for a Directive of the European Parliament and of the Council on Common Rules for the Internal Market in Electricity, at 68, COM (2016) 864 final (Feb. 23, 2017). 67. See id. 68. Commission Proposal for a Regulation of the European Parliament and of the Council on the Internal Market for Electricity, COM (2016) 861 final (Nov. 30, 2016). 69. See id. 70. A top-down approach to a problem is a situation that begins at the highest conceptual level and works down to the details. An example of such an approach would be where targets are set out at the international level and must be attained through national policies and measures. A bottom-up approach to a problem is one that begins with details and works up to the highest conceptual level. An example of such an approach would be where action starts at the national level based on each country’s circumstances through a patchwork of national policies and measures (which are not necessarily binding) until they develop into unified policies at the international plane.

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(e.g., smart meter rollouts). Another energy policy goal would be allowing utilities, DSOs, and consumers to decide the ways, and pace at which, they move forward. For now, a hybrid model seems to be emerging. In this architecture, climate goals have been set at the higher governance level but the smart grid transition is carried out at the lower governance level. For example, environmental targets are set out by supranational instruments such as the 2020 Climate and Energy Package,71 whereas the deployment of smart meters is effectively carried out on a national basis. Thus certain EU Member States such as Spain are already well on their way to hit a 100% smart meter rollout.72 Conversely, other EU Member States such as the Czech Republic and Portugal have foregone replacing conventional meters with smart metering systems due to economic reasons.73 Such stances are in accordance with the EU law principle of subsidiarity, according to which Member States are given the discretion to decide for themselves how they are going to reach the goals mutually agreed upon at the top EU political level.74 The previous reform of the electricity markets carries its important heritage to today’s transition. Unbundling75 has taken place in different ways in the various Member States.76 In cases where legal unbundling took place, corporate links between the generation and distribution network companies, although they constitute two different legal entities, may well be maintained. This will create benefits to actors in the retail market. This is not the case in ownership unbundling, where the generation and network companies are fully separated. A level-playing field is indispensable if we are to avoid privileging certain actors vis-a`-vis others.77 The specific market conditions also impact the pace and scale of investments. For example, market players with dominant market shares naturally prioritize retaining their central position, rather than investing in new

71. These environmental targets aim to (1) reduce greenhouse gas (GHG) emissions by 20%, (2) reach 20% of renewable energy in the total energy consumption in the EU, and (3) increase energy efficiency to save 20% of EU energy consumption, all by 2020. See 2020 Climate and Energy Package, European Comm’n (Sept. 9, 2017), https://ec.europa.eu/clima/policies/strategies/2020_en. 72. Comisio´n Nacional de los Mercados y la Competencia, 2017. El 62% de los Contadores Analo´gicos ya han sido Sustituidos por Contadores Inteligentes, Nota de Prensa 1. 73. Commission Report on Benchmarking Smart Metering Deployment in the EU-27 with a Focus on Electricity, at 4, COM (2014) 356 final (June 17, 2014). 74. Eid, Hakvoort, & de Jong, supra note 60, at p. 10. 75. Ownership unbundling is the “process by which a large company with several different lines of business retains one or more core businesses and sells off the remaining assets, product/service lines, divisions, or subsidiaries. Unbundling is done for a variety of reasons, but the goal is always to create a better performing company or companies.” See Unbundling, Investopedia, http://www.investopedia.com/terms/u/unbundling.asp. 76. Understanding Electricity Markets in the EU, European Parliament (Nov. 2016), http://www. europarl.europa.eu/RegData/etudes/BRIE/2016/593519/EPRS_BRI%282016%29593519_EN.pdf. 77. Id. at p. 9.

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network infrastructure and smart grid rollouts, as the benefits that will accrue are unlikely to match the costs of reduced revenues resulting from a lessened market share.78 On the other hand, investments are very pertinent not only in consideration of existing legislation but also for tackling and anticipating market competition. In this context, DSOs are keen to invest in AMI.79 Private investors can find a niche investing in control boxes downstream from the meter. A significant caveat is that private investment can render customers captive in light of the long contractual lead times that are imposed so that costs are recovered.80 This in itself obstructs competition. Such issues must be seriously considered when designating the new regulatory framework for smart grid deployment. Waiting games are also typical corporate tactics that should be anticipated and treated appropriately, since existing market power determines future over- or under-investment plans.81 In this new energy landscape, opportunities are opening for new energy actors as well. One such type is energy aggregators. The rationale for their emergence is to provide flexibility and join the Balancing Responsible Parties (BRPs)82 in what will be a much more variable corporate electricity landscape. Such a role can also be taken up by incumbents. In the new market, however, flexibility services and packages will be crucial, and hence there seems to be much space for new corporate actors, services, and associated innovation. These services revolve around collecting decentralized prosumers’ savings and energy generation and selling it back to utilities and BRPs in the form of “flexibility packages.”83 Yet, another type of actors to emerge may be small storage providers. These can store the energy they have produced (in batteries or EVs, for instance) and resell it for a high premium in a market in dire need of flexibility, backup capacity, and last resort solutions. Such services can be developed at the community, district, or neighborhood level. In this case, the emergence of energy cooperatives may take shape. Integrated energy services companies are the key to the new electricity market.84 At an even lower level, individuals, households, and energy cooperatives can become energy actors themselves. They can sell the energy they produce or conserve to utilities and/or aggregators. Both flexibility and network 78. Donoso, J., 2016. Self-Consumption Regulation in Europe, 149 Energetica Int’l 37. 79. EDSO, 2014. European Distributed System Operator for Smart Grids. 80. Clastres, C., 2011. Smart Grids: Another Step Towards Competition, Energy Security and Climate Change Objectives, 39 Energy Pol’y 5399. 81. See id. 82. Balance Responsible Party (BRP) can be defined as a market participant or its chosen representative responsible for its imbalances in the electricity market. See Proposal for a Regulation of the European Parliament and of the Council on the Internal Market for Electricity, at 38, COM (2016) 861 final (Nov. 30, 2016). 83. For further details on prosumers, see Leal-Arcas & Proedrou, supra note 5. 84. Boscan, L., Poudineh, R., 2016. Flexibility-Enabling Contracts in Electricity Markets 2.

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optimization are achieved in this way. Distributed energy resources and storage facilities are central to the energy transition.85 Whether storage capacity will be incorporated successfully in smart grids will be critical to their eventual performance. Leaving aside the contested debate over the likelihood of success, storage capacity will tackle peak consumption, reduce system-wide generation costs, and minimize network congestions, thereby optimizing the operation of the electricity network.86 EVs are a storage capacity option that is also highly contested.87 Charging infrastructure costs, logistics, and issues regarding charging time and efficiency for both the vehicle and the grid must still be resolved. Nevertheless, EVs have the potential to decarbonize the transport sector. This would represent a huge leap forward in meeting the EU’s climate targets and contributing to climate change mitigation.88 The development of prosumer markets is based on two pillars. The first regards hardware (infrastructure); the other concerns software (the associated legislation and regulation). In this vein, the European Commission made a handful of important steps forward. First, it recognized consumers’ right to self-consumption. This will lead to all national jurisdictions gradually embracing self-consumption. Moreover, prosumers are explicitly encouraged to sell their energy surplus to other energy actors, adding in this way to the energy market’s resilience and becoming active stakeholders in the energy transition.89 Second, the European Commission explicitly referred to energy communities, granting the right to prosumers to group together and join the market.90 Finally, the European Commission strongly recommended advancing energy performance-related information as well as information regarding the sources of district heating and cooling systems. This will further empower prosumers and energy communities to improve their energy performance (including production consumption and trading). In addition, the 85. Proposal for a Directive of the European Parliament and of the Council on the Promotion of the Use of Energy from Renewable Sources, COM (2016) 767 final (Feb. 23, 2017). 86. Eid, Hakvoort, & de Jong, supra note 60, at 3. 87. Shahan, Z., Tesla CTO JB Straubel On Why EVs Selling Electricity To The Grid Is Not As Swell As It Sounds, Clean Technica (Aug. 22, 2016), https://cleantechnica.com/2016/08/22/vehicle-to-grid-used-ev-batteries-grid-storage/. 88. Int’l Energy Agency, 2016. World Energy Outlook 3 5, https://www.iea.org/publications/ freepublications/publication/WorldEnergyOutlook2016ExecutiveSummaryEnglish.pdf. 89. European Parliament, Electricity “Prosumers” (Nov. 2016), http://www.europarl.europa.eu/ RegData/etudes/BRIE/2016/593518/EPRS_BRI%282016%29593518_EN.pdf. 90. See Commission Proposal for a Directive of the European Parliament and of the Council on Common Rules for the Internal Market in Electricity, COM (2016) 864 final (Feb. 23, 2017). The proposal defines the concept of local energy community as “an association, a cooperative, a partnership, a nonprofit organization or other legal entity which is effectively controlled by local shareholders or members, generally value rather than profit-driven, involved in distributed generation and in performing activities of a distribution system operator, supplier or aggregator at local level, including across borders.” Id. at 52.

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quality of information that consumers obtain will come under the scrutiny of regulatory authorities. This also includes the refinement of the Guarantees of Origin system for energy resources.91 The advent of prosumer markets entails the commercialization, rationalization, and economization of consumer behavior. Through demand response, the European Commission expects prosumers to take full control of their energy usage. Prosumers will be able to adjust their patterns and be economical and efficient. The inflow of relevant information will allow them to adjust, conserve, and choose flexible contracts. Switching off unnecessary appliances or turning down the thermostat at peak hours not only provides monetary benefits but also contributes to balancing the grid. Conversely, consumers are incentivized to use electricity when it is cheap (e.g., doing the laundry at late hours).92 Smart applications can substantially enhance energy efficiency. Instructing the washing machine to wash the clothes at the lowest price of electricity during the day can lead to optimal results for both the consumer and the grid. Dynamic price contracts are also a useful tool for demand management. Based on their consumption patterns, consumers are encouraged to negotiate suitable contracts with electricity suppliers. From the side of utilities, welltargeted, flexible contracts should increasingly become part of their corporate strategy to cater to customers’ individualized needs. Competition forces can work well in this sector and lead to a wave of easily adjustable contracts. Moreover, a number of pricing mechanisms (e.g., real-time pricing, timeof-use pricing, critical-time pricing, and variable peak pricing) can also be put to good use. They not only reflect market fundamentals but also render consumers more aware of price variations according to market dynamics.93 Thus last resort solutions like load-shedding and self-rationing can be altogether abandoned. However, dynamic pricing contracts entail several difficulties. It is hard for utilities to create spot-on abstract models of “representative agents,” taking the heterogeneity in the energy use patterns of different consumers into account.94 Devising effective contracts is also challenging from the supply side, since different utilities face different costs in the energy they buy to respond to their customers’ needs. This is especially true when it comes to buying flexibility packages themselves. It is natural then to anticipate that they may remain averse to making even more sophisticated contracts.95

91. Commission Proposal for a Directive of the European Parliament and of the Council on the Promotion of the Use of Energy from Renewable Sources, COM (2016) 767 final (Feb.23, 2017). 92. See id. 93. Rodr´ıguez-Molina, J., et al., 2014. Business Models in the Smart Grid: Challenges, Opportunities and Proposals for Prosumer Profitability, 7 Energies 6142, 6142 6171. 94. Boscan, L., Poudineh, R., 2016. Flexibility-Enabling Contracts in Electricity Markets 10. 95. See id.

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An important aspect of the deployment of smart grids lies in revisiting the philosophy behind their functioning rather than borrowing the one underpinning the functioning of the conventional grid. The conventional grid has been premised on the worst-case dispatch philosophy.96 With the supply side being a priori known, utilities focused their efforts on balancing it every second with demand. The danger lay in an imbalance occurring either due to a supply disruption (e.g., an accident in a generation plant) or an unpredictable surge in electricity demand (e.g., a heat wave). To avert such mishaps, utilities retained large reserve capacity to ensure that electricity dispatch would still be possible when demand exceeded predictions or supply was decreased. Such a policy was neither sustainable nor cheap but at least hedged against the danger of power cuts and load-shedding.97 These principles and rationale are unsuitable for smart grids. The dynamic nature of both supply and demand in the new electricity landscape calls for a new philosophy.98 The increase of intermittent solar and wind energy, the lack of storage capacity as of now, the development of microgrids, the increased variability regarding consumer preferences, and the way consumers will operate smart appliances result in increased uncertainty in both supply and demand. Smart meters, sensors, and demand response mechanisms can mediate and manage the variability and unpredictability of power markets by providing both mechanisms for controlling energy use and precise information on the state of the power system and the supply-demand equilibrium.99 It is thus essential to redefine the risks in the operation of the power markets and their management. What is considered acceptable risk now must be adjusted to the new operating conditions of smart grids and power markets. The demand response of all consumers will need to be factored into a probabilistic demand curve, which will be analogous to the generation availability curve of intermittent renewable energy.100 The focus will continually be on the movements in the net load, the difference between aggregate demand (load) and variable generation. The capacity, ramp rate, duration, and lead time for increasing or decreasing supply will have to be factored into such analyses as well, to optimize the smart grids’ responses to the fluctuating supply-demand dynamics.101 Finally, it is necessary to integrate cross-border markets and capacity into risk management analysis. The EU has managed to establish a functional

96. Varaiya, P.P., Wu, F.F., Bialek, J.W., 2010. Smart Operation of Smart Grid: Risk-Limiting Dispatch, 99 Proc. Inst. Electronic & Electrical Engineers 40, 40 57. 97. See id. 98. Boscan & Poudineh, supra note 94, at 10. 99. See id. 100. Varaiya, Wu, & Bialek, supra note 96, at 40 57. 101. Boscan & Poudineh, supra note 94, at 10.

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cross-border power market through its day-ahead market with many national markets now coupled.102 This has been instrumental in fomenting price competition, providing further leverage for load balancing, optimizing backup capacity, and increasing resilience.103 A handful of physical barriers such as congestion, lack of transmission capacity, and/or underutilization remain, leading to suboptimal transmission returns and hub market differentials.104 These block, rather than enhance, cross-border trade. A further step regards the extension of such schemes into Energy Community members that are not EU members as well as to neighboring states outside the Energy Community. A more critical challenge regards the adjustment of the crossborder market to the new reality of “real-time” intra-day trade.105

1.2.4

Smart grids and energy security106

The transition to low-carbon energy systems is the crucial political economy issue for the EU, as it stands in the nexus of energy, politics, and markets. With power markets developing into dynamic energy system integrators, smart grids emerge as the most suitable structures to help the EU achieve its three principal energy security goals (sustainability, security of supply, and affordability). Smart grids are power networks that utilize two-flow transmission of information to maximize the balancing capacity of the system and achieve optimal electricity transmission and services.107 In doing so, they provide resilience vis-a`-vis supply-demand disequilibria and power outages. Moreover, they also create new markets and commodities.108 Smart grids therefore impact the electricity industry and carry the potential to “smarten” houses and all kinds of premises in terms of energy use and efficiency.109 Smart grids integrate renewable sources at the upstream level, advance overall renewable generation, including self-generation, enable energy efficiency and conservation, promise to achieve low-carbon energy security, and hedge against the volatility of international energy markets. On the other hand, the establishment of smart grids requires high upfront investment costs 102. Int’l Energy Agency, 2016. Energy Policies of IEA Countries: Belgium, 2016 Review. 103. See id. 104. Boscan & Poudineh, supra note 94, at 10. 105. See id.; Buchan & Keay, 2016. EU Energy Policy—4th Time Lucky?, Oxford Institute for Energy Studies. 106. This section draws from Proedrou, supra note 50. 107. Varaiya, Wu, & Bialek, supra note 96, at 40 57; Eid, Hakvoort, & de Jong, supra note 60, at 1 19. 108. Clastres, C., 2011. Smart Grids: Another Step Towards Competition, Energy Security and Climate Change Objectives, 39 Energy Pol’y 5399, 5399 5408. 109. Wissner, M., 2011. The Smart Grid—A Saucerful of Secrets?, 88 Applied Energy 2509, 2509 2518.

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and the creation of operational markets to promote the understanding of smart grids and their benefits as well as an assortment of incentives for their optimal utilization. Demand response management is key in this process. For decades, EU energy policy has been preoccupied with a number of issues, including threats of supply cuts, diversification schemes, mitigation of dependence on external producers, fluctuating prices, and providing dynamic responses to a warming planet.110 The deliberations around the establishment of an Energy Union naturally focus on these aspects in an effort to effectively provide security of supply, integrate the energy market, enhance demand-side policies, ensure decarbonization of the economy, and further research and innovation.111 Interestingly, the European Commission has been calling for a paradigm shift. This focuses on placing EU citizens at the heart of energy security by means of self-consumption, distributed generation, and the creation of prosumers’ markets and local energy communities.112 Such far-reaching developments could also bring about uncertainty in energy production and consumption. Hence, it is imperative to create mechanisms that will ensure the optimal balance of the electricity load at all times.

1.2.4.1 Sustainability prospects Advantages Smart grids play a decisive role in the proliferation of indigenous renewable energy generation. Priority dispatch mechanisms ensure that RES enter the grid.113 High-efficiency photovoltaics installations bear the highest energy return factor as well as the largest life-cycle carbon emissions offsets, assuming that land availability is not an issue.114 Consequently, the integration of Information and Communications Technologies (ICT) systems into the network would only serve to augment the efficiency and benefits of RES.

110. Helm, D., 2014. The European Framework for Energy and Climate, 64 Energy Pol’y 2929, 2929 2935. 111. Szulecki, K., et al., 2016. Shaping the “Energy Union”: Between National Positions and Governance Innovation in EU energy and Climate Policy, 16 Climate Pol’y 548, 548 567; Sidi, M., 2016. The EU’s Energy Union: A Sustainable Path to Energy Security?, 51 Int’l Spectator 131, 131 144. 112. Commission Proposes New Rules for Consumer Centred Clean Energy Transition, European Comm’n (Nov. 30 2016), https://ec.europa.eu/energy/en/news/commission-proposesnew-rules-consumer-centred-clean-energy-transition. 113. Jansen, J., van der Welle, A., 2013. The role of regulation in integrating renewable energy: The EU electricity Sector. In: Goldthau, A. (Ed.) The Handbook of Global Energy Policy 322, p. 327. 114. Halasah, S.A., Pearlmutter, D., Feuermann, D., 2013. Field Installation Versus Local Integration of Photovoltaic Systems and Their Effect on Energy Evaluation Metrics, 52 Energy Pol’y 462, 462 471.

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It is a well-known fact that development leads to increasing per capita energy consumption. The introduction of digital technology is promising since it will enable European consumers to be aware of, adjust, and optimize their energy consumption.115 Therefore one can reasonably anticipate that energy consumption will be rationalized and reduced. Smart meters convey all the information regarding supply, demand, transmission, and real-time consumption so that prosumers can consume energy in an optimal manner.116 Additional AMI, such as in-home automation and in-home displays, will serve the same goals.117 The use of sensors by utilities so that voltage at the consumers’ end remains low also results in optimized energy conservation.118 Smart grids are a striking development in that they provide consumers with the possibility of generating energy themselves. This will lead to an exponential increase in overall renewable energy production. Together with the anticipated increase in energy savings and efficiency, this can translate into a significant reduction of oil and gas imports. Belgium features here is an excellent case in point. Enhanced incentives119 for the installation of solar panels have rendered private households producers of their own energy. This releases pressure from the grid and supplies renewable energy to it.120 The architecture of smart grids allows the creation of local energy communities by means of distributed generation (micro-generation). In turn, distributed generation reduces the associated costs of investment in new traditional large power generation plants. Moreover, energy can also be consumed at the point of its production. This minimizes not only leakages but also logistical problems. Another effect of self-consumption and distributed generation is that they release pressure from the transmission grid and effectively prioritize the use of renewable energy.121 In this context, the European Commission has been encouraged to propose the escalation of the EU’s energy efficiency target for 2030 from 27% to 30%.122

115. Jones, K.B., Zoppo, D., 2014. A Smarter, Greener Grid, Forging Environmental Progress through Smart Policies and Technologies 7. 116. Wissner, supra note 109; Depuru, S.S.S.R., et al., 2011. Smart Meters for Power Grid Challenges, Issues, Advantages and Status, 15 Renewable & Sustainable Energy Reviews 2736, 2736 2742. 117. Eid, Hakvoort, & de Jong, supra note 60. 118. Jones & Zoppo, supra note 115. 119. Masson, G., Briano, J.I., Baez, M.J., 2016. Int’l Energy Agency, Review and Analysis of PV Self-Consumption Policies 13. 120. Id. 121. Brown, M.A., Sovacool, B.K., 2011. Climate Change and Global Energy Security: Technology and Policy Options 22; Jones & Zoppo, supra note 115, at 7. 122. Commission Proposes New Rules for Consumer Centred Clean Energy Transition, European Comm’n (Nov. 30 2016), https://ec.europa.eu/energy/en/news/commission-proposesnew-rules-consumer-centred-clean-energy-transition.

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Increased production of renewable energy, self-consumption, and distributed generation can substantially clean the mix and dwindle imports of fossil fuels.123 A recent study has convincingly shown that: Utilizing existing infrastructure such as existing building roofs and shade structures does significantly reduce the embodied energy requirements (by 20% 40%) and in turn the EPBT [energy pay-back time] of flat-plate PV systems due to the avoidance of energy-intensive balance of systems (BOS) components like foundations. . . [while] a greater life-cycle energy return and carbon offset per unit land area is yielded by locally-integrated nonconcentrating systems, despite their lower efficiency per unit module area.124

The increase of renewable energy generation and the need to continually balance the electricity load raise the issue of storage. EVs that can be plugged into the grid and serve as batteries hold high promise for extending the benefits of the electricity sector to transportation, a sector that accounts for a significant percentage of total EU carbon emissions.125 Risks and challenges ahead Smart grids and their full-scale rollout face important challenges. The further electrification of consumption systems with a view to promoting energy efficiency may lead to higher energy consumption. Indeed, requiring less energy for one function or service does not necessarily lead to lower overall energy usage. For instance, a “smart” household using an EV with a fast charging point might find that, owing to the high voltage requirements of the EV’s fast-charger, its net consumption is still relatively high. This may be so despite having technology to help reduce its everyday consumption. Hence, energy efficiency as an end in and of itself is not enough to lower energy consumption. Additional policies and market support measures are required if this goal is to be achieved.126 Furthermore, electricity markets and their regulation have failed to catch up with the pace of renewable energy production. It is surprising that Greece and Spain, two Mediterranean countries that enjoy substantial solar irradiance, have only recently established a regulatory framework for selfconsumption. Spain did so in 2015, whereas Greece did so previously, in 123. Lehman, P., Gawel, E., 2013. Why Should Support Schemes for Renewable Electricity Complement the EU Emissions Trading Scheme?, 52 Energy Pol’y 597, 603. 124. Halasah, Pearlmutter, & Feuermann, supra note 114. 125. Id. at 117; Ruester,S., et al., 2014. From Distribution Networks to Smart Distribution Systems: Rethinking the Regulation of European Electricity DSOs, 31 Utilities Pol’y 229, 229 237. 126. Verbong, et al., supra note 55.

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2014.127 Even if this constitutes a positive step, it hardly balances the priority given to larger solar and wind parks via financial mechanisms.128 Conversely, the regulation and policies in place fail to promote selfconsumption. In Spain, small-scale investors must pay an obscure tax, dubbed “tax on the sun,” to be allowed to carry out these activities.129 On top of that, the most common type of self-consumer is not entitled to any remuneration should they wish to export their electricity surplus to the domestic grid.130 As a result, such self-consumers have no incentive to do so. Efforts to encourage a cleaner energy mix and lower emissions are hampered by such provisions.131 In other Member States, such as Belgium and Germany, self-consumers are charged for exporting electricity to the national grid.132 Such policies represent a substantial disincentive for promoting clean energy production.133 What is more, RES were not used due to the network’s failure to accommodate the energy produced.134 MicroLNG grids135 have emerged as the first significant market response and challenge to renewable energy-run smart grids. Micro-LNG grids can surpass conventional smart grids because they feature the critical advantage of storage capacity.136 For now, Member States maintain backup capacity through capacity mechanisms, which allow coal and gas-fired plants to operate and provide energy when needed. These constitute a backdoor to the perpetuation of 127. Royal Decree 900/2015 on Self-Consumption, Int’l Energy Agency (last modified May 10, 2017), https://www.iea.org/policiesandmeasures/pams/spain/name-152980-en.php; Net-Metering (Law No.3468/2006 amended by Law No. 4203/2013), Res Legal (Feb. 24, 2017), http://www.reslegal.eu/search-by-country/greece/single/s/res-e/t/promotion/aid/net-metering-law-no34682006amended-by-law-no42032013/lastp/139/. 128. Masson, et al., supra note 119. 129. Tsagas, I., Spain Approves ’Sun Tax,’ Discriminates Against Solar PV, Renewable Energy World (Oct. 23, 2015), http://www.renewableenergyworld.com/articles/2015/10/spain-approvessun-tax-discriminates-against-solar-pv.html. 130. Prol, J.L., Steininger, K., 2017. Photovoltaic Self-Consumption Regulation in Spain: Profitability Analysis and Alternative Regulation Schemes, 108 Energy Pol’y 742, 743 754. 131. Galanova, M., Spain’s Sunshine Toll: Row Over Proposed Solar Tax, BBC (Oct. 7, 2013), http://www.bbc.co.uk/news/business-24272061. 132. European Environment Agency, 2014. Country Profile- Belgium: Energy Support 2005 2012. 133. Id. 134. Wissner, supra note 109; Eid, Hakvoort, & de Jong, supra note 60. 135. A microgrid is a small-scale power grid that can operate independently or in conjunction with the area’s main electrical grid. Any small-scale localized station with its own power resources, generation and loads and definable boundaries qualifies as a microgrid. See Microgrid, Whatls.com, http://whatis.techtarget.com/definition/microgrid. 136. Siemens Rolls Out Micro-LNG in the US, Natural Gas World (Jan. 20, 2017), https://www. naturalgasworld.com/siemens-rolls-out-micro-lng-in-us-35447?utm_medium 5 email&utm_ campaign 5 Natural%20Gas%20World%20Newsletter%20January%2019%202017&utm_ content 5 Natural%20Gas%20World%20Newsletter%20January%2019% 202017 1 CID_3075bf421815cdc13fa0d66.

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energy derived from fossil fuels throughout the energy transition.137 In particular, the EU has legislated that all new generation plants launched from 2020 onwards as well as every generation plant after 2025 will have to comply with an emission performance standard of 550 g/kWh to be included in the capacity mechanism.138 Modern gas plants meet this threshold.139 Coalfired plants are also likely to meet it if they follow appropriate carbon abatement techniques.140 These numbers contrast sharply with the IEA’s projected carbon intensity of electricity generation, which brings performance standards to 335 g in the baseline scenario and to only 80 g by 2040 in the most optimistic deep decarbonization scenario (in comparison with 515 g today).141 The more prices remain at reasonable levels, the more reliance on fossil fuel plants decreases. This entails a greener energy mix and the reduction of CO2 emissions.142 In this context, one should also anticipate the fossil industry’s resistance to the substitution of the capacity mechanism with a profusion of other schemes, such as clean energy storage capacity (including EVs and batteries), cross-border functional interconnections, and marketbased real-time congestion management.143 While the transition to clean energy has discouraged oil and gas imports, it has brought about an increase in coal use.144 Germany’s Energiewende145 is a good case in point.146 More generally, the electrification of the energy sector means that the sources feeding it become even more significant for climate change mitigation. In this context, electric heating makes sense if it is powered by sun and wind rather than coal. The same holds true for the transport sector. While petrol emissions are significant, emissions from coal-fired electric cars will be even more harmful to the environment.147 137. Eid, Hakvoort, & de Jong, supra note 60. 138. Buchan & Keay, supra note 105, at 7. 139. Id. 140. Id. 141. Int’l Energy Agency, 2016. World Energy Outlook 4, https://www.iea.org/publications/freepublications/publication/WorldEnergyOutlook2016ExecutiveSummaryEnglish.pdf 142. Commission Proposes New Rules for Consumer Centred Clean Energy Transition, European Comm’n (Nov. 30 2016), https://ec.europa.eu/energy/en/news/commission-proposesnew-rules-consumer-centred-clean-energy-transition. 143. Varaiya, Wu, & Bialek, supra note 96, at 40 57; Boscan & Poudineh, supra note 94, at 2. 144. However, see the views by Tom Randall on coal’s prognosis, Randall, T., The Latest Sign that Coal is Getting Killed, Bloomberg (July 13, 2015), https://www.bloomberg.com/news/articles/2015-07-13/the-latest-sign-that-coal-is-getting-killed. 145. The concept of Energiewende describes Germany’s efforts to move away from fossil fuels and nuclear power by promoting renewable energy instead, while remaining a major industrial power. See Buchan, D., 2012. The Energiewende—Germany’s Gamble, 1, The Oxford Institute for Energy Studies. 146. Renn, O., Marshall, J.P., 2016. Coal, nuclear and renewable energy policies in Germany: From the 1950s to the “Energiewnde”, 99 Energy Pol’y 224, 224 232. 147. Bressand, supra note 62, at 23.

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This brings us to the fundamental importance of policy to prioritize clean energy and foster green smart grids. Two instruments that enhance renewable generation have come under criticism. The first is the RES-E (Electricity from Renewable Energy Sources) scheme that subsidizes renewable energy generation in the form of either feed-in tariffs or premiums.148 The second is the RES dispatch priority mechanism.149 The main argument underpinning their censure is that these schemes unwittingly favor the least competitive forms of energy generation, compromising other, sounder investments, and increasing the bill.150 The situation in the United Kingdom illustrates this trend. Criticisms to feed-in tariffs have led to revised tariff rates that are projected to yield lower returns, especially compared to those in other EU Member States. Accordingly, the likelihood of depressed investments in renewable generation seem rather high.151 On the other hand, smart grids have the potential to render renewable energy more profitable through proper energy management, which should result in energy conservation.152 Smart grids are very promising but may also impinge on the three main dimensions of energy security (sustainability, security of supply, and affordability in accordance with the vision of the Energy Union).153 Another argument against subsidy schemes for renewable energy derives from the existence of the Emissions Trading System (ETS). The ETS is supposed to deliver on the climate front and thus renders renewable energy feed-in tariffs redundant. However, the ETS addresses climate policy goals appropriately only under determined circumstances which hardly apply in practice. First, energy technology choices are distorted by market and policy failures, which tilt the advantage toward business-as-usual solutions rather than facilitating the emergence of new technologies (such as distributed generation, smart meters, blockchain technologies, storage facilities, and EVs) in the electricity system. Subsidies on renewables can be understood as mechanisms to counter distortions that perpetuate technological lock-in. 148. Muhammad-Sukki, F., et al., 2013. Revised Feed-in-Tariff for Solar Photovoltaic in the United Kingdom: A Cloudy Future Ahead?, 52 Energy Pol’y 832. 149. Id. Priority dispatch is the obligation on TSOs to schedule and dispatch energy from renewable generators ahead of other generators as far as secure operation of the electricity system permits. The purpose of Priority Dispatch is to further the objective of the integration of renewable energy into the electricity system to promote sustainability and security of supply for Europe. See European Wind Energy Ass’n, 2013. EWEA Position Paper on Priority Dispatch of Wind Power. 150. Muhammad-Sukki, et al., supra note 148. 151. Id. 152. Varaiya, Wu, & Bialek, supra note 96. 153. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank on a Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy, COM (2015) 80 final (Feb. 25, 2015).

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Feed-in tariffs increase the availability of renewable energy, allowing stricter caps to be set in the ETS. Second, subsidies on renewables have the potential to reach other goals beyond climate change mitigation such as achieving renewable energy targets, gleaning other environmental benefits, improving air quality, strengthening security of supply, and boosting industrial policy and economic competitiveness.154 Contemporary emphasis on extensive gas infrastructure clashes with the EU’s agenda on smart grid deployment. This friction can generate profound lock-in effects by obstructing a faster transition to low-carbon energy systems.155 The fact that half of the funding of the Connecting Europe Facility scheme is directed to two gas projects deemed to be of strategic importance is revealing of this dichotomy.156 The ongoing gas glut equips gas proponents with important arguments for its significance for the energy mix. Nevertheless, horizontal fracking constitutes a nocuous practice for the environment and produces higher emissions than conventional gas.157 The globalization of gas markets, facilitated by the shale revolution, meddles with global gas supply-demand equilibria. Such events are contributing to an increased gas import portfolio.

1.2.4.2 Strengthening supply security While smart grids’ impact on sustainability, energy efficiency, affordability, and competitiveness has been considerably examined, security of supply remains an unexplored topic in relevant academic debates.158 Advantages The new energy architecture with smart grids at the center aims at strengthening security of supply and the energy markets’ resilience. A mix of solar, wind, and other renewable sources constitutes a much more decisive 154. Id. at 603. 155. Raines, T., Tomlinson, S., Europe’s Energy Union: Foreign Policy Implications for Energy Security, Climate and Competitveness, Chatham House Royal Inst. Int’l Aff. (Mar. 31, 2016), https://www.chathamhouse.org/publication/europes-energy-union-foreign-policy-implicationsenergy-security-climate; Chignell, S., Gross, R.J.K., 2013. Not Locked-In? The Overlooked Impact of New Gas-Fired Generation Investment on Long-Term Decarbonisation in the UK, 52 Energy Pol’y 699. 156. EU Approves h444MN CEF Grants, Natural Gas World (Feb. 20, 2017), http://www.naturalgasworld.com/eu-approves-444mn-cef-grants-36013?utm_medium 5 email&utm_campaign 5 Natural%20Gas%20World%20Newsletter%20February%2021%202017%20-%20AM&utm_ content 5 Natural%20Gas%20World%20Newsletter%20February%2021%202017%20-% 20AM 1 CID_d023afdd8. 157. Victor, D.G., The Gas Promise 21 (Lab. on Int’l Law & Regulation Working Paper No. 7, 2013). 158. Boston, A., 2013. Delivering a Secure Electricity Supply on a Low Carbon, 52 Energy Pol’y 55; Lehman & Gawel, supra note 123, at 603.

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diversification policy than gas imports from alternative suppliers.159 The planned connection of EVs to smart grids can provide added resilience by enhancing congestion management.160 While the modern centralized electricity grid has been exposed to terrorist attacks, threatening physical security, the decentralized nature of smart grids makes any meaningful attack on energy infrastructure impossible.161 However, although the decentralized grid increases the level of resilience, it also increases the number of potential targets. Furthermore, new threats are emerging such as cyber and cyberphysical threats, targeting the massive use of ICT in network management. Energy poverty remains an urgent issue in the EU.162 Indeed, smart grids seem to be an ideal response to this problem. Self-consumption directly combats energy poverty at the root. Poor households can produce their energy and consume it rather than having to pay volatile prices. In introducing smart energy systems, EU Member States face a set of strategic choices. First, Member States can decide whether to embark on a “make” or “buy” choice. The first choice (“make”) refers to Member State’s ability to produce electricity itself. The second choice (“buy”) is importing energy supplies. If a Member State can produce its own energy, it eradicates any dependencies. Further, favoring energy that is generated nationally will cascade into much needed domestic investment and generate new employment. The “make” option entails higher costs, at least for most Member States. The “buy” option offers efficiency and flexibility but retains some dependencies to external suppliers. What is more, the “buy” option will burden national economies. Second, EU Member States can opt for a centralized or decentralized architecture of energy production. This requires Member States to: [d]ecide whether they prefer centrally or decentrally produced electricity and whether to rely on incumbent energy companies and grid operators or empower households and local communities with their own production and distribution networks (connected to the grid or not). If the distributed option is chosen, energy markets become locally oriented, likely to involve a mix of private and communal companies. This choice in generation capacity adds a strategic consideration within the make or buy context.163

An important caveat regards flexibility and whether the reversion of the initial decision is likely and possible in the “make” option. For Member States opting to produce their own energy, a centralized architecture is more flexible since it can accommodate reversion to the “buy” option in case the “make” option

159. Proedrou, supra note 34. 160. Ruester, et al., supra note 125. 161. Brown & Sovacool, supra note 121. 162. The Greens: European Free All., A Green Energy Union 3 (2015). 163. Scholten, D.J., Bosman, R., 2016. The Geopolitics of Renewable Energy: a Mere Shift or Landslide in Energy?, 103 Technological Forecasting & Soc. Change 273, 278.

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underperforms. This is so because central grids can be connected to grids of other countries and hence carry imported energy from the third countries. Importing energy is less functional and practical than producing it locally.164 The exact shape of smart grid deployment is significantly contextualized and contingent upon both local conditions and national regulation. A onesize-fits-all approach is unfeasible. In Greece, for example, geography plays a critical role in the energy security of the mainland on the one hand, and the myriad of islands on the other hand, calling for different treatment, as is reflected in Greece’s institutional energy structure and associated regulatory provisions.165 The existence of a big number of small islands in the Aegean Sea creates a strong rationale for autonomous energy generation since connection to the main grid is rather costly. Utilizing the rich potential of energy generation through strong winds and abundant solar irradiance could substantially boost indigenous energy generation.166 A smart grid architecture that interconnects the grids of several adjacent islands and then creates interconnection points for these different groups of islands, most probably on the basis of existing administrative divisions, could also provide for the appropriate scale as well as offer interconnectivity options necessary to ensure strong security of supply. Risks and challenges ahead The evolution of smart grids also presents formidable challenges. The load in the electricity networks must be continually balanced to store electricity surplus during low demand spells and release it when demand increases. This can be achieved in two ways: through the maintenance of the supply and demand balance via market mechanisms or by means of adequate storage capacity. The low-carbon transition has been based on the proliferation of solar and wind energy. Both are intermittent in nature, which means that one would need storage capacity, thus raising the issue of what happens at the times when they underperform.167 Moreover, it is necessary to have large empty areas to produce solar energy at a large scale, especially because solar energy is already competitive with fossil fuels in sunny places.168 As the 164. Id. at 279. 165. Regulatory Framework, HEDNO, http://www.deddie.gr/en/i-etaireia/ruthmistiko-plaisio. 166. Commission Staff Working Document: Best practices on Renewable Energy SelfConsumption at 3, SWD (2015) 141 final (July 15, 2015). 167. Fares, R., Renewable Energy Intermittency Explained: Challenges, Solutions, and Opportunities, Sci. Am. (Mar. 11, 2015), https://blogs.scientificamerican.com/plugged-in/renewable-energy-intermittency-explained-challenges-solutions-and-opportunities/. 168. See for instance the case of a floating solar farm in China, which is the largest in the world. Jason Daley, China Turns on the World’s Largest Floating Solar Farm, Smithsonian.com (June 7, 2017), http://www.smithsonianmag.com/smart-news/china-launches-largest-floating-solarfarm-180963587/. Other places where there would be potential for solar mega-farms would be the Arabian and Sahara deserts because there is a lot of sunlight and they are not cloudy.

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transition proceeds and renewable energy starts to play a central role in the energy mix, the continual supply-demand balancing is anticipated to take center stage. Sophisticated weather forecast tools will assist in predicting the supply side with increasing accuracy, thus providing benchmarks and minimizing uncertainties. These issues notwithstanding, in case of balancing failure, the result will be either load-shedding (in other words, a power cut) or increased electricity prices. Load-shedding amounts to a failure to provide supply security while increased electricity prices accentuate energy poverty and contravene the affordability goal.169 A concerted demand response management program is being developed to correct such mishaps in time and avert negative outcomes.170 Demand response management includes decentralized control automation, real-time and scarcity pricing, self-rationing, intra-day markets, and flexible, targeted contracts.171 At the same time, it allows consumers to take full control of their energy usage and optimize both the services they enjoy as well as the operation of smart grids. While the emphasis remains on the capacity mechanism, the further development of cross-border trade and the optimization of available electricity across borders is a key issue.172 Poor data availability, suboptimal coordination, and limited infrastructural interconnection result in prices that are not set at the right level.173 Thus participants do not receive adequate market signals, which leads to the suboptimal delivery of electricity.174 Member States’ emphasis on national measures and tools to tackle security of supply risks accentuating the problem of loosely coordinated national electricity markets.175 Assuming the capacity mechanism is not ruled out in the following decades, it makes sense to move from national assessments to an EU adequacy assessment and design multiple cross-border electricity flows accordingly.176 The European Commission aims to deal with these shortcomings by introducing “a wider regional and European aspect first into the assessment of capacity needs” and seeking “to better coordinate national capacity mechanisms.”177 Under the new rules, all Member States are free to set their desired level of security of supply. However, these rules should be

169. The Greens: European Free All., A Green Energy Union 3 (2015). 170. Clastres, supra note 80. 171. Id. 172. Electricity Interconnection Targets, European Comm’n, https://ec.europa.eu/energy/en/ topics/infrastructure/projects-common-interest/electricity-interconnection-targets. 173. Buchan & Keay, supra note 105. 174. Id. 175. Id. 176. Id. 177. Commission Proposes New Rules for Consumer Centred Clean Energy Transition, European Comm’n (Nov. 30 2016), https://ec.europa.eu/energy/en/news/commission-proposesnew-rules-consumer-centred-clean-energy-transition.

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transparent and verifiable. More importantly, capacity mechanisms will be governed not just by state aid guidelines but also by a European framework that will mandate and regulate cross-border participation and eventually lead to integrated capacity markets in the EU.178 The premise that smart grids and smart meters necessarily equate to quasiautomatic energy savings is not supported by recent research surveys.179 Indeed, these studies have moderate expectations. On the one hand, smart meters are found to provide a wealth of information to consumers. On the other hand, this AMI develops over time into a normal background monitor fully embedded in household routines and practices. Consequently, smart meters fail to continuously nudge consumers to further economize on energy. Usually, supplementary savings are hard to materialize beyond a certain threshold. The potential for additional energy savings is frustrated due to the absence of wider policy and market support.180 Considering the above, security of supply is in practice only marginally improved.

1.2.4.3 Affordability and competitiveness gains in prosumer markets Advantages Europe’s energy systems require investments. There is evident discordance when it comes to which projects will be financed and which will be left out of the agenda.181 This is a fundamentally political conflict that impacts the allocation of funding and the distribution of benefits across corporate sectors. On the affordability front, smart grids can bring two positive results. First, a reduction of energy bills should arise from self-consumption and demand management. In turn, these will lead to lower energy quantities being transmitted from the grid. Second, prosumers have the option to install the infrastructure to generate their own energy. Prosumers can then sell their electricity surplus to aggregators, DSOs, and other energy services companies.182 An important benefit of smart grids vis-a`-vis fossil fuel imports is the resulting predictability of prices. Fossil fuel prices are renowned for their volatile nature compared to renewable energy prices.183 Abrupt increases in fluctuating energy prices create severe hurdles for the poorest citizens in the EU. 178. Id. 179. Hargreaves, T., et al., 2013. Keeping Energy Visible?: Exploring How Householders Interact with Feedback From Smart Energy Monitors in the Longer Term, 52 Energy Pol’y 126. 180. Id. 181. Goldthau, A., Sovacool, B.K., 2012. The Uniqueness of the Energy Security, Justice, and Governance Problem, 41 Energy Pol’y 232. 182. European Comm’n, New Electricity Market Design: A Fair Deal for Consumers (2016). 183. Volatile Fossil Fuel Prices Make Renewable Energy More Attractive, BBC (Mar. 21, 2013). https://www.theguardian.com/sustainable-business/blog/fossil-fuel-prices-renewable-energyattractive.

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There is a considerable disparity between the decreasing costs on renewable energy generation and the frequent boom and bust cycles of global energy markets.184 Smart grids may lead to higher prices in the case of ineffective load balancing. This raises the importance of developing effective demand response mechanisms that will optimize the benefits accruing from digital technologies.185 Risks and challenges ahead In the absence of reliable electricity storage technologies, reserve capacity is ensured through capacity mechanisms. This policy tool puts a premium on electricity prices. The same is true of the priority dispatch mechanism, which prioritizes the utilization of renewable energy even when this is not the most competitive option. Therefore it is safe to say that “structural changes to the design and operation of the power system are needed to ensure adequate incentives for investment and to integrate high shares of variable wind and solar power.”186 Considering the underperformance of the ETS, the question of a carbon tax is of notable importance. The need to somehow put a price on carbon means that fossil fuels will be more expensive in the near future. There is hardly any rationale for investments in new coal-fired power plants to materialize. While one could argue that carbon pricing187 has been successfully kept at bay by influential fossil fuel corporations,188 two points should be considered. First, certainty is key in markets in general. It is for this reason that a price on carbon—one that can create a level-playing field and guide corporate policies for future decades—may transpire. Second, there are 184. Int’l Energy Agency, 2016. World Energy Outlook 4, https://www.iea.org/publications/freepublications/publication/WorldEnergyOutlook2016ExecutiveSummaryEnglish.pdf 185. Bradley, P., Leach, M., Torriti, J., 2013. A Review of the Costs and Benefits of Demand Response for Electricity in the UK, 52 Energy Pol’y, 312, 314. 186. Int’l Energy Agency, 2016. World Energy Outlook 4, https://www.iea.org/publications/freepublications/publication/WorldEnergyOutlook2016ExecutiveSummaryEnglish.pdf. 187. Putting a price on carbon (whether a carbon tax or an emissions trading scheme, i.e., tradable permits) is a way to combat climate change by making people pay for the environmental damage created. A carbon tax provides an added cost to the cost of the product. A tradable permit system sets a cap on the amount of GHG emissions. Firms must buy a permit to emit, and there is only a limited number of permits. The cost of the permit is an added cost to the cost of the product. The price is based on the carbon content of the product. Doing so provides an incentive to find low-cost ways to reduce GHG emissions. If a measure costs less than the price, it would make sense to implement the measure, rather than paying the price. If a measure costs more than the price, it would make sense to pay the price. Conversely, people should be rewarded for protecting the environment. There are ethical considerations with putting a price on carbon because it affects the poor the most. Ideally, there should be harmonized carbon taxes, that is, have the same carbon tax in all countries. See generally Nordhaus, W.D., 2007. To Tax or Not to Tax, 1 Rev. Envtl. Econ. & Pol’y 26. 188. Summers, L., Let This be the Year When We Put a Proper Price on Carbon, Fin. Times (Jan. 4 2015), https://www.ft.com/content/10cb1a60-9277-11e4-a1fd-00144feabdc0.

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reasons for optimism in the wake of the open letter that six major energy companies signed prior to the Paris Agreement, asking for a carbon tax to be established.189 The setting of subnational and regional emissions trading schemes around the world is arguably paving the way for such a tax.190 The above illustrates the complexity of policy-making in terms of subsidy mechanisms. This task is even more challenging considering that subsidy schemes can lead to significant market distortions. For example, national support schemes for renewable energy in Spain have led to huge tariff deficits in the domestic electricity market against which this EU Member State is still grappling.191 In turn, these distortions thwart adequate market signals to the detriment of consumers. A suggested course of action boils down to the gradual phase-out process that would naturally culminate in a carbon tax. This carbon tax should incentivize renewable energy generation instead of fossil fuels imports.192 Alternatively, a feed-in premium tariff for renewable energy production should be placed as the only subsidy to further encourage renewable energy production when needed. The European Commission is renowned for its tough stance regarding subsidies and ensuing market distortions.193 In this context, it aims to replace capacity mechanisms by scarcity pricing. Not only would supply-demand dynamics not be disturbed, but scarcity pricing would also lead to the optimal operation of the electricity market.194 Indeed, demand response management maximizes network efficiency and minimizes associated costs, including capacity mechanisms. Such a development would constitute “a triple win—encouraging investment, enabling demand response and lessening the need for capacity mechanisms.”195 A potential weakness resulting from effectively managing the electricity load at all times is that it may lead to higher prices, jeopardizing access to affordable energy. Energy politics are also against “perfect markets,” as controlled electricity markets are more conducive to government interests.196 This is because markets may lead to higher prices to reflect the state of supply and demand. However, this conflicts with the political aspirations of 189. The Case for a Carbon Tax, N.Y. Times (June 6, 2015), https://www.nytimes.com/2015/06/ 07/opinion/the-case-for-a-carbon-tax.html. 190. Paterson, M., 2011. Selling carbon: From international climate regime to global carbon market. In: Dryzek, J.S., Norgaard, R.B., Schlosberg, D. (Eds.) The Oxford Handbook of Climate Change and Society, p. 611. 191. Int’l Energy Agency, 2016. Energy Policies of IEA Countries: Spain 2015 Review 10. 192. Buchan & Keay, supra note 105, at 8. 193. See, for example, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Making the Internal Energy Market Work, at 8, COM (2012) 663 final (Nov. 15, 2012). 194. Id. 195. Id. at 3. 196. Roberts, J., Skillings, S., 2015. The Market Design Initiative: Towards Better Governance of EU Energy Markets 3 (Regulatory Assistance Project).

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governments who want to meet their citizens’ expectations. Low electricity prices are a way to achieve this. More importantly, the advent of prosumer markets will mean that the same actors will have conflicting interests in their dual roles. On the one hand, prosumers will seek high prices for selling their electricity surplus, while on the other hand, they will prefer low prices for their energy usage. This contradiction may lead to suboptimal profits from demand response schemes. At the same time, aggregators and other actors who can obtain significant market power may be able to reap the benefits of higher prices by passing them on to consumers, thereby neutralizing the benefits of demand response. A way out of this impasse may be through further emphasizing self-consumption. Hence, a fraction of households’ energy needs are covered by the energy they produce themselves, thereby mitigating the importance of prices. This will indeed mark the democratization of the energy system. Energy access will be, at least in part, directly provided without the mediation of market mechanisms that may yield adverse results. Broadly speaking, the rationale for prosumer markets draws from neoclassical economic presuppositions. However, such premises hardly apply in practical terms. Mainstream economics regard prosumers as rational actors that will endeavor to reach optimal energy consumption.197 Prosumers have access to the necessary information to make the best decisions. Nevertheless, these abstract expectations are usually frustrated in practice. This is because the average prosumer tends to display a limited capacity to process all the information, thereby falling short of maximizing his or her energy consumption.198 Indeed, the available data might prove to be more than a regular consumer can comprehend and subsequently amend consumption patterns in an optimal manner.199 Considering the above, expecting prosumer markets to perform automatically is wishful thinking. Educating prosumers is necessary to reap all the benefits tendered by smart grids. Specific emphasis should be given to the social groups that are likely to need the most guidance, such as senior citizens. Bradley, Leach, and Torriti argue that the success of smart grid deployment relies on the trust between prosumers and other actors across the energy market.200 They assert that “to maximise benefits from Dr [demand response], it must be ensured that implementation of smart metering and other technologies is done in such a way as to ensure trust, maximum

197. Lavrijssen, S., Carillo Parra, A., 2017. Radical Prosumer Innovations in the Electricity Sector and the Impact on Prosumer Regulation, 9 Sustainability 9, 9. 198. Dolphin, T., Nash, D. (Eds.), 2012. Complex New World: Translating New Economic Thinking into Public Policy. 199. Lavrijssen & Carillo Parra, supra note 197, at 9. 200. Bradley, et al., supra note 185.

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customer acceptability and satisfaction as well as education along with implementation.”201 The costs associated with the deployment of smart grids will be contingent on the degree of customer engagement and trust. Should customers fail to recognize the benefits offered by smart meters, it will be harder for customers to engage with the process and trust the corporate players implementing the rollout. This would certainly lead to a suboptimal rollout of smart meters. Higher costs, limited benefits, and a hugely mismanaged opportunity will result.202 The new architecture of smart grids currently leaves the competences of the amalgam of actors in a policy vacuum. While DSOs are anticipated to invest, there are hardly any incentives in place for them to do so. Conversely, the benefits of such investments accrue predominantly to suppliers and consumers as well as local and national authorities that can meet their climate targets. Providing compensation to DSOs to upscale the development of smart grids is hence the first necessary step.203 Rationalizing these compensation schemes by considering access to energy as tantamount to a public good may enhance the reception of such schemes among citizens.204 What should be considered in-depth is the question of who pays for hedging against emergencies. Peak prices and scarcity pricing places costs on consumers. The development of storage capacity (e.g., EVs) adds an additional layer of costs that can either be funded through tariffs or passed on through retail prices. Hence, taxpayers pay for this. The same is true for capacity mechanisms.

1.2.5

Conclusion

The overhaul of the energy systems through the implementation of smart grids is crucial to drive the EU’s low-carbon transition. While the smart grids’ benefits make large-scale deployment compelling across the sustainability, security of supply, and affordability fronts, caveats remain and call for caution by policy-makers. In conclusion, smart grids entail several benefits as they create the conditions for the proliferation of renewable energy generation; allow for self-consumption; boost energy efficiency via demand response; alleviate energy poverty; lead to decreases in fossil fuel imports; decrease dependence on unreliable oil and gas suppliers, and volatile prices; promote low-carbon energy security; and boost aggregate demand. 201. Id. at 322. 202. Id. 203. Eid, Hakvoort, & de Jong, supra note 60. 204. Wustenhagen, R., Menichetti, E., 2013. The influence of energy policy on strategic choices for renewable energy investment. In: Goldthau, A. (Ed.) The Handbook of Global Energy Policy 373, p. 376.

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On the negative side, smart grids require high upfront investments costs; call for large-scale citizens’ engagement, incentivization, and education; presuppose functional markets; and require high attention on cybersecurity issues. The transition to the new energy architecture may also generate supplementary adverse results, such as higher prices, abuse of market power, and increase in overall energy consumption. These possibilities create the need to communicate these likely outcomes to European citizens in a timely and efficient manner, devise relevant policy tools, and engage with the emerging prosumers. As the deployment of smart grids and the energy transition constitute uncharted waters, there is a voluminous regulatory vacuum. For instance, the role of both TSOs and DSOs remains unclear in the new energy setting. The emergence of integrated energy services companies, aggregators, and energy cooperatives is also going to be determined to a great extent by future regulation. How cross-border markets will develop is another unresolved issue. The rollout of smart meters also raises critical questions regarding data privacy that go to the root of human rights issues. Finally, the policy tools that will incentivize renewable energy generation and pave the way for a cleaner future are of central importance. Feed-in tariffs, feed-in premiums, and a carbon tax can all provide stimuli to the cause.

1.3 1.3.1

Smart grid regulation Smart metering: paving the way for smarter grids

1.3.1.1 Background “Smart grids” can be defined in a variety of ways. The following definition is proposed by the European Regulators Group for Electricity and Gas (ERGEG) and used also by the Council of European Energy Regulators (CEER) and the Commission: A smart grid is an electricity network that can cost-efficiently integrate the behaviour and actions of all users connected to it—generators, consumers and those that do both—in order to ensure economically efficient, sustainable power systems with low losses and high levels of quality and security of supply and safety.205 205. European Regulators Group for Electricity & Gas (ERGEG), Position Paper on Smart Grids 12 n.6 (ERGEG Public Consultation Paper E09 EQS-30 04, Dec. 10, 2009); European Regulators Group for Electricity & Gas (ERGEG), Position Paper on Smart Grids 6 7 (ERGEG Conclusion Paper E10 EQS-38 05, June 10, 2010); Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Smart Grids, at 2, COM (2011) 202 final (Apr. 12, 2011); Council of European Energy Regulators (CEER), CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 10 (C13 EQS-57 04, Feb. 18, 2014); see also Swora, M., 2010. Intelligent Grid: Unfinished Regulation in the Third EU Energy Package, 28 J Energy Nat Resources L 465, 465 480.

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It might be interesting to note that this definition does not define smart grids by the kind of technology used. The term describes the complex connection between electricity generation, transmission, distribution, utilization, and information communication platforms via a system of sensors and other equipment across various levels of the electricity market.206 One major purpose of smart grids is to target future behavior of the most important grid user, namely the consumer, with a view to finding more means to use energy when and where necessary, and under more convenient conditions. Smart metering issues are of course related to smart grid issues. Yet, while smart meters are enablers for smart grids, they are merely one of many components of a smart grid. The ERGEG suggests that it is technically possible to develop smart grids and to roll out smart meters independently of each other.207 Indeed, smart grids represent an amalgam of existing energy infrastructure and new information technology. Consequently, smart grid regulation transcends energy law and policy; it represents a balance between promoting the development of new technologies aimed at promoting the development of renewable energy and the need to protect consumers and consumer interests.

1.3.1.2 The EU legal basis Historically, the first legally binding instrument mentioning smart grids was the Measuring Instruments Directive.208 It established the requirements for the deployment and use of instruments for measuring water, gas, electricity, and heat.209 More recently, the Third Energy Package,210 adopted in 2009, which seeks to further integrate the EU energy market, set out a more 206. See also Xiufeng, F., 2016. Smart Grids in China: Industry Regulation and Foreign Direct Investment, 37 Energy L.J. 135, 154. 207. European Regulators Group for Electricity & Gas (ERGEG), Position Paper on Smart Grids (ERGEG Conclusion Paper E10 EQS-38 05, June 10, 2010). 208. Parliament and Council Directive 2004/22/EC, On Measuring Instruments, 2004 O.J. (L 135) 1. 209. Papakonstantinou, V., Kloza, D., 2015. Legal protection of personal data in smart grid and smart metering systems from the european perspective. In: Goel, S., et al. (eds.) Smart Grid Secuirty: SpringerBriefs in Cybersecurity 41, p. 46. 210. The Third Energy Package is a piece of European legislation for internal gas and electricity market in the EU whose aim is to open up the gas and electricity markets in the EU. The Third Energy Package consists of two Directives and three Regulations: Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity, 2009 O.J. (L 211) 55; Parliament and Council Directive 2009/73/EC, Concerning Common Rules for the Internal Market in Natural Gas, 2009 O.J. (L 211) 94; Parliament and Council Regulation 714/2009/EC, On Conditions for Access to the Network for Cross-Border Exchanges in, 2009 O. J. (L 211) 15; Parliament and Council Regulation 715/2009/EC, On Conditions for Access to the Natural Gas Transmission Networks, 2009 O.J. (L 211) 36; and Parliament and Council Regulation 713/2009/EC, Establishing an Agency for the Cooperation of Energy Regulators, 2009 O.J. (L 211) 1. For further details, see https://ec.europa.eu/energy/en/topics/markets-andconsumers/market-legislation.

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detailed agenda for the development of smart grids.211 It enjoins Member States, subject to a positive cost benefit analysis, to ensure the rollout of smart meters. The implementation of intelligent metering systems aims to facilitate the active participation of consumers in electricity markets. Directive 2009/72/EC states that subject to an economic assessment of all the long-term costs and benefits to be conducted by September 2012, the Member States or any competent authority they designate shall prepare a timetable with a target of up to 10 years for the rollout of smart meters.212 Where the assessment is positive, at least 80% of consumers shall be equipped with smart meters by 2020.213 While the Directive is not an obligation on Member States to introduce smart grids, Article 3(10)-(11)214 represents the legal foundation on which Member States can facilitate the development and deployment of smart grids. The Directive also includes rules designed to benefit European energy consumers and protect their rights. One of these rights is the right to choose or change suppliers without extra charges. To make this a reality, a review of the existing technical and operational landscapes, together with their attendant regulatory framework is required. The patchwork of binding directives set out in the Third Energy Package is further supplemented by several nonbinding policy instruments, opinions, and recommendations issued by various EU institutions, including the Digital Agenda for Europe (2010),215 the European Commission’s policy

211. Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity and Repealing Directive 2003/54/EC, 2009 O.J. (L 211) 55; Parliament and Council Directive 2009/73/EC, Concerning Common Rules for the Internal Market in Natural Gas; Parliament and Council Regulation 714/2009/EC, On Conditions for Access to the Network for Cross-Border Exchanges in Electricity; Parliament and Council Regulation 715/2009/EC, On Conditions for Access to the Natural Gas Transmission Networks; Parliament and Council Regulation 713/2009/EC, Establishing an Agency for the Cooperation of Energy Regulators. 212. Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity, annex 1(2), 2009 O.J. (L 211) 55. 213. Id. 214. Id. art. 10 (“Member States shall implement measures to achieve the objectives of social and economic cohesion and environmental protection, which shall include energy efficiency/ demand-side management measures and means to combat climate change, and security of supply, where appropriate. Such measures may include, in particular, the provision of adequate economic incentives, using, where appropriate, all existing national and Community tools, for the maintenance and construction of the necessary network infrastructure, including interconnection capacity.”); art. 11(“In order to promote energy efficiency, Member States or, where a Member State has so provided, the regulatory authority shall strongly recommend that electricity undertakings optimize the use of electricity, for example by providing energy management services, developing innovative pricing formulas, or introducing intelligent metering systems or smart grids, where appropriate.”) 215. See Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: A Digital Agenda for Europe, COM (2010) 245 final (May 19, 2010).

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document “Smart Grids: from innovation to deployment,” and the Commission’s recommendation on the preparation for the rollout of smart metering.216

1.3.1.3 Current status in Europe According to a 2014 study conducted in 27 European states by the CEER, 42% of participating countries already had a strategic roadmap to implement smart grids.217 Expressed in absolute numbers, 10 countries had established such plans, whereas 17 countries had not.218 Table 1.1 provides an overview of smart grid implementation plans across European States. Specifically, Austria, Cyprus, Denmark, Finland, France, Greece, Luxembourg, and Norway published national implementation plans. In 11 of the countries, these plans were established at the national level, whereas in Belgium, this plan is being developed at local levels.219 Implementation plans were not created, for example, in the Czech Republic, Slovenia, and Spain. Although Great Britain had not established an implementation plan, it did develop a high-level route-map, which is the responsibility of the national GB Smart Grid Forum.220 There is no convergence across Europe in terms of timeframe for the implementation of smart grids. In most of them, national governments and DSOs are responsible for implementation, while National Regulatory Authorities (NRAs) have monitoring functions.221 As far as actual implementation is concerned, Italy is a forerunner. Italy has completed smart metering implementation covering 99% of electronic metering points.222 The DSO is the owner and responsible party for 216. Commission Recommendation of 9 March 2012 on Preparations for the Roll-out of Smart Metering, at 9 22, COM (2012) 1342 final (Mar. 13, 2012). 217. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 7 (C13 EQS-57 04, Feb. 18, 2014). 218. Since the publication of the CEER Report, Greece and Romania have implemented national programs for the roll out of smart grids. See also European Technology Platform SmartGrids, National and Regional Smart Grids Initiatives in Europe: Cooperation Opportunities Among Europe’s Active Platforms (2nd ed, 2016). 219. For instance, the Flemish government approved the concept note, “Digital meters: Roll-out in Flanders,” on February 3, 2017. The Flemish regulatory body VREG was asked by the Flemish government to update its earlier cost-benefit analysis on the basis of the principles of the new concept note. VREG concluded that the roll-out of the smart meters in Flanders would be a correct policy decision. See, Kosten-batenanalyse slimme meters, VREG, (July 11, 2017), https://perma.cc/VW6J-U45C. 220. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 17 (C13 EQS-57 04, Feb. 18, 2014). 221. Id. at 7, 17. 222. See Gimeno, C., GEODE Workshop Presentation: From Theory to Reality: Overview of Smart Meters Roll-Out Across Europe (Mar. 20, 2014); Cost-Benefit Analyses & State of Play of Smart Metering Deployment in the EU-27, at 33, C (2014) 189 final (June 17, 2014).

TABLE 1.1 Development of smart grid implementation plans in European Member States. Country

National or local level

Details

Austria

National level

National Smart Grids Technology Platform (http://www.smartgrids.at), published roadmap in 2010

Belgium

Local level

Wallonia: http://www.cwape.be/?dir 5 4&news 5 122 Flanders: http://www.vreg.be/nl/nieuws/kosten-batenanalyse-slimme-meters

Croatia

No

Cyprus

National level

Czech Republic

No

Under construction.

Denmark

National level

http://www.kebmin.dk/sites/kebmin.dk/files/klima-energi-bygningspolitik/dansk-klima-energi-bygningspolitik/ energiforsyning-effektivitet/smart/smart%20grid-strategi%20web%20opslag.pdf

Finland

National level

http://energia.fi/sites/default/files/haasteista_mahdollisuuksia___ja__hiilineutraali_visio_vuodelle_2050_ 20091112.pdf and http://www.emvi.fi/files/Tiekartta%202020%20-%20hankkeen%20loppuraportti_15_11_ 2011%20(2).pdf

France

National level

Published by the Energy Agency (ADEME), current version is available at: http://www2.ademe.fr/servlet/ getDoc?sort 5 -1&cid 5 96&m 5 3&id 5 84680&ref 5 &nocache 5 yes&p1 5 111

Germany

No

Great Britain

No

Greece

National level

Hungary

No

High-level route map has been developed.

(Continued )

TABLE 1.1 (Continued) Country

National or local level

Details

Italy

National level

Incentives were deliberated by the energy authority (AEEG-SI) in 2010: http://www.autorita.energia.it/it/docs/ 10/039-10arg.htm The latest update concerns the second generation of smart meters, published in August 2016: http://www. autorita.energia.it/it/docs/dc/15/416-15.jsp

Lithuania

No

Luxembourg

National level

For smart meters: http://www.eco.public.lu/documentation/etudes/2012/Etude_ComptageIntelligent.pdf

Norway

National level

http://www.nve.no/ams

Poland

No

Portugal

No

Romania

National level

http://www.anre.ro/ro/legislatie/smart-metering

Slovenia

No

Under construction.

Spain

No

Sweden

National

Switzerland

No

The Netherlands

No

A roadmap with recommendations on how to stimulate the deployment of smart grids for the years 2015 30 is currently under construction by the Swedish Coordination Council for Smart Grid (http://www. swedishsmartgrid.se). Due date December 2014.

There is a vision document from the Taskforce Smart Grids established by the Ministry of Economic Affairs: http://www.rijksoverheid.nl/documenten-en-publicaties/rapporten/

Source: Adaption and update of CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”). C13-EQS-57-04, 18 Feb 2014, pp. 42 43.

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implementing the smart grid and guaranteeing power quality.223 Remarkably, the Italian implementation is not merely aimed at achieving a rollout of AMIs, but envisages their progressive improvement. For instance, given that the low voltage remote control meters that were first rolled out in 2001 have a lifespan of 15 years, the first replacement campaign was launched in 2016.224 These first-generation (1G) meters have since reached their end-oflife. True to expectation, some companies have started installing 2G meters. The Italian experience is also a regulatory paragon because the law laid down functional specifications for 2G meters and identifies some crucial criteria. The requirements include: 2G meters, once installed, shall remain in operation, presumably, for another 15 years, and, over this period, they must be able to support every electric system transformation, such as the new distributed production paradigm and the changes of the electricity market.225 Other countries, such as Spain, have not developed an implementation plan for smart grids. Yet, the roll out of smart meters is ongoing and planned to be completed by 2018.226 With a view to promoting smart grids, many Member States have adopted regulatory incentives. In the CEER study, 79% of the countries were found to use tools for price regulation and 63% use performance indicators. In contrast, tools to regulate the provision of information, charges, and licensing are used significantly less. In most of the countries (76%), regulatory instruments will need to be adapted to facilitate the deployment of smart grids.227 For example, in Belgium, as of 2018, Atrias will provide a new clearing house with new MIG6 market protocol implementation. This means that from 2018 onwards, new market models for prosumers with PV , 10 kW peak will be established, making dynamic tariffs and sale of injection possible.228 In Great Britain, the value of demand side flexibility for the electricity system will have to be reflected in the incentives to invest in smart grids.229 In Lithuania, reaping the 223. The metering activity in Italy is regulated by the Regulation ARG/elt 199/11 (TIT). 224. Press Release, Enel S.p.A., Enel Presents Enel Open Meter, The New Electronic Meter, (Sept. 5, 2016), https://www.enel.com/en/media/press/d201606-enel-presents-enel-open-meterthe-new-electronic-meter.html. 225. Italian legislative decree 102/2014; Autorita per l’energia elettrica il gas e il sistema idrico (AGEESI), Smart Metering Second-Generation Systems for the Measurement of Electricity in Low Voltage (Aug. 6, 2015) http://www.autorita.energia.it/it/docs/dc/15/416-15.jsp#. 226. Cost-benefit analyses & state of play of smart metering deployment in the EU-27, at 35, C (2014) 189 final (June 17, 2014). 227. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 14, (C13 EQS-57 04, Feb. 18, 2014). 228. Atrias and MIG6.0: Towards a New Energy Market Model in Belgium, Energy Outlook by Sia Partners, (July 12, 2017) https://perma.cc/D5CA-CJ9J. 229. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 14, (C13 EQS-57 04, Feb. 18, 2014).

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benefits of smart grids and managing related data privacy issues will require amendments to the current regulatory framework. In Italy, an “input-based” type of incentive regulation has been used for the transmission network as well as to support smart grid pilot projects in distribution networks. In Poland, to assess the benefits of smart metering for consumers, two new performance indicators were introduced. In Spain, the deployment of smart meters is ongoing, and it is viewed as a necessary step toward the development of smart grids. As part of Spain’s efforts, the low voltage code has been proposed to be changed and a new discriminatory tariff that, thanks to smart meters, promotes charging of EVs at times of lower demand and prices has been established.230 Despite what appear to be wide-spread attempts at regulatory reform within the continent, some actors in some of these market believe that regulatory reform may not be necessary as the current regime already provides an enabling ground for smart grids.231 While this may be true in some cases, the reality is that the existing regimes for electricity regulation are skewed toward the traditional grid and do not take into account the dynamic nature of smart grids.232 Consequently, if smart grids are to be afforded an opportunity to enter what is currently often an oligopolistic market, regulatory reform will be essential. Given that smart grids are largely experimental, demonstration projects have played a pivotal role in the development and deployment of the new technologies developed. Different countries in Europe have adopted various approaches toward promoting these demonstration projects. Of note, 61% of countries which participated in the CEER study use a combination of sources for funding,233 and 56% of the countries have been funding demonstration projects through industry funding, public funding institutions, the European Commission, and integrated municipal energy suppliers.234 In 61% of the countries, governments are responsible for making decisions about granting funds.235 For example, Finland passes costs onto consumers to a certain extent, but also adopts efficiency targets for companies.236 Italy uses a costbenefit indicator to select projects.237 Austria finances demonstration projects through a combination of funding from industry, public institutions, and 230. Id. 231. Id. 232. Veldman, E., Geldtmeijer, D.A.M., Knigge, J.D., (Han) Slootweg, J.G., 2010. Smart Grids Put Into Practice: Technological and Regulatory Aspects, 11 Competition & Reg. Network Industries 287, 288 89 (2010); see also de Hauteclocque, A., Perez, Y., 2011. Law & Economics Perspectives on Electricity Regulation (EUI Working Paper RSCAS 21). 233. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 19 (C13 EQS-57 04, Feb. 18, 2014). 234. Id. 235. Id. at 20. 236. Id. 237. Id.; World Energy Council, 2012. World Energy Perspective: Smart Grids: Best Practice Fundamentals for a Modern Energy System, pp. 14 15.

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the national budget.238 The federal government established the Climate and Energy Fund (Klima- und Energiefonds—KLIEN) to support the implementation of the climate strategy. KLIEN is responsible for providing most of the funds for demonstration projects.239 Remaining costs are audited and covered through network charges during the regulatory period, with the application of efficiency targets. Great Britain does not apply efficiency targets to demonstration projects.240 However, a key criterion for awarding funding is the project’s value for consumers and its long-term efficiency. The NRA, rather than the government, is responsible for most decisions.241 Regarding more general incentives to encourage DSOs to adopt and fund smart grid innovation projects and how they are funded, most European countries use a combination of regulatory mechanisms, national government initiatives, and European initiatives. Sixty-three percent of the countries assessed by CEER use general incentives not specific to smart grids to promote the development of smart grids.242 For example, Austria incentivizes cost reductions through efficiency targets that do not distinguish between traditional and smart grids. As a result, regulated companies favor smart solutions when they are more cost efficient than other alternatives. Belgium has not yet specifically defined incentives, whereas Cyprus currently has no incentives in place. In the majority of countries, incentives for DSOs to innovate are funded through distribution network charges. National and European funding is also used to a significant extent. Many European countries adopt a combination of sources of funding. For instance, Austria, Finland, Italy, and France use network charges, national funding, and European funding. The Netherlands, Poland, and Norway use network charges as well as national funding. Lithuania and Slovenia use network charges and European funding. Greece and Spain use European as well as national funding.243 Finally, with regard to issues of data privacy and security, it is a commonly held view that the technology associated with smart grids poses significant risks to data privacy and cybersecurity; both require concerted regulatory reform if these risks are to be adequately managed.244 However, 238. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 20 (C13 EQS-57 04, Feb. 18, 2014); Energy Research Knowledge Centre, SETIS Energy Research—Austria, European Comm’n, (Sept. 5, 2017), https://perma.cc/NEW8-UYGQ. 239. Id. 240. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 20 (C13 EQS-57 04, Feb. 18, 2014). 241. Id. 242. Id. at 21. 243. Id. 244. Int’l Energy Agency, 2011. Technology Roadmap: Smart Grids 16 https://www.iea.org/publications/freepublications/publication/smartgrids_roadmap.pdf; Ho¨rter, C.M.,Feyel, N., Awad, A., 2015. The Smart Grid: Energy Network Of Tomorrow - Legal Barriers and Solutions to Implementing the Smart Grid in the EU and the US, 8 Int’l Energy L. Rev. 291, 297.

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according to the CEER status review on European regulatory approaches enabling smart grids solutions, there is no clear consensus about whether NRAs for the energy sector will and should be responsible for data security regulation in relation to smart meter data.245 Be that as it may, different countries are considering different proposals and approaches for dealing with the problem of data protection and security for smart grids. For example, in the United Kingdom, data aggregation plans will be proposed by the DSO and then approved by the NRA, and data privacy requirements will be regulated in the context of license conditions.246 In Slovenia, a cost benefit analysis carried out by the NRA will also look at security issues.247 In Spain, energy suppliers are precluded from having access to any information other than that of their own customers.248 In contrast, in the Czech Republic, the Office for Personal Data Protection is responsible for data security.249 Similarly, in France, there is a separate and dedicated agency with competence over data security. In Germany, this is the responsibility of the Federal Office for Information Security.250 Finally, in countries such as Belgium and the Netherlands, the NRA for the energy sector and the Data Protection Authority will work jointly on data security issues.251 The ERGEG Guidelines of Good Practice on regulatory aspects of smart metering recommend that: it is always the customer that chooses in what way metering data should be used and by whom, with the exception of metering data required to fulfil regulated duties and within the national market model. The principle should be that the party requesting information shall state what information is needed, with what frequency and will then obtain the customer’s approval for this. Full transparency on existing customer data should be the general principle.252

Table 1.2, from the CEER status review of regulatory aspects of smart metering, shows that many European countries indeed provide customers 245. Int’l Energy Agency, 2011. Technology Roadmap: Smart Grids 15 16 https://www.iea.org/ publications/freepublications/publication/smartgrids_roadmap.pdf. 246. Id. at 16. 247. Id. 248. Contadores Inteligentes y Proteccio´n de Datos, EnerConsultor´ıa (Dec. 8, 2015) http://www. enerconsultoria.es/BlogLeyesEnergia.aspx? id 5 36002236&post 5 Contadoresinteligentesyprotecciondedatos. 249. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 16 (C13 EQS-57 04, Feb. 18, 2014). 250. Id. 251. Id. 252. European Regulators Group for Electricity & Gas, Final Guidelines of Good Practice on Regulatory Aspects of Smart Metering for Electricity and Gas, at 12 (E10 RMF-29 05, Feb. 8, 2011).

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TABLE 1.2 Data privacy and security regulation in European Member States. In control and informed Free

AT, BE, DK, FI, FR, DE, GB, IE, IT, LU, NO, PL, NL

In control and not informed

No control over data

Not available

CY, CZ, EE, IS, RO, SI, ES, SE

LT, PT

Not free Source: CEER Status Review of Regulatory Aspects of Smart Metering. C13-RMF-54-05, 12 September 2013, p. 16.

with information about, and ensure control over, their metering data, free of charge. However, the same table also shows that, in a number of countries, customers are not given control over their own data.253

1.3.1.4 Toward regulatory policy recommendations The most relevant issues now revolve around network planning, priorities about grid reinforcement, and the ways DSOs are incentivized by national regulation to invest in smart grids. In simplified terms, one crucial issue concerns how to convince DSOs to test and innovate more. The “obvious” answer seems to lie in the regulatory incentives set by the NRAs. Yet, these agencies must also protect consumers from potentially excessive charges that natural monopolists such as DSOs could charge. This problem might be made even more acute when DSOs are state-owned and a major source of public revenue. Therefore a balance must be struck between incentivizing DSOs to invest in smart grids and avoiding the imposition of high tariffs on consumers. Another important concern is the possibility of conflicts of interest between DSOs and self-producers. The desire of DSOs to optimize the economic benefits of grid utilization inherently conflicts with the idea of self-production. Consequently, without regulatory interventions, DSOs would be opposed to the development of technology that potentially affects their bottom line.254 To achieve this, the support of the DSOs who have

253. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 16 (C13 EQS-57 04, Feb. 18, 2014). 254. Subgroup Regulation for Smart Grids—Networks Committee, Regulation for Smart Grids, Eurelectric, at 14 (Feb. 2011) http://www.smartgrids-cre.fr/media/documents/eurelectric_ Regulation_for_SG.pdf.

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historically benefitted from the status quo is required.255 Indeed, as has been demonstrated in Italy, DSOs are capable if the enabling environment is created to spearhead the desired change. The European Commission as well as CEER and ERGEG hold that DSOs should be “market facilitators.”256 The notion of a market facilitator in this context means that DSOs should play a crucial role in setting up and managing the infrastructure necessary to perform new services, for example, demand side and load aggregation functions. But they should not be directly involved in the provision of such functions, which instead should be left to actors competing against each other [e.g., suppliers, aggregators, and Energy Service Companies (ESCOs)]. An additional set of regulatory challenges relate to the use of, and access to, smart meter data for smart grids. In most EU Member States, smart grids will make use of, and indeed rely on, smart meter data and infrastructure. In general, how consumers’ data will be managed and by whom will have to be clearly explained. Otherwise, concern about privacy issues will be inevitable. Indeed, access to, as well as ownership of, data appear to be the key issues. These are not specific to the energy sector alone, but represent challenges that have been discussed thoroughly in other domains from which lessons may be drawn, such as “big data,”257 which may be very useful for environmental performance improvement and therefore presents a big opportunity. While the regulatory nature of data protection for smart grids remains unclear, it seems likely that national bodies (e.g., independent regulatory agencies for energy) will play a central role. Regulators and policymakers more generally can learn from other sectors which have already had to face similar issues (e.g., internet search engines). It is also important to consider the standardization of smart grid technology with a view to improving the security and integrity of the infrastructure. Although the smart grids’ various components are at different levels of development, the concept of standardizing smart grid technology envisages their interconnection. Consequently, the absence of minimum technological requirements might result in, or facilitate the development of, vulnerabilities such as cyber-attacks. Similarly, situations where substandard assets that interface with a smart grid network and inhibit the smooth operation of the network or 255. de Hauteclocque, A., Perez, Y., 2011. Law & Economics Perspectives on Electricity Regulation, at 5, (EUI Working Paper RSCAS 21). 256. See Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), (C13 EQS-57 04, Feb. 18, 2014); see also European Regulators Group for Electricity & Gas, Position Paper on Smart Grids (ERGEG Public Consultation Paper E09 EQS-30 04, Dec. 10, 2009). 257. Drewer, D., Miladinova, V., 2017. The BIG DATA Challenge: Impact and Opportunity of Large Quantities of Information Under the Europol Regulation, 33 Computer L. & Sec. R. 298; Rubinstein, I.S., 2013. Big Data: The End of Privacy or a New Beginning?, 3 Int’l. Data Priv. L. 74; Leonard, P., 2014. Customer Data Analytics: Privacy Settings for “Big Data” Business, 4 Int’l. Data Priv. L. 53.

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damage it are not inconceivable. For instance, smart grids connected to home communication networks could pose safety risks during lightning storms if the ground reference for equipment such as a smart meters and phone lines differ. The resulting high voltage surge through devices connected to the network could not only damage the equipment but also pose severe electrocution risks.258 Granted that standardization may occur at different levels, differing national standards increase costs, which are often passed on to consumers. It may therefore be prudent for the Agency for the Cooperation of Energy Regulators (ACER)259 to take the lead on standardization efforts and provide an international framework to guide national, local, or enterprise-based standardization and perhaps delineate the relevant levels of standardization. This will go a long way toward facilitating international interoperability and the market integration efforts of the EU.260 Furthermore, a significant barrier to smart grid deployment would be insufficient, or lack of, consumer demand for such technology. Given fears associated with cybersecurity, government espionage, and data protection, as well as public skepticism on the utility of such technology, concerted action must be taken to create sufficient awareness to tackle this barrier. It is therefore critical that more information be provided to citizens about the benefits of smart grids and specifically about why smart meters are being deployed. This would increase consumer awareness and engagement in energy markets and, in turn, facilitate the development of smart grids.

1.3.2

Demand response

1.3.2.1 Background Demand response is defined by ACER as “[c]hanges in electric usage by end-use consumers from their normal load patterns in response to changes in electricity prices and/or incentive payments designed to adjust electricity usage, or in response to the acceptance of the consumer’s bid, including through aggregation.”261 It has increasingly gained prominence as a tool to 258. Martin, A.R., 2010. Safety Issues and Damage to Equipment with both Smart Grid and Home Network Connections, Product Compliance Engineering (ISPCE), 2010 IEEE Symposium. 259. ACER was established under the Third Energy Package as an independent agency of the European Union to oversee the completion of the internal energy market for electricity and natural gas by fostering cooperation among European regulators. 260. Swora, M., 2011. Smart Grids after the Third Liberalization Package: Current Developments and Future Challenges for Regulatory Policy in the Electricity Sector, 4 Y.B. Antitrust & Reg. Studies 9, 15; Eisen, J.B., 2013. Smart Regulation and Federalism for the Smart Grid, 37 Harv. Envtl. L. R. 101, 123. 261. Agency for the Cooperation of Energy Regulators, Framework Guidelines on Electricity Balancing, at 8 (FG-2012 E-009, Sept. 18, 2012); see also Murthy Balijepalli, V.S.K., et al., 2011. Review of Demand Response under Smart Grid Paradigm, IEEE Innovative Smart Grid Technologies, India.

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improve energy efficiency and the reliability of grids through the lowering of demand, especially during peak periods. Demand response programs can be divided into two types: implicit and explicit demand response.262 In price-based (implicit) demand response, consumers choose to become exposed to time-varying prices that reflect the value and cost of electricity at different time periods. Thus consumers do not pay fixed prices but rather respond to wholesale market price variations and/ or dynamic grid fees. Such flexible prices for consumers do not necessarily require “aggregators.”263 In contrast, in incentive-based (explicit) schemes, consumers receive direct payments to change their consumption patterns upon request. This can be triggered by the activation of balancing energy, differences in prices of electricity, or grid constraints. Consumers may earn from their consumption flexibility by either acting individually or contracting with an aggregator, which in turn might be either a third party or the customer’s supplier. Aggregated demand side resources are then traded in the wholesale, balancing, and/or capacity markets. Aggregators are new actors within the European electricity markets, occasioned by the new market design heralded by the Third Energy Package. They are service providers that employ demand facilities to sell pooled loads of electricity. As their name suggests, they perform the function of “aggregating” flexibility. They agree with industrial, commercial, and/or residential consumers to aggregate their capacity to reduce energy and/or shift loads on short notice. They then create a “pool” of aggregated controllable load, made up of smaller consumer loads. Finally, they sell the pooled load as a single resource to system operators, which use it for their technical needs. Aggregation allows smaller consumers who are excluded from the markets due to the size of their loads to participate in the markets.264 It should be noted that while load aggregators are new actors emerging in several power markets in Europe, load aggregation is a service which might be performed by a variety of actors. This goes well beyond load aggregators to include “traditional” suppliers or other new companies (e.g., ESCOs). It is important to note that the two distinct forms of demand response are not necessarily substitutes. Indeed, customers might well participate in incentive-based demand response through either an aggregator or a “traditional” supplier, and, at the same time, participate in a price-based demand response program based on time-varying prices.265 Beyond “aggregating” consumers (demand),

262. See generally Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today. 263. Id. at 21. 264. Baker, P., Hogan, M., The Market Design Initiative: Enabling Demand-Side Market, Regulatory Assistance Project 3 (Mar. 2016). 265. Id. at 7.

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aggregators also have a role to play in “aggregating” prosumers (consumption, production, and storage). Given that demand response gives rise to complex relationships between energy suppliers, customers, aggregators, and BRPs, a critical examination of the implications of these relationships is necessary to develop a suitable regulatory framework that enables and facilitates market participation for these actors and ensures that the full benefit of demand response mechanisms are reaped.

1.3.2.2 The EU legal basis The Third Legislative Package provides a supranational legal foundation for the development of demand response in Europe. Article 3(10) of the directive on the common rules for the internal market enjoined Member States to adopt, among others, “demand-side management” measures as a part of efforts to combat climate change and improve energy security. Further progress was made with the Energy Efficiency Directive (2012/27/EU),266 Article 15(4) of which requires Member States to: ensure the removal of those incentives in transmission and distribution tariffs that are detrimental to the overall efficiency (including energy efficiency) of the generation, transmission, distribution and supply of electricity or those that might hamper participation of demand response, in balancing markets and ancillary services procurement.267

It also requires Member States to: ensure that network operators are incentivised to improve efficiency in infrastructure design and operation, and, within the framework of Directive 2009/ 72/EC, that tariffs allow suppliers to improve consumer participation in system efficiency, including demand response, depending on national circumstances.268

Furthermore, Article 15(8) of the Directive establishes that: Member States shall ensure that national regulatory authorities encourage demand side resources, such as demand response, to participate alongside supply in wholesale and retail markets. Subject to technical constraints inherent in managing networks, Member States shall ensure that TSOs and DSOs, in meeting requirements for balancing and ancillary services, treat demand response providers, including aggregators, in a non-discriminatory manner, on the basis of their technical capabilities. Subject to technical constraints inherent in managing networks, Member States shall promote access to and participation of 266. Parliament and Council Directive 2012/27/EU, On Energy Efficiency, 2012 O.J. (L 315) 1. 267. Id., art. 15(4). 268. Id.

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demand response in balancing, reserves and other system services markets, inter alia by requiring national regulatory authorities [. . .] in close cooperation with demand service providers and consumers, to define technical modalities for participation in these markets on the basis of the technical requirements of these markets and the capabilities of demand response. Such specifications shall include the participation of aggregators.269

The set of rules (“network codes”) drafted by the European Network of TSOs for Electricity (ENTSO-E) also emphasizes the importance of promoting demand response.270 These rules are based on Framework Guidelines from ACER, which are based on priorities set by the European Commission. Specifically, the ACER Framework Guidelines on Electricity Balancing provide that “[t]hese terms and conditions. . . including the underlying requirements, shall, in particular, be set in order to facilitate the participation of demand response, renewable and intermittent energy sources in the balancing markets.”271 Finally, the Commission Guidelines on State aid for environmental protection and energy 2014 20, in clarifying the conditions under which Member States are allowed to introduce “capacity remuneration mechanisms,” requests Member States to consider alternatives such as demand response.272 Specifically, the Guidelines state that: Member States should therefore primarily consider alternative ways of achieving generation adequacy which do not have a negative impact on the objective of phasing out environmentally or economically harmful subsidies, such as facilitating demand side management and increasing interconnection capacity.273

Furthermore, “the measure should be open and provide adequate incentives to both existing and future generators and to operators using substitutable technologies, such as demand-side response or storage solutions.”274 In addition:

269. Id., art. 15(8). 270. Article 8(6) of Regulation 714/2009/EC, On Conditions for Access to the Network for Cross-Border Exchanges in Electricity of the Third Energy Package set out the areas in which network codes are to be developed. They include balancing rules including network-related reserve power, data exchange and settlement rules, interoperability rules, network connection rules, network security and reliability rules, operational procedures in an emergency, among others. Commission Regulation 714/2009/EC, On Conditions for Access to the Network for Cross-Border Exchanges in Electricity, art. 8(6), 2009 O.J. (L 211) 15. 271. Agency for the Cooperation of Energy Regulators, Framework Guidelines on Electricity Balancing, at 12 13, (FG-2012 E-009, Sept. 18, 2012). 272. Commission Guidelines on State Aid for Environmental Protection and Energy 2014 2020, 2014 O.J. (C 200) 1. 273. Id. 274. Id.

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the measure should be designed in a way so as to make it possible for any capacity which can effectively contribute to addressing the generation adequacy problem to participate in the measure, in particular, taking into account the following factors: the participation of generators using different technologies and of operators offering measures with equivalent technical performance, for example demand side management, interconnectors and storage.275

These supranational frameworks are designed to ensure that fundamental modalities required for the successful deployment of demand mechanisms are possible. These modalities fall into three categories: the legal recognition of demand response, thereby allowing consumer loads to compete with other generation assets in all markets; the legalization and enablement of aggregation services in the markets; and the adjustment of technical specifications in recognition of consumer capabilities and requirements.276 The transposition period for the Energy Efficiency Directive expired in June 2014.277 The expectation was that, by this date, the modalities necessary for implementation across Member States would have been in place.

1.3.2.3 Current status in Europe The CEER’s study on regulatory approaches for smart grids revealed that, to promote demand response, 71% of the European countries sampled use static time of use tariffs and 58% of them use load control to incentivize demand side response.278 In countries such as Italy, load control is limited to large industrial customers through remote means.279 In countries such as Belgium, different types of load control are used by the TSO in the tertiary reserve ancillary services of TSO Elia. In countries such as Greece, there are differential tariffs for peak and off-peak consumption for households.280 However, not all European States apply “price signals” to induce customers to change their consumption patterns. Fig. 1.1 maps the status of incentive-based (explicit) demand response in Europe as of 2015. The assessment carried out by the Smart Energy Demand Coalition (SEDC)281 was based on the following four criteria: enabling 275. Id. 276. Bertoldi, P., Zancanella, P., Boza-Kiss, B., 2016. JRC Science for Policy Report: Demand Response status in EU Member States 6. 277. Parliament and Council Directive 2012/27/EU, On Energy Efficiency, art. 28, 2012 O.J. (L 315) 1. 278. Council of European Energy Regulators, CEER Status Review on European Regulatory Approaches Enabling Smart Grids Solutions (“Smart Regulation”), at 12 (C13 EQS-57 04, Feb. 18, 2014). 279. Id. 280. Residential Night Tariff, Hellenic Public Power Company SA (July 4, 2017), https://perma. cc/H64V-DMC3. 281. Smart Energy Demand Coalition, Mapping Demand Response in Europe Today 8 12 (2015).

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FIGURE 1.1 Map of incentive-based (explicit) demand response development in Europe today. Smart Energy Demand Coalition (SEDC), 2015. Mapping Demand Response in Europe Today, p. 9.

consumer participation and aggregation, appropriate program requirements, fair and standardized measurement and verification requirements, and equitable payment and risk structures.282 Overall, the SEDC suggests that, in Europe, incentive-based (explicit) demand response is still in its early development.283 In a few cases, the SEDC suggests that markets do not permit consumer participation and are therefore “closed” to explicit demand response.284 European countries have widely varying regulatory frameworks, each with its own participation requirements and rules. There generally are no standardized contractual arrangements governing the roles and responsibilities of the distinct actors involved. Furthermore, it is often impossible, or even illegal, to aggregate consumers’ flexibility in practice.285 282. Roldan Fernandez, J.M., et al., 2016. Renewable Generation Versus Demand-Side Management: A Comparison for the Spanish Market, 96 Energy Pol’y 458. 283. See generally Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today 8 12. 284. Id. 285. Id. at 11.

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In some countries, demand response is a commercially viable product. For example, in Belgium, demand response can participate in a number of balancing markets, namely the primary and tertiary reserves.286 However, a key obstacle is the requirement for aggregators to get the prior agreement of the customer’s supplier or BRP287 to be able to contract with the customer.288 There are at least two private aggregators active on the market (“Restore.eu” and “Actility”) as well as a tertiary off-take reserve scheme specifically for aggregators (“Dynamic Profile”).289 Great Britain is deemed to have competitive energy markets and open balancing markets, although the emerging capacity market has raised uncertainties for demand response. Great Britain was the first EU Member State to open many of its electricity markets to the demand side.290 Currently, all balancing markets allow the participation of demand response in general and aggregated load in particular.291 However, according to the SEDC, the UK’s measurement, baseline, bidding, and other procedural and operational requirements are not appropriate. Thus, even though the markets are formally open, in practice, results in terms of demand-side participation have been worsening over time.292 Furthermore, the capacity remuneration mechanism introduced in 2014 is said not to place demand-side resources on a “level playing field” with generation resources. Indeed, only one demand-side aggregator out of around 15 operating in the market managed to secure a contract in the first capacity market auction.293 France and Switzerland have redrafted their program requirements and defined clear roles and responsibilities precisely to allow independent aggregation.294 Other European countries still present important regulatory barriers, notably program participation requirements not yet tailored for both generation and demand-side resources. For example, Austria requires consumers to install a secure and dedicated telephone line to participate in the balancing market.295 Norway requires TSO signals to be delivered over the phone, thus making the minimum bid-size high.296 As a result, the participation of 286. Id. at 47 54; Belgian TSO Elia in Demand Response First, Restore (Sept. 6, 2017), https:// www.restore.eu/export/pdfNews/113. 287. Given that market players have an implicit responsibility to balance the electricity system, the balance responsible parties are financially responsible for keeping their own position (sum of their injections, withdrawals, and trades) balanced over a given timeframe. 288. Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today 47. 289. Id. at 51. 290. Id. at 85. 291. Id.; see also PA Consulting, 2016. OFGEM: Aggregators - Barriers and External Impacts. 292. Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today 85. 293. Id. 294. Id. at 10. 295. Id.; Bertoldi, P., Zancanella, P., Boza-Kiss, B., 2016. JRC Science for Policy Report: Demand Response status in EU Member States 31. 296. Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today 10.

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consumers other than large industrial consumers is hindered.297 Similarly, technical and organizational rules do not consider some of the requirements for the provision of balancing services in sufficient detail.298 This includes the negative impact of complex and lengthy approval procedures and their associated costs on market entry and participation. In still other European countries, aggregated demand response is either illegal or its development is seriously hindered due to regulatory barriers. For example, in Italy, the notion of load aggregator is not formally recognized, and no regulatory framework currently exists.299 Poland and Spain do not seem to be taking the steps required to foster the development of incentive-based (explicit) demand response.300 Indeed, load aggregators do not exist in every EU Member State. The analogous consideration applies to regulatory frameworks governing their operation. Italy relies mostly on hydro and gas generation to satisfy its flexibility requirements, while the framework governing consumer participation in balancing markets has not been set up yet. Interruptible contracts are a partial exception and constitute a dedicated demand response program.301 Load aggregation is not allowed, nor is there currently any regulatory framework in place to govern such activity.302 Yet, the strategic guidelines for the period of 2015 18 published by the NRA included an evaluation of demand-side mechanisms and hence might reflect the possible opening of balancing markets to demand response.303 Like Italy, Spain also uses mainly hydro and gas generation for its flexibility needs.304 Even though some smart grid pilot projects are currently being developed, incentive-based (explicit) demand response is currently modest. Even though there is one interruptible load program that allows incentive-based (explicit) demand response, the scheme is only open to large consumers and has not been used for years. Importantly, load aggregation is illegal. Yet, proposals to open balancing markets to demand response could prompt changes in 2016 18, especially in light of the smart meter roll out expected by 2018.305 297. Id. 298. Id. at 45. 299. Bertoldi, P., Zancanella, P., Boza-Kiss, B., 2016. JRC Science for Policy Report: Demand Response status in EU Member States 69. 300. Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today 10 11. 301. Id. at 98. 302. Id. at 151. 303. AEEG, DCO 528/2014/A, Consultation Document: Schema Di Linee Strategiche Per Il Quadriennio 2015 2018 (Oct. 30, 2014), http://www.autorita.energia.it/allegati/docs/14/528-14. pdf. 304. Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today 131; Bertoldi, P., Zancanella, P., Boza-Kiss, B., 2016. JRC Science for Policy Report: Demand Response status in EU Member States 81. 305. Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today 131.

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1.3.2.4 Toward regulatory policy recommendations Overall main regulatory barriers found repeatedly across European countries include: 1. Demand response might not be accepted as a flexibility resource: in some European countries, wholesale, balancing, and/or capacity markets do not accept aggregated demand as a flexibility resource.306 2. Inadequate and/or nonstandardized baselines: in some European countries, standardized measurement and baseline methodologies are absent. Current methodologies are designed for generators and, consequently, do not accurately measure changes in consumption. This could hinder demand response, because consumers might not receive adequate payment for their flexibility.307 3. Technology-biased program requirements: program participation requirements, historically designed for national generation, might not include demand side resources.308 Power markets more in line with demand response timeframes have to be established (e.g., based on 15rather than 60-minute timeframes).309 4. Aggregation services are not fully enabled: prequalification, registration, and measurement may still be conducted at the level of individual consumers, rather than at the level of pooled loads brought together by the aggregator, which hinders entry by placing heavy administrative and legal burdens on individual consumers.310 Moreover, there is often no real definition of load aggregators. To promote the possibility for consumers to contract with aggregators, load aggregators must be legally acknowledged as facilitators of demand side flexibility. 5. Aggregators, where existing, are currently active at the high and medium voltage levels, rather than the low voltage level: load aggregators exist in some countries, such as France and Belgium. Yet, their activities are currently focused on the high and medium voltage levels, namely at transmission and dealing with TSOs. We therefore must learn how these activities might be translated, if at all, at the low voltage level, namely at distribution and when dealing with DSOs. 6. Lack of necessary infrastructure: while there is much discussion about the emergence of load aggregators, it must not be forgotten that aggregators rely on certain infrastructures to provide load aggregation

306. Id. at 11. 307. Id. 308. Id. 309. Id. at 82; Bertoldi, P., Zancanella, P., Boza-Kiss, B., 2016. JRC Science for Policy Report: Demand Response status in EU Member States 54. 310. Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today 11.

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services. The key step here is to install smart meters, which in some of the European Member States are not yet deployed.311 Lack of standardized processes between consumers, BRPs, and aggregators: it is important that standardized processes protect the relationship between customers and aggregators and govern bidirectional payment of sourcing costs as well as compensation between the BRPs (often the traditional suppliers) and the aggregators.312 In other words, it is crucial to put contracts in place between DSOs, load aggregators, and customers. It is vital that the right of consumers to offer their flexibility on the market be acknowledged, while guarantees are put in place so that consumers maintain their rights when they sign up for demand response. There should be a provision for the network side to ensure some minimum balancing support through demand response schemes. Thus demand response schemes could really contribute in reducing other capacity mechanisms. Provision of information to consumers: this relates not only to energy prices and how much customers could save by changing their consumption patterns but also to other kinds of information. Consumers could feel more motivated to engage in demand response programs and choose among suppliers and aggregators depending on the mix of energy sources from which the electricity they consume is produced. Consumers could prefer a program and service provider that produces energy from cleaner sources, even if the monetary gains they could make were limited. Differences across consumers that could hinder their participation: in addition to different monetary incentives and regulatory frameworks primarily set at the national level, consumers within same countries could, de facto, find themselves facing different possibilities for joining demand response schemes. Just as in the case of the installation of microgeneration renewable plants (e.g., solar panels on the rooftop), it might be that consumers living, say, in a flat, rather than in a house with a garden, do not have the same possibility to engage in demand-side flexibility solutions. Hence, it might be appropriate for the relevant authorities at the national level and, if appropriate, also at the EU level, to consider how to create a more level playing field on the consumer side. Lack of financial incentives for consumers, especially through automatic adjustments within comfort levels: it is now well-known, especially thanks to studies from the discipline of economics, that the efforts of policymakers to empower consumers are often frustrated by the fact that consumers do not react to efforts to alter their consumption patterns.313

311. Commission Report Benchmarking Smart Metering Deployment in the EU-27 with a Focus on Electricity, COM (2014) 356 Final (June 17, 2014). 312. Id. 313. See generally Nolan, S., O’Malley, M., 2015. Challenges and Barriers to Demand Response Deployment and Evaluation, 152 Applied Energy 1.

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Ironically, perhaps this is because they do not see the financial gain as sufficient reward for altering their consumption. Considering this difficulty, in addition to increasing financial incentives and promoting more cost-reflective tariffs that provide price signals for customers to adjust their consumption patterns, regulation could also consider providing fiscal incentives. Governments might consider putting in place policies that, through taxation, support demand-side adjustments. Another aspect that could be considered is a stronger use of “negative” financial incentives. These could manifest as increases in the penalties, rather than rewards for changing consumption patterns, which might be more effective than “positive” incentives. 11. Automatization of demand response mechanisms: consumer participation in demand response programs should be made as easy as possible. In addition to concentrating on the rewards side of the equation, attention should be devoted also to the cost side. Consumers should have to invest as little time and effort as possible, so that they might engage in demand response even if the financial rewards are not very high in absolute terms. Automatization of responses appears to be crucial in this context. Consumers will not have to do anything, because adjustments in their consumption patterns will be automatic. The North American market is more experienced in the automatization of changes in consumption patterns within customers’ “comfort zone.”314 For example, changes in the intensity of lighting within a flat that will not be noticed by its residents and will be activated automatically when appropriate. The US power markets are also more experienced with load aggregators. Hence it appears desirable to look at these experiences and learn from them.

1.3.3

Electricity storage and electric vehicles

1.3.3.1 Background While solutions to the problem of large capacity energy storage are still in experimental stages of development,315 the importance of energy storage in future energy management systems cannot be underestimated. Current 314. See generally Smart Energy Demand Coalition, 2015. Mapping Demand Response in Europe Today; Bertoldi, P., Zancanella, P., Boza-Kiss, B., 2016. JRC Science for Policy Report: Demand Response status in EU Member States 42. 315. (1) Fluid storage, particularly pumped hydroelectric plants are the most common. They use off-peak electricity to pump water from a low reservoir uphill into an elevated reservoir. The water is then released through turbines to generate power at very short notice. (2) Compressed Air Energy Storage (CAES) operates similarly although still experimental and not developed enough as a commercial storage application—electricity is used to compress air in underground caverns, then tapped later to drive gas turbines. (3) Hydrogen storage, which involves the hydrolysis of water to produce hydrogen gas, is compressed and stored, then converted to power when needed. However, the high explosion risk associated with the technology has impeded its viability.

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storage systems meet the temporary storage needs of small- to mediumscale generation, usually from RES. Despite the lack of technological advancement, energy storage is beneficial to all levels of the electricity market. First, they provide an option to redress the problem of the intermittence of RES generation.316 Further, the ability to store energy when prices are low and possibly sell when prices increase presents an opportunity for arbitrage.317 However, the nearest term benefit is evident at the consumer level where it can contribute to the integration of decentralized production.318 This benefit is further augmented when EVs are integrated into a smart grid design. EVs have traditionally been lauded as climate-friendly alternatives to internal combustion engines, which emit GHGs. However, more recently, the lithium-ion batteries used in EVs have been recognized as a potential storage device that can be used to provide reserve capacity to a grid, under what has come to be known as the Vehicle to Grid (V2G) system.319 Further, the integration of EV charging infrastructure with the appropriate management systems will allow the charging of EVs to become a controllable load. This would go a long way toward improving the reliability of the distributed power system,320 while ensuring that the EV is charged at the most convenient time. Despite the inability to store large volumes of electricity to meet traditional modes of supply in traditional electricity markets, current storage technology could play an important role in VPPs. VPPs aggregate energy produced by diverse distributed generation sources, including small-scale generators. Consequently, unused electricity stored in batteries from small-scale RES could be fed into a VPP. Similarly, energy stored in the lithium-ion321 batteries used in EVs could also be fed into VPP or grids under the V2G system. There are predictions that EVs will make up 14% of total car sales by 2025, up from 1% in 2017.322 The Organization for Petroleum Exporting 316. Luo, X., Wang, J., Dooner, M., Clarke, J., 2015. Overview of current development in electrical energy storage technologies and the application potential in power system operation, Appl Energy 137, 511; Masson, et al., supra note 119, at 61. 317. Committee on Industry, Research and Energy, Energy Storage: Which Market Designs and Regulatory Incentives Are Needed?, at 17 (PE 563.469, Oct. 2015). 318. Stoppani, E., 2017. Smart Charging and Energy Storage: Bridging the Gap Between Electromobility and Electricity Systems, 1 Int’l Energy L.R. 10, 17. 319. Masson, et al., supra note 119, at 63; Changala, D., Foley, P., 2011. The Legal Regime of Widespread Plug-In Hybrid Electric Vehicle Adoption: A Vermont Case Study, 32 Energy L. J. 99, 108 109. 320. Veldman, et al., supra note 232, at 300. 321. It will be interesting to see whether Chile, a very rich country in lithium, will end up a new Saudi Arabia as a result of large amounts of lithium. 322. Campbell, P., Electric Car Costs Forecast to Hit Parity with Petrol Vehicles, Fin. Times (May 19, 2017), https://perma.cc/U6H8-9EY7.

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Countries expects 266 million EVs to be on the street by 2040, up from 46 million.323 Regulations are tightening (which will be analyzed in the following sections) to the extent that the United Kingdom and France, among other European countries, have announced that all new cars must be zero emission by 2050.324 If implemented in other jurisdictions beyond Europe, this sort of policy will have serious implications. For instance, in the United States, around 85% of workers commute by car325 and around 65% of oil consumption comes from driving on roads.326 China, which accounted for about 50% of the EVs sold in 2016, aims at two million electric and plug-in hybrid cars on China’s roads by 2020 and seven million by 2030.327 Most of the nearly one billion cars on the road today are powered by fossil fuels.328 Moreover, existing electric cars reduce CO2 emissions by 54% compared with petrol-powered cars.329 In addition to the high price, two major concerns seem to arise for electric car buyers: where can one charge an electric car and how long will it take? Currently, over 90% of charging is done at home.330 However, in the United States, public EV charging stations have been growing steadily since 2011.331 Carmakers such as Mercedes, BMW, Volkswagen, and Ford have said that they will together install a total of 400 public charging points in Europe, which will deliver 350 kW.332 In Europe, countries such as Germany, France, the Netherlands, and Norway are committed to improving access to public charging.333 In 2017, China is installing 800,000 public charging points, including semipublic charging points for taxis and commercial vehicles at workplaces.334 The owner of a small electric car can have its battery charged in 8 hours with a standard residential electricity supply and a 3.5 kW charger.335 An acceptable solution to these two concerns is crucial for the EV revolution to take off.

323. OPEC Drastically Increases 2040 Electric Vehicle Forecast, Manufacturing, (July 18, 2017), https://mfgtalkradio.com/opec-drastically-increases-2040-electric-vehicle-forecast/. 324. Roadkill, The Economist, 12 August 2017, at 7. 325. Id. 326. Id. 327. Electrifying Everything, The Economist, Aug. 12, 2017, at 13. 328. Roadkill, The Economist, Aug. 12, 2017, at 7. 329. Id. (citing the National Resources Defense Council in the United States). 330. Charge of the Battery Brigade, The Economist, Sept. 9, 2017, at 63. 331. Id. (citing the US Department of Energy). 332. Charge of the Battery Brigade, The Economist, Sept. 9, 2017, at 63. 333. Id. 334. Id. 335. Id.

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1.3.3.2 The EU legal basis The legal framework governing electricity storage in Europe is provided at the EU level by the Third Energy Package.336 At the same time, laws are under development at the national level that will regulate electricity storage applications.337 It is important to note that Directive 2009/72/EC338 does not expressly mention energy storage. However, the proposal for a new directive on common rules for the internal electricity market of February 2017 does regulate energy storage. The text of the proposal clarifies that DSOs should not be allowed, directly or indirectly, to own storage facilities.339 In respect of EVs, the EU has set for itself an ambitious target of reducing the use of internal combustion engine vehicles by 50% by 2030 and phasing them out entirely by 2050 as a part of efforts to reduce GHG emissions.340 The alternative fuels directive341 encourages Member States to develop systems that enable EVs to feed power back into the grid. In addition, the Commission has recently published a strategy for low-emission mobility, which seeks to promote the removal of obstacles to the scaling up of the use of EVs.342 1.3.3.3 Current status in Europe After conducting an overview of the distinct electricity storage technologies used in Europe at the end of 2012 and their expected increase in the ensuing 5 years, the CEER memo on development and regulation of electricity 336. Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity, 2009 O.J. (L 211) 55; Parliament and Council Directive 2009/73/EC, Concerning Common Rules for the Internal Market in Natural Gas, 2009 O.J. (L 211) 94; Parliament and Council Regulation 714/2009/EC, On Conditions for Access to the Network for Cross-Border Exchanges in Electricity, 2009 O.J. (L 211) 15; Parliament and Council Regulation 2009/715/EC, On Conditions for Access to the Natural Gas Transmission Networks, 2009 O.J. (L 211) 36; Parliament and Council Regulation 2009/713/EC, Establishing an Agency for the Cooperation of Energy Regulators, 2009 O.J. (L 211) 1. 337. Council of European Energy Regulators, CEER Memo on Development and Regulation of Electricity Storage Applications, at 3, (C14 EQS-54 04, July, 21, 2014). 338. Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity, 2009 O.J. (L 211) 55. 339. Commission Proposal for a Directive of the European Parliament and of the Council on Common Rules for the Internal Market in Electricity, at 82, COM (2016) 864 final/2 (Feb. 23, 2017). 340. Commission White Paper: Roadmap to a Single European Transport Area—Towards a Competitive and Resource-Efficient Transport System, at 9, COM (2011) 144 Final (Mar. 28, 2011). 341. Parliament and Council Directive 2014/94/EU, On the Deployment of Alternative Fuels Infrastructure, 2014 O.J. (L 307) 1. 342. Commission Communication to the European Parliament, The Council, The European Economic and Social Committee and the Committee of the Regions: A European Strategy for Low-Emission Mobility, COM (2016) 501 final (July 20, 2016).

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storage applications concluded that hydro-pumping storage is currently the most commonly used electricity storage technology.343 This picture is not expected to change considerably in the next several years. Although other technologies will be employed (e.g., flywheels, compressed air electricity storage, and electrochemical storage), they will still represent less than 3% of installed power.344 Even if they increase in number of applications, the associated growth in energy capacity will be minor. It is expected that electrochemical storage will increase by up to 100 MW thanks to new demonstration projects.345 However, this stands in contrast with hydro-pumped storage, which represents about 37 GW in storage capacity in the CEER Member States.346 Of course, the situation might change, even dramatically, thanks to breakthrough technologies.347 The regulation of storage assets faces many conceptual and practical challenges. Conceptually, there is no consensus on the definition of storage assets. The question of whether they should be treated as generation assets or consumption units is particularly unresolved. This lack of clarity stems from the fact that, while storage assets can generate electricity in the literal sense of “generation,” the amount of electricity generated is typically not enough to provide a net positive flow to the electricity system.348 On the other hand, they cannot be properly classified as consumption units because they do not actually consume the energy that they take up. Could they also be classified as part of a transmission or distribution network, given that they can be a bridge asset between generators and final consumers? The answers to these questions are fundamental to the development of an appropriate regulatory regime because they impact, inter alia, ownership, pricing, and the imposition of taxes and levies. Regarding issues of ownership, the CEER memo shows that in most European countries, storage applications are owned by generators even though, in some countries, network operators may, to a certain degree, own storage applications.349 In most European countries, storage can provide services to both network operators and generators and its primary users are owners.350 The ownership of storage assets is one of the challenges that

343. Crossley, P., 2013. Defining the Greatest Legal and Policy Obstacle to “Energy Storage,” 4 Renewable Energy L. & Pol’y Rev. 268. 344. Council of European Energy Regulators, CEER Memo on Development and Regulation of Electricity Storage Applications, at 2 3, (C14 EQS-54 04, July, 21, 2014). 345. Id. 346. Id. 347. Id.; Commission Staff Working Document on Energy Storage—the Role of Electricity, SWD (2017) 61 final, (Jan. 2, 2017). 348. Gissey, G.C., Dodds, P.E., Radcliffe, J., 2016. Regulatory Barriers to Energy Storage Deployment: The UK Perspective 2, RESTLESS Project, London. 349. Council of European Energy Regulators, CEER Memo on Development and Regulation of Electricity Storage Applications, at 3, (C14 EQS-54 04, July, 21, 2014). 350. Gissey, et al., supra note 348, at 3.

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impinges the development of appropriate regulation. While there is no doubt that market operators such as TSO would benefit from owning storage assets, their unique position in the market presents an information asymmetry which would operate unfairly to their advantage against other market players. This is particularly true if stored energy is participating in the balancing and ancillary markets. It is in response to this problem that current proposals for the Electricity Directive seek to proscribe the ownership of storage assets by the owners or operators of network infrastructure.351 The proposed proscription is in keeping with the EU’s unbundling policy as a bid to prevent countercompetitive activity in electricity markets. In Spain, although there is no general regulatory framework for electricity storage, there are hydro-pumped storage power plants that perform the function of providing power during hours of peak consumption.352 The only exception relates to the regulation of storage for small self-consumption systems. Under the Electricity Sector Law 24/2013, battery owners do not only have to pay an additional tax, but are also not allowed to reduce the maximum power they have under contract with their supplier.353 While it may be argued that this is intended to maintain grid integrity, when coupled with the high self-consumption tax, the regulatory regime for self-consumption, and storage appears to be ill-considered. In some cases, the regulatory framework not only does not promote, but actually hinders the development of storage. For example, in some countries, taxation is not favorable to storage, as typified by the “Grid Fee System.”354 Ordinarily, grid fees are paid by the final consumers of power as a fee for the transportation of electricity through the grid network.355 In the case of storage, operators of storage assets are first charged for charging the storage asset. The operators are then also charged for discharging it because of the notional double flow of electricity. In real terms, the storage asset is neither a producer nor consumer. Therefore the strict application of the traditional grid fee model should not extend to storage assets. Often, this double taxation is higher than power prices and results in a very strong disincentivization of electricity storage.356 Regarding EVs, the European Environment Agency reports that in 2015, 150,000 new EVs were sold in the EU. However, 90% of these sales were in

351. Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity, 2009 O.J. (L 211) 55. 352. Masson, et al., supra note 119, at 26. 353. Deign, J., Spain’s New Self-Consumption Law Makes Batteries Impractical for Homeowners, GreenTech Media, October 16, 2015. Available at https://www.greentechmedia. com/articles/read/spanish-self-consumption-law-allows-batteries-at-a-cost. (Accessed 31 July 2017); Ibid. 354. Crossley, P., 2013. Defining the Greatest Legal and Policy Obstacle to “Energy Storage,” 4 Renewable Energy L. & Pol’y Rev. 268. 355. European Parliament Committee on Industry, Research and Energy (ITRE), 2015. Study on Energy Storage: Which Market Designs and Regulatory Incentives Are Needed? (PE 563.469). 356. Id.

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FIGURE 1.2 EV sales in the EU. Note:  In 2010, 2011, and 2012, only statistics for battery electric vehicles are available.  The data for 2015 are provisional. European Environment Agency, 2016. Electric Vehicles in Europe (EEA Report), p. 49.

the Netherlands, the United Kingdom, Germany, France, Sweden, and Denmark.357 Despite a steady growth in the number of EVs sold in the EU over the years, the 2015 numbers represent only 1.2% of total vehicle sales. Fig. 1.2 shows the trend of EV sales since 2010. In countries such as Norway and the Netherlands, where EV sales are very high, regulatory incentives have played a large role in promoting consumer interest.358 These incentives include tax exemptions on EV purchases, one-off grants, and the imposition of taxes on fossil fuels. Fig. 1.3 summarizes the use of incentives for EVs across Europe. In Belgium, Greece, Hungary, Latvia, and the Netherlands, there is a full registration tax exemption on EV Purchases, 357. European Environment Agency, 2016. Report on Electric Vehicles in Europe 47. 358. Hockenos, P., With Norway in Lead, Europe Set for Surge in Electric Vehicles, Yale Env’t 360 (Feb. 6, 2017), https://e360.yale.edu/features/with-norway-in-the-lead-europe-set-for-breakout-on-electric-vehicles; European Vehicle Market Statistics, 2015/2016, Int’l Council on Clean Transp. (Nov. 25, 2015), http://www.theicct.org/european-vehicle-market-statistics-2015-2016.

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FIGURE 1.3 Use of incentives for EVs across Europe. EVs, electric vehicles. European Environment Agency, 2016. Electric Vehicles in Europe (EEA Report), p. 65.

whereas Denmark and Finland provide a partial exemption.359 Other financial schemes employed by governments are fixed grants, as employed in France and Portugal for replacing an end-of-life vehicle with a new EV. 359. European Environment Agency, 2016. Report on Electric Vehicles in Europe 60.

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Beyond promoting consumer interest, many countries also support research and development with a view to promoting innovation in the EV sector. Finland, for instance, instituted the Electric Vehicles Systems Programme in 2011 with a budget of EUR 100 million to support the growth of the EV sector.360 Governments have also taken various actions to support the development of infrastructure, particularly charging points. France, for instance, set up a special fund, for the construction of charging infrastructure, which led to the construction of 5000 charging points in 2015.361 In Sweden, individuals who installed charging points in their homes obtained a tax reduction for the associated labor cost.362 However, an emerging barrier to the large-scale deployment of charging infrastructure is that new, fast charging technology is not only expensive to install, but also requires high voltage input. The associated consumption fee is therefore high.363 Nonfinancial measures, particularly at the local government level, have also been instrumental towards the promotion of EVs in Europe. In the United Kingdom, for instance, some local councils have adopted a procurement policy that requires at least one EV amongst their fleet of vehicles.364 In Bulgaria, the National Action Plan for the promotion of EVs gave EVs free parking in all its cities.365 In other countries like Spain and Norway, road toll exemptions and discounts apply to EVs.366 As national responses to climate change and air pollution continue to increase in response to EU Directives, it is expected that many more countries will adopt policies that would enhance EVs and storage technology.

1.3.3.4 Toward regulatory policy recommendations Given the importance of unbundling of energy suppliers under the Third Energy Package, a definition of storage is necessary. Particularly, a clear delineation of which operators in the market can own, operate, or control these assets. Regulatory intervention would also be required to incentivize investment in the development of storage technologies. In the case of prosumers, given 360. Id. at 62 361. Hybrid & Electric Vehicle Technology Collaboration Programme, Int’l Energy Agency, http://www.ieahev.org/; Seaton, K., The Push for Electric Cars, The Connexion (Sept. 19, 2013), https://www.connexionfrance.com/Archive/The-push-for-electric-cars. 362. European Environment Agency, 2016. Report on Electric Vehicles in Europe 23. 363. Id. at 26. 364. McAllister, P., Huge New Study Compares Every UK Council’s Electric Vehicle Usage, Intelligent Car Leasing (Jan. 23, 2015), http://www.intelligentcarleasing.com/blog/new-studycompares-every-uk-council-electric-vehicles. 365. Macdonald, L., Bulgarian City Introduces Free Parking for Electric Cars, Eltis: The Urban Mobility Observatory (Nov. 12, 2014), http://www.eltis.org/discover/news/bulgarian-city-introduces-free-parking-electric-cars. 366. European Environment Agency, 2016. Report on Electric Vehicles in Europe 62.

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that they arguably contend with a double economic hurdle typified by the high cost of storage technology as well as uncertain and sometimes unfavorable market structures for self-generated electricity, the need for investment incentives must be coupled with favorable policies related to demand response mechanisms and self-generation/consumption of renewables. Ultimately, the impact of storage on electricity markets hinges largely on the economics of storage solutions. Therefore the institution of appropriate regulatory incentives is critical to ensuring the desired level of storage solutions. A review of grid fees structure is also necessary to avoid situations where storage assets pay double grid fees. Better consideration should be given to the kind of service provided by storage assets in determining the applicability or otherwise of grid fees or other similar taxes. In the grander scheme of facilitating the development of smart grids and electricity markets, the regulatory framework should not discriminate between DERs, thereby ensuring that storage resources are granted equal access to flexibility markets to enable them to compete equally with fossil-fuel-based generation units. Policy-makers should create incentives for consumers and companies to use EVs, in addition to the construction and operation of EV charging facilities. Such incentives might include lower taxes for EVs, higher taxes for vehicles using gasoline, the possibility for EVs to use exclusive taxi or bus lanes, and support for research and development activities. There are potential concerns. One is how realistic it is to expect states under financial and budgetary distress to pursue measures such as those enumerated above. Another is whether pursuing such measures could go against the State aid regime at the EU level. A further issue is under what conditions these support measures could be accepted and/or whether it would be desirable to amend the current State aid regime (e.g., through State aid guidelines that the Commission regularly produces over time across domains). It is also worth noting that the increase in the use of EVs will contribute to the increase in demand for electricity. The IEA research scenarios estimate that the transport sector will make up 10% of total electricity consumption by 2050, owing largely to the increase in EV and plug-in EV use.367 Therefore it is critical that EV deployment is done as part of a larger smart grids strategy to ensure strategic low-cost vehicle charging.

1.4 1.4.1

Social, environmental, and ethical issues of smart grids Introduction

In this section, the development of smart grids will be analyzed regarding its implications for social and ethical matters. This section draws primarily on 367. Int’l Energy Agency, 2011. Technology Roadmap: Smart Grids 12 https://www.iea.org/publications/freepublications/publication/smartgrids_roadmap.pdf.

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the EU context, although it has its conceptual background in international law and policy. Indeed, the ethical framework is founded on international human rights law as incorporated into the Treaty on the Functioning of the European Union (TFEU). The primary aim of considering the ethical framework when dealing with the development of smart grids is to ensure that smart grids contribute to the further realization of economic and social rights within a period of transition to a low-carbon society. Society needs to be engaged and should benefit from the technological transformations occurring in energy generation and consumption. This chapter highlights opportunities and potential downsides of the path toward the achievement of such goals. In Section 4.2, the chapter focuses on how smart grids can contribute to a broader economic transformation. It considers the economic transition occurring globally toward collaborative economics and how the EU aims to incorporate new market exchange models into smart grids energy systems. The section considers the potential social and environmental benefits in addition to the challenges that lie ahead in realizing policy goals about the future. Section 4.3 explores how the EU is working toward fostering more flexible, open, transparent, and dynamic policies within the energy sector. To achieve a low-carbon sustainable society that is fair and equitable for all, the new model also has to reduce the use of resources and to use them efficiently. The section also outlines the importance of new concepts in the management of resources, such as circular economy, which aims at closing the loop on waste and inefficiency throughout whole product lifecycles, including the design phase. In Section 4.4, the chapter takes up issues relating to ICT and smart grids. The first two sections give an overview of the key issues raised by the integration of ICT into energy systems and address the cybersecurity and privacy issues of smart grids. The final section considers international and EU legal responses to those issues, focusing on privacy and data protection, and Digital Systems Security.

1.4.2

Smart grids: contributing to the EU collaborative economy

The introduction of smart grids into the EU energy grid heralds a crucial transformation. The EU is in the process of investing in radical reform of the economic foundations upon which it depends. The strategic decisions that the EU adopts are driven by many interconnected factors and the main difficulties seem to be found not much within the technical aspects, but more within the policy-related, social, or regulatory issues.368 The approach to the transition to a low-carbon economy that the European Commission has embraced is based on new, flexible, dynamic, 368. Giordano, V., et al., 2013. Smart Grid Projects in Europe: Lessons Learned and Current Developments 9.

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digital, and resource-efficient economic models.369 This will increase the reuse of materials to add value to each product’s life-cycle and reduce dependency on sourcing natural resources externally. Such a moment of transition could be a substantial opportunity to overcome existing inequalities throughout the EU Member States while the EU economy continues to recover from the 2008 economic crisis.370 This section highlights the interlinkages between the different policy and governance approaches to sustainable development371 and resource efficiency within a collaborative economy. It considers such approaches to emphasize the role that smart grids could play toward achieving the EU’s policy goals. An introduction to the concept of the collaborative economy will be provided in Section 4.2.1. Section 4.2.2 focuses on the EU context, whereas Section 4.2.3 specifically links the potential of a collaborative economy with a smart grids energy system. The final section focuses specifically on energy poverty, as an example of the social benefits that the collaborative economy can provide.

1.4.2.1 The collaborative economy: a “Disruptive Innovation” The collaborative economy has become a major phenomenon in recent years due to increased business opportunities made possible by advances in digital ICT.372 The digital economy has opened up new innovative ways for people to engage in the market exchange of goods and services that circumvent existing institutional economic structures.373 The collaborative economy provides the opportunity for individuals and/or communities to offer their assets, time, and skills within the digital market place.374 This is particularly relevant to 369. Press Release IP/10/225, European Comm’n, On Europe 2020: Commission Proposes New Economic Strategy in Europe; Commission Communication for a Roadmap for Moving to a Competitive Low Carbon Economy in 2050, COM (2011) 112 final. 370. Papandreou, A.A., 2015. The Great Recession and the Transition to a Low-Carbon Economy (FESSUD Working Paper Series no. 88), http://fessud.eu/wp-content/uploads/2015/01/ The-Great-Recession-and-the-transition-to-a-low-carbon-economy-Working-paper-88.pdf. 371. Sustainable development has been one of the main objectives of the European Union since it was included in the Treaty of Amsterdam (signed in 1997) as an overarching principle that inspires all the other EU policies objective of EU policies. 372. Various terms are used, mostly interchangeably, such as collaborative economy, sharing economy, peer to peer (P2P) economy, access economy, collaborative consumption, and demand economy—among others—to describe the new economic phenomena. See Hatzopoulos, V., Roma, S., 2017. Caring for Sharing? The Collaborative Economy Under EU Law, 54 Common Mkt. L. Rev. 81, 81 127. This chapter will use the preferred term by the European Commission “collaborative economy.” 373. Commission Communication Regarding Entrepreneurship 2020 Action Plan, Reigniting the Entrepreneurial Spirit in Europe, COM (2012) 795 final. 374. Lougher, G., Kalmanowicz, S., 2016. EU competition law in the sharing economy, J Eur Competition L Prac 7, 87.

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those looking to develop market mechanisms to tap into low-carbon energy generation and distribution from decentralized energy communities.375 The collaborative economy is a phenomenon that can profoundly change the way consumers buy or rent goods and services. It can also allow consumers to enter the market to provide goods, services, time, or skills themselves and become prosumers. Within such business models, the traditional business-to-consumer relationship is no longer the norm. A trilateral relationship is created instead: the consumer, the provider of a service or good, and the intermediary platform, with anyone being one or more of these actors.376 The collaborative economy business models, unlike traditional markets, are based on relationships of trust, reputation, and reviews systems. The advent of the collaborative economy, also referred to as the sharing economy, is what economists call a “disruptive innovation” while some even talk of it being, alongside the digital economy, “the fourth industrial revolution.”377 The concept of sharing goods and services is not without historical precedence. What differentiates traditional collaborative economic activities with the proper collaborative economy is that the sharing/collaborative model “has progressed from a community practice into a profitable business model.”378 The concept has a certain dynamism that fits within the advent of artificial intelligence, big data, and 3D printing.379 The collaborative economy represents a big change from traditional markets by bringing operators to modernize their offer and business models. This competition is generally good for consumers.380 It can indeed make consumer markets more efficient, as it brings down transaction costs and is able to offer cheaper products and services. As the phenomenon penetrates more into people’s everyday lives, it is important that appropriate regulatory frameworks are adopted to provide essential services, such as energy. This must be done in such a way that the dynamism and flexibility of the exchanges between new small-scale enterprises providing services is not undermined. The collaborative economy 375. Nadia Ciocoiu, C., 2011. Integrating digital economy and green economy: opportunities for sustainable development, 6 Theor Emp Res Urb Mgmt 33, 33 43. 376. Lougher & Kalmanowicz, supra note 374. 377. Schwab, K., The Fourth Industrial Revolution: What It Means and How to Respond, Foreign Aff. (Dec. 12, 2015), https://www.foreignaffairs.com/articles/2015-12-12/fourth-industrial-revolution. 378. Bo¨ckmann, M., 2013. The Shared Economy: It Is Time to Start Caring About Sharing; Value Creating Factors in the Shared Economy, https://static1.squarespace.com/static/ 58d6cd33f5e231abb448d827/t/58ea595e1b10e3a416e8ab5b/1491753311257/bockmann-sharedeconomy.pdf. 379. Schwab, K., The Fourth Industrial Revolution: What It Means and How to Respond, Foreign Aff. (Dec. 12, 2015), https://www.foreignaffairs.com/articles/2015-12-12/fourth-industrial-revolution. 380. Beltra, G., The Consumer-Policy Nuts and Bolts of the Sharing Economy, BEUC: The European Consumer Org. (Oct. 26, 2011), http://www.beuc.eu/blog/the-consumer-policy-nutsand-bolts-of-the-sharing-economy/.

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offers many benefits to consumers and prosumers. But it also presents risks. Advantages and disadvantages of the collective economy will be analyzed in the following subsection, which focuses on the European context.

1.4.2.2 The EU and the collaborative economy Assisting consumers, businesses, and public authorities to participate and contribute to the success of a collaborative economy is central to the future economic strategy of the EU and the EU sees the collaborative economy as a new opportunity.381 Commission Vice-President Jyrki Katainen even stated that “Europe’s next unicorn could stem from the collaborative economy,” stressing the innovative potential that might be revealed through the collaborative economy in the area of products or services.382 When considering such a new business model, the EU is also aware of the scale of challenges faced by the delivery of such benefits.383 The new economic model should happen without undermining existing consumer and employment rights, alongside other regulations on health, safety, and the environment. The European Commission cautions that a “fragmented approach to new business models creates uncertainty for traditional operators, new services providers, and consumers alike and may hamper innovation, job creation, and growth.”384 The implications of the sharing economy for law, regulation, and policy-making are only beginning to be considered.385 The European Commission, national competition authorities, and consumer protection regulators in Europe are currently in the process of formulating their regulatory approach to address some idiosyncratic issues raised by the sharing economy. When adopting the Single Market Strategy in 2015, the European Commission announced that it “will develop a European agenda for the collaborative economy, including guidance on how existing EU law applies to collaborative economy business models.”386 Currently, the nonregulatory approach followed by the EU relies on many preexisting legal 381. European Commission Press Release, On a European Agenda for the Collaborative Economy, June 2, 2016, http://europa.eu/rapid/press-release_IP-16-2001_en.htm. 382. Beltra, supra note 380. 383. European Commission Press Release, On a European Agenda for the Collaborative Economy, June 2, 2016, http://europa.eu/rapid/press-release_IP-16-2001_en.htm. 384. Id. 385. See Rauch, D.E., Schleicher, D., 2015. Like Uber, but for Local Governmental Policy: The Future of Local Regulation of the “Sharing Economy,” (George Mason University Law & Economics Research Paper, no. 15 01, 1 61); Koopman, C., et al., 2014. The sharing economy and consumer protection regulation: the case for policy change, 8 J Bus Entrepreneurship L, 529, 530 545; Katz, V., 2015. Regulating the Sharing Economy, 30 Berkeley Tech L J, 1067, 1068 1126. 386. Commission Staff Working Document Accompanying the Document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions—A European Agenda for the Collaborative Economy—Supporting Analysis, SWD (2016) 184 final (June 2, 2016).

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concepts. These concepts are often ill-adapted to this new model of doing business, thus bearing the risk of extreme fragmentation along national lines.387 This will frustrate efforts to incorporate the collaborative economy into the updated Single Market Strategy,388 including the European Energy Union.389 The collaborative economy’s expansion and success is intrinsically linked with new technologies. Cloud computing390 facilities are considered integral by the European Commission for creating new opportunities to foster innovative business models, including the collective economy, because many new innovations depend on access to data at reduced costs.391 Special Rapporteur Hans Graux notes that “small businesses [ . . .0] in particular can benefit from the cloud, as they can gain access to high-performance IT solutions, which will help them to adapt quickly to new market developments and to innovate and grow their businesses faster.”392 Given this perspective, the cloud has an enormous role to play in delivering decentralized energy provisions in the EU energy generation. It will open up opportunities for new small- and medium-scale actors to manage data from wireless and internet applications that increasingly constitute smart grids.

387. Hatzopoulos, V., Roma, S., 2017. Caring for Sharing? The Collaborative Economy Under EU Law, 54 Common. Mkt. L. Rev., 81, 81 127. 388. The Single Market Strategy aims at enabling people, services, goods and capital to move more freely, offering opportunities for businesses and lowering prices for consumers. It also makes possible for citizens to travel, live, work or study wherever they prefer. In 2015 the European Commission presented a new Single Market Strategy to deliver a deeper and fairer Single Market, that takes into account new concepts and other strategies, such as the European Energy Union and the Digital Single Market Strategy. Communication from the Commission, Upgrading the Single Market: More Opportunities for People and Business, COM (2015) 550 final (Oct. 28, 2015). 389. The European Energy Union was launched in February 2015 by the Commission, and it aims at ensuring that consumers and businesses have access to secure, affordable and climatefriendly energy and making the internal energy market a reality across the EU. The last report on the state of the Energy Union has been released in February 2017. Commission Staff Working Document: Monitoring Progress Towards the Energy Union Objectives—Key Indicators, SWD (2017) 32 final (Feb. 1, 2017). 390. Cloud computing makes possible for users to access scalable and shareable pool of remote computing resources (such as networks, servers, storage, applications, and services). This, consequently, means that investing in their own IT infrastructure is not necessary and that they can better share that IT infrastructure. The current policy on cloud computing is set within the Digital Single Market Strategy for Europe. Shawish, A., Salama, M., 2014. Cloud computing: paradigms and technologies. In: Xhafa, F., Bessis, N. (Eds.) Inter-cooperative Collective Intelligence: Techniques and Applications, Studies in Computational Intelligence p. 495. 391. Communication from the Commission, Unleashing the Potential of Cloud Computing in Europe, COM (2012) 529 final (Sept. 27, 2012). 392. European Cloud Partnership Steering Board, 2014. Establishing a Trusted Cloud Europe, 8, https://www.asktheeu.org/en/request/3990/response/12724/attach/11/20140318%20ECP% 20Vision%20Document%20FINAL%20v4.pdf.

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1.4.2.3 Smart grids: a platform for the collaborative economy Smart grids are “an integrated system that includes technologies, information (availability, accessibility, utility), human and social influences, organizational and managerial supporting arrangements, and political (policy) constraints as well as facilitation considerations.”393 Smart metering systems are one stepping stone toward smart grids, empowering consumers to actively participate in the energy market. Under Directive 2009/72/EC and Directive 2009/73/EC of the European Parliament and of the Council, EU Member States are required to “ensure the implementation of intelligent metering systems to assist the active participation of consumers in the electricity and gas supply markets.”394 It is also an initiative to increase the number of energy providers within the European Energy Union Strategy.395 The European Commission explicitly acknowledged its Energy Union as a strategy “with citizens at its core, where they take ownership of the energy transition, benefit from new technologies to reduce their bills, participate actively in the market, and where vulnerable consumers are protected.”396 Local energy consumers are crucial to delivering a new power market design that enables consumers to participate in the market through demand-side response, auto-production, smart metering, and storage. In the Winter Package proposed by the European Commission in 2016, EU Member States are required to provide an enabling regulatory framework for local energy communities and users.397 With the appropriate regulatory and legal frameworks to incentivize the participation of consumers, the energy economy has the potential to switch from a traditional supply-side driven system controlled by energy cartels into a demand-led decentralized model that fosters competition from localized providers.398 This potentially opens economic and societal space for the 393. Katina, P.F., et al., 2016. A criticality-based approach for the analysis of smart grids, 1:14 Tech. & Econ. Smart Grids & Sustainable Energy 1, 1 20 (2016). 394. Parliament and Council Directive 2012/27/EU, supra note 266, z 31. 395. Arias Can˜ete, M., Commissioner for Climate Action & Energy, Speech at the European Commission, Smart Grids for a Smart Energy Union, (March 31, 2015). 396. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank: A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy, at 2, COM (2015) 080 final (Feb. 25, 2015). 397. Commission Proposal for a Directive of the European Parliament and of the Council on Common Rules for the Internal Market in Electricity, at 68, COM (2016) 864 final/2 (Feb. 23, 2017). The proposal defines the concept of local energy community as “an association, a cooperative, a partnership, a nonprofit organization or other legal entity which is effectively controlled by local shareholders or members, generally value rather than profit-driven, involved in distributed generation and in performing activities of a distribution system operator, supplier or aggregator at local level, including across borders.” Id. at 52. 398. Clastres, C., 2011. Smart Grids: Another Step Towards Competition, Energy Security and Climate Change Objectives, 39 Energy Pol’y, 5399, 5399 5408.

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emergence of the energy prosumer at a level that is truly transformative. Political priority will need to support decentralization, countering decades of investment of political capital—and the requisite legal infrastructure—for large-scale energy business, including national companies. This demonstrates that decentralization can deliver secure, affordable, and sustainable energy supplies and could potentially provide the necessary persuasion to governments and citizens alike to embrace new energy systems.

1.4.2.4 Delivering social benefits in a collaborative economy The relationship between new technologies and social change is at the core of the energy/climate debate.399 There is an overwhelming belief that informed individuals will make rational choices that will benefit society and the environment. Nonetheless, the embedding of new technologies within society can have unforeseen consequences. It is very interesting to consider the unplanned consequences, and perhaps even the distorted incentives, that the upscaled adoption of new technologies into the very structure of society and our economy can have. There is a need to question the “smart utopia” being offered.400 One goal underpinning energy reforms is to address energy poverty across Europe. On average, 11%—over 54 million—of EU citizens experienced some form of energy poverty (being unable to keep homes at ambient temperatures, having difficulty with bill payments and/or living with inadequate energy infrastructure services).401 The situation is especially pervasive in Central Eastern and Southern European Member States.402 In addition to the cost in economic terms, the negative social and environmental impacts of energy poverty severely curtail the quality of life of vulnerable individuals and communities. Despite this, only a few EU countries have adopted legal definitions recognizing energy poverty.403 The causes of energy poverty are multiple. A key issue is the structure of energy markets, which impacts energy pricing and determines, to some level, incentives for more efficient energy use. Investments in upgrading and incorporating modern digital ICT into the energy system need to tackle energy poverty at the forefront of their ambitions. 399. Bickerstaff, K. et al., 2016. Decarbonisation at Home: the Contingent Politics of Experimental Domestic Energy Technologies, 48 Env’t & Planning A, 2006, 2006 2025. 400. Strengers, Y., 2013. Smart Energy Technologies in Everyday Life: Smart Utopia?. 401. INSIGHT_E, Policy Report on Energy Poverty and Vulnerable Consumers in the Energy Sector Across the EU: Analysis of Policies and Measures 1 (May 2015). 402. Bouzarovski, S.,Petrova, S., 2015. The EU energy poverty and vulnerability agenda: an emergent domain of transnational action. In: Tosun, J., et al. (Eds.) Energy Policy Making in the EU: Building the Agenda, pp. 129 144. 403. They are the United Kingdom, Ireland, France, and Cyprus. INSIGHT_E, Policy Report on Energy Poverty and Vulnerable Consumers in the Energy Sector Across the EU: Analysis of Policies and Measures, at v (May 2015).

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The potential of smart grids to contribute to addressing energy poverty in the EU will be determined by key policy and regulatory decisions. Policy design needs to take account of the interconnections with other related strategies being pursued by the EU. The Digital Single Market Strategy is central to smart grids’ achieving economic value. Such a strategy focuses on maximizing the growth of Digital Economy potential by boosting competitiveness.404 It is clear that ICT is already leading to new business models—as part of the new collaborative economy—and there is great speculation that, with the appropriate regulation, such new models could facilitate a more social just and equitable economy within Europe, and globally.405 Nonetheless, whether these models can actually play a role in tackling some of the energy poverty issues remains to be seen. To determine how best to ensure energy poverty is addressed, a distinction needs to be made between traditional consumers and those who are active service providers in the collaborative economy. The demographic affected by energy poverty and new service providers within the collaborative economy are by no means aligned. Energy poverty occurs largely in marginalized, vulnerable, and poorer communities, often in rural areas and small towns.406 The actors driving the collaborative economy tend to be from urban and affluent communities.407 Individually, the profiles also differ from that those who are active in forming and benefitting from the opportunities of the collaborative economy come from well-educated, younger, and technologically literate cohorts of the population.408 However, it is argued that the collaborative economy opens up opportunities to young marginalized communities, who can enter the business sector without the need to meet professional cultural standards.409 There are also concerns that transnational corporate players within the collaborative economy could appropriate emergent micro-entrepreneurs. Such companies have actively sought to lobby the law-making process within the EU. In a 2016 open letter to the Netherlands Presidency of the Council of the EU, 47 commercial sharing platforms, including Uber and Airbnb, urged the EU Member States to “ensure that local and national laws do not 404. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: A Digital Single Market Strategy for Europe, at 15, COM (2015) 192 final (May 6, 2015). 405. Halff, A., Sovacool, B.K., Rozhon, J., 2014. Energy Poverty: Global Challenges and Local Solutions. 406. INSIGHT_E, Policy Report on Energy Poverty and Vulnerable Consumers in the Energy Sector Across the EU: Analysis of Policies and Measures 1 (May 2015). 407. JCB Science for Policy Report, 2016. The Passions and the Interests: Unpacking the “Sharing Economy”. 408. Dillahunt, T.R., Malone, A.R., 2015. The Promise of the Sharing Economy Among Disadvantaged Communities (CHI ’15 Proceedings of the 33rd Annual ACM Conference on Human Factors in Computing Systems, no. 23, at 2285 2294). 409. JCB Science for Policy Report, 2016. The Passions and the Interests: Unpacking the “Sharing Economy”.

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unnecessarily limit the development of the collaborative economy to the detriment of Europeans” by citing the benefits stemming from sharing services.410 It is integral that “benefits” are understood to be social ones and not just “commercial” benefits. For the collaborative economy to be socially sustainable, these benefits need to be available not just to those who can become market providers, but also to service users.411 The collaborative economy as a fluid, flexible organizing market, will not per se result in affordable energy pricing targeting those most in need.412 However, it can deliver opportunities in terms of efficiency and affordability to consumers. Such potential depends on the structure of the energy market. Decentralization to increase competition, although part of the EU energy reform packages, has resulted in limiting competition even amongst largescale providers. The goal under EU energy strategies to increase energy cooperatives that can deliver energy locally with the greatest efficiencies requires clear policy incentives. This will need government intervention to ensure that social opportunities are realized. Delivering social and environmental benefits to all must be at the core of the pathways to achieve a lowcarbon energy transition. The next section considers how the EU is approaching the challenges.

1.4.3

Low-carbon transition pathways and smart grids

1.4.3.1 Conceptualizing issues The adoption of smart grids can have a vast positive impact on EU policy on energy and climate. The 2015 Paris Agreement has provided a significant boost to deliver the policies agreed by the EU countries on energy and climate.413 The Agreement is a global driver of investment in technology, law, and policy to achieve a low-carbon world. The potential pathways to achieve this energy transition are many but principles of justice, equity, and fairness should inspire the whole approach to the change. The United Nations (UN) Paris Agreement’s stated goal for the maximum increase of the global average temperature is between 2 C and 1.5 C above preindustrial levels.414 A warming of 2 C will result in a new climate 410. Newlands, G., et al., 2017. Report from the EU H2020 Research Project Ps2Share: Participation, Privacy, and Power in the Sharing Economy: Power in the Sharing Economy. 411. Nica, E., Potcoravu, A., 2015. The Social Sustainability of the Sharing Economy, 10 Econ, Mgmt Fin Mkts, 69, 69 75. 412. Bauwens, M., Kostakis, V., 2014. From the Communism of Capital to Capital for the Commons: Towards an Open Co-operativism, 12 Triple C J. a Global Sustainable Info. Soc’y 356, 356 61. 413. Arias Can˜ete, M., Speech on EU’s Climate and Energy Policies After COP 21 (Feb. 8, 2016), (transcript available at http://bruegel.org/2016/02/speech-by-miguel-arias-canete-on-eusclimate-and-energy-policies-after-cop21/). 414. Paris Agreement, art. 2.1(a).

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regime, particularly in tropical regions, whereas 1.5 C of warming will bring the Earth to a climate at the outer edge of historical experience for human civilization.415 The risks associated with the rising global temperature are driving action that will have political, economic, environmental, and social impacts.416 Either temperature outcome under the Paris Agreement will have impacts on existing energy systems, especially the infrastructure for generation and distribution.417 Both the 2 C and 1.5 C targets are likely to be missed. Maintaining security and resilience requires engineers, policymakers, and regulators to create climate-proofed energy systems as part of the process toward a low-carbon new model. The EU has recognized the scale of the task. The EU’s Sixth Environmental Action Programme (EAP) identified climate change as the “outstanding challenge of the next 10 years and beyond.”418 It has deliberately interlinked climate change policy with energy policy to develop pathways toward a low-carbon economy.419 To encourage the transition to a more secure, affordable, and decarbonized energy system,420 the EU adopted climate and energy targets to be achieved in the coming decades. In 2007 the “Europe 2020 Strategy” set three key targets: 20% cut in GHG emissions (from 1990 levels), 20% of EU energy from renewables, and 20% improvement in energy efficiency.421 In 2014 the 415. Schleussner, C.-F., et al., 2016. Differential Climate Impacts for Policy-Relevant Limits to Global Warming: The Case of 1.5 C and 2 C, 7 Earth Sys. Dynamics 327, 327 351. 416. Burke, M., et al., 2015. Global Non-Linear Effect of Temperature on Economic Production, 527 Nature 235, 235 239. 417. Joeri Rogelj, et al., 2016. Paris Agreement Climate Proposals Need a Boost to Keep Warming Well Below 2  C, 534 Nature 631, 631 39. 418. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the Mid-term review of the Sixth Community Environment Action Programme, COM (2007) 225 final (Apr. 30, 2007). However, recent research shows that climate researchers have been underestimating the amount of carbon dioxide that is possible to emit to be compatible with the ambitions expressed in the Paris Agreement on Climate Change. In other words, the world may be in a position to emit significantly more CO2 in the next few decades than was previously announced and still be in compliance with the requirements of the Paris Agreement. See Millar, R.J., et al., 2017. Emission budgets and pathways consistent with limiting warming to 1.5  C, 10 Nature Geosci 741 47. 419. The issue of climate change mitigation has even reached democratic levels as close to citizens as teenagers suing the US federal government as part of efforts to force action to request climate action. See Nijhuis, M., The Teen-agers Suing over Climate Change, The New Yorker (Dec. 6, 2016). See also Geiling, N., In: Landmark Case, Dutch Citizens Sue Their Government over Failure to Act on Climate Change, Think Progress (Apr. 14, 2015), https://thinkprogress. org/in-landmark-case-dutch-citizens-sue-their-government-over-failure-to-act-on-climate-changee01ebb9c3af7/. 420. Leal-Arcas, R., 2016. The Transition Towards Decarbonization: A Legal and Policy Examination of the European Union (Queen Mary School of Law Legal Studies Research Paper No. 222/2016). 421. Commission Communication, Europe 2020: A strategy for Smart, Sustainable and Inclusive Growth, COM (2010) 2020 final (Mar. 3, 2010).

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EU set the target to reduce GHG emissions by at least 40% by 2030 from 1990 levels.422 The EU also adopted a long-term goal aiming at reducing EU GHG emissions by 80% 95% below 1990 levels by 2050.423 In February 2015, the Energy Union Strategy was launched, with the goal of leading to a sustainable, low-carbon, and environmentally friendly economy.424 Despite such ambitious targets, the link between energy and climaterelated issues is relatively new within the EU. Although energy issues have always been at the heart of European integration, energy-related topics (such as climate change policy, renewable energy, energy planning, and energy security of supply) have only gained in importance to the EU’s policy and regulation agenda since the concept of sustainability increased in importance at the European and international425 level.426 Such a different approach has resulted in considering the three dimensions of sustainability (economic, environmental, and social) within any EU policy. It is encouraging that energy and environmental regulation are now clearly understood to be two sides of the same coin, whereas previously they were perceived as separate competences.427 Developing strategies to achieve both climate and energy targets will require effective institutional management and good multilevel governance involving existing and new actors. A new transitional approach will help to achieve such a goal from an institutional point of view.

422. European Council, Conclusions on 2030 Climate and Energy Policy Framework, SN 79/14 (Oct. 23, 2014). 423. Commission Communication to the European Commission, Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Energy Roadmap 2050, COM (2011) 885 final (Dec. 15, 2011); Fujiwara, N., 2016. Overview of the EU Climate Policy Based on the 2030 Framework. In: Heffron, R., Little, G.F.M. (Eds.) Delivering Energy Law and Policy in the EU and the US 605, pp. 605 609. 424. Commission Communication on Unleashing the Potential of Cloud Computing in Europe, COM (2012) 529 final (Sept. 27, 2012). 425. Indeed, at the international level, a relatively new initiative called the International Solar Alliance, launched by India’s Prime Minister Modi and France’s President Francoise Hollande, is very promising as a mechanism to mitigate climate change. It is expected to channel $300 billion in 10 years for the promotion of renewable energy projects. See Mishra, T., Sun Shines on $300 Billion Global Fund for Clean Energy, Hindu Bus. Line (May 1, 2017), http://www.thehindubusinessline.com/economy/sun-shines-on-300billion-global-fund-for-clean-energy/article9675599.ece. 426. Solorio, I., et al., 2013. The European energy policy and its green dimension—discursive hegemony and policy variations in the greening of energy policy. In: Barnes, P.C., Hoerber, T.C. (Eds.) Sustainable Development and Governance in Europe. 427. Orlando, E., 2014. The evolution of EU policy and law in the environmental field: achievements and current challenges. In: Bakker, C., Francioni, F. (Eds.) The EU, the US and Global Climate Governance, p. 74.

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Until quite recently, the concept of transitional justice has been associated only with postconflict truth and reconciliation processes.428 However, an increasing number of justice scholars are seeing the value of applying the concept to other political and legal developments related to human rights, including natural resources management and climate change law.429 A multidisciplinary approach to exploring the discourse and practice of transitional strategies within EU climate and energy policy can offer a conceptual foundation for understanding the justice dimension of the dynamic normative transition within other jurisdictions and contexts. A transitional justice approach to the transformation from a carbon-dominant energy system to one based on smart grids and renewables could offer the EU a methodological pathway that will help address pressing social issues such as energy poverty. This approach already exists in varying degrees in all European countries, as discussed in Section 4.2.4. It is evident that the EU is seeking to undertake a transformation toward a low-carbon economy that can meet these challenges. The EU is increasingly seeking to include such principles within those laws and policies that aim at achieving resilient economic, social, and environmental systems.430 The intersection of social, economic, environmental, and political rights across all communities of energy users, including marginalized and vulnerable groups, needs to be explored as part of a more interconnected examination of each of the EU’s actions, especially considering its leading position of addressing environmental issues adopting a more inclusive, holistic, and integrated approach.431 The Fifth EAP (1993) was a reaction to the perceived failure of regulatory measures to achieve environmental goals. The Fifth EAP abandoned the traditional “command-and-control” approach in favor of innovative regulatory models that implied “shared responsibility between various actors: government, industry, and the public.”432 The EU welcomed the principle of sustainable development, combining economic, social, and environmental aspects in 1997 when EU Member States adopted the Amsterdam Treaty.433 This is now incorporated in Article 3(3) of the Treaty on

428. Roht-Arriaza, N., Mariezcurrena, J., 2006. Transitional Justice in the Twenty-First Century: Beyond Truth Versus Justice. 429. Teitel, R.G., 2014. Globalizing Transitional Justice: Contemporary Essays; Franzki, H., Carolina Olarte, M., 2014. Understanding the political economy of transitional justice: a critical theory perspective. In: Buckley-Ziste, S., et al. (Eds.) Transitional Justice Theories, pp. 201 218. 430. ClientEarth, 2011. Identifying Opportunities for Sustainable Public Procurement Briefing Series, Briefing No. 1: Sustainable Development as a Key Policy Objective of the European Union. 431. Id. 432. Towards Sustainability: A European Community Programme of Policy and Action in Relation to the Environment and Sustainable Development, 1993 O.J. (C 138) 5, (May 17, 1993). 433. Treaty of Amsterdam Amending the Treaty on European Union, the Treaties Establishing the European Communities and Certain Related Acts, Oct. 2, 1997, 1997 O.J. (C 340) 1.

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European Union (TEU), and it can be considered a “constitutional objective” of the EU.434 In 2001 the European Council adopted the EU Sustainable Development Strategy, “a long-term strategy dovetailing policies for economically, socially, and ecologically sustainable development.”435 After this important step, the Sixth EAP (2002) advocated “a more inclusive approach including more specific targets and an increased use of market-based measures.”436 This aims at strengthening the integration of environmental concerns into other policies, in an attempt to foster greater engagement and implementation by EU Member States.437 The most recent EAP, the Seventh EAP (2013),438 emphasizes decoupling economic growth from carbon emissions and establishing a circular economy.439 To achieve its goals, the Seventh EAP commits to a better integration of environmental concerns into other policy areas and ensures coherence when creating new policy. Strategic initiatives feeding into the Seventh EAP include the Roadmap to a Resource Efficient Europe440 and the Roadmap for a low-carbon economy by 2050.441 The EU Climate and Energy Package focuses on the fact that some contradictions can arise between the instruments to reduce GHG emissions and the protection of the environment. Although the EU is still not sure whether the package succeeds in balancing climate change mitigation with other environmental protection goals, it succeeds in supporting climate change 434. The objective of sustainable development can be found in the Constitutions of other jurisdictions (such as South Africa), but the European Union as a supranational region is the only one that refers to such objective for more than one country. Article 3(3) of the Treaty on European Union (TEU) provides that “The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.” Also, according to Article 3(5) TEU, the EU shall contribute to “the sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human rights.” Treaty on European Union, art. 3, Oct. 26, 2012, 2012 O.J. (C 326) 1. 435. Commission Communication, A Sustainable Europe for a Better World: A European Union Strategy for Sustainable Development, at 1, COM (2001) 264 Final (May 15, 2001). 436. European Comm’n, 2001. Environment 2010: Our Future, Our Choice. 6th EU Environment Action Programme, http://ec.europa.eu/environment/air/pdf/6eapbooklet_en.pdf. 437. Id. 438. Parliament and Council Decision 1386/2013/EU, On a General Union Environment Action Programme to 2020 “Living Well, Within the Limits of Our Planet,” 2013 O.J. (L354) 171 439. Environment Action Programme to 2020, European Comm’n, (last updated June 8, 2016) http://ec.europa.eu/environment/action-programme/. 440. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Roadmap to a Resource Efficient Europe, COM (2011) 571 final (Sept. 20, 2011). 441. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, A Roadmap for Moving to a Competitive Low Carbon Economy in 2050, COM (2011) 112 final (Aug. 3, 2011).

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mainstreaming.442 The EU’s climate policy and leadership on sustainability governance contrasts with the complexities of the internal energy market. Sustainability governance is still rather underdeveloped,443 despite the overuse of the term “sustainability” in a significant number of legal instruments advocating for it.444 Meeting renewable energy demands in a low-carbon economy will need to be done in a manner that does not result in negative impacts on the environment.445 The EU, as a governance body, continues to invest in advancing innovative approaches to policy-making in its pursuit of realizing sustainable development.446 In the 1990s, Collier observed that environmental policy integration is necessary for “achieving sustainable development and preventing environmental damage; removing contradictions between policies as well as within policies, and realizing mutual benefits and the goal of making policies mutually supportive.”447 Given today’s challenges of energy security of supply, climate change, biodiversity conservation, and the need for an equitable allocation of resources, sustainable development is perceived as a new constitutional paradigm, and is now even more essential to the EU’s regulatory frameworks than when the concept was coined in 1987.448 The adoption of the Sustainable Development Goals449 by the international community at the UN General Assembly in September 2015 provided the EU with an opportunity to push forward the key principles of the TFEU and incorporate them into the very fabric of policy-making, both substantively and procedurally.450

442. Montini, M., Orlando, E., 2012. Balancing Climate Change Mitigation and Environmental Protection Interests in the EU Directive on Carbon Capture and Storage, 3 Climate L. 165. 443. For an analysis, see Leal-Arcas, R., 2017. Sustainability, Common Concern, and Public Goods, 49 Geo. Wash. Int’l. L. Rev. 801. 444. S´anchez Galera, M.D., 2017. The Integration of Energy Environment under the Paradigm of Sustainability Threatened by the Hurdles of the Internal Energy Market, 26 Eur Energy Env’t L Rev 13. 445. Hastik, R., et al., 2016. Using the “Footprint” Approach to Examine the Potentials and Impacts of Renewable Energy Sources in the European Alps, 36 Mountain Res. Dev. 130, 131. 446. European Comm’n, State of the Union 2016: Strengthening European Investments for Jobs and Growth (Sept. 14, 2016), http://europa.eu/rapid/press-release_IP-16-3002_en.htm [https:// perma.cc/RW4A-PSY3]. 447. Ute Collier, Energy and Environment in the European Union 36 (1994). 448. S´anchez Galera, supra note 444. 449. The 17 Sustainable Development Goals (SDGs) are part of the 2030 Agenda for Sustainable Development. They call for action by all countries, poor, rich, and middle-income, to promote prosperity while protecting the planet. End of poverty must be achieved together with economic growth, considering both social needs, climate change, and environmental protection. The SDGs are not legally binding, but governments are expected to take ownership and establish national policy strategies for their achievement. G.A. Res. 70/1, Transforming Our World: The 2030 Agenda for Sustainable Development (Sept. 25, 2015). 450. European Comm’n, Sustainable Development: EU Sets out Its Priorities (Nov. 22, 2016).

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As part of the 2030 Agenda for Sustainable Development,451 the EU is keen to reform its policy-making approach to ensure that it considers longterm impacts. In measuring progress toward sustainable transitions and human well-being within the physical limits of the planet, it is necessary to assess environmental sustainability. The so-called “planetary boundaries”452 for carbon emissions, water use, and land use are being modeled to determine the ecological space available for sustainable development. “Growing scientific evidence for the indispensable role of environmental sustainability in sustainable development calls for appropriate frameworks and indicators for environmental sustainability assessment.”453 Most decision-support systems and recommendations developed to analyze trade-offs between lowcarbon energy generation and other interests have focused on single energy sources such as biomass, wind energy, and hydropower. A way to represent the pressure that humanity exerts on the Earth’s ecosystems is to measure humanity’s environmental footprint.454 Recently, a growing list of such footprints has been created such as the ecological footprint, the carbon footprint, and the water footprint.455 The anthropogenic impact on the planet needs to be taken up by policy-makers, economists, and lawyers when designing long-term strategies for pathways to a low-carbon world, including those working on smart grids energy systems. The concept of building resilience into the system has increasingly complemented the debate on sustainability456 and has focused on long-term solutions. The European Environmental Agency has called for: increased use of foresight methods, such as horizon scanning, scenario development and visioning [which] could strengthen long-term decision-making by bringing together different perspectives and disciplines, and developing

451. Commission Communication to the European Parliament, The Council, The European Economic and Social Committee and the Committee of the Regions Next Steps for a Sustainable European Future European Action for Sustainability, at 2 3, COM (2016) 739 final (Nov. 22, 2016). 452. Rockstro¨m, J., et al., 2009. Planetary Boundaries: Exploring the Safe Operating Space for Humanity, 14 Ecol. & Soc’y. 32. For a 2015 update, see Steffen, W., et al., 2015. Planetary boundaries: Guiding Human Development on a Changing Planet, 347 Sci. 736. 453. Fang, K., et al., 2015. The Environmental Sustainability of Nations: Benchmarking the Carbon, Water and Land Footprints Against Allocated Planetary Boundaries, 7 Sustain. 11285. 454. The notion of measuring the carbon footprint as part of a sustainable world is even vivid in the “Clean Label” movement, which aims to provide honest information to the consumer and food professionals on questions such as what there is in our food, who made it, what is the carbon footprint and related issues. See About, Go Clean Label, (2017), https://gocleanlabel.com/ about/. 455. Sustainable Europe Research Institute (SERI), How to Measure Europe’s Resource Use 30 (June 2009), http://www.foeeurope.org/sites/default/files/publications/foee_seri_measuring_europes_resource_use_0609.pdf. 456. European Comm’n, 2016. European Political Strategy Centre, Sustainability Now! A European Vision for Sustainability, p. 18.

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systemic understanding. Impact assessments of the European Commission and EU Member States, for example, could be enhanced if they were systematically required to consider the long-term global context.457

Technologies can either undermine or enhance the resilience of systems.458 The energy/climate debate is one infused with a faith in the positive relationship between the introduction of new technologies and social change.459 It is not only the technological system, but also the social-ecological systems that need to be resilient to reduce the chances of exposure to shocks. “Social-ecological systems and socio-technical systems are understood to display complex, dynamic, multiscale, and adaptive properties; recommendations for their sustainable governance emphasize learning, experimentation, and iteration.”460 The transition phase is one where multiple pathways are being pursued and the social-ecological ecosystem is at its most dynamic and vulnerable stage.461 Research into the slow uptake of smart grids has emphasized the importance of developing a diverse approach and establishing multiple pathways for transformation amongst all stakeholders to build resilience within the system.462 There is a need for flexible, responsive regulatory frameworks that are fit for a transformational social-economic system. This requires lawyers and policy-makers to recognize uncertainties within systems—in this case smart grid-based energy systems—and adopt a more adaptive approach to governance, which takes our incomplete knowledge of social-ecological systems into account. The transition to a low-carbon world will need the EU Member States and others to carefully balance the new opportunities arising from ICT alongside societal and environmental needs in a just, fair, and equitable manner. The Member States must focus on delivering integrated sustainable outcomes across all sectors. One area where this is most necessary is the use and disposal of resources.

457. European Env’t Agency, 2015. The European Environment State and Outlook 2015: Assessment of Global Megatrends, p. 16. 458. Smith, A., Stirling, A., 2010. The Politics of Social-Ecological Resilience and Sustainable Socio-Technical Transitions, 15 Ecology & Soc’y Article 11. 459. Bickerstaff, K., et al., 2016. Decarbonisation at Home: The Contingent Politics of Experimental Domestic Energy Technologies, 48 Env’t. & Plan. A 2006. 460. Smith & Stirling, supra note 458. 461. Chaffin, B., et al., 2014. A Decade of Adaptive Governance Scholarship: Synthesis and Future Directions, 19 Ecology & Soc’y 56. 462. Muench, S., 2014. What Hampers Energy System Transformations? The Case of Smart Grids, 73 Energy Pol’y 80; Lorena Tuballa, M., Lochinvar Abundo, M., 2016. A Review of the Development of Smart Grid Technologies, 59 Renewable & Sustainable Energy Revs. 710.

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1.4.3.2 Smart grids within a circular economy One threat to EU economic security and growth is access to raw materials. Increasing energy efficiency is part of a broader goal to increase resource efficiency in the EU.463 One strategy is to develop a circular economy. This section outlines the concept and the reasons why it is needed, especially in relation to smart grids. The discussion covers themes of design obsolescence, extended product responsibility, and e-waste management. This section considers how responsibilities should be allocated during the life cycle and value chain of products in a decentralized digital energy system and to whom. The life cycle assessment is a process used to evaluate the environmental burdens that come with a product, production process, or activity throughout its entire life cycle from the phase of raw material extraction to final disposal.464 The transition to a low-carbon economy will not be without waste. It is imperative that forethought goes into business modeling and resource management for the entire lifecycle of the product to limit impacts on the environment and contribute to increasing energy efficiency. Today, much is wasted in three key resources: materials, food, and energy. Around 60% of energy in the US economy is wasted.465 About 40% of food produced in the United States is never eaten.466 Up to 18% of water treated in the United States is wasted.467 The situation is not much better in the rest of the world: around 33% of energy is lost.468 Between 30% and 50% of all food produced is wasted.469 Up to 60% of water is lost through leaky pipes worldwide.470 Researchers in Austria are currently studying the notion of socio-metabolism, which will help us describe and understand the transition to a new kind of society, namely the concept of a circular economy. In their words, “socio-economic systems depend on a continuous throughput of materials and energy for their reproduction and maintenance. This dependency can be seen as a functional equivalent of biological metabolism, the organism’s dependency on material and energy flows.”471 463. Commission Staff Working Paper, Analysis Associated with the Roadmap to a Resource Efficient Europe, Part I, SEC (2011) 1067 final (Sept. 20, 2011). 464. See, for instance, life cycle assessment of energy and environmental impacts of LED lighting products, at US Dep’t of Energy, Office of Energy Efficiency & Renewable Energy, LifeCycle Assessment of Energy and Environmental Impacts of LED Lighting Products (2013), https://www1.eere.energy.gov/buildings/publications/pdfs/ssl/lca_factsheet_apr2013.pdf. 465. Lawrence Livermore National Laboratory, 2015. Estimated US Energy Use in 2014. 466. Gunders, D., Natural Resources Defense Council, Wasted: How America Is Losing Up to 40 Percent of Its Food from Farm to Fork to Landfill 4 (NRDC Issue Paper 2012). 467. American Water Works Association, 2013. The Case for Fixing the Leaks: Protecting People and Saving Water While Supporting Economic Growth in the Great Lakes rRgion 1. 468. Int’l Energy Agency, 2017. Key World Energy Statistics 47. 469. Inst. of Mech. Eng’rs, 2013. Global Food: Waste Not, Want Not 2. 470. IBM, 2012. Is the World Thirsty for Water Management?. 471. Social Metabolism, Inst. of Soc. Ecology, Alpen-Adria University, https://www.aau.at/en/ social-ecology/research/social-metabolism/ [https://perma.cc/LUD5-WDXY].

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For instance, the metabolism of a city implies the transformation from raw materials, water, and fuel into goods, human biomass, and waste. It has been defined as “the technical and socioeconomic processes that occur in cities, resulting in growth, production of energy, and elimination of waste.”472 The goal, therefore, is to move toward an industrial ecosystem, where “the consumption of energy and materials is optimized, waste generation is minimized, and the effluents from one process serve as the raw material for another.”473 The global growth in renewable energy capacity will soon bring end-oflife cycle waste management issues to the fore. First, planning ahead is necessary to manage the existing waste stream from established renewables. Second, it is necessary to promote a circular closed-loop approach to the whole life-cycle of products and contribute to a green economy.474 Countries need to undertake reforms of existing laws and develop innovative policy and regulation to meet these challenges. The risks are high, primarily because renewable energy is far from being “clean.” The EU’s energy targets promote energy efficiency, renewable energy, and decentralization, but these goals also need to fit within the broader 2030 EU Agenda for Sustainable Development475 and the Circular Economy Action Plan to increase resource efficiency and decrease waste.476 Rising costs, driven by the growing demand for primary resources, including those needed for smart grid systems, require new approaches to resource management along the entire life cycle value chain. The EU is increasingly recognizing that the current economic model dependent on the linear use of materials is no longer viable. This is the reason why closing the material loop is prioritized.477 The circular economy concept and the EU The circular economy, also known as a “closed loop” economy, aims to reach holistic sustainability goals and is based on the concept of “no 472. Kennedy, C., et al., 2007. The Changing Metabolism of Cities, 11 J. Ind. Ecol. 43, 44. 473. Frosch, R.A., Gallopoulos, N.E., 1989. Strategies for Manufacturing, 261 Sci. Am. 144, 144. 474. Morgera, E., Savaresi, A., 2013. A Conceptual and Legal Perspective on the Green Economy, 22 Rev. Eur. Comp. Int’l Env’t. L. 14. 475. Commission Communication to the European Parliament, The Council, The European Economic and Social Committee and the Committee of the Regions Next Steps for a Sustainable European Future European Action for Sustainability, at 2, COM (2016) 739 final (Nov. 22, 2016). 476. Commission Communication to the European Parliament. Closing the Loop An EU action plan for the Circular Economy, COM (2015) 614 final (Dec. 2, 2015). 477. Boulos, S., et al., 2015. Publications Office of the European Union, The Durability of Products: Standard Assessment for the Circular Economy Under the Eco-innovation Action Plan 22.

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waste.”478 It is related to the concept of dematerializing. Circular economy is part of the relatively new science of industrial ecology,479 which is critical to sustainable development. The concept of circular economy has the great advantage that, if you are reusing something, you do not need to go back to the extraction of natural resources and the production process when making a product.480 Instead, in a circular economy, the end-of-life stage of products and materials must be replaced by restoration.481 In other words, it is about the notion of “cradle to cradle.”482 Even Mother Nature uses a circular-economy approach. Reducing waste is therefore at the core of the circular economy model.483 It is a concept that recognizes the continuous potential value of materials to reduce resource inefficiency in both production and consumption, showing thereby that efficiency is an important resource. This must be the objective of a profound transformation. Consequently, the standard approach to creation, fabrication, and commerce of products must change as well. The EU is heavily dependent on imported raw materials, especially metal ores and nonmetallic minerals that are found in electrical and electronic equipment (EEE).484 Since the design of a product directly influences the way a value chain is managed, building circular, globally sustainable value chains inevitably implies a fundamental change in the practice of design.485 Recently, EU waste law became part of a wider policy discourse on sustainable production and consumption, moving toward the adoption of a circular economy. For example, as part of the Circular Economy Package, the European Commission proposed the addition of an obligation to ensure that, by 2030, the amount of municipal waste put into landfills will be reduced to 10% of the total amount of such waste.486 478. De los R´ıos, I.C.,Charnley, F.J.S., 2017. Skills and Capabilities for a Sustainable and Circular Economy: The Changing Role of Design, 160 J. Clean Prod. 109. See also Zero Waste Europe, http://www.zerowasteeurope.eu/category/products/epr-extended-producer-responsibility/. 479. Industrial ecology examines “the influences of economic, political, regulatory, and social factors on the flow, use, and transformation of resources.” See White, R., 1994. Preface, In: Allenby, B., Richards, D. (Eds.) The Greening of Industrial Ecosystems. “The aim of industrial ecology is to restructure the industrial system, inspired by our understanding of biological ecosystems (cyclic use of resources, food webs, etc.).” See Erkman, S., Ramaswamy, R., 2003. Applied Industrial Ecology: A New Platform for Planning Sustainable Societies. 480. See the work of the Ellen MacArthur Foundation on circular economy, Ellen MacArthur Foundation, https://www.ellenmacarthurfoundation.org/. 481. De los R´ıos & Charnley, supra note 478. 482. Braungart, M., 2009. Cradle to Cradle: Remaking the Way We Make Things. 483. Commission Communication to the European Parliament, Closing the Loop An EU action plan for the Circular Economy, COM (2015) 614 final (Dec. 2, 2015). 484. Parliament and Council Directive 2012/19/EU, On Waste Electrical and Electronic Equipment, 2012 O.J. (L 197) 38. 485. De los R´ıos & Charnley, supra note 478. 486. Commission Proposal for a Directive of the European Parliament and of the Council amending Directive 1999/31/EC on the Landfill of Waste, at 4, COM (2015) 594 final 8(Dec. 2, 2015).

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The EU Commission has committed to analyze the current situation of critical raw materials in the context of the circular economy with a focus on material-efficient recycling of electronic waste, waste batteries, and other relevant complex end-of-life products.487 With the transition to renewable energy systems set by the 2020 EU Climate and Energy Package and the 2030 EU Climate and Energy Framework, greater efforts are required to incorporate the Circular Economy principles into systems infrastructure design. The implications of this new approach are yet to be fully be appreciated. It is clear, however, that existing waste regulation needs to be revised and all actors throughout the supply chain of products need to assume new responsibilities to change the EU’s current production system and close the loop, as required by the circular economy. EU waste regulation: key principles for renewable energy and smart energy grids The EU has an extensive legal framework on waste management.488 The 1975 Framework Directive on Waste (FDW) lays the foundation for EU waste law. It defined key concepts, established major principles such as the waste hierarchy, and allocated responsibilities between different actors including authorities, producers, and households.489 Another important directive is the 1999 Landfill of Waste Directive which introduced the end-of-life cycle principle. It requires EU Member States to draft a national strategy for the implementation of measures aiming at developing a whole life-cycle approach to waste management and landfills.490 It “sets targets to progressively reduce the level of biodegradable waste going to landfill and bans the landfilling of certain hazardous wastes, such as liquid waste, clinical waste, and used tyres.”491 The overall goal within the EU is to reduce the percentage volume of waste being discarded in landfills. Additional Directives include the Packaging and Packaging Waste Directive,492 the End-of-LifeVehicles Directive,493 and the Waste Electrical and Electronic Equipment Directive (WEEE).494 Each of such directives took forward the FDW waste hierarchy and extended responsibility principles. 487. See Annex to the Commission Communication to the European Parliament. Closing the Loop—An EU action plan for the Circular Economy, at 3 4, COM (2015) 614 final (Dec. 2, 2015). 488. Langlet, D., Mahmoudi, S., 2016. EU Environmental Law and Policy. 489. Council Directive 75/442/EEC, On Waste, 1975 O.J. (L 149) 39. 490. See Council Directive 1999/31/EC, On the Landfill of Waste, art. 1, 1999 O.J. (L 182) 1. 491. Cherrington, R., et al., 2012. Producer Responsibility: Defining the Incentive for Recycling Composite Wind Turbine Blades in Europe, 47 Energy Pol’y 13, 14. 492. Parliament and Council Directive 94/62/EC, On Packaging and Packaging Waste, 1994 O.J. (L 365) 10. 493. Parliament and Council Directive 2000/53/EC, On End-of-Life Vehicles, 2000 O.J. (L 269) 34. 494. Parliament and Council Directive 2012/19/EU, On Waste Electrical and Electronic Equipment, 2012 O.J. (L 197) 38.

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In 2008 a new Waste Directive (the 2008 Directive) developed the waste hierarchy and extended the applicable responsibilities, especially for producers.495 The Directive was based on Article 192(1) of the TFEU, which aims “to protect the environment and human health by preventing or reducing the adverse impacts of the generation and management of waste and by reducing overall impacts of resource use and improving the efficiency of such use.”496 The 2008 Directive explains the concept of product and material life-cycles, encourages the recovery of waste and the use of recovered materials, and develops end-of-waste criteria for specified waste streams.497 Under the 2008 Directive, top priority is given to prevention, followed by preparing for reuse, recycling, and other recovery, including energy recovery. Disposal is the least desirable option and is at the bottom of the hierarchy. Furthermore, the 2008 Directive expanded the principle of responsibility. It places responsibility for waste treatment upon the original waste producer. Under Article 15 of the 2008 Directive, EU Member States can specify the conditions of responsibility and decide in which cases the original producer is to retain responsibility for the whole treatment chain and in which cases the responsibility of the producer and the holder can be shared or delegated among the actors of the chain.498 This includes scenarios in which the original waste producer bears the cost of waste management. The trend in the EU is toward recognizing an extended producer responsibility (EPR) for new products, product groups, and waste streams such as electrical appliances and electronics.499 However, the effectiveness of EPR within the EU Member States is variable. Having different national EPR interpretations for waste EEE hampers the effectiveness of recycling policies. For this reason, in 2012, the Commission proposed that essential criteria needed to be decided by the EU and minimum standards for the treatment of waste EEE should be developed.500

495. Parliament and Council Directive 2008/98/EC, On Waste and Repealing Certain Directives, art. 8, 2008 O.J. (L 312) 3, where the principle of “extended producer responsibility” is introduced for the first time. 496. Parliament and Council Directive 2012/19/EU, On Waste Electrical and Electronic Equipment, art. 1, 2012 O.J. (L 197) 38. 497. Parliament and Council Directive 2008/98/EC, On Waste and Repealing Certain Directives, 2008 O.J. (L 312) 3. 498. Parliament and Council Directive 2008/98/EC, On Waste and Repealing Certain Directives, art. 15, 2008 O.J. (L 312) 3. 499. Extended Producer Responsibility, OECD, (2018), http://www.oecd.org/env/tools-evaluation/extendedproducerresponsibility.htm. 500. Parliament and Council Directive 2012/19/EU, On Waste Electrical and Electronic Equipment, rec. 6, 2012 O.J. (L 197) 38.

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The EU is taking steps to address the impacts of renewable energy and smart grids—including the upscaling of solar PV,501 wind turbines, and batteries for EVs. One substantive initiative in this regard is the amendment of the WEEE Directive for the collection and recycle of solar PV panels.502 Most of the EU Member States have revised national EEE waste regulations to include solar PV in national law (e.g., Spain503 and Italy504). The principle of producer responsibility could be extended to manufacturers for recycling wind turbine blades in the same way it has so effectively been done with the WEEE Directive amendment.505 If legislation is introduced within the wind energy industry, it is likely to be similar to the endof-life vehicles legislation that introduces set recycling and recovery targets for manufacturers. This would require the producer to have more responsibilities. Some EU Member States have adopted measures to deal with the problem of wind turbine blades landfill dumping. Since 2005, Germany has banned all types of untreated municipal solid waste from its landfills.506 Consequently, materials with a high organic content (e.g., wind turbine blades) need to find different end-of-life routes. Cherrington et al. state that “landfill bans effectively divert waste from landfill and drive towards energy recovery.”507 EU legislation increasingly discourages the disposal of waste in landfills, setting steeper reduction targets, for example the reduction of 10% by 2030 included in the Circular Economy Plan.508 Wind turbine manufacturers could take the initiative. Investing in solutions now will provide time to develop efficient systems and reduce technology costs.509 The amendments to the WEEE Directive to increase recycling of solar PV panels and proposals to limit the discarding of wind turbine blades in landfills are important steps to manage the end-of-life waste from these renewable energy sectors.

501. Beyond the EU boundaries, research shows that “solar PV systems are now at or approaching retail electricity prices in many markets, across both residential and commercial user segments.” See Walton, R., Report: Solar at Grid Parity in 80% of World by 2017, Utility Dive, (March 3, 2015), http://www.utilitydive.com/news/report-solar-at-grid-parity-in-80-of-world-by2017/370346/. 502. Parliament and Council Directive 2012/19/EU, On Waste Electrical and Electronic Equipment, rec. 6, 2012 O.J. (L 197) 38. 503. B.O.E. 2015, 110. 504. Decreto Legislativo 14 Marzo 2014, n.49, G.U. Mar. 28, 2014, n.73. 505. Cherrington, et al., supra note 491. 506. European Env’t Agency, etc/SCP, Municipal Solid Waste Management in Germany (Feb. 2013), https://www.eea.europa.eu/publications/managing-municipal-solid-waste/germany-municipal-waste-management. 507. Cherrington, et al., supra note 491. 508. Parliament and Council Proposal for a Directive Amending Directive 1999/31/EC, On the Landfill of Waste, at 4, COM (2015) 594 final (Dec. 2, 2015). 509. Ortegon, K., et al., 2013. Preparing for End of Service Life of Wind Turbine, 39 J. Clean Prod. 191. Cherrington, et al., supra note 491.

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New concepts and principles to close the smart grid loop EPR was intended to incentivize manufacturers to increase waste management efficiencies through better product design. EPR’s rationale is that financial and/or physical responsibility makes producers internalize waste management considerations in their product strategies.510 Reports illustrate, however, that EPR remains a distant goal within the EU.511 A new model is needed. The EU Circular Economy Action Plan512 moves in that direction as it tackles one of the main obstacles to fair management of the life-cycle of EU products: planned obsolescence. The term “planned obsolescence” dates to the Great Depression, when Bernard London recommended the strategy as a means to foster economic recovery.513 London perceived the economic value of stimulating repetitive consumption. Lightbulbs were the first items to be designed with planned obsolescence in mind.514 By contrast, the circular economy is based on the principle of planned durability, of which manufacturers have full responsibility. Improving product durability and reparability is important to reducing pressure on natural resources, reducing import costs for manufacturers, and saving money for consumers.515 There is no legal definition of durability, but so far, the European Commission has proposed the following: Durability is the ability of a product to perform its function at the anticipated performance level over a given period (number of cycles/uses/hours in use), under the expected conditions of use and under foreseeable actions. Performing the recommended regular servicing, maintenance, and replacement activities as specified by the manufacturer will help to ensure that a product achieves its intended lifetime.516

510. Kalimo, H., et al., 2014. What Roles for Which Stakeholders Under Extended Producer Responsibility?, 24 Rev. Eur. Commun. Int’l. Env’t. L. 40, 40. 511. Commission Report to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the Thematic Strategy on the Prevention and Recycling of Waste, COM (2011) 13 final (Jan. 19 2011). 512. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Closing the loop—An EU Action Plan for the Circular Economy, at 7, COM (2015) 614 final (Dec. 2, 2015). 513. See generally London, B., 1932. Ending the Depression through Planned Obsolescence. 514. See generally Krajewski, M., The Great Lightbulb Conspiracy, IEEE Spectrum (Sept. 24, 2014) http://spectrum.ieee.org/geek-life/history/the-great-lightbulb-conspiracy [https://perma.cc/ EFF4-JFVY]. 515. Id. 516. Boulos, S., et al., 2015. Publications Office of the European Union, The Durability of Products: Standard Assessment for the Circular Economy Under the Eco-innovation Action Plan 4.

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The practicalities of delivering planned durability are numerous and challenging.517 Manufacturers generally want to restrict access to spare parts and limit repair and reuse of old products.518 Key issues include not only the cost of spare parts but also access to information and skills development. The EU has produced reports exploring the potential for using regulations to stimulate durability, reparability, and reusability of products.519 It has also developed rules to increase design durability for some products, such as lighting and vacuum cleaners. Several EU Member States have introduced national legal measures to reduce planned obsolescence and increase reparabiility.520 France, for instance, introduced a law to address planned obsolescence. Article L. 441-2 of the Consumer Code now reads: “[p]lanned obsolescence is forbidden and is defined by all the techniques by which a person that places goods on the market seeks to deliberately reduce the lifespan of a product to increase the substitution rate.”521 Although limited in scope due to pressure from manufacturers lobbying during the negotiation of the law, judicial interpretation could provide positive developments to reduce design obsolescence. Another example is Norway, which requires companies to extend consumer guarantees on certain products, which increases the responsibility of the manufacturer.522 To overcome excessive and unnecessary consumption, product designers need to factor in durability and reparability. Spare parts should be made easily available at an affordable price that incentivizes repair. Design models should be able to incorporate old components into newer versions of a product. Regarding software, making new software compatible with older models can deter consumers from upgrading to new versions. The electronic equipment industry notoriously exploits incompatibility across new models and fosters design obsolescence. This has 517. European Envtl. Bureau, 2015. Delivering Resource-Efficient Products: How Ecodesign Can Drive a Circular Economy in Europe. Ardente, F., Mathieux, F., 2014. Identification and Assessment of Product’s Measures to Improve Resource Efficiency: The Case-Study of an Energy Using Product, 83 J. Clean Prod. 126. 518. Dalhammar, C., 2016. Industry AttitudesTtowards Ecodesign Standards for Improved Resource Efficiency, 123 J. Clean Prod. 155. 519. See, for example, Bundgaard, A.M., et al., 2015. Ecodesign Directive 2.0. From Energy Efficiency to Resource Efficiency, Environmental Project No. 1635; Ardente, F., et al., 2014. Recycling of Electronic Displays: Analysis of Pre-Processing and Potential Ecodesign Improvements, 92 Resources, Conservation & Recycling 158; RREUSE, 2015. Improving Product Reparability: Policy Option at the EU Level, http://www.rreuse.org/wp-content/uploads/ Routes-to-Repair-RREUSE-final-report.pdf. 520. RREUSE, 2015. Improving Product Reparability: Policy Option at the EU Level, http:// www.rreuse.org/wp-content/uploads/Routes-to-Repair-RREUSE-final-report.pdf. 521. Code de commerce [C. com.] [Commercial Code] art. L441 2 (“Est interdite la pratique de l’obsolescence programme´e qui se de´finit par le recours a` des techniques par lesquelles le responsable de la mise sur le marche´ d’un produit vise a` en re´duire de´libe´re´ment la dure´e de vie pour en augmenter le taux de remplacement.”) (translation by author Rafael Leal-Arcas). 522. Ele´onore Maitre-Ekern & Carl Dalhammar, 2016. Regulating Planned Obsolescence: A Review of Legal Approaches to Increase Product Durability and Reparability in Europe, 25 Rev. Eur. Commun. Int’l. Envt’l. L. 378, 379.

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driven a global e-waste disposal crisis, especially in several developing countries such as Nigeria.523 Apple even has the battery built into its computers and phones. Batteries are a component that can be easily replaced, but are also a high-level toxic waste requiring safe disposal using the best available technology. The Eco-design Directive is a key instrument for promoting durability.524 Already used to set binding minimum energy efficiency requirements, the directive is being used to develop new eco-design requirements for manufacturers. The directive obligates manufacturers to provide mandatory information on proper disposal, disassembly, and recycling at the end-of-life stage, especially for product groups with toxic content (e.g., mercury).525 Lifetime extension is specifically listed in the Directive and for certain products is “expressed through: minimum guaranteed lifetime, minimum time for availability of spare parts, modularity, upgradeability, reparability.”526 A different way of tackling the issue would be through an indirect approach, through voluntary agreements signed with manufacturers. Even if such agreements are not compulsory, they would imply that manufacturers are willing to commit to these issues. A voluntary approach is sometimes even more effective than legal or regulatory rules, which leads to better and longer-term results in terms of contribution to the circular economy.527 The definition of durability does not refer to reparability. Design for reparability is difficult to measure and can lead to legal complexities if not addressed.528 Durability and reparability are two sides of the same coin.529 The circular economy opens opportunities for small- and medium-scale enterprises to provide reparability and recycling services. Remanufacturing and repair industries need rules that clarify that the repairer, or anyone putting the product into reuse, should not be considered the manufacturer/producer of the repaired/reused product. Remanufacturers will seek to avoid becoming a “producer” in the meaning of some EU Directives because they would be economically responsible for the collection and recycling of the product. They would 523. Pickren, G., 2014. Making Connections Between Global Production Networks for Used Goods and the Realm of Production: A Case Study on E-Waste Governance, 15 Global Netw. 403. 524. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Closing the Loop—An EU Action Plan for the Circular Economy, at 3 4, COM (2015) 614 final (Dec. 2, 2015). 525. European Envtl. Bureau, 2015. Delivering Resource-Efficient Products: How Ecodesign Can Drive a Circular Economy in Europe 39 42. 526. See Parliament and Council 2009/125/EC, Establishing a Framework for the Setting of Ecodesign Requirements for Energy-Related Products, Annex I, Part 1.3(i), 2009 O.J. (L 285) 10. 527. Directorate General for Internal Policies, European Parliament, Policy Department A: Economic and Scientific Policy, A Longer Lifetime for Products: Benefits for Consumers and Companies 29 34 (2016). 528. Boulos, S., et al., 2015. Publications Office of the European Union, The Durability of Products: Standard Assessment for the Circular Economy Under the Eco-innovation Action Plan (2015). 529. Maitre-Ekern & Dalhammar, supra note 522.

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also need to comply with the requirements of “new” products, such as respecting the rules on energy efficiency.530 Similarly, being a remanufacturer implies being carbon-negative, which is a desired outcome. The complexity of smart grid systems will undoubtedly lead to demand for manufacturers and service providers to offer support services to consumers. It will benefit consumers, the collaborative economy, and the environment, as well as future generations if the legal and regulatory framework are in place to ensure this occurs in a circular economy where all the loops are closed.

1.4.4

Digital technology, smart grids, and the law

1.4.4.1 Background ICT, especially new digital applications for smart grids, plays a central role in enabling new energy providers to monitor and process data and in creating opportunities to meet the various EU energy policy goals, including efficiency, security, and sustainability.531 New digital technologies have made it possible to redesign the traditional analog electricity power system infrastructure that has dominated the energy landscape in Europe since World War II. A transformation in the energy system will provide new opportunities not only to energy suppliers but also to consumers.532 Through advanced sensing technologies, it is now feasible to provide predictive information and bespoke recommendations based on almost real-time data to all stakeholders (e.g., utilities, suppliers, and consumers). Smart grids exactly refer to this new digital networked energy infrastructure.533 Smart grid services, which include intelligent appliance control for energy efficiency and better integration of distributed energy resources, can reduce carbon emissions. They offer the potential of higher level capabilities to meet current and future energy demands.534 Smart grids could deliver improved reliability, resiliency, environmentally friendly generation, transmission, and distribution. This would help the EU to achieve strategic 530. Id. at 382 385. 531. As mentioned, for instance, in the European Commission’s communication Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Energy 2020—A strategy for Competitive, Sustainable and Secure Energy, at 16, COM (2010) 639 final (Nov. 10 2010). 532. See generally The Climate Group, 2008. GeSI, SMART 2020: Enabling the Low Carbon Economy in the Information Age, http://gesi.org/files/Reports/Smart%202020%20report%20in% 20English.pdf. 533. See generally European Commission Directorate-General Information Society and Media, ICT for Sustainable Growth Unit, ICT for a Low Carbon Economy, Smart Electricity Distribution Networks (2009). 534. Liu, J., et al., 2012. Cyber Security and Privacy Issues in Smart Grids, 14 IEEE Comm. Survs. & Tutorials 981.

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economic, environmental, and social goals.535 These changes, which ultimately make energy systems more complex, have led to concerns regarding cyber-attacks on critical infrastructure, energy and data theft, fraud, denial of service, hacktivism, and design obsolescence adding to energy poverty.536 Also, the regulation of smart grids and smart meter537 technologies directly impacts the way data privacy is implemented in technical systems, such as smart meters and energy saving services.538 An argument exists that intelligent control and adequate economic management of energy consumption require greater interoperability between consumers and service providers: “[u]nprotected energy-related data will cause invasions of privacy in the smart grid.”539 Law and policy-makers need to consider the trade-offs to enable smart grids to deliver low-cost and green energy within locally, regionally, and nationally secure networked systems. Given the dependency of smart grids on digital technology, their uptake is intricately interlinked with law and policy on ICT more generally. This section outlines developments in ICT law that are relevant to smart grids, both internationally and in the EU. The first section provides a survey of key law and policy issues related to security and privacy when dealing with smart grids and ICT, including an analysis of concepts such as cybersecurity, cyber-crime, and data management. The first section is followed by an outline of existing and emerging EU and international legislation addressing the above-mentioned issues and will be divided into privacy and data protection (Section 4.4.3.1) and digital systems security (Section 4.4.3.2).

1.4.4.2 Smart grids: cybersecurity and privacy issues Smart grids bring risks. Some risks are known, old, and foreseeable issues. Other risks are new and less predictable. Cybersecurity is likely to become more important in the next few years.540 Cyber-technologies are becoming less expensive and easier to acquire, which allows states and even nonstate 535. Katina et al., supra note 393. 536. Wueest, C., Attacks Against the Energy Sector, Symantec Official Blog, (Jan. 13, 2014), https://www.symantec.com/connect/blogs/attacks-against-energy-sector. 537. Smart meters are advanced metering systems which provide real-time information on consumers’ energy use or generation. They use digital technologies, regularly update information and provide two-way electronic communication between consumers and the grid. Joachain, H., Klopfert, F., 2014. Coupling Smart Meters and Complementary Currencies to Reinforce the Motivation of Households for Energy Savings, 105 Ecological Econ. 89. 538. d’Herbemont, S., Roberts, J., 2017. REScoop.eu, D6.1 National Regulatory Environment Report; Wilson, A., 2015. European Parliamentary Research Service, Smart Electricity Grids and Meters in the EU Member States, http://www.europarl.europa.eu/RegData/etudes/BRIE/2015/ 568318/EPRS_BRI%282015%29568318_EN.pdf. 539. Liu, et al., supra note 534. 540. Cerrudo, C., Why Cybersecurity Should Be The Biggest Concern Of 2017, Forbes (Jan. 17, 2017), https://www.forbes.com/sites/forbestechcouncil/2017/01/17/why-cybersecurity-should-bethe-biggest-concern-of-2017/#4a61899c5218.

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actors to potentially inflict considerable damage.541 Cyber-operations may not only be used for industrial espionage or intelligence collection but also to delete, alter, or corrupt software and data resident in computers. This could entail negative repercussions on the functionality of computer-operated physical infrastructures, including disabling power generators.542 Smart grids increasingly couple information in the energy sector with digital communication systems. This has created new vulnerabilities and resulted in smart grids becoming a security issue beyond traditional energy security framing and including cybersecurity.543 Smart grids are integrated systems that include technologies, information, social and organizational components, policy and political requirements, and legislative and regulatory compliance.544 Consequently, this increases the risk of compromising the ultimate objective of smart grids: reliable and secure power system operation. In 2008 the European Commission acknowledged that the electricity sector constitutes “an essential component of EU energy security.”545 Some even argue that the current interdependence between the electricity and communication infrastructures is so profound that it could be conceived within an “energy-and-information” paradigm.546 This interdependence becomes even more intricate when considering the energy systems’ critical infrastructure status and the potentially catastrophic impact of cyber-attacks. An effective regulatory framework manages both known and unknown risks, with the latter involving a precautionary approach. Smart grids need to ensure the security of sensitive customer information transmitted over an increasing number of “internet of things” (IoT) devices. Smart grids must also ensure that communication between stakeholders is reliable enough to deliver stable operation. There is a need to develop resilient formulations of risk related to holistic considerations.547 An integrated multilevel governance approach is required to integrate smart grids securely within society, although this approach presents new legal challenges for lawyers and policy-makers. Unlike traditional energy systems, smart grids fully integrate high-speed and two-way communication technologies to create dynamic and interactive 541. Roscini, M., 2014. Cyber Operations and the Use of Force in International Law 2. 542. Id.; Ciere, M., et al., 2016. Ecrime, D6.2 Executive Summary and Brief: The Economic Impact of Cyber-Crime on Non-ICT Sectors. 543. See generally Masera, M., et al., 2016. The Security of Information and Communication Systems and the E 1 I Paradigm. In: Gheorgheet, A.V., et al. (Eds.) Critical Infrastructures at Risk: Securing the European Electric Power System 85. 544. Katina et al., supra note 393. 545. Commission Staff Working Document Accompanying the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Second Strategic Energy Review An EU Energy Security and Solidarity Action Plan: Europe’s Current and Future Energy Position DemandResource-Investments, SEC (2008) 2871 (Nov. 13, 2008). 546. Pearson, I.L.G., 2011. Smart Grid Cyber Security for Europe, 39 Energy Pol’y 5211. 547. Katina, et al., supra note 393.

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infrastructure with new energy management capabilities.548 Smart grids energy systems are “a literal IoT”: networks with billions of interconnected smart objects, such as smart meters, smart appliances, and other sensors.549 As a cyber-physical system, an IoT-based smart grid presents risks across different domains (i.e., generation, transmission, distribution, customer, service-provider, and operations markets).550 The EU acknowledges that smart metering systems and smart grids foreshadow this impending IoT. The EU also acknowledges that with this development come potentially increasing risks associated with the collection of detailed consumption data.551 Sander Kruese, privacy and security adviser at Alliander, a DSO in the Netherlands, noted that “[e]very component in the grid that has become digitized is becoming an attack-point.”552 Providing securitization across the entire system, a system that continuously incorporates new software systems and hardware from a range of providers, is a demanding task. The EU has adopted a strategy on cybersecurity.553 Operationalizing the goals contained in the strategy will be integral to addressing new potential threats posed by embedding ICT into the EU’s energy system.554 Threats that were not possible in the traditional electric grid555 are now the main concern.556 When combined with data from other multiple independent data sources,557 smart meter data becomes part of a broader and more open metadata system.558 In different ways, all users are potential victims of attacks in such a context. In addition, their vulnerabilities could be drawn from previous experience gained in different sectors, such as IT and 548. Wang, W., Lu, Z., 2013. Cyber Security in the Smart Grid: Survey and Challenges, 57 Computer Networks 1344. 549. Weaver, K.T., Smart Meter Deployments Result in a Cyber Attack Surface of “Unprecedented Scale,” Smart Grid Awareness (Jan. 7, 2017), https://smartgridawareness.org/2017/01/07/cyberattack-surface-of-unprecedented-scale/. 550. Katina, et al., supra note 393. 551. Article 29 Data Protection Working Party, Opinion 07/2013 on the Data Protection Impact Assessment Template for Smart Grid and Smart Metering Systems (“DPIA Template”), 2064/13/ EN WP209 (2013). 552. Gurzu, A., Hackers Threaten Smart Power Grids, Politico (Apr. 1, 2017), http://www.politico.eu/article/smart-grids-and-meters-raise-hacking-risks/. 553. See generally Joint Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Cybersecurity Strategy of the European Union: An Open, Safe and Secure Cyberspace, JOIN (2013) 1 final (Feb. 7, 2013). 554. Id. 555. Such as energy theft and fraud, sensitive information theft, service disruption for the purpose of extortion, cyber-espionage, vandalism, hacktivism, and terrorism 556. Weaver, supra note 549. 557. Such as geo-location data, tracking and profiling on the internet, video surveillance systems, and radio frequency identification systems. 558. Committee of Ministers, Council of Europe, Recommendation CM/Rec (2010) 13 to Member States on the Protection of Individuals with Regard to Automatic Processing of Personal Data in the Context of Profiling (adopted Nov. 23, 2010).

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telecommunications.559 As an example, automated smart meters rely on tracking, in real time, actual power usage, and allow for two-way communication between utilities and end users. Hackers targeting this technology may induce disruptions in power flows, create erroneous signals, block information (including meter reads), cut off communication, and/or cause physical damage.560 Digital ICT has accelerated the expansion of personal data systems—making them more extensive and consequential in the lives of ordinary citizens.561 The costs of using personal data in today’s computerized record-systems are all but negligible. The result is that all sorts of personal data that would otherwise be “lost” are now “harvested” by different actors that do everything from allocating consumer credit to preventing cyber terrorist attacks.562 New technologies allow for an unprecedented level of information-integration, “providing the possibility to combine new and existing data and technologies (interoperability) and cope with growing resources and number of users (scalability), through the adoption of distributed systems (cloud computing).”563 Information gathered from energy users is integral to empowering individuals, households, and organizations to change their consumption patterns, increasing efficiency, and reducing energy costs and carbon emissions.564 In 2010 the European Commission noted that “the ICT sector should lead the way by reporting its own environmental performance by adopting a common measurement framework.”565 This EU policy is grounded in the positive relationship between data access, processing, and dissemination, and beneficial changes in consumer behavior. Unlike oil, “a product that does not generate more oil (unfortunately). . . the product of data (self-driving cars, drones, wearables, etc.) will generate more data.”566 According to a 2012 estimate, “90% of the world’s data was

559. Liu, et al., supra note 534. 560. US Dep’t of Energy, 2017. Transforming the Nation’s Electricity System: The Second Instalment of the QER. 561. Rule, J., Greenleaf, G., 2010. Global Privacy Protection: The First Generation. 562. Public opinion seems to be meeting these developments with concern, and suggestions are being put forward to empower users to gain better control of the situation. See in this sense Chen, B.X., How to Protect Your Privacy as More Apps Harvest Your Data, N.Y. Times (May 2, 2017), https://www.nytimes.com/2017/05/03/technology/personaltech/how-to-protect-your-privacy-as-more-apps-harvest-your-data.html?mcubz 5 1. 563. See generally Zulkafli, Z., et al., 2017. User-driven Design of Decision Support Systems for Polycentric Environmental Resources Management, 88 Envtl. Modelling & Software 58. 564. As a practical example, see, for instance, the analysis provided by Cai, J., Jiang, Z., 2008. Changing of Energy Consumption Patterns from Rural Households to Urban Households in China: An Example from Shaanxi Province, China, 12 Renewable & Sustainable Energy Revs. 1667. 565. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on A Digital Agenda for Europe, COM (2010) 245 final (May 19, 2010). 566. Shah, M., 2015. Big data and the internet of things. In: Japkowicz, N., Jerzy Stefanowski, J. (Eds.) Big Data Analysis: New Algorithms for a New Society 207, 208.

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created in the last 2 years alone. In fact, 2.5 quintillion bytes of data are created each day, which is more data than was seen by everyone since the beginning of time.”567 However, a consequence of increased data availability, especially in the form of metadata, is to narrow the realm of anonymity—so that fewer interactions, relationships, and transactions are possible without identifying one’s self.568 This leads to questions about privacy and security.569 In 1890 Louis Brandeis and Samuel Warren defined the individual’s need for privacy and solitude as a fundamental right, due to the increasing intensity and complexity of life.570 Privacy is going to be even further challenged in the digital era.571 Computer technologies increasingly make it possible to capture and use personal data in all sorts of settings and for all sorts of purposes that would once have been inconceivable. Leading figures amongst online corporations have argued that privacy is no longer a social norm or even possible: “Facebook and its CEO Mark Zuckerberg have taken the position that sharing of information and connectedness is the new social norm, and that privacy, on the contrary, is now outmoded.”572 Key questions at stake include what personal information institutions and other nonstate actors collect, how it is collected, where it is stored, who can access it, and what actions can be taken on its basis.573 It can be argued that this pressure on information privacy is not the result of a new social norm, but the consequence of a desire for profit at the expense of eroding privacy protection.574 Governments and citizens in the EU are pushing back on these incursions on privacy. The EU has always paid much attention to personal and domestic privacy, unlike Asian countries.575 The perceived threat to the security of personal and family life has led to citizen resistance to smart meters: with their personal sphere is at stake, some react with distrust, suspicion, and hostility toward such new systems.576 “Surveillance”

567. International Telecommunication Union, 2015. ICT Facts & Figures: The World in 2015. 568. Rule & Greenleaf, supra note 561. 569. McKenna, E., et al., 2012. Smart Meter Data: Balancing Consumer Privacy Concerns with Legitimate Applications, 41 Energy Pol’y 807. 570. Brandeis, L., Warren, S., 1890. The Right to Privacy, 4 Harv. L. Rev. 193. 571. For a brief discussion of this topic, see Sengupta, S., U.N. Urges Protection of Privacy in Digital Era, N.Y. Times (Nov. 25, 2014), https://www.nytimes.com/2014/11/26/world/un-urgesprotection-of-privacy-in-digital-era.html?mcubz 5 1. 572. Roggensack, M., Face It Facebook, You Just Don’t Get It, Huffington Post (May 25, 2010), http://www.huffingtonpost.com/human-rights-first/face-it-facebook-you-just_b_589045.html. 573. Rule & Greenleaf, supra note 561. 574. Stoddart. J., Privacy Commissioner of Canada, Remarks at the 2010 Access and Privacy Conference: Why Privacy Still Matters in the Age of Google and Facebook and How Cooperation Can Get Us There (June 10, 2010). Available at https://www.priv.gc.ca/en/opcnews/speeches/2010/sp-d_20100610/. 575. European Comm’n, 2016. Flash Eurobarometer 443. 576. Balta-Ozkan, N., et al., 2013. Social Barriers to the Adoption of Smart Homes, 63 Energy Pol’y 363.

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via smart meters and IoT, therefore, results in extortion and fraud of the domestic sphere.577 Ensuring privacy appears to be crucial to address social barriers and support the new energy system technologies.578 The European Commission has recognized that, to achieve its broader energy and climate policy goals, building consumer trust in smart grids and data management must play a central role in its smart grids policy. In 2011 the European Commission advised that: [d]eveloping legal and regulatory regimes that respect consumer privacy in cooperation with the data protection authorities. . . and facilitating consumer access to and control over their energy data processed by third parties is essential for the broad acceptance of Smart Grids by consumers.579

Increasing consumer and business confidence in smart grids requires good governance and effective regulatory frameworks and laws.580 In the following section, the legal approaches adopted to deliver increased privacy and reduce cybersecurity risks from ICT and smart grids technologies are critically examined.

1.4.4.3 International and EU law Dependence on energy systems based on smart grids and ICT poses two major risks: one to privacy and data protection; the other to digital systems security. This section considers the evolving legal frameworks, especially within the EU, for providing a reasonable regulatory architecture to ensure the risks are managed effectively. Privacy and data protection Internationally, privacy is embedded in fundamental legal documents. Privacy is included as a normative principle in the postwar Universal Declaration of Human Rights (1948) and the legally binding International Covenant on Civil and Political Rights (1966).581 Developments in technology in the late 1960s and 1970s led both the United States and Europe to recognize the need to 577. Lazar, J., et al., 2015. Ensuring Digital Accessibility Through Process and Policy. 578. Id. 579. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Smart Grids, COM (2011) 202 final (Apr. 12, 2011). 580. See Dow Launches 2025 Sustainability Goals to Help Redefine the Role of Business in Society, Dow (Apr. 15, 2015) (arguing that “[b]y 2025, Dow will work with other industry leaders, non-profit organizations and governments to deliver six major projects that facilitate the world’s transition to a circular economy,”), http://www.dow.com/news/press-releases/dow% 20launches%202025%20sustainability%20goals%20to%20help%20redefine%20the%20role% 20of%20business%20in%20society. 581. European Convention on Human Rights, Sept. 3, 1953, CETS no. 194.

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guarantee data protection alongside the right to privacy. Each jurisdiction, including the various EU Member States, adopted differing approaches.582 The EU has separate legislation and guidelines on data protection. They promulgate data protection and guidelines that are technology neutral. Explicit recognition of the legal basis for data protection is contained in Article 16 TFEU.583 Article 7 of the EU Charter of Fundamental Rights (the Charter) protects the fundamental right to the respect for private and family life, home, and communications, and Article 8 provides specifically for the protection of personal data. EU data protection law has been decentralized in each Member State. The decentralization of this governance structure has led to jurisdictional tensions amongst the relevant public authorities with respect to the identification of both the domestic law applicable to data processing operations and the relevant enforcing national authority.584 Additionally, the Member States of the Council of Europe have a positive obligation to act in a proactive manner to secure the effective enjoyment of those rights protected under the European Convention on Human Rights (ECHR); if it could be established that a State failed to take appropriate measures to protect individuals under its jurisdiction from privacy violations, the State would be liable under the ECHR.585 The European Commission has addressed data privacy matters, and it has also specifically referred to smart grid technologies. The 1995 Data Protection Directive provides the foundational legal architecture for subsequent regulation.586 Subsequent regulation and directives added to these initial foundations in an ad hoc manner. The 2002 e-Privacy Directive,587 which was subsequently amended by Directives 2006/24/EC and 2009/136/EC, has failed to live up to the challenges of technological developments. The 2016 EU General Data Protection Regulation (GDPR), however, repealed the e-Privacy

582. See generally Lynskey, O., 2015. The Foundations of EU Data Protection Law. 583. Article 16 TFEU reads as follows: 1. Everyone has the right to the protection of personal data concerning them. 2. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall lay down the rules relating to the protection of individuals with regard to the processing of personal data by Union institutions, bodies, offices and agencies, and by the Member States when carrying out activities which fall within the scope of Union law, and the rules relating to the free movement of such data. Compliance with these rules shall be subject to the control of independent authorities. The rules adopted on the basis of this Article shall be without prejudice to the specific rules laid down in Article 39 of the Treaty on European Union.TFEU, art. 16. 584. Lynskey, O., 2016. The Europeanisation of Data Protection Law, 18 Cambridge Y.B. Eur. Legal Stud. 1. 585. Izyumenko, E., 2011. Think Before you Share: Personal Data on the Social Networking Sites in Europe; Article 8 ECHR as a tool of Privacy Protection. 586. Parliament and Council Directive 1995/46/EC, On the Protection of Individuals with Regard to the Processing of Personal Data and on the Free Movement of Such Data, 1995 O.J. (L 281) 31 [hereinafter 1995 Data Protection Directive]. 587. Parliament and Council Directive 2002/58/EC, Concerning the Processing of Personal Data and the Protection of Privacy in the Electronic Communications Sector, 2002 O.J. (L 201) 37.

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FIGURE 1.4 Key EU data protection principles of the 1995 data protection directive591.

Directive. Other key legal developments included the 2008 Data Protection Framework Decision588 and the Regulation 45/2001.589 The EU data protection framework establishes a number of general principles applicable to the process of any personal data (see Fig. 1.4 below).590 The 2002 e-Privacy Directive constitutes a layered system consisting of three levels. 588. Council Framework Decision 2008/977/JHA, On the Protection of Personal Data Processed in the Framework of Police and Judicial Cooperation in Criminal Matters, 2008 O.J. (L 350) 60. 589. Parliament and Council Regulation 2001/45/EC, On the Protection of Individuals with Regard to the Processing of Personal Data by the Community Institutions and Bodies and on the Free Movement of Such Data, 2001 O.J. (L 8) 1. 590. Papakonstantinou & Kloza, supra note 209. 591. Id at 69.

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The first level is the general level that applies to every processing of personal data. The second level, which extends from the first level, applies when sensitive data are being processed. The third level is applicable when personal data are transferred to third countries. Hence, if this happens, all three levels apply.592 All subsequent data protection legislation at the EU level must to comply with these principles. Courts must also follow them when interpreting related legislation. These principles are incorporated into the GDPR, which will apply to all EU Member States in April 2018.593 It is important to consider how these new principles will be incorporated into the law and policy related to smart grids. Each principle needs to be applied according to certain conditions. Understanding the principles is essential to interpreting data protection laws in any given context, for example, with smart grids.594 The following section considers the key principles in greater detail: Lawful processing To understand this principle, it is necessary to refer to Article 52(1) of the Charter595 and Article 8(2) ECHR.596 The processing of personal data is only lawful when it is done in accordance with the law, pursues a legitimate purpose, and is necessary in a democratic society to achieve that legitimate purpose. However, there is no definition of what constitutes “lawful processing” in Article 5 of

592. Cuijpers, C., Koops, B.-J., 2012. Smart Metering and Privacy in Europe: Lessons from the Dutch Case. In: Gutwirth, S., et al. (Eds.) European Data Protection: Coming of Age, p. 269. 593. Lynskey, O., 2014. Deconstructing Data Protection: The “Added-value” of a Right to Data Protection in the EU Legal Order, 63 Int’l & Comp. L.Q. 569. 594. For a full overview, see European Union Agency for Fundamental Rights, 2014. Handbook on European Data Protection Law. 595. Article 52 of the Charter of Fundamental Rights of the European Union:Article 52 Scope of guaranteed rights. (1) Any limitation on the exercise of the rights and freedoms recognized by this Charter must be provided for by law and respect the essence of those rights and freedoms. Subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognized by the Union or the need to protect the rights and freedoms of others. (2) Rights recognized by this Charter which are based on the Community Treaties or the Treaty on European Union shall be exercised under the conditions and within the limits defined by those Treaties. (3) In so far as this Charter contains rights which correspond to rights guaranteed by the Convention for the Protection of Human Rights and Fundamental Freedoms, the meaning and scope of those rights shall be the same as those laid down by the said Convention. This provision shall not prevent Union law providing more extensive protection. Charter of Fundamental Rights of the European Union, art. 52, Dec. 12, 2007, 2007 O.J. (C 303) 1. 596. Article 8(2) of the European Convention on Human Rights reads as follows: 2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others. European Convention on Human Rights, art. 8(2).

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the Convention 108597 or in Article 6 of the 1995 Data Protection Directive.598 The GDPR does not include a definition, either. The obligations to meet the principle fall on the data gatherer and user. As such, it is imperative in developing regulations related to smart grids that lawmakers clearly identify what legitimate purposes might be for data gatherers and users. Data minimization Data minimization requires that the purpose of processing data be visibly defined before processing is started. This requirement, although part of EU law, is left for Member States to interpret in domestic law. However, there will be less scope for such flexibility under the GDPR. Data specification requirements regulations are designed to limit the accumulation of data gathered and prevent the processing of data for undefined purposes.599 This is a procedural requirement based upon the principle of transparency. The use of collected data for another purpose needs an additional legal basis if the new processing purpose is incompatible with the original one.600 An additional legal basis is also necessary if data is transferred to third parties. The onus is placed on the data controller to comply with the obligations. The data controller must specify and make it clear to data providers the purpose for which data is being processed.601 There is space for flexibility only if data is used for a compatible purpose. Both the 597. Convention for the Protection of Individuals with Regard to Automatic Processing of Personal Data, Jan. 28, 1981, ETS 108. For further details, see Complete List of the Council of Europe’s Treaties, Council of Europe, https://www.coe.int/en/web/conventions/full-list/-/conventions/treaty/108. 598. Parliament and Council Directive 95/46/EC reads as follows: (1). Member States shall provide that personal data must be: (a) processed fairly and lawfully; (b) collected for specified, explicit and legitimate purposes and not further processed in a way incompatible with those purposes. Further processing of data for historical, statistical or scientific purposes shall not be considered as incompatible provided that Member States provide appropriate safeguards; (c) adequate, relevant and not excessive in relation to the purposes for which they are collected and/or further processed; (d) accurate and, where necessary, kept up to date; every reasonable step must be taken to ensure that data which are inaccurate or incomplete, having regard to the purposes for which they were collected or for which they are further processed, are erased or rectified; (e) kept in a form which permits identification of data subjects for no longer than is necessary for the purposes for which the data were collected or for which they are further processed. Member States shall lay down appropriate safeguards for personal data stored for longer periods for historical, statistical or scientific use. (2) It shall be for the controller to ensure that paragraph 1 is complied with. Parliament and Council Directive 1995/46/EC, On the Protection of Individuals with Regard to the Processing of Personal Data and on the Free Movement of Such Data, art. 6, 1995 O.J. (L 281) 31. 599. Parliament and Council Regulation 2016/679/EU, On the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of Such Data, art. 5.1(b), 2016 O.J. (L 119) 1 [hereinafter General Data Protection Regulation]. 600. Id. 601. Article 29 Data Protection Working Party, Opinion 03/2013 on Purpose Limitation, 00569/ 13/EN WP 203, (2013).

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Convention 108 and the Data Protection Directive resort to the concept of compatibility: the use of data for compatible purposes is allowed on the ground of the initial legal basis.602 Neither law defines “compatibility,” leaving this open to interpretation when determining if the initial legal basis for collecting the data is valid for a purpose different than the original one for which it was collected. The Data Protection Directive explicitly declares that the “further processing of data for historical, statistical or scientific purposes shall not be considered as incompatible provided that Member States provide appropriate safeguards.”603 There is no requirement on the data controller to obtain the consent of the data subject where collected data is used for a purpose compatible with the original one. This flexibility gives data controllers freedom to use collected data further. This could result in uses that data subjects would, if they were made aware, object to. It is also a way to keep data beyond the time period the original data was gathered for. Despite a lack of reference to consumer rights in even the more recent GDPR, the European Data Protection Supervisor has stated that consumer protection law has a part to play in data protection, especially on the subject of transparency of data usage.604 Data quality, retention, and accuracy All processed data must be “adequate, relevant and not excessive in relation to the purpose for which they are collected and/or further processed.”605 The data controller must ensure that the purpose for gathering the data is clear, that gathering is kept to a minimum, and that the data collected are relevant for processing operations purposes. The data quality principle is aligned with the principle of limited data retention. Data should be deleted as soon as it is no longer needed for the purposes for which it was collected by the data controller. The obligation lies with the data controller to ensure that the principle of retention is met. As with the data minimization principle, exemptions to the principle of data retention must be established in law. Consumers need safeguards to ensure that their data are not used in contravention to the retention principle. Data controllers are obliged to ensure that the data held is as accurate as can reasonably be expected. This is essential for billing purposes, for example.606 602. Parliament and Council Directive 1995/46/EC, On the Protection of Individuals with Regard to the Processing of Personal Data and on the Free Movement of Such Data, art 6(1)(b), 1995 O.J. (L 281) 31. 603. Id. rec. 29. 604. European Data Protection Supervisor, 2014. Privacy and Competitiveness in the Age of Big Data: The Interplay Between Data Protection, Competition Law and Consumer Protection in the Digital Economy 23 24. 605. Parliament and Council Directive 1995/46/EC, On the Protection of Individuals with Regard to the Processing of Personal Data and on the Free Movement of Such Data, art 6(1)(c), 1995 O.J. (L 281) 31. 606. Shishido, J., 2012. Smart Meter Data Quality Insights 1.

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Fair processing This principle upholds procedural transparency between data subjects and data controllers. Controllers must inform data subjects on whose behalf they are processing their data and whether the controller has any intentions to process the data for other purposes. Fair processing prevents secret or covert processing that may be against the wishes or interests of the data subject. This principle is perhaps the most significant for developing trust between the data subject and the data controller.607 For this principle to be effective, the terminology used to communicate with data subjects by data controllers must be understandable. Where data subjects have specific needs, these should be taken into account by the data controller to meet their transparency principle obligations. Indeed, fair processing also means that controllers are prepared to go beyond the mandatory legal minimum requirements, if the legitimate interests of the data subject so require.608 Going beyond what it is expected can be demonstrated by adopting data management standards. Data subjects should have free, easy access to their data. Data controllers should be able to demonstrate how their procedures meet data protection requirements under EU law. This emphasis on accountability and legitimacy is integral to building secure and trustworthy relations between data generators and data controllers. According to the 2013 OECD privacy guidelines, “a data controller should be accountable for complying with [data management] principles.”609 Also, according to the Article 29 Working Party’s opinion,610 the essence of accountability is the controller’s obligation to put in place measures that would—under normal circumstances—guarantee that data protection rules are adhered to in the context of processing operations, and to have documentation ready that proves to data subjects and to supervisory authorities what measures have been taken to comply with data protection rules.611 Data anonymization/pseudonymization Pseudonymization is central to significantly reducing the risks associated with data processing, while also maintaining the data’s utility. The concept of pseudonymization is central to the GDPR. The GDPR defines pseudonymization as “the processing of personal data in such a manner that the personal data can no longer be attributed 607. Fairness of processing is referred to, notably, in recital 45, and paragraphs 2 and 3 of Article 6 (“Lawfulness of processing”) of the General Data Protection Regulation. Parliament and Council Regulation 2001/45/EC, On the Protection of Individuals with Regard to the Processing of Personal Data by the Community Institutions and Bodies and on the Free Movement of Such Data, rec. 45, art. 6, 2001 O.J. (L 8) 1. 608. European Union Agency for Fundamental Rights, supra note 594, at 75. 609. Organisation for Economic Co-operation and Development, 2013. OECD Guidelines on the Protection of Privacy and Transborder Flows of Personal Data 15. 610. Article 29 Data Protection Working Party, Opinion 3/2010 on the Principle of Accountability, 00062/10/EN, WP 173 (2010). 611. European Union Agency for Fundamental Rights, supra note 594, at 76.

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to a specific data subject without the use of additional information.”612 To pseudonymize a data set, the “additional information” must be “kept separately and subject to technical and organizational measures to ensure nonattribution to an identified or identifiable person.” Any “personal data,” which is defined as “information relating to an identified or identifiable natural person “data subject,”” falls within the scope of the Regulation. There are limits to pseudonymization: it is “not intended to preclude any other measures of data protection.”613 Ongoing interpretation of principles in data protection law is important in considering their relevance for smart grids. All actors involved in the supply and demand of energy via smart grids need to understand and consider how to meet the legal obligations they face. As noted above, the failure to address regulators’ and customers’ privacy concerns will pose a major obstacle to successfully moving forward with establishing the new systems.614 Aware of this significant problem, in 2010, the European Commission established an institution body to examine the multiple regulatory matters relating to smart grids: the Smart Grid Task Force (SGTF). The SGTF brings together eight different Commission Directors General including energy, climate, environment, and justice along with thirty European organizations representing all relevant stakeholders in the smart grids arena, from both the ICT and the energy sector.615 Given its cross-sectoral representation, the SGTF is key to regulatory development on ICT and energy interconnections. The SGTF’s main purpose is to advise the Commission on policy and regulatory frameworks at the European level and to assist in coordinating initial steps towards the implementation of smart grids under the provision of the Third Energy Package.616 Four expert working groups were established in April 2011 to explore the key challenges to smart grid deployment.617 Expert group 2 (EG2) specifically focuses on privacy and security issues, including developing a data protection template and an energy-specific cybersecurity strategy, and identifying minimum security requirements. The mandate of EG2 was to create a Smart Grid Data Protection Impact

612. Parliament and Council Regulation 2001/45/EC, On the Protection of Individuals with Regard to the Processing of Personal Data by the Community Institutions and Bodies and on the Free Movement of Such Data, art. 4(5), 2001 O.J. (L 8) 1. 613. Parliament and Council Regulation 2001/45/EC, On the Protection of Individuals with Regard to the Processing of Personal Data by the Community Institutions and Bodies and on the Free Movement of Such Data, rec. 28, 2001 O.J. (L 8) 1. 614. Liu, et al., supra note 534. 615. Smart Grid Task Force Group 3, 2016. Workshop on Experiences and Conditions for Successful Implementation of Storage 1. 616. Id. 617. Commission Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Smart Grids, COM (2011) 202 final (Apr. 12, 2011).

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Assessment (DPIA) template. In 2014 the EG2 published a template for data protection impact assessment for smart grids and smart grid metering systems.618 The purpose of the DPIA is to provide guidance on how to perform an assessment for smart grid and smart metering systems. The template will help organizations to take the “necessary measures to reduce risks, and as such, reduce the potential impact of the risks on the data subject, the risk of noncompliance, legal actions and operational risk, or to take a competitive advantage by providing trust.”619 The DPIA is intended to help achieve holistic implementation of data protection principles and rules. The SGTF believes this holistic approach will safeguard confidentiality, integrity, and information assets for the smart grid system. Under the GDPR, it is mandatory to conduct a DPIA. The new regulatory landscape within the EU, dominated by the reform of data protection under the GDPR, is largely considered to provide more effective data protection and privacy arrangements for data subjects than previously. However, concerns remain, especially with the rapid development of technology, including the upscaling of IoT and Big Data, and it seems that legislators are perpetually fighting a losing battle on privacy.620 The GDPR arguably restrains this slightly but only to a relatively limited degree and is arguably easily circumvented by procedural formatting over “consent” protocols.621 Purtova argues that “personal data will be appropriated in proportion to the de facto power of the data market participants to exclude others.”622 It may be that the boundaries within which the legal concept of privacy is interpreted are changing. Schwartz, who considers that the normative function of privacy lies in the formation of community and personal identity, argues that the individual-specific privacy focus is now challenged. Schwartz further argues that privacy should be a condition of social systems instead of a feature of “inborn” autonomy or a means to control personal data.623 The shifting nature of this debate will no doubt be evident in Court cases brought to interpret the EU GDPR in the coming years. What is certain, however, is that the principles for data protection will provide the foundations upon which the substantive law will continue to evolve.

618. Smart Grid Task Force 2012 Expert Group 2, Data Protection Impact Assessment Template for Smart Grid and Smart Metering Systems (2014). 619. Id. 620. Mayer-Scho¨nberger, V., Padova, Y., 2016. Regime Change? Enabling Big Data through Europe’s New Data Protection Regulation, 17 Colum. Sci. & Tech. L. Rev. 315. 621. Kosta, E., 2013. Consent in European Data Protection Law. 622. Purtova, N., 2015. Illusion of Personal Data as No One’s Property, 7 L. Innovation & Tech. 83, 83. 623. Schwartz, P.M., 2000. Beyond Lessig’s Code for Internet Privacy: Cyberspace Filters, Privacy Control and Fair Information Practices, Wis. L. Rev. 743.

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Digital systems security For all actors engaged in delivering a digital ICT-based energy system across Europe, security is a priority. The previous section considered security in data handling by data controllers of data subjects’ information with respect to the fundamental right to privacy. This section surveys efforts within the EU to address risks posed by the increasing dependence of all sectors in society on ICT. It frames this within the context of upscaling smart grids energy systems that see a rise in the number of service providers. In 2013 the EU launched the Cybersecurity Strategy.624 It was understood that the goal of achieving a Single Digital Market would flounder if cybersecurity issues were not addressed: The strategy acknowledged that “for new connected technologies to take off, including e-payments, cloud computing or machine-to-machine communication, citizens will need trust and confidence” and that this would be undermined by “threats [from] different origins—including criminal, politically motivated, terrorist or state-sponsored attacks as well as natural disasters and unintentional mistakes.”625 The key initiative by the EU to secure critical digital ICT systems, such as banking, energy, health, and transport, is the 2016 Directive on Security of Network and Information Systems (NIS Directive).626 The NIS Directive strengthens and modernizes the mandate of the European Network and Information Security Agency that was established in 2004.627 The NIS Directive will apply to operators of “essential services” and to “digital service providers.” EU countries have until 9 May 2018 to transpose the Directive into national law. There will be some overlaps with the obligations under the GDPR, but organizations, both large and small, will face new requirements. A significant distinction can be made regarding the type of data protected under the NIS Directive and the GDPR. The NIS Directive covers any type of data breaches whereas the data protected under the GDPR is limited to “personal data.”628 Unlike the GDPR, which revised existing data protection law within the EU, according to the European Commission Vice-President for the Digital Single Market, Andrus Ansip, the NIS Directive is the first comprehensive piece of EU legislation on cybersecurity and a fundamental 624. Joint Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Cybersecurity Strategy of the European Union, JOIN (2013) 1 final (Feb. 7, 2013). 625. Id. at 3. 626. Parliament and Council Directive 2016/1148/EU, Concerning Measures for a High Common Level of Security of Network and Information Systems Across the Union, 2016 O.J. (L 194) 1. 627. Parliament and Council Regulation 460/2004/EC, Establishing the European Network and Information Security, 2016 O.J. (L 77) 1. 628. Day, J., 2016. The New EU Cybersecurity Directive: What Impact on Digital Service Providers? 4.

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building block in that area.629 As a Directive, the NIS Directive requires Member States to adopt legislation to transpose it. This is different from the GDPR, which is a Regulation and, per its very nature, directly applies to all EU Member States.630 Consequently, there is space for differences in the approaches adopted by Member States in how to meet the NIS Directive’s requirements. This could impact its effectiveness in terms of securing transboundary critical energy digital ICT infrastructure; however, the NIS Directive does actively promote network collaboration and cooperation.631 The NIS Directive provides guidelines for “essential service operators,” for example within the energy, transport, banking, financial market infrastructure, health, drinking water, and digital infrastructure sectors, as well as “digital service providers,” including entities such as online marketplaces, online search engines, and cloud computing service providers. National governments are to play a key coordinating role amongst other actors nationally and within the EU as the NIS Directive requires each Member State to set up a Computer Security Incident Response Team Network (CSIRT) to promote swift and effective operational cooperation on specific cybersecurity incidents and to share information about risks.632 Critical service providers who will need to cooperate with national CSIRTs are defined under the NIS Directive as entities who “provide a service which is essential for the maintenance of critical societal and/or economic activities; that the provision of the service depends on network and information systems and that an incident would have a significant disruptive effect on the provision of that service.”633 Operators of essential services have obligations to “take appropriate and proportionate technical and organizational measures to manage the risks posed to the security of network and information systems.”634 To achieve this, service providers are encouraged to adopt internationally accepted standards and specifications to secure networks and information systems. 635 Annex 11 of the NIS Directive lays out the entities considered to be “essential service operators.” Electricity is a subsector of the energy sector. The NIS Directive provision applies to several entities as outlined in Article 2 of 629. Id. at 1. 630. In the European Union’s legal system, European Regulations are self-executing; they require no “transposition” into the legal orders of the different Member States, they are directly binding, and can be directly resorted to by individuals. See TFEU, art. 288. 631. Parliament and Council Directive 2016/1148/EU, Concerning Measures for a High Common Level of Security of Network and Information Systems Across the Union, art. 11, 2016 O.J. (L 194) 1. 632. Id. art. 9, art. 11, annex I. 633. Id. art. 5(2). 634. Id. art 14. 635. Id. art. 19(1).

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the 2009 Electricity Directive.636 These include DSOs637 and TSOs, who are engaged in an “electricity undertaking,” which includes at least one of the following functions: generation, transmission, distribution, supply, or purchase of electricity.638 The NIS Directive clearly applies to the electricity sector. Providers of the service, whatever the size of the operation, need to comply with the NIS Directive’s requirements. It is important that small-scale energy providers, such as prosumers and energy cooperatives, are given the necessary support to adopt appropriate measures to reduce the risks to their technical and information networks. The focus of the observers is often on large-scale cyberattacks across national systems, however targeted criminal activities on relatively small-scale energy providers could inflict harm on customers (as well as on service providers) in many ways, from loss of power to fraud. The national government as well as service providers have an obligation to ensure this situation does not occur. One area that will require further security risk measures is the financial transactions between service providers and customers. This could become more challenging with the emergence of virtual currencies and smart contracts.639

1.5

Conclusion

Many of today’s big changes are demographic: a shift in power from the West to the East, rapid urbanization, technology, health and well-being, and climate change and natural resources. These last two points are crucial to the arguments made in this chapter in the broader context of inclusive prosperity. Access to affordable and clean energy as well as climate action are two of the seventeen UN Sustainable Development Goals, which the international community is committed to meeting by 2030. The Earth is our home and common inheritance. We need to make sure it is sustainably managed. We now have enough scientific knowledge to know that climate change is a problem. But the policies in place are wrong and good leadership is essential to meet the agreed targets. We must act now to conserve our living environment for future generations. The deployment of smart grids, their improved regulation, and careful consideration of their social and ethical dimensions are all necessary to make the transition to a low-carbon economy happen. Arguably, oil-producing 636. Parliament and Council Directive 2009/72/EC, Concerning Common Rules for the Internal Market in Electricity, 2009 O.J. (L 211) 55. 637. Id. annex II. DSO is defined in art. 2(4) and 2(6). 638. Id. art. 2(35). 639. See generally Romain, C., et al., 2016. Managing Energy Markets in Future Smart Grids Using Bilateral Contracts, 285 Frontiers Artificial Intelligence & Applications 133; Mihaylov, M., et al., 2014. NRGcoin: Virtual Currency for Trading of Renewable Energy in Smart Grids, 11 Int’l Conf. on Eur. Energy Mkt. 58.

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countries may lose out in the transition to a low-carbon economy because most of their GDP comes from fossil fuels. But similarly, most of these countries are blessed with unique solar irradiance and, therefore, the potential to generate wealth out of renewable natural resources. Intermittency is currently one of the issues of solar and wind energy, as is safety in the case of nuclear energy. Carbon capture of fossil fuels will also move forward the agenda of a transition to a low-carbon economy. This chapter has shown the advantages and disadvantages of smart grids. Some of the benefits are that smart grids create the conditions for the proliferation of renewable energy generation. They allow for the self-consumption of energy. They boost energy efficiency via demand response. They alleviate energy poverty. They lead to decreases in fossil fuel imports. They decrease dependence on unreliable oil and gas suppliers and volatile prices and they promote low-carbon energy security. However, the transition to the new energy architecture may also generate adverse results, such as higher prices, abuse of market power, and an increase in overall energy consumption. This chapter has also analyzed the legal framework related to smart grids in the EU. We find that the EU legal framework on smart grids is fragmented and needs to be streamlined. Although sufficient direction for the roll-out of an “intelligent grid” exists at the regional level, there is still much legislation and policy that needs to be put in place, particularly at the national level. We also find that regulation may exist, but is not in force or is incoherent. The various components envisaged by smart grids are at different levels of development. Consequently, legislative responses toward more ecological regulation has been insufficient or lacking. Although specific legislation, and perhaps standardization, is desirable, the absence thereof should not operate as a hindrance to the successful deployment of smart grids, given that sufficient legal bases exist at the regional level, along with apparent political support at the national level. We also find that, in the context of smart grids in the EU, there is a need for stronger legislation on data protection and cybersecurity. Setting the rules, however, is not enough. Execution is necessary, for instance, by providing incentives to get things done. Finally, technological advancement is key for a successful decarbonization process. However, technology alone is not enough; we also need the right public policies to reach our decarbonization goals. Smart grids are clearly part of the EU’s future economic, social, and environmental policy landscape. Key strategies on the economy, the environment, and technology provide opportunities for the radical transformation in Europe’s energy infrastructure through smart grids to take place. It is also evident that the EU needs to work toward the energy transition in a manner that ensures balanced, equitable, fair, and just outcomes for all citizens. The collaborative economy, for example, should not undermine employees’ rights or environmental standards. Moreover, the concept of circular economy needs to be embedded in public policy, and private-sector product design and resource

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management will play a crucial role in the future. All of this will be possible with the right public policies in place and changes in behavior: change is difficult, even when the status quo is bad, but it is necessary. As a result, one may be a short-term pessimist, but a long-term optimist. Moving forward, society needs to find a way to make sure that corporations see incentives for green growth, so that they can make a profit and protect the environment (for instance, by selling solar panels or EVs).640 Short-termism is a great challenge for sustainable development and needs to be avoided at all costs. Since energy is the driver for much of what we do, clean energy is a sure way to reach sustainability. But the question remains: in the transition to clean energy, can clean energy sources be implemented on a scale that will replace fossil fuels? Ultimately, following the invisiblehand concept introduced by Adam Smith in the 18th century, an invisible “green” hand will bring sustainability to the economy.

640. One can think, for instance, of the National Industrial Symbiosis Program, Nat’l Indus. Symbiosis Program http://www.nispnetwork.com/about-nisp.

Chapter 2

Conceptualizing the energy transition in the European Union Rafael Leal-Arcas Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

2.1

Introduction

The global energy market is still monopolized to a great extent by the production, trade, and consumption of oil and gas.1 The European Union (EU) is no exception to this rule with a high import ratio of both oil and gas. Unreliable oil producers, geopolitical instability in many oil-rich countries, economic and resource nationalism—which are a threat to sustainable development—transportation-related hazards, and the high volatility of international oil prices are constraining importers to face significant risks.2 Diversification of sources, routes, and suppliers has been high on the EU’s agenda. The Southern Gas Corridor3 and a few liquefied natural gas



Professor of Law, Alfaisal University (Riyadh, Kingdom of Saudi Arabia). Jean Monnet Chaired Professor in EU International Economic Law. Member, Madrid Bar. Ph.D., M.Res., European University Institute; J.S.M., Stanford Law School; LL.M., Columbia Law School; M. Phil., London School of Economics and Political Science; J.D., Granada University; B.A., Granada University. The research assistance of N. Akondo, J.A. Rios, and my colleagues in the WiseGRID consortium is acknowledged. 1. The International Energy Agency, 2016. “World Energy Outlook,” OECD/IEA, Paris, p. 5. Available at https://www.iea.org/publications/freepublications/publication/WorldEnergyOutlook 2016ExecutiveSummaryEnglish.pdf. 2. Yergin, D., 2011. The Prize: The Epic Quest for Oil, Money & Power. Simon & Schuster, New York. 3. The Southern Gas Corridor is a term used to describe planned infrastructure projects aimed at improving EU energy security by bringing natural gas from the Caspian region to Europe. See Trans Adriatic Pipeline, 2017. “Southern Gas Corridor,” Trans Adriatic Pipeline. [Online]. Available: https://www.tap-ag.com/the-pipeline/the-big-picture/southern-gas-corridor. (Accessed 25 July 2017). The Southern Gas Corridor is also known as the Fourth Corridor (the other three corridors running from North Africa, Norway, and Russia). See Leal-Arcas, R., et al., 2015. “The European Union and its energy security challenges.” J World Energy Law Business 8, 19. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00021-9 Copyright © 2023 Rafael Leal-Arcas. Published by Elsevier Inc. All rights reserved.

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(LNG) initiatives are the only tangible steps toward this direction. Nevertheless, these efforts have not produced sea changes in Russia’s pivotal market role.4 The rationale of liberalization and competition is in accordance with the logic of diversification. This is so as both premises aim to create a level playing field for external actors in a market well-shielded from monopolistic structures and practices.5 While the application of the Third Energy Package6 has blocked some of Russia’s future investment moves, it cannot by itself substantially alter the EU’s import portfolio.7 This is mainly due to the fact that Member States and their energy companies are responsible for negotiating and signing supply contracts. Indeed, Gazprom traditionally retains strategic alliances with a number of European oil and gas companies8 (such as Italy’s ENI, Austria’s OMV, France’s Gaz de France, and Germany’s EON Ruhrgas and Wintershall).9 Indeed, RussoGerman relations have been remarkably cordial over the last decades with energy cooperation being at the center of this partnership. Interestingly, the recent fallout between Russia and Ukraine in 2022, and Russia’s actions (invasion of Crimea in 2014 and hybrid war in Eastern Ukraine) that evidently go against fundamental international law principles enshrined in several international treaties, have resulted in major difficulties regarding Russia-EU gas trade.10 4. Sidi, M., 2017. “The scramble for energy supplies to South Eastern Europe: the EU’s Southern Gas Corridor, Russia’s pipelines and Turkey’s role.” In: Turkey as an Energy Hub? Baden-Baden, Nomos, pp. 51 66. 5. Proedrou, F., 2016. “EU Energy security beyond Ukraine: towards holistic diversification.” Eur Foreign Aff Rev 21(1), 57 73. 6. The EU’s Third Energy Package is a legislative package for an internal gas and electricity market with the purpose of further opening up these markets in the European Union. It consists of two directives and three regulations: Directive 2009/72/EC, concerning common rules for the internal market in electricity; Directive 2009/73/EC, concerning common rules for the internal market in natural gas; Regulation (EC) No. 714/2009, on conditions for access to the network for cross-border exchanges in electricity; Regulation (EC) No. 715/2009, on conditions for access to the natural gas transmission networks; and 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. 7. Goldthau, A., Sitter, N., 2015. “Soft Power with a hard edge: EU policy tools and energy security,” Rev Int Political Econ, 22(5), 941 965; Goldthau, A., 2016. “Assessing Nord Stream 2: regulation, geopolitics & energy security in the EU, Central Eastern Europe & the UK,” European Centre for Energy and Resource Security, London. 8. It is interesting to note that, as of 2013, 90 companies caused two-thirds of anthropogenic greenhouse gas emissions. See Goldenberg, S. “Just 90 companies cause two-thirds of manmade global warming emissions,” The Guardian, 20 November 2013. Available at https://www. theguardian.com/environment/2013/nov/20/90-companies-man-made-global-warming-emissionsclimate-change. 9. Aissaoui, A., et al., 1999. Gas to Europe: The Strategies of Four Major Suppliers. Oxford University Press, Oxford. 10. Casier, T., 2016. “Great Game or Great Confusion: The Geopolitical Understanding of EURussia Energy Relations.” Geopolitcs 21(4), 763 778.

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An important goal for Europe at this time is achieving decentralized energy. This would mean shifting from large, centralized power stations, to small, local grids that better capitalize on renewable energy sources. It would mean a more flexible model, where consumers have control of their energy use and can avail of the option of becoming prosumers. A number of factors are driving the shift toward decentralized energy in Europe. These factors include: G G G G

G G

the need to address climate change by reducing greenhouse gases; the need to increase renewable energy use; the need to increase energy efficiency; the need to increase energy security by decreasing imports and relying more on renewable energy; growing electricity demand all over Europe; and the liberalization of Europe’s energy markets.11

Achieving energy decentralization is a mammoth task for the EU, as it will require innovation and technical upgrades as well as coordination across legislation, policy, and a range of relevant actors. Indeed, regulation poses one of the most significant barriers at this time, as empowering individuals with prosumership and smarter demand response systems requires a host of new regulations. Such regulation must address matters such as pricing, monitoring, consumer protection, data protection, and subsidies and incentives, to name but a few. In spite of the daunting nature of the task, efforts toward decentralization are already underway across the EU. EU governments are well aware of the need to achieve decentralization, driven by the factors listed above, and also to comply with the EU’s 2020 Strategy goals.12 To this end, many interesting developments abound. For example, researchers are developing new ways to make appliances more intelligent and energy efficient.13 A pan-European project called WiseGRID (WG) that I have been involved with as Principal Investigator is working on how to effectively place citizens at the center of the transformation of the electricity grid by allowing greater citizen participation and, by doing so, moving toward energy democracy.14 Throughout this chapter, I refer to WiseGRID-related applications and projects that have implications for decentralization, more empowered citizens, and progress on decarbonization.

11. EU Directorate-General for Internal Policies, 2010. “Decentralized Energy Systems.” Available at: http://www.europarl.europa.eu/document/activities/cont/201106/20110629ATT22897/ 20110629ATT22897EN.pdf. 12. European Commission. “2020 Energy Strategy.” Available at https://ec.europa.eu/energy/en/ topics/energy-strategy-and-energy-union/2020-energy-strategy. 13. About WiseGRID, WiseGRID, http://www.wisegrid.eu/ [https://perma.cc/CGM8-F2WK]. 14. Idem.

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This chapter examines progress on energy decentralization in four EU jurisdictions: Belgium, Greece, Italy, and Spain. It focuses on specific outcomes of decentralization, including deployment of smart grids15 and smart meters, promotion of demand response, promotion of electric vehicles, and greater interconnection with neighboring countries. It examines each country’s progress on these fronts as well as any existing barriers. The chapter also examines regulation that has helped toward the goal of decentralization in each country, which could perhaps be adopted in other countries seeking to transition to more liberalized energy markets. For the purposes of this chapter, we focus mainly on electricity markets.

2.2

Progress on energy decentralization

Europe has been working toward liberalized energy markets since the 1990s, with a series of Directives to this effect.16 Many EU Member States have made significant progress in this regard, with increased competition among energy suppliers, better services, and lower energy prices. Decentralization seems to be the next logical step, as it will further help achieve a more democratic and participative energy market. Belgium started to liberalize electricity at the beginning of the 2000s, in keeping with EU direction. By 2007, the country’s three regions (the BrusselsCapital region, the Flemish region, and the Walloon region) had legally opened their electricity markets. Thereafter, an amendment to the Law of 29 April 1999 was passed. This amendment, the Law of 8 January 2012, strengthened the role of the federal authority (CREG) and made it a separate entity from the Directorate-General for Energy. Additionally, the Constitutional Court decided on 7 August 2013 that the federal level would have sole competence over the application, determination, and exemption of tariffs. However, the Special Law of 6 January 2014 changed things so that the central government would set transmission tariffs, but regional authorities could establish distribution tariffs. So, Brugel, the VREG, and CWaPE are the deciding authorities for setting distribution tariffs in the Brussels-Capital region, the Flemish region, and Walloon region, respectively.17 Another shift occurred with the Law of 8 January 2012, which added to regional regulator competences and called for opening competition by unbundling electricity markets.18 In keeping with the new regulation, Belgium’s electricity 15. Smart grids are called “smart” because they allow some energy loads to be switched off for a while at peak demand times. 16. First Energy Package, electricity (1996) and gas (1998); Second Energy Package 2003, and Third Energy Package (2009). See http://www.europarl.europa.eu/factsheets/en/sheet/45/internalenergy-market. 17. International Energy Agency, 2016. “Energy Policies of IEA Countries. Belgium. 2016 Review,” International Energy Agency, Paris. 18. Idem.

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transmission system operator, Elia, along with the various distribution system operators, unbundled completely from utilities. In general, central government regulators handle electricity transmission for systems that have a voltage higher than 72 kV, while the regional level has competence over the local distribution and transmission of electricity for systems that have a voltage equal to or less than 70 kV. With the exception of offshore wind energy, regional authorities also have competence over renewable energy and over the rational use of energy. Each region has its own regulatory framework for the management of its electricity market: The Ordinance of 19 July 2001 regarding the organization of the electricity market in the Brussels-Capital region; the Decree of 8 May 2009 on energy policy (also known as the Energy Decree) for the Flemish region; and the Decree of 12 April 2001 regarding the organization of the regional electricity market for the Walloon region.19 Reaching a cohesive energy strategy is a key challenge for the country. While currently, Belgium’s central government and its three regions share competence for energy and climate change, in reality the regions enjoy jurisdiction over policy related to these issues. The situation sometimes results in a lack of clarity when it comes to dividing competences between the federal and regional levels. Further, the system as it stands leads to a lack of coordination among the entities managing energy and climate policies. For effective energy governance, the various state players need to work together in a cohesive and integrated way.20 To this end, it was decided in 2015, to create an energy pact for the country that would encompass a long-term outlook and to identify tangible steps to achieve energy and climate goals both within Belgium and at the EU level.21 However, political disagreements got in the way of the project fulfilling its ambitions. In Spain, a process of decentralization has been ongoing since the 1978 Constitution, which officially sealed the country’s shift to a democracy. The Constitution facilitated this decentralization by establishing autonomous regions or “Comunidades Auto´nomas.” These regions have gained increasing competence, demonstrated by their growing share in total public spending,22 a fact not necessarily beneficial to the central government. The Constitution allocates some competences exclusively to the state but the rest are left to the autonomous regions, and most bask in an equal level of 19. Elia Group, “Legal Framework,” Elia Group, [Online]. Available: http://www.elia.be/en/ aboutelia/legal-framework. 20. European Environment Agency, 2014. “Country profile-Belgium,” European Environment Agency, Copenhagen. 21. International Energy Agency, 2016. “Energy Policies of IEA Countries. Belgium. 2016 Review,” International Energy Agency, Paris. 22. Balaguer-Coll, M., 2010. “Decentralisation and efficiency in Spanish local government,” Ann Reg Sci, 45(3), 571 601.

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political autonomy.23 The central government has sole competence to authorize electricity networks when their usage impacts another autonomous region or when electricity transmission lines extend further than the relegated territorial allotment.24 Moreover, the state has the authority to confirm and establish groundwork for mining and energy sectors,25 which, of course, ties in with the government’s role of planning overall economic activity,26 in which energy plays a key part. Lastly, the government has the authority to lay down regulation for environmental protection, with autonomous regions having competence to establish accompanying regulations.27 Autonomous regions have been claiming authority in residual areas related to energy by making sure to not impinge on the central government’s prerogative. The regions must ensure that any energy policy only affects their region and not any of the others. Furthermore, autonomous regions have sole authority over industry in their regions while complying with overall government frameworks for economic initiatives. Overall, the competences of the autonomous regions must fit within the framework of the central government’s authority on matters related to national security, health, or the military, along with sectors confined by regulations on mining, hydrocarbons, and nuclear energy.28 Overall, autonomous regions play an important part in the country’s energy policy. They have the authority to decide a host of matters connected to national energy policy. For example, they may confirm power plant operations as long as capacity is below 50 MW, which applies to the majority of solar and wind plants. Further, autonomous regions can authorize electricity and gas distribution networks within their geographical scope. And they play a key role in deciding and executing policy related to climate change, energy efficiency, and renewable energy on the regional front. It is worth exploring links between Spain’s deeply embedded decentralization and the principle of subsidiarity within EU law.29 In Italy, there has been a steady move toward liberalization in the country’s electricity market since the EU issued its first electricity-related directive (96/92/EC). The EU directive followed the Bersani Decree,30 which

23. European Committee of the Regions, 2012. “Division of Powers,” European Committee of the Regions. Available at: https://portal.cor.europa.eu/divisionpowers/countries/MembersLP/ Spain/Pages/default.aspx. 24. Article 149, paragraph 1, point 22 Spanish Constitution. 25. Article 149, paragraph 1, point 25 Spanish Constitution. 26. Article 149, paragraph 1, point 13 Spanish Constitution. 27. Article 149, paragraph 1, point 23 Spanish Constitution. 28. Navarro Rodr´ıguez, P., 2012. “Distribucio´n de competencias en materia de Energ´ıa en Espan˜a; Pluralidad de Administraciones competentes,” Actualidad Administrativa, no. 19 20. 29. Article 5.3 of the Treaty on European Union (TEU). 30. International Energy Agency (IEA), 2016. “Energy Policies of IEA Countries; Italy 2016,” OECD/IEA.

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delineated the way forward for liberalizing the market and identified basic tenets for future steps in this direction. Thus far, liberalizing wholesale and retail markets has met with much success. Decentralizing electricity generation and using micro-grids for distribution would be the next major steps. Before the electricity market was liberalized, it was organized as a vertically integrated monopoly, with Enel S.p.A. the main actor in charge. But legislation was passed to promote competition, to benefit end consumers. This was achieved by establishing a vertical distinction among companies in a way that distinguishes free activities from competitive ones. In the liberalization process, demand is addressed incrementally, with customers placed into two categories: suitable and eligible. Eligible customers refer to those who signed contracts with particular producers or distributors. The rest are obliged to sign contracts with those producers or distributors servicing their location. Directive 2003/54/ EC was the final step in the market being opened completely, from 1 July 2004 for nonresidential customers and from 1 July 2007 for residential. Overall, liberalizing the country’s electricity market has been a legal obligation, in keeping with EU directives and taking place in two phases, broadly speaking: opening markets at a national level and integration of national markets. The grid operator role emerged from the Bersani decree. It is a limited company whose shares are owned by the Ministry of Treasury, Budget and Economic Planning (Enel S.p.A having handed them over for free). The grid operator must provide a public utility service by transmitting and dispatching electricity and managing, in a streamlined way, the high and very high voltage grids. Law No 290/2003 of 27 October 2003 was passed to protect public interests, through unifying the ownership and operation of the network, with the goal of maximizing efficiency and safety. The law delineates the steps for unifying the network’s operation and ownership. Greece started to liberalize its electricity market in 2001, and the process was finalized in July 2013. However, the state-owned Public Power Corporation (PPC) still has a high level of control over electricity production. Entering the market is challenging due to high levels of capital investment along with licensing processes being plagued by red tape.31 Consumers in Greece’s interconnected system have been able to choose their energy supplier since 2004, and residential consumers have been able to do so since July 2007. Since 2016, consumers based in Crete and Rhodes have also had the ability to choose their supplier. However, this right does not extend to consumers based in the smaller, noninterconnected islands, since the PPC is the only available supplier in those isolated microsystems. In this sense, 2007 represents a large step forward for the country’s energy market in terms of being the starting point for its liberalization. The year 2011 stands out as a large amount of supplier changing took place on the 31. Anagnostopoulos, J., Papantonis, D., 2013. “Facilitating energy storage to allow high penetration of intermittent renewable energy,” StoRe.

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retail market. While PPC still held its ground as the main energy provider, a sizeable number of consumers transitioned to alternate providers, demonstrating that there is room for competition to evolve in the retail market. According to a 2017 report by the Hellenic Electricity Market Operator (LAGIE)—which is in charge of operating and maintaining the country’s energy market—20 companies are registered as energy suppliers and 25 as energy traders, in addition to PPC. However, the majority of suppliers play a greater role in energy trade than in supply. Additionally, seven companies are registered as producers and are recorded in LAGIE’s archives,32 while some of the producers are also active as suppliers and traders. There is potential for energy retailers and local communities and cooperatives to avail of the WiseGRID application WiseCOOP to more efficiently manage their customers and assets and also help domestic and small businesses, consumers, and prosumers to attain better energy deals. WiseCOOP could help them provide their member or customers with better services and prices, especially in conjunction with demand response programs. Greece’s natural gas market is also undergoing a process of liberalization, but more gradually than the electricity market. In 2011 Law 4001 was established, which provided for separating networks from supply and production activities. The law has undergone numerous modifications since its establishment. According to Law 4336, passed in 2015, the process of liberalizing the gas market derived from the need to trigger strong competition and lower energy costs. New provisions have since followed, largely related to updating natural gas infrastructure in Greece, the need to legally separate distribution and supply activities, and broadening the eligible customer qualification, which includes electricity customers and several industrial customers. Restrictions related to the supply and monopoly of the Public Gas Corporation of Greece (DEPA) were removed so that public service commissions and large industrial consumers and generators received the right to purchase gas directly from international suppliers. The opening of the retail market, which started with the industrial sector, continued in 2017 for professional customers and is to be completed by integrating domestic customers in addition. Many have displayed a keen interest, and by the end of 2016, more than 40 companies had applied for a license to supply gas with the aim of reaching the earliest eligible customers. Opening up the natural gas market can lead to more profitable conditions for the use of CHP. The combination of the WiseGRID STaaS/VPP and WiseCORP applications could help to integrate CHP systems in the tertiary sector and industries and to provide a greater incentive to taking part in the energy market, resulting in more services and lowering their overall energy expenses.

32. ΛAΓHE Operator of the electricity market, “http://www.lagie.gr / DAS monthly report December 2016.”

Chapter 3

Energy decentralization and energy transition in Belgium Rafael Leal-Arcas Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

3.1

Smart grids and meters

We are witnessing an energy democratization (i.e., more democratic access to energy) in the decentralization of energy security governance and the creation of new actors such as prosumers.1 In other words, the fact that citizens have less dependence on energy companies for their energy security. These are all megatrends of the 21st century. This means we are witnessing a paradigm shift in the governance of international economic law, broadly defined, and how citizens can play a greater role to make this transition more solid.2



Professor of Law, Alfaisal University (Riyadh, Kingdom of Saudi Arabia). Jean Monnet Chaired Professor in EU International Economic Law. Member, Madrid Bar. Ph.D., M.Res., European University Institute; J.S.M., Stanford Law School; LL.M., Columbia Law School; M. Phil., London School of Economics and Political Science; J.D., Granada University; B.A., Granada University. The research assistance of N. Akondo, J.A. Rios, and my colleagues in the WiseGRID consortium is acknowledged. 1. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2017. “Prosumers: New Actors in EU Energy Security,” 48 Netherlands Y.B. of Int’l L., pp. 139 172. 2. See for instance the development at the subnational level in the United States, where cities and states, via their mayors and governors, are determined to implement the Paris Agreement on Climate Change, despite the decision of the federal government to withdraw from it. See Lumb, D., 2017. 61 US Cities and Three States Vow to Uphold Paris Climate Agreement, Engadget (1 June 2017), https://www.engadget.com/2017/06/01/61-us-cities-and-three-states-vow-to-uphold-paris-climateagreem/. See also an open letter to the international community and parties to the Paris Agreement from the US state, local and business leaders by a bottom-up American network called We Are Still In, at http://wearestillin.com/. Similarly, see the role of the US Alliance at the US Climate Alliance, https://www.usclimatealliance.org/, or America’s Pledge at https://www.bloomberg.org/program/environment/americas-pledge/, both platforms committed to fight climate change. Other ways in which citizens can have a greater involvement in the energy-transition phenomenon is in solar energy, where people could install solar panels on the roof of their houses. This option would solve the delicate debate over where to place wind farms as part of the energy-transition phenomenon. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00026-8 Copyright © 2023 Rafael Leal-Arcas. Published by Elsevier Inc. All rights reserved.

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In other words, there is a shift from the core (i.e., centralized approaches to governance) to the crowd (i.e., decentralized, self-organizing approaches to governance).3 One outcome of this shift is the deployment of smart grids. The 20th century electrical grid that we are using in the 21st century has three main components: (1) power plants that responsible for electricity production, (2) transmission lines that carry electricity across distances, and (3) distribution networks that deliver electricity end users.4 However, the 20th century grid is struggling with a shift to clean, renewable energy. In the 21st century, we need an adaptive grid that can accommodate the fluctuations of solar and wind energy. The emerging smart grid, which is “a digital refashioning of the traditional grid with the needs of a clean energy economy in mind,”5 engages in two-way6 communication between the supplier and the consumer of energy to predict and adjust power supply and demand. Thanks to the internet, intelligent software, and responsive technologies, it is possible to manage the electricity flow. One great advantage of smart grids is that they can reduce energy consumption while running away from centralized fossil-fuel power plants that produce GHG emissions. In the view of the International Energy Agency, smart grids could help to achieve net annual emissions reductions of 0.7 2.1 gigatons of CO2 by 2050.7 Demand for electricity is variable depending on the season and time of the day, peaking usually in the late afternoon and in the hottest and coldest months of the year. Here is where smart grids could revolutionize the current situation: they could activate the charging of plug-in electric cars at night when demand is lowest. Doing so would reduce GHG emissions and both end users and utilities save money. An enormous investment will be required, but it will be worth it thanks to GHG emissions reduction, financial savings, and grid stability. For instance, in the case of the United States, an investment of $338 billion to $476 billion in an intelligent grid system would provide a net benefit of $1.3 trillion to $2 trillion over 20 years.8 The evolution of smart grids presents formidable challenges. The load in the electricity networks must be continually balanced to store electricity surplus during low demand spells and release it when demand increases. This can be achieved in two ways. Either through the maintenance of the supply and demand balance via market mechanisms or by means of adequate 3. For a similar approach to explain how work happens, see McAfee, A., Brynjolfsson, E., 2017. Machine, Platform, Crowd: Harnessing our Digital Future, W.W. Norton. 4. Hawken, P. (Ed.), 2017. Coming attractions: Smart grids. In: Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming, Penguin, p. 209. 5. Idem. 6. Unlike the 20th century electrical grid, which was a one-way system. 7. IEA, 2011. World Energy Outlook 2010, IEA, Paris. 8. Kanellos, M. “Smart grid price tag: $476 billion; benefits: $2 trillion,” 8 April 2011. Available at https://www.greentechmedia.com/articles/read/smart-grid-price-tag-476-billion-benefits-2-trillion #gs._aWoaGw.

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storage capacity. The low-carbon transition has been based on the proliferation of solar and wind energy. Both are intermittent in nature (which means that one would need storage capacity), thus raising the issue of what happens at the times when they underperform.9 Moreover, it is necessary to have large empty areas to produce solar energy at a large scale, especially because solar energy is already competitive with fossil fuels in sunny places.10 Smart grids are energy networks that can keep track of energy flows and respond to fluctuations in energy supply and demand as needed. When smart metering systems are also installed, consumers and suppliers can receive information regarding real-time consumption. Smart meters thus enable consumers to adapt their energy uses to a range of energy prices during the day, saving money by consuming more energy when prices are lower.11 Smart grids are also technically equipped to better incorporate renewable energy and thus contribute to environmental protection. Overall, therefore, in pursuing its goals of decentralization, energy efficiency, and energy security, it is in the European Union’s (EU’s) interests to explore smart grids and meters. This is indeed the case, as the European Commission is promoting the modernization of electricity networks via intelligent metering systems.12 In fact, one of the key areas of energy cooperation in the EU concerns the deployment of smart grids. Smart grids in the EU may be the way forward to reach sustainable energy. However, the energy security, regulatory, and social and ethical aspects of smart grids in the EU first need to be assessed. We ask the question whether the level of deployment of smart grids, the degree of their current regulation, and their social and ethical dimensions are adequate to make the transition to a low-carbon economy happen. There is still a long way to go before we reach a desirable outcome. Some of the benefits of smart grids are that they create the conditions for the proliferation of renewable energy generation. They allow for the selfconsumption of energy. They boost energy efficiency via demand response. They alleviate energy poverty. They lead to decreases in fossil fuel imports.

9. Scientific American, “Renewable Energy Intermittency Explained: Challenges, Solutions, and Opportunities,” Scientific American, 11 March 2015. [Online]. Available: https://blogs.scientific american.com/plugged-in/renewable-energy-intermittency-explained-challenges-solutions-andopportunities/. (Accessed 5 September 2017). 10. See for instance the case of a floating solar farm in China, which is the largest in the world. Daley, J. “China turns on the world’s largest floating solar farm,” Smithsonian.com, 7 June 2017. Available at http://www.smithsonianmag.com/smart-news/china-launches-largest-floatingsolar-farm-180963587/. Other places where there would be potential for solar mega-farms would be the Arabian and Sahara deserts because there is a lot of sunlight and they are not cloudy. 11. European Commission, “Smart grids and meters.” Available at: https://ec.europa.eu/energy/ en/topics/market-and-consumers/smart-grids-and-meters. 12. Article 3, paragraph 11 Directive 2009/72/EC concerning common rules for the internal market in electricity.

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They decrease dependence on unreliable oil and gas suppliers and volatile prices, and they promote low-carbon energy security. However, the transition to the new energy architecture may also generate adverse results, such as higher prices, abuse of market power, and an increase in overall energy consumption.13 In broad terms, the planned deployment of around 200 million smart meters by 2020 in EU countries’ electricity sectors fits within the abovementioned goals related to energy efficiency and sustainability. The EU is aiming to reach 20% energy savings by 2020 and 27% by 2030. The rationale is that energy efficiency has multiple benefits, including lowering energy costs for citizens, reducing GHG emissions, and boosting energy security by reducing dependency on external energy suppliers.14 To this end, where do the various member states stand when it comes to smart meter regulation and deployment? This section explores the status in Belgium, Spain, Italy, and Greece. Belgium is still at the planning stage when it comes to smart meter systems, as can be seen by the fact that little relevant regulation exists at this point. Indeed, Belgium lacks a strategic plan for their widescale deployment. Currently, smart grid projects are few and far between. Thus far, the country’s Flemish region appears to have made the most progress on the smart meter front. When a full rollout does occur, the application of smart grids may prove attractive in an electricity market seeking cost effective alternatives in the face of the anticipated transition away from nuclear energy. In the Flemish region, the Decree of 14 March 2014 transposing Directive 2012/27/EU and amending the Decree of 8 May 2009 on energy policy regulates smart meters in open-ended terms. Article 4.1.22/2 of the Decree of 8 May 2009 sets out the basic principles. First, the Flemish government will identify when DSOs can deploy smart meters. Second, in case of a smart meter being installed, DSOs are responsible for providing consumers with detailed information regarding their rights, obligations, and the technology’s full scope. Third, the Flemish government will determine the mandatory criteria for smart meters. Fourth, the Flemish government will decide how to share data from smart meters. Lastly, the decree states that parties receiving data from smart meters are responsible for conforming with relevant data protection regulation. 13. Since humans have a geological impact, a way to tackle the issue of increase in energy consumption is the so-called Pigou effect. To have less of something, you need to tax it to deal with the unsustainability problem. For an analysis of how humans have damaged the environment and how it can be fixed, see Carson, R., 1962. Silent Spring, Houghton Mifflin; Georgescu-Roegen, N., 1971. The Entropy Law and the Economic Process, Harvard University Press; Naess, A., 2010. The Ecology of Wisdom; Baudrillard, J., 1998. The Consumer Society: Myths and structures, Sage Publications; Yudina, A., 2017. Garden City: Supergreen buildings, urban skyscapes and the new plated space, Thames & Hudson; OECD, 2011. “Towards Green Growth.” 14. European Commission, 2017. “Good practice in energy efficiency for a sustainable, safer and more competitive Europe,” European Commission.

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In spite of the lack of progress on smart meter rollout across the country, an interesting and relevant project in the works is a federal clearing house for energy. The goal behind the clearing house is to create a new energy market model that will factor in emerging technologies including, of course, smart meters and decentralized approaches to energy provision.15 The clearing house will be instrumental in streamlining regional smart meter initiatives and will thus contribute to more coherent energy governance overall in the country. In a further push toward energy efficiency by the EU, two European Commission directives—Directive 2009/72/EC and Directive 2009/73/EC— require cost benefit analyses (CBA) by each Member State to determine whether a countrywide rollout of smart metering systems would be economically viable, in which case Member States must propose timeframes for proceeding and, in fact, provide 80% of consumers with intelligent metering systems by 2020.16 Belgium’s CBA—for which each region carried out individual CBAs—showed generally negative findings.17 Below follows a detailed look at the CBA for the Flemish region. The VREG was in charge of the Flemish region’s CBA, which considered a joint smart meter deployment for electricity and gas. The CBA took place in 2012 and, in the case of electricity, led to a positive outcome. However, it was updated in 2014 at which time it projected a net cost of EUR 157 million.18 The viability of smart meters is still under consideration, however, and local authorities are operating pilot projects across the country, which are providing valuable insights with regard to the technology. This data will help with the success of an eventual widescale rollout of smart meters.19 Currently, the Flemish region has implemented around 50,000 pilot smart meter projects, installed by Eandis and Infrax, the DSOs for the region. These pilot projects have taken on board input from various stakeholders and are seeking ways to decentralize electricity generators and find the most appropriate grid areas in which to integrate renewable energy (RE).20 On 14 July 2017, the Flemish government released a draft decree

15. USmart Consumer Project, 2016. “European Smart Metering Landscape Report. Utilities and Consumers,” USmart Consumer Project, Madrid. 16. Annex I, point 2 Directive 2009/72/EC concerning common rules for the internal market in electricity. 17. Commission staff working document country fiches for electricity smart metering. Report form the Commission benchmarking smart metering deployment in the EU-27 with a focus on electricity, at p. 108, SWD(2014) 188 final (17 July 2014). 18. ICCS-NTUA and AF-MERCADOS-EMI, 2015. “Study on Cost Benefit Analysis of Smart Metering Systems in EU Member States,” ICCS-NTUA and AF-MERCADOS-EMI. 19. VREG, 2013. “The future of smart metering in Flanders/Belgium,” VREG. 20. Brugel, 2013. “Avis relatif a` l’introduction des syste`mes intelligents de mesure: vision de Brugel por la region de Bruxelles-Capitale,” Brugel, Brussels.

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calling for the segmented deployment of smart grids. Starting 2019, a progressive rollout of intelligent metering systems will start in the region, replacing all conventional meters (up to 56 kV). As of September 2017, advisory councils were assessing the draft decree, with a final version to be submitted to the Flemish Parliament.21 At the time of writing, therefore, the Flemish region’s legal framework for intelligent metering systems is still work in progress.

3.2

Electric vehicles

There are predictions that electric vehicles (EVs) will make up 14% of total car sales by 2025, up from 1% in 2017.22 The Organization for Petroleum Exporting Countries expects 266 m EVs to be on the street by 2040, up from 46 m.23 Regulations are getting tighter to the extent that the United Kingdom and France, among other European countries, have announced that all new cars must be zero emission by 2050.24 If implemented in other jurisdictions beyond Europe, this sort of policy will have serious implications. For instance, in the United States, around 85% of workers commute by car25 and around 65% of oil consumption comes driving on roads.26 China, which accounted for about 50% of the EVs sold in 2016, aims at 2 m electric and plug-in hybrid cars on China’s roads by 2020 and 7 m by 2030.27 Most of the nearly one billion cars on the road today are powered by fossil fuels.28 Moreover, existing electric cars reduce CO2 emissions by 54% compared with petrol-powered cars.29 From an environmental point of view, it goes without saying that EVs have many advantages over traditional gasoline-powered cars. EVs offer significant energy efficiency and reduced emissions. EU Member States are at different stages when it comes to the widespread proliferation of EVs. In 2008 revenue in Belgium’s transport sector amounted to EUR 15.9 billion, making it one of the country’s key sectors.30 In fact, greenhouse gas 21. Vlaanderen, “De digitale energiemeter,” Vlaanderen. Available at: https://www.vlaanderen. be/nl/bouwen-wonen-en-energie/elektriciteit-aardgas-en-verwarming/dedigitale-energiemeter. 22. Campbell, P., 2017 (19 May). “Electric car costs forecast to hit parity with petrol vehicles,” Financial Times. 23. “OPEC Drastically Increases 2040 Electric Vehicle Forecast,” Manufacturing, 18 July 2017. Available at https://mfgtalkradio.com/opec-drastically-increases-2040-electric-vehicle-forecast/. 24. The Economist. “Roadkill,” 12 August 2017, pp. 7 8. 25. Idem. 26. Idem. 27. The Economist. “Electrifying everything,” 12 August 2017, pp. 13 15, at 13. 28. The Economist. “Roadkill,” 12 August 2017, pp. 7 8. 29. Idem (citing the National Resources Defense Council in the United States). 30. International Energy Agency: Hybrid & Electric Vehicle Technology Collaboration Programme, “Belgium,” International Energy Agency. Available at: http://www.ieahev.org/ bycountry/Belgium.

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(GHG) emissions in transportation rose by 31% from 1990 to 2010. Belgium responded by various actions at both the federal and regional levels and managed to lower GHG emissions in the transportation sector by 7% from 2010 to 2014.31 These steps included placing high taxes on fuel, creating lowemission zones, barring more polluting vehicles from city centers, and enacting policies to promote alternative modes of transport.32 Moreover, Belgium has kept pace with the EV “revolution.” In 2017 EVs had obtained a market share of nearly 2% in the country. In fact, Belgium has one of the EU’s largest fleets of electric buses.33 Plans are afoot to ensure the use of EVs continues to rise in the country. For example, a joint stakeholder platform—the Belgian Platform on EVs—has been established to create a national strategy for electric transport, which has produced a policy paper titled “Roadmap 2030 for the Stimulation of Electric Mobility in Belgium.” Numerous institutes are researching EVs and hybrid vehicles in Belgium, and their work is driving the EV trend. These include Flanders’ DRIVE, “Katholieke Universiteir Leuven” (K.U. Leuven), the Limburg Catholic University College (LCUC), and University of Ghent, “Vrije Universiteit Brussel” (VUB). Some of this research explores the idea of integrating EVs with smart grids as an option for charging EVs, ideally using RE. Other research is looking into ways to use EVs as a solution toward energy storage. When it comes to regional efforts to promote EVs, the Flemish government has, since 2010, invested more than EUR 16 million in support of EV testing sites. Authorities have also instituted specific tax policies to encourage EV usage, such as tax breaks for businesses using electric or hybrid vehicles and subsidies for those buying EVs domestically, among others.34 Large-scale EV deployment relies on charging infrastructure. Identifying the appropriate regulation and policy regarding the installation and running of public charging stations entails a number of challenges. For example, regulation would need to consider the type of charging technology, charging station locations and ownership, safety, standardization, and pricing. For Belgium, the fact that competence over energy-related regulation is divided across the federal and regional levels exacerbates these challenges. Still, the Belgian Platform on EVs is a move in the right direction, as it promotes transregional initiatives toward creating appropriate regulation. In any case, 31. National Climate Commission, 2016. “Greenhouse gas inventory for Belgium,” Brussels. 32. Boussauw, K., Vanoutrive, T., 2017. “Transport policy in Belgium: translating sustainability discourses into unsustainable outcomes,” Transport Policy, vol. 53, pp. 11 19. 33. European Alternative Fuels Observatory (EAFO). “Belgium,” EAFO. Available at: http:// www.eafo.eu/content/belgium; European Environment Agency (EEA), 2016. “Electric Vehicles in Europe,” EEA, Copenhagen. 34. European Environment Agency (EEA), 2016. “Electric Vehicles in Europe,” EEA, Copenhagen.

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largely thanks to policies supporting the private sector in building charging infrastructure, Belgium has around 1500 public charging stations, even without a tangible regulatory framework in place.

3.3

Demand response

Demand response refers to the process by which consumers can have control over the electric grid by lowering or altering their electricity usage at peak times, based on financial incentives. Demand response programs have numerous practical implications, for instance by reducing the risks of overload and power failures thanks to sensors that can perceive load problems and respond as necessary. From the point of view of the EU’s climate and energy goals, demand response can play a significant role as it encourages energy efficiency. Belgium is one of a few EU countries with a commercially sound demand response system.35 Demand response is eligible for the primary and tertiary reserves, as well as the interruptible contracts program. In 2014 the country increased its demand response capacity to guarantee a secure energy supply in cold weather. As a result, demand response comprises 10% of strategic reserve,36 and a pilot project is currently exploring the use of demand response in the secondary reserve. If the pilot yields positive results, Elia plans to open the secondary reserve to demand response in 2019.37 Although Belgium has made significant progress regarding demand response, some obstacles remain. Several of them related to broadening the scope of existing demand response to household consumers, either individually or via independent aggregators. However, aggregators require prior arrangements with the customer’s supplier because when it comes to flexible loads, the seller must be the customers’ Balance Responsible Party (BRP). Since the supplier is the customer’s default BRP, the right to pool the customer’s excess load for onward sale on the power exchange has to be transferred to the aggregator. Moreover, the threshold for being a BRP is providing a performance guarantee of EUR 4000 per MWh,38 which prevents customers from selecting aggregators and gives suppliers an unfair advantage. Another hinderance to demand response in Belgium is that prequalification requirements, in practice, eliminate all but big industrial consumers. For example, BRP customers must be connected to high, medium, and low

35. Smart Energy Demand Coalition, 2017. “Explicit Demand Response in Europe—Mapping the Market 2017,” SEDC, Brussels. 36. Smart Energy Demand Coalition, 2015. “Mapping Demand Response in Europe Today,” Brussels. 37. Smart Energy Demand Coalition, 2017. “Explicit Demand Response in Europe—Mapping the Market 2017,” SEDC, Brussels. 38. Idem.

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voltage grids and must go through the DSO’s approval procedure. In other words, household customers, are, in effect, prevented from taking part in balancing markets. Until now, no regulation is exists in the country that defines aggregators or specifies their role in the electricity market, and this could explain the challenges with providing ancillary services and serving customers independently. However, a law passed in July 2017, which is yet to be ratified, addresses this gap by defining the functions of independent aggregators. In addition, the law acknowledges that all customers in the electricity value chain have the right to flexibility without restraints imposed by retailers.39

3.4

Storage

One outcome of promoting EVs is the creation of electricity storage systems. In Belgium, this is an important prospect as it prepares to transition away from nuclear energy and increase RE usage. At this time, storage facilities in the country are limited, with only two hydropower plants that have a total capacity of around 1.3 GW. Although the initial aim was to use the plants to regulate generation from the Tihange nuclear plant, they are in fact being employed to balance load in the grid.40 Storage capacity needs in the country are likely to rise from 7 to 12 GW by 2020. To meet this need, a manmade offshore-pumped storage facility is being planned, to support offshore wind power generation.41 One of the hydropower plants may also be upgraded to increase storage capacity. However, while these planned infrastructure upgrades may help, regulatory challenges must be addressed to successfully develop storage technology in the country. To help build and run offshore-pumped hydro storage projects, Belgium enacted an amendment in 2014 to the Federal Act of 29 April 1999.42 Unfortunately, the law’s scope was rather narrow, and it did not address the country’s regulatory gap regarding energy storage solutions. For example, in Belgium, as in several other European states, storage facilities result in a double payment of grid charges, because storage technology is not categorized correctly in the electricity value chain. A strong regulatory framework should also consider specific tariffs and subsidies for storage infrastructure, which would incentivize investment.

39. Idem. 40. SIA Partners, “Energy Outlook: Energy Storage in Belgium,” SIA Partners, 10 May 2013. Available at: http://energy.sia-partners.com/energy-storage-belgium. 41. Brouhns, I.-S., “CMS Guide to Energy Storage: Belgium,” Global Business Media Group, 1 September 2016. Available at: https://www.lexology.com/library/detail.aspx?g 5 4ebed335-f53946dc-95f2-bdf5d7bc705f. 42. Idem.

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3.5

Interconnection

Better interconnections among EU member states will help boost energy security and contribute to better integration of renewables in energy markets. To this end, numerous projects are underway across the EU.43 Belgium’s electricity network has a transmission capability of 3500 MW. With its position at the heart of Europe, the country’s electricity network connects with France, the Netherlands, and Luxembourg at an interconnection rate of 17%.44 This means that Belgium is complying with the EU’s electricity interconnection plan for the near future, which aims for interconnection of 10% by 202045 and recommends reaching 15% by 2030.46 Belgium is taking further steps to boost its interconnection with neighboring EU Member States, in a number of cross-border collaborations called Projects of Common Interest.47 For example: G

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Nemo: an electrical interconnector between Belgium and the United Kingdom, to be operational in 2019. With a capacity of around 1000 MW and a span of 140 km, it will connect the two countries via subsea and subterranean cables. Nemo is projected to fulfill energy needs for half a million homes. It will also boost efforts toward increasing renewable energy usage.48 Brabo: this north border interconnector with the Netherlands has a transfer capability of 1000 MW. A three-phase project envisioned to reach completion by the end of 2023, and Brabo is expected to boost the economy around Port of Antwerp, help create new generation plants, and build the transfer capacity between Belgium and the Netherlands.49 ALEGrO: projected to launch in 2020, ALEGrO is the first interconnector between Belgium and Germany. With a capacity of 1000 MW, it will span around 100 km between the two countries and will help secure electricity supply for both. It will also help secure supply for the overall EU electricity market and will help toward adopting renewable energy.50

43. European Commission, “Electricity interconnection targets.” Available at: https://ec.europa. eu/energy/en/topics/infrastructure/projects-common-interest/electricity-interconnection-targets. 44. Communication from the Commission to the European Parliament, the Council. Achieving 10% electricity interconnection target. Making Europe’s electricity grid fit for 2020, at p. 4, COM (2015) 82 final (25 February 2015). 45. European Commission, “Electricity interconnection targets,” Available at: https://ec.europa. eu/energy/en/topics/infrastructure/projects-common-interest/electricityinterconnection-targets. 46. Communication from the Commission to the European Parliament, the Council. European Energy Security Strategy, at p. 10, COM (2014) 330 final (28 May 2014). 47. European Commission, “Projects of Common Interest,” European Commission. Available at: https://ec.europa.eu/energy/en/topics/infrastructure/projects-common-interest. 48. Nemo Link, “Overview. Why an interconnector?” Nemo Link. Available at: http://www. nemolink.com/the-project/overview/. 49. Elia Group, 2016. “Users Group. Sophie De Baets: Project Infrastructure Communication,” Elia Group, Brussels. 50. TSCNET Services, “Interconnecting Belgium and Germany,” TSCNET Services, 30 September 2016. Available at: http://www.tscnet.eu/interconnecting-belgium-and-germany/.

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Creos: this project—an interconnector between Belgium and Luxembourg—is split into two phases and is expected to reach completion in 2020. The new interconnection will contribute to the overall integration of the European electricity market. Avelin-Avelgem: This overhead link covers 21 km between Belgium and France. The project involves significant upgrading to existing infrastructure and is expected to facilitate the creation of a European energy market and promote the transition to renewable energy.51

The fact that the abovementioned projects promote EU cooperation on matters of mutual interest means they are eligible for a number of EU funding schemes, for example, Connecting Europe Facility.52 The projected infrastructures will significantly boost the capacities of external electricity exchange and will enable domestic grids to hold an increasing ratio of RE. In recent times, electricity derived from RE sources has seen a sizeable increase. As an example, from 2009 to 2014, the share of renewables in national electricity production went up by more than 10% (from 7.8% to 19%). This sudden rise stemmed from the implementation of a range of policies, such as green certification schemes and offshore wind projects.53 This upswing in RE is likely to rise for several reasons. For one thing, with Belgium set to transition away from nuclear energy by 2025, renewables and natural gas are the most plausible alternatives. Also, the abovementioned projects will facilitate the country’s interconnection and help integrate RE into the grid. Lastly, with the launching of EU-wide goals and roadmaps such as the EU 2020 Climate and Energy Package or the 2030 Climate and Energy Framework, Belgium is obliged to keep promoting RE usage. Continuing to strive for a cleaner energy mix will help toward energy security in the country while contributing to decarbonization at the same time.54

3.6

Concerns about data protection

Given that smart grids monitor energy consumption and fluctuations in supply and demand, this involves collecting user data including personal information, habits, and time spent at home. Naturally, this raises concerns 51. Elia Group, 2017. “Press release. Avelgem-Avelin high-voltage connection upgrade project,” Elia Group, Brussels. 52. European Commission, “Financing trans-European energy infrastructure—the Connecting Europe Facility,” 5 March 2015. Available at: http://europa.eu/rapid/press-release_MEMO-154554_en.htm. 53. International Energy Agency, 2016. “Energy Policies of IEA Countries. Belgium. 2016 Review,” International Energy Agency, Paris. 54. Communication from the Commission to the European Parliament, the Council. Achieving 10% electricity interconnection target. Making Europe’s electricity grid fit for 2020, at p. 4, COM (2015) 82 final (25 February 2015).

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regarding data protection and privacy, and the EU member states need to have relevant and effective regulation in place before smart grids become widespread. In Belgium, the Law of 8 December 1992 provides a regulatory framework for data protection and privacy in Belgium, and, thanks to a number of subsequent amendments, it has kept pace with technological advancements. In general, Belgium has a progressive stance in this area, which has even caused some to dub it a data protection hub.55 The national data protection authority—the Privacy Commission—ensures the country’s compliance with relevant laws, and Belgian regulation complies with the basic requirements of Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and the free movement of such data. When it comes to electricity, the DSO holds the position of data controller, and thus, in keeping with the broad guidelines of data protection, it is responsible for primary data protection. This means that it is required to let the Privacy Commission know before using any kind of automated system for processing personal data. According to the law’s rather broad definition, processing includes collection, recording, organization, storage, and deletion of personal information, among other things. Arguably, by placing stress on the idea of “automation,” the law seems to exclude manual data processing from its scope.56 Thus the controller only needs to notify the Privacy Commission when it uses automated systems for data processing. Moreover, controllers are not required to notify the Privacy Commission when data processing relates to administrative duties, such as billing procedures. This leads to complications, though, because the assumption is that data around consumption is solely used for billing processes. But while consumption data received via smart meters might not be personal per se, when combined with other key data it could suffice to identify a customer. Unfortunately, the law does not seem to factor in this situation. Still, since the law came before the onset of smart metering, this gap is perhaps understandable. Moreover, with meter reading being an annual undertaking in the country,57 it is plausible that the data is processed too infrequently to pose a major risk to consumer privacy. As advanced metering infrastructure is currently at the pilot phase and has not been deployed across the country yet, there is still time to enact legal reform.

55. Smedt, S.D., 2015. “Belgium—The New Data Protection Hub?” European Data Protection Law Review, vol. 3, pp. 213 218. 56. D’hulst, T., “Data Protection in Belgium: overview,” Practical Law—Thomson Reuters, 1 July 2016. Available at: https://uk.practicallaw.thomsonreuters.com/2-502-2977?__lrTS 5 20170610192313070&transitionType 5 Default&contextData 5 (sc.Default). 57. Council of European Energy Regulators (CEER), 2012. “CEER Benchmarking Report on Meter Data Management Case Studies,” CEER, Brussels.

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In addition to notifying the Privacy Commission about automated data processing, the controller must also take suitable steps toward ensuring security, to avoid any loss or risks to personal data. This does not set out any exact requirements to this end, though, which leaves data controllers with some freedom in terms of integrating relevant measures as they see fit. Across the country, the electricity market runs a standard communication platform—the Belgian Utility Market Information Exchange (UMIX). The DSOs retrieve and use information from UMIX, for example, working orders and forecasts that the TSO provides for the network’s smooth functioning. The platform additionally lets suppliers view meter readings recorded by DSOs for billing processes.58 In this sense, the rules on third-party processing become relevant, where Article 16(1) of the law on data protection calls for a formal agreement between the controller and the third-party processing the data. Such a contract must factor in the required steps to ensure security and must make clear the third party’s responsibility vis-a`-vis the controller. It is the controller’s responsibility to apprise the customer of any data sharing and get the customer to sign-off on this. The European Commission’s Smart Grid Task Force has observed a lack of clarity, though, regarding the role of third-party processors and is pushing for a more rigorous approach.59 Currently, the UMIX is being reworked to accommodate the eventual countrywide deployment of smart meters and the proliferation of DERs in the country’s electricity network.60 The new portal would allow for a much higher number of personal data flows, requiring strong legal mechanisms for protection. Further, a Data Protection Impact Assessment is likely to greatly lower risks to data and privacy.61

3.7

Conclusions

Technological advancement is key for a successful decarbonization process, with the aim to provide the highest quality of life with the lowest footprint. The winners of this process are consumers, the environment, and our future. However, technology alone is not enough; we also need the right public policies to reach our decarbonization goals. Smart grids are clearly part of the EU’s future economic, social, and environmental policy landscape. Key strategies on the economy, the environment, and technology provide opportunities for the radical transformation in Europe’s energy infrastructure to take place 58. Idem. 59. Smart Grids Task Force, 2016. “My Energy Data (Report by Expert Group on Smart Grid Deployment (EG1)).” 60. SIA Partners, “Atrias and MIG6.0: Towards a new energy market model in Belgium,” SIA Partners, 1 July 2016. Available at: http://energy.sia-partners.com/20160701/atrias-and-mig60towardsnew-energy-market-model-belgium. 61. Smart Grids Task Force, 2016. “My Energy Data (Report by Expert Group on Smart Grid Deployment (EG1)).”

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through smart grids.62 It is also evident that the EU needs to work toward the energy transition in a manner that ensures balanced, equitable, fair, and just outcomes for all citizens. The collaborative economy, for example, should not undermine employees’ rights or environmental standards. Moreover, the concept of circular economy63 needs to be embedded in public policy, it needs social acceptance, and private-sector product design and resource management will play a crucial role in the future. All of this will be possible with the right public policies in place and changes in behavior: change is difficult, even when the status quo is bad, but it is necessary. As a result, one may be a short-term pessimist, but a long-term optimist. This chapter has also analyzed the legal framework related to smart grids in the EU. We find that the EU legal framework on smart grids is fragmented and needs to be streamlined. Although sufficient direction for the rollout of an “intelligent grid” exists at the regional level, there is still much legislation and policy that needs to be put in place, particularly at the national level. We also find that regulation may exist, but is not in force or is incoherent. The various components envisaged by smart grids are at different levels of development. Consequently, legislative responses towards more ecological regulation have been insufficient or lacking.64 Although specific legislation, and perhaps standardization, is desirable, the absence thereof should not operate as a hindrance to the successful deployment of smart grids, given that sufficient legal bases exist at the regional level, along with apparent political support at the national level. We also find that, in 62. For an analysis of how transformation can happen locally, see Hopkins, R., 2013. The Power of Just Doing Stuff: How local action can change the world. 63. Some commentators question that the industrial economy is circular and argue, instead, that it is entropic and that the concept of “circular economy” is only an aspiration of the 21st century. The industrial economy uses exhaustible resources such as fossil fuels. It burns them for energy. The energy dissipates and produces CO2 in excessive quantities. The industrial economy deposits waste anywhere it can: the atmosphere, oceans, and rivers. See Haas, W., et al., 2015. “How circular is the global economy?: An assessment of material flows, waste production, and recycling in the European Union and the World in 2005,” J Ind Ecology; Caticha, A., Golan, A., 2014. “An entropic framework for modelling economies,” Physica A, 408, 149 163. Arguably, there is no circular economy because of the use of fossil fuels. However, technology will eventually rectify this situation. See Harremoes, P., et al. (eds.), 2001. “Late lessons from early warnings: The precautionary principle 1896 2000,” European Environment Agency. The protection of the environment has led to the creation of the concept of eco-compensation, which aims at compensating land users or suppliers of ecosystem services for lost income due to environmental protection policies. See Gray, E., Jones, C., “Eco-compensation in China: Opportunities for Payments for Watershed Services,” World Resources Institute, 15 May 2012. Available at http://www.wri. org/blog/2012/05/eco-compensation-china-opportunities-payments-watershed-services. Other commentators believe in the concept of degrowth, such as Kallis, G., 2018. Degrowth, Agenda Publishing, or wealth without growth, such as Jackson, T., 2016. Prosperity without Growth: Foundations for the Economy of Tomorrow, Routledge, 2nd ed. 64. See the views of Gorz, A., Turner, C., 1994. In: Capitalism, Socialism, Ecology, Verso Books; Gorz, A., 1985. Paths to Paradise: On the liberation from work, Pluto Press.

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the context of smart grids in the EU, there is a need for stronger legislation on data protection and cybersecurity. Setting the rules, however, is not enough. Execution is necessary, for instance, by providing incentives to get things done. Moving forward, society needs to find a way to make sure that corporations see incentives for green growth, so that they can make a profit and protect the environment (for instance, by selling solar panels or EVs).65 Short-termism is a great challenge for sustainable development and needs to be avoided at all costs. Short-termism does not allow sustainable policies to be in place because politicians (at least in Western liberal democracies, not dictatorships) are keen to win elections, which are short-term phenomena. Since energy is the driver for much of what we do, clean energy is a sure way to reach sustainability.66 But the question remains: in the transition to clean energy, can clean energy sources be implemented on a scale that will replace fossil fuels? Ultimately, following the invisible-hand concept introduced by Adam Smith in the 18th century, an invisible “green” hand will bring sustainability to the economy. We must act now to conserve our living environment for future generations. The deployment of smart grids, their improved regulation, and careful consideration of their social and ethical dimensions are all necessary to make the transition to a low-carbon economy happen. Arguably, oil-producing countries may lose out in the transition to a low-carbon economy because most of their GDP comes from fossil fuels. But similarly, most of these countries are blessed with unique solar irradiance and, therefore, the potential to generate wealth out of renewable natural resources. Carbon capture of fossil fuels will also move forward the agenda of a transition to a low-carbon economy. When it comes to nuclear energy, safety is currently a major issue, as is intermittency of solar and wind energy.67 To this end, smart grids offer tremendous potential, with their ability to accommodate the varying nature of renewable resources and integrate them into the grid in a way that is not currently being capitalized on. Moreover, smart grids will change the way we both consume and supply electricity, by

65. One can think, for instance, of the National Industrial Symbiosis Program, Nat’l Indus. Symbiosis Program. http://www.nispnetwork.com/about-nisp. 66. An interesting remark is that there is even a political commitment to clean energy for EU islands. The rationale is that islands could make use of tidal, solar, and wind energy. See “Political declaration on clean energy for EU islands,” 18 May 2017. Available at https://ec. europa.eu/energy/sites/ener/files/documents/170505_political_declaration_on_clean_energy_for_ eu_islands-_final_version_16_05_20171.pdf. 67. According to Jason Bordoff, the nuclear renaissance stalled because of: a flat electricity demand, cheap shale gas, falling renewable costs and support policies, lack of carbon pricing, declining wholesale electricity prices, and rising nuclear costs. That said, nuclear energy still accounts for most zero-carbon power in many countries. See lecture by Jason Bordoff at Harvard University, 5 October 2018.

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facilitating wireless communication regarding consumption and pricing to both suppliers and end users. With their ability to predict, adjust, and coordinate power supply and demand, their potential impact is immense. In fact, generating renewable energy is not the biggest challenge; creating a grid that can integrate their unique nature is the key. Or, to quote a recent book on solutions to climate change, “more green requires a wiser grid.”68 The rise of civil society’s role on the electricity market will have an overall positive impact. A higher number of stakeholders triggers higher competition, bringing energy prices down. Further, new actors exporting electricity to the grid will build domestic electricity security. Thus citizens, cooperatives, and small- and medium-sized enterprises can play a key part in bringing about energy democracy—a phenomenon that reflects the EC’s desire for a consumer-centric, bottom-up approach. Such an approach encourages citizen participation, while empowering and protecting citizens. Lastly, demand response means that consumers will be able to help protect the environment by contributing clean energy such as wind or solar to the grid, avoiding the use of fossil fuel plants that activate when electricity prices rise.69 Overall, thus, these are exciting times for the EU, as decentralization comes with opportunities for innovation, employment, and consumers becoming prosumers. Greener technologies are on the horizon and the face of energy usage across the EU will likely transform significantly in the years to come. As can be seen from this chapter, progress on decentralized energy is happening rapidly across the EU, even if most member states are currently at different stages of the process.

68. Hawken, P. (Ed.), 2017. “Coming Attractions: Smart Grids.” In: Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming, Penguin, p. 209. 69. European Commission, 2016. “Clean energy for all. New Electricity Market Design: A Fair Deal for Consumers.”

Chapter 4

Energy decentralization and energy transition in Greece Rafael Leal-Arcas Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

4.1

Smart grids and meters

In Greece, the Hellenic Electricity Distribution Network Operator (HEDNO) is managing the smart meter deployment project, in keeping with a 5-year national strategy to “smarten” the country’s grid. Smart meters have already been placed at important low-voltage (LV) customer locations and also at medium-voltage (MV) customer sites. HEDNO has also installed two telemetering centers, one to collect remote meter readings from all MV customers and renewable energy sources (RES) producers and the other to collect remote meter readings from all major LV customers (.55 kVA) including photovoltaics (PV). Following the success of initial rollout projects, HEDNO is assessing bids for the pilot installation of around 200,000 smart meters for residential and small commercial customers across selected areas of the country. HEDNO is legally obliged to ensure 80% of consumers are part of a telemetering system by the end of 2020. However, according to current projections, this does not appear to be possible. Thus a new timeline is being planned, to adopt a new legislation.1 Notably, telemetering meters that have already been set up in Greece cover 45% of the installed power, at all voltage levels.



Professor of Law, Alfaisal University (Riyadh, Kingdom of Saudi Arabia). Jean Monnet Chaired. Professor in EU International Economic Law. Member, Madrid Bar. Ph.D, M.Res, European University Institute; J.S.M, Stanford Law School; LL.M, Columbia Law School; M. Phil, London School of Economics and Political Science; J.D, Granada University; B.A, Granada University. The research assistance of N. Akondo, J.A. Rios, and my colleagues in the WiseGRID consortium is acknowledged. 1. Regulatory Authority for Energy, “Hellenic Electricity Distribution Network Management Code,” Ministerial Decision 395/2016, Official Gazette 78/ B /2017.

Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00011-6 Copyright © 2023 Rafael Leal-Arcas. Published by Elsevier Inc. All rights reserved.

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Commission Recommendation 2012/148/EU and Ministerial Decision GG B 297/13.2.2013 contain legal requirements for minimum technical functions of smart meters, to be complied with during pilot rollouts and smart meter procurement. The aim of the rollouts is that the installed meters have the capacity to communicate with a central system using general packet radio services (GPRS). The pilot rollout for the 200,000 residential and small commercial customers calls for communication between the central system and the meters to employ a combination of GPRS/3G and powerline (PLC). HEDNO’s rollouts, on the other hand, are based on International IEC standards, EU Directive 2004/22/EC (MID), and available meter technologies at tender time and substantially different customer types. Thus they employ slightly different technical specifications. For key LV customers, power consumption must be measured using current transformers (CT); for small LV customers, power consumption must be measured using direct connection; and for MV customers, power consumption must be measured using CT and voltage transformers. In keeping with Commission Recommendation 2012/148/EU,2 the smart meters that have been deployed in Greece are equipped with functionalities aimed at making interoperability easier and maximizing benefits to consumers. These include pulse outputs for real-time consumption monitoring; remote reading via AMR/AMI; two-way communication; interval metering at 15-min intervals; and remote metering among others. Future plans, within the pilot rollout, include alarm capability, as well In-Home display, to alert consumers of exceptional energy use. While HEDNO is the main body in charge of the smart meter rollout in Greece, the program does, in certain situations, allow for private participation. For example, customers with PV installations may, to participate in the net metering scheme, purchase and install PV meters from a selection of HEDNO-approved meters, and modem models. The suppliers of such equipment are approved beforehand by HEDNO based on technical requirements. Similarly, PPC Technical Guideline 5/1974 permits property managers to purchase and install submeters for individual tenants. While the PPC rule entered into force before the smart meter rollout, it is worth extending it to cover smart meter rollout. This approach would not only involve the public in the rollout but also help to liberalize the smart meter market. HEDNO’s stance on standardization, although commendable, does not appear to address future growth in the sector. For instance, the minimum technical standards described above appear to relate only to the pilot stages of the rollout. Thus they only require that the equipment meet a certain standard. However, as recommended by the European Regulators Group for Electricity and Gas (ERGEG),3 the standardization of metering should cover 2. Ministry of Environment, Energy & Climate Change, Ministerial Decision, GG B 297/ 13.2.2013 “Intelligent Systems Development of Measurement to HEDNO.” 3. “Commission Recommendation of 9 March 2012 on preparations for the roll-out of smart metering systems (2012/148/EU).”

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the system level and not only deal with the equipment level. Granted, ERGEG’s recommendation is based on the market’s liberalization and aspires to a situation where there is freedom to employ a range of different technologies while ensuring interoperability. Still, arguably, HEDNO is working toward determining ideal and workable systems, so at this stage system level standardization is not feasible. Also, given that HEDNO is the only meter operator, equipment level requirements are necessary to make sure the current and future AMR/AMI systems and smart meters are compatible. In any event, the fact that there is no system level standard means that developers of the smart grid architecture will have plenty of flexibility when it comes to planning the design of relevant telecommunication systems, hardware, and software. However, it is important that the design choices related to the project promote the overall aims of HEDNO as well as Greece’s national smart grid implementation policy. It is worth pointing out that consumer-centric minimum functionality requirements are absent from HEDNO’s technical requirements. Regardless, several aspects of HEDNO’s technical requirements happen to guarantee data protection and security and help toward building competition in the retail markets. It is likely that the pilots will result in important lessons that can help toward designing an appropriate level of consumer-centric standards, such as requirements that would help the wide-ranging deployment of demand response tools in the future smart grid of the country. The fact that Greece’s market is still evolving at various stages presents a unique opportunity to shape the country’s market by providing evidence-based examples to help identify the relevant functionality requirements. Smart metering is a technology that could help promote additional market liberalization in the country and facilitate participation of the end user in demand response schemes. As of now, smart meters have been set up for all MV customers and are being installed for large LV customers (between 55 and 250 kVA). Simultaneously, authorities have set up the necessary AMI infrastructure to help support their functioning. In keeping with EU goals, HEDNO has started pilot projects to test the new technologies and assess their benefits, so as to further broaden the installation of smart meters on customer premises. In addition, a 200,000 LV customer pilot rollout is in the planning stages. However, this has been delayed due to legal matters arising out of tendering procedures. Greece is also exploring the potential of smart homes systems. In homes across the country, there is a slow build-up of automated systems and smart home devices, with the goal of boosting the structure’s energy efficiency and improve the quality of life for those residing there. The main appliances in this context include heating and HVAC systems, security systems (and alarms), appliances to track indoor environmental quality, shutters, lighting control systems, smart entertainment devices, and smart household electrical appliances. According to the Applied Code of Energy Efficiency in

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Buildings, houses must have some type of automation system for heating and HVAC systems functioning to score a high rating. Still, setting up and utilizing smart appliances—whether smart thermostats, wifi-controlled airconditioners, smart coffee-makers, etc.—depends on how willing end users are to avail of such technologies, as well as on their preferences and lifestyles. More advanced smart homes systems even use advanced protocols that can allow combinations of scenarios in a home, to monitor its performance in different rooms remotely. In Greece, certified engineers are working on the implementation and integration of such systems. Still, although detailed data is not available, it appears that, depending on the application, smart device usage in Greek households is still largely at a preliminary stage. The WiseHOME application, in conjunction with smart devices and systems, would permit household customers (consumers and prosumers) to play an active role in monitoring and controlling their energy consumption, participate in the market, and thus better manage their energy costs. WiseHOME could thus act as a key incentive to encourage residents to actively manage their consumption and so reduce their energy bills, supporting self-consumption by means of real-time data, demand response, and load optimization schemes. This scenario, of course, depends on activating demand control contracts at low-voltage levels. On this basis, prosumers would receive RES forecasts that would help them plan their energy usage for the following day in a more efficient manner. Progress on smart grids is crucial from another standpoint, too: the widespread promotion of electric vehicles (EVs). While the potential proliferation of EVs is environmentally interesting, the main concern relates to their charging, in that a large number of consumers charging their EVs may place a heavy demand on the grid. However, a smart grid has the capability to respond to and mitigate load impacts and allows consumers to understand better the costs and impacts of charging. Integrating EVs with smart grids, thus, will be an important step in ensuring the widespread diffusion of EVs across the EU.

4.2

Electric vehicles

In Greece, the market for EVs is in a very early phase, although there has been some progress in this regard. Given the lack of detailed data, providing an accurate picture of the market overview regarding the number of EVs and charging stations in the country is not possible. The Hellenic Association of Motor Vehicle Importers Representatives issues monthly reports of vehicle registrations in Greece, according to which report five new electric cars were registered in May 2016 out of a total of 10,660 new cars (including 209 hybrid cars). Moreover, in 2016, 32 of 78,873 cars that were sold were EVs, whereas 1556 were hybrid cars. EV sales remain somewhat low, and end

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users attribute this to their high price, limited autonomy and the lack of widespread charging infrastructure. To this end, companies are attempting to promote EVs, dating as far back as 2011 when an oil and fuel trading company and an electrical energy production and trading company collaborated to install EV charging stations in three of the gas stations operated by the former. Additionally, a cooperation between an EV producer and an electrical energy supplier involved promoting an EV model by selling it at a significant discount along with a lowered electricity rate for residential charging purposes. The partnership has employed this business model twice by now. Moreover, various public and private projects have been implemented to broaden charging infrastructure in the country, as well as a few associated pilot projects. Business plans for EV supply equipment operators are being created, too. While the European Research Project MERGE8 was underway, three varying schemes for EV penetration by 2030 in Greece were planned. The more realistic of these schemes anticipated around 300,000 EVs in Greece by that time, the optimistic anticipated 600,000 EVs, and the extremely optimistic around 1,200,000 EVs. This study was based on projections and market data from 2010 and need updating to allow for Greece’s financial status today. Lastly, e-mobility in public transport is becoming more relevant. Aside from the existing trolley and tram services, the authorities in Athens are planning a pilot project for an e-bus servicing a heavily populated part of the city center, in partnership with the Athens Urban Transport Organisation. There are numerous ways to boost EVs in the country, such as WiseEVP and WG FastV2G, which could strengthen EV management, boost existing projects and help them succeed and increase their market share. The WiseEVP application could additionally help operators and EV fleet managers to optimize activities related to smart charging and discharging of EVs and reduce their energy consumption and lower their energy bills, while factoring in the renewable generation profile, tariffs, and the EV users’ needs. The WG FastV2G application could facilitate the use of EVs as dynamic distributed storage devices and feeding electricity stored in their batteries back into the system, as long as a stronger regulatory framework related to energy storage emerges. Thus WG FastV2G could lower electricity system costs by providing a costeffective way to operate reserve and the ability to reduce power consumption during periods of maximum demand (i.e., peak-shaving). A roadmap developed by the Greek Regulatory Authority of Energy (RAE) addresses the need to achieve electrification of transport. However, EV penetration in Greece remains relatively low, with a market share of 0.03% in the passenger car market.4 To this end, the government has 4. Endergiewende Team, “Greece’s first battery storage system under way in the Aegean Sea,” Energy Transition, 2 May 2017.

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initiated a number of steps to improve EV usage. These include an exemption from registration, annual circulation and luxury taxes for both electric and hybrid vehicles,5 and access to certain restricted areas of city centers. Despite these incentives, only a few charging positions are installed in Greece, 33 to be exact.6 Thus there remains much room for improvement. Additionally, there is no specific provision in the regulation around providing e-mobility V2G services. Existing legislation merely addresses the installation of charging infrastructure in gas stations and parking lots, as well as the energy pricing performed by the operators of such stations.

4.3

Demand response

Greece’s Fundamental Energy Markets law recognizes that an important goal for the country’s internal market is the adoption of demand response mechanisms. However, since the transposition of the EU Directive, very little by way of legislation has been initiated with regard to developing demand response in the country. HEDNO played a key role in attempting to design a demand response framework and has, to this effect, taken part in numerous relevant initiatives. Some steps have also been taken to encourage consumers to participate in the energy market, with the goal of helping the market evolve into a new format, in keeping with the so called “target model.” Some progress toward demand response is underway. For example, in January 2016, the Interruptible Load Service was instituted under Law 4203/2013, which allows the Greek TSO (transmission system operators) (Independent Power Transmission Operator—IPTO) to sign specific types of contracts with electricity consumers, based on which consumers then must provide interruptibility services upon receiving a relevant direction from the TSO. The service can be offered by consumers connected to the electricity transmission and MV network of the interconnected system via their participation in auctions. The TSO has launched a bidding process for interruptible load contracts for customers connected on high-voltage and MV networks, and currently 29 companies are registered in the interruptible load archive (with total offered interruptible load of 2191 MW). The final list of participants and price per MW are determined at an auction taking place every 3 months.7 The TSO can proceed to temporarily decrease the active power of interruptible counterparties up to an agreed value in return for financial compensation. The Ministerial Decision (AΠEHΛ/Γ/Φ1/oικ. 184898, Official Gazette B’ 2861/28.12.2015) contains information about which consumers are eligible to sign an interruptibility contract, the requirements and 5. Idem. 6. Idem. 7. ΛAΓHE Operator of the electricity market, “http://www.lagie.gr / DAS monthly reports May 2017.”

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preconditions to do so, the reasons behind the establishment of the service, as well as the manner, timing, and preconditions for providing compensation to those who participate. Additionally, demand control contracts are in place for customers connected to the MV and LV network of the interconnected system and in the noninterconnected islands, as long as they have the necessary telemetering equipment. Moreover, there are contracts for residential customers offering lower tariffs during the night and interruptible load contracts for “agricultural customers.” In 2017 2.7% of all LV customers and 4.4% of all MV customers were participating in these special contracts. Law 4342/2015 also states that the market codes, currently being drafted by the RAE, must contain provisions that oblige the TSO and distribution network operator to treat persons who provide demand response services in an equal and objective way, based also on their technical infrastructure and potential. The law also contains the first definition of “Aggregator.” Law 4425/2015 addresses integrating demand response into the balancing market, in keeping with the goal of helping to incorporate the Greek wholesale market into the European electricity market. The idea is that market codes, which, as mentioned above are currently being drafted by the RAE, are set to contain exact details regarding the demand response mechanism. Demand response schemes in Greece are unfolding at a rather gradual pace largely because the infrastructure is not ready. For example, smart meters, which are mandatory to accurately record consumption and to allow consumers to control and adjust consumption, are still in the preliminary rollout phase. It is hoped that the numerous research projects currently underway will help demand response to launch quickly, once all the required infrastructure is in place. In Greece, when it comes to market services and demand response schemes, while a preliminary framework exists, and special contracts are in use, the current market is not ready for a widespread deployment of demand response mechanisms. Not long ago, the legislative framework added provisions allowing the distribution system operator (DSO) to issue demand control contracts (interruptible load) with any customer on the LV network (upon approval by national regulatory authorities), as long as the customer’s facilities are equipped with telemetered load technology and satisfy the necessary technical requirements set by the DSO. However, no such contract has been entered into as yet. Once such contracts start being issued, relevant WiseGRID tools will facilitate the participation of residential and business end users in demand response campaigns and thus in the overall energy market.

4.4

Storage

In Greece, a gap exists in both the market and legislation regarding batteries, which poses a key challenge at this time. Energy storage is a useful tool that can be applied in various situations to reduce usage at peak times or to

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stabilize the grid frequency by charging or discharging power. Due to its flexibility, though, there is a lack of clarity around its role in the electricity market. Is it a generator or is it a load, can the DSO own it, what are the revenue streams, and who qualifies for them? Moreover, at times the battery works without benefitting the grid but provides financial incentives to the end user. At other times, the battery might even work against the grid and still earn financial benefits. Moreover, Greece generally struggles with unclear regulation when it comes to energy storage. Right now, battery deployment could be integrated with that of large hybrid stations catering to the MV level. However, no provisions exist for batteries in residential or public buildings, for EVs, V2G technology on how to communicate with the power grid, or for how to sell demand response services. Moreover, in the noninterconnected island electrical systems (NIIES), the current operating procedures are dominated by conventional generation work under the assumption that only conventional generation units can provide the ancillary services necessary for grid stability. This precludes the ability of aggregating a battery or an EV fleet to supply the same service. A National Renewable Energy Plan (NREAP) was launched in the country in 2010, with the goal of lowering Greece’s reliance on energy imports as well as increasing renewable energy (RE) usage, thereby lowering carbon dioxide emissions. Following the NREAP, the National Energy Strategy Committee, in 2012, developed an energy strategy for 2050. Acknowledging the intermittent status of electricity from RES, Greece is aware of the need to develop appropriate storage technology to support RES penetration. The 2050 roadmap points out that advancing pump hydro energy storage units play a key role in attaining large RES electricity production, since it represents the most advanced and reliable technology for large-scale electricity storage and is suitable to Greece’s topography.8 Several projects are in the works with the aim of creating better improve storage systems in both the interconnected system and the NIIES. One such project is the installation of a battery storage system on the island of Tilos in the Aegean Sea. This battery project is expected to power the entire island.9 Although the mainland interconnected system lacks regulation that addresses energy storage, Laws 3468/2006, 3851/2010, and 4414/2016 have detailed provisions dealing with the operation of hybrid stations in the NIIEs and within the interconnected system. The most recent activity pertaining to the operation and the building of storage facilities is a public consultation 8. Anagnostopoulos, J., Papantonis, D., 2013. “Facilitating energy storage to allow high penetration of intermittent renewable energy,” StoRe. 9. Garanis-Papadatos, T., Boukis, D., 2016. “Research ethics committees in greece.” In: Beyleveld, D., Townend, D., Wright, J. (Eds.) Research Ethics Committees, Data Protection and Medical Research in European Countries, New York, Routledge.

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that RAE conducted around 2013. RAE suggested a ruleset to address the involvement of storage in the country’s power system. The RAE proposal looks at all types of storage technology, and, with the objective of better integrating RES in the electricity grid, at removing current barriers to RES and boosting RES integration capacity. Moreover, the expectation is that storage would result in ancillary benefits when RES penetration is high. In the RAE proposal, the TSO would be in charge of scheduling storage units equally. Storage units would take part in the market through bidding in the day-ahead and intraday energy market. Lastly, RAE’s document permits bilateral contracts between the storage owner and RES stations. RAE additionally puts forth a pricing system to encourage storage owners to store energy from RES not from thermal units. Additional costs stemming from the participation of storage in the market will be charged to the RES station, given that that the RES station will enjoy increased production owing to the removal of barriers. Another barrier to developing storage capacity in Greece relates to the grid fees regime in the country. Greece is one of three EU Member States that charge grid fees for charging and discharging storage units by way of treating them as generation assets. As a result, owners of storage units have to pay grid fees as generators when charging units and as consumers when discharging them.10,11 The regulatory treatment of storage units in this manner follows the true nature of these assets, and it is clear that regulatory reform will be needed to address this challenge as it poses a disincentive toward investing in storage technology.

4.5

Interconnection

In Greece, hydroelectric power plants accounted for 19% of electricity generated from the interconnected system in 2016, with 28% deriving from natural gas. Following a push for more RE usage, Greece achieved a 29% share of RE in its energy mix in the interconnected system (with the islands, not interconnected, achieving a 21.8% share of RE).12 In terms of consumption, in 2016 the country’s total electricity consumption reached 50.1 TWh, which was less by about 10% from consumption in 2015. The fall in consumption is likely a result of the economic challenges in the country, which have led to all sectors and individual consumers finding ways to reduce expenditure.

10. Gissey, G.C., Dodds, P.E., Radcliffe, J., 2016. “Regulatory barriers to energy storage deployment: the UK perspective,” RESTLESS Project, London. 11. Committee on Industry, Research and Energy (ITRE), 2015. European Parliament, “Energy storage: which market designs and regulatory incentives are needed?” European Commission. 12. Energypedia, “Greece Energy Situation,” 26 April 2017.

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Greece belongs to the Union for the Coordination of the Transmission of Electricity (UCTE). Dating back to 2004, its transmission system is synchronized its transmission system with the overall European one. Its transmission system has interconnections with all bordering states, including an underwater cable to Italy. Greece has also created a sole authority to oversee licensing Projects of Common Interest (PCIs), which is in keeping with the Trans-European Networks—Energy (TEN-E) Regulation.13 The country has to projects that qualify as PCIs: the AC 400 kV interconnection between Maritsa East 1 in Bulgaria and Nea Santa in Greece, and the DC 600 kV underwater connection between Israel, Cyprus, and Greece.14 Another project currently underway is a submarine interconnection of the Cyclades islands, which aims to promote overall energy security in the Aegean islands, boost RE usage, and lower costs. The TSO authorized this project, which is anticipated for completion in 2017. Another project in the works is an interconnection in Crete, which is due for completion by 2022. Greece has yet to capitalize on its closeness to Russian gas supply, to enhance its gas interconnection system. The country is working on a few regional initiatives, such as the Trans-Antolian Pipeline, Trans Adriatic Pipeline, and the Southern Caucasus Pipeline.15 The goal for these pipelines is to become part of Europe’s Southern Gas Corridor for the Caspian supply of gas. Other projects include upgrading the LNG terminal Revithoussa and building interconnections with Bulgaria through the reverse flow in Kula-Sidirokastron and the Interconnector Greece-Bulgaria pipeline.16 Greece is also working toward interconnections with Italy through the Trans-Adriatic Pipeline, possibly via IGI Poseidon and with Turkey by improving the compressor station in Kipi.17 Considering Greece faces a deficit in energy supply, improving gas infrastructure, and thereby supply, would certainly facilitate the energy challenge. Several NIIES exist in Greece—independent power networks that are separate from that of the mainland. They are made up of 60 islands, with 32 13. Official Journal of the European Union, “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.” Available at: https://eur-ex.europa.eu/LexUriServ/ LexUriServ.do?uri 5 OJ:L:2013:115:0039:0075:en:PDF. 14. European Commission, 2014. “European Commission Country Reports.” Available at: https://ec.europa.eu/energy/sites/ener/files/documents/2014_countryreports_italy.pdf. 15. For an analysis of these pipelines, see Leal-Arcas, R., 2016. “Energy transit in the Caucasus: A legal analysis,” Cauc Int, 6(2), 53 74; Leal-Arcas, R., Alemany Rios, J., Grasso, C., 2015. “The European Union and its energy security challenges,” J World Energy Law Business, 8(4), 291 336, Oxford University Press; Leal-Arcas, R., Peykova, M., Choudhury, T., Makhoul, M., 2015. “Energy transit: intergovernmental agreements on oil and gas transit pipelines,” Renew Energy Law Policy Rev, 6(2), 122 162; Leal-Arcas, R., Grasso, C., Alemany Rios, J., 2015. “Multilateral, regional and bilateral energy trade governance” Renew Energy Law Policy Rev, 6 (1), 38 87. 16. European Commission, 2014. “European Commission Country Reports.” 17. Idem.

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independent electrical systems, mostly in the Aegean Sea. They serve 15% of the country’s population and are responsible for nearly 14% of total national annual electricity consumption (around 42.300 GWh per year). The NIIES face higher electricity costs in contrast to the mainland, due to their heavy reliance on diesel or fuel oil as well as challenges to integrating RE into the local energy mix. The Regulatory Authority for Energy publishes a set of provisions titled Non-Interconnected Islands Management Code (NIIMC), which governs the electricity market in the noninterconnected islands. The Hellenic Electricity Distribution Network Operator (HEDNO S.A.) is in charge of the operation and management of NIIES. In addition to its automatic position as distribution network operator, it also acts as TSO for the islands as well as market operator. The smallest of the NIIES is that of Kythnos—it has an installed thermal capacity of nearly 6 MW, supplemented by 665 kW wind and 238 kW PV stations. The demand for electricity on Kythnos reaches up to 5 MW during hot months and goes down to an average of 600 kW in the winter. EU regulation has a large impact on the electricity market of NIIES, in particular Directive 2003/54/EC and Directive 2009/72/EC.18 These directives address market liberalizing and the establishment of new conventional production stations and anticipate exemption from the provisions for microisolated systems that consumed less than 500 GWh in 1996, which applies to Kythnos and all the other NIIES other than Crete. Hellenic Republic responded to the directives by applying for derogation for all NIIES other than for Crete and Rhodes. According to the EC Decision 2014/536/EU,19 the derogation is allowed only for refurbishment, expansion and upgrading of existing conventional units (derogation for new conventional capacity, RES, and CHP is not approved) for micro-isolated systems until 2021, and derogation for market opening until 2019, or earlier if the infrastructures described in NII Code are ready. The Greek Law 4414/201620 has adjusted Greek legislation to the provisions of Decision 2014/536/EE.

4.6

Concerns about data protection

In Greece, no legislation specifically addresses data access and security for smart grids, however, this falls within the country’s general data protection laws. This law adheres to EU Directive 95/46/EC of the European Parliament and Council and protects people against the unlawful processing of personal 18. Verbong, G.P., Beemsterboer, S., Sengers, F., 2013. “Smart grids or smart users? Involving users in developing a low carbon electricity economy,” Energy Policy, 52, 117 125. 19. Eid, C., Hakvoort, R., de Jong, M., 2016. Global trends in the political economy of smart grids: A tailored perspective on ’smart’ for grids in transition, UNU-WIDER. 20. Bressand, A., 2013. “The role of markets and investment in global energy.” In: Goldthau, A. (Ed.) The Handbook of Global Energy Policy, John Wiley & Sons, West Sussex, pp. 15 29.

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data. Additionally, the general data protection law has undergone several amendments, to address situations related to collecting and processing data via information and communication technology systems. Greek data protection laws cover the foundational aspects of data protection. In other words, the laws address the registration of data controllers with the Hellenic Data Protection Authority (HDPA); the obligation to obtain prior informed consent when collecting and processing personal data; security obligations on data controllers to ensure data security; the obligation to inform the individuals of breaches that may compromise their personal data; and the data subject’s right to access, request rectification, and object to the processing of personal data. By extension, these overall laws apply to the electricity sector and, by that very fact, to all the participants in a smart grid situation. It remains to be discovered as to whether these laws adequately cover all potential challenges related to smart grids. Still, it is perhaps worth exploring the possibility of additional legislation to address potential gaps in the existing scenario and likely challenges that could stem from these gaps. Another important factor to examine is the legal definition of “personal data” when discussing smart grids. Greek Data Protection law defines personal data as information relating to the data subject, barring data related to statistics that does not enable identification of the data subject any more.21 The Data Protection Authority (DPA) has not released a specific framework to inform the definition of personal data. However, DPA decisions seem to suggest that information is considered to be personal data if it can be combined with other information on a data subject to result in the data subject’s identification. Along these lines, there is a strong likelihood that information recorded through smart meters could be categorized as personal data and might thus pose an obstacle toward the rapid rollout of smart grids. Moreover, interestingly Greek data protection law makes a distinction between data that is “personal” and data that is “sensitive,” which is explained as data regarding racial or ethnic origin, political opinions, religious or philosophical beliefs, trade union membership, health, social welfare, and sexual life, and criminal charges or convictions. While data classified as personal may result in certain obligations when it comes to smart grids, sensitive data will probably not result in any data protection obligation in the context of smart grids. This is because smart grid systems are not likely to collect and process data that would fall within the sensitive category. In the smart grid context, another area that has yet to be clarified is the role of data controller, in charge of ensuring data protection. According to Law 2472/1997, the controller is a “person who determines the scope and means of the processing of personal data.” This definition seems to suggest that DSOs should be tasked with the responsibility of controller, since 21. European Regulators’ Group for Electricity and Gas (ERGEG), 2007. “Smart metering with a focus on electricity regulation,” ERGEG, Brussels.

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customer consumption data that smart meters record is mainly used for helping with balancing work. This begs the questions, however, as to whether the DSO is not simply acting as a data processor for the Hellenic Electricity Market Operator (LAGIE) when one considers the complicated wholesale market system and additional services for which extra data on customer consumption is needed. Directive 95/46/EC22 may provide a way to resolve this dilemma, as it calls for a clear delineation of “controllers” and “processors” as well as their respective roles and responsibilities in the smart grid context.23 Data retention is an ongoing challenge in Greece. Although the European Court of Justice in Digital Rights Ireland24 invalidated the Data Retention Directive, Greece has not amended Law 3918/2011, which replaced the Data Retention Directive. Thus the authority to determine data retention durations lies with the HDPA. Since the HDPA has not released any framework related to the retention of personal data collected through smart meters, one may infer that data collectors within a smart grid network face no exact obligations regarding the retention of such data. Still, arguably, complying with the general principles of data retention means that retaining personal data beyond periods for which its processing is necessary would count as a violation of the data subject’s rights of the data subject. When it comes to data anonymization, Greek law does not specify which classifications of personal data should be anonymized. In fact, a legal definition of anonymization does not exist. Still, arguably, the law does address the situation to the extent that it states that “personal data in order to be lawfully processed must be. . .(d) kept in a form which permits identification of data subjects for no longer than the period required, according to the Authority, for the purposes for which data was collected or processed.” Questions remain, however, as to what counts as adequate levels of anonymization. The general approach is to employ coded formats for data, but Greek law does not address levels of codification which are considered adequate.25 In this context, the EU General Data Protection Regulations, which entered into force in May 2018, state that persons whose operations pose a high risk of breaches to data security are obliged to undertake data protection impact assessments. While this has not yet transpired, various data protection authorities across Europe have started taking steps towards complying with the regulation.

22. Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data. 23. Karageorgiou & Associates Law Firm, “Linklaters LLP.” 24. Papakonstantinou, V., Kloza, D., 2015. “Legal protection of personal data in smart grid and smart metering systems from the European perspective,” In: Smart Grid Security. SpringerBriefs in Cybersecurity, Springer, London, pp. 41 129. 25. Joined Cases C-293/12 and 594/12, Digital Rights Ireland and Seitlinger and Others.

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Data security is a key aspect of data protection. Laws in Greece related to data protection call upon data controllers to take institutional and technical measures towards guaranteeing security and confidentiality in the data processing process. Considering that smart grids give rise to a high risk of data intrusion, risks to electricity infrastructure and perhaps to national security, it is crucial that data protection laws be combined with establishing standards for the various technological components related to smart grids, including smart meters. As mentioned earlier, the smart meter rollout that has taken place thus far in Greece did not seem to follow specific technical requirements toward guaranteeing data protection and security. We find that, in the context of smart grids in the EU, there is a need for stronger legislation on data protection and cybersecurity, as well as international standards on data. Setting the rules, however, is not enough. Execution is necessary, for instance, by providing incentives to get things done.

Chapter 5

Energy decentralization and energy transition in Spain Rafael Leal-Arcas Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

5.1

Regulatory framework for the electricity market

Spain accumulated a large tariff deficit from 2001 to 2012. This stemmed from the fact that the costs of the electricity system were greater than its revenues. In 2012, when the debt skyrocketed, the government enacted emergency measures. These included terminating subsidies for renewable energy (RE) installations, lowering payments to transmission system operators (TSOs) and distribution system operators (DSOs), raising access tariffs, and placing a 7% tax on electricity generation.1 A new regulatory framework followed in 2013, aimed at ensuring the electricity’s industry long-term health by tackling the ongoing issue of tariff deficits. The changes helped improve the electricity market’s overall structure and reflected the measures taken by the EC’s Third Energy Package of 2009. The regulation addresses a range of issues including unbundling ownership, regulatory oversight and cooperation, network cooperation, transparency, data tracking and access to storage facilities and LNG terminals by regulating transmission network ownership, more effective regulatory oversight, better consumer protection, regulating third-party access to gas storage, and promoting cooperation among EU Member States.2



Professor of Law, Alfaisal University (Riyadh, Kingdom of Saudi Arabia). Jean Monnet Chaired Professor in EU International Economic Law. Member, Madrid Bar. Ph.D., M.Res., European University Institute; J.S.M., Stanford Law School; L.L.M., Columbia Law School; M. Phil., London School of Economics and Political Science; J.D., Granada University; B.A., Granada University. The research assistance of N. Akondo, J.A. Rios, and my colleagues in the WiseGRID consortium is acknowledged. 1. International Energy Agency, 2015. “Energy Policies of IEA Countries. Spain. 2015 Review,” International Energy Agency, Paris. 2. Leal-Arcas, R., 2015, “The European Union and its energy security challenges,” J World Energy Law Business, 8(4).

Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00007-4 Copyright © 2023 Rafael Leal-Arcas. Published by Elsevier Inc. All rights reserved.

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The Electricity Sector Law 24/2013 of 26 December was passed to address these key factors while assessing factors relevant to Spain, such as the need to increase RE usage and the country’s position as an “energy island” compared to other EU Member States.3 It heralds a move toward greater flexibility when it comes to remunerating regulated projects such as those related to RE, so as to keep up with changes in the electricity sector. A full review is possible every 3 years, and the rationale behind the new framework is budgetary: the revenues of the electricity system must be enough to offset the system’s total costs.4 RE, combined heat and power, and waste-to-energy facilities must compete with traditional electricity sources, and remuneration for them is based on their market presence. To ensure market fairness, the Electricity Sector Law 24/2013 sets out a plan of support for RE power plants and those producing electricity from cogeneration and waste. The law allows these power plants to regain the investment and operating costs (which they cannot recover on the market), thereby providing them the opportunity for a decent return.5 In addition, the law allows for further support schemes for these power plants as long as they meet EU-established goals. Autonomous regions may approve RE power plants with an output below 50 MW.6 Moreover, RE, cogeneration, and waste plants have priority access and use of grids when it comes to both connection and dispatch, as long as their actions do not negatively impact the grid.7 The Electricity Sector Law 24/2013 is also significant in that it places a fee on self-consumption. Self-consumption is not to be confused with net metering. Net metering refers to a system in which RE generators such as solar panels are connected to a public-utility power grid and surplus power is transferred onto the grid, allowing customers to offset the cost of power drawn from the utility. Alternatively, this surplus can be recovered when consumption exceeds generation. Self-consumption also occurs when the generating facility is connected with a consumer’s network; but unlike net metering, it does not enable consumers to transfer surplus energy to the public grid.8

3. International Energy Agency, 2015. “Energy Policies of IEA Countries. Spain. 2015 Review,” International Energy Agency, Paris. 4. Rojas, A., Carren˜o, P., 2014, “The Reform of the Spanish electricity sector,” Spanish Economic and Financial Outlook, 3(2). 5. International Energy Agency, “Electricity sector regulation (Electricity Law 24/2013),” International Energy Agency, 2 May 2017. Available at: https://www.iea.org/policiesandmeasures/pams/spain/name-130502-en.php. 6. Cuatrecasas, “Legal Update I Energy. Act 24/2013, of December 26, on the electricity sector,” January 2014. Available at: http://www.cuatrecasas.com/media_repository/gabinete/publicaciones/docs/1388678102en.pdf. 7. Nachmany, M., 2015. “Climate Change Legislation in Spain. An excerpt from the 2015 Global Climate Legislation Study,” The London School of Economics and Political Science— Grantham Research Institute on Climate Change and Environment. 8. The Mediterranean Energy Regulators, 2016. “Study to evaluate net metering system in Mediterranean Countries,” MedReg, Milan.

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Customers availing of self-consumption must pay for associated grid operation costs the way that direct grid consumers do.9 The regulation conceptualizes self-consumption as “any electricity consumption originating from generation facilities connected in a consumer’s household,” assuming full or partial connection of the network to the grid.10 The payment is likely the most disputed part of the Electricity Sector Law 24/2013, and various RE companies have been protesting self-consumption, arguing that they may stop consumers from setting up their own RE generation systems,11 such as photovoltaic panels on household rooftops. However, the government justifies self-consumption fees on the grounds that market generation fees comprise only about 40% of the cost of electricity. Thus all consumers connected to the grid, irrespective of whether they are self-consumers or not, must share the costs of annual tariff deficits and support schemes for RE, cogeneration, and waste.12 The Royal Decree 900/2015 of 9 October addresses self-consumption in further detail, requiring all self-consumers to register with the Registry for Electrical Energy Self-Consumption (except for a few isolated facilities).13 The Royal Decree 900/2015 defines two kinds of self-consumption:14 G

Type 1: Supply with self-consumption

Consumers with an installed capacity below 100 kW fall into this category, which does not count as a production facility as the energy is only produced for self-consumption and the consumer receives no compensation for transmitting surplus electricity to the grid. G

Type 2: Generation with self-consumption

This category comprises consumers in a single supply point or facility linked with one or several production facilities, on record as a production facility, connected within its network, or which share connection infrastructure with it. In contrast with type 1, consumers supplying surplus electricity to the grid receive remuneration.15 9. Leal-Arcas, R., 2015. “The European Union and its energy security challenges,” J World Energy Law Business, 8(4). 10. International Energy Agency, “Electricity sector regulation (Electricity Law 24/2013),” International Energy Agency, 2 May 2017. Available at: https://www.iea.org/policiesandmeasures/pams/spain/name-130502-en.php. 11. Cuatrecasas, “Legal Update I Energy. Act 24/2013, of December 26, on the electricity sector,” January 2014. Available at: http://www.cuatrecasas.com/media_repository/gabinete/publicaciones/docs/1388678102en.pdf. 12. Rojas, A., Carren˜o, P., 2014. “The Reform of the Spanish electricity sector,” Spanish Economic and Financial Outlook, 3(2). 13. Articles 19 21 Royal Decree 900/2015. 14. Article 4 Royal Decree 900/2015. 15. International Energy Agency, “Royal Decree 900/2015 on self-consumption,” International Energy Agency, 10 May 2017. Available at: https://www.iea.org/policiesandmeasures/pams/ spain/name-152980-en.php. [Accessed on 25 January 2023].

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Legally, type 1 self-consumers are considered to be solely consumers, whereas type 2 self-consumers are considered both consumers and producers. Generally speaking, commerce and industry sector actors can sell power surplus in the same way as other producers, particularly because they have a greater chance to qualify as type 2 self-consumers. In this sense, the legal system in Spain does not help private households to turn into prosumers. The Royal Decree 900/2015 raises financial and other barriers, hindering citizens from selling surplus electricity to the grid. In fact, current regulation generally only enables citizens and households to supply surplus electricity to the grid for free.16 Also, the Royal Decree 900/2015 bans a single installation from supplying power to a range of different end users.17 This makes it hard to spread PV technologies in urban areas as it prevents a single installation from supplying electricity to a neighborhood, for example. Another area of the regulation that has resulted in controversy is the backup tolls that make up the “sun tax.” These fees result from “charges related to the electricity system costs” and “charges for other services of the system.”18 According to the Spanish Photovoltaic Union, it is unfair that PV self-consumers pay a “sun tax” for the entire power capacity installed (the power that their provider supplies as well as the power generated from their own PV facility). Moreover, PV users who have installations greater than 10 kW must pay for the electricity they generate and self-consume from their own PV technology.19 Some facilities (e.g., off-grid installations; installations smaller than 10 kW; all installations in the Canary Islands, Ceuta, and Melilla) do not have to pay this additional “sun tax,” and installations with cogeneration are temporarily exempted until 2020, while the islands of Mallorca and Menorca will pay a reduced rate.20 The Royal Decree 900/ 2015 aligns with the Electricity Sector Law 24/2013 as it emphasizes the need to ensure electricity industry’s long-term financial viability. This means that keeping costs down has become the main goal, perhaps at the cost of more farsighted policy regarding self-consumption. The goal of keeping costs is to check aligns with the overall basis for the reshaping of the electricity industry. But effective policy for self-consumption is an evolving area, and the current restrictions on self-consumers are not conducive to decentralizing energy, in that they prevent the consumer to prosumer 16. Lo´pez Prol, J., Steininger, K., 2017. “Photovoltaic self-consumption regulation in Spain: Profitability analysis and alternative regulation schemes,” Energy Policy, 108. 17. Article 5, paragraph 1, point (c) Royal Decree 900/2015. 18. Articles 17 and 18, respectively, Royal Decree 900/2015. 19. Tsagas, I., “Spain Approves ‘Sun Tax,’ Discriminates Against Solar PV,” Renewable Energy World, 23 October 2015. Available at: https://www.renewableenergyworld.com/articles/2015/10/ spain-approves-sun-tax-discriminates-against-solar-pv.html. 20. Tsagas, I., “Spain Approves ‘Sun Tax,’ Discriminates Against Solar PV,” Renewable Energy World, 23 October 2015. Available at: https://www.renewableenergyworld.com/articles/2015/10/ spain-approves-sun-tax-discriminates-against-solar-pv.html.

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transition. This is at odds with the government’s keenness to increase RE and electricity from cogeneration and waste. The financial and administrative barriers to self-consumption described above can ultimately keep smart grid applications from effective market penetration in Spain. Decentralizing energy via self-consumption would have many benefits for Spain. It would help consumers receive direct gains and participate in energy markets, becoming prosumers. It would help to lower the costs of energy facilities, reduce system losses, and help pay for the energy transition.21 Self-consumption also promotes technological progress and energy security. Unfortunately, most power companies are threatened by energy decentralization. Prosumers, as new players on the field, will result in greater competition in a reduced market.22 It is important to overcome inaccurate assumptions about selfconsumption and to not allow the self-interest of various actors, as well as cautious government policy, to prevent prosumers from emerging. More robust legal frameworks are needed, to remove fees and bans and other barriers to energy decentralization, to help electricity markets to take the plunge in the inevitable energy revolution. With that goal in mind, regulations to come must examine net metering to help promote decentralized RE. The Electricity Sector Law 24/2013 also created a significant change in the form of increased powers allocated to the national regulatory authority (NRA), that is, the National Commission of Markets and Competition (CNMC), which now establishes methodologies for calculating transmission and distribution tariffs, grants access to cross-border infrastructure, provides balancing services, levies penalties, and devises enforceable measures for relevant companies.23 The CNMC’s empowerment resulted from the EC calling for greater regulatory oversight in the Third Energy Package. At the EU level, the NRA is to cooperate with other regulatory bodies and does so via the Council of European Energy Regulators (CEER) as well as the Agency for Cooperation of Energy Regulators (ACER). The CEER and the ACER are platforms where the various regulatory entities can collaborate on the internal energy market and create network codes.24 While the NRA’s empowerment is a positive step, there remains a lot to be done. As mentioned above, the CNMC devises the methodology for calculating network tariffs for transmission and distribution. But the Ministry of Industry, Energy and Tourism is the entity with the ultimate authority to set the tariffs. Granting complete independence to the NRA is a key step toward market confidence.25 In fact, optimal levels of transparency are still so out of reach as to have 21. Commission Staff Working Document. Best practices on Renewable Energy Selfconsumption, at p. 3, COM(2015) 33 final (15 July 2015). 22. Donoso, J., 2015. “Self-consumption regulation in Europe,” Energetica International, no. 7. 23. International Energy Agency, 2015. “Energy Policies of IEA Countries. Spain. 2015 Review,” International Energy Agency, Paris. 24. Ibid. 25. Roberts, J., Skillings, S., 2015. “The market design initiative: Towards better governance of EU energy markets,” ClientEarth and E3G—Regulatory Assistance Project publication.

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caused frequent market and investment disturbances within Spain’s electricity system. The government has full authority to tweak prices for political motivations, for example, to curb inflation. Full NRA independence would create market certainty and could be achieved by giving it exclusive authority to determine network tariffs, among other things.26 One thing is for certain: a stable and transparent electricity system is conducive to promoting self-consumption.

5.2

Smart grids and meters

Spain has a broad range of legislation addressing smart metering systems. The Royal Decree 809/2006 of 1 July, for one, made it mandatory, starting July 1, 2007, for new electricity meters to allow differentiation of consumption in different timeframes, as well as remote management for consumers with a contracted power below 15 kW. In addition, the Royal Decree 1110/ 2007 of 24 August ruled that all household electricity meters must be smart meters. It additionally delineated the functions of smart metering systems. The Royal Decree 1634/2006 of 29 December and the Ministerial Order ITC/3860/2007 of 28 December map out the smart metering deployment plan in Spain (2011 18). The legislation establishes how smart meters will be deployed for around 28 million supply points. DSOs will undertake the rollout (with Endesa, Iberdrola, Gas Natural Fenosa, EDP, and Viesgo the main operators). The steps will impact electricity consumers with a contracted power below 5 kW. Smart meters were anticipated to replace conventional meters by the end of 2018. The NRA estimates that by June 2016, around 17.54 million smart meters had already been installed,27 which means that smart meters already comprise more than 62% of existing meters in the country. The Royal Decree 216/2014 of 28 March is also significant in this context, as it establishes final prices for electricity consumers in terms of real metering on an hourly basis. The decree requires distributors to submit hourly energy consumption data. The legislation addresses two situations: (1) where the household already utilizes a smart meter and (2) where the household still utilizes a conventional meter. With a smart meter, consumers can opt for billing based on their real hourly energy consumption data. However, some experts believe that pricing based on hourly real consumption data is too advanced for today’s smart meters in Spain. Such billing will involve huge quantities of data while also handling much more data submission and processing than before.28 With a conventional meter, bills reflect the average national hourly 26. International Energy Agency, 2015. “Energy Policies of IEA Countries. Spain. 2015 Review,” International Energy Agency, Paris. 27. Comisio´n Nacional de los Mercados y la Competencia, 2017. “El 62% de los contadores analo´gicos ya han sido sustituidos por contadores inteligentes,” Nota de Prensa. 28. Leiva, J., 2016. “Smart metering trends, implications and necessities: A policy review,” Renewable Sustainable Energy Rev, 55.

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cost, with variable prices. The Royal Decree 216/2014 poses an alternative to both situations: a fixed price for 1 year of energy consumption29 (as long as the household’s contracted power is less than 10 kW). Spain’s legislation is in keeping with the EC’s approach to smart metering. The Third Energy Package encourages Member States to benefit consumers by installing smart metering systems. The Energy Efficiency Directive30 calls for modernizing energy services by data from smart meters, demand response, and dynamic prices. In fact, Commission Recommendation 2012/148/EU31 guides Member States on the transition to smart meters, identifying steps to achieve technical and commercial interoperability or to incorporate them in the future.32 Spain has kept pace with all the functionalities that the EU has identified toward achieving technical and commercial interoperability, with the exception of recommended functionality.33 In this case, the functionality requires a sufficient frequency at which consumption data can be updated and made available to the consumer (and a third party the consumer identifies) to save energy. The recommendation calls for an update rate of every 15 min. The European Commission admits that this recommended functionality is the most challenging, but also labels it the most effective, in that it enables consumers to make informed decisions on their consumption patterns.34 It offers a bottom-up system that gives consumers control while they do their part toward energy efficiency and security. Smart metering and billing are essential for maximizing demand response, which rises in significance when one factor in the projected rise in the share of RE on the national grid. As opposed to maintaining or building new power plants and network lines to balance demand and supply, energy efficiency and demand response offer more effective approaches.35 Thus real-time energy consumption data is essential for maximizing energy efficiency and consumer savings. Through increased awareness of their own 29. USmart Consumer Project, 2016. “European Smart Metering Landscape Report. Utilities and Consumers,” USmart Consumer Project, Madrid. 30. 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. 31. Commission Recommendation 2012/148/EU of 9 March 2012 on preparations for the rollout of smart metering systems. 32. Report from the Commission “Benchmarking smart metering deployment in the EU-27 with a focus on electricity,” at p. 6, COM (2014) 356 final (17 June 2014). 33. Commission staff working document country fiches for electricity smart metering accompanying the document Report form the Commission benchmarking smart metering deployment in the EU-27 with a focus on electricity, SWD (2014) 188 final (17 July 2015). 34. Report from the Commission “Benchmarking smart metering deployment in the EU-27 with a focus on electricity,” at p. 6, COM (2014) 356 final (17 June 2014). 35. Communication from the Commission to the European Parliament, the Council, the European D1.1 Legislation, business models, and social aspects 152 Economic and Social Committee and the Committee of the Region, at p. 5, COM (2015) 339 final (15 July 2015).

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consumption patterns, consumers can alter their habits to conserve energy. Estimates show that household energy consumption could decrease by up to 9% through smart meter deployment.36 Smart meters are revolutionizing the electricity market by placing consumers at the forefront and enabling them to lower their bills via demand response.

5.3

Electric vehicles

In Spain, road transport consumes more energy by far than other modes of transport (e.g, airlines, railways, and marine transport), comprising 80% of the country’s total energy consumption. The transport sector in the country has several key features, including significant vehicle usage, an aging fleet, and a low proportion of freight transport via railways. The transport sector depends on oil for more than 90% of its energy use. It therefore has negative environmental impacts and has much room for improvement on the energy efficiency front.37 Given all these issues, electric vehicles (EVs) seem like the best way forward. The government has been working toward this goal since 2003, releasing various legislations and policies aimed at a “smarter” and sustainable transport sector.38 Several strategies exist in Spain aimed at increasing the purchase and usage of EVs. The Ministry of Industry, Energy and Tourism, along with IDEA, has launched two schemes to this effect, which have had a significant impact over the last years. These are the Efficient Vehicle Incentive Program (PIVE) and MOVELE, which promote electric mobility. PIVE was framed within the 2008 12 Action Plan of the 2004 12 Energy Savings and Efficiency Strategy (E4) and aims to replace out-of-date vehicles with new, cleaner, and more efficient ones. Those already receiving government subsidies for purchasing vehicles are not eligible for PIVE grants.39 The MOVELE program was launched to bring home the feasibility of EVs in urban environments. To this end, MOVELE pushed for introducing up to 2000 EVs in the Spanish fleet and for manufacturing more than 500 EV charging points in different cities across Spain.40 36. European Commission, “Smart grids and meters,” European Commission. Available at: https://ec.europa.eu/energy/en/topics/market-and-consumers/smart-grids-and-meters. 37. International Energy Agency, 2015. “Energy Policies of IEA Countries. Spain. 2015 Review,” International Energy Agency, Paris. 38. The International Energy Agency. Hybrid and Electric Vehicle Technology Collaboration Programme, “Spain Policies and Legislation,” The International Energy Agency. Hybrid and Electric Vehicle Technology Collaboration Programme. Available at: http://www.ieahev.org/bycountry/spain-policy-and-legislation/. 39. Mart´ınez Lao, J., 2017. “Electric Vehicles in Spain: An overview of charging systems,” Renewable Sustainable Energy Rev, 77. ´ vila Rodr´ıguez, C., 2017. “Marco jur´ıdico para la implantacio´n de infraestructuras para las 40. A energ´ıas alternativas en el transporte en Espan˜a,” Comunicacio´n Proyecto (I 1 D) de Investigacio´n.

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Along with the above plans, in April 2010, the government established the “Integral Plan for the Promotion of Electric Vehicles,” which included an “Integrated Strategy for EVs 2010 2014,” with a goal of reaching one million Hybrid and Electric Vehicles (H&EVs) in Spain by the end of 2014.41 More recently, the “Impulse to the Alternative Energy Vehicle Plan” (VEA) came into effect in June 2015. As of 2017, the 2017 MOVEA plan is the latest development under the VEA strategy with a total budget of EUR 16.6 million managed by the Ministry of Economy, Industry and Competition.42 The VEA strategy aims to harmonize the various domestic policies while working toward the goal of increasing the number of efficient vehicles.43 The ultimate aim is to maximize the various national initiatives so that Spain may meet its EU-level 2020 climate and energy goals.44 The Sustainable Economy Law 2/2011 of 4 March supports research, development, and innovation in RE, energy conservation, and energy efficiency for transport and sustainable mobility.45 It calls for the central government, autonomous communities, and local municipalities to take steps to advance the usage of plug-in H&EVs.46 Thus all public regulators are legally required to facilitate the implementation of H&EVs by, among other things, providing them with the RE applications and infrastructure linked with such vehicles. The Royal Decree 647/2011 of 9 May identifies the load system manager’s role in terms of EV charging facilities. Additionally, Royal Decree 647/2011 addresses the rights and obligations associated with EV energy charging services. The Electricity Sector Law 24/2013 goes further by regulating the role of the load system manager. The Royal Decree 647/2011 of 9 May defines the role of the load system manager, which is then further detailed and regulated in the Electricity Sector Law 24/2013. A load system manager refers to a commercial entity that, while itself a consumer, has the right to resell electricity for charging services.47 The rights and obligations attached to energy charging services for EVs are delineated in the Royal Decree 647/2011. 41. The International Energy Agency. Hybrid and Electric Vehicle Technology Collaboration Programme, “Spain Policies and Legislation,” The International Energy Agency. Hybrid and Electric Vehicle Technology Collaboration Programme. Available at: http://www.ieahev.org/bycountry/spain-policy-and-legislation. 42. Corriente Ele´ctrica, “Se activa el Plan MOVEA 2017 para coches y veh´ıculos ele´ctricos,” Corriente Ele´ctrica, 17 June 2017. Available at: http://corrienteelectrica.renault.es/asi-sera-elplan-movea-2017-para-coches-y-vehiculos-electricos/. ´ vila Rodr´ıguez, C., 2017. “Marco jur´ıdico para la implantacio´n de infraestructuras para las 43. A energ´ıas alternativas en el transporte en Espan˜a,” Comunicacio´n Proyecto (I 1 D) de Investigacio´n. 44. Ministry of Industry, Energy and Tourism, 2015. “Estrategia de Impulso del veh´ıculo con energ´ıas alternativas (VEA) en Espan˜a (2014 2020),” Ministry of Industry, Energy and Tourism. 45. Mart´ınez Lao, J., 2017. “Electric Vehicles in Spain: An overview of charging systems,” Renewable Sustainable Energy Rev, 77. 46. Article 82, paragraph 2 Sustainable Economy Law 2/2011 of 4 March. 47. Article 6, point (h) Electricity Sector Law 24/2013 of 26 December.

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The Royal Decree 1053/2014 approved the Complementary Technical Instruction (ITC) BT-52 “Facilities for special purposes. Infrastructure for recharging EVs.” Royal Decree 1053/2014 requires public areas to be provided with requisite facilities for installing charging points corresponding to the number of anticipated parking spaces in both municipal and supramunicipal sustainable mobility plans. The decree also requires newly constructed buildings and car parks to be equipped with specific electric facilities toward EV charging. These charging facilities have different requirements, contingent upon the type of parking lot. In collective parking lots for private use, a minimum level of preinstallations is obligatory, to ensure parking space owners can charge their EVs without having to pay. In the case of public car parks or private fleet car parks, necessary facilities must be installed so that a charging point exists for every 40 parking spaces.48 Electricity Sector Law 24/ 2013 also refers to electricity charging services, identifying their primary purpose as providing power through vehicle charging services and storage batteries while ensuring that charging takes place efficiently and at minimum cost to both consumer and the electricity system.49 Royal Decree 639/2016 of 9 December is the latest regulatory development regarding charging infrastructure. It adopts a range of steps to facilitate alternative fuel facilities. The legislation defines alternative fuels as options to replace, at least somewhat, traditional fossil fuels as power sources for transport, which could potentially make the transport sector more environmentally friendly. These alternative sources include electricity, hydrogen, biofuels, synthetic and paraffinic fuels as well as natural gas.50 The legislation also addresses two matters regarding charging stations. First, all public charging points must allow users to charge their EVs on an ad hoc basis, without the need to enter into a contract with the electricity supplier or the load system manager. Second, energy suppliers other than the one providing the electricity to the building or premises of the charging point should have the right to contract the power supply for the charging point.51 Regulatory measures to increase EVs in Spain, it thus appears, focus largely on advancing charging infrastructure. This is the right move, as research shows that the number of available charging stations is a strong predictor of EV adoption.52 Of course, appropriate financial schemes, such as direct grants, play a strong role, too. But steps that are specific to EVs are more reliable predictors of EV adoption rates than more general socio-demographic variables such as ´ vila Rodr´ıguez, C., 2017. “Marco jur´ıdico para la implantacio´n de infraestructuras para las 48. A energ´ıas alternativas en el transporte en Espan˜a,” Comunicacio´n Proyecto (I 1 D) de Investigacio´n. 49. Article 48, paragraph 1 Electricity Sector Law 24/2013 of 26 December. 50. Article 2, paragraph 1 Royal Decree 639/2016 of 9 December. 51. Article 4, paragraphs 4 and 5 Royal Decree 639/2016 of 9 December. 52. Bjerkan, S., 2016. “Incentives for promoting Battery Electric Vehicle (BEV) adoption in Norway,” Transp Res D Transp Environ, 43.

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income, education level, or environmentalism.53 Thus building the requisite charging infrastructure, with appropriate legal frameworks, is necessary for promoting EVs. Spain has several schemes in place, such as PIVE and MOVELE, to provide financial incentives toward purchasing H&EVs. However, overlaps exist among these schemes that can create confusion. For example, PIVE aims to replace out-of-date vehicles with more efficient ones, whereas MOVELE focuses on increasing EVs in Spain. Moreover, these schemes are being implemented by different actors and would perhaps be more effective through stronger coordination and a more cohesive approach.54 It is worth looking into alternative policies to help increase EVs, for example by looking into the approaches of other countries. Countries such as Korea, the Netherlands, Portugal, and the United States have implemented EV-specific entry rules to urban access areas. In France, Sweden, and the United Kingdom, EVs have access to preferential parking areas. Other states such as Denmark or Germany incentivize the use of batteries.55 On the other hand, Spanish regulation mainly focuses on direct economic incentives and on strengthening the charging infrastructure. Still, the country’s existing approaches are reasonable, given that the low number of charging points is believed by many to be a priority issue to tackle.56 As Spain progresses on this front, it may well look into adopting additional regulatory incentives for EVs, such as preferential parking areas. EVs are projected to have a key part to play in future electricity systems, especially when it comes to distributed energy storage systems, as EVs are able to integrate storage capacity in smart grids. In fact, vehicle-to-grid (V2G) systems enable EVs to both power and be powered by the grid. Moreover, V2G allows electricity to be stored, for usage during times of low production.57 Increasing EVs promises a range of positive impacts. Smart charging during valley hours helps flatten the demand curve; EVs can contribute to optimizing electricity grid surpluses and will lead to more RE sources being integrated into the domestic grid. Also, the wide adoption of

53. Mart´ınez Lao, J., 2017. “Electric Vehicles in Spain: An overview of charging systems,” Renewable Sustainable Energy Rev, 77. ´ vila Rodr´ıguez, C., 2017. “Marco jur´ıdico para la implantacio´n de infraestructuras para las 54. A energ´ıas alternativas en el transporte en Espan˜a,” Comunicacio´n Proyecto (I 1 D) de Investigacio´n. 55. Mart´ınez Lao, J., 2017. “Electric Vehicles in Spain: An overview of charging systems,” Renewable Sustainable Energy Rev, 77. 56. Energ´ıas Renovables, “La escasez de puntos de recarga frena la compra de coches ele´ctricos m´as que el precio,” Energ´ıas Renovables. El periodismo de las energ´ıas limpias, 22 June 2017. Available at: https://www.energias-renovables.com/movilidad/la-escasez-de-puntos-de-recargafrena-20170622. 57. Amsterdam Vehicle2Grid, “The Solution to Sustainable Urban Mobility and Energy,” Amsterdam Vehicle2Grid, Available at: http://www.amsterdamvehicle2grid.nl.

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EVs will help reduce CO2 emissions and will lower dependency on external energy suppliers. It will also reduce both air and noise pollution in urban areas.58 Spanish TSO, Red Ele´ctrica de Espan˜a, estimates that in the near future, if smart charging is effectively conducted during valley hours, the national electricity system will be able to power an EV fleet equal to one fourth of the total number of vehicles in Spain without additional costs to the transmission grid.59 Thus EVs and their smart charging have a tremendous potential to strengthen the national grid. In this sense, certain technological products catered by the WiseGRID project could play their part by rendering EV-specific challenges more user-friendly. For example, Wise EVP (Electrical Vehicle Platform) is an application that will be used by vehiclesharing companies and e-vehicles fleet managers (e.g., taxi companies) to optimize activities related to smart charging and discharging of the EVs and reduce energy billing. More importantly in this context, the application WG Fast V2G makes it possible to use EVs as dynamic distributed storage devices, feeding electricity stored in batteries back into the energy system when needed. The need to promote sustainable transport in cities is crucial in the face of the high level of hydrocarbon-fueled transport in Spain. The transition to EVs will play a key role in decarbonizing the transport sector in Spain. Meeting the EU’s 2020 and 2030 targets for CO2 emissions will require ambitious efforts in the country. In fact, estimates reveal that Spain will need 300,000 EVs by 2020 and up to 6 million in 2030 to lower its CO2 emissions in keeping with EU goals.60 Achieving this will entail a long-drawn and progressive evolution, with significant investment. To place matters in context, in 2015 Spain had 6500 EVs, comprising a market share of 0.2%, far beneath the EV numbers in Norway (23%) and the Netherlands (10%) which are leading in this area.61

5.4

Demand response

In Spanish regulation, an aggregator for demand response is missing. At this time, a single scheme allows explicit demand response: the interruptible service. This means that a TSO may block energy consumption by placing a power reduction order on large industrial consumers providing this service. The interruptible service is thus a demand-side scheme managed by Red Ele´ctrica de Espan˜a. The plan is an emergency approach for situations of 58. Red Ele´ctrica de Espan˜a, “Electric vehicle,” Red Ele´ctrica de Espan˜a. Available at: http:// www.ree.es/en/red21/electric-vehicle. 59. Idem. 60. Deloitte, “ Cu´antos coches ele´ctricos necesita Espan˜a?” Deloitte. Available at: https:// www2.deloitte.com/es/es/pages/strategy/articles/Cuantos-coches-electricos-necesita-Espana.html. 61. Idem. ?

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imbalance between generation and demand. The mechanism aspires to flexibility and a rapid response to TSOs needs in such a situation.62 Although Spanish regulation does not officially recognize aggregators, the role of “representatives” has been acknowledged. These “representatives” sell energy on behalf of their “representees” and build balancing perimeters, thus reducing deviations from the program and the ensuing penalties.63 Still, Red Ele´ctrica de Espan˜a and other industry stakeholders are entering discussions around the future provision of these services to flexible demand.64 Aggregated demand response may not access balancing markets. Only consumers with contracted power greater than 5 MW may access the interruptible demand service that Red Ele´ctrica de Espan˜a manages. It is limited to large industrial consumers that are connected to the high-voltage grid. Industrial energy consumers participating in this scheme tend to come from the construction sector (such as steel, concrete, and glass), other material factories (e.g, paper and chemicals), and desalinization plants (in the Canary Islands). Participants must have an ICT system that connects them to the TSO and not to the DSO where they may be connected, as the DSO does not participate in such schemes.65

5.5

Storage

In Spain, electricity storage is negligible compared to the current installed power capacity. Reversible hydraulic reservoirs are the primary source of electricity storage in the country, accounting for more than 90% of the country’s electricity storage.66 Total hydro pump storage capacity in Spain is 4.749 MW, which comprised 4% of installed capacity in 2016.67 The government is aiming to reach a storage capacity of 8.100 MW by 2020.68

62. Red Ele´ctrica de Espan˜a, “Interruptibility Service,” Red Ele´ctrica de Espan˜a. Available at: http://www.ree.es/en/activities/operation-of-the-electricity-system/interruptibility-service. 63. Smart Energy Demand Coalition, 2017. “Explicit Demand Response in Europe - Mapping the Market 2017,” SEDC, Brussels. 64. IndustRE, 2016. “‘Innovative Business Models for Market Uptake of Renewable Electricity unlocking the potential for flexibility in the Industrial Electricity Use’ Business models and market barriers,” IndustRE. 65. Smart Energy Demand Coalition, 2017. “Explicit Demand Response in Europe - Mapping the Market 2017,” SEDC, Brussels. 66. Smart Energy Demand Coalition, 2015. “Mapping Demand Response in Europe Today,” Brussels. 67. Energ´ıas Renovables, “La escasez de puntos de recarga frena la compra de coches ele´ctricos m´as que el precio,” Energ´ıas Renovables. El periodismo de las energ´ıas limpias, 22 June 2017. Available at: https://www.energias-renovables.com/movilidad/la-escasez-de-puntos-de-recargafrena-20170622. 68. Stoppani, E., 2017. “Smart charging and storage: bridging the gap between electromobility and electricity systems,” International Energy Law Review, no. 1, p. 17.

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Red Ele´ctrica de Espan˜a has introduced the “Almacena” project to explore other options for electricity storage. The project entails an electrochemical energy storage solution connected to the grid and the installation of a prototype flywheel in the Canary Islands.69 Additionally, Endesa has created a pioneer project launching three kinds of energy storage infrastructures (superconductor, flywheel, and electrochemical) in three different Canary Islands. Such storage types may present a range of advantages for the grid.70

5.6

Interconnection

In Spain, the electricity system interconnects with that of Portugal to create the Iberian electricity system. Spain’s electricity system also interconnects with the North African system through Morocco and with the Central European system through France. The Central European system, for its part, connects with the Nordic countries, countries in Eastern Europe, as well as the British Isles. This makes it the world’s biggest electricity network.71 At the EU level, the long-standing goal is to accomplish the European internal energy market, but doing so will require tackling the remaining fragmentation within Member State energy markets. In fact, the European Commission has stated a goal to achieve an electricity interconnection rate of 10% by 2020.72 It has since been recommended to raise the interconnection target to 15% by 2030.73 A strongly interconnected energy grid across Europe would reap significant benefits for citizens, saving them as much as EUR 12 40 billion annually by 2030.74 Spain walks a rather fine line when it comes to cross-border interconnections. According to the European Network of Transmission System Operators for Electricity, Spain has one of the lowest interconnection capacities in the EU—at less than 5%,75 it is far below the aspired level of 10%—on a par with the Baltic States, Cyprus, and Poland.76 The government will need to invest in 69. Red Ele´ctrica de Espan˜a, “Energy Storage,” Red Ele´ctrica de Espan˜a. Available at: http:// www.ree.es/en/red21/energy-storage. 70. Stoppani, E., 2017. “Smart charging and storage: bridging the gap between electromobility and electricity systems,” International Energy Law Review, no. 1, p. 17. 71. Red Ele´ctrica de Espan˜a, “Strengthening interconnections,” Red Ele´ctrica de Espan˜a. Available at: http://www.ree.es/en/red21/strengthening-interconnections. 72. European Commission, “Electricity interconnection targets.” Available at: https://ec.europa. eu/energy/en/topics/infrastructure/projects-common-interest/electricity-interconnection-targets. 73. Communication from the Commission to the European Parliament, the Council. European Energy Security Strategy, at p. 10, COM (2014) 330 final (28 May 2014). 74. Booz & Company and others, 2013. “Benefits of an Integrated European Energy Market,” Booz & Company. 75. Red Ele´ctrica de Espan˜a, “Strengthening interconnections,” Red Ele´ctrica de Espan˜a. Available at: http://www.ree.es/en/red21/strengthening-interconnections. 76. European Network of Transmission System Operators for Electricity, 2014. “Scenario Outlook and Adequacy Forecast 2014.”

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new cross-border connections to comply with the EU’s goals, and the benefits of doing so are greater than the projected costs. In fact, a strongly interconnected grid is fundamental for sustainable development, as, by integrating a greater proportion of energy from renewable sources, we further decarbonize the energy mix. Moreover, greater use of RE helps toward achieving energy security. And, of course, it gives a healthy impetus to the RE sector, increasing employment and innovation. Overall, effective interconnection lowers electricity prices because of greater market efficiency, leads to a more stable electricity supply, and helps protect the environment.77 Spain has good interconnections with Portugal and represents one of the few portals between Europe and Africa via a subsea interconnector with Morocco. On the other hand, the French border is a bottleneck zone for electricity exchanges and hinders the Iberian Peninsula from an effective connection with the European internal energy market. Despite its strong energy infrastructure, Spain is therefore unable to take advantage of being connected to the rest of the European grid. Still, some changes have transpired recently that may alleviate this situation. The EU has several new energy projects in the works, of which the Santa Llogaia—Baixa`s power line is a prototype. February 2015 saw the launching of the Santa Llogaia—Baixa`s power line, as part of the Energy Union project. The power line doubled the interconnection between Spain and France78 and raised the transfer capacity between the two countries from 1.400 to 2.800 MW. Its key role has earned it the status of Project of Common Interest (PCI),79 which means it is eligible for various funding schemes, such as the Connecting Europe Facility (CEF).80 The subterranean interconnection will power the high-speed train on the Spanish side and will enable the grid to integrate a greater proportion of RE, in particular wind energy from the peninsula. This PCI is the first interconnector to be established between France and Spain in nearly 30 years.81 Strategic crossborder interconnectors are being prioritized when it comes to political and economic support. Increasing Spain’s interconnection levels will depend on support from the Energy Union and various EU financial instruments.

77. Communication from the Commission to the European Parliament, the Council. Achieving 10% electricity interconnection target. Making Europe’s electricity grid fit for 2020, at p. 4, COM (2015) 82 final (25 February 2015). 78. European Commission, 2015. “Building the Energy Union: Key electricity interconnection between France and Spain completed,” European Commission - Press release. 79. European Commission, “Projects of common interest,” European Commission. Available at: https://ec.europa.eu/energy/en/topics/infrastructure/projects-common-interest. 80. European Commission, “Financing trans-European energy infrastructure—the Connecting Europe Facility,” European Commission—Fact Sheet, 5 March 2015. Available at: http://europa. eu/rapid/press-release_MEMO-15-4554_en.htm. 81. Red Ele´ctrica de Espan˜a, “Spain-France underground interconnection,” Red Ele´ctrica de Espan˜a. Available at: http://www.ree.es/en/activities/unique-projects/new-interconnection-withfrance.

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Another relevant project is Biscay Bay, which uses an undersea cable to connect the Biscay Bay in Spain to Aquitaine in France. The project is under technical review and, as a PCI, will receive significant CEF funding (around EUR 3.25 million). Given the projected benefits of the project, it is likely to receive further EU subsidies. The Biscay Bay project is expected to rebalance electricity flows and may raise the transfer capacity between France and Spain. In fact, the electricity exchange capacity is projected to rise up to 5.000 MW.82 Two further initiatives are being planned through the Pyrenees. One would operate from Basque country or Navarra in Spain to Cantegrit in France. The other will connect Arago´n in Spain to Marsillon in France. Along with the Biscay Bay project, these projects are projected to increase the transfer capacity between France and Spain to 8.000 MW in 202083 Overall, planned projects following the Santa Llogaia—Baixa`s power line may almost triple the current transfer capacity. The supra-national considerations depicted above seem to constitute the ideal juncture for the market penetration of the set of solutions and technologies brought by the WiseGRID project in the Spanish electricity industry. The EU’s goal for a 10% interconnection rate should transpire between Spain and the rest of the European grid by 2020. This would lead to a stronger and more stable electricity market in Spain, and one that would better incorporate RE into the national grid. In turn, consumers may start looking into smart grid applications for cost-effective solutions to energy. Selfconsumption and net metering are likely to follow, and given the right regulatory environment, prosumers will be able to sell their energy surplus with a domestic grid that is able to integrate higher proportions of RE, thanks to more effective transfer ratios with neighboring states.

5.7

Concerns about data protection

In Spain, the Data Protection Law 15/1999 of 13 December safeguards individuals in terms of data processing and the free movement of data. The Royal Decree 1720/2007 of 21 December takes the Data Protection Law 15/ 1999 further. Spain’s data protection legislation is among the EU’s most stringent. Penalties are on the higher spectrum (up to EUR 600,000 per violation).84 Moreover, the Spanish Data Protection Agency, which is the country’s national data protection authority, is known for its tough enforcement of data protection rules.85

82. Madrid Declaration, 2015. Madrid: Energy Interconnections Links Summit. 83. Idem. 84. Article 45, paragraph 3 Data Protection Law 15/1999. 85. Hogan Lovells, 2015. “Data protection compliance in Spain. Mission impossible?” Hogan Lovells.

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The Data Protection Law 15/1999 calls upon data controllers to draft internal security policies identifying the technical and organizational measures that staff will enact. Measures will be devised in accordance with security levels (low, medium, and high), which are determined based on data sensitivity, or the nature of the entity involved. Data controllers, according to the Data Protection Law 15/1999, are individuals or legal persons who control and are in charge of personal data use and storage on a computer or in manual files. The data processor is the entity that processes the data for the data controller. Should personal data processing be outsourced, that is, should processing be exclusively executed by the data processor, the data controller may be entitled to require an internal security policy of the data processor. The Data Protection Law 15/1999 maps out measures to be enforced in the face of each different security level.86 Anyone who desires to make or change a personal data file needs to sign up for free with the Spanish Data Protection Agency. The procedure entails completing a form via the organization’s website. The notification of data files is also free. The Data Protection General Registry will approve notifications that they meet necessary requirements. Moreover, if security levels are medium or high, a data protection officer must be appointed.87 The Spanish Data Protection Agency carefully complies with the requirements set out by Data Protection Law 15/1999 in terms of registration. In fact, the Data Protection Agency has noted a rise in registrations, particularly from medium-sized companies as well as independent professionals.88 When it comes to the process of DSOs submitting consumption information to consumers, the Royal Decree 216/2014 of 28 March sets out the relevant obligations. For those with smart meters in place, the legislation calls for DSOs to provide hourly consumption data. In addition, DSOs operate websites that allow customers to access and save their hourly consumption data (after billing). DSOs also enable consumers to download their consumption profiles made available to energy suppliers for billing purposes in comma-separated values and Excel flat files. Data received from smart meters are stored in the DSOs’ metering managing systems. DSOs submit data to energy suppliers via secure File Transfer Protocol. Energy suppliers can only access data relating to their customers—to access data for other customers they require prior consent.89 DSOs own smart metering data but

86. Azim-Khan, R., 2008. “New Spanish regulation tightens up data protection requirement,” Priv Data Secur Law J. 87. Linklaters, “Data Protected. Spain. General. Data Protection Laws,” Linklaters. Available at: https://clientsites.linklaters.com/Clients/dataprotected/Pages/Spain.aspx. 88. Spanish Data Protection Agency, “Spanish Data Protection Agency,” Spanish Data Protection Agency, Madrid. 89. European Smart Grid Task Force, 2016. “My Energy Data,” Smart Grids Task Force Ad hoc group of the Expert Group 1—Standards and Interoperability.

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must provide the data to end users for consultation purposes and to energy suppliers for billing.90 The Royal Decree 1074/2015 of 27 November is also relevant in this context as it amends some aspects of Article 7 of the Royal Decree 1435/2002, which regulates data to be stored in the Supply Points Information System (SIPS) by establishing the basic conditions for acquiring energy contracts and accessing low voltage networks. The DSOs manage the SIPS database, which only the NRA, the CNMC, and energy suppliers are allowed to access. The database, updated frequently, contains information related to the supply points connected to the networks and transport networks of the areas that each DSO manages. The SIPS was developed to boost competition in the reduced electricity supply market. It achieves this by helping create the required consumption data that will encourage new energy suppliers while ensuring consumer privacy.91 Royal Decree 1074/2015 contains an amendment that prevents the SIPS from collecting data regarding consumer hourly load curves, because consumption data, which DSOs compile via smart meters, are considered personal data and thus requires corresponding protection. On that note, energy suppliers cannot access any information—except for that relating to their own customers—which enables the identification of the supply point incumbent (such as supply point location, household address, or first and last names).92 Safety of consumer privacy is of high importance, especially when it comes to the European internal energy market. The successful rollout of smart meters relies on robust management of consumption data. Data protection and consumer privacy form basic requirements for the success of the broad deployment of smart metering systems. Fortunately, technical advancements allow smart grids today to monitor energy consumption almost in real time. Smart meters avail of the Advanced Metering Infrastructure that allow this insight. Considering the volume and sensitivity of the data they process, smart meters must integrate secure storage systems as well as backup and contingency mechanisms. Analyzing enduser smart metering data allows for surprisingly accurate insights into their private lives: time spent at home, working schedules, vacations, use of specific gadgets, hobbies, etc. Such information is naturally valuable to many third parties, thus consumer profiling endangers the privacy of consumers.93

90. Leiva, J., 2016. “Smart metering trends, implications and necessities: A policy review,” Renewable Sustainable Energy Rev, 55. 91. EnerConsultor´ıa. Derecho de la energ´ıa, “contadores inteligentes y proteccio´n de datos,” EnerConsultor´ıa. Derecho de la energ´ıa, 8 December 2015. Available at: http://www.enerconsultoria. es/BlogLeyesEnergia.aspx?id 5 36002236&post 5 Contadoresinteligentesy protecciondedatos. 92. EnerConsultor´ıa. Derecho de la energ´ıa, “contadores inteligentes y proteccio´n de datos,” EnerConsultor´ıa. Derecho de la energ´ıa, 8 December 2015. 93. Rubio, J., 2017. “Recommender system for privacy-preserving solutions in smart metering,” Pervasive Mob Comput.

Chapter 6

Energy decentralization and energy transition in Italy Rafael Leal-Arcas Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

6.1

Regulatory framework for the electricity market

In Italy, a collection of decrees, directives, and decisions shape the country’s electricity market, which, combined, replace relevant European Union (EU) Directives. They also dictate state policy with regard to the electricity market. The laws include: G

G

G

G

G

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Law No. 481 of November 14, 1995, establishing the Regulatory Authority for Electricity, Gas and Water (AEEGSI) and elaborating its role; Legislative Decree No. 79/99 of March 16, 1999, implementing Directive 96/92/ that addresses common rules for the internal electricity market. The decree grants gestore dei servizi energetici (GME) the authority to handle the Italian Electricity Market in keeping with principles of neutrality, transparency, objectivity, and competition among producers; The Integrated Text of the Electricity Market rules, which govern the operation of the wholesale electricity market; Law No. 239/2004, which aims to harmonize the energy sector and oversee its liberalization; AEEGSI Decision 111/06, creating a process to record forward electricity purchases/sale contracts on the Italian Power Exchange’s OTC Registration Platform; and Legislative Decree No. 93/2011, launching the Third Energy Package, with the goal of improving energy security and protecting low-income consumers.



Professor of Law, Alfaisal University (Riyadh, Kingdom of Saudi Arabia). Jean Monnet Chaired Professor in EU International Economic Law. Member, Madrid Bar. Ph.D., M.Res., European University Institute; J.S.M., Stanford Law School; L.L.M., Columbia Law School; M. Phil., London School of Economics and Political Science; J.D., Granada University; B.A., Granada University. The research assistance of N. Akondo, J.A. Rios, and my colleagues in the WiseGRID consortium is acknowledged.

Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00010-4 Copyright © 2023 Rafael Leal-Arcas. Published by Elsevier Inc. All rights reserved.

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Approving licenses to build and run energy generation facilities takes place at the regional level. Regions also regulate such plants. Given the decentralization of energy in the country, AEEGSI only addresses legal, technical, and financial matters. Even though Legislative Decree No. 112/1998 (as amended by Legislative Decree No. 443/1999) holds that passing region-specific is allowed, local governments must still abide by AEEGSI’s overall direction. Since the EU issues its first electricity-related directive (96/92/EC), there has been a steady move toward liberalization in Italy’s electricity market. The EU directive followed the Bersani Decree,1 which delineated the way forward for liberalizing the market and identified basic tenets for future steps in this direction. Thus far, liberalizing wholesale and retail markets has met with much success. Decentralizing electricity generation and using microgrids for distribution would be the next major steps. A day-ahead market and an intraday market comprise the wholesale electricity market in Italy. In 2013 Italy’s wholesale electricity market comprised 42% of the total national supply. GME is in charge of both. An ancillary services market, Mercato del servizio di dispacciamento (MSD) exists as well, for which TERNA is the key actor. Two segments comprise the MSD: the ex ante MSD for energy trades and harmonization to prevent backing-up and to build reserves; and the balancing market for trades in real-time balancing services to rebuild reserves and keep a grid balance. GME is also responsible for a forward electricity market (Mercato elettrico a termine) that is a negotiating platform for forward electricity contracts and withdrawals. While the Italian Power Exchange (IPEX) manages these markets, participants are not limited to IPEX—sellers and buyers can also conduct bilateral trade, circumventing the exchange. Such bilateral contracts must be recorded in the Energy Accounts Platform. Three retail markets operate in the country: the safeguarded market, the enhanced protection market, and the open or free market. The safeguarded market is the default one, targeted at end consumers who are ineligible for the enhanced protection market and would not have any electricity supplier. The enhanced protection market must by law supply electricity to those who have not opted to change suppliers. AU S.p.A, a state-owned company, manages this market. It buys electricity on the wholesale market and then sells it to retailers who, in turn, sell it to customers at a regulated price. The retail market is the open or free market, with more than 336 retailers, and the largest of whom is Enel.2 Customers can choose from a broad array of competitive suppliers.

1. International Energy Agency (IEA), 2016. “Energy Policies of IEA Countries; Italy 2016,” OECD/IEA. 2. Rossetto, N., “An oversized electricity system for Italy,” Italian Institute for International Political Studies, 22 January 2015. Available at: https://www.ispionline.it/it/energy-watch/oversized-electricity-system-italy-12135.

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Pricing on the wholesale electricity market is unregulated, and demand and supply are the deciding factors. On the retail market, AEEGSI establishes transmission tariffs for 3-year timeframes, applying a cost cap approach. This approach sets a tariff based on how much capital was invested and the costs of operation. The amount that customers pay depends on both network charges and the rate of their particular supplier. Italy is working toward increasing renewable energy (RE) usage and decreasing fossil fuel dependency. To this end, several schemes are in place. One of the main approaches has been to provide electricity stemming from RE sources dispatching preferences. But since RE sources tend to be irregular, relying on RE for a sizeable proportion of power jeopardized the electricity network’s functioning. To address this, AEEGSI established fines for falling short.3 Another scheme has been to create a feed-in tariff for solar energy in 2008, after which a feed-in tariff was placed on all RE sources in 2012. Additionally, the Gestore dei servizi energetici (GSE) has established more streamlined buying and reselling procedures since 2008, which helps small producers sell electricity generated to the GSE, instead of having to sell via bilateral contracts or on the Italian Power Exchange. Eligibility requires producing less than 10 MVA through RE or hybrid plants.4 Until recently, the GSE was also granting “green certificates,” which producers of RE [except for those using photovoltaic (PV)] could be eligible for. But this scheme is on the way out and will be replaced by the feed-in tariff regime. As of yet, Italy lacks a clear policy on rolling out microgrids, in spite of having a strong emphasis on making the national grid smart as well as integrating distributed energy resources (DERs). While a few microgrid projects do exist, to truly achieve the goal of electricity decentralization, authorities would need to address several challenges, including establishing grid connection fees, transmission approaches, and developing incentives for microgrids. To generate, buy, or supply electricity derived from RE sources, no paperwork or license is needed in Italy.5 Moreover, energy derived from RE sources is incorporated into the national grid. Thus Italy has a pro-prosumer environment, perhaps epitomized by its ritiro dedicato policy, which helps small-scale prosumers such as households with market access. One challenge yet to be addressed, though, is how “pooled loads” from different DERs can qualify to have access to wholesale markets. On the surface of it, since the wholesale market

3. Bersani Decree, 1999. Legislative Decree No. 79. 4. International Energy Agency (IEA), 2016. “Energy Policies of IEA Countries; Italy 2016,” OECD/IEA. 5. Cicchetti, M., Fabbricatore, G., “Electricity Regulation in Italy: Overview,” Practical Law Company, 1 May 2014. Available at: https://uk.practicallaw.thomsonreuters.com/Document/Ieb49d7bb1cb511 e38578f7ccc38dcbee/View/FullText.html?originationContext5docHeader&contextData5(sc.Defadult)& transitionType 5 Document&needToInjectTerms 5 False&firstPage 5 true&bhcp 5 1.

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is ostensibly open, legal entities should have access. But technical requirements may stand in the way. For example, in the MSD, bid offers are accepted on the basis of factors related to generating units and pumped-storage units—facilities that small-scale producers are not likely to have. In short, existing restrictions may prevent the whole move toward helping prosumers from transpiring in practical terms.

6.2

Smart grids and meters

In Italy, the country’s distribution system operator (DSO) handles metering activity and also owns and manages smart meter deployment. Additionally, it is responsible for releasing meter data to third parties. Italy has already successfully implemented smart meters, with 99% of electronic metering points being covered. Regulation in December 2006 called for the installation beginning in 2008 for electronic meters with minimum functional requirements for all DSOs and low-voltage (LV) consumers, to be completed at 95% by 2011. Regulation dating back to 2006 identifies the minimum functionality requirements for electric meters. It called for all DSOs and LV consumers to install new meters starting 2008. Thus, by 2016, Italy had a smart meter coverage of 99%. While the National Regulatory Authority (NRA) has overall responsibility for smart deployment, DSOs have direct responsibility as they own and operate metering facilities. DSOs are also in charge of maintenance, meter reading, and data management. In Italy, deploying smart meters was a step toward achieving overall goals related to boosting competition in the electricity market, increasing access to remote meters, and better data collection for cost benefit analyses.6 To this end, the AEEGSI stated that, at minimum, meters should: G G

G G G

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record active energy consumption; include alarms that notify customers when they go beyond contractual limits before circuit breakers are activated; have the capacity to prevent data loss; include technology (ideally GPS-based) to coordinate with clocks and calendars; undertake remote transactions such as periodic reading of consumption data, software upgrades. and remote management of customers’ contractual details; and include display screens supplying information such as consumption and pricing details.

Specifying the above minimum requirements via regulation meant that AEEGSI could guarantee a high quality of functionality and customer service. 6. Zhou, S., Brown, M.A., 2017. “Smart meter deployment in Europe: A comparative case study on the impacts of national policy schemes,” J Cleaner Prod, 144, 22 32.

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For example, smart meters let customers continue using minimal electricity amounts (0.5 kW for households) even when not paying, before service cancelation. Upon payment, the smart meter enabled suppliers to reconnect the customer remotely, generally within 24 h of payment. If reconnection does not occur within 24 h, customers receive automatic compensation.7 Moreover, Italian smart meters also use time-of-use pricing for LV customers, which places household consumption within three bands: peak, mid-level, and offpeak, each with a different price. Thus consumer bills are based on how much electricity they consume at different times of the day. Such an approach to pricing impacts only the energy component of the bill and not network charges. It provides customers with more power to lower bills; this is even more relevant when one considers that the energy component of bills makes up three-quarters of total billing for many.8 In short, Italy has made impressive progress on smart meter deployment, mainly thanks to the DSOs complying with the NRA’s plans after numerous consultations. In fact, Enel D, one of the DSOs, had initiated its own smart meter deployment strategy prior to the NRA’s plan. The NRA also established a fine for DSOs that did not comply with the regulation, which was a key factor toward their cooperation. Establishing minimum functional requirements has also been extremely effective, not only guaranteeing that consumers receive standardized service but also helping toward interoperability and uniformity. Clearly, the NRA noted the role of smart meters toward progress on smart grids and made sure that technical disadvantages did not block the smart grid rollout. Furthermore, Italy has been exploring the potential for smart home systems. Given the move toward decentralized energy systems based on variable RE generation, the rising cost of energy, and the rapid proliferation of smart grid innovation, there is a need to promote demand response options. One crucial player in this context could be the advancement of smart home systems. When it comes to demand response, HEMS (home energy management systems) have a few chief objectives: G

Adjusting consumption or generation of energy to keep an equilibrium in the generation, for example, via PV or micro-CHP (combined heat and power) units and in usage (e.g., via smart lighting and home appliances). Maintaining such an equilibrium could impact home generation and consumption (for instance, to boost self-consumption from RE) or that at the distribution grid level. Energy storage, although costly, could also help with load balancing. Unfortunately, though, it is impossible to prevent

7. Villa, F., 2007. “Regulation of Smart Meters and AMM Systems in Italy.” In: 19th International Conference on Electricity Distribution (CIRED), Vienna. 8. Idem.

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storage losses. Thus availing of existing storage [such as electric vehicles (EVs) and heat capacity of buildings] is a better option. Using flexible loads offers an alternative to energy storage but, once more, electric loads with the most potential for balancing generally include a type of storage (e.g., heat pumps). Reducing energy consumption through device adjustments, for instance by altering temperatures in unused rooms to lower energy consumption and by switching off elements of heating/cooling systems when possible to decrease standby losses.

User acceptance is a key factor for HEMS, in contrast to energy management in the commercial and industrial sectors. HEMS users are generally those living in the home, who are not likely to have the technical know-how. Thus HEMS functionality must be cost-effective, but also reliable and easy to use for all. In addition, user habits and needs should be factored when planning appropriate devices. HEMS have a range of market drivers, including: G

G

G

G

G G

Incentives for promoting energy efficiency and sustainable development, incorporated into national and EU laws and policy. Strong demand side management that incorporates household loads and generators, decreasing the need to expand the network and building the network’s ability to integrate RE. Promoting environmental sustainability and decreasing greenhouse gas (GHG) emissions. Boosting household energy self-reliance while also increasing openness and fairness. Lowering energy prices by lessening energy consumption. Promoting two upcoming and highly linked areas, that is, next-generation media and smart grids. HEMS also face crucial challenges at this time, which include:

G G

G G G

G

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High cost of investment and operation. The need for smart metering facilities to facilitate connection with the grid operator. No widescale deployment thus far for “Home area automation controllers.” Few available interoperable smart appliances with open control functionality. No capacity to communicate between a smart home and smart grid actors such as the DSO, virtual power plant, and market aggregators, that would help the end consumer in automatic energy procurement. A need for different manufacturers to coordinate on solutions to be controlled by the HEMS. A need to tackle data privacy through effective measures toward confidentiality, integrity, and data transfer between an end user and all market actors.

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An overall low interest in smart home technicalities on the part of potential users. The fact that end users lose control and decision capability when allowing grid operators to control their loads. The risk of HEMS being hacked and the resulting loss of privacy.

6.3

Electric vehicles

Italy’s EV market is large and is on the rise thanks to the emergence of a complete production chain, stretching all the way from research until finished vehicles.9 While currently the market is not regulated, two proposals have been reviewed by the government. The proposals aim at facilitating the development and deployment of EVs. The first proposal, “Law no. 2844 of 2009: Measures to favor the development of mobility by using vehicles without CO2 emissions,” proposes steps such as subsidizing purchases, installing public battery charging systems, exemptions from property tax, the right to restricted public areas, and free parking in reserved parking areas. Additionally, the proposal suggests placing a tax on plastic bottles. The second proposal, “Law no. 3553 of 2010: Measures for the realization of infrastructure aimed at assisting the broad introduction of electric vehicles,” aims at incorporating EV charging infrastructure into strategies at both the national and regional levels that address energy and GHG emissions. It also emphasizes the need to create a national strategy that will promote EV development. Unfortunately, neither of these laws has been passed. As a result, in 2010 AEEGSI took steps to help promote EVs, including liberalizing the supply of electric meters for EV charging systems.10 The government developed a national strategy for creating better EV infrastructure in 2012. The plan aligns with 2014/94/EU Directive, and since 2013, 50 gigaeuros (Gh) of incentives have been put in place to catalyze the creation of proper infrastructure. As of the end of 2016, 19 projects in 19 Italian regions had been approved, involving a total amount of 5 Gh. The plan also includes rules and incentives for buyers of EVs. Any plan for developing EV charging infrastructure, especially public charging stations, must factor in the potential impacts on competition. An appropriate regulatory framework should address issues related to the ownership of public charging infrastructure. For example, can electricity run their individual charging stations? This would naturally affect customers’ ability to access charging stations, because the need to always locate a charging station run by one’s supplier would become a problem. It also poses challenges for urban planning and how to allocate charging stations, particularly if all 9. A.A., Scamoni, C., “Lexology,” Globe Business Media Group, 1 September 2016. Available at: http://www.lexology.com/library/detail.aspx?g 5 4bf3dda1-44ba-47c3-a860-af76ca74cbe4. 10. Comelli, E., “ItalyEurope24,” Il Sole 24 ORE, 23 February 2017.

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365 of the country’s suppliers are to have equal access to the EV charging market. Alternatively, public stations could permit open access to all energy suppliers. Such a scenario would require creating technology and guidelines to keep track of customer consumption for various suppliers. It would also call for creating measures to calculate volumes and payments in vehicle-togrid (V2G) scenarios. Thus far, the approach has been to leave the matter to AEEGSI, which has approved various projects that will test different charging infrastructure ownership models, with the goal of ultimately choosing the most appropriate.11 Since EVs are still limited to a relatively small circle, with uneven usage globally, there has not been much emphasis on standardizing the technical aspects related to them, such as batteries and charging technology. With international standards still in progress, Italy, along with several other countries, has established intermediate standards. For example, in 2010, the Italian EV Association, a committee of Italy’s Electrotechnical standardization body CEI, adopted “Safety requirements for charging stations for electric road vehicles (CEI 312 1).” Along with other European states, Italy is working toward developing V2G capability, for which numerous projects are in development phases, including the WiseGRID project. The goal is to use bidirectional charge management that allows EVs to store unused power and supply it to the grid. A few challenges that arise out of this is the need for effective compensation schemes as well as redefining the traditional understanding of “storage” in the electricity network context, to recognize distributed generation through battery technology. When it comes to EVs, any compensation mechanism must also factor in the wear and tear on the EV owner’s battery stemming from grid supply.12 Creating effective compensation schemes might entail identifying an EV-specific compensation mechanism that is separate from a compensation scheme created for DERs. The numerous pilot projects currently underway may shed light on appropriate steps forward.

6.4

Demand response

In Italy, now that smart meters have been successfully deployed, and Italy has complied with the EU’s goals of liberalizing electricity markets, the next major step will be demand response. As of now, demand response in the country is limited to an interruptible contracts program, which is available to customers with a capacity of at least 1 MW and who qualify as Balance 11. Villa, F., 2007. “Regulation of Smart Meters and AMM Systems in Italy,” in 19th International Conference on Electricity Distribution (CIRED), Vienna. 12. Hybrid & Electric Vehicle Technology Collaboration Programme, “Hybrid & Electric Vehicle Technology Collaboration Programme,” International Energy Agency. Available at: http://www.ieahev.org/by-country/italy-policy-and-legislation.

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Response Parties. The mainland network as well as those in Sicily and Sardinia can access this program; however, the transmission system operator (TSO) rarely avails of it for balancing. Moreover, TSO contracted out all existing capacity until 2018, so no newcomers can join unless an existing participant withdraws.13 While aggregation is not allowed to take part in interruptible contracts, consortiums or cooperatives may do so. In fact, currently, two consortiums are participating.14 There is currently no mechanism for demand response and taking part on the wholesale market. While wholesale market operators may act as demand aggregators, there are no independent “aggregators” within the Italian market. Demand response must be promoted in the country, especially when it comes to allowing aggregators to participate in the market. Aggregators count as thirdparty service providers but their role in the market is on the rise and they are an active player in areas with more developed demand response markets. The EU’s Energy Efficiency Directive calls upon Member States to encourage the participation of aggregators in demand response and other ancillary markets.15 In fact, in countries where aggregators participate in the market, one can see significant infrastructural improvements. This is because aggregators have to undertake whatever improvements are necessary to fulfill their service provision responsibilities.16 Such improvements, in turn, help encourage smart technology diffusion and also help promote competition.

6.5

Storage

In Italy, storage capacity is mostly made up of pump hydro storage units, which mainly used to be owned by Enel and other state-owned electricity companies. But now that services have been unbundled and the market liberalized, TSOs own the storage units. Moreover, the law allows DSOs to own storage units.17 Regulation around electricity storage is somewhat disjointed and fails to address all relevant aspects. The main rules around it are contained in Legislative Decree no 28/2011. However, the decree simply hands off the right to develop and manage storage units for the TSO and DSOs. The AEEGSI’s Decision on Provisions related to the Integration of Energy 13. Smart Energy Demand Coalition, 2015. “Mapping Demand Response in Europe Today,” Brussels. 14. Idem. 15. Panetta, R., D’Ottavio, A., “Data protection in Italy: overview,” Thomson Reuters, 1 12 2015. Available at: https://uk.practicallaw.thomsonreuters.com/9-502-4794?transitionType 5 Default& contextData 5 (sc.Default). 16. Smart Energy Demand Coalition, 2015. “Mapping Demand Response in Europe Today,” Brussels. 17. European Commission, Directive 2012/27/EU, on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC, 25 October 2012.

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Storage Systems for Electricity in the National electricity System (Decision 574/2014/eel of 10 November 2014) contains provisions regarding the connection of storage systems to the grid by nonregulated participants such as prosumers. It defines energy storage as power generation and places connection, transmitting and metering responsibilities on energy storage, making it necessary for storage facilities to pay connection fees.18 The TSO, Terna S.p.A., runs a range of programs with the objective of boosting Italy’s storage capacity, especially with regard to creating better battery systems in Sicily and Sardinia. Additionally, in the region of Puglia, a hydrogen storage initiative is anticipated to link supply and demand and help toward the network’s more reliable supply overall. Although there seems to be an overall desire to boost Italy’s storage capacity, little support exists for DSOs and other bodies exploring research and development (R&D) for storage technology. Indeed, developing Italy’s storage capacity is hindered by the high price of batteries and storage-related technologies. The lack of certainty around suitable revenue streams for distributed generation does not help, either. So far, the only means to tackle these issues take the form of R&D funds under the management of AEEGSI.19 There is a lot of room to involve the private sector, especially DSOs, to put money into R&D for storage technology. More important, Italy needs appropriate legislation, as right now there is little legal acknowledgment of the important role of storage in the electricity value chain. Effective incentives, too, could help toward progress in the sector.

6.6

Interconnection

In Italy, energy is comparatively more expensive than in other EU countries.20 Various steps are being taken to address this situation. For example, the TSO was unbundled, which helped increase competition. But supply during peak times remains low. TERNA (the national TSO) has been working on upgrades to the system, particularly to address congestion, and this improved connectivity between Sicily and Sardinia. In terms of connections to Europe, Italy’s grid is linked through France Switzerland, Austria, Slovenia, Corsica, Greece, and Malta. Prices have tended to vary significantly between the north and south, but TERNA’s recent upgrades have contributed toward alleviating this, by resulting in supply surpluses. The market has also been helped by the surge in RE usage. 18. Committee on Industry, Research and Energy (ITRE) European Parliament, 2015. “Energy Storage: Which Market Designs and Regulatory Incentives Are Needed?” European Commission. 19. European Commission, Directive 2012/27/EU, on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC, 25 October 2012. 20. European Commission, 2014. “European Commisssion Country Reports.” Available at: https://ec.europa.eu/energy/sites/ener/files/documents/2014_countryreports_italy.pdf.

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Concerns about data protection

The Italian Personal Data Protection Code (Legislative Decree No. 196/2003) regulates data protection in the country, and, as it is general in scope, it can be applied to smart grids. Its definition of personal data does not just refer to data related to a natural person that enables that person to be identified, but also to data that enables a person to be identified indirectly by referring to other types of information. The code contains all necessary elements of a strong data protection mechanism, including the need for data controllers to be registered, the need to gain consent before storing and handling personal data, and the need for data controllers to follow tight safety protocols to make sure data is protected. Additionally, the law obliges data controllers to notify affected parties of any risks or situations that could jeopardize their personal data, and make sure data subjects are aware of their rights to access or correct their data. Overall, the code aims to prevent unlawful information processing by which data subjects can be identified, either directly or via reference to other information. Italy has a national data protection body, known as the Italian Data Protection Authority (IDPA), which makes sure relevant parties adhere to the principles of the Data Protection Code. As in other EU countries, Italy’s Data Protection Code makes the data controller legally responsible for data processing. When any data processing work deals with genetic or biometric data, geo-localization, or behavioral advertising (barring a few exceptions), data controllers must let the IDPA know before embarking on the activity.21 Data controllers are also obliged to use systems and software that involve using the least amount of personal data, and when using such data is necessary, it must be done in a way that that the data subject is aware of and has already approved. Controllers should not keep data longer than they need to for processing. The Italian Code is more detailed than many in that it specifies minimum security measures that data controllers must use for their processing systems. If data is being processed electronically, such measures refer to computerized authentication systems for those who have access to the system, regular updates to the system, and processing for storing backup information and restoring the system and data if necessary. If data is being processed manually, the code calls for making sure certain records are kept in restricted-access locations and that certain people be appointed responsible for processing. Only electronic communication service providers and those handling biometric data must let the IDPA know in case of security threats. However, in

21. Schiavo, L.L., Delfanti, M., Fumagalli, E., Olivieri, V., “Changing the Regulation for REgulating the Change; Innovation-driven regulatory developments in Italy: smart grids, smart metering and emobility,” 2011. The Center for Research on Energy and Environmental Economics and Policy at Cocconi University (IEFE).

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case of any threat, if a data subject’s privacy is at risk, the controller must also let the subject know. This does not apply, though, if the compromised data was anonymous or encrypted. The code is enforced by imposing a range of fines, with a maximum of EUR 2,448,000. If individuals are found to be responsible for breaches, they may face criminal charges and up to 3 years imprisonment. In Italy, DSOs are primarily responsible for data protection, as they handle metering and thus collect customer data. The contract between retailers and customers includes an agreement regarding data collection and handling. The data management system for electricity in Italy, though, is centralized. This means that smart meter data is transmitted to a central database that Acquirente Unico Spa manages,22 called the Integrated Information System (IIS). DSOs access customer data from the IIS for billing. TSOs also have access to this information, for balancing processes.23 For the DSO to share information with the TSO and even Acquirente Unico Spa., could perhaps be seen as a breach of the customer’s privacy. But according to the definition of personal data in the Italian Data Protection Code, aggregated meter information shared with the TSO does not count as personal data, which means this data sharing should be permissible.

22. Smart Grids Task Force, 2016. “My Energy Data (Report by Expert Group on Smart Grid Deployment (EG1)).” 23. Idem.

Chapter 8

Energy decentralization and energy transition in Poland Victoria Nalule1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

8.1

General overview

Massive investments in the energy sector are required to diversify the Polish energy mix, which is currently dependent on coal. In this respect, it is worth discussing briefly the Polish investment climate. In 2015 Poland was considered the fifth most attractive investment destination in Europe, with 23% more Foreign Direct Investment projects than the year before and with 15,485 workplaces created (third in Europe).1 Additionally, Polish public debt is among the lowest in the whole of the European Union (EU) at 52.5% of GDP while the unemployment rate is at 7%—slightly higher than that of Germany.2 There are various factors that make the country competitive for investors and these include among others its strategic position in the middle of eastern and western markets, its relatively low electricity price, availability of important facilities for investments, and lower labor costs.3 Whereas the coal industry has attracted a lot of investments in the past, we note that the sector has been struggling in recent years.4 In 2016, for instance, the Polish coal sector recorded nearly a PLN 2 billion net loss.5 The poor performance of the coal sector is due to underinvestments, difficult geological conditions, and closure of various mines just to mention but a

1. Warsaw Business Journal Group, 2017. Investing in Poland. https://ahk.pl/fileadmin/ AHK_Polen/Publikationen/Investing-in-Poland-2017_wersja-elektroniczna.pdf 2. Warsaw Business Journal Group, 2017. Investing in Poland. https://ahk.pl/fileadmin/ AHK_Polen/Publikationen/Investing-in-Poland-2017_wersja-elektroniczna.pdf 3. Warsaw Business Journal Group, 2017. Investing in Poland. https://ahk.pl/fileadmin/ AHK_Polen/Publikationen/Investing-in-Poland-2017_wersja-elektroniczna.pdf 4. Warsaw Business Journal Group, 2017. Investing in Poland. https://ahk.pl/fileadmin/ AHK_Polen/Publikationen/Investing-in-Poland-2017_wersja-elektroniczna.pdf 5. Warsaw Business Journal Group, 2017. Investing in Poland. https://ahk.pl/fileadmin/ AHK_Polen/Publikationen/Investing-in-Poland-2017_wersja-elektroniczna.pdf Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00025-6 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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few. New investments are however anticipated to increase in renewable energy sources (RES), including wind, solar, and hydro. Investments in RES will also influence investments in electric vehicles (EVs) and smart meters especially considering the global decarbonization campaign and efforts taken both at the regional and national level to reduce greenhouse gas (GHG) emissions.

8.2

Energy profile

Poland has vast energy resources including both conventional and unconventional energy. Poland’s energy mix is dominated by coal which is the primary energy source for electricity generation. The country recently hosted the 24th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP24) in Katowice from December 2 to 14, 2018. COP24 involved the most important climate talks and negotiations since the COP21 Paris Agreement which was reached in 2015.6 It was at COP21 that world leaders agreed to make sure global warming stayed below 2 C above preindustrial levels.7 Commitments were also made at COP21 to increase financing for climate action and the development of “national climate plans” by 2020. In the same spirit, COP24 focused on discussions of how to put the 2015 Paris Agreement into practice including how governments will measure, report on, and verify their emissions. Despite being the host of COP24 which aims at reducing greenhouse emission by reducing dependence on fossil fuels, Poland is heavily reliant on coal. In 2015 Poland’s total primary energy supply was dominated by coal (50.8%), oil (24.5%), gas (14.6%), wind (1.0%), and hydro (0.2%).8 In the same year, gross power production increased to 164.8 TWh. Additionally, hard coal-fired power plants generated 79.9 TWh (48.4%) of electricity, while lignite-fired power plants generated 52.9 TWh (32.1%).9 Other sources of energy also contributed to the electricity generation, including wind at 11.0 TWh (6.7%), solar at 0.04%, biofuels and waste at 6.1%, oil and gas at 5.1%, and hydro at 1.5%.10 Poland is also among the countries in the EU with an independent energy sector, with a 28.6% energy import dependency which is far below the EU average of 53.3%). Diversification of the Polish energy mix is essential as it will improve the country’s energy security and help to face unpredictability in time of energy transition. At present, the Polish energy mix is the least diversified in the EU, as most of the installed capacity is provided by coal-fired conventional units.11 6. Paris Agreement, 2015. 7. Paris Agreement, 2015. 8. European Association for Coal, 2017. https://euracoal.eu/info/country-profiles/poland/ 9. European Association for Coal, 2017. https://euracoal.eu/info/country-profiles/poland/ 10. European Association for Coal, 2017. https://euracoal.eu/info/country-profiles/poland/ 11. Forum Energii, 2017. Energy transition in Poland. http://forum-energii.eu/en/analizy/polskatransformacja-energetyczna

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Figs. 8.1 and 8.2 give a summary of the installed capacity in the Polish energy system as well as electricity production as of 2017. As illustrated in Figs. 8.2 and 8.3, in 2017, coal was still the dominant electricity source, however, its share decreased by one percentage point compared to 2016.12 Additionally, there is potential for RES especially wind energy. The offshore wind on the Baltic Sea is considered to have a great potential as it could add up to 8 12 GW in Poland in the coming years.13 With regard to consumption, the industry and transport sectors are the main consumers of energy in Poland and energy demand is anticipated to grow steadily until 2030. As illustrated in Table 8.1, the industry sector will consume more energy followed by transport, agriculture, services, and households. The increasing demand in energy will be meant by coal with demand estimated at 56%, oil at 25%, gas at 13%, and biomass at 6%.14 Additionally, coal will be the most demanded energy source followed by gas as illustrated in Fig. 8.3. Fig. 8.4 makes it clear that coal will continue to meet the energy demands in Poland. Overreliance on coal raises environmental concerns, including air pollution from burning coal in power and district heating plants, water pollution related to coal mine dumping of saline water into the Vistula and Ober rivers and refinery effluents of insufficiently treated water, and solid waste from coal mines and power plants. Coal is expected to retain its major role in the Polish energy mix for many years, primarily due to low potential in replacing it with other energy sources.15 In the EU, Poland and Germany are the biggest consumers of coal. The coal resources in Poland are worth exploring given the country’s history of opposing EU’s carbon-reduction goals. For instance, in June 2011, Poland was the only EU member state to oppose a more ambitious 25% 2020 emission reduction target. The country also opposed the EU energy talks in Durham when it refused to back a plan that would reduce the surplus of Kyoto carbon permits. The country’s defense for coal has always been based on two main reasons including coal’s role in employment and power generation. Tables 8.2 8.4 summarize the role of coal in the Polish economy. The tables above illustrate the importance of coal in Poland in both power generation and also as a source of employment. As indicated in Table 8.4, the coal industry employs more than 80,000 people in the country. In this regard, it becomes essential when planning the energy mix for

12. Forum Energii: Energy Transition in Poland, 2017, http://forum-energii.eu/en/analizy/polskatransformacja-energetyczna 13. Forum Energii, 2017. Energy transition in Poland. http://forum-energii.eu/en/analizy/polskatransformacja-energetyczna 14. Ministry of Economy, 2011. Energy mix 2050. Analysis of scenarios for Poland, page 7. 15. European Association for Coal, 2017. https://euracoal.eu/info/country-profiles/poland/

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FIGURE 8.1 Installed capacity in the Polish energy system in 2017 (GW and percentage). From Forum Energii, 2017. Energy transition in Poland.

FIGURE 8.2 Electricity production in 2017 (TWh and percentage). From Forum Energii, 2017. Energy transition in Poland.

Poland, to take into account the costs and the possibility of raising capital for investments, ensuring jobs, as well as reducing the environmental and health impact.

8.2.1

Energy resources in Poland

8.2.1.1 Coal resources According to the World Energy Council, globally proven hard coal resources are estimated at 665 billion tons and Poland accounts for 8.3% of these (676

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TABLE 8.1 Forecast of demand for final energy by sectors (Mtoe) by 2030. 2015

2020

2025

2030

Industry

19.0

20.9

23.0

24.0

Transport

16.5

18.7

21.2

23.3

Agriculture

4.9

5.0

4.5

4.2

Services

7.7

8.8

10.7

12.8

Households

19.1

19.4

19.9

20.1

Total

67.3

72.7

79.3

84.4

Source: From Ministry of Economy, 2009.

FIGURE 8.3 Demand for primary energy by source. From Ministry of Economy, 2011.

billion tons).16 As of 2016 total proven hard coal resources in Poland amounted to 58,579 million tons and economic reserves were 2982.72.17 In 2017, out of the 81 million tons of hard coal produced in Europe, 65.5 million tons were produced from Poland.18 Additionally, the country produced 61.0 million tons of lignite in 2017.19 Poland exports about five times as much steam coal as cooking coal, and its coal exports go primarily to countries in Europe and the former Soviet Union. Approximately 97% of Poland’s hard coal production comes from the Upper Silesian Basin in

16. 17. 18. 19.

World Energy Council, 2017. Polish Geological Survey, 2018. European Association for Coal, 2017. European Association for Coal, 2017.

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TABLE 8.2 Primary energy consumption, 2015. Total primary energy consumption

Mtce

135.1

Hard coal consumption

Mtce

51.2

Lignite consumption

Mtce

17.5

Source: From European Association for Coal, 2017.

TABLE 8.3 Power supply, 2015. Total gross power generation

TWh

164.8

Net power imports (exports)

TWh

(0.3)

Total power consumption

TWh

164.5

Power generation from hard coal

TWh

79.9

Power generation from lignite

TWh

52.9

Hard coal power generation capacity

MW

19,348

Lignite power generation capacity

MW

9,290

Source: From European Association for Coal, 2017.

TABLE 8.4 Employment, 2015. Direct in hard coal mining

thousand

89.924

Direct in lignite mining

thousand

9.574

Source: From European Association for Coal, 2017.

southern Poland, one of Europe’s most important coal basins. There are two other coal-producing basins, Lower Silesia and Lublin.20 With respect to ownership, the State Treasury owns the coal deposits and it is responsible to issue out concessions, which are granted for a definite time of minimum 3 and maximum 50 years. As of January 1, 2018, there were in Poland: 6 active hard coal prospecting and exploration concessions; 23 active hard coal exploration concessions; 5 active hard coal and methane prospecting and exploration concessions; 61 active concessions for hard coal extraction and for extraction of hard coal and methane as associated product; and 28 active concessions for hard coal extraction.21 The Polish coal also 20. European Association for Coal, 2017. 21. Polish Geological Survey, 2018.

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plays a big role in the energy security of other EU countries. This is due to the fact that the country is an important exporter of coal albeit the exports are falling in recent years. For instance, in the 1960s and 1970s Poland accounted for 19% of the global coal exports, but in recent years its share fell to 1% 2%.22 In 2016 Poland exported 9.099 million tons of hard coal, or 13.7% of the total domestic output. Polish hard coal is exported to various countries, including Germany, Czech Republic, Finland, Austria, Ukraine, Slovakia, United Kingdom, Italy, Norway, Belgium and Denmark, Egypt, Morocco, and Turkey.23 Also important to note is that Poland has made efforts to improve the combustion and gasification of coal and in this regard it established a Clean Coal Technology Centre (CCTW) in Katowice. CCTW is cofinanced with EU funds and comanaged by the Central Mining Institute (GIG) and the Institute of Chemical Processing of Coal (IChPW).24 Additionally, as will be discussed in the next section, Poland has invested in RES, especially wind energy.

8.2.1.2 Oil and gas resources Besides coal, the country also has proven oil reserves of 115 million barrels and production is mainly in the western and southern regions. The country also produces refined petroleum products though the exports of such products are minor. Poland has two major refineries located at Gdansk and Plock. There are other minor refineries which are located in southern Poland and these include Silesian Refining Works in Czechowice, Trzebinia Refinery in Trzebinia, Refining Works in Jaslo, Oil Refinery Jedlicze in Jedlicze, and Oil Refinery Glimar in Gorlice. Oil firms including the German firm EuroGas and the national oil company POGS are some of the companies involved in the exploration of oil in Poland. Other key players in the downstream and upstream oil industry include Nafta Polska (Polish Oil), Petrobaltic, and Naftobazy. 8.2.1.3 Natural gas In addition to coal and oil, Poland is also endowed with natural gas resources with reserves estimated at 5.1 trillion cubic feet (TCF). Poland also has large coalbed methane reserves. However, production costs are relatively high and the full economic potential is yet to be assessed. Estimates for recoverable reserves in the Upper Silesian Basin are 3.4 TCF, while estimates for total coalbed methane reserves in Poland range as high as 35 TCF.25 In the past 22. Polish Geological Survey, 2018. 23. Polish Geological Survey, 2018. 24. European Association for Coal, 2017. 25. U.S. Department of Energy, https://www.geni.org/globalenergy/library/national_energy_grid/ poland/EnergyOverviewofPoland.shtml

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the country has relied mostly on the Russian Federation for natural gas imports. For instance, in 1998 to meet its natural gas needs of 444 billion cubic feet (BCF), Poland produced 181 BCF and imported 281 BCF mostly from Russia. In a bid to reduce energy dependence on the Russian Federation, Poland is considering to import liquefied natural gas (LNG) from Qatar, Nigeria, Norway, and Algeria. Natural gas demand is expected to increase given the country’s target to reduce reliance on coal. The most important player in Poland’s gas industry is POGC, which is responsible for exploration, development, and operation of natural gas deposits; production, processing, and dispatching gaseous fuels; and import/export activities concerning natural gas. As will be discussed in Section 8.5, Poland is also endowed with RES, including wind, solar, and hydro energy.

8.2.2

Energy transition and greenhouse gas emissions

8.2.2.1 Energy Transition Energy transition involves the long-term structural change to energy systems. It is basically determined by the availability of energy resources, the costs of obtaining energy carriers as well as their usefulness, and in recent years, by efforts to protect the climate.26 There are global efforts to shift from dirty fuels, including oil and coal, to cleaner energy resources, including renewables such as wind, solar, and hydro. Some countries have been able to reduce their reliance on coal as shown in Fig. 8.4.

FIGURE 8.4 The coal consumption in Germany, Great Britain, France, and Poland (%).27 From Polish Electricity Association, 2018.

26. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ENG_28_ 11_FINAL.pdf 27. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf

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FIGURE 8.5 Electricity production structure in 2016 (TWh and %). From Forum Energii, 2017. Energy transition in Poland.

As illustrated in Fig. 8.5, coal has for many decades been the basic energy resource for EU countries. However, in some countries such as Britain, Germany, and France, coal began to lose its importance to hydrocarbon fuels. With the global efforts to protect the environment, many EU countries are now shifting to RES. Energy transition which focuses on use of clean and sustainable energy has been hard to achieve in Poland as the country still relies on coal to meet its energy needs.28

8.2.2.2 Greenhouse gas emissions Although coal is the largest source of GHG emissions, it still has a major role to play in meeting the Polish energy demand. Nevertheless, there are efforts by the country to utilize natural gas and also shift to RES. Additionally, Poland’s long-term energy strategy places a strong emphasis on reducing GHG emissions and air pollution, increasing energy efficiency, and decarbonizing the transport system. The shift to renewables will definitely require significant investments in clean energy and also in energy infrastructure to strengthen integration with neighboring markets. Poland has for many years been an active supporter of international activities aimed at protecting the environment. Besides being a host of the recent COP24 in 2018, Poland ratified the UNFCCC Convention, the Kyoto Protocol, the Doha Amendment, and the Paris Agreement. However, due to the country’s reliance on coal, Poland has been faced with a challenge of meeting the ambitious reduction targets. The energy sector is considered to have the most substantial share in anthropogenic GHG emission due to fuel 28. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf

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TABLE 8.5 Greenhouse gas emissions in Poland broken down by sectors (Mt CO2 equiv.). Sector

1988

1990

2005

2016

EnergyIncluding energy and heat production

475249

382229

330170

327155

Transport

24

20

35

53

Industry

31

23

25

29

Agriculture

48

47

30

30

Waste

16

16

13

11

Total

570

467

398

396

Source: From Polish Electricity Association, 2018.

combustion, as a result, the main reduction activities are addressed to this sector. This has indeed posed a significant challenge for a coal-based country such as Poland. The country has, nevertheless, made efforts to meet the global and EU requirements relating to the reduction of GHG emissions and air pollution. Consequently, Poland has met EU emission standards and Kyoto targets have been achieved with a large surplus of 29% reduction as compared to a required 6%.29 Table 8.5 summarizes the GHG emissions in Poland and we note that the energy sector takes the lead. Moving forward, in the bid to protect the environment, Poland has invested in RES technologies and innovations, including smart grids, smart meters, and EVs as will be discussed in the proceeding sections.

8.3 Governance system: political decentralization and energy competences Polish laws specifically the Energy Law Act supports decentralization of the energy sector as envisaged in the unbundling of electricity and natural gas transmission and distribution systems operators (DSOs) and of operators of gas storage facilities (transmission, distribution, and gas storage facilities operators).30 The law sets out regulations implementing the European accounting, management, and legal unbundling rules as laid down for 29. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf 30. The Energy Law Act of 10 April 1997.

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transmission, distribution, and gas storage facilities operators in the 2009/72 Directive and 2009/73 Directive. The law further provides for ownership unbundling rules applicable to electricity and natural gas transmission system operators.31 Privatization of companies involved in the production and distribution of electricity in Poland can be traced back in 1999, when the Polish government started selling shares to outside investors. In the distant past, the State Treasury separated the existing transmission assets previously owned by vertically integrated undertakings and established two sole-shareholder companies controlled by the State Treasury: PSE SA, which is appointed as a transmission system operator for electricity, and OGP Gaz-System SA, which is appointed as transmission system operator for natural gas. PSE SA has its seat in Konstancin-Jeziorna and it carries out its activities under a license for electricity transmission granted with the decision of the President of the ERO and valid until December 31, 2030.32 Additionally, on June 4, 2014 the President of the ERO granted PSE SA the certificate of complying with independence criteria determined in Article 9d (1a) of the Energy Law Act.33 OGP Gaz-System SA on the other hand is also appointed as an independent transmission system operator with respect to the Polish section of the Jamal pipeline owned by the vertically integrated company EuRoPol GAZ SA—a joint venture between Polish company PGNiG and Russian company GAZPROM. The Energy Law further makes independence mandatory for DSOs operating within vertically integrated companies and serving more than 100,000 customers connected to their grids. The most significant of them are local incumbents (ENEA in northwest Poland, Energa in northern Poland, TAURON in southern Poland, and PGE in central and eastern Poland). Article 9d of the Energy Law is to the effect that DSOs should be independent in terms of legal form, organizational structure, and decision-making.34 As of 2016, 172 DSOs appointed under the decisions of the President of the ERO were involved in electricity distribution, including 5 entities legally separated from former distribution companies and 167 DSOs not obliged to be legally unbundled.35 Each company within the “big five” is legally unbundled and they are controlled and supervised by the Polish State Treasury.36 With respect to the oil and gas sector, restructuring started in 1994 with the establishment of Nafta Polska, the joint stock holding company for

31. 32. 33. 34. 35. 36.

The Energy Law Act of 10 April 1997. URE, National Report 2017. URE, National Report 2017. Article 9d of the Energy Law Act, 1997. URE, National Report 2017. URE, National Report 2017.

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Electricity Decentralization in the European Union

Poland’s oil industry, which is ultimately responsible for the privatization of Poland’s oil and gas sectors. Privatization milestones in the oil and gas exploration sector were reached in early 1996 when the US independent Frontier Oil Exploration was licensed to explore a two million acre concession in northern Poland, and Texaco and Tenneco Energy were awarded a 1.8 million acre concession in central Poland.

8.4 8.4.1

Electricity market Regulatory framework

There are various laws regulating the energy sector of Poland. These laws are briefly described in the following sections.

8.4.1.1 Energy Policy 2030 and 2050 The main act indicating the government policy for the electricity sector is the Energy Policy 2030 adopted by the Council of Ministers in 2009. The country adopted a new Energy Policy of 2050 which aims at facilitating the transformation of coal-based electricity generation system toward more sustainable and diversified energy mix. The Energy Policy 2050 focuses on the following six key objectives: improving energy efficiency; increasing security of fuel and energy supply; diversifying electricity generation through the introduction of nuclear energy; developing RES; growing competitive energy and fuel markets; and reducing the energy sector’s impact on the environment. 8.4.1.2 Energy Act of 10 April 1997 The most important Law is the Energy Act which implements EU energy regulations. As stipulated in Article 1, the Act regulates the country’s electricity sector and midstream and downstream oil and gas sectors, including production, transmission, storage, and trading.37 The Act has been amended several times and it established the basis for independent power producers, third-party access, independent electricity and gas system, and energy regulatory authority just to mention but a few. The Act sets out, among other things, the rules for supply (transmission, distribution, and sales) of electricity and its generation, rules for operation of the energy installations, networks and equipment, the obligations and powers of the President of the Energy Regulatory Authority as well as rules for licensing and for energy tariffs. 37. The Energy Law Act of 10 April 1997.

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8.4.1.3 The 2016 Act on Energy Efficiency The Energy Efficiency Act of 2016 implements Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012. Energy efficiency is one of the key elements of the EU policy. It is implemented on the basis of the Europe 2020 strategy of smart and sustainable social development and transformation into the economy based on efficient use of resources. The 2016 Act introduces a number of material changes to the energy efficiency support mechanism, such as doing away with the bidding process, simplification of the white certificate granting procedures, and gradual resignation from substitution fees and energy audits. The Act also provides for continuation of the energy efficiency certificate (white certificate) system, which was introduced in Poland in 2013.38 8.4.1.4 The 2011 Geological and Mining Law This law provides for the legal framework governing exploration for and exploitation of fossil fuels, including coal, lignite, hydrocarbons, and uranium just to mention but a few. The law further provides for the use of underground reservoirs for storage of hydrocarbons, liquid fuels, and the carbon dioxide processed in carbon capture and storage projects. 8.4.1.5 The Polish Act on Renewable Energy Sources 2016 (as amended in 2018) The Renewable Energy Act was adopted in February 2015 and it provides for the regulation of RES. The Act was amended two times and it came into force in July 2016. The law replaces the green certificate system with auction scheme. 8.4.1.6 The Tax Acts With regard to the taxation of the energy sector, the relevant laws include the 2014 Act on Special Hydrocarbon Tax and the 2012 Act on Tax on Extraction of Certain Minerals. 8.4.1.7 Other relevant laws There are several other laws relevant in the energy sector. These include the 2007 Act on Reserves of Crude Oil, Petroleum Products, Natural Gas and on Procedures in Cases of Emergency in Security of Fuel Supply and Disturbance on the Oil Market (the Act on Reserves); the 2006 Act on the System of Monitoring and Control over the Quality of Fuels; the 2006 Act on Liquid Bio-components and Biofuels; the 2000 Nuclear Law; the 2011 Act on Preparation and Implementation of Investments in Nuclear Power Facilities and Associated Investments; the 2009 Act on Investments with 38. The Energy Efficiency Act of 2016.

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´ Respect to the Regasification Terminal in Swinouj´ scie; the 2007 Act on Emergency Management; and the 2010 Act on special powers of the minister competent to the State Treasury affairs and their enforcement with respect to certain companies and capital groups conducting their businesses within the electricity, crude oil and natural gas sectors. There are also rules and regulations governing trading in energy. Trading in electricity and natural gas at the Polish Power Exchange is regulated by the 2000 Act on Commodity Exchange and by internal by-laws developed by the operator of the commodity exchange and subject to the prior approval of the Polish Financial Supervisory Commission. The remaining over-the-counter electricity and gas sale agreements are regulated by the 1997 Energy Law and secondary legislation issued thereupon and by the grid codes that are binding on market participants upon their approval by the President of the Energy Regulatory Office (ERO). The Capacity Market Act is also relevant in the electricity sector. This Act is intended to address the generation adequacy concern and determines the rules for providing the service of availability to deliver capacity at times of system stress and rules for rewarding capacity market units (including generation, demand-side response, and storage units) for their availability.

8.4.2

Energy security dimension

Poland has vast energy infrastructure that ensures that the country is connected with other neighboring countries in the EU thus ensuring energy trade amongst these countries. The electricity market in Poland is dominated by state-owned companies in each of the market sectors of generation, transmission, distribution, and sale. The four main capital groups active in the sector of generation, distribution, and supply of electricity include PGE, Tauron, Enea, and Energa. Generation PGE Capital Group maintained the largest market share in the electricity generation sector in 2017, which amounted to 43.5%. On the other hand, Tauron was the leader on the final sales market with a 10.8% share. The three largest producers (grouped in capital groups: PGE, Tauron, and Enea) had in total almost two-thirds of the installed capacity and were responsible for almost 70% of electricity production in the country. The energy transmission infrastructure in the country is reflected in the available electricity grids; oil and gas pipelines and natural gas pipelines. With regard to electricity grids, Poland is part of CENTREL, a power distribution system which is fully integrated into the Western European UCPTE system. CENTREL comprises five countries, including Romania, Poland, Slovakia, Hungary, and the Czech Republic. Besides the aforementioned countries, Poland also maintains very strong links with distribution systems in the Ukraine and Belarus, this can be attributed to the fact that prior to CENTREL, Poland was part of the POKAJ which is a former power distribution system of the Ukraine and Eastern European countries. The company

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TABLE 8.6 Electricity grids in Poland. Interconnection

Capacity

Germany Kraynik-Vierraden

2 408 MVA

Mikulowa-Hagenwerder

2 1386 MVA

Czech Republic Dobrzen-Albrechtice

1386 MVA

Wielkopole-Nosovice

1386 MVA

Kopanina/Bujakow-Liskovec

2 400 MVA

Slovakia Krosno-Lemesany

2 831 MVA

Ukraine Zamosc-Dobrotwor

415 MVA

Rzeszow-Chmielnicka

out of order

Belurous Bialysto-Ros

Out of order

Sweden SwePol DC Link

600 MW

Lithuania LitPol DC Link

500 MW

responsible for grid operations and power dispatching is the Polish Power Grid Company—Polskie Sieci Elektroenergetyczne (PSE), and this owns Poland’s high-voltage electricity grid.39 As shown in Table 8.6, Poland has 10,377 MW of interconnections available with Germany, Czech Republic, Slovakia, Ukraine, Belarus, Lithuania, and Sweden. The connections with Sweden and Lithuania are made through DC Links.40 There are however issues related to the transmission lines as 70% of transmission line is over 30 years old, and 47% over 40 years old. 39. Wierzbowski, M., Filipiak, I., Lyzwa, W., 2017. Polish energy policy 2050 an instrument to develop a diversified and sustainable electricity generation mix in coal-based energy system. Renewable Sustainable Energy Rev. 74, 51 70. 40. Wierzbowski, M., Filipiak, I., Lyzwa, W., 2017. Polish energy policy 2050 an instrument to develop a diversified and sustainable electricity generation mix in coal-based energy system. Renewable Sustainable Energy Rev. 74, 51 70.

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Additionally, it has been asserted that the grid’s density is not equal on the Polish territory and that it allows for only one-way electricity flows and limits the potential of distributed generation.41 Another challenge is the theft of electricity infrastructure which causes losses to the operators. For instance, the total loss of electricity transmission in 2011 reached 10,774 GWh (7.3% of total electricity produced) which represents the loss of almost h0.5 billion.42 Another challenge relates to the decommissioning of power plants. It has been observed that 59% of turbo generators and over 63% boilers are over 30 years old. Generally, the predicated lifetime of coal power plants is 40 45 years old. The Polish government will need to build new units if it is to meet the energy demand in the country which is predicted to reach 30 GW in 2035. Despite the urgency of new units, there has been reluctance to invest in these as was evidenced in the period between 2010 and 2014 where investors who had declared to build 10 units withdrew their offers due to the high uncertainty of future income.43 Besides electricity grids, Poland also relies on natural gas infrastructure to meet its energy needs. In this regard, the country relies on imports of Russian natural gas via the Yamal-Europe Transit Gas Pipeline, which is currently under construction across Poland and Western Europe. However, there have been efforts to reduce on the country’s energy dependence on Russia and in this regard Warsaw, Poland (AP), Poland’s main gas company signed a long-term contract to receive deliveries of LNG from the United States. The state company PGNiG signed the 24-year deal with American supplier Cheniere during a ceremony in Warsaw attended by the US Energy Secretary Rick Perry and Polish President Andrzej Duda. POGC is responsible for construction and operation of gas transmission and distribution system.

8.5

Renewable energy sources’ generation

Poland relies heavily on fossil fuels, especially coal, and the country’s energy sector is among the most independent in Europe as it is not heavily dependent on energy imports. Poland’s energy system is the sixth largest in Europe albeit it is also among the least diversified in the region. RES have a big role to play in the transformation of the Polish energy sector. Additionally, if more investments are 41. Wierzbowski, M., Filipiak, I., Lyzwa, W., 2017. Polish energy policy 2050 an instrument to develop a diversified and sustainable electricity generation mix in coal-based energy system. Renewable Sustainable Energy Rev. 74, 51 70. 42. Wierzbowski, M., Filipiak, I., Lyzwa, W., 2017. Polish energy policy 2050 an instrument to develop a diversified and sustainable electricity generation mix in coal-based energy system. Renewable Sustainable Energy Rev. 74, 51 70. 43. Wierzbowski, M., Filipiak, I., Lyzwa, W., 2017. Polish energy policy 2050 an instrument to develop a diversified and sustainable electricity generation mix in coal-based energy system. Renewable Sustainable Energy Rev. 74, 51 70.

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made, RES can also contribute significantly to the country’s electricity production thus reducing the overreliance on coal. In Fig. 8.5, we note that although Poland’s energy system is one of the largest in Europe in terms of electricity production, the country relies mostly on coal. In this regard, RES have a significant role to play in the diversification of the Polish energy mix. As of 2014 RES including solid biomass contributed to (76.62%); biofuels (9.23%); water (2.33%); wind (8.18%); biogas (2.57%); photovoltaic (0.21%); and smaller shares of other sources (municipal waste, geothermal, and solar heat), with an increasing installed capacity of wind farms.44 With respect to electricity production, records indicate that in 2014, 14.8% of capacity was installed in RES (6028 MW) and that RES were responsible for 8% of total electricity production (13,388.26 GWh).45 As shown in Fig. 8.6, wind energy is the main source of power production as this stands at 64%, followed by biomass at 16.72% and hydro at 16.21%.

FIGURE 8.6 Structure capacity installed in RES (left) and electricity generated by RES (right).46 RES, Renewable energy sources. From Renewable and Sustainable Energy Reviews.

Hydroelectric power represents 14.30% of electricity generated from RES. Most of the hydroelectric power plants in Poland are located in the southern and western part of the country and are owned and operated by the Pumped Storage Power Plants (PSPP) Company. PSPP’s hydroelectric power plants represent about 41/2% of the total installed electricity production capacity in Poland.47 Additionally, PSPP has about 23 hydroelectric and PSPP 44. Polish Main Statistical Office, https://thelawreviews.co.uk/edition/the-energy-regulation-andmarkets-review-edition-5/1136392/poland 45. Wierzbowski, M., Filipiak, I., Lyzwa, W., 2017. Polish energy policy 2050 an instrument to develop a diversified and sustainable electricity generation mix in coal-based energy system. Renewable Sustainable Energy Rev. 74, 51 70. 46. Wierzbowski, M., Filipiak, I., Lyzwa, W., 2017. Polish energy policy 2050 an instrument to develop a diversified and sustainable electricity generation mix in coal-based energy system. Renewable Sustainable Energy Rev. 74, 51 70. 47. The Energy Regulation and Markets Review-Edition 5, Poland, https://thelawreviews.co.uk/ edition/the-energy-regulation-and-markets-review-edition-5/1136392/poland

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with a cumulative installed capacity of nearly 1500 megawatts (MWe). PSPP also has 85% of the pumped storage hydroelectric capacity in Poland and 74% of the total hydroelectric generating capacity.48 Table 8.7 gives a summary of the hydroelectric and PSPP owned by PSPP in Poland. Hydropower indeed also has a big role to play in the diversification of the Polish energy mix. With respect to wind energy, there are several wind farms and as of September 2012, there were 663 wind plants in Poland of a total capacity of 2341 MW.49 Most wind farms are located in north-western Poland. The leader is the Zachodniopomorskie Province (716.8 MW), followed by the Pomorskie Province (246.9 MW) and the Wielkopolskie Province (245.3 MW). Production of electricity from RES increased significantly in 2017 as compared to 2016.50 Fig. 8.7 shows the contribution of various sources of renewable energy in the Polish electricity production. As shown in Fig. 8.8, there was an increased production from RES in 2017 and this is attributed to good weather conditions and new power capacities. This production came mainly from wind (approx. 14.9 TWh) and water (approx. 2.6 TWh). Electricity production from gas was also record high—20% more than in the previous year due to new units.51 The declining potential of the socioeconomically viable extraction of coal makes RES more attractive in Poland. As shown in Fig. 8.8, currently, RES electricity generation is based mainly on wind. The role of RES in the Polish energy mix is expected to increase significantly in future. Poland has abundant RES sources, including wind and solar and estimates indicate that Poland has technical wind power potential of more than 3000 TWh. Actual potential is, however, constrained by both economic and noneconomic barriers, such as costly and challenging major upgrade of networks, or securing acceptance for a large-scale rollout of wind farms.52 It is also imperative to note the changing role of RES in electricity production. Initially, biomass played a significant role but in 2017 wind energy was the lead RES as elaborated in Fig. 8.8. In Fig. 8.9 we note that from 2005 to 2012 there was a steady increase in production of electricity from biomass cofiring at existing coal-fired boilers. However, from 2012 to 2017, RES production was evident from onshore

48. U.S. Department of Energy, https://www.geni.org/globalenergy/library/national_energy_grid/ poland/EnergyOverviewofPoland.shtml 49. Energy Regulatory Authority 50. Forum Energii, 2017. Energy transition in Poland. http://forum-energii.eu/en/analizy/polskatransformacja-energetyczna 51. Forum Energii, 2017. Energy transition in Poland. http://forum-energii.eu/en/analizy/polskatransformacja-energetyczna ´ 52. Ecke, J., Steinert, J., Bukowski, M., Sniegocki, A., 2017. Polish Energy Sector 2050. 4 scenario. Forum Energii.

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TABLE 8.7 Pumped Storage Power Plants’ hydroelectric and pumped storage power plants. Power Station

Location

Type

Capacity (MWe)

River

Buko´wka

Bucze

Run of River

0.8

Nysa Luzycka

Dycho´w

Dycho´w

Pumped Storage

79.3

Bo´bra

Gorzupia I

Gorzupia

Run of River

0.6

Bo´br

Gorzupia II

Gorzupia

Run of River

1.7

Bo´br

Grajo´wka

Gryzyce

Run of River

2.9

Bo´br

Gubin

Gubin

Run of River

1.2

Nysa Luzycka

Kliczko´w

Kliczko´w

Run of River

0.6

Kwisa

Malomice

Malomice

Run of River

0.8

Bo´br

Myczkowce

Zwierzyn

Peak Load

2.9

San

Porabka

Porabka

Peak Load

12.6

Sola

Porabka-Zar

Miedzybrodzie Zywieckie

Pumped Storage

500

Solab

Przysieka

Dabrowa Luzycka

Run of River

0.9

Nysa Luzycka

Raduszec Stary

Raduszec

Run of River

2.9

Bo´br

Sobolice

Sobolice

Run of River

6.6

Nysa Luzycka

Solina

Zabrodzie

Pumped Storage

136

San

Szprotawa

Szprotawa

Run of River

2.9

Bo´br

Tresna

Porabka

Peak Load

12.6

Sola

Zasieki

Brozek

Run of River

0.8

Nysa Luzycka (Continued )

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Electricity Decentralization in the European Union

TABLE 8.7 (Continued) Power Station

Location

Type

Capacity (MWe)

River

Zielisko

Siedlec

Run of River

0.9

Nysa Luzycka

Zagan I

Zagan

Run of River

0.9

Bo´br

Zagan II

Zagan

Run of River

0.9

Bo´br

Zarki Wielkie

Zarki

Run of River

0.9

Nysa Luzycka

Zarnowiec

Zarnowiec

Pumped Storage

716

Nonec

a

Located on a canal adjoining the river. Upper reservoir is Miedzybrodzkie Lake. Lower reservoir is Lake Zarnowiec. Source: From U.S. Department of Energy. https://www.geni.org/globalenergy/library/ national_energy_grid/poland/EnergyOverviewofPoland.shtml. b c

wind and biomass and this is attributed to the initiated investment projects in these sectors.53 Moving forward, RES are anticipated to play a significant role in the Polish energy mix in the coming decades as projected in the Forum Energii’s 2050 energy scenarios. Forum Energii reflects on four scenarios including coal scenario, diversified scenario with nuclear power, diversified scenario without nuclear power, and renewable scenario.54 These scenarios are briefly described below: G

G

G

Coal scenario is based mainly on coal-fired units and assumes construction of new hard coal and brown coal mines. This scenario assumes that in 2050, the RES’ share will amount to 17%. Diversified scenario with nuclear power introduces a diversified mix of energy technologies, along with a nuclear power plant, instead of a brown coal-fired power plant. This scenario assumes that in 2050, the RES’ share will amount to 38%. Diversified scenario without nuclear power assumes that energy generation in a nuclear power plant is replaced by increased generation from natural gas and RES, the share of which in 2050 is anticipated to amount to 50%.

53. Forum Energii, 2017. Energy transition in Poland. http://forum-energii.eu/en/analizy/polskatransformacja-energetyczna 54. Forum Energii, 2017. Energy transition in Poland. http://forum-energii.eu/en/analizy/polskatransformacja-energetyczna

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FIGURE 8.7 Electricity production in 2017 as compared to 2016 (GWh). From Forum Energii, 2017. Energy transition in Poland. http://forum-energii.eu/en/analizy/polska-transformacja-energetyczna.

FIGURE 8.8 Changes in electricity production from RES (TWh). RES, Renewable energy sources. From Forum Energii, 2017. Energy transition in Poland.

G

Renewable scenario assumes gradual withdrawal of carbon-based energy. This scenario anticipates that RES-based energy generation share will increase up to 73%.55

´ 55. Ecke, J., Steinert, J., Bukowski, M., and Sniegocki, A., 2017. Polish Energy Sector 2050. 4 scenario. Forum Energii.

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Electricity Decentralization in the European Union

Reflecting on the above, we note that the renewable scenario is the most favorable as it ensures diversification of the energy mix. Additionally, it is anticipated that the renewable energy scenario will ensure lower electricity prices in comparison with the coal scenario—within the range from EUR 2/MWh to EUR 9/MWh.56 Moreover, the renewable scenario also provides the highest level of energy independence (only 30% of imported fuels), due to the use of primary energy local resources. Comparatively, the coal scenario is characterized by imported fuels as it is estimated that in 2050, between 45% and 70% of the coal necessary for electricity generation might be imported.57 In an endeavor to increase the contribution of RES in the energy mix, the Polish government has given several incentives to RES operators as stipulated in the 2015 RES Act including among others: exemption from excise tax; reduction of interconnection fees payable by certain RES energy producers; preferential financing; exemption of “prosumers” from licensing obligations; and support for investments in smart grid and smart metering, just to mention but a few.58 Besides encouraging investments in RES, the Polish government also offers incentives to promote energy efficiency, including issuance of tradable white certificates which are given to energy efficiency investors, as provided for in the 2011 Act on Energy Efficiency. Additionally, there are preferential financing schemes offered by governmental funds and banks (e.g., the National Fund for Environmental Protection and Water Management) addressed to energy efficiency investments.59

8.6

Smart grid and smart metering systems

The overall essence of a smart grid is to enable utilities to better use RESs and reduce outages while empowering consumers with pricing choices, detailed information, and automated appliances to save money, energy, and carbon emissions. According to the International Energy Agency, investment in smart grid technologies grew by 12% between 2014 and 2016 overall, although key areas such as smart distribution networks are lagging behind, with investment growing by only 3% in 2017.60

´ 56. Ecke, J., Steinert, J., Bukowski, M., and Sniegocki, A., 2017. Polish Energy Sector 2050. 4 scenario. Forum Energii. ´ 57. Ecke, J., Steinert, J., Bukowski, M., and Sniegocki, A., 2017. Polish Energy Sector 2050. 4 scenario. Forum Energii. 58. 2015 Renewable Energy Sources Act. 59. https://thelawreviews.co.uk/edition/the-energy-regulation-and-markets-review-edition-5/1136392/ poland 60. International Energy Agency, Smart grids, https://www.iea.org/geco/. Last updated 23.05.18.

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With respect to grid stability, Poland often scores below average, with a System Average Interruption Duration Index and System Average Interruption Frequency Index, both significantly higher than the EU average.61 There have been efforts by DSOs to modernize the grids in Poland.62 For instance, in May 2015, Landis 1 Gyr, an energy company, won a major contract with four of the largest Polish DSOs to supply a total of 36,000 S650 Smart Grid Terminals for the medium- and low-voltage network. In total, the Polish DSOs will need to upgrade 250,000 transformer stations with smart grid equipment.63 There are several other DSOs involved in the smart grid projects in Poland as shown in Table 8.8.64 As illustrated in Table 8.8, there are various DSOs involved in the smart grid project. In 2014 four DSOs—including Tauron Dystrybucja, RWE Stoen Operator, Enea Operator, and PGE Dystrybucja—teamed up to launch a single public tender for balancing meters to upgrade their medium- and low-voltage transformer stations.65 There are also several innovations by energy companies in smart grids including, Energa, PGE, and Tauron just to mention but a few. These developments and innovations in smart grids are summarized below: G

G

Energa: It is the largest operator of advanced metering infrastructure on the Polish market. The company is developing smart grids as the first in Poland, piloting the Smart Torun project—one of the most modern elements of the electricity system in Poland. A similar project was implemented by the company on Hel Peninsula.66 PGE: The company is involved in the development of energy quality monitoring, smart metering, and introduction of automation and creation of a dedicated digital communication system.67

61. Landis 1 Gyr, 2016. Smart grid development in Poland. https://eu.landisgyr.com/blog/smartgrid-development-in-poland 62. Landis 1 Gyr, 2016. Smart grid development in Poland. https://eu.landisgyr.com/blog/smartgrid-development-in-poland 63. Landis 1 Gyr, 2016. Smart grid development in Poland. https://eu.landisgyr.com/blog/smartgrid-development-in-poland 64. Landis 1 Gyr, 2016. Smart grid development in Poland. https://eu.landisgyr.com/blog/smartgrid-development-in-poland 65. Landis 1 Gyr, 2016. Smart grid development in Poland. https://eu.landisgyr.com/blog/smartgrid-development-in-poland 66. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf 67. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf

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TABLE 8.8 The Polish DSOs involved in the smart grid project. DSOs

Description

Energa

Manages over 184 km of power lines distributing 20 TWh of energy per year to over 3 million consumers.

Tauron Dystrybucja

Part of the TAURON Group, the second-largest energy company in Poland, delivering 45,000 GWh of electricity to customers across an area of 57,940 km2 or 18.5% of the country.

RWE Stoen Operator

Serves 964,000 customers in and around Warsaw, managing the energy grid and operating the distribution network.

Enea Operator

A subsidiary of Enea SA, and one of the four largest electricity providers in Poland, Enea Operator provides electricity to customers in six provinces over an area of 58,213 km2.

PGE Dystrbucja

Supplies 423,000 customers in the southeast of Poland with electricity, covering 15,283 km2.

Source: From Landis 1 Gyr, 2016. Smart grid development in Poland.

G

Tauron: This company is involved in the development of a data management platform that is derived from smart metering infrastructure.68

Besides smart grid terminals, replacing traditional meters with smart meters is a necessary step toward enabling a future smart energy system. Smart meters are preferred due to their ability to record energy consumption in each half-hour period and communicate with energy suppliers and network companies. Additionally, smart meters have the capability of reducing energy supplier’s costs and encouraging consumers to pay more attention to the energy they use, thus reducing energy consumption and increasing competition in the market. As of 2016 it is estimated that 500,000 smart meters were installed by all DSOs in Poland, which is approximately 3% of all end users.69 At a regional level, the EC Directives 2009/72/CE and 2009/73/CE are to the effect that at least 80% of consumers shall be equipped with intelligent metering by 2020, provided the member state’s cost benefit analysis is determined to be positive. Following these EU directives, Poland through its Energy Law as amended in 2013, introduced provisions on smart metering making their installation eligible though not mandatory. In this respect, DSOs started pilot projects on smart metering. With these developments, the 68. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf 69. USmartConsumer, 2016. European Smart Metering Landscape Report. http://www.escansa. es/usmartconsumer/documentos/USmartConsumer_European_Landscape_Report_2016_web.pdf

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President of the ERO, the energy regulator initiated the process of smart meter installation in 2009 thereby establishing the first platform of main stakeholders, including customer associations. In the same year, Energa operator SA deployed smart meters and the project’s first stage covered approximately 100,000 measuring devices in three selected locations, which differ in the nature of the EV charging. One of the areas selected for the deployment is a zone in its prevailing part of urban character, in the northern part of Poland, supplied from a single point of supply (110/115 kV substation Władysławowo).70 With regard to regulations, it is expected that the Meter Act will be passed and this will among others regulate the procedures of gathering and processing data from smart metering in a way securing privacy and data safety. Additionally, to facilitate the duties, a new body will be established, namely, the Operator of Measuring Information, as a daughter company of the TSO. Given the fact that the amendments to the energy act did not make it mandatory to install smart meters, the Meter Act is expected to rectify this by making installation of smart meters in at least 80% of end users a legally binding target for all DSOs.71

8.7

Electric vehicles and storage

The transport sector is one of the biggest GHG-emitting sectors globally and this has necessitated efforts aimed at ensuring a transition to e-mobility. Just like in other EU countries, electromobility has been embraced in Poland as evidenced in the country’s efforts to invest and attract investments in EVs, electric public transport, charging infrastructure, and energy storage. With respect to EVs, the current figures in Poland although promising, they are not impressive as compared to other EU countries. Nevertheless, given the recent developments in Polish electromobility including the introduction of relevant legislations in 2018, it is expected that the country’s main goals in electromobility will be achieved in the near future. According to the Polish Alternative Fuels Association, as of 2017, there were: G G G

17 million units of passenger cars registered in Poland, 3000 electric cars driving on Polish roads, and about 0.5 million cars registered annually.72

Additionally, at the end of 2017, Poland had sold about 1068 EVs up from 556 in 2016. However, in comparison with the United Kingdom, the 70. “The Smart Peninsula” pilot project of Smart Grid deployment at ENERGA-OPERATOR SA 71. USmartConsumer, 2016. European Smart Metering Landscape Report. http://www.escansa. es/usmartconsumer/documentos/USmartConsumer_European_Landscape_Report_2016_web.pdf 72. Mazur, M., Poland drives e-mobility, Polish Alternative Fuels Association (PSPA). https:// aec-conference.eu/wp-content/uploads/2018/10/11h00-03-PSPA-Maciej-Mazur.pdf

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country had only 324 public charging stations available in 2016, compared with around 7000 in the United Kingdom. In addition to being home to bus manufacturing plant and a big EV battery plant, Poland has an ambitious target of having 1 million EVs on the road by 2025. Moreover, the country also aims to build 6000 regular charging points and 400 large power charging points in 32 urban areas by 2020.73 The achievement of these ambitious EV plans in Poland requires cooperation of all the stakeholders involved, including investors, the central government, and local governments. For instance, under the 2018 Electromobility Act, the local governments are responsible for the construction of the charging infrastructure within their territory and are competent to designate clean transport zones where only zero- and low-carbon vehicles can enter the area.74 Establishment of these infrastructure will require significant capital expenditures and maintenance outlays. This necessitates the creation of business models for financing investment and the operation of chargers, which will also be included in the current network development and modernization plans of the DSO grids.75 There are also several innovations in the Polish electromobility by several energy companies as briefly discussed below: G

G

G

G

PGE: The company has invested in electric car charging infrastructure (charging stations and settlement system). Tauron: The company has developed charging station and is participating in electric car sharing activities. Additionally, Tauron is involved in a project relating to active management and balancing of the network through the use of electric cars and charging stations. Energa: The company invests in charging infrastructure and car sharing programs. ENEA: As a member and cofounder of ElectroMobility Poland (EMP) Project, ENEA is involved in the development of Polish electric car.76

8.7.1

Legislation

With respect to the regulatory framework, the President of the Republic of Poland signed into force an Act on Electromobility and Alternative Fuels (“Act”), on the February 5, 2018. The Act sets out the legal framework for Poland’s EV ambition.77 It transposes a key European directive (Directive 73. PWC, 2017. https://www.pwc.pl/pl/pdf/siegac-po-wiecej-raport-pwc-2017-en.pdf 74. Mazur, M., Poland drives e-mobility, Polish Alternative Fuels Association (PSPA). https:// aec-conference.eu/wp-content/uploads/2018/10/11h00-03-PSPA-Maciej-Mazur.pdf 75. PWC, 2017. https://www.pwc.pl/pl/pdf/siegac-po-wiecej-raport-pwc-2017-en.pdf 76. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf 77. Act on Electromobility and Alternative Fuels, 2018.

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2014/94/EU of the European Parliament and of the Council of 22 October 2014) on the deployment of alternative fuels’ infrastructure. The Act defines basic terms such as charging point, charging station, electric vehicle, and alternative fuels. There are several tax measures provided in the Act, including excise exemptions for EVs and hydrogen-powered vehicles and excise exemption for hybrid vehicles (up to January 1, 2021). Additionally, the Act also provides other incentives such as exemption from parking fees and larger depreciation write-offs for companies. With respect to EV infrastructure, the Act provides for building a base infrastructure network for alternative fuels in agglomerations, densely populated areas, and along trans-European road transport corridors, which will allow free movement of vehicles powered by these fuels. Besides the 2018 Act on Electromobility and Alternative Fuels, other relevant legislations include Electromobility Development Plan for Poland; national policy framework for the development of alternative fuels infrastructure; Act of 6th June 2018 on amending the Act on biocomponents and liquid biofuels. These legislations are briefly discussed below: G

G

G

The Electromobility Development Plan for Poland was adopted by the Council of Ministers on March 16, 2017. It defines the benefits of widespread use of EVs in Poland and identifies relevant economic and industrial opportunities. The national policy framework for the development of alternative fuels infrastructure was adopted by the Council of Ministers on March 29, 2017. The policy implements European regulations regarding, among other things, conditions for building alternative fuels infrastructure in 32 Polish agglomerations. The Act of 6th June 2018 on amending the Act on biocomponents and liquid biofuels was signed by the President on July 10, 2018. The Act establishes a Low-emission Transport Fund which is meant to support the development of alternative fuels’ infrastructure. The Fund is expected to be endowed with close to PLN 5 billion (EUR 1.6 billion) in funds by 2027.78 There are various projects that will be supported by the Fund, including projects relating to construction or extension of infrastructure for charging vehicles used in transport; producers of means of transport using electricity; entrepreneurs operating in the field of subassembly production for means of transport; support for public mass transport using hydrogen or electricity; and support for the purchase of new vehicles and vessels powered by hydrogen or electricity.79

78. Mazur, M., Poland drives e-mobility, Polish Alternative Fuels Association (PSPA). https:// aec-conference.eu/wp-content/uploads/2018/10/11h00-03-PSPA-Maciej-Mazur.pdf 79. Mazur, M., Poland drives e-mobility, Polish Alternative Fuels Association (PSPA). https:// aec-conference.eu/wp-content/uploads/2018/10/11h00-03-PSPA-Maciej-Mazur.pdf

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8.7.2

Electricity Decentralization in the European Union

E-Buses

Poland also has ambitious plans to increase on the electric buses (E-Buses) market and it is estimated that by 2025 Poland will boast the electric bus market of at least 580 million EUR (2.5 billion PLN) in value annually.80 The country plans to increase the number of E-Buses manufactured in Poland and this is not only expected to increase job creation but also boot the country’s efforts of reducing air pollution.81 According to Fig. 8.9, the growth of E-Buses is estimated to increase significantly from 2020 onward. However, this projection can only become a reality if the country manages to attract the necessary investments in the sector.

FIGURE 8.9 Projection of growth of E-Buses in Poland. From Polish Alternative Fuels Association (PSPA), 2018.

In conclusion, it is imperative to note that Poland has in recent years been setting up initiatives aimed at increasing the number of EVs. For instance, in 2016, the Polish government set up the EMP, an organization with the main aim of developing Poland’s EV market. EMP has four shareholders including Polska Grupa Energetyczna (PGE), Tauron, Energa, and Enea, and these have invested a total of 70 million zloty into the project.82 Despite the various initiatives including new laws on electromobility, the number of EVs in Poland is still very low. This can be attributed to the fact that the country’s legal and regulatory framework did not support or provide incentives for EVs in the past. Even with the recent enacted legislations on

80. Mazur, M., Poland drives e-mobility, Polish Alternative Fuels Association (PSPA). https:// aec-conference.eu/wp-content/uploads/2018/10/11h00-03-PSPA-Maciej-Mazur.pdf 81. Mazur, M., Poland drives e-mobility, Polish Alternative Fuels Association (PSPA). https:// aec-conference.eu/wp-content/uploads/2018/10/11h00-03-PSPA-Maciej-Mazur.pdf 82. EmergingEurope, https://emerging-europe.com/business/as-poland-gears-up-for-cop24-presidency-electric-car-development-stalls/

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EVs, the country still lacks regulations in introducing direct subsidies or exemptions from VAT, which are the most effective instruments leading to the popularization of EV.83 Additionally, there are various challenges relating to insufficient infrastructure for charging EVs, high EV prices, and insufficient incentives to purchase a vehicle just to mention but a few.84

8.7.3

Energy storage

Reliance on RES including wind and solar necessities the introduction of energy storage and/or combining RES units with installations that generate electricity independently from external conditions. Energy companies in Poland have been actively involved in not only RES technology developments but also energy storage development, including hydrogen technologies aimed at storing energy generated in wind and PV installations.85 The following companies have been involved in innovative projects in energy storage: G

G

G

G

PGE: Energy storage with 500 kW capacity and 750 kWh usable capacity integrated with the company’s solar farm. Tauron: Energy storage in the Silesia province with a capacity of 2 MW and a usable capacity of 500 kWh. Energa: The company is involved in the Polish-Japanese research project on the use of network load management and automation together with hybrid energy storage to control flows after rapid changes in generation of RES sources. ENEA: The development of possible system services within energy storages is being analyzed.86

8.8

Data protection

The Constitution of the Republic of Poland (Konstytucja Rzeczypospolitej Polskiej) is the starting point for data protection. Article 47 guarantees the right to privacy, whereas Article 51 specifically provides for the right to data protection. Besides the Constitution, data protection in Poland was initially legislated by the Personal Data Protection Act of 29 August, 1997. On May 25, 2018 the Personal Data Protection Act (“New Data Protection Act”) entered into 83. Mazur, M., Poland drives e-mobility, Polish Alternative Fuels Association (PSPA). https:// aec-conference.eu/wp-content/uploads/2018/10/11h00-03-PSPA-Maciej-Mazur.pdf 84. Mazur, M., Poland drives e-mobility, Polish Alternative Fuels Association (PSPA). https:// aec-conference.eu/wp-content/uploads/2018/10/11h00-03-PSPA-Maciej-Mazur.pdf 85. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. 86. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf

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force to help implement the EU General Data Protection Regulation (EU) (2016/679)(“GDPR”). Employment of smart meters necessitates the need to protect customer’s data. In this respect, it is essential to identify the controller. The Polish Data Protection Act defines a “personal data controller,” to mean a private or public entity that determines the purposes and means of the processing of personal data. With respect to energy companies or any other company, the controller of personal data shall be the company itself, not its bodies. It is true that different companies are involved in different activities and as such may require different data. In this regard, the Act makes it clear that the kind of data to be collected and purposes of processing such data has to be determined by the controller. Moreover, the Polish Act, just like the GDPR, applies to both electronic records and structured hard copy records. This therefore implies that electronic records contained in smart meters are also protected. It is essential for customers to know and understand what is happening with their data. In this respect, the Act on Polish Language requires any communication with the consumers to be in Polish. In this regard, considering the duty of the controller to provide data subjects with a privacy notice setting out how the individual’s personal data will be processed, this implies that such privacy notices directed at consumers must be in Polish. Data protection and privacy are also major priorities at the EU level as envisaged in the establishment of a working party, an independent European advisory body on data protection and privacy which was set up under Article 29 of Directive 95/46/EC. Enforcement of the provisions of the Polish Act is essential, in this respect the 2018 Act made several changes including appointing a new supervisory authority, namely, President of the Office of Personal Data Protection, which replaced the Inspector General for Personal Data Protection. Additionally, just like the GDPR, which introduces fines for breach of the data protection laws including processing personal data without satisfying the necessary conditions, the new Polish Act also provides for such fines. Additionally, criminal fines are also provided for under the 2018 Polish Data Protection Act. In this respect, the Act provides that persons who process personal data unlawfully or without authorization face a criminal fine, restriction of personal liberty, or imprisonment of up to 2 years (3 years if such processing concerns special categories of data). There are other laws aimed at protecting data in Poland, including Banking Law Act (Ustawa Prawo bankowe), Act on Electronically Supplied Services (Ustawa o s´wiadczeniu usług droga˛ elektroniczna˛), or Telecommunications Law (Ustawa Prawo telekomunikacyjne).

8.9

Demand response and energy efficiency

Demand-side resources (DSRs), including energy efficiency and demand response, play a central role in the energy market designs, including

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maintaining security of supply during peak demand through active behaviors of end users.87 Like in other EU countries, demand response in Poland is important for the cost-effective integration of intermittent renewable generation. The development of DSR in Poland is assumed to grow rapidly as confirmed by the latest certification of DSR units on Polish capacity market with offered capacity at the level of 0.84 GW in existing units and more than 1 GW in planned units.88 Additionally, demand response together with energy efficiency is often better option for balancing supply and demand. As of 2018 Poland had a total potential of contracted demand reduction amounting to 500 MW of reduction during both summer and winter season, where the maximum payment per 1 MW of hourly reduction has been set at the level of 3200 EUR, which is several dozen more than actual market costs of 1 MWh.89 The Polish Capacity Market Act, which was adopted by the parliament on December 8, 2017, recognizes demand response as one of the aspects of the internal market. The Act entered into force on January 18, 2018. Basically, the Act aims at preventing generation capacity deficits by remodeling the regulatory environment of the electricity market so as to create strong economic incentives encouraging the construction, maintenance, and modernization of generating units and energy demand management on the end users’ side. The Act among others allows the participation in the Polish capacity market by DSR units located in neighboring Member States, including aggregated foreign DSR (power demand reduction abroad should be viewed as equivalent to electricity export to Poland). In 2018 Polish TSO conducted several tenders during the implementation of a Guaranteed Program which assumes additional remuneration for counterparties for being ready to reduce and actual reduction of contracted demand on Operator’s request. Another program developed by Polish TSO is a program granting payments to parties subject to the agreement for actual reduction of demand.90 With respect to energy efficiency, there are innovative projects employed and developed by the energy companies in Poland with the main aim of

87. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf 88. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf 89. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf 90. Polish Electricity Association 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf

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reducing electricity consumption in the processes of energy generation and transmission as well as reducing final consumption. Some of these innovations are discussed below: G

G

G

PGE: Through the VC fund, PGE is developing automatic reduction of energy consumption technology through appliance settings; additionally, PGE also has a project aimed at monitoring and controlling energy consumption by consumers. This project is called, “SmartEnergy effective management of consumption electricity at homes and in the companies.” Energa: The company is implementing a project which enables users to test new technologies and modern energy products from their homes. This project is called ENERG LIVING LAB and its being implemented in Gdynia. Tauron: The company started the MOBISTYLE project aimed at raising awareness of consumers regarding energy efficiency improvement.91

8.10 Conclusion The Polish energy mix has for many years been dominated by coal, which is the main source for electricity production. Diversification of the energy sector is key in meeting the future energy demands in the country and in this respect, RES have a big role to play in not only diversification but also in ensuring energy security in Poland. Investments in the modernization of the Polish sector, including smart grids, smart meters, and EVs are essential in ensuring that the country meets its future energy needs in a sustainable and environment-friendly manner.

91. Polish Electricity Association, 2018. The contribution of the Polish energy sector to the implementation of global climate policy. https://www.pkee.pl/file/repository/RAPORT_COP24_ ENG_28_11_FINAL.pdf

Chapter 9

Energy decentralization and energy transition in France Pinar Kara1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

9.1

General overview

France is a Western-European sovereign state and one of the founding members of the European Union (EU). It is a democratic republic with a semipresidential system, which is a mixed presidential-parliamentary system of government.1 Its territory, which includes overseas regions (de´partements d’outre-mer and territorires d’outre-mer), extends over a total area of 643.801 km2. The so-called “metropolitan” or continental part of its territory borders, to the north, with the English Channel, the North Sea, and Belgium; to the east, with Luxembourg, Germany, and Switzerland; to the south, with the Mediterranean Sea, Monaco, and Italy; to the southwest, with Spain, Andorra, and the Cantabrian Sea; and to the west, with the Atlantic Ocean. The country had over 67 million inhabitants as of January 1, 2018.2 In terms of climate, the weather in metropolitan France varies from strictly oceanic toward semicontinental and, in some instances even Mediterranean, depending on the zone considered.

9.1.1 An overview on greenhouse gas emissions and renewable energy sources France is considered as one of the leading countries in the battle against climate change and, thus, reduction of greenhouse gas (GHG) emissions, due to its active involvement in this issue globally and actions taken within the

1. Democracy Web, Constitutional Limits on Government: Country Studies—France. Available at: https://web.archive.org/web/20130828081904/http://democracyweb.org/limits/france.php. 2. Institut national de la statistique et des e´tudes e´conomique, Bilan de´mographique 2017— Insee. Available at: https://www.insee.fr/fr/statistiques/1912926. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00002-5 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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country for this purpose. The 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) and the 11th Meeting of the Parties to the Kyoto Protocol (COP 21/CMP 11) were held in Paris from November 30, to December 11, 2015, as a result of which an agreement was signed. The main objective expressed in Paris Agreement is “to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 C above preindustrial levels and to pursue efforts to limit the temperature increase even further to 1.5 C.”3 As an EU Member State, France has committed under the Decision No. 406/ 2009/EC of the European Parliament and of the Council of April 23, 2009 on the effort of Member States to reduce their GHG emissions to meet the Community’s GHG emission reduction commitments up to 2020 (L 140/136, 5.6.2009) (“Effort Sharing Decision”) to cut down its GHG emissions up to 20% compared to 2005 based levels by 2020. Within this context, France has committed to reduce the GHG emissions at least 14% by 2020, compared to 2005 levels. France has further undertaken, under the Effort Sharing Decision, to reduce the GHG emissions minimum by 37% by 2030 compared to 2005 levels. Moreover, as per Paris Climate Accord signed in 2015, France has committed to reduce carbon emissions by 27% by 2028 compared to 2013 levels and by 75% by 2050. In line with the Intergovernmental Panel on Climate Change (“IPCC”) recommendations, France has also set the target of reducing its GHG emissions fourfold by 2050 compared to 1990 and the Law on Energy Transition for Green Growth sets a target of reduction of 40% by 2030.4 The country has successfully managed to maintain a steady downward trend in emissions until 2015, when the decline has stopped, with some increase in 2017.5 It is declared that 463 tons of GHGs were emitted in 2016, which corresponds to 3.6% more than the country’s target.6 Another solid move contributing to the battle against climate change was the Climate Plan of the French Government, which was declared by the Minister for the Ecological and Inclusive Transition on July 6, 2017.7 The Climate Plan sets a 5-year term for the improvement of energy and climate transition for all governmental authorities by various means, such as abandoning fossil fuels and

3. United Nations Framework Convention on Climate Change (UNFCC), The Paris Agreement— UNFCC. Available at: https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement. 4. Ministe`re de la Transition E´cologique et Solidaire—Commissariat ge´ne´ral au De´veloppement durable, October 2015. Key figures on climate France and Worldwide—2016 Edition. Available at: http://www.statistiques.developpement-durable.gouv.fr/publications/p/2369/1096/key-figureson-climate-france-worldwide-2016-edition.html. 5. Planete Energies, Greenhouse Gas Emissions in France (27 August 2018). Available at: https://www.planete-energies.com/en/medias/close/greenhouse-gas-emissions-france. 6. The Local, France fails to meet targets for cutting greenhouse gas emissions (23 January 2018). Available at: https://www.thelocal.fr/20180123/france-fails-to-meet-targets-for-cutting-greenhouse-gasemissions. 7. Gouvernement.fr, France’s Climate Plan. Available at: https://www.gouvernement.fr/en/climate-plan.

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increasing the use of renewables, supporting the production and use of renewables in residential areas, raising the taxation of fuels and price of carbon, and even assisting developing countries in fight against climate change.8 The emissions by sector in France can be categorized as energy use and supply; industrial processes and product use; agriculture; land use, land-use change, and forestry (LULUCF); and waste.9 Graph 9.1 shows the sectorbased allocation of GHG emissions in France between 1990 and 2017.

GRAPH 9.1 Greenhouse gas emissions by sector in France.10

With an aim to cut down carbon emissions, France introduced carbon tax in 2014, which was imposed on the use of fossil fuels in sectors that are not covered by the EU-ETS, for example, residential, service, and transport.11 The carbon tax 8. Ibid. 9. European Environment Agency (EEA), November 2017. Trends and projections in France 2017—Tracking progress towards Europe’s climate and energy targets, p. 5. 10. European Environment Agency (EEA), Country profiles—greenhouse gases and energy 2018 (26 November 2018). Available at: https://www.eea.europa.eu/themes/climate/trends-and-projections-in-europe/climate-and-energy-country-profiles/country-profiles-greenhouse-gases-and. 11. Climate Transparency, 2016. France Country Profile - Brown to Green: G20 Transition to a Low Carbon Economy. Available at: https://www.climate-transparency.org/wp-content/uploads/ 2016/09/France_Country-Profile.pdf.

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is considered as an important instrument for achieving the decarbonization of economies, by inciting customers to switch to low-carbon alternatives of fossil fuels. This is referred to as “the internalization of externalities” in economic theory, which suggests a restoration of the real price of commodities that have a negative impact on the environment.12 Emmanuel Macron, who became the president in 2017, under the inspiration of Paris Climate Accord and with an objective to reach the 2050 targets set for a reduction in emissions, raised the carbon tax on diesel and gasoline. In 2017 the French government has declared its draft budget for 2018, including its plan to further increase carbon tax on individual consumers’ use of fossil fuels (e.g., transport and heating), with the exception of companies’ use, to support renewable energy and repay a renewables-related debt to E´lectricite´ de France (“EDF”).13 However, this attempt to further increase carbon tax for individual consumers’ use encountered strong public resistance. As a result of “Yellow Vests” (Gilets Jaunes) protests that have so far been continuing for a couple of weeks from mid-November 2018, Macron finally declared to have stepped back from the planned increase in carbon tax on fossil fuels, along with promises to realize certain other requests of the protestors. Therefore, for the time being, it appears that France is facing a challenge in reaching its targets for cutting down GHG and carbon emissions, unless other measures might be adopted for this purpose. In fact, France’s latest attempt to increase carbon tax is criticized as being politically wrong, as it affects those who are already financially disadvantaged, while providing exemptions for big corporations, and also failing to better allocate the funds to be received by this tax, for instance for renewable energy investments.14 Accordingly, a politically and financially well-designed form of carbon tax could be a viable option for France in near future.

9.1.2

A general overview on the current status of smart energy systems

France is considered among the pioneers in the completion of the rollout of smart meters, a player in the “dynamic movers” in smart grid sector, which refers to countries that create a clear path toward a full rollout of smart metering.15 The current plan is to complete the rollout of the Linky smart meters to all consumers by 2021.16 This plan is based on the provisions of the Third Electricity Directive, 12. Rocamora, A.R., The Rise of Carbon Taxation in France: From Environmental Protection to LowCarbon Transition, Institute for Global Environmental Strategies (IGES) Working Paper, May 2017, p. 8. 13. Felix, B., de Clercq, G., France raises carbon taxes, to repay EDF renewables debt—Reuters (27 September 2017). Available at: https://www.reuters.com/article/us-france-budget-carbon/ france-raises-carbon-taxes-to-repay-edf-renewables-debt-idUSKCN1C21DL. 14. Rubin, A.J., Sengupta, S., “Yellow Vest” Protests Shake France. Here’s the Lesson for Climate Change. The New York Times (06 December 2018). Available at: https://www.nytimes. com/2018/12/06/world/europe/france-fuel-carbon-tax.html. 15. Cecati, C., Sahin, D., Ergut, S., Kocak, T., Gungor, V.C., Buccella, C., et al., December 2012. Smart Grid and Smart Homes: Key Players and Pilot Projects, IEEE Industrial Electronics Magazine, p. 27. 16. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 134.

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which imposes the obligation on the operators of public transmissions and distribution networks to build mechanisms enabling suppliers to offer different prices to consumers, varying in between the times of the year and of the day, and encouraging network operators to limit consumption when it reaches the highest level.17 Consequently, France adopted a decree, whereby it has addressed these obligations by imposing the obligation to set up a new metering system, which is Linky.18 Linky smart meters, deployed by Enedis, are able to measure consumption and production of electricity remotely, and the data received is transmitted to a hub linked to the supervision center of Enedis.19 It was determined that the demonstration project Pilot Linky, which started in 2007 and concerned the installation of 300,000 smart meters, took around 75% of the total spending in France.20

9.2 9.2.1

Energy profile Market participants

EDF, which was created in 1946 as a state monopoly, was engaged in the production, supply, distribution, and transmission of electricity.21 EDF still owns and operates the nuclear plants in the country. However, the relevant legislation was amended to stipulate that the generation, transmission, supply, and distribution of electricity should be undertaken by different entities. Therefore, currently, 87% of the electricity power plants are owned by EDF, 2.7% by Compagnie Nationale du Rhoˆne, 2.3% by Engie, and 1.9% by Uniper.22 On the transmission side, Re´seau de Transport d’Electricite´ (“RTE”) is the sole transmission operator in France. The company was established in 2000 as an entity of EDF, to operate alongside EDF as the grid operator. In 2005 resulting from the deregulation of the electricity market in France, RTE became a limited liability company as a subsidiary of EDF Group.23 According to the Energy Code, EDF, the State, or other public companies or entities must own together the majority of RTE capital (Art. L. 111-42).24 17. Herbert Smith Freehills, 2017. European Energy Handbook Tenth Edition, p. 186. 18. Ibid. 19. Linky, The communicating meter—Enedis. Available at: https://www.enedis.fr/linky-communicating-meter. 20. Joint Research Centre (JRC)—European Commission, 2011. Smart Grid projects in Europe: lessons learned and current developments, p. 17. 21. Gue´naire, M., Lienhardt, P.-A., Jothy, B., Rambaud, A., Dufour, T., 2018. Electricity Regulation in France: overview—Practical Law, Thomson&Reuters. Available at: https://uk. practicallaw.thomsonreuters.com/Document/Idc545f8833db11e698dc8b09b4f043e0/View/ FullText.html?transitionType 5 CategoryPageItem&contextData 5 (sc.Default)&comp 5 pluk& navId 5 E1127BB38C8994AE52964DCFE1B7AF27&firstPage 5 true&bhcp 5 1. 22. Ibid. 23. RTE France—From past to present. Available at: https://www.rte-france.com/en/article/rtepast-present. 24. Gue´naire, et al. (n. 21).

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In other words, France has adopted the independent transmission operator (“ITO”) model in implementing the EU Third Internal Energy Package, under which RTE owns and operates the assets as the sole transmission system operator (TSO) in France, while it remains part of the vertically integrated EDF.25 As for the distribution side, there are three types of distribution system operators (“DSO”) as per the provisions of the Energy Code: (1) Enedis, which operates 95% of the metropolitan grid, (2) local distribution companies, and (3) EDF Syste`mes e´lectriques insulaires, for overseas territories.26 The grids are owned by the municipalities, which enter into concession agreements with DSOs to operate them. The supply side of electricity is quite vivid compared to others. According to the Ministry of Energy’s records, there are 116 authorized suppliers; among which, however, 20 is currently active, including EDF, ENI, Total, and Uniper.27

9.2.2

Production and consumption of energy

The total electricity production in France in 2016 was around 550 TWh. The main source of energy for France is nuclear power, which constitutes around 73% of its electricity generation, whereas renewables (hydro power, wind, solar, biofuels, and waste) have a share of around 19%, gas 6%, and coal 2%.28 France has 58 nuclear reactors operated by EDF, with a total capacity of 63.1 GWe.29 The country’s choice on the side of nuclear power lies on the background of the oil crisis in 1974, which led the country to build nuclear stations based on its high level of engineering but few indigenous energy sources.30 Having said that, France is targeting to reduce its nuclear power share within generated electricity by 50% by 2025, as it needs to improve its renewable sources of energy to achieve a more secure electricity supply and low-carbon prints.31 In fact, France’s renewable energy sector, mainly dominated by hydro power (11% of production), is expected to reach a share of 29% 40% in the electricity sector32. 25. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 134. 26. Gue´naire, et al. (n. 21). 27. Gue´naire, et al. (n. 21). 28. International Energy Agency (IEA), France—Energy System Overview. Available at: https:// www.iea.org/media/countries/France.pdf. 29. World Nuclear Association, Nuclear Power in France, November 2018. Available at: http:// www.world-nuclear.org/information-library/country-profiles/countries-a-f/france.aspx. 30. Ibid. 31. International Energy Agency (IEA), France. Available at: https://www.iea.org/countries/ France/. 32. Climate Transparency, 2016. France Country Profile—Brown to Green: G20 Transition to a Low Carbon Economy. Available at: https://www.climate-transparency.org/wp-content/uploads/ 2016/09/France_Country-Profile.pdf.

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France is considered as having acquired a high level of energy independence, although it also imports electricity. The amount of imported electricity was 36.2 TWh in 2017, which corresponded to 7.5% of the total consumption, while the amount it exports was much higher, 74.2 TWh.33 France also exports electricity and has many interconnections with its neighbors. There are around 47 interconnections with the United Kingdom, Belgium, Germany, Luxembourg, Switzerland, Italy, and Spain, having 12 GW import and 16 GW export interconnection capacity, as well as subsea cables to Spain, the United Kingdom, and Ireland planned under the new EU Trans-European Network framework.34 The amount exported in 2014 was 75.1 TWh (13% of total generated electricity), and the exports were made to the United Kingdom (21.2%), Italy (20.7%), Germany (19.7%), Belgium (15%), Switzerland (13.8%), Spain (7.9%), and Luxembourg (1.5%)35 (Fig. 9.1).

FIGURE 9.1 Contractual cross-border exchanges of France in 2015 in TWh.36

33. Gue´naire, et al. (n. 21). 34. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 134. 35. Ibid. 36. RTE France, Europe’s Biggest Transmission System. Available at: https://www.rte-france. com/en/screen/europe-s-biggest-transmission-system.

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France’s total final consumption amounted to 147.7 Mtoe in 2014, constituted by transport with 29.5%, industrial sectors with 27%, residential sectors with 25.3%, and the commercial sector with 18.2%.37

9.2.3

Energy strategy

In August 2015 France adopted the Energy Transition for Green Growth Act (Loi relative a` la transition e´nerge´tique pour la croissance verte) (LTECV), whereby it has determined a long-term strategy for energy transition for 2030 and for 2050.38 According to the Energy Transition for Green Growth Act, France aims to reduce its total final energy consumption by 20% in 2030 and 50% in 2050 and also its fossil fuel consumption by 30% in 2030, all compared to 2012 levels.39 The act further targets to reach 32% of renewable energies in energy consumption, 40% of electricity production from renewable sources, 38% of heat consumption from renewable sources, 15% of end fuel consumption from renewable sources, and 10% of end gas consumption from renewable sources, all by 2030. The Act also regulates a support scheme as feed-in tariff system and its funding (contribution aux charges de service public de l’e´lectricite´) toward a market premium and calls for tender for large-scale mature renewable facilities, aiming to ensure the cost-competitiveness of renewable energies.40 The International Energy Agency (“IEA”) has expressed its positive opinions about the legal framework set by the Energy Transition for Green Growth Act, especially on National Low-Carbon Development Strategy, 5-year carbon budgets and plurennial energy programming, stating that it is an excellent achievement, which should be exemplary to the other countries.41 Within scope of the Energy Transition for Green Growth Act, France has also adopted the Multiannual Energy Plan with the contribution of companies operating in energy and transport sectors, as well as consumers and local authorities. The Multiannual Energy Plan aims at complying with the obligations brought by Paris Climate Accord and the national low-carbon strategy by way of reducing energy consumption (especially of fossil fuels), developing renewable sources of energy, and promoting low-carbon transport.42 37. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 20. 38. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 10. 39. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 11. 40. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 24. 41. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 10. 42. Ministe`re de la Transition e´cologique et solidaire, July 2017. France—The Multiannual Energy Plan. Available at: https://www.gouvernement.fr/sites/default/files/locale/piece-jointe/ 2018/11/111_france_multiannual_energy_plan.pdf.

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As for energy efficiency, under the Energy Efficiency Directive 2012/27/ EU which imposes the Member States the obligation to set a national target for energy efficiency based on energy consumption, energy storage, and energy intensity, France has set the objectives of reducing the final consumption to 131.4 Mtep and to 219.9 Mtep primary consumption by 2020—while the figures pertaining to 2016 are 150.3 Mtep for final consumption and 242.5 Mtep for primary consumption.43

9.3 9.3.1

Governance system Relevant institutions

9.3.1.1 Ministry of Ecological and Solidarity Transition (Ministe`re de la Transition e´cologique et solidaire) The ministry is in charge of preparing the Government’s policy on, among others, environmental and climate change issues, green energy, sustainable development, biodiversity, transport, and infrastructure.44 The ministry has previously merged with the Ministry of Environment, Energy and the Sea (Ministe`re de l’environnement, de l’e´nergie et de la mer), and now it operates in both central administrative and regional levels. The General Council for the Environment and Sustainable Development (CGEDD), which is organized under the ministry, is involved in the design, implementation, monitoring, and evaluation of public policies, including, among others, for the environment and sustainable development, energy transition, and transport.45 The General Commission for Sustainable Development (CGDD), also within the ministry’s organization, arranges research and provides statistical data to the ministry on public policies.46 There are also directorates established under the ministry, among which there is the Directorate General for Energy and Climate (DGEC), which is responsible for developing and implementing the policy on energy, energy commodities, and the fight against global warming and air pollution,47 and the Directorate General for Infrastructure, Transport and the Sea (DGITM), which prepares and implements national transport policy by regarding sustainable development and energy 43. Premier Ministre, Programme National de Re´forme 2018. Available at: https://ec.europa.eu/ info/sites/info/files/2018-european-semester-national-reform-programme-france-fr.pdf. 44. Ministe`re de la Transition e´cologique et solidaire, Organisation ge´ne´rale, bulletin officiel et projet de loi de finances (General Organization Official Bulletin and Finance Bill) (28 March 2018). Available at: https://www.ecologique-solidaire.gouv.fr/organisation-generale-bulletin-officiel-et-projet-loi-finances. 45. Ministe`re de la Transition e´cologique et solidaire, Conseil ge´ne´ral de l’environnement et du de´veloppement durable (CGEDD) (The General Council for the Environment and Sustainable Development) (14 May 2018). Available at: https://www.ecologique-solidaire.gouv.fr/conseilgeneral-lenvironnement-et-du-developpement-durable-cgedd. 46. Ibid. 47. Ibid.

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transition.48 The ministry also has regional departments to deploy its public policies on the territory, and the Iˆle-de-France region has a specific organization due to its special status as the capital’s region.49

9.3.1.2 French Environment & Energy Management Agency (Agence de l’Environnement et de la Maıˆtrise de l’E´nergie) French Environment & Energy Management Agency (Agence de l’Environnement et de la Maıˆtrise de l’E´nergie) (ADEME) is a public entity under the joint supervision of MEEM and the Ministry of Higher Education and Research (MESR), which is responsible for energy efficiency.50 It provides consultancy services businesses, local authorities, governmental bodies, and public on the implementation of public policy in the areas of the environment, energy, and sustainable development.51 9.3.1.3 Association for Renewable Energy (Syndicat des e´nergies renouvelables) Association for Renewable Energy (Syndicat des e´nergies renouvelables) (SER), established in 1993, is an association that brings together both French and international companies operating in different sectors, including energy companies and renewable energy groups.52 The main objective of SER is to develop the share of renewables in the French energy market, and it is involved in the drafting processes of laws and regulations. 9.3.1.4 Energy Regulatory Commission (Commission de Re´gulation de l’Energie) Energy Regulatory Commission (Commission de Re´gulation de l’Energie) (CRE) is an independent administrative authority founded on March 24, 2000, which operates to ensure smooth functioning of electricity and gas markets, to the benefit of consumers and in line with energy policy objectives.53 CRE ensures open access to both electricity and gas transmission and distribution networks. CRE is also responsible for the assessment of public service expenses in the context of the renewables 48. Ministe`re de la Transition e´cologique et solidaire, Direction ge´ne´rale des infrastructures, des transports et de la mer (DGITM) (The Directorate General for Infrastructure, Transport and the Sea) (27 October 2016). Available at: https://www.ecologique-solidaire.gouv.fr/direction-generale-des-infrastructures-des-transports-et-mer-dgitm. 49. Ministe`re de la Transition e´cologique et solidaire, Organisation ge´ne´rale, bulletin officiel et projet de loi de finances (General Organization Official Bulletin and Finance Bill) (28 March 2018). Available at: https://www.ecologique-solidaire.gouv.fr/organisation-generale-bulletin-officiel-et-projet-loi-finances. 50. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 55. 51. French Environment & Energy Management Agency (ADEME), About ADEME. Available at: https://www.ademe.fr/en/about-ademe. 52. Syndicat des e´nergies renouvelables (SER), Histoire et missions du SER (History and missions of SER). Available at: http://www.enr.fr/histoire-et-missions. 53. Commission de Re´gulation de l’Energie (CRE), Who are we?—CRE. Available at: https:// www.cre.fr/en/CRE/Who-are-we.

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support scheme and the organization of renewable energy tenders.54 Another responsibility of CRE is the regular review of the regulated tariffs.55

9.3.1.5 Electricite´ de France EDF is France’s main electricity generation and distribution company. Nearly 85% of EDF’s shares are owned by the State. EDF holds shares in both the main TSO (RTE) and DSO (Enedis) in France. All nuclear reactors in France are operated by EDF. EDF is also investing on new reactors abroad, such as Hinkley Point C in the United Kingdom, Turkey’s Sinop, and Finland’s Olkiluoto 3.56 9.3.1.6 French Transmission System Operator (Re´seau de transport d’e´lectricite´) RTE was founded as an independent function connected to EDF, which was then organized as a separate legal entity in 2005 as an EDF group company. RTE is the sole TSO in France, and it operated the biggest grid in Europe, with nearly 105,000 km of lines.57 Although as an ITO it has a transparency data platform separately from EDF, there are still discussions to restructure RTE’s ownership.58 9.3.1.7 French Distribution Grid Operator (L’Electricite´ en Re´seau) (Enedis) Enedis was created on January 1, 2008 as Electricite´ Re´seau Distribution France (ERDF), which used to be a subsidiary of EDF. Enedis manages the public electricity distribution network in continental France, which belong to local authorities.59 9.3.2

Research and projects on smart grids

France is actively engaged in research and development (R&D) projects in energy sector. Although these projects mainly concern nuclear energy, which has a crucial role for the French energy sector, there are also considerable projects concerning renewables and smart energy. The most prioritized research area is renewable energy sources, led by solar energy, and the country provides h1000 million to develop research in clean energy and h250 million for smart grids.60 The projects with the largest average budgets, 54. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 121. 55. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 144. 56. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 122. 57. RTE France, Europe’s Biggest Transmission System. Available at: https://www.rte-france. com/en/screen/europe-s-biggest-transmission-system. 58. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 122. 59. Enedis, Company Profile. Available at: https://www.enedis.fr/company-profile. 60. Energy Research Knowledge Centre (ERKC)—European Commission, EUROPA—France (19 July 2016). Available at: https://setis.ec.europa.eu/energy-research/country/france.

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determined as of 2014, pertain to France and the United Kingdom, with around h5 million per project, and the number of D&D projects is larger than R&D projects in France.61 The main basis for the research and projects is the National Strategy for Energy R&D (Strate´gie nationale de la recherche pour l’e´nergie) of 2007, which included some subjects that are prioritized such as renewable energy, energy storage, fuel cells, carbon capture and storage, energy efficiency in buildings, and low-carbon vehicles.62 Thereafter, in 2015, the Energy Transition for Green Growth Act called for a renewed R&D strategy for energy sector, addressing to the need for research in climate change and low-carbon strategies. The main initiative regarding the adoption of new technologies is the Programme for Investment in the Future (Programme d’investissements d’avenir), which is focused on the environmental and energy transition on the one hand and transportation on the other hand.63 Graph 9.2 shows the number of R&D projects in France by their main theme. As it can be seen, smart electricity grids are also among major themes of research, currently with 12 ongoing projects.

GRAPH 9.2 Number of projects in France by their main theme.64

61. Colak, I., Fulli, G., Sagiroglu, S., Yesilbudak, M., Covrig, C.-F., 2015. Smart grid projects in Europe: Current status, maturity and future scenarios, Appl Energy J, Elsevier, 152, 59. 62. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 183. 63. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 184. 64. Energy Research Knowledge Centre (ERKC)—European Commission, EUROPA—France (19 July 2016). Available at: https://setis.ec.europa.eu/energy-research/country/france.

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Electricity market Regulatory framework

The main legislation in the energy sector in France is the Energy Code, which was adopted on May 9, 2010 by the ordonnance no. 2011-504 and which entered into force on June 1, 2011.65 As an EU Member State, France is also bound by the relevant EU legislation, which is mainly constituted by Directive 2009/72/EC on the common rules for the internal market in electricity66 (“Electricity Directive”). As per the provisions of the Energy Code and the Electricity Directive, the production, distribution, and supply of electricity should not be carried out by the same entity. Accordingly, TSOs established after September 3, 2009 must separate their transport activities from production and supply (Art. L. 111-8-3 et seq,. Energy Code), while TSOs that were already vertically integrated before September 3, 2009 are allowed to keep their structure and adopt the ITO model (Art. L. 111-9 et seq, Energy Code).67 An example for ITO model is the French TSO RTE, which was previously vertically integrated with EDF and has become an ITO as of 2018, while TIGF is subject to full ownership unbundling scheme. The Electricity Directive also ensured the liberalization of grid access by separating grid operators from suppliers and producers.68 The Decree no. 2016-1442 of October 27, 2016 relating to the multiannual programming of the energy69 has been adopted to achieve the objectives set by the Energy Code and the Energy Transition for Green Growth Act. The Decree regulates the priority actions of public authorities on energy management and sets detailed objectives on reducing fossil fuel energy consumption and developing renewables in production of energy for the period between 2016 and 2023. French legislation brings an important restriction concerning foreign ownership of electricity companies. According to the Energy Code, only the State, EDF, public companies, or public entities are permitted to own shares in RTE (Art. L. 111-42).70 Law no. 2010-1488 of December 7, 2010 on the new organization of the electricity market71 aims at ensuring competition in electricity market, 65. Herbert Smith Freehills, 2017. European Energy Handbook Tenth Edition, p. 181. 66. 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, 14.08.2009, OJ L 211, pp. 55 93. 67. Gue´naire, et al. (n. 21). 68. Gue´naire, et al. (n. 21). 69. De´cret no. 2016-1442 du 27 octobre 2016 relatif a` la programmation pluriannuelle de l’e´nergie, 28.10.2016, JORF no. 0252. 70. Gue´naire, et al. (n. 21). 71. LOI no. 2010-1488 du 7 de´cembre 2010 portant nouvelle organisation du marche´ de l’e´lectricite´, 08.12.2010, JORF no. 0284.

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among others, by imposing EDF the obligation to sell and transfer some of the nuclear power plants to its competitors at a regulated price from January 2011 to the end of 2025.72 As per the same law, regulated tariffs, which were not favored by the European Commission due to competition concerns, have been abolished after 2015 for customers with contracts for more than 36 kVA, whereas, for customers with contracts for less than 36 kVA, the regulated tariff is still applicable.73 There are several methods adopted to improve the energy generation and consumption from renewable sources in France, such as feed-in tariff, premium tariff, and tax benefits.74 A quota system is used to support renewable energy in transport, and there is a fiscal regulation in place to support biofuels.75 The French legislation also provides a general tax on polluting activities (Taxe ge´ne´rale sur les activite´s polluantes) (“TGAP”) and a tax on carbon components. TGAP’s aim is to encourage the use of biofuels in fuels sold by distributors, while the carbon tax is proportional to the amount of GHGs emitted by energy products.76 Furthermore, the electricity generated from renewable sources is sold on the market, and then a variable premium is paid to the generator by EDF based on a contract to ensure a reasonable return on the investment.77 The Energy Code stipulates that the installations that benefit from feed-in tariff systems cannot benefit also from the premium system.78

9.4.2

Energy security dimension

France has a high number of interconnections with its neighbors. More specifically, it has around 47 interconnections with the United Kingdom, Belgium, Germany, Luxembourg, Switzerland, Italy, and Spain, with 12 GW import and 16 GW export interconnection capacity, as well as subsea cables to Spain, the United Kingdom, and Ireland planned under the new EU Trans-European Network framework.79 RTE is in charge of operating interconnections with other countries’ grids. However, there is no specific legislation regulating a third-party right to operate an interconnector in France. Nevertheless, CRE has 72. Fages, F., Saarinen, M., 2012. The Energy Regulation and Markets Review France 2012, Law Business Research Ltd. Available at: https://www.lw.com/thoughtLeadership/energy-regulation-markets-review-france-2012. 73. Ibid. 74. RES Legal—European Commission, Renewable energy policy database and support: France. Available at: http://www.res-legal.eu/search-by-country/france/. 75. Ibid. 76. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 58. 77. Herbert Smith Freehills, 2017. European Energy Handbook Tenth Edition, p. 193. 78. Herbert Smith Freehills, 2017. European Energy Handbook Tenth Edition, p. 193. 79. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 144.

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adopted a decision that operating an interconnection would be possible for a third party through the mechanism of exemption provided under Article 17 of EC regulation no. 2009/714 and subject to conditions set out in the relevant decision of the CRE.80 The European Commission has declared that the French legislation does not allow for third party participants to be integrated in building and operating interconnectors in other member states. Currently, the status of the smart meter rollout in France has been going as planned. The country has been successfully installing Linky smart meters under the supervision of Enedis, and it plans to complete 95% of the rollout by 2020. Therefore France gives the impression that it will reach the EU targets for smart meter rollout by 2020, which is set as 80% by 2020.

9.5

Smart metering systems

The introduction of intelligent metering systems is one of the measures identified in Article 3, paragraph 11 of Directive 2009/72/EC concerning common rules for the internal market in electricity as contributing to promote energy efficiency at EU level. Both Directive 2009/72/EC and Directive 2009/73/EC establish a framework providing for: (1) the performance of cost benefit analysis (CBA) to ascertain whether the national deployment of smart metering systems would be economically sound in the different Member States; (2) where suitable, the drafting of a timeframe for their rollout; (3) where the CBA leads to positive results, the establishment of a goal of attaining the supply to 80% of users with smart meters by 2020. France is one of the few Member States (along with Spain) where the main DSO has chosen to engage in a large-scale rollout of smart meters between December 2018 and 2021.81 As opposed to the situation in other Member States, as the United Kingdom, France is running on schedule as regards European small-metering deployment obligations:82 France has rapidly engaged in the deployment of smart meters, and between 2015 and 2021, ERDF (the French grid manager) will deploy, through its subsidiary ENEDIS, over 28 million units of “Linky,” France’s smart meter.83 Projections indicate that France could reach 80. Herbert Smith Freehills, 2017. European Energy Handbook Tenth Edition, p. 187. 81. European Parliament, September 2015. Briefing—Smart electricity grids and meters in the EU Member States, p. 6. Available at: http://www.europarl.europa.eu/RegData/etudes/BRIE/ 2015/568318/EPRS_BRI%282015%29568318_EN.pdf. 82. Smart Energy International, A Guide to France’s Linky Smart Meter (27 December 2018). Available at: https://www.metering.com/features-analysis/smart-meters-101-frances-linky-electricity-meters/. 83. Smart Energy International, A Guide to France’s Linky Smart Meter (27 December 2018). Available at: https://www.metering.com/features-analysis/smart-meters-101-frances-linky-electricity-meters/; Collinson, P., Is your smart meter spying on you?—Money—The Guardian (24 June 2017). Available at: https://www.theguardian.com/money/2017/jun/24/smart-meters-spyingcollecting-private-data-french-british.

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a 95% of its digital meter deployment by 2020.84 As regards the underlying infrastructure model, in France “the Linky smart meters will communicate with data concentrators through powerline carrier technology. Data will then transfer to a central information system using telecommunications network such as GPRS. ERDF, the DSO responsible for the electricity distribution activities of 95% of French municipalities, is responsible for the implementation and ownership of the rollout as well as for third-party access to metering data.”85 Thus the overall distribution-network landscape in France works under the following coordinates: “1.285 million km of MV and LV power lines, 35 million meters, 345 TWh of electricity distributed in 2011 of which 18.9 TWh are injected directly into the distribution network from distributed sites including wind, solar PV, biomass and small hydroelectric stations.”86 The response to this panorama, from the industry, and (private) research sectors has been led by “SmartGrids French Clusters,” a consortium of 10 French business and research clusters, specialized in the area of energy and ICT, which intends to foster collaboration and exchange with the view to building up and highlighting the value of the French Smart Grids sector.87

9.6

Demand response

France is considered as one of the EU member states that provide the most conducive framework for the development of demand response.88 In fact, France is one of the countries which has detailed frameworks in place for independent aggregation, including standardized roles and responsibilities of market participants.89 Moreover, France is to be counted among those countries that have also enabled aggregated load to participate (this is per opposition to other European countries such as Slovenia and Poland, which despite opening their markets to load participation, have chosen not to open them to aggregated load and therefore disqualifying all except the largest industrial consumers from accessing these markets90). 84. Smart Energy International, A Guide to France’s Linky Smart Meter (27 December 2018). Available at: https://www.metering.com/features-analysis/smart-meters-101-frances-linky-electricity-meters/. 85. Ibid. 86. Ibid. 87. France Clusters, Smart Energy French Clusters set up a good best practice guide for smart grid projects (17 October 2018). Available at: http://franceclusters.fr/en/2018/10/17/smartenergy-french-clusters-set-up-a-good-best-practice-guide-for-smart-grid-projects/. 88. Smart Energy Demand Coalition (SEDC), 2017. Explicit Demand Response in Europe Mapping the Markets, p. 12. Available at: http://www.smarten.eu/wp-content/uploads/2017/04/ SEDC-Explicit-Demand-Response-in-Europe-Mapping-the-Markets-2017.pdf. 89. Ibid. 90. Ibid.

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Interestingly, “a new draft decree being reviewed by the Conseil d’Etat in early 2017 could provide for a new financial settlement framework whereby a significant of the payment to retailers with curtailed customers would be charged to retailers rather than to demand response providers. However, issues persist around a standardised baseline methodology.”91 As it has been mentioned in the preceding section, it is contended that users / drivers of electric vehicles can make a significant contribution to the management of energy, due to the potential of electric vehicles as mobile storage units. Accordingly, the “Commission de regulation de l’energie” (selfdefined as the “Independent administrative body in charge of regulating the French electricity and gas markets”92) considers the arrival of these vehicles as a “key element” in the management of electric grids, and encourages, through one of its websites,93 the use of electric vehicles in such a way. Two facts constitute the basis of the approach taken by the Commission de regulation de l’energie: on the one hand, the Commission asserts that a vehicle is out of use 95% of its useful life, and, on the other hand, it assets that the average use in everyday itineraries of an electric vehicle will require less than 80% of the battery’s capacity. Interestingly, the approach is being intensely supported from the industry side: Enel, an energy multinational corporation, significantly present in the French market, graphically asserts that the “car of the future is a battery with wheels,” and takes pride in having invested in 5 pilot projects in this sense, one of them being located on French soil.94 In a very customer-friendly fashion the company explains that the “V2G technology turns e-cars into large mobile batteries that interact smartly with the power grid, enabling, among other things, the stabilization of power flows to promote renewable generation. Cars can accumulate energy at lower fuel consumption times and return any excess quantities. In fact, the new technology is based on bidirectional charge management: it draws energy for example from home renewable systems, and feeds it into e-cars. If necessary, it transfers it from the car to another plug-in structure or simply to the network, guaranteeing a financial return for the ‘giver’.”95 Fully embracing this philosophy, the company states in its website that, in France, its “Gridmotion” project, boosted its sale of rechargeable vehicles by 42% between 2015 and 2016.96 Notwithstanding these considerations, even if the French “approach” described in previous paragraphs is to be welcomed, it needs to be embraced with caution: the key element in making the whole scheme fit together is 91. Ibid. 92. CRE (Comission de regulation de l’energie). Available at: http://www.cre.fr/en. 93. CRE, L’utilisation du ve´hicule e´lectrique comme moyen de stockage. Available at: http:// www.smartgrids-cre.fr/index.php?p 5 stockage-vehicule-electrique. 94. ENEL, E-cars of the future with V2G technology. Available at: https://corporate.enel.it/en/ stories/a/2017/05/V2G-the-car-of-the-future-is-a-battery. 95. Ibid. 96. Ibid.

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“educating” users /drivers adequately; the potential success of the scheme depends on the users’ behavioral patterns and developing in them an appropriate sense about finding the right moment for recharging their vehicles. Indeed, the Commission de regulation de l’energie warns that it is extremely relevant that the status of the grid be taken into account by users when charging and/or discharging the batteries: recharging an electric vehicle during the winter peakconsumption hour (7:00 PM) would entail a significant additional burden for the balance of the grid, which would need to be avoided.97 Thus, while electric vehicles may represent a significant addition to energy storage capacities, the Commission de regulation de l’energie considers that it needs to be pursued cautiously. This is even more so as it needs to be analyzed whether this userinvolvement in energy management moreover is technologically and economically appropriate: as opposed to what happens with energy mass-storage, this use of the batteries would require the potential for very numerous and very fast charge and discharge cycles, as well as a very high energy density.98

9.7

Data protection

Data Protection in France was regulated, until May 2018, as a part of a legal instrument with a broader scope known as “Loi informatique et liberte´s” (Computering and Freedoms Act; Loi no. 78-17 du 6 janvier 1978, Loi relative a` l’informatique, aux fichiers et aux liberte´s). With the entry into force of the European General Data Protection Regulation [GDPR, Regulation (EU) 679/ 2016], the French parliament voted on May 14, 2018 a new “Loi informatique et liberte´s,” amending accordingly the basic legal framework in France for this particular area. Among other aspects, the new piece of legislation is meant to deal with three different aspects: (1) the national specificities allowed by the GDPR in respect of sensible information (biometrical data, health data, political affiliation data, religious data, and sexual-life data), public-interest-related data, and other specific scenarios (social security number, employment relations, etc.); (2) the organization and functioning of the “Commission Nationale de l’Informatique et des Liberte´s” (CNIL), the French data protection authority; and (3) the transposition of Directive (EU) 2016/680 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data by competent authorities for the purposes of the prevention, investigation, detection or prosecution of criminal offenses or the execution of criminal penalties, and on the free movement of such data.99 However, an appeal against the text was lodged before the Constitutional Council (“Conseil Constitutionnel”) by at least 60 senators on May 16, 2018. The French 97. CRE, L’utilisation du ve´hicule e´lectrique comme moyen de stockage. Available at: http:// www.smartgrids-cre.fr/index.php?p 5 stockage-vehicule-electrique. 98. Ibid. 99. CNIL, Reglement Europe´en—que deviant la Loi informatique et Liberte´s?—Besoin d’aide. Available at: https://www.cnil.fr/fr/cnil-direct/question/1254.

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Constitutional Council rendered its decision on the new law on June 12, 2018 and the Law on the Protection of Personal Data (No. 2018-493) (Loi no. 2018-493 du 20 juin 2018 relative a` la protection des donne´es personnelles) was promulgated on June 20, 2018. The new law was then complemented with an implementation decree (No. 2018-687 of August 1, 2018). The former act no. 78-17 of 1978 also remained in force, allowed by the national points of maneuver provided by the GDPR, as a complementary regulation to the main one.100 It is important to highlight that the French specific understanding of privacy and individual rights is having an impact on the deployment of “linkys”: media have reported number of public demonstrations, campaigns and, in general, civil-society reluctance to the rolling of smart-metering, due to the view that smart metering deployment entails being “spied” upon, an intrusion on one’s private life.101 This resonates with the recent formal notice issued by the CNIL to “Direct Energie, societe anonyme” (France’s primary electric supplier) on March 27, 2018, giving it 3 months to obtain specific consent for the collection of customer usage data through smart meters, or else face a fine of up to 3 million euros: “CNIL observed that at the time of the installation of smart meters, customers were asked to provide a single consent for the installation of the meter and for the collection of hourly electricity consumption data as a corollary to the activation of the new meter and in order to benefit from certain tariffs. However, as the installation was mandatory, customers were in fact only consenting to the data collection.”102 As a consequence, the CNIL considered that the consent thus obtained by the electric supplier was invalid, for not being “free, informed and specific.”103 The CNIL’s findings further entail that “the automatic collection of this data, which is particularly intrusive and detrimental to [the customers’] privacy, disregards their interests and rights, especially since there are no tariff offers based on their hourly consumption.”104 Although entrenched in French legislation, and on the French approach to privacy and individual rights, this decision are said to be “nearly identical to the arguments made in the United States in the court case of Naperville Smart Meter Awareness (NSMA) v. City of Naperville and where failure to obtain a valid customer consent for granular smart meter data collection represents an illegal, unwarranted, and unreasonable search in violation of the Fourth Amendment.”105

100. Cave, B., France Adopts Regulations Implementing the GDPR—Lexology (24 August 2018). Available at: https://www.lexology.com/library/detail.aspx?g 5 e4de5746-c831-419eb48a-712cef451985. 101. Collinson, P, Is your smart meter spying on you?—Money—The Guardian (24 June 2017). Available at: https://www.theguardian.com/money/2017/jun/24/smart-meters-spying-collectingprivate-data-french-british. 102. Weaver, K.T., France: No Legal Basis for Smart Meter Data Collection without Valid Consent—Smart Grid Awareness (01 April 2018). Available at: https://smartgridawareness.org/ 2018/04/01/no-legal-basis-for-smart-meter-data-collection/. 103. Ibid. 104. Ibid. 105. Ibid.

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9.8

Electric vehicles and storage

9.8.1

Electric vehicles

Through a so-called “bonus-malus” system, the French Ministry for Ecologic Transition and Solidarity aims at promoting the acquisition of “low-emission vehicles” (“ve´hicules peu polluants”), defined as new cars and vans whose emissions range between 0 and 20 g of CO2/km (“voitures ou camionnettes neuves e´mettant de 0 a` 20 grammes de CO2 par kilome`tre”).106 In practice, as the system stands nowadays, low-emission vehicles are, in fact, all-electric vehicles (as of January 1, 2018 hybrids are excluded) whose batteries are not lead-based.107 As its name indicates the system is double-fold: on the one hand it directly incentivizes the purchase of low-emission vehicles through the “bonus.” But on the other hand, it discourages the purchase of the more polluting ones via the imposition of a “malus” (i.e., a supplementary tax on top of the standard/common one) upon the official registration of any new vehicle emitting more than 119 g of CO2/ km.108 The “Ecologic malus” ranges from 50 euros for vehicles emitting 120 g of CO2/km to 10.500 euros for vehicles emitting 185 g of CO2/km and more.109 The bonus side of the scheme works as follows, making a distinction depending on the net maximal power of the engine:110 (1) Vehicles displaying an engine net maximal power of 3 kW or more: the bonus is fixed at 250 euros per kW/h of battery power, but it is capped at the lowest of the two following amounts: (a) 27% of the purchase price (comprising all taxes), potentially increased by the cost of the battery, if the latter is rented or (b) 1000 Euros; (2) vehicles displaying an engine net maximal power of less than 3 kW: the bonus is fixed at 20% of the purchase price (comprising all taxes), but it is capped at 200 Euros. Irrespective of political and policy considerations in respect of the means chosen, overall, the existence of this bonus-malus scheme clearly points to the conclusion that the acquisition of electric vehicles is actively supported by the French government. This has led France to become the second country in the European continent, after Norway, in terms of development of plug-in electrified-vehicles market.111 Additionally, in France, electric vehicles are expected to play a significant role in demand response schemes, via their use as stockade units, and 106. Ministe`re de la Transition e´cologique et solidaire, Bonus-malus e´cologique, prime a` la conversion et bonus ve´lo (10 January 2018). Available at: https://www.ecologique-solidaire.gouv.fr/ bonus-malus-ecologique-prime-conversion-et-bonus-velo. 107. Ministe`re de la Transition e´cologique et solidaire, Bonus e´cologique. Available at: https:// www.ecologique-solidaire.gouv.fr/sites/default/files/bonus%202-3%20roues-misenpage.pdf. 108. Ibid. 109. Ibid. 110. Ibid. 111. Hybrid Cars, France Becomes Fifth Nation To Buy 100,000 Plug-in Vehicles (10 October 2016). Available at: https://www.hybridcars.com/france-becomes-fifth-nation-to-buy-100000plug-in-vehicles/.

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their ulterior contribution, whenever needed, to smart grid stability: It will therefore be possible during periods when the vehicle will be connected to the electricity grid to use the stored electricity to inject it on the network during periods of high demand or, conversely, to charge the vehicle battery in off-peak hours. This is the concept of “vehicle-to-grid,” or V2G, which uses the batteries of electric vehicles as a mobile storage capacity.112

9.8.2

Storage

Putting aside storage capacity arising of the use of vehicles as storage units, in respect of storage in general in France, EDF, one of the key players in the French energy landscape is heavily promoting its “Game-changer solar energy storage solution” in Guiana, one of France’s overseas departments, as a part of its “solutions for the climate” strategy.113 Their Toucan project is defined as a “photovoltaic power plant equipped with thin-film panels” which comprises “a battery storage system that contributes to the grid’s stability by absorbing any surplus solar energy and feeding it into the grid when required.”114 EDF advertises the Toucan project as being the first of its kind in the world, and asserts that “by storing electricity and smoothing output, [. . .] is providing an answer to the question of how to integrate renewable energy into grids. As a consequence, it is paving the way to increasing the share of renewables in the overall energy mix.”115 As a follow-up, EDF has recently announced that it intends to invest 9.93 billion dollars in electricity storage by 2035, not only in France, but across the European market, and also in Africa, specifically battery storage and storage plus solar projects in Ghana and the Ivory Coast.116 Reportedly, EDF already has 5 GW of installed grid-scale storage and calculates that its new 10-billion-dollar energy storage plan will add 10 extra gigawatts of storage, amounting to a total of 15 GW by 2035. Out of those 10 GW, 6 GW will be devoted to industrial-scale projects (including pumped hydro storage and batteries), and the remaining 4 GW will comprise of individual batteries, devoted to retail customers, municipalities, and companies.117 112. CRE, L’utilisation du ve´hicule e´lectrique comme moyen de stockage. Available at: http:// www.smartgrids-cre.fr/index.php?p 5 stockage-vehicule-electrique. 113. EDF, Smoothing and storing photovoltaic generation. Available at: https://www.edf.fr/sites/ default/files/contrib/groupe-edf/premier-electricien-mondial/cop21/solutions/pdf/cop21-solutions_toucan_va.pdf. 114. EDF, Smoothing and storing photovoltaic generation. Available at: https://www.edf.fr/sites/ default/files/contrib/groupe-edf/premier-electricien-mondial/cop21/solutions/pdf/cop21-solutions_toucan_va.pdf. 115. Ibid. 116. Forbes, French Nuclear Giant Gambles Big On Energy Storage (27 March 2018). Available at: https://www.forbes.com/sites/williampentland/2018/03/27/french-nuclear-giant-gambles-bigon-energy-storage/#404b846dd8ff. 117. CleanTechnica, French Utility Company EDF Plans Energy Storage Push (04 April 2018). Available at: https://cleantechnica.com/2018/04/04/french-utility-company-edf-plans-energy-storage-push/.

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9.9

Conclusions

France is one of the most active countries in the battle against climate change, as it strictly follows the relevant EU legislation by harmonizing its domestic laws and sets ambitious targets for the reduction of GHG and carbon emissions and for the improvement of renewable sources of energy for 2020, 2030, and even 2050. The country is also active in projects concerning smart grids, with prevalence of D&D projects over R&D projects. An important share of investments in these projects is coming from the EU; in fact, France is receiving the largest amount of budget with 16.1% as per the data pertaining to 2013 and 2014.118 As for the R&D projects, the IEA is of the view that France should reinforce innovation activity in smart grids, energy storage, electric vehicles, and demand-side flexibility, in support of variable renewable electricity integration and In line with the energy transition.119 One of the main characteristics of French energy sector is the predominance of nuclear power, which currently takes around 73% of the country’s total generated electricity. However, the French government is now aiming to reduce this share of nuclear power to 50% by 2025 by developing and increasing the use of renewable sources of energy, with an aim to reduce carbon prints and GHG emissions. There are still some problems related to grid connection, such as the adjustment of the grid to renewable energy sources and the development of the grid, which are seen as obstacles in reaching a developed renewable energy system in France.120 On the other hand, as per the Energy Code, suppliers are required to receive capacity guarantees from RTE for demand response management or production, which end consumers and network operators are also allowed to acquire.121 France has established a clear framework on the status and roles of independent aggregators in the market, which is also favorable to achieve full potential demand response.122 Furthermore, the aggregated load is also open and encouraged to participate in France via NEBEF mechanism, which makes demand side flexibility resources available.123

118. IqtiyaniIlham, N, Hasanuzzaman, M., Hosenuzzaman, M., 2017. European smart grid prospects, policies and challenges, Renew Sustain Energy Rev, 67, 781. 119. International Energy Agency (IEA), Energy Policies of IEA Countries—France 2016 Review, p. 190. 120. Gue´naire, et al. (n. 21). 121. Gue´naire, et al. (n. 21). 122. Smart Energy Demand Coalition (SEDC), 2017. Explicit Demand Response in Europe Mapping the Markets, p. 12. Available at: http://www.smarten.eu/wp-content/uploads/2017/04/ SEDC-Explicit-Demand-Response-in-Europe-Mapping-the-Markets-2017.pdf. 123. Smart Energy Demand Coalition (SEDC), 2017. Explicit Demand Response in Europe Mapping the Markets, p. 31. Available at: http://www.smarten.eu/wp-content/uploads/2017/04/ SEDC-Explicit-Demand-Response-in-Europe-Mapping-the-Markets-2017.pdf.

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One of the effective ways to a successful and effective strategy to implement smart energy systems is linked to taxes, incentives and subsidies, and especially the currently hot discussion on carbon tax. Although France has come a long way to incentivise the use of smart energy by imposing extra taxes and tariffs on sources of energy like fossil fuels, there are still some criticism and fierce public reaction against this practice. Clarifying the policy and strategy on the ways of use of the increased carbon tax might be a good option to ensure a smooth transition to smart energy.

Chapter 10

Energy decentralization and energy transition in Finland Pinar Kara1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

10.1 General overview Finland is a parliamentary republic, divided into 19 regions governed by regional councils, 70 subregions, and 311 municipalities, which form the administrative ˚ land is an autonomous province under federacy. authorities of the country. A Although the country is in Northern Europe, its climate is characteristically warmer than its neighbors at the same latitude due to the effect of Gulf Stream on the side of the Atlantic Ocean. Nevertheless, the country’s energy demand is still high due to the cold climate of the North. Finland has acceded the European Union (EU) on January 1, 1995 and joined Eurozone in 1999.

10.1.1 An overview on greenhouse gas emissions and renewable energy sources As per the European Environment Agency’s 2017 country profile on Finland, the greenhouse gas emissions are generated from energy use and supply, industrial processes and product use, agriculture, land use, land-use change, and forestry (LULUCF), and waste.1 Information on greenhouse gases is periodically published by Statistics Finland every year, divided in different sectors. According to the latest data pertaining to 2017, the total emissions of greenhouse gases were reduced almost by 5%, with a figure of 56.1 million tons of carbon dioxide, due to the decrease of consumption of the fossil fuels and increase of biofuels.2 1. Finland GHG and energy 2017 country profile, European Environment Agency, Copenhagen, November 2017, p. 5. 2. Statistics Finland—Greenhouse gases. Available at: https://www.stat.fi/til/khki/2017/khki_2017_ 2018-05-24_tie_001_en.html Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00031-1 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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EU 2020 target for greenhouse gas emissions is 20% reduction compared to 1990 levels, which is to be achieved by the way of (1) Emissions Trading Directive, requiring a reduction of 221% in emission trading system (ETS) sectors (e.g., fuels in the heating of buildings, transport except air transport, agriculture, waste management, and use of F gases) by 2020 compared to 2005 levels and (2) burden-sharing decision for non-ETS sectors, which fall under the responsibility of Member States.3 Finland’s most recent data shows that the reduction rate in the country was 16% compared to 2005 levels.4 According to the European Commission’s Country Report on Finland (2018), the country is expected to slightly miss its 2020 greenhouse gas emission reduction target in the non-ETS sectors by less than 1% point.5 In fact, an increase was observed in 2016 in non-ETS emissions due to high emissions caused by transport, which resulted in exceeding the quota set by the EU by 1.1 million tons.6 As per the Regulation (EU) 2018/842 of the European Parliament and of the Council of May 30, 2018 on binding annual greenhouse gas emission reductions by Member States from 2021 to 2030 contributing to climate action to meet commitments under the Paris Agreement and amending Regulation (EU) No 525/2013 (“Effort Sharing Regulation”), which sets targets for all Member States in non-ETS sectors, Finland has to achieve 39% reduction in its emissions by 2030, compared to 2005 levels. This constitutes one of the highest rates of reduction targeted for Member States, the highest being 40% for Norway and Luxembourg. A compliance check mechanism is also regulated under the Effort Sharing Regulation (Art. 9), which stipulates that in case a Member State exceeds its permitted quote of emissions in 2027 and 2032, (1) an addition will be made to the emission figure for the next year and (2) the Member State will be prohibited from transferring any part of its annual emission allocation to any other Member State until it complies. The ETS sectors, on the other hand, are regulated by the Regulation (EU) 2018/841 of the European Parliament and of the Council of May 30, 2018 on the inclusion of greenhouse gas emissions and removals from LULUCF in

3. Finland’s 2020 National Reform Programme, Spring 2018, Ministry of Finance Publications 10C/2018, p. 32. 4. Europe 2020 targets: statistics and indicators for Finland—European Commission. Available at: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eueconomic-governance-monitoring-prevention-correction/european-semester/european-semesteryour-country/finland/europe-2020-targets-statistics-and-indicators-finland_en#greenhouse-gasemissions 5. European Commission Working Staff Document, Country Report Finland 2018, SWD/2018/0224 final. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid 5 1537359010097&uri 5 CELEX:52018SC0224 6. Finland’s 2020 National Reform Programme, Spring 2018, Ministry of Finance Publications 10C/2018, p. 32.

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the 2030 climate and energy framework, and amending Regulation (EU) No 525/2013 and Decision No 529/2013/EU (“Land Use, Land Use Change and Forestry (LULUCF) Regulation”). LULUCF sector is considered important in the battle against climate change, as it impacts biodiversity and ecosystems, and it is effective on the reduction of greenhouse gases. Finland has a peculiar place in respect of this regulation, as it contains the vastest forest area among all Member States. According to LULUCF Regulation provisions, Finland should be granted a specifically increased compensation calculated on the basis of a factor expressed as a percentage of the reported sink (meaning process, activity, or mechanism that removes a greenhouse gas, aerosol, or precursor to a greenhouse gas from the atmosphere) between 2000 and 2009 to compensate for the emissions from managed forest land, as Finland has a limited capacity to increase its forestry. The EU’s requirement for Finland with regard to renewable energies is to achieve an increase to reach 38% of the final consumption by the end of 2020, which is planned to be achieved by way of feed-in tariff scheme for electricity.7 The current Finnish government also aims at achieving the following targets by 2030: increasing the renewable energy’s share of end-use energy consumption to more than 50%, increasing self-sufficiency to more than 55%, ceasing the use of coal, halving the use of imported oil for domestic needs, and raising the share of renewable fuels in transport to 40%.8 The Finnish government appointed a National Climate Panel to act for 4 years from the beginning of 2016 until the end of 2019, to support climate policy planning and decision-making.9 In addition to ratifying Paris Climate Accord in November 2016, Finland chose to move even more forward than 2030 and passed the National Climate Change Act (609/2015), in force as of June 1, 2015, which regulates climate change policy and monitoring of the implementation of climate objectives. The Act sets a target of at least 80% greenhouse gas emission reduction by 2050, compared to 1990 levels.

10.1.2 Current status of smart energy systems The Finnish government aims at achieving smart specialization based on smart regions by 2025 and on developing smart cities.10 The Six City Strategy initiative is aiming to address the need for sustainable urban development in six biggest Finnish cities; that is, Helsinki, Espoo, Tampere, 7. Feed-in tariff—Energiavirasto. Available at: https://www.energiavirasto.fi/web/energy-authority/feed-in-tariff 8. Finland’s 2020 National Reform Programme, Spring 2018, Ministry of Finance Publications 10C/2018, p. 33. 9. Finland’s 2020 National Reform Programme, Spring 2018, Ministry of Finance Publications 10C/2018, p. 35. 10. JRC RIO Country Report 2017 Finland. Available at: https://rio.jrc.ec.europa.eu/en/countryanalysis/Finland/country-report

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Vantaa, Oulu, and Turku.11 Finland is also hosting two EU-funded projects regarding electric robot buses (SOHJOA) and Climate Streets, which explores ways to decrease greenhouse gas emissions and energy consumption levels.12 There is also a demo project that has been running as of 2015 in ˚ land islands, which tries to build a society on 100% renewable electricity.13 A ˚ land, which provides The project benefits from the autonomous structure of A the opportunity to adopt required legislation to support renewable electricity and contribution of citizens to electricity market. Finland is one of the leading countries that has already begun the process of moving toward smart meters and Automatic Meter Reading systems.14 In fact, smart meter rollouts have been taking place since 2014, and it is almost completed. Having said that, Finland is criticized as not having sufficient legislation in place to successfully implement and incentivize smart electricity systems.15 As per the Governmental Decree on Settlement and Metering of Electricity Deliveries (66/2009), distribution system operators (DSOs) have been obliged to install smart meters, which was subsequently fulfilled by DSOs, thus the first steps toward smart electricity systems have been taken.16 However, this does not seem sufficient per se to ensure the implementation and the use of smart grid networks. Despite these challenges, Finland offers a smart grid 2.0 system as a dynamic mover in the smart grid market in the EU.17

10.2 Energy profile 10.2.1 Market participants There are different players in the energy market in Finland depending on the sector. Especially, the electricity generation sector has a large number of companies, as there are no significant barriers of entry to electricity market in Finland, provided that the requirements sought under the Energy Market Act are met and the required license is obtained.18 According to the power plant registry kept by Energiavirasto, which records power plants that are producing more than 1 MVA, there are over 400 power plants in Finland.19 11. European Commission—Smart Specialization. Available at: http://ec.europa.eu/regional_policy/sources/docgener/guides/smart_spec/strength_innov_regions_en.pdf 12. Ibid. 13. The demo—Flexens. Available at: https://flexens.com/the-demo/ 14. Smart Grid—Invest in Finland. Available at: https://www.investinfinland.fi/smart-grid 15. Sunila, K., Jarventausta, P., Ekroos, A., 2016. Legal and regulatory challenges in the development of “Smart Electricity System” in Finland, Renew Energy L Pol’y Rev, 7, 9. 16. Sunila, K., Jarventausta, P., Ekroos, A., 2016. Legal and regulatory challenges in the development of “Smart Electricity System” in Finland, Renew Energy L Pol’y Rev, 7, 12. 17. Smart grid—Invest in Finland. Available at: https://www.investinfinland.fi/smart-grid 18. Herbert Smith Freehills, 2017. The European Energy Handbook, 10th Edition, p. 164. 19. Power plant register—Energiavirasto. Available at: https://www.energiavirasto.fi/web/ energy-authority/power-plant-register

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The main companies operating in the generation sector are Fortum Power, Heat Oy, Teollisuuden Voima Oyj, Helen Oy, and UPM Energy Oy. In the electricity transmission sector, the only national player is Fingrid Oyj, a controlling stake which is held by the Finnish state since 2011.20 The reason for the State’s intervention was that 50% of the company’s shares were held at the time by Fortum and PVO, two power plant owners, who are not allowed to own grids as per the EU decisions. As for the distribution sector, there are around 80 distribution network operators and the main players are Caruna Oy, Caruna Espoo Oy, Elenia Oy, and Loiste Sa¨hko¨verkko Oy.21 Finally, the main electricity suppliers in Finland are Fortum Oyj, Helen Oy, Loiste Sa¨hko¨nmyynti Oy, Vantaan Energia Oy, and Vattenfall Oy.

10.2.2 Sources of energy Finland’s energy is produced from different sources. According to 2017 data of Statistics Finland, 67.7 TWh of electricity was produced in 2017, which was slightly less than in 2016, and the amount of electricity produced by renewable energy increased to 30.7 TWh, constituting 45% of the total production.22 Finland also imports energy from Sweden, Norway, and Russia, which was reported as 24% in 2017.23 All of Finland’s natural gas and a large part of its oil, coal and nuclear fuel are imported from Russia.24 A new floating liquefied natural gas terminal began its operations in Pori in 2016, with three more to come, and also the Baltic Connector project is expected to connect the Finnish gas grid to Baltic states, which will have an impact in sources of imports.25 Nuclear energy is also an important source for Finland, as 18% of the country’s energy supply derives from four privately owned nuclear reactors that provide 30% of the country’s total electricity.26 Two reactors in Olkiluoto are operated by Teollisuuden Voima Oy, whereas the 20. Electricity regulation in Finland: overview—Practical Law, Thomson & Reuters. Available at: https://uk.practicallaw.thomsonreuters.com/7-629-2923?transitionType 5 Default&contextData 5 (sc.Default)&firstPage 5 true&comp 5 pluk&bhcp 5 1 21. Ibid. 22. Statistics Finland—Production of electricity and heat 2017. Available at: https://www.stat.fi/ til/salatuo/2017/salatuo_2017_2018-11-01_tie_001_en.html 23. Ibid. 24. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 13. 25. European Commission Working Staff Document, Country Report Finland 2018, SWD/2018/0224 final. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid 5 1537359010097&uri 5 CELEX:52018SC0224 26. Nuclear Energy in Finland, Finnish Nuclear Power—World Nuclear Association. Available at: http://www.world-nuclear.org/information-library/country-profiles/countries-a-f/finland.aspx; Electricity regulation in Finland: overview—Practical Law, Thomson & Reuters. Available at: https://uk.practicallaw.thomsonreuters.com/7-629-2923?transitionType 5 Default&contextData 5 (sc.Default)&firstPage 5 true&comp 5 pluk&bhcp 5 1

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other two reactors in Loviisa are operated by Fortum Corporation. Currently, a fifth nuclear plant is under construction in Olkiluoto, and a sixth one is being planned to be constructed in Hanhikivi, which are together estimated to raise the nuclear share to 60% in total.27 Also, Finland has abundant forests, which makes it a global leader in developing second-generation biofuels28 (Graph 10.1).

GRAPH 10.1 Electricity generation in Finland in 2017.29

The current shares in sources of energy might change in near future depending on the new projects of Power Purchase Agreements in this sector. One of these projects is TuuliWatti’s wind power project concerning the building of giving Vestas V150 wind turbines with a power output of 4.2 MW, tower height of 175 m, and sweep height of 250 m, which will be the highest turbines in European Nordic countries.30 The other one concerns Google’s purchase of three wind farms for a period of 10 years, which are expected to bring an extra capacity of 190 MW.31

10.2.3 Consumption of energy The data pertaining to the first half of 2018 (from January to June) shows the following figures on energy consumption: wood fuels 25%, oil 22%, 27. Nuclear Energy in Finland, Finnish Nuclear Power—World Nuclear Association. Available at: http://www.world-nuclear.org/information-library/country-profiles/countries-a-f/finland.aspx 28. International Energy Agency—Finland. Available at: https://www.iea.org/countries/Finland/ 29. Statistics Finland—Production of electricity and heat 2017. Available at: https://www.stat.fi/ til/salatuo/2017/salatuo_2017_2018-11-01_tie_001_en.html 30. Cotton, A., Leino, L., Rinne, E., Energy 2019—Finland—Laws and Regulations—Global Legal Insights (GLI). Available at: https://www.globallegalinsights.com/practice-areas/energylaws-and-regulations/finland 31. Ibid.

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nuclear power 17%, coal 9%, natural gas 6%, peat 6%, net imports of electricity 5%, hydro power 4%, wind power 1%, and others 5%.32 The amount of gross inland consumption in Finland in 2016 was 6 toe per capita, which is well above the EU average of 3.2 toe per capita.33 The importance of renewables in gross inland consumption in Finland was 30.7% according to 2016 data.34 The share of fossil fuels in gross inland consumption is 46.6%, which is one of the three EU Member States with figures below 50%.35 Finland’s national target for the use of renewable sources by 2020 is 38.7%, well above the EU target of 20%, as shown in the graph below. This target was reached for the first time in 2014, which comes as no surprise considering that the share of renewables in final consumption in Finland is the second largest in the EU36 (Graph 10.2).

GRAPH 10.2 Share of renewable energy in gross final energy consumption in Finland.37

32. Statistics Finland—Energy supply and consumption. Available at: https://www.stat.fi/til/ehk/ 2018/02/ehk_2018_02_2018-09-27_tie_001_en.html 33. Energy statistics—an overview—Statistics explained. Available at: https://ec.europa.eu/eurostat/statistics-explained/index.php?title 5 Energy_statistics_-_an_overview#Energy_dependency 34. Renewable energy statistics—Statistics explained. Available at: https://ec.europa.eu/eurostat/ statistics-explained/index.php? title 5 Renewable_energy_statistics#Renewable_energy_produced_in_the_EU_increased_by_two_thirds_in_2006-2016 35. Energy statistics—an overview—Statistics explained. Available at: https://ec.europa.eu/eurostat/statistics-explained/index.php?title 5 Energy_statistics_-_an_overview#Energy_dependency 36. Energy supply and consumption—Statistics Finland (27 September 2018). Available at: https://www.stat.fi/til/ehk/2018/02/ehk_2018_02_2018-09-27_tie_001_en.html 37. Europe 2020 targets: statistics and indicators for Finland—European Commission. Available at: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eueconomic-governance-monitoring-prevention-correction/european-semester/european-semesteryour-country/finland/europe-2020-targets-statistics-and-indicators-finland_en#greenhouse-gasemissions

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10.2.4 Energy strategy and European Union targets As an EU Member State, Finland is taking measures to comply with EU targets on climate and energy. The Finnish government adopted a report in 2017 setting a strategy for energy and climate for 2030 and another report in 2017 regarding its medium-term climate change plan, which together set the following: (1) cease the use of coal by 2030, (2) use renewable energy sources for over 50%, and (3) increase biofuels in road transport to 30%.38 The Finnish government is also aiming that Finland will achieve the 2020 targets and support the use of low-emission energy sources through taxation.39 The target set for 2030 concerning decarbonization is supported by investments made on renewable energy sources and biofuels. Finland applies a biofuels quota obligation to companies selling petrol or diesel fuels and also a reduced taxation for biofuels, which can both prove to be effective in reaching the 2030 target.40 Despite important developments on the side of nuclear power, hydro power, and bioenergy, the target set by the Finnish government for 2030 on halving oil demand and phasing out coal use is criticized as being rather ambitious for various reasons. One of them is the need to ensure that biofuels are backed-up with sustainable feedstock, that there is sufficient investment in place and that these can be used in long-distance transport.41 Shifting to biomass-based combined generation of heat and power (CHP) is also required to reach the targets for 2030, as currently coal and peat play an important role in CHP.42

10.3 Governance system The current government under Prime Minister Sipila¨ is known to be ambitious in achieving EU targets in energy and climate strategy. An act was put in force to implement the Directive 2012/27/EU of the European Parliament and of the Council of October 25, 2012 on energy efficiency (“Energy Efficiency Directive”). Furthermore, agreements on energy efficiency are put 38. European Commission Working Staff Document, Country Report Finland 2018, SWD/2018/0224 final. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid 5 1537359010097&uri 5 CELEX:52018SC0224 39. Europe 2020 Strategy, Finland’s National Reform Programme, Spring 2018. Available at: https://ec.europa.eu/info/sites/info/files/2018-european-semester-national-reform-programme-finland-en.pdf 40. Renewable energy policy database and support, Promotion in Finland. Available at: http:// www.res-legal.eu/search-by-country/finland/tools-list/c/finland/s/res-t/t/promotion/sum/128/lpid/ 127/ 41. Finland shows how bioenergy and nuclear can drive the energy transition, International Energy Agency (23 October 2018). Available at: https://www.iea.org/newsroom/news/2018/october/finland-shows-how-bioenergy-and-nuclear-can-drive-the-energy-transition.html 42. Ibid.

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in place between the central government and other actors such as municipalities, industry, and services sectors.43 The Finnish government has also submitted a report to the European Parliament in January 2017 on its national energy and climate strategy for 2030, where the measures to be taken to achieve 2030 targets are set out in detail.44 The government has also appointed the National Climate Panel to serve from 2016 until the end of 2019 as a scientific and independent expert panel in respect of climate policy planning and decision-making, as a requirement of the Climate Act.45

10.3.1 Relevant institutions 10.3.1.1 The Ministry of Economic Affairs and Employment (TEM) The ministry has a wide range of duties and responsibilities that differ from industrial policies to competition and consumer policies, as well as work environments and immigration issues. The ministry also has certain responsibilities with regard to the country’s energy policy, which concerns primarily developing the energy markets, promoting renewable energy and energy efficiency, and implementing climate policy.46 Legislations concerning electricity market are prepared by the ministry. There are three ministers within the Ministry of Economic Affairs and Employment: The Minister of Economic Affairs, the Minister of Employment, and the Minister of the Environment, Energy and Housing. The Minister of the Environment, Energy and Housing is in charge of the operations of the Energy Department, which is also within the organization of the Ministry of Economic Affairs and Employment. The ministry established the Smart Grid Working Group in September 2016, with an aim to explore the efficiency of smart grids and to propose measures for the active participation of customers in the electricity market.47

43. Europe 2020 Strategy, Finland’s National Reform Programme, Spring 2018. Available at: https://ec.europa.eu/info/sites/info/files/2018-european-semester-national-reform-programme-finland-en.pdf 44. Government Report on the National Energy and Climate Strategy for 2030, Publications of the Ministry of Economic Affairs and Employment 12/2017. Available at: https://www.motiva. fi/files/12815/Government_Report_on_the_National_Energy_and_Climate_Strategy_for_2030. pdf 45. Europe 2020 Strategy, Finland’s National Reform Programme, Spring 2018. Available at: https://ec.europa.eu/info/sites/info/files/2018-european-semester-national-reform-programme-finland-en.pdf 46. Ministry—Ministry of Economic Affairs and Employment. Available at: https://tem.fi/en/ ministry 47. Working group to explore smart grids’ potential for the electricity market—The Ministry of Economic Affairs and Employment. Available at: https://tem.fi/en/working-group-to-exploresmart-grids-potential-for-the-electricity-market

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10.3.1.2 The Ministry of the Environment (YM) The ministry is responsible for issues concerning communities, the built environment, housing, biodiversity, sustainable use of natural resources, and environmental protection.48 It is also responsible in respect of climate change, more specifically for the preparation of medium-term climate change policy plan under the Climate Change Act.49 The Ministry is also acting as coordinator for the UNFCCC negotiations on climate change and the negotiations on climate issues.50 10.3.1.3 The Ministry of Finance (VM) The ministry is responsible to prepare the economic policy and budget of the government, with a purpose of achieving sustainable economic growth.51 10.3.1.4 The Ministry of Agriculture and Forestry (MMM) The ministry is in charge of a wide range of areas including bioeconomy, which comprises also bioenergy aiming to promote renewable energy sources to ultimately achieve sustainable development.52 10.3.1.5 The Energy Authority (Energiavirasto) Supervision and promotion of the operation of energy market and fulfillment of climate targets fall within the scope of expertise of the Energy Authority. The authority is in charge of regulating electricity market, natural gas market, renewable energy, and energy efficiency.53 10.3.1.6 Business Finland Finpro (the Finnish Trade Promotion Organization) and Tekes (the Finnish Funding Agency for Innovation) were merged as Business Finland as of January 2018. Business Finland is an organization fully owned by the Finnish Government, which is responsible for the fields of innovation funding, trade, investment, and travel promotion.54 48. The Ministry—Ministry of the Environment. Available at: http://www.ym.fi/en-US/ The_Ministry 49. The Ministry of the Environment—National climate change policy. Available at: http:// www.ym.fi/en-US/The_environment/Climate_and_air/Mitigation_of_climate_change/ National_climate_policy 50. Ibid. 51. Areas of expertise—Ministry of Finance. Available at: https://vm.fi/en/areas-of-expertise 52. Bioeconomy—Ministry of Agriculture and Forestry. Available at: https://mmm.fi/en/ bioeconomy 53. History—Energiavirasto. Available at: https://www.energiavirasto.fi/web/energy-authority/ history 54. About us—Business Finland. Available at: https://www.businessfinland.fi/en/do-businesswith-finland/about-us/

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10.3.1.7 Fingrid Oyj Fingrid is Finland’s transmission system operator, and it is responsible for the planning and implementation of the connection of the grids.55 The Finnish state has a controlling stake in Fingrid. 10.3.1.8 Centre for Economic Development, Transport and the Environment This Centre is responsible for the regional implementation and development tasks of the central government.56 The areas of responsibility include, among others, business, transport, infrastructure, environment, and natural resources. 10.3.1.9 Finnish Competition and Consumer Authority (KKV) The authority is responsible for the maintenance of fair competition, as well as consumer protection issues.57 10.3.1.10 Office of the Data Protection Ombudsman The office is responsible for safeguarding the processing of data provided by organizations and by individuals.58

10.3.2 Research and projects on smart grids Finland is one of the European countries which hosts a high number of R&D and Demo & Deployment projects. The country stands out by having a three times larger budget for R&D projects compared to Demo & Deployment ones.59 Having said that, International Energy Agency (“IEA”) pointed out to a recent decrease in public funding for R&D projects, which is considered detrimental to reaching clean energy goals60 (Graph 10.3). 55. Home—Fingrid. Available at: https://www.fingrid.fi/en/ 56. Front Page—ELY Centre. Available at: http://www.ely-keskus.fi/en/web/ely-en/ 57. Finnish Competition and Consumer Authority. Available at: https://www.kkv.fi/en/ 58. Home—Office of the Data Protection Ombudsman. Available at: https://tietosuoja.fi/en/ home 59. European Commission Joint Research Centre (JRC) Institute for Energy and Transport, Smart Grid Projects Outlook 2014, A view of smart grid projects in Europe: Lessons learned and current developments. Available at: https://ses.jrc.ec.europa.eu/sites/ses.jrc.ec.europa.eu/files/ u24/2014/report/ld-na-26609-en-n_smart_grid_projects_outlook_2014_-_online.pdf 60. Finland shows how bioenergy and nuclear can drive the energy transition, International Energy Agency. Available at: https://www.iea.org/newsroom/news/2018/october/finland-showshow-bioenergy-and-nuclear-can-drive-the-energy-transition.html

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GRAPH 10.3 The projects in main energy fields in Finland.61

10.3.2.1 Smart Grid Working Group There are several recent and ongoing research and projects in Finland that concern smart grids. One of these is conducted by the Smart Grid Working Group, established by the Ministry of Economic Affairs and Employment. The group has spent around 2 years exploring the potential of smart grids in the electricity market and finally submitted its final report to the Minister of Environment, Energy and Housing on October 24, 2018.62 The aim of the Smart Grid Working Group is stated as creating “a shared view of the smart electricity system of the future.”63 Some measures are suggested in the final report with the purpose to achieve active participation of the consumers in the electricity market and improve the security of supply, by proposing concrete solutions. The suggestions include, among others, the introduction of market-based load demand control latest by April 30, 2021, enabling energy communities for consumers to participate in the production of energy, imposing a tax exemption for storing energy, building regulations that would favor smart charging of electrical cars in a cost-effective manner, as well as further enabling consumers to effect electricity distribution rate and ensuring cyber security. The working group has also proposed that distribution 61. EUROPA—Finland, Energy Research Knowledge Centre—European Commission. Available at: https://setis.ec.europa.eu/energy-research/country/finland 62. English summary of the final report is available at “Smart Grid Working Group’s proposals aim for a flexible, customer-driven electricity system”—Article—Ministry of Economic Affairs and Employment. Available at: https://tem.fi/en/article/-/asset_publisher/alyverkkotyoryhmanehdotusten-tavoitteena-asiakaskeskeinen-ja-joustava-sahkojarjestelma 63. Flexible and customer-centred electricity system, Final report of the Smart Grid Working Group, Publications of the Ministry of Economic Affairs and Employment 39/2018.

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network companies would no longer be engaged in load control and that a market-based and more dynamic control of consumption be achieved by April 30, 2021 through a controlled transition.

10.3.2.2 LEMENE Smart Grid Project This project is chosen as one of the key projects, which focuses on future solutions to enable Finland to achieve its national targets and 2030 EU targets.64 The project is supported by the Ministry of Economic Affairs and Employment. The main objective of the project is to create an energy selfsufficient business district in Marjama¨ki industry area in Lempa¨a¨la¨, where the energy will be produced by renewable energy sources, such as solar power and biogas. 10.3.2.3 MOTIVA OY Training Programme In 2013 the Finnish government introduced a training and certification program for installers of grids or construction companies, which is led by the energy agency MOTIVA OY.65 The responsible body for this program is the Ministry of Environment. Although the program is voluntary, it still provides an incentive for switching to renewable energy.

10.4 Electricity market 10.4.1 Regulatory framework 10.4.1.1 The Energy Market Act In Finland, the electricity market in general, as well as the generation and sale of renewable energy sources within the electricity market are regulated by the Electricity Market Act No. 588/2013, which has been in force since September 1, 2013. The main aim of this reform was to implement the Third Energy Package and improve the security of the electricity supply.66 As per Energy Market Act (Art. 20), grid operators, who will be granted a license to operate, shall enter into connection agreements with plant operators that meet the relevant technical requirements. It is explicitly stipulated that the conditions of this connection agreement will be objective, transparent, and nondiscriminatory and will also take into account the effectiveness and reliability of the electricity system. Therefore it is possible to conclude 64. LEMENE—Lempa¨a¨la¨n Energia. Available at: http://www.lempaalanenergia.fi/content/en/1/ 20126/LEMENE.html 65. Renewable energy policy database and support, Training programmes for installers. Available at: http://www.res-legal.eu/search-by-country/finland/single/s/res-e/t/policy/aid/training-programmes-for-installers-6/lastp/127/ 66. Herbert Smith Freehills, 2017. The European Energy Handbook, 10th Edition, p. 163.

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that there is no priority given to renewable energy sources in this respect. The Act does not regulate further conditions of the mentioned connection agreement; thus this is left to the free negotiation between the parties. The Energy Market Act (Art. 19) also regulates an obligation for grid operators to extend and develop their network to fulfill the reasonable needs of the users, which include plant operators. Finally, it is stipulated that the grid operators shall provide electricity transmission and distribution services to those who need them, including plant operators (Art. 21). Furthermore, under the Electricity Market Act, the DSOs and more generally companies operating in electricity sector are responsible to promote efficient and economical use of electricity.67

10.4.1.2 Subsidies and incentives Finland offers both subsidies and premium tariff for R&D projects and electricity producers with an ultimate aim to promote and incentivize the use of renewable energy sources in the production of electricity. There are two types of subsidies that are both granted by the Finnish state. The first one, the “energy aid,” is granted for investments made on the production of or research projects on renewable energy, subject to the provisions of Decree No. 1063/2012.68 The second type of subsidy is the investment aid for renewable energy and new energy technologies, which is granted against a fixed assets investment, subject to the provisions of Decree No. 145/2016.69 Both subsidies are granted, and the whole process is led by the Ministry of Economic Affairs and Employment. The premium tariff, on the other hand, is granted to the producers of electricity from wind, biogas, and biomass on top of the wholesale electricity price for 12 years.70 Electricity producers who fail to produce electricity in accordance with the bid shall compensate the government for the underproduction.71 To benefit from premium tariff, (1) the plant or the system must be located in Finland or in Finnish waters and be connected to the grid and (2) the project must fulfill economic and 67. Sunila, K., Jarventausta, P., Ekroos, A., 2016. Legal and regulatory challenges in the development of “Smart Electricity System” in Finland, Renew Energy L Pol’y Rev, 7, 19. 68. Decree No. 1063/2012 Regulation on the Allocation of Subsidies, Renewable energy policy database and support, Subsidy I (Energy Aid). Available at: http://www.res-legal.eu/search-bycountry/finland/single/s/res-e/t/promotion/aid/subsidy-energy-aid/lastp/127/ 69. Government Decree No. 145/2016 on Granting Investment Aid for Renewable Energy and New Energy Technologies, Renewable energy policy database and support, Subsidy II (Investment Aid for Renewable Energy and New Energy Technologies). Available at: http:// www.res-legal.eu/search-by-country/finland/single/s/res-e/t/promotion/aid/subsidy-ii-investmentaid-for-renewable-energy-and-new-energy-technologies/lastp/127/ 70. Renewable energy policy database and support, Premium tariff. Available at: http://www.reslegal.eu/search-by-country/finland/single/s/res-e/t/promotion/aid/premium-tariff-2/lastp/127/ 71. Electricity regulation in Finland: overview—Practical Law, Thomson & Reuters. Available at: https://uk.practicallaw.thomsonreuters.com/7-629-2923?transitionType 5 Default& contextData 5 (sc.Default)&firstPage 5 true&comp 5 pluk&bhcp 5 1

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technical requirements sought for electricity generation (under the provisions of Act No. 1396/2010 on the Production Subsidy for Electricity Produced from Renewable Energy Sources). Recently, a new legislation was enacted introducing a new support scheme for renewable energy in Finland. The government bill no. 175/2017 on renewable energy, which proposed that certain provisions be included in the Act on Subsidies for Electricity Produced From Renewable Energy Sources (1396/2010) regarding a premium system based on a technologyneutral tender process, was approved by the government and the amended Act entered into force on June 25, 2018.72

10.4.1.3 Unbundling Vertical disintegration of the electricity industry is considered important for the integration of smart grid systems. For this purpose, within the EU, the DSOs are not allowed to operate in generation and retail markets for electricity, and this leads to the creation of an open and competitive market for generation and supply.73 In addition to the mentioned legal unbundling, it might also be efficient to have ownership unbundling to ensure competition in the relevant markets, which is currently relevant for the transmission system operators (TSOs).74 In fact, the approval of an undertaking as a TSO is conditional upon it being certified to have complied with the ownership unbundling requirements stipulated in Article 9 of the Electricity Directive.75 As an example of ownership unbundling, it is worth mentioning that in July 2017, 53.14% of the Finnish TSO Fingrid was owned by the State and the National Emergency Supply Agency and the remaining shares by Finnish financing and insurance institutions.76 As for the DSOs in Finland, most of these are legally, organizationally, and operationally unbundled from the electricity production and supply.77 As per the provisions of the Electricity Market Act, the network operations must be legally unbundled from trade operations and electricity generation in case the annual amount of electricity transmitted through 72. Cotton, A., Leino, L., Rinne, E., Energy 2019—Finland—Laws and Regulations—Global Legal Insights (GLI). Available at: https://www.globallegalinsights.com/practice-areas/energylaws-and-regulations/finland. 73. Schotman, H., September 2014. “Smart grids: A European regulatory perspective,” Energy Regulation Quarterly, 2. 74. Schotman, H., September 2014. “Smart grids: A European regulatory perspective,” Energy Regulation Quarterly, 2. 75. National Report 2017 to the Agency for the Cooperation of Energy Regulators and to the European Commission, Energy Authority Finland, Ref: 1469/401/2017, 12.7.2017, p. 16. 76. National Report 2017 to the Agency for the Cooperation of Energy Regulators and to the European Commission, Energy Authority Finland, Ref: 1469/401/2017, 12.7.2017, p. 7. 77. Sunila, K., Jarventausta, P., Ekroos, A., 2016. Legal and regulatory challenges in the development of “Smart Electricity System” in Finland, Renew Energy L Pol’y Rev, 7, 13.

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the relevant network operator’s 0.4 kV network has been at least 200 GWh for 3 consecutive days.78 In 2016 there were 36 DSOs that satisfied this criteria, which were legally obliged to be unbundled and also others that would be voluntarily unbundled, reaching a total number of 48 DSOs that were legally unbundled in 2016.79 DSO is seen as a neutral market facilitator in the EU; thus providing the competed markets for platforms and information on new services, while refraining from influencing them.80 Finnish Energy Authority’s approach also seems to be in line with the EU’s. Yet, the role of the DSOs begs for further clarification in respect of unbundling; that is, which operations would be deemed to fall within the scope of the electricity transmission and distribution market where the DSOs should not be active.

10.4.2 Energy security dimension Finland’s electricity market is dynamic and competitive, mostly because of the common use of smart meters and the availability for switching in between suppliers. The country is part of intra-Nordic power system, which comprises Sweden, Norway, and Eastern Denmark together with Finland. Intra-Nordic power system is also connected to Continental Europe through direct current transmission systems; namely, from Sweden to Germany, Poland, and Lithuania, from Norway to the Netherlands, and from Finland to Russia and Estonia.81 There is also an interconnection built in 2015 between ˚ land Islands with a capacity of 100 MW, which is to mainland Finland and A ˚ land Islands.82 The electricity interconnecensure the security of supply for A tion level in 2017 is reported as 29%, while the 2020 target is at least 10%.83 Accordingly, the countries should arrange to have at least 10% of the electricity produced in their country to be transported across borders to their neighbors.84 Nevertheless, there is insufficient capacity in interconnections in periods of high demand, which negatively affects wholesale electricity 78. National Report 2017 to the Agency for the Cooperation of Energy Regulators and to the European Commission, Energy Authority Finland, Ref: 1469/401/2017, 12.7.2017, p. 7. 79. National Report 2017 to the Agency for the Cooperation of Energy Regulators and to the European Commission, Energy Authority Finland, Ref: 1469/401/2017, 12.7.2017, p. 7, 16. 80. Sunila, K., Jarventausta, P., Ekroos, A., 2016. Legal and regulatory challenges in the development of “Smart Electricity System” in Finland, Renew Energy L Pol’y Rev, 7, 14. 81. Nordic power system and interconnections with other systems—Fingrid. Available at: https://www.fingrid.fi/en/grid/electricity-system-of-finland/nordic-power-system-and-interconnections-with-other-systems/ 82. Herbert Smith Freehills, 2017. The European Energy Handbook, 10th Edition, p. 165. 83. European Commission Working Staff Document, Country Report Finland 2018, SWD/2018/0224 final. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid 5 1537359010097&uri 5 CELEX:52018SC0224 84. Electricity interconnection targets—European Commission. Available at: https://ec.europa. eu/energy/en/topics/infrastructure/projects-common-interest/electricity-interconnection-targets

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prices.85 Interconnectivity has proved to be important in ensuring the security of supply, especially in case of failures due to unfavorable weather conditions or similar circumstances, by importing electricity from neighbor countries. National regulation authority’s competence might also be important to determine the status of the security of supply. In case of Finland, the Capacity Reserve Act authorizes the Energy Authority to decide on the required size of peak load reserve capacity and arrange tenders to choose power plants and consumption units for this purpose.86 Based on this authority, in 2016, the Energy Authority commenced its work to purchase peak load reserve capacity for the period between July 2017 and June 2020.87 Energy intensity, which is seen as a measure of energy efficiency, was considerably reduced in EU Member States due to energy savings made between 2005 and 2015. However, Finland (27.8%) was recorded as one of the three Member States, along with Estonia and Greece, where the reduction of energy intensity was below 10%.88 Energy security is a crucial issue for Finland, which remains to be dependent on imports from Nordic states and Russia. Fingrid has been putting effort to strengthen the interconnections with Sweden and integration with Baltic states, as well as improvement of smart grids, all with an aim to improve electricity security.89 As for smart meter rollouts, the EU is aiming to reach an 80% rollout by 2020 by replacing the electric meters with smart ones. The European Commission has issued a proposal for a directive on common rules for the internal market in electricity,90 whereby it has expressed that as a part of the active participation of consumers in electricity market and more specifically in demand response, it would be beneficial to entitle them to request smart meters from their suppliers. Finland has almost completed its nationwide smart metering rollouts. From the beginning of 2014, 97% of automated 85. European Commission Working Staff Document, Country Report Finland 2018, SWD/2018/0224 final. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid 5 1537359010097&uri 5 CELEX:52018SC0224 86. National Report 2017 to the Agency for the Cooperation of Energy Regulators and to the European Commission, Energy Authority Finland, Ref: 1469/401/2017, 12 July 2017, pp. 10 11. 87. National Report 2017 to the Agency for the Cooperation of Energy Regulators and to the European Commission, Energy Authority Finland, Ref: 1469/401/2017, 12 July 2017, p. 10. 88. Archive: Consumption of energy—Statistics explained. Available at: https://ec.europa.eu/ eurostat/statistics-explained/index.php/Consumption_of_energy 89. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 14. 90. Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity, Brussels, 23.2.2017, COM(2016) 864 final/2, 2016/0380 (COD)

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meter readings were completed, which were generated from around 3.2 million smart meters.91 According to data pertaining to 2016, smart meters were put in around 99% of consumption places.92

10.5 Smart metering systems The electricity networks in Finland are part of the inter-Nordic system along with Sweden, Norway, and Eastern Denmark, which is connected to Continental Europe via direct current transmission links, also with links to Russia and Estonia.93 The current transmission grid is built with air insulation; thus the substations are outdoors and transmission lines are overhead, instead of underground cables which come out expensive due to long distances in Finland.94 The Finnish government is actively engaged in an ambitious target to diffuse the use of smart energy. It is noted that by September 2018, EUR 80 million has been granted to 18 projects to support biogas use in transport, smart energy, and demand-response services. 95 The Smart Grid Working Group, established by the Ministry of Economic Affairs and Employment, has submitted its final report on October 24, 2018. The working group has set the timeframes for fulfilling the suggested changes between 2019 and 2021 to achieve a consumer-centric and efficient smart electricity system. As also pointed out by Fingrid, the majority of the suggestions require changes in legislation, in addition to active cooperation between various stakeholders, such as combined billing for distribution.96 Finland is among the first countries to have completed the rollout of smart meters; it has, therefore, already reached the target of supplying 80% of the consumers with smart meters by 2020. This enables the consumers to actively participate in the electricity market and improves demand response and flexibility. In fact, Finland was the first country in the world which adopted smart electricity metering (hourly metering and remote reading) on a large scale and completed the transition to hourly level metering on 91. My Country—My Smart Energy. Available at: http://my-smart-energy.eu/my-country/finland#country-area 92. National Report 2017 to the Agency for the Cooperation of Energy Regulators and to the European Commission, Energy Authority Finland, Ref: 1469/401/2017, 12 July 2017, p. 5. 93. Electricity System of Finland—Fingrid. Available at: https://www.fingrid.fi/en/grid/electricity-system-of-finland/ 94. Ibid. 95. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 89. 96. “Ambitious smart grid cooperation should continue to promote customer-centric electricity markets”—Fingrid. Available at: https://www.fingrid.fi/en/pages/news/news/2018/ambitioussmart-grid-cooperation-should-continue-to-promote-customer-centric-electricity-markets/

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January 1, 2014.97 The DSOs are responsible bodies for the installation of smart meters. Most DSOs had already installed remotely read smart meters in 2009 14, which should be renewed and replaced with the next-generation meters soon, as the technical lifetime of these meters is known to be around 10 15 years.98 The legislation concerning smart meters is the Government Decree no. 66/2009 on Determination of Electricity Supply and Metering, which came into force in 2009. The Decree stipulates that the DSOs have an obligation to measure electricity consumption and small-scale power generation based on hourly metering and remote reading of the equipment (Section 6.4). However, the DSO is entitled to deviate from this obligation for up to 20% of the electricity distribution points if any of the exceptions set out in the Decree occur. The Decree determines minimum requirements for smart metering system (Section 6.5), which includes remote reading feature that enables the collected data to be read from the hardware memory through the network, certain requirements concerning the storage of measurement data and data protection system of the metering system.

10.6 Demand response There are two types of demand response, depending on their level of interaction with consumers, which are complementary to each other: (1) explicit demand response, which provides direct incentives or payments to consumers to make them change their patterns of consumption, and (2) implicit demand response, whereby consumers react to dynamic market or network pricing signals.99 Demand flexibility is considered an important factor in achieving efficiency. In the event that the prices of electricity would vary according to consumption, this could motivate consumers in opting to use smart systems, which would in turn lead to the dissemination thereof. European Commission considered demand response crucial also for charging electric vehicles (“EV”) and thus integrate EVs into the electricity grid.100 Under the EU legislation, the Energy Efficiency Directive (2012/27/EC) is crucial for the improvement of demand response. According to this 97. Energiateollisuus, Finnish Energy Position Paper, “Finnish Energy’s position on the features of next-generation electricity meters,” 15 June 2017. Available at: https://energia.fi/files/1697/ Finnish_Energy_position_paper_features_of_next_generation_electricity_meters_final_20170810.pdf, p. 1. 98. Ibid. 99. Smart Energy Demand Coalition (SEDG), 2017. Explicit Demand Response in Europe— Mapping the Markets, p. 7. 100. Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity, Brussels, 23.2.2017, COM(2016) 864 final/2, 2016/0380 (COD)

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Directive, Member States shall ensure that any incentives in tariffs that might hinder the participation of demand response in balancing markets and ancillary services are removed, and that network operators and suppliers are incentivized in improving consumer participation, including demand response (Art. 15.4). The Directive also requires that the Member States take measures to ensure consumer access to the market (Art. 15.8). Finland is one of the countries that provides a regulatory framework for demand response, with actual steps taken toward the improvement thereof. Although all ancillary services are open to demand response, the aggregation of resources from different balancing groups is permitted only for frequency containment reserve for disturbances (FCR-D), which limits demand response in other reserve markets.101 There are also pilot projects concerning the development of aggregation models in the balancing energy markets. One of them is led by Fingrid, where it is aimed to enable aggregation from multiple balances and independent aggregator participation in the regulating power market.102 The project has started in early 2018 and planned to be continued for 1 year, with the participation of Helen Oy, a retailer and electricity producer, and Voltalis S.A., an aggregator. Despite these improvements and pilots concerning demand response, there are no incentives for DSOs for demand response and thus the role of DSOs in controlling flexibility is deemed rather unclear.103 In Finland, prices for both industrial and household consumers are low when compared with the EU average. This gives the consumers the opportunity to agree spot-market price-linked electricity retail contracts, whereby demand response is encouraged by hourly changing prices.104 As the rollout of smart meters has been almost fully completed, the end users are able to participate in the market and have wholesale spot price pass through retail electricity prices.105 As IEA notes in their 2018 report, “In Finland, demand participates actively in the reserve markets of the TSO Fingrid but its volume is low in the medium-term strategic reserve organised by the EA (. . .).”106 Finland is considered a pioneer amongst its Nordic neighbors due to allowing independent aggregation in ancillary services and its advanced

101. Smart Energy Demand Coalition (SEDG), 2017. Explicit Demand Response in Europe— Mapping the Markets, p. 75. 102. Fingrid, Aggregation Pilot Project in the Balancing Energy Markets. Available at: https:// www.fingrid.fi/en/electricity-market/reserves_and_balancing/aggregation-pilot-project-in-the-balancing-energy-markets/ 103. Smart Energy Demand Coalition (SEDG), 2017. Explicit Demand Response in Europe— Mapping the Markets, p. 76. 104. Sunila, K., Jarventausta, P., Ekroos, A., 2016. Legal and regulatory challenges in the development of “Smart Electricity System” in Finland, Renew Energy L Pol’y Rev, 7, 20. 105. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 117. 106. Ibid.

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provisions for measurement and verification.107 The Finnish government is actively working on ensuring a more flexible power system. For this purpose, it has reduced barriers for small players to participate the balancing market, increased transparency of balancing power prices, adopted successful demand response pilot schemes, completed the rollout of smart meters, and increased hourly spot-based retail prices—which in turn created around 500 MW of demand response capacity in the wholesale market.108 Smart Grid Working Group’s work has also been beneficial in enabling consumers to engage with demand response and thus facilitating the switch to smart energy system.109

10.7 Data protection There are two aspects of cyber security for smart grids: (1) the protection of consumer data, which includes data ownership, privacy, and anonymity issues, and (2) critical infrastructure-related issues, such as prevention of cyber-attacks, hacking, and service blockings. As an EU Member State, Finland is subject to the EU regulation on data protection. The General Data Protection Regulation (2016/679 OJ L 119, 04.05.2016) (“GDPR”), which was approved by the EU Parliament on April 14, 2016 and was enforced on May 25, 2018, regulates the protection of natural persons for processing and free movement of their personal data by an individual, a company, or an organization. The GDPR is directly applicable in all Member States, and it aims to harmonize data protection legislations of the Member States to ensure a consistent and high level of protection for personal data in flow within the EU (para. 10, Preamble of GDPR). The Finnish Government has submitted a proposal to Parliament regarding the implementation of the GDPR,110 whereby it is proposed to issue a new Data Protection Act in line with the GDPR and to repeal the Personal Data Act (1999/523) and the Act on Data Protection Board and the Data Protection Ombudsman (1994/389). The Parliament is still reviewing the proposed act, and therefore the new legislation is yet to be enacted. Therefore, currently, the provisions of the Personal Data Act (1999/523) and the GDPR would apply to any issue concerning data protection and privacy. Having said that, the provisions of the Personal Data Act that conflict with the GDPR cannot be applied, as per the principle of precedence of EU law. 107. Smart Energy Demand Coalition (SEDG), 2017. Explicit Demand Response in Europe— Mapping the Markets, p. 11. 108. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 123. 109. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 124. 110. Government’s proposal to Parliament for supplementing EU GDPR (HE 9/2018 vp). Available at: http://finlex.fi/fi/esitykset/he/2018/20180009

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Smart grids and smart metering systems collect information on consumers’ electricity consumption and thus are recognized as having a potential to process personal data, as was expressed in the Commission’s Recommendation on the Data Protection Impact Assessment Template for Smart Grid and Smart Metering Systems,111 which referred to the relevant EU legislation in force at the time, that is, the Directive 95/46/EC of the European Parliament and of the Council of the European Parliament and of the Council of October 24, 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, which was repealed on May 24, 2018 by GDPR. Finnish Energy, Energiateollisuus, is also of the view that data protection and data security are crucial in dissemination of the consumption data of the consumers sand that access to such data should only be possible with the consumer’s authorization.112 In fact, the Government Decree no. 66/2009 on Determination of Electricity Supply and Metering requires that the metering data and the information on voltage-free periods are entered in the DSO’s data system that processes metering data, in which the hourly metering information must be stored for at least 6 years and the data on voltage-free periods at least for 2 years (Section 6.5). As an important improvement for Finnish electricity market, a hub called “Datahub” will be created to be effective in autumn 2019 for the storage of data between consumers, suppliers, and DSOs, whereby the data will be available to all market actors.113

10.8 Electric vehicles and storage 10.8.1 Electric vehicles The use of EVs in Finland is observed to grow slowly, especially compared to other Northern countries like Sweden and Norway, mainly based on the reason that electric cars are more expensive than conventional ones and that consumers treat new trends with caution.114 It is, however, the 111. Commission’s Recommendation of 10 October 2014 on the Data Protection Impact Assessment Template for Smart Grid and Smart Metering Systems (2014/724/EU) OJ L 300/63, 18 October 2014. 112. Energiateollisuus, Finnish Energy Position Paper, “Finnish Energy’s position on the features of next-generation electricity meters,” 15 June 2017. Available at: https://energia.fi/files/1697/ Finnish_Energy_position_paper_features_of_next_generation_electricity_meters_final_20170810.pdf, p. 4. 113. Energiateollisuus, Finnish Energy Position Paper, “Finnish Energy’s position on the features of next-generation electricity meters,” 15 June 2017. Available at: https://energia.fi/files/1697/ Finnish_Energy_position_paper_features_of_next_generation_electricity_meters_final_20170810.pdf, p. 8. 114. Electric traffic—Finnish Energy. Available at: https://energia.fi/en/advocacy/energy_policy/ electric_traffic

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decarbonization of transport is a crucial step to reach EU 2030 targets, as the emissions from conventional cars form an important obstacle in this respect. In fact, around 20% of Finland’s emissions are caused by transport.115 Finland’s Ministry of Transport and Communications has issued the Climate Change Policy (ILPO) in 2009, whereby it has declared its targets on transport to reach 2020 targets on emissions. According to this policy, biofuels will make up to 20% of the energy for transport in Finland by 2020, which is favorable for the reduction of emissions as biofuels are carbonneutral.116 However, progressive targets on biofuels might have an adverse effect on the use of electric cars. According to the information provided by Fingrid, which is updated in January 22, 2018, the number of electric cars in Finland is around 7000, while the minimum number of electric cars that Finland should have by 2030 to be able to reach its EU 2030 targets is 250,000.117 Furthermore, according to data gathered by the European Alternative Fuels Observatory, updated on October 29, 2018, among the alternative fuels passenger cars, the majority belongs to plug-in hybrid electric vehicles (PHEV) with 8012, followed by battery electric vehicles (BEV) with 1687 in 2018.118 Throughout the years, a decrease can be observed in compressed natural gas vehicles and a dramatic increase in PHV. This was, in fact, foreseen by VTT Technical Research Centre of Finland, which was contracted by the Ministry of Transport and Communications in 2010 to analyze the future of EVs in Finland. As per the findings in VTT’s report, PHEV is found more suitable for Finland as they are more practical and cost-effective compared to BEV, especially in case of Finland where driving distances are long.119 The Finnish government has taken certain steps to develop EV market. Tekes, which used to be the Finnish Funding Agency for Innovation and the predecessor of Business in Finland, ran a 5-year program on the implementation of EV systems in Finland between 2011 and 2015, the findings of which were reflected in a report.120 The main objective of this program is expressed “to create an electric mobility ecosystem that could generate new knowledge and competence in EV related technologies and services.”121 Five consortia

115. International Energy Agency—Hybrid & Electric Vehicle Technology Cooperation Programme, Finland—Policies and Legislation. Available at: http://www.ieahev.org/by-country/ finland-policy-and-legislation/ 116. Ibid. 117. Sustainability with electric cars—Fingrid-lehti. Available at: https://www.fingridlehti.fi/en/ sustainability-with-electric-cars/ 118. Country detail vehicles and fleet—EAFO. Available at: https://www.eafo.eu/countries/finland/1732/vehicles-and-fleet 119. Finland—Research, IA-HEV. Available at: http://www.ieahev.org/by-country/finlandresearch/ 120. Tekes Report 1/2016, EVE Electric Vehicle Systems 2011 2015, Helsinki 2016. 121. Tekes Report 1/2016, EVE Electric Vehicle Systems 2011 2015, p. 6.

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were formed that focused on electric passenger traffic and services, electric commercial vehicles, testing services for EVs, testing environments for EVs, and ecological urban living, without specific focus on automotive industry.122 The program is believed to be beneficial for business development of EV market in Finland. Furthermore, an amendment was made in the Electricity Market Directive, whereby dynamic pricing was introduced to facilitate smart charging and the aggregation of EVs.123 The amended Electricity Market Directive provides for dynamic pricing to facilitate smart charging, and the aggregation of EVs to enable the best use of their economic potential from demand response—including vehicle-to-grid (V2G) services. Despite some efforts, the Finnish government is still criticized as not being sufficiently supportive of EVs. Some suggestions of providing further support are the introduction of a direct consumer subsidy, an employment vehicle benefit or higher taxation on combustion vehicles.124 In fact, the taxation option is applied by Norway, which sets a good example for the use of EVs in the EU, with an estimate of 210,000 EVs according to the data from January 2018.125 The planned increase in the use of EVs is not expected to create an unmanageable increase in Finland’s electricity consumption. However, as Finland is still highly dependent on electricity import from neighboring countries, it is worth questioning whether its dependence might increase, especially in cold winter weather. The use of 250,000 EVs, as planned, is expected to increase the need of electricity up to 100 200 MW during a cold day, which would constitute an increase of 1% at the highest point of Finnish electricity consumption (around 15,200 MW).126 One of the suggestions to increase the use of EVs is to lift the double taxation on them, as a tax is paid when the vehicle is being charges and also when the energy is being fed to the grid.127 This is especially crucial for small EVs that are used by consumers, to allow them to participate in the market. Having said that, the use of these vehicles would not increase merely on tax reasons, as there are also other factors. Subsidies and tax benefits should also apply to charging stations to incentivize investments in this field, which is crucial for EV market. It is also important to have sufficient infrastructure in place to implement and diffuse EVs. It was, in fact, one of the 122. Ibid. 123. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 78. 124. Sustainability with electric cars—Fingrid-lehti. Available at: https://www.fingridlehti.fi/en/ sustainability-with-electric-cars/ 125. Ibid. 126. Heikkila¨, M., Electric cars, threat or opportunity?—Fingrid-lehti. Available at: https://www. fingridlehti.fi/en/electric-cars-threat-or-opportunity/ 127. Ibid.

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findings of VTT in their report of 2010 that Finland needed to build battery charging stations and adopt required legislation to support the rollout of EVs.128 IEA, in its 2018 report on Finland, puts forward certain suggestions for the Finnish government concerning transport sector: (1) reviewing the energy fuel taxation and subsidies to reflect full carbon content to accelerate the switch to low emission technologies and (2) raising the ambitions for vehicle efficiency and the rollout of zero emission vehicles and adopting fiscal instruments and local traffic measures to enable Finland to reach its 2030 targets.129

10.8.2 Storage Electricity storage enables customers to influence the costs of electricity consumption and enter the market through their electricity storage tools. In fact, the electricity storage provides the customers with options to not use electricity at the times when the costs are higher and use electricity from their batteries. Smart Grid Working Group is of the opinion that network companies should not be included in the market for electricity storage services, as these have a role of neutral market facilitator and have monopoly unbundling obligations.130 Thus electricity storage should be seen as a market-based activity. In this manner, DSOs may also be able to participate in storage services, considering that the operation of storages is a supporting activity for network operations.131 The composition of the actors in electricity storage market is expected to be soon reflected in the relevant EU legislation. Finland is considered an interesting case for energy storage due to the variable energy generation sources depending on the season, its requirement for reliable supply is to ensure that the needs of both individual customers and industries are met and the 80% 85% of greenhouse gas emission reduction target it has set for 2050.132 There are different types of energy storage systems used in Finland. In summer, solar power reaches its peak, whereas wind energy is mainly produced in winter, and hydro power’s most fruitful time is spring, especially in May.133 On the other hand, demand for energy 128. Finland—Research, IA-HEV. Available at: http://www.ieahev.org/by-country/finlandresearch/ 129. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 16. 130. Flexible and customer-centred electricity system, Final report of the Smart Grid Working Group, Publications of the Ministry of Economic Affairs and Employment 39/2018, p. 15. 131. Sunila, K., Jarventausta, P., Ekroos, A., 2016. Legal and regulatory challenges in the development of “Smart Electricity System” in Finland, Renew Energy L Pol’y Rev, 7, 21. 132. Child, M., Breyer, C., 2016. The role of energy storage solutions in a 100% renewable Finnish energy system, Energy Proc 99, 26. 133. Ibid.

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rises significantly in winter, when the temperatures are low and the days are shorter, which emphasizes the importance of energy storage systems in Finland.134 It is determined that solar power and wind power constitute around 60% of total energy consumption, out of which around 51% is stored, while 21% of hydro power energy consumption is subject to storage, V2G connections cover 87% of demand and thermal energy storage only 4% of end-user heat demand.135 ˚ land Islands provides a Currently, the FLEXe-demo project that is run in A significant source to test electricity storage. Recently, the engineering and consultancy firm Po¨yry PLC has been selected as Energy Storage Cluster for the project, which is managing the storage system with an objective to survive winter on renewable sources by short-term grid stabilization and long-term seasonal storage capacity.136 In the opinion of the experts, it is challenging to optimize energy storage to compensate summer-winter variation in Finland and also to ensure the stability, security, and economic viability of the system.137 Furthermore, Fortum and the French battery company Saft signed a contract in 2016 regarding the supply of a h2 million megawatt-scale lithium-ion battery energy storage system for Fortnum’s Suomenoja power plant, which will have a nominal output of 2 MW and able to store 1 MWh of electricity.138

10.9 Conclusions Finland is considered one of the pioneers in the battle against climate change, although it is expected to slightly miss its 2020 targets for the reduction of greenhouse gas emissions in non-ETS sectors. Finland’s 2020 target for the share of renewable energy in final consumption is set as 38%, which is an ambitious figure compared to other EU countries, though seemingly realistic for Finland, as the country had already reached this figure in 2014. The country has also addressed 2050 targets for emissions in its domestic legislation, which is an ambitious and revolutionary attempt in respect of climate change. Finland is also a dynamic mover in smart energy market, providing a 2.0 smart grid system and having almost completed the rollouts of smart meters. 134. Ibid. 135. Child, M., Breyer, C., 2016. The role of energy storage solutions in a 100% renewable Finnish energy system, Energy Proc 99, 26. ˚ land FLEXe-demo project in Finland, Po¨yry PLC 136. Po¨yry selected for participation in the A (07 March 2018). Available at: http://www.poyry.com/news/poyry-selected-for-participation-inthe-aland-flexe-demo-project-in-finland 137. Finland’s smart islands will trial short and long term storage from Po¨yry—Energy Storage News. Available at: https://www.energy-storage.news/news/finlands-smart-islands-will-trialshort-and-long-term-storage-from-poeyry 138. Electricity and Energy Storage—World Nuclear Association. Available at: https://www. world-nuclear.org/information-library/current-and-future-generation/electricity-and-energy-storage.aspx

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The Finnish government is keen on supporting R&D projects on smart energy, which makes Finland stand out among other EU countries. Having said that, it seems that there are still some further improvements that might be done to achieve an effective implementation of the smart energy system. Finnish legislation on smart grids and smart electricity systems is criticized for failing to provide sufficient incentives to the consumers and DSOs in opting for smart systems instead of traditional ones. Current legislation does not seem to specifically incentivise investments in smart systems, unless there is a direct benefit for DSOs, such as the reduction of standard compensations payable by the DSOs in case of long outages, which can be overcome by improving the self-healing capacity of the networks.139 Therefore, to achieve a complete implementation of smart electricity systems, it is necessary to provide incentives to market actors, including DSOs, aggregators, and consumers. This can be done by way of engaging in reforms in the relevant legislation. The IEA recommends the following for Finland: “Remove regulatory barriers in the smart energy sector, following the Smart Grid Working Group recommendations, with a view to optimise public funding and identify the best opportunities to leverage private R&D investment.”140 A recommendation to improve efficiency and use of smart systems is the adoption of a smart certificate system. Suppliers that would enable consumer action in demand side flexibility or energy efficiency or DSOs that would smarten their networks would be eligible to obtain these certificates and the obligation to buy the certificates could be imposed on suppliers or DSOs.141 Such a system might effectively solve the problem of incentives in this sector as the market actors would be drawn to either satisfying the criteria to obtain the certificate or to buy them. Furthermore, it would also enhance the connection between different market actors by creating a common “sphere of interest” and a sense of cooperation, which is ultimately to smarten the electricity system.142 To improve the current smart energy system, the IEA recommends the Finnish government to end double charging of storage and EVs determine minimum requirements for the next generation of smart meters and ensure that low-income households can also engage in the transition to smart energy systems.143

139. Sunila, K., Jarventausta, P., Ekroos, A., 2016. Legal and regulatory challenges in the development of “Smart Electricity System” in Finland, Renew Energy L Pol’y Rev, 7, 16 17. 140. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 102. 141. Sunila, K., Jarventausta, P., Ekroos, A., 2016. Legal and regulatory challenges in the development of “Smart Electricity System” in Finland, Renew Energy L Pol’y Rev, 7, 22. 142. Ibid. 143. International Energy Agency, Energy Policies of IEA Countries, Finland 2018 Review, p. 127.

Chapter 11

Energy decentralization and energy transition in the Republic of Ireland Gemma Kate Fearnley1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

11.1 Overview This section enumerates the energy strategy, policy framework, and regulatory architecture underpinning the Republic of Ireland’s (“Ireland”) smart grid transition. It will analyze the progress that Ireland has made against its own strategic objectives in light of the WiseGRID1 project’s principal aim: to contribute to the energy sector new technologies and solutions for the improvement of the smartness, stability, and security of the European energy grid. This section also evaluates Ireland’s responses to the challenges that have arisen during its transition process, in the hope of stimulating further discussion on this important topic. Ireland has set a series of targets for renewable energy. By 2020, Ireland wishes to derive 16% of its energy consumption from renewable energy sources. It also has a 10% target for transport. To achieve these overall targets, Ireland has set itself subtargets for electricity (40%) and heat (12%). It has also set itself an ambitious energy savings target, attempting to reduce its final energy consumption by 20% compared to 2005. Finally, Ireland has committed to reducing its greenhouse gas (GHG) emissions by 20% by 2020. Ireland has made good progress toward its targets. However, despite this progress, Ireland is falling short of its national subtargets and efforts must accelerate to meet these by 2020. As of 2016, renewable energy sources

1. WiseGRID is a research project (number 731205) funded by the EU’s Horizon 2020 research and innovation program. Professor Dr. Rafael Leal-Arcas is one of the Principal Investigators. http://www.wisegrid.eu Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00028-1 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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contributed 27.2% to gross electricity consumption; the 2020 target is 40%.2 Ireland is also falling short of its GHG emissions reduction target: it is forecasted to have reduced non-ETS (Emissions Trading System) GHG emissions by only 1% below 2005 levels by 2020, well short of its 20% target.3 Ireland has managed to cut significantly its dependence on its traditional energy industry, peat. However, its primary source of energy remains fossil fuels, which accounted for 91.9% of all energy used in 2016.4 Nevertheless, Ireland has made significant steps toward the improvement of its renewable electricity generation capabilities in recent years: indigenous renewable energy production increased by 176% between 2005 and 2015.5 Moreover, Ireland is the country with the highest level of newly installed wind capacity relative to its total power consumption within the European Union (EU). Ireland’s governance system and regulatory framework are closely interlinked, with a number of programs and regulatory measures in place to support the uptake of renewable energy sources. Ireland’s primary innovation projects for the transmission network are the Your Grid, Your Tomorrow project and the DS3 programme, both delivered by the transmission system operator (“TSO”), EirGrid. Meanwhile, the distribution system operator (“DSO”), ESB Networks, is heavily involved in distribution-level innovation. One such project is the Dingle project, based on the Dingle Peninsula. The DSO is also involved in a number of research and innovation projects: of particular note is the RealValue project, which seeks to demonstrate the value of storage technologies, and the partnership with the Electricity Power Research Institute (EPRI) on its Smart Grid Demonstration Initiative. Harnessing grid flexibility by way of demand side response (DSR) and storage technologies features prominently in Ireland’s energy strategy, with strong support from the TSO. With nonsynchronous electricity generation sources expected to comprise an ever greater share of the energy fuel mix in the coming years, the need to incorporate these variable energy sources into the balancing and capacity markets will become increasingly pressing for Ireland. Electric vehicles also have a crucial role in Ireland’s energy strategy and are served by a robust regulatory regime comprising incentive schemes and other regulatory measures. Of particular concern from a regulatory perspective at present is Ireland’s dependency on the United Kingdom for energy supplies. Ireland participates with Northern Ireland, part of the United Kingdom, in the whole-of-island Integrated Single Electricity Market (“I-SEM”). But it is still unclear what 2. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 4. 3. Environmental Protection Agency, 2018. “Ireland’s Greenhouse Gas Emissions Projections 2017 2035,” EPA, Dublin, p. 10. 4. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 12. 5. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 43.

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the impact of Brexit will be on cross-border energy supplies. Ireland will need to ensure that contingency measures are in place to ensure the continuity of supplies post-Brexit; therefore it is crucial that Ireland continue to progress current interconnections projects with the European mainland. A key policy goal for Ireland will be meeting its interconnections target with the EU, of which it is currently falling short.6 With regard to the digitalization of the grid, Ireland has now commenced the rollout of its smart metering program. The program will involve a phased rollout of smart meters.7 The first phase will involve the installation of 250,000 m by 2020. Phase 2, between 2021 and 2022, will support the installation of an additional 1 million meters. A final 1 million meters will be rolled-out between 2023 and 2024 in Phase 3. Customers who request a smart meter will be prioritized during the initial deployment stage, as will those who are due a replacement for old meters. The program is being delivered by the DSO, ESB Networks. It is hoped that new digital technologies such as smart meters will assist in the delivery of a more democratic, decentralized grid. However, the success of smart metering hinges on there being major changes in societal behavior; therefore it is important that solutions to customer concerns about data protection and cyber security be made a central component of the rollout.

11.2 Energy profile 11.2.1 Energy mix 11.2.1.1 Ireland’s targets Decarbonization is at the forefront of Ireland’s energy strategy. As a Member of the EU, Ireland has committed to two binding targets for energy use, to be achieved in each case by 2020: these targets stipulate that renewable energy must be used to source (1) 16% of final energy use for all sectors and (2) 10% of energy use in the transport sector. So as to achieve the overall 16% target, Ireland has set itself national subtargets for heat (12%) and electricity (40%). The pathways to achieving these targets are set out in Ireland’s National Renewable Energy Action plan, published every 2 years as required under Article 4 of Directive 2009/28/EC. The NREAP keeps the Commission updated on a country’s progress against its national targets; the most recent was published in December 2017.8 6. European Commission, 2017. “Commission Staff Working Document: Energy Union Factsheet Ireland,” European Commission, Brussels, pp. 5 6. 7. Commission for Regulation of Utilities, “CRU Announces Delivery Plan for Smart Meters in Ireland,” 28 July 2017. [Online]. Available at: https://www.cru.ie/2017/07/28/post-2/. 8. Irish Government, 2017. “National Renewable Energy Action Plan (NREAP): Ireland, Fourth Progress Report submitted under Article 22 of Directive 2009/28/EC,” Irish Government, Dublin.

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With regard to energy efficiency, Ireland has committed to making energy savings of 20% of the historical average energy use during the period 2000 05 by 2020 (amounting to 31,925 GWh). It is also striving to achieve a 33% reduction in public sector energy use (amounting to 3240 GWh). Ireland keeps track of its progress against its energy savings targets in its National Energy Efficiency Action Plans. The most recent NEEAP was published in 2014.9 Finally, a challenging target for non-ETS GHG emissions reductions also exists. This calls for a 20% reduction in 2005 non-ETS emissions levels by 2020.10 Note that Ireland’s 2020 targets differ from those of the EU both in ambition (the EU’s targets are all at 20%) and timescale (all targets are compared to baseline 1990 levels).

11.2.1.2 Ireland’s energy mix Ireland’s energy industry was traditionally based on peat. However, due to the ecological importance of peat lands in storing carbon and their rarity, the EU passed legislation11 to protect these landscapes; Ireland has since come under pressure from the EU to ban peat extraction.12 Ireland’s primary source of energy is fossil fuels, which accounted for 91.9% of all energy used in 2016.13 Of the conventional fossil fuels, oil is the most dominant, accounting for 48% of the total primary energy requirement (TPER) in 2016.14 Natural gas is also an important source of energy, accounting for 29% of TPER in 2016.15 Meanwhile, renewable energy sources accounted for a mere 8% TPER.16 In 2016 the consumption of all fuels increased (following the general pattern of previous years) with the exception of coal, peat, and nonrenewable wastes; oil and natural gas experienced the largest increases.17 Ireland has four production sites for natural gas: Kinsale Head, Ballycotton and Seven Heads gas fields off County Cork, and the Corrib gas field off County Mayo. There are yet to be any commercial discoveries of oil.18 9. Department of Communications, 2014. Energy and Natural Resources, “National Energy Efficiency Action Plan 2014,” DCCAE, Dublin. 10. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 39. 11. The Habitats Directive (92/43/EEC) and The Environmental Impact Assessment Directive (85/337/EEC). 12. European Commission, “European Commission: Press Release Database,” 16 June 2011. [Online]. Available at: http://europa.eu/rapid/press-release_IP-11 730_en.htm?locale 5 en. 13. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 12. 14. Ibid. 15. Ibid. 16. Ibid. 17. Ibid pp. 12 13. 18. Department of Communications, Climate Action and Environment, “Oil and Gas (Exploration and Production),” [Online]. Available at: https://www.dccae.gov.ie/en-ie/natural-resources/topics/Oil-GasExploration-Production/Pages/home.aspx.

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As Ireland does not have significant fossil fuel resources, and only harnessed renewable sources in significant quantities very recently, it has tended to rely heavily on imported energy. In 2015 imports of oil and gas accounted for 77% of TPER (compared with 50% in the early 1990s);19 Ireland’s overall import dependency was 88%, at a cost of approximately h4.6 billion (which reflects the falling oil and gas import prices in the period 2014 15).20 However, in 2016 this fell drastically to 69%, at a cost of h3.4 billion.21 This change can be attributed in part to increased indigenous production at the Corrib gas field, from 106 ktoe in 2015 to 2473 ktoe in 2016. However, production at Corrib is expected to tail off in the next few years.22 The improvement in import dependency witnessed in 2016 should not therefore be taken for granted, and Ireland must take continued steps toward the integration of renewable energy sources if it wishes to improve its energy security for future generations. Ireland has made significant steps toward the improvement of its renewable electricity generation capabilities in recent years: indigenous renewable energy production rose by 176% during the period between 2005 and 2015 to 1030 ktoe, but thereafter fell to 1028 ktoe in 2016.23 According to the SEAI, this decline, which has been attributed to reduced wind and hydro levels, was balanced out by an increase in biomass and geothermal generation.24 In 2015 the share of renewable energy sources in the electricity generation fuel mix increased to 16.7%; its share in 2014 was 14.5%.25 While the use of renewables in the electricity generation fuel mix fell to 15.6% in 2016,26 this decrease is probably attributable to the increased production at Corrib and the reduced wind and hydro resources that year. Electricity generated from renewable energy sources was also down, to 25.6% in 2016 compared with 27.3% in 2015; nevertheless, once normalized for wind and hydro in accordance with Directive 2009/28/EC, the share of gross electricity generated from renewables in 2016 was 27.2%.27 Wind generation (once

19. Sustainable Energy Authority of Ireland, 2016. “Energy in Ireland: 1990 2015 (2016 Report),” Sustainable Energy Authority of Ireland, p. 42. 20. Ibid. 21. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 43. 22. Gas Networks Ireland, 2016. “Network Development Plan 2016: Assessing Future Demand and Supply Position,” Gas Networks Ireland. 23. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 43. 24. Ibid. 25. Sustainable Energy Authority of Ireland, 2016. “Energy in Ireland: 1990 2015 (2016 Report),” Sustainable Energy Authority of Ireland, p. 20. 26. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 20. 27. Ibid pp. 20 21.

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normalized) accounted for 22.3% of the electricity generated. In 2016 wind was the second-largest source of electricity generation after natural gas.28 Within the EU, Ireland is the country with the highest level of newly installed wind capacity relative to its total power consumption. It has a newly installed wind capacity of 426 MW and an average power consumption of 3 GW (ratio of 14%). By way of comparison, Germany and the United Kingdom have a ratio of 12%. With regard to penetration rates, Ireland has a penetration rate of 24% (compared with Denmark’s 44%).29

11.2.1.3 Ireland’s progress against its targets With regard to its renewable energy targets, Ireland has made considerable progress. Based on Ireland’s fourth NREAP, it surpassed the interim target set by Directive 2009/28/EC for final energy consumption, reporting an average of 9.5% against a target of 8.92%.30 The share of electricity generated from renewable energy is also reported to have increased fivefold between 1990 and 2016. However, despite this progress, Ireland is falling short of its national subtargets and efforts must accelerate to meet these by 2020. As of 2016, renewable energy sources contributed 27.2% to gross electricity generation; the 2020 target is 40%.31 Meanwhile, the renewable share of thermal energy was 6.8% in 2016; the 2020 target is 12%.32 Ireland reports substantial savings on its energy usage, with 39% of the national target achieved at the end of 2012.33 However, Ireland itself has noted that a significant acceleration is required to meet its 2020 targets. Ireland is also falling short of its GHG emissions reduction target: it is forecasted to have reduced non-ETS GHG emissions by only 1% by 2020, well short of its 20% target.34 Thus Ireland’s decarbonization efforts are ongoing. However, these must be accelerated if Ireland meets its 2020 targets. The fact it is so lagging behind its own national subtargets gives rise to questions about the robustness of the implementation of Ireland’s energy strategy. It is also pertinent to scrutinize its regulatory framework for gaps or weaknesses. The following Sections 11.3 and 11.4 will do precisely this. 28. Ibid p. 21. 29. Wind Europe, 2018. “Wind in Power 2017: Annual Combined Onshore and Offshore Wind Energy Statistics,” Wind Europe, 19, 21. 30. Irish Government, 2017. “National Renewable Energy Action Plan (NREAP): Ireland, Fourth Progress Report submitted under Article 22 of Directive 2009/28/EC,” Irish Government, Dublin, p. 2. 31. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, pp. 20 21. 32. Ibid pp. 31 32. 33. Department of Communications, 2014. Energy and Natural Resources, “National Energy Efficiency Action Plan 2014,” DCCAE, Dublin, Introduction p. 1. 34. Environmental Protection Agency, 2018. “Ireland’s Greenhouse Gas Emissions Projections 2017 2035,” EPA, Dublin, 10.

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11.2.2 Market and market players 11.2.2.1 (Integrated) Single electricity market From 2007, the island of Ireland has operated as a single electricity market (“SEM”). The legal basis for the single market is found in the Electricity Regulation (Amendment) (Single Electricity Market) Act 2007. The goal of the SEM is “to provide for the least cost source of electricity generation to meet customer demand at any one time across the island, while also maximising long-term sustainability and reliability.”35 The networks in Northern Ireland and Ireland are now connected with three interlinks, forming the SEM; the SEM is also connected through Northern Ireland to the UK mainland. These interconnections are explored in further detail in Section 11.3. The SEM is regulated jointly by the Irish regulator, the Commission of Regulation of Utilities (“CRU”), and the Northern Irish Regulator, the Utility Regulator. The decision-making body responsible for the governance of the SEM is the SEM Committee, which is comprised the CRU, Utility Regulator, and an independent member. Meanwhile, the SEM is operated by the SEM Operator or SEMO. A redesign of the SEM is underway in response to the EU’s push for a common target model for cross-border electricity trading pursuant to EU Regulation 2015/1222. The new market is referred to as the I-SEM. The I-SEM builds on the SEM, but with an added emphasis on competition, transparency, and consumer engagement. The I-SEM introduces new arrangements for, among other matters, the capacity remuneration mechanism (CRM). The I-SEM went live in October 2018. 11.2.2.2 Market players The state-owned ESB owns Ireland’s transmission system, which is operated and developed by EirGrid plc, another state-owned entity. EirGrid has now been certified as an independent TSO by the European Commission pursuant to Article 9(9) of Directive 2009/72/EC, subject to ongoing monitoring by CRU of the implementation of the arrangements.36 ESB also owns the distribution system, which is operated by its wholly owned subsidiary ESB Networks as the DSO. For completeness, EirGrid, the TSO, also owns the Northern Ireland TSO, SONI. The Northern Ireland transmission and distribution systems are owned by Northern Ireland Electricity Networks, now a subsidiary of ESB. NIE Networks is also Northern Ireland’s DSO. 35. Department of Communication, Climate Action and Environment, “Single Electricity Market (SEM),” [Online]. Available at: https://www.dccae.gov.ie/en-ie/energy/topics/Electricity/commission-for-energy-regulation-(cer)/Pages/Single-Electricity-Market-(SEM).aspx. 36. European Commission, 2014. “Single Market Progress Report: Ireland,” European Union, Luxembourg, p. 117.

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The incumbent energy supplier in Ireland is Electric Ireland, which is the supply arm of the state-owned ESB. ESB rebranded as Electric Ireland in 2010 to promote competition in the emerging open retail market. The retail market has only been wholly open since 2004/2005; other suppliers have since gained a foothold, but ESB, via Electric Ireland, continues to dominate. Other dominant players include Energia, which is part of the Viridian Group, Board Gais Energy, which is owned by Centrica, and SSE Airtricity, owned by SSE plc. While the retail market is being progressively liberalized, the challenge for Ireland over the coming years will be to incorporate the new generation of domestic prosumers. Smart meters will have a crucial role in facilitating the transformation to a more decentralized, localized market. The table below outlines the different market players in the I-SEM. Northern Ireland is therefore included for completeness.

Regulatory authority Generators Transmission asset owner Transmission system operator Distribution asset owner Distribution system operator Market operator Suppliers

Consumers

Republic of Ireland

Northern Ireland

CRU Fossil fuels, renewable, demand-side units, aggregators ESB

UREGNI

EirGrid

SONI

ESB

NIE Networks

ESB Networks

NIE Networks

SEMO BEenergy, Bord Gais Energy, Electric Ireland, Energia, Go Power, Just Energy, Naturgy, Panda power, Pinergy, Prepay Power, SSE Airtricity, Vayu Large users (industry, commercial) SMEs, residential

SEMO Electric Ireland, SSE Airtricity, Click Energy, Budget Energy, Energia, Go Power/LLC Power, Power NI, Vayu, 3T Power

NIE Networks

11.2.2.3 Customer profile The Irish electricity market is comprised four different market segments covering different Distribution Use of System groups: the domestic market, small-sized business market, medium-sized business market, and large energy user market.37 By the end of 2017, the total market size was approximately 2.3 million.38 Of this, 88.1% consisted of the domestic market; 7.9% of small businesses, 3.9% of medium businesses, and 0.1% of large users39 (figures rounded to 1 decimal place). 37. Commission for Regulation of Utilities, 2018. “2017 Electricity and Gas Retail Markets Annual Report (CRU18126),” CRU, Dublin. 38. Ibid, p. 101. 39. Ibid.

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With regard to usage trends, in 2016 industry energy use increased by 3%, whereas residential energy use increased by 4.8% on a weathercorrected basis relative to 2015; final energy use in the commercial and public services sector increased by 8.5% on a weather-corrected basis; transport continues to be the dominant sector for energy consumption.40 Industry’s share of the primary energy requirement was 24%; residential was 24%; transport was 35%; and commercial and public services were 14%.41 Agriculture and fisheries accounted for the remainder.

11.2.3 Transmission system Ireland’s transmission system comprises mainly overhead lines operating at 400 kV, 220 kV, and 110k, with around 6500 km lines in total.42 The transmission system is owned by ESB and operated by the TSO, EirGrid. A single 275 kV double circuit interconnector cable connects Ireland with Northern Ireland between Louth (Ireland) and Tandragee (Northern Ireland) substations. Meanwhile, two lower-capacity 110 kV cables connect at Letterkenny in Co. Donegal and Corraclassy in Co. Cavan.43 These interconnections facilitate the functioning of the SEM. The Irish grid is also connected to the UK mainland through two interconnectors: through the Moyle Interconnector to Scotland and through the East-West Interconnector to Wales.44 However, and notwithstanding the current interconnection arrangements, Ireland has not yet reached its 10% interconnection target with the EU. In 2017 its level of interconnection was 7.4% of installed generation capacity.45 Plans are in place to improve Ireland’s interconnection arrangements in the coming years.46 A second major interconnector is currently being planned between Ireland (Co. Cavan) and Northern Ireland (Co. Tyrone): this so-called North-South Interconnector would add another 400 kV of interconnection to existing arrangements, but remains in the planning stage. EirGrid is also exploring an interconnector between Ireland and France (“Celtic Interconnector”) and between Ireland and Wales (“Greenlink”). 40. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 18. 41. Ibid pp. 13 14. 42. Commission for Energy Regulation, “Factsheet: Electricity Network and Charges,” July 2010. [Online]. Available at: https://www.cru.ie/wp-content/uploads/2010/07/cer10106.pdf. 43. EirGrid Group, “Transmission System Map,” September 2016. [Online]. Available at: http:// www.eirgridgroup.com/site-files/library/EirGrid/EirGrid-Group-Transmission-SystemGeographic-Map-Sept-2016.pdf. 44. Ibid. 45. European Commission, 2017. “Commission Staff Working Document: Energy Union Factsheet Ireland,” European Commission, Brussels, pp. 5 6. 46. EirGrid, “Projects,” [Online]. Available at: http://www.eirgridgroup.com/the-grid/projects/.

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The development of Ireland’s interconnectivity with mainland Europe will be particularly pressing following the UK’s departure from the EU. The Institute of International and European Affairs (“IIEA”) has identified that Ireland’s poor interconnections with EU Member States may leave it vulnerable to energy crises in a post-Brexit environment.47 After the United Kingdom leaves the EU in March 2019, any energy derived from the United Kingdom will be deemed to be derived from a “third country.” But as a third country, the United Kingdom will no longer be obliged to comply with the EU’s solidarity principle and to compensate Ireland for supply disruptions. Moreover, the uncertainty surrounding the UK’s departure may pose a hurdle to investment in ongoing interconnectivity projects. In short, Ireland’s relatively isolated position on the fringes of the European energy market and the forthcoming British exit from the EU means that the need to consider new interconnectivity projects other than the current UK-Ireland projects is particularly urgent. Section 11.4.2 will consider the energy security dimension in further detail.

11.2.4 Distribution system The distribution system allows for the flow of electricity from the transmission system to 2.3 million customers in Ireland. The wires on this lowvoltage network are typically operated at 38 kV, 20 kV, and 10 kV, although are operated at 110 kV in and around Dublin.48 There is about 165,000 km of these low-voltage lines across Ireland.49 The distribution system is operated by the distribution system operator, ESB Networks. In Ireland, a significant proportion of the population lives outside of cities and towns, and the spread of this rural population in Ireland is reflected in the extent and the characteristics of the distribution system. Ireland has four times the European average of length of network per capita, with the ratio of overhead lines to underground cables over 6:1.50 With so much overhead line exposed to weather and other events, maintaining a reliable supply of electricity to these rural areas poses a considerable challenge to the DSO. The integration of nonsynchronous generation sources will put the distribution system under additional, and increasing, pressure: the onus is therefore on the DSO to maintain and upgrade the system to facilitate the smart grid transition. 47. Institute of International and European Affairs, 2016. “IIEA Policy Brief: What Does Brexit Mean for the Energy Sector in Ireland?,” Institute of International and European Affairs, Dublin. 48. ESB Networks, “ESB Networks—Our Infrastructure,” [Online]. Available at: https://esbnetworks.ie/who-we-are/our-networks. 49. Commission for Energy Regulation, “Factsheet: Electricity Network and Charges,” July 2010. [Online]. Available at: https://www.cru.ie/wp-content/uploads/2010/07/cer10106.pdf. 50. ESB Networks, 2014. “ESB Networks 2027: Lighting the Way to a Better Energy Future,” ESB Networks, Dublin, Introduction p. 1.

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11.3 Governance system 11.3.1 Energy strategy Ireland’s energy strategy is derived from the targets laid down by the relevant EU Directives and other international commitments. Under Directive 2009/28/EC, Ireland set the following 2020 targets: G

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16% of final energy use (all sectors) must be sourced from renewable sources (subtargets of 12% for heat; 40% for electricity); and 10% of energy use in the transport sector must be renewable.

Ireland also has a target to reduce its non-ETS GHG emissions by 20% compared to 2005 levels by 2020.51 It has also committed to make energy savings of 20% of the historical average energy use during the period 2000 05 by 2020, alongside a 33% reduction in public sector usage.52 Targets also exist with respect to the 2030 climate and energy framework and 2050 low-carbon economy. As noted above, Ireland has consistently struggled to identify a pathway that will ensure its achievement of its targets. Its forecasted GHG emissions for 2035 have been described as “disturbing” by its Climate Advisory Council; with emissions increasing at a rate of 2 million tonnes per annum, there is “great concern” that the country will fail to achieve its 2020 and 2030 targets.53 At the time of writing, Ireland is expected to have reduced its emissions by less than 1% come 2020.54 Meanwhile, renewable energy sources contributed only 27.2% to gross electricity generation in 2016, compared to a 2020 target of 40%.55 Accordingly, the question that dogs Ireland is whether its energy strategy is a workable one. In May 2012, the DCCAE (then the DCENR) published its Strategy for Renewable Energy: 2012 2020.56 This paper served as an expression of Ireland’s intention to develop renewable energies and laid down the strategic goals seen as necessary to achieve this. The paper acknowledged inter alia the importance of smart grids to the future green economy: among the paper’s strategic goals was the need to develop robust and efficient networks. To this end, the paper called for a multidepartmental and cross-collaborative approach toward the development of smarter electricity grids. 51. Environmental Protection Agency, 2018. “Ireland’s Greenhouse Gas Emissions Projections 2017 2035,” EPA, Dublin, p. 10. 52. Department of Communications, Energy and Natural Resources, 2014. “National Energy Efficiency Action Plan 2014,” DCCAE, Dublin. 53. Climate Change Advisory Council, 2018. “Annual Review 2018,” Climate Change Advisory Council, Dublin, Executive Summary (iii)-(iv). 54. Environmental Protection Agency, 2018. “Ireland’s Greenhouse Gas Emissions Projections 2017 2035,” EPA, Dublin, p. 10. 55. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, pp. 20 21. 56. Department for Communications, Energy and Natural Resources, 2012. “Strategy for Renewable Energy: 2012 2020,” DCENR.

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Ireland’s National Policy Position on climate change was published in 2014.57 The National Policy Position provides a high-level framework for the transition to a low-carbon economy by 2050. To this end, it anticipates that energy policy will be based on an aggregate reduction in CO2 emissions of at least 80% compared to 1990 levels. The paper also envisioned a sustainable approach to carbon neutrality in the agricultural and land-use sector which will not compromise the country’s food security. The Offshore Renewable Development Plan was also published in 2014.58 The plan provides a pathway for the development of Ireland’s offshore renewable energy resources. The White Paper on Energy Policy, Ireland’s Transition to a Low Carbon Energy Future 2015 2030 was then published in 2015. The White Paper sets out a framework to guide energy policy in the period to 2030.59 It advanced an approach to the transition objective which focuses on the democratization of Ireland’s energy grid: an evolution from the current, centralized energy system model to a new model which engages individuals and communities, set within and facilitated by a stronger regulatory framework, more effective, competitive markets, robust infrastructure, and improved cooperation between Ireland and its energy partners in the United Kingdom and EU. The “three energy pillars” of Ireland’s energy policy are given as sustainability, security of supply, and competitiveness. The Climate Action and Low Carbon Development Act 2015,60 which is the first piece of climate change legislation enacted by Ireland, provides the statutory basis for the abovementioned National Policy Position. It formally recognizes the importance of Ireland’s national transition objective. During the transition period, the Act envisages the submission by the Minister of a series of National Mitigation Plans and National Adjustment Frameworks. The first National Mitigation Plan (NMP) was submitted in July 2017.61 The 2017 NMP afforded particular attention to the following subareas: G

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the decarbonization of electricity generation (with a focus on improvements to European interconnection, and existing infrastructure); the improvement of energy efficiency in the built environment (e.g., through smart metering, improved building regulations);

57. Department for Communications, Climate Action and Environment, “National Policy Position on Climate Action and Low Carbon Development,” 1 January 2013. [Online]. Available at: https:// www.dccae.gov.ie/en-ie/climate-action/publications/Pages/National-Policy-Position.aspx. 58. Department of Communications, Energy and Natural Resources, 2014. “Offshore Renewable Energy Development Plan: A Framework for the Sustainable Development of Ireland’s Offshore Renewable Energy Resource,” DCCAE, Dublin. 59. Department of Communications, Energy and Natural Resources, 2016. “Ireland’s Transition to a Low Carbon Energy Future: 2015 2030,” DCENR. 60. “Climate Action and Low Carbon Development Act 2015 (No 46 of 2015).” 61. Department of Communications, Climate Action and Environment, 2017. “National Mitigation Plan: July 2017,” DCCAE.

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the decarbonization of transportation (low emission vehicles, investment in public transport); and the facilitation of carbon neutrality across the agricultural and forestry sectors (“smart farming” improving farms’ environmental performance, reducing carbon footprint, organic farming).

The pursuit of the national transition objective, as expressed within the National Policy Position, the White Paper, the 2015 Act and the various publications which have stemmed from these, is overseen by the Cabinet Committee on Infrastructure, which is chaired by the Taoiseach. Independent advice is provided by the Climate Change Advisory Council (CCAC), established under the Climate Action and Low Carbon Development Act 2015.

11.3.2 Integration of governance and energy strategy 11.3.2.1 EirGrid (transmission system operator) Grid 25/Your Grid, Your Tomorrow/DS3 Programme In response to Ireland’s national transition objective and related targets, EirGrid is working to modernize the existing electricity infrastructure so as to contribute toward the delivery of a smarter, more cost-effective, and responsive electric grid. EirGrid’s plan to upgrade the transmission network by 2025 was coined “Grid25.”62 The project continues to be implemented, but has been built on by the publication of Ireland’s “Grid Development Strategy: Your Grid, Your Tomorrow,” in 2017.63 Among the major projects proposed by EirGrid to facilitate the integration of renewable energies and ensure the security of supply is the building of a NorthSouth Interconnector between Northern Ireland and Ireland. A Celtic Interconnector between Ireland and France is also mooted. Other potential interconnection projects which would link into the strategy include The Irish-Scottish Links on Energy Study (ISLES) project envisages an offshore transmission network and subsea electricity grid in the Irish Sea-North Channel area and off the west coast of Scotland.64 This project is administered by the DCCAE, alongside the Scottish Government and the Department of the Economy in Northern Ireland. Meanwhile, the North Seas Countries’ Offshore Grid Initiative (now integrated into the Political Declaration on Energy Cooperation between the North Seas Countries) involves nine EU countries and Norway.65 62. EirGrid, 2011. “Grid25: A Strategy for the Development of Ireland’s Electricity Grid for a Sustainable and Competitive Future,” EirGrid, Dublin. 63. EirGrid, 2017. “Ireland’s Grid Development Strategy: Your Grid, Your Tomorrow,” EirGrid, Dublin. 64. Irish Scottish Links on Energy Study (ISLES), “ISLES,” [Online]. Available at: http://www. islesproject.eu/. 65. European MSP Platform, “Political Declaration on Energy Cooperation Between the North Seas Countries,” [Online]. Available at: https://www.msp-platform.eu/practices/political-declaration-energy-cooperation-between-north-seas-countries.

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The DS3 (Delivering a Secure, Sustainable Electricity System) programme is addressing the operational challenges entailed by the integration of very high levels of renewable energy to the grid.66 Nonsynchronous (variable) generation is less reliable than the traditional, synchronous generation produced by fossil fuels. Thus DS3 is focused on how to meet Ireland’s 2020 targets in a secure and sustainable manner, while minimizing curtailment in accordance with Directive 2009/28/EC. Smart Wires collaboration EirGrid is collaborating with Smart Wires, a US-based technology company.67 EirGrid has trialed Smart Wire’s Powerline Guardian device, which could assist with the control of power flows in real time. EirGrid is now conducting a pilot project with the company’s SmartValve device from Smart Wires that builds on the Powerline Guardian technology. Storage projects EirGrid is also participating in two innovative storage projects in County Offaly and County Kerry.68 These are covered in further detail in Section 11.8.2. Power Off and Save Power Off and Save is a pilot programme that rewards customers who agree to reduce their energy usage when electricity demand is high.69 EirGrid has developed the Power Off and Save programme in partnership with Electric Ireland. The Power Off and Save programme will be discussed in further detail in Section 11.6.

11.3.2.2 ESB Networks (distribution system operator) Innovation Strategy In 2017 ESB Networks launched its Innovation Strategy. The strategy sets out how ESB Networks intends to meet the challenges of the changing energy landscape.70 FINESCE/FIWARE FP7 research project ESB Networks participated in the FINESCE smart energy case use project71 (part of the EU’s FP7 research and innovation funding program for 66. EirGrid Group, “DS3 Programme,” [Online]. Available at: http://www.eirgridgroup.com/ how-the-grid-works/ds3-programme/. 67. EirGrid, “Key Innovation Projects,” [Online]. Available at: http://www.eirgridgroup.com/ how-the-grid-works/innovation/enhanced-user-facilitatio/. 68. Ibid. 69. Ibid. 70. ESB Networks, “ESB Networks Launch their Innovation Strategy,” 28 September 2017. [Online]. Available at: https://www.esb.ie/tns/press-centre/2017/2017/09/28/esb-networks-launch-their-innovationstrategy. 71. ESB Networks, “ESB Networks’ Projects,” [Online]. Available at: https://www.esbnetworks. ie/who-we-are/innovation/projects.

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2007 13), which centered on the development of an open IT infrastructure for the development of app-based solutions in the smart utility services field. From this project emerged the FIWARE open-source cloud platform. EvolvDSO EvolvDSO72 was an EU-funded project which aimed to define the future DSO function based on scenarios driven by different distributed renewable energy sources, penetration levels, degrees of technological progress, and customer acceptance patterns. The project concluded in December 2016. Plan Grid EV PlanGridEV73 was another EU-funded project which completed in February 2016. This project aimed at developing the tools and methods required for DSOs to increase their hosting capacity for the deployment and integration of electric vehicles to the grid. RealValue RealValue74 is an ongoing EU-funded energy storage project. As part of the project, ESB Networks is installing advanced Smart Electric Thermal Storage Systems (SETS) into homes across Ireland. This technology will aid the promotion of the demand-side management agenda, by demonstrating how local, small-scale storage could bring benefits to the market as a whole, in particular with regard to energy balancing, grid security and supply, and the decarbonization and integration of renewable energy systems. The project will conclude in 2018. Winter Peak As load profiles in the low-voltage network could undergo significant change as new technologies become available, ESB Networks is focusing on the development of new policy frameworks to ensure the successful integration of these technologies into the network. The Winter Peak project75 is undertaken in partnership with Intel, Siemens, and Trinity College Dublin. EPRI International Smart Grid Demonstration Initiative ESB Networks is also collaborating with the US-based EPRI to develop solutions to facilitate and manage the increased renewable penetration on the Irish electricity grid.76 72. 73. 74. 75. 76.

Ibid. Ibid. Ibid. Ibid. Ibid.

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Dingle project ESB Networks has launched a major project in Dingle, which will see a range of technologies deployed to help build a secure, reliable electricity network for those on the peninsula.77 The peninsula will therefore serve as a pilot to assess how new and evolving technologies will help to future-proof the future electricity network. Smart Energy Services Through its energy management subsidiary, Smart Energy Services, ESB Networks provides consultancy, capital funding, and energy management services to help commercial consumers reduce energy use, costs, and carbon emissions.78 Since 2016, Smart Energy Services has helped 200 Irish and the UK companies to deliver h55 million in energy savings.79

11.3.2.3 DCCAE Pilot microgeneration scheme DCCAE has announced that it will make available to domestic customers grant supports for those who install PV systems as part of its pilot microgeneration scheme.80 Additional grants will be available for customers who install battery storage systems alongside solar PV panels. The scheme will be administered by the SEAI. Funding for energy research projects In September 2018, DCCAE announced the allocation of h8 million in Government funding for 45 innovative and varied Energy Research Projects across Ireland.81 The funds shall be administered by SEAI. 77. ESB Networks, “ESB Networks’ Dingle Project,” [Online]. Available at: https://www.esbnetworks.ie/who-we-are/innovation/ireland’s-energy-future. 78. ESB, “Smart Energy Services,” [Online]. Available at: https://www.esb.ie/our-businesses/ smart-energy-services/smart-energy-services-overview. 79. The Irish Examiner, “ESB to Deliver h150 Million in Savings to Large Businesses,” 5 February 2018. [Online]. Available at: https://www.irishexaminer.com/breakingnews/business/ esb-to-deliver-150-million-in-savings-to-large-businesses-826436.html. 80. Department of Communications, Climate Action and Environment, “Minister Denis Naughten Launches Pilot Micro Generation Scheme Targeting Domestic Customers and Self-Consumption and Announces Increase to Grant Supports for Home Insulation,” 31 July 2018. [Online]. Available at: https://www.dccae.gov.ie/en-ie/news-and-media/press-releases/Pages/Minister-Denis-Naughten-launchespilot-Micro-Generation-scheme-targeting-domestic-customers-and-self-consumption and-annou.aspx. 81. Department of Communications, Climate Action and Environment, “Minister Denis Naughten Announces h8 Million for Innovative Energy Research Projects,” 10 September 2018. [Online]. Available at: https://www.dccae.gov.ie/en-ie/news-and-media/press-releases/Pages/Minister-DenisNaughten-announces-%E2%82%AC8-million-for-innovative-Energy-Research-Projects.aspx.

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11.3.2.4 SEAI Administration of government funding schemes SEAI is responsible for administering government funding for energy research projects to companies and research institutions throughout Ireland, including the energy research projects and microgeneration pilot program referred to in Section 11.3.2.3 above. SEAI and IEA SEAI is the contracting party for a number of International Energy Agency (IEA) Technology Collaboration Programmes (TCPs).82 Among these TCPs is the International Smart Grid Action Network or ISGAN. ISGAN creates a strategic platform to support high-level government action on the development and deployment of smart grids. Tools and calculators SEAI has published a number of tools and calculators which may be used by the general public to calculate energy efficiency and potential cost savings.83 Electric vehicle information hub SEAI has created a publicly available information hub regarding electric vehicles.84 Smart grid road map SEAI has produced a road map which explores the contributions a smart grid could make with respect to achieving Ireland’s national transition objective, and also the operational measures to be taken to ensure its effective deployment.85

11.3.3 Reflections on the governance system Ireland’s governance system is distinctly centralized. This attribute has possibly aided Ireland with the formulation of a clear energy strategy for the years ahead. The energy strategy has then been implemented consistently across the governance chain, as has been made evident in this Section 11.3. 82. Sustainable Energy Authority of Ireland, “International Energy Agency,” [Online]. Available at: https://www.seai.ie/sustainable-solutions/research-development-demonstration-and-innovation/ international-energy-agency/. 83. Sustainable Energy Authority of Ireland, “Tools,” [Online]. Available at: https://www.seai.ie/ resources/tools/. 84. Sustainable Energy Authority of Ireland, “Electric Vehicles,” [Online]. Available at: https:// www.seai.ie/sustainable-solutions/electric-vehicles/. 85. Sustainable Energy Authority of Ireland, “Smartgrid Roadmap,” [Online]. Available at: https:// www.seai.ie/resources/publications/Smartgrid-Roadmap.pdf.

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Notwithstanding the foregoing, Section 11.2 highlighted Ireland’s struggle to meet its ambitious targets. In light therefore of Ireland’s ostensibly effective governance system, it should be asked whether the current targets are simply too ambitious for Ireland to achieve. Over-ambition is itself detrimental to the climate change agenda, insofar as it threatens to foster more widespread disillusion with the transition as a whole. Meanwhile, a more temperate, modest agenda—one which poses sensible, attainable targets—would tend to bolster public confidence in the national transition authorities and minimize mounting skepticism toward the wider EU climate change agenda.

11.4 Regulatory framework and the energy security dimension 11.4.1 Regulatory framework The electricity market in Ireland is highly regulated. Ireland’s regulatory framework for the electricity market is comprised a series of legislative instruments, ranging from Statutory Instruments, to Acts, to communications from the CRU. Together, these regulations and laws transpose EU Directives and international treaty obligations (such as those derived from the Paris Agreement) into Irish Law.

11.4.1.1 Legislation pertaining to the electricity market The Electricity Regulation Act 1999 The principal legislative instrument governing the electricity industry, and it established the regulatory framework for the competitive generation and supply of electricity throughout Ireland, together with the regulatory authority, the CRU. The 1999 Act has been amended multiple times. The Electricity Regulation (Amendment) (Single Electricity Market) Act 2007 The 2007 Act amended the Electricity Regulation Act 1999. The 2007 Act provided for the establishment and operation of a single competitive wholesale electricity market (the Single Electricity Market or SEM) on the island of Ireland and its islands and to provide for related matters. Each jurisdiction’s utility regulator retained exclusive competence to regulate in its particular jurisdiction. The regulators are required to discharge their SEM-related functions through the SEM Committee. Note that the SEM has undergone a significant change in 2018: EU legislation has driven the coming together of energy markets across Europe with the aim of creating a fully liberalized internal electricity market. In response, the SEM has been redesigned. From October 2018, the reformed I-SEM has been in force. The I-SEM builds on the SEM, but with greater emphasis on maximizing competition, delivering security of supply, and improving transparency.

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The Energy Act 2016 (No. 12 of 2016) This Act provides for various amendments to the Electricity Regulation Act 1999, the Gas Act 1976, the National Oil Reserves Agency Act 2007, the Sustainable Energy Act 2002, and the Registration of Title Act 1964 to, among other matters, facilitate the I-SEM project and rename the utility regulator (formerly the Commission for Energy Regulation, henceforth the CRU). Climate Change and Low Carbon Development Act 2015 The 2015 Act provides for new arrangements aimed at the transition to a low-carbon economy. It builds on the National Climate Change Adaption Framework and includes provision for the establishment of a Climate Change Advisory Council, as well as the publication of National Mitigation and Adaption Plans.

11.4.1.2 Regulatory framework and the smart grid Integration of renewable energy sources In Ireland, the generation and supply of electricity to a final customer are licensable activities: licenses are granted at the CRU’s discretion under Section 14(1) of the 1999 Act. The cost of generation of licenses varies considerably, from h35 for a station with installed capacity of 1 MW to ,5 MW, to h3980 for 500 MW or greater.86 The application fee for a supply license is h254.87 One of the primary drivers of the smart grid transition is the integration of nonsynchronous energy sources into the electricity grid. The connection of renewables to the grid is regulated in Ireland by the 1999 Act, alongside statutory instruments S.I. No. 445/2000 (EC Internal Market in Electricity Regulations) and S.I. No. 147/2011 (EC Renewable Energy Regulations), as well as by directions of the CRU and SEM Committee. A “gate” system, operated by EirGrid, for the connection of larger renewable and conventional generators was in place until 2009. A nongate process was established in 2009 to enable smaller renewable and low-carbon generators as well as experimental technologies to connect to the system outside of the “gate” process. The CRU subsequently published its Decision on Enduring Connection Policy Stage 1 (ECP-1) on March 27, 2018.88 ECP-1 is the new process for grid connection, open to all generating and/or storage technologies. The ECP-1 applications window opened on April 27, 2018 and closed on May 28, 2018. EirGrid is no longer accepting applications for the 2018 batch of ECP-1. There will presumably be further batches in the following years. 86. Commission for Regulation of Utilities, “Authorisation to Construct and Licence to Generate,” [Online]. Available at: https://www.cru.ie/professional/licensing/atc-gl-licensing-2/. 87. Commission for Regulation of Utilities, “Electricity Supply Licence,” [Online]. Available at: https://www.cru.ie/professional/licensing/electricity-supply-license-2/. 88. Commission for Regulation of Utilities, 2018. “Enduring Connection Policy Stage 1 (ECP1): Decision (CRU/18/058),” CRU, Dublin.

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Of all the renewable energy sources, wind energy plays the most prominent role in the Irish energy supply mix. The Planning and Development Act 2000 [as amended by the Strategic Infrastructure Act 2006 and the Planning and Development (Amendment) Act 2010] allows for an enhanced approval procedure for planning applications for wind turbine developments consisting of more than 25 turbines or with an output of greater than 50 MW, subject to conditions. The enhanced approval procedure applies where the project is determined by the Planning Appeals Board to be of strategic, economic, or social importance; provides a substantial contribution to the fulfillment of the National Spatial Strategy or regional planning guidelines; or would have a significant effect on multiple planning authority areas. In 2006 the Wind Energy Development Guidelines were published: these laid down the national policy context to be applied by planning authorities when considering planning applications for wind farms. On June 13, 2017, a preferred draft approach to address the key aspects of the review of the 2006 Wind Energy Development Guidelines was announced.89 Feed-in tariff schemes In Ireland, electricity from renewable sources was mainly promoted through a renewable energy feed-in-tariff scheme (RE-FIT) that operated as a floor price; however, the closing date for applications for these support schemes has now passed.90 The proposed new Renewable Energy Support Scheme91 should help to plug some of the gap left by the demise of the old tariff regime. RESS auctions will be held on a regular basis; projects seeking support will need to satisfy prequalification criteria, with community investment underpinning the new system. Crucially, the RESS will be underpinned by the principle of “technological neutrality” which should aid the creation of a level playing field for less established technologies, such as solar PV. Alongside the RESS, the Government has announced the microgeneration solar PV pilot scheme, which is available to homeowners of dwellings built and occupied before 2011, provided eligibility criteria are met.92 The one-off 89. Department of Housing, Planning and Local Government, “Minister Coveney and Minister Naughten Announce Key Development in the Review of the Wind Energy Development Guidelines,” 13 June 2017. [Online]. Available at: https://www.housing.gov.ie/planning/guidelines/wind-energy/coveney-and-naughten-announce-key-development-review-wind-energy-development-guidelines. 90. ResLegal, “Feed-in tariff (Renewable Energy Feed-in Tariff - REFIT),” [Online]. Available at: http://www.res-legal.eu/search-by-country/ireland/single/s/res-e/t/promotion/aid/feed-in-tariffrenewable-energy-feed-in-tariff-refit/lastp/147/. 91. Department of Communications, Climate Action and Environment, “Renewable Electricity Support Scheme (RESS),” [Online]. Available at: https://www.dccae.gov.ie/en-ie/energy/topics/ Renewable-Energy/electricity/renewable-electricity-supports/ress/Pages/default.aspx. 92. Department of Communications, Climate Action and Environment, “Minister Denis Naughten Launches Pilot Micro Generation Scheme Targeting Domestic Customers and Self-Consumption and Announces Increase to Grant Supports for Home Insulation,” 31 July 2018.

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grant payment should encourage the installment of solar PVs on eligible dwellings. However, it is not available for commercial enterprises or community buildings. It will also not be available to farmers with large warehouses or shed rooftop space. These will instead have to participate in the RESS auctions. That an appropriate pilot scheme for such installations has not been created is perhaps a missed opportunity. Nevertheless, the RESS and microgeneration grants are a step in the right direction. Public bodies Ireland’s regulatory framework is also comprised measures directed toward public bodies. More specifically, Ireland runs certification programs that require public bodies to procure equipment and vehicles that satisfy certain energy efficiency criteria or which are listed on the Triple E Products Register maintained by the SEAI. These measures find legal expression in S.I. No. 542/2009 (as amended by S.I. 151/2011) and S.I. No. 426/2014. Heating and cooling schemes There are a number of regulatory measures relevant to buildings in Ireland. New buildings are required to comply with the renewable energy requirements of Part L of the Building Regulations (specifically S.I. No. 259/2008 and S.I. No. 259/2011). Meanwhile, a range of energy efficiency grants are made available to homeowners via the SEAI; this scheme has been coined the Better Energy Homes Scheme and aims at those homeowners seeking to upgrade their home through, among other things, improved insulation and/or the installation of heating pump systems and heating controls.93 In July 2018 the DCCAE introduced a pilot micro-generation scheme, with the offer of grant supports for domestic customers who install solar photovoltaic systems in their homes.94 The scheme, while funded by the DCCAE, will be administered by SEAI. The grant is available for homes built and occupied prior to 2011. Companies may also take advantage of the Accelerated Capital Allowance scheme, whereby companies, on the purchase of qualifying energy-efficient equipment, may depreciate 100% of the purchase value of qualifying equipment against their profits in the year of purchase.95 This latter scheme is subject to the provisions of the relevant statutory instruments, including the TCA 1997 [Taxes Consolidation Act 1997 (TCA) and its amending acts] and S.I. No. 446/2016 93. Sustainable Energy Authority of Ireland, “Home Energy Grants,” [Online]. Available at: https:// www.seai.ie/grants/home-energy-grants/. 94. Department of Communications, Climate Action and Environment, “Minister Denis Naughten Launches Pilot Micro Generation Scheme Targeting Domestic Customers and SelfConsumption and Announces Increase to Grant Supports for Home Insulation,” 31 July 2018. 95. Sustainable Energy Authority of Ireland, “Accelerated Capital Allowance,” [Online]. Available at: https://www.seai.ie/energy-in-business/accelerated-capital-allowance/.

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[Taxes Consolidation Act 1997 (Allowances for Energy Efficient Equipment) (Amendment) (No. 2) Order 2016].

Transportation schemes Transport is a major source of GHG emissions. With a view to reducing emissions, Ireland has introduced the Biofuels Obligation Scheme: this scheme obliges fuel suppliers to include a certain percentage (currently 8% by volume) of biofuels in their annual fuel sales.96 The scheme is administrated by NORA and is subject to the provisions of both the Energy (Biofuel Obligation and Miscellaneous Provisions) Act 2010 and the NORA Act 2007 (Biofuel Obligation Rate) Order 2016. S.I. No. 483/2014, regarding the EU (Renewable Energy) Regulations 2014 and is also pertinent. Since 2011, SEAI has been administering grants to incentivize the purchase of electric vehicles. Grants of up to h5000 are available.97 Up to h600 is also available for electric car owners to help cover the purchase and installation of home charger systems.98 A grant of up to h7000 or h3500 was made available toward the purchase of a battery electric vehicle (BEV) or plug-in hybrid electric vehicle (PHEV), respectively, for vehicles in the taxi sector through the Electric Small Public Service Vehicle grant scheme. However, the scheme closed by the end of 2018. In addition to the current grant scheme, a number of generous taxation incentives are available. Users of electric vehicles may claim motor tax and vehicle registration tax (VRT) reliefs; these are discussed further in Section 11.8.1. The ACA tax incentive scheme, referred to above, also supports the purchase of electric and hybrid vehicles and the associated charging equipment by companies. A carbon tax, whereby a tax is levied on the carbon content of fuels, was introduced in the 2010 Budget. The current rate is h20 per ton of CO2 emitted by the fuel concerned and applies to both petrol and diesel.99 Finally, the adoption of natural gas as a transport fuel is being encouraged with the excise rate applied set at a reduced rate to incentivize the uptake of natural gas as a transport fuel and to provide a pathway for the use of biogas in transport.100 96. Department of Communications, Climate Action and Environment, “Increase to Biofuel Obligation Rate Consultation,” [Online]. Available at: https://www.dccae.gov.ie/en-ie/energy/ consultations/Pages/Biofuel-Obligation-Scheme-Consultation.aspx. 97. Sustainable Energy Authority of Ireland, “Electric Vehicle Grant Values,” [Online]. Available at: https://www.seai.ie/grants/electric-vehicle-grants/grant-amounts/. 98. Sustainable Energy Authority of Ireland, “Electric Vehicle Home Charger Grant,” [Online]. Available at: https://www.seai.ie/grants/electric-vehicle-grants/electric-vehicle-home-charger-grant/. 99. Citizens Information, “Carbon Tax,” 21 March 2017. [Online]. Available at: http://www.citizensinformation.ie/en/money_and_tax/tax/motor_carbon_other_taxes/carbon_tax.html. 100. Revenue: Irish Tax and Customs, “Excise Duty Rates,” [Online]. Available at: https://www. revenue.ie/en/companies-and-charities/excise-and-licences/excise-duty-rates/electricity-and-otherenergy-products.aspx.

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Lastly, since July 2018 there has been a reduced tolling scheme for electric vehicles, with refunds capped at h500 for private vehicles (h1000 for goods/commercial vehicles).101

11.4.1.3 Reflections on the regulatory framework A robust regulatory framework of requirements, codes of practice, and regulatory guidance, supported by legislation and other statutory instruments, will be necessary to ensure the enforcement of Ireland’s smart grid policy. Section 11.4.1.2 makes clear that a comprehensive framework is already in place, in particular for the integration of renewable energy sources and energy efficiency measures. Yet a number of gaps can be readily ascertained. As matters currently stand, Ireland relies heavily on imported energy, in particular on supplies of gas (although 2016 provided a brief respite). Section 11.4.2 will consider the implications of this in further detail. But in terms of the regulatory framework specifically, while Ireland has adopted a wealth of legislation pertaining to energy efficiency, renewables, electricity, gas, and oil, it is yet to enact legislation that relates specifically to the security of supply.102 This is a not inconsiderable oversight from a regulatory perspective, as it means that the security of supply is dealt with only as a secondary concern through preexisting legislation and nonbinding policy frameworks. Given Ireland’s dependency on energy imports, and on the United Kingdom in particular, this issue will likely become increasingly relevant in the near future. As will go on to be detailed in Section 11.5, Ireland is undertaking an ambitious smart meter rollout, headed by the DSO. Ireland’s retail market has only been liberalized relatively recently and continues to be dominated by powerful incumbents. Accordingly, smart meters will have a crucial role in the decentralization and democratization of Ireland’s energy grid. However, the existing regulatory framework provides little direction on how the smart meter technology fits into Ireland’s broader smart grid strategy. This lack of direction, coupled with the absence of competitive market incentives, means that it remains to be seen whether the DSO in particular will be sufficiently incentivized to utilize smart meters so as to facilitate the broader transition to a smarter grid. While ESB Networks’ 2027 strategy report recognized the importance of smart technologies, it provides only a policy framework: the regulatory framework may therefore lack the enforceable targets often necessary to produce a widespread change in the absence of a competitive DSO market. Another potential gap in the regulatory framework concerns data protection in the smart meter context. At present, data falls to be protected under 101. eToll, “What is the Electric Vehicle Toll Incentive (EVTI)?,” [Online]. Available at: http:// www.etoll.ie/electric-vehicle-toll-inc/. 102. Department of Communications, Climate Action and Environment, “Security of Supply: Related Legislation,” [Online]. Available at: https://www.dccae.gov.ie/en-ie/energy/topics/Security-of-Supply/ Pages/related-legislation.aspx.

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the GDPR and relevant domestic data protection legislation; however, there is no legislation that deals specifically with data originating from smart meters. Given that concerns about data protection are one of the material hurdles to a wider smart meter rollout, it seems prudent to consider making specific legislative provision for the protection of such data. The integration of nonsynchronous energy generation sources will necessitate the development of DSR technologies capable of balancing supply and demand. However, persistent regulatory gaps hamper the participation of demand response in the available markets. In particular, but not exclusively, the balancing market must be opened to small consumers. Efforts should also be focused on maximizing revenue streams and facilitating the access of demand response to the capacity market. Section 11.6 discusses these issues in further detail. Finally, energy storage, which will play an important role in the management of nonsynchronous energy sources, is not recognized by the current framework as a licensable activity in its own right. Absent such recognition, the business of an entity engaged in the storage of electricity has historically been regulated on the basis of the separate licensable activities that the storage business entails: in particular, the supply and generation of electricity. While specific treatment of batteries and pumped storage units should be introduced as part of the I-SEM project, for the time being storage activities remain woefully overlooked in the regulatory framework. This, coupled with the high capital costs associated with storage technologies, has had negative implications for the storage market; Section 11.8.2 considers this further.

11.4.2 Energy security dimension Ireland continues to lag behind on its interconnection target of 10% of installed electricity production capacity by 2020.103 Ireland is reliant on oil and natural gas to meet its primary energy demand, with shares of 48% and 29%, respectively.104 Meanwhile, the share of natural gas in the electricity generation fuel mix was 48% (2,334 ktoe) in 2016; this was a 23% increase compared with 2015.105 However, RE sources are gradually becoming more important to the energy fuel mix. With regard to primary energy demand, renewables’ share was 8% in 2016.106 The share of renewables in the electricity generation fuel mix was 15.6%.107 103. European Commission, 2017. “Commission Staff Working Document: Energy Union Factsheet Ireland,” European Commission, Brussels, pp. 5 6. 104. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 12. 105. Ibid, p. 20. 106. Ibid, p. 12. 107. Ibid, p. 20.

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Notwithstanding Ireland’s dependence on fossil fuels, it has limited indigenous natural resources: accordingly, it has historically relied heavily on imports to meet its energy demand. In 2014 Ireland had an import dependency of 85%: its oil dependency was fourth highest in Europe at 49% of energy usage, and 96% of natural gas used in Ireland was imported, compared to the EU average of 65%.108 Generally speaking, Ireland’s energy security has declined since 2000. In 2016 however Ireland’s import dependency fell to 69% from 88% in 2015.109 This ostensibly dramatic fall reflected increased production in the previous 12 months at the Corrib gas field, rather than improvements in indigenous renewable energy production. As with all countries, Ireland’s economy depends on secure, reliable, and safe supplies of electricity, gas, and oil. But Ireland’s reliance on fossil fuels makes it particularly vulnerable to disruptions in supply, given its limited indigenous supply of the resource. Weaning Ireland off its dependence on oil and natural gas is therefore an important consideration in terms of building a more sustainable and secure energy supply. The onus, in short, is on Ireland to improve its indigenous renewable energy production such that it can maintain its independence from imports in the future. Diversifying the fuel mix will require improvements to Ireland’s existing energy infrastructure, in particular to the transmission and distribution networks. One way in which the relevant market players are helping to facilitate the transition is through the DS3 programme, headed by the TSO, EirGrid alongside its Northern Irish counterpart, SONI.110 The aim of the DS3 programme is to find solutions to the challenges posed by the integration of variable renewable generation sources, with a particular focus on improvements to infrastructure. So far, the DS3 programme has enabled EirGrid to increase levels of renewable generation possible on the system at any given time from 50% to 65%, with the aim of increasing this incrementally to 75% over the coming years. EirGrid is also implementing a comprehensive grid development program, under the auspices of the Grid25 programme and the more recent 2017 Grid Development Strategy: Your Grid, Your Tomorrow. However, support schemes will continue to be necessary to incentivize the widespread deployment of renewable energy technologies. While the RE-FIT scheme has been withdrawn, the proposed Renewable Energy Support Scheme will continue to provide much-needed support, while also encouraging community

108. Sustainable Energy Authority of Ireland, 2016. “Energy Security in Ireland: A Statistical Overview (2016 Report),” SEAI, p. 3. 109. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, p. 4. 110. EirGrid Group, “DS3 Programme,” [Online]. Available at: http://www.eirgridgroup.com/ how-the-grid-works/ds3-programme/.

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ownership of projects.111 The new microgeneration pilot scheme for domestic dwellings112 is another promising development. With the diversification of Ireland’s fuel mix, the tendency will be for imports to acquire an increasing share of the mix to respond to the challenges of nonsynchronous generation. Thus it is important that Ireland reinforce its links with the EU. A particular challenge for Ireland with respect to its energy security is its dependency on the United Kingdom for its energy supply. PostBrexit, it is likely that planned connection projects with the United Kingdom will face funding problems.113 Moreover, the UK’s exit from the EU could result in tariff barriers to the cross-border supply of the UK-transited energy.114 Most crucially of all, the United Kingdom would, as a third-party country, no longer be obliged to observe the solidarity principle in the event of supply disruptions or shortages. Thus it is critical that Ireland takes action to ensure the security of its future supply. In addition to the modernization of its network infrastructure and the development of indigenous (renewable) electricity generation, Ireland must therefore bolster its pipeline connections with Europe. The Celtic Interconnector is one example of how Ireland is seeking to address its dependency problems, through measures to bolster the connections between Ireland and the EU. Meanwhile, the North Seas Countries’ Offshore Grid Initiative involves nine EU countries (including Ireland) and Norway. However, Ireland continues to see the United Kingdom as a critical trading partner, with both parties seeking to strengthen existing interconnections via a second Northern Ireland (the “North-South”) 400 kV pipeline. A 500 MW interconnector between Wales and Ireland (the “Greenlink” interconnector) is also being developed. The importance of further interconnection, specifically with the United Kingdom and France, is highlighted in Ireland’s “Project Ireland 2040” infrastructure investment plan, published in 2018.115 As noted in Section 11.4.1, Ireland has not implemented legislation specifically pertaining to the security of the energy supply. This is a considerable oversight from a regulatory perspective, as it means that the security of supply may not adequately be considered in the context of the smart grid transition strategy. This is an area to which Ireland may wish to attend in the

111. Department of Communications, Climate Action and Environment, “Renewable Electricity Support Scheme (RESS),” [Online]. Available at: https://www.dccae.gov.ie/en-ie/energy/topics/ Renewable-Energy/electricity/renewable-electricity-supports/ress/Pages/default.aspx. 112. Department of Communications, Climate Action and Environment, “Minister Denis Naughten Launches Pilot Micro Generation Scheme Targeting Domestic Customers and SelfConsumption and Announces Increase to Grant Supports for Home Insulation,” 31 July 2018. 113. Institute of International and European Affairs, 2016. “IIEA Policy Brief: What Does Brexit Mean for the Energy Sector in Ireland?,” Institute of International and European Affairs, Dublin, pp. 6 7. 114. Ibid, pp. 8 9. 115. Government of Ireland, 2018. “Project Ireland 2040: National Development Plan 2018 2027,” Government of Ireland.

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coming months and years, particularly in light of the pressure that the United Kingdom exit from the EU will put on import supplies.

11.5 Smart metering scheme 11.5.1 The Irish National Smart Metering Programme The Irish National Smart Metering Programme was established in 2007 by the CRU to meet the EU’s target of 80% of residential consumers having smart electricity meters by 2020. Its main stakeholders are the CRU, the DSO (ESB Networks) as deliverer, Gas Networks Ireland, and the energy suppliers. The CRU has conducted a cost benefit analysis on smart metering.116 It is satisfied that the planned rollout represents value for money. However, persuading customers of the value of the technology is proving to be an uphill battle. When surveyed on smart metering, a significant minority of residential customers (48% of electricity and 45% of gas customers) indicated an interest in the program.117 However, 57% of residential customers indicated that they had no interest in switching to a smart meter.118 Notwithstanding the foregoing, 7 of 10 residential customers believe in the importance of renewable energy generation,119 which implies that if it is made apparent that smart meters would contribute toward the facilitation of domestic micro-generation then the rollout may be more widely accepted among residential customers. The majority of smallmedium enterprises saw value in the technology.120 Ireland has run several trials which have shown that there is potential for peak shifting and load reduction through “Time of Use” (ToU) tariffs (which incentivize users to use more electricity at traditional off-peak times, to balance demand). A pilot study conducted by the CRU has indicated that there may be significant savings associated with a rollout.121 The study reported that, when put in place alongside demand-side management arrangements, ToU tariffs reduced domestic usage by 2.5% and peak usage by 8.8%. The Smart Metering Programme will involve a phased rollout of smart meters.122 The first phase will involve the installation of 250,000 meters by 116. Commission for Regulation of Utilities, 2017. “Smart Metering Cost Benefit Analysis (CRU17324),” CRU, Dublin. 117. Commission for Regulation of Utilities, 2017. “CRU Annual Survey of Residential and SME Customers in the Gas and Electricity Markets in Ireland: December 2017 (S17 115),” CRU, p. 47. 118. Ibid. 119. Ibid, p. 48. 120. Ibid, p. 47. 121. Commission for Energy Regulation, 2011. “Smart Metering Information Paper 4: Results of Electricity Cost-Benefit Analysis, Customer Behaviour Trials and Technology Trials (CER11080),” CER, Dublin. 122. Commission for Regulation of Utilities, “CRU Announces Delivery Plan for Smart Meters in Ireland,” 28 July 2017.

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2020. Phase 2, between 2021 and 2022, will support the installation of an additional 1 million meters. A final 1 million meters will be rolled-out between 2023 and 2024 in Phase 3. Customers who request a smart meter will be prioritized during the initial deployment stage, as will those who are due a replacement for old meters.

11.5.2 Smart Metering Regulatory Framework The CER (now CRU) published a Decision, CER/15/270, on extending ToU tariffs to consumers.123 The CRU intends for ToU tariffs to become the norm for consumers, but has decided that this must be by way of a customer-driven transition. The starting point for the CRU’s tariff strategy is a Standard Smart Tariff comprising three different ToU rates: a peak rate at 5 pm 7 pm, 5 pm 9 pm, or 7 pm 9 pm; a day rate at 8 am 11 pm (but excluding the peak period); and night rate at 11 pm 8 am. Further to the publication of Decision CRU/18/18164, suppliers will be given primary responsibility for engaging with electricity customers as they transition to ToU tariffs.124 By moving away from a “one-size-fits-all” approach to the transition, the CRU’s method will reflect the concepts of empowerment and democratization which underpin the wider EU approach to the smart grid transition. Other innovative ideas include Smart Pay-as-you-Go, through which prepayment is made available to all without the need for an additional meter (CER/15/271); the proposed empowerment of consumers via smart billing and the availability of a downloadable harmonized data file directly from the supplier or the DSO (CER/15/272); and the proposed implementation of a regulatory framework incorporating transitional license obligations and a revenue recovery and incentive approach (CER/15/273). In short, Ireland is well on its way to producing a regulatory framework that reflects the needs of consumers and meets the commercial needs of electricity suppliers. It is important however that customer tariffs accurately reflect the costs incurred in dispatching generation and managing flows across transmission and distribution networks, as passed on to the supplier and then finally customer. Using actual data and half-hourly metered data would help to avoid inaccuracies creeping in; Ireland’s smart billing and PAYG strategies appear to put it on the right path. Ireland should also be wary of the opportunities for market distortion, particularly in light of the monopoly position of the DSO. The DSO has no competitive incentive to ensure a speedy, cost-effective transition. The Irish market can therefore be compared, somewhat unfavorably, to the US market. 123. Commission for Energy Regulation, 2015. “CER National Smart Metering Programme Rolling Out New Services: Time of Use Tariffs (CER/15/270),” CER, Dublin. 124. Commission for Regulation of Utilities, 2018. “Smart Meter Upgrade: Standard Smart Tariff (CRU/18/18164),” CRU, Dublin.

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The advances of the US market could be viewed as stemming directly from the competitive market situation present there and absent from Ireland: without the drive of competitive markets, Ireland arguably requires a more robust regulatory framework so as to ensure that the necessary incentives are in place. Thus Ireland has constructed a relatively robust regulatory framework around the Smart Metering programme. However, the current framework provides little direction on how the smart meter technology fits into Ireland’s broader smart grid strategy. It also lacks competitive incentives that tend to facilitate a smooth transition. Whether the regulatory framework will provide sufficient direction and incentives to encourage the DSO to utilize the technology so as to facilitate the smart grid transition therefore remains to be seen. Ireland first major Smart Metering programme was with regard to Irish Water. However, this Smart Metering programme was brought to a halt by the CRU after it became apparent that the costs of completion were prohibitive.125 The detailed cost benefit analysis that has been conducted in advance of the electricity smart meter rollout will hopefully ensure that such mistakes are not repeated in the course of the current rollout. Indeed, the fact that the rollout will be led by the DSO, not the suppliers (as it was in the United Kingdom) should lead to a lower cost for the Irish consumer, as meters will be part of the regulated asset base. Moreover, it should make it easier for consumers to change suppliers once they have the installed meter: the DSO is driven by the aim of optimizing the network; suppliers by selling electricity. Notwithstanding the hurdles identified in this section, perhaps the most significant obstacle to a successful rollout is public opinion. The central aim of the smart meter scheme is to aid the transformation of the grid model. Spurred on by the dramatic changes in the electricity fuel mix, the grid model will be decentralized and digitalized, with communities and consumers active participants in a new distributed energy grid. However, the desire to decentralize does not appear to be shared by retail customers. With this in mind, Ireland’s opt-out approach could help to minimize resistance in the shorter-run, by giving customers the opportunity to be persuaded of the technology’s value. But while the value of smart meters to the grid is clear—digitalization means efficiency gains; democratization and the empowerment of the consumer enhances competition—the value to customers of smart meter information will probably only be realised when those customers become themselves micro-generators. Thus a compulsory program may be the most efficient way forward. But to appeal to customers— who ought to be the focus of the smart grid transition—such a program must focus on the issues that matter most to the customer: cyber security issues, 125. Bardon, S., “Regulator says Irish Water should not proceed with metering,” The Irish Times, 11 January 2017. [Online]. Available at: https://www.irishtimes.com/news/politics/regulatorsays-irish-water-should-not-proceed-with-metering-1.2933685?mode 5 sample&auth-failed 5 1&pw-origin 5 https%3A%2F%2Fhttp://www.irishtimes.com%2Fnews%2Fpolitics%2Fregulatorsays-irish-water-should-not-proceed-with-mete.

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privacy, and data protection concerns and potentially even a multimetered, multiutility approach to the rollout, which reflects the modern, multitechnology home.

11.6 Demand response Ireland has a competitive wholesale energy market and a relatively open balancing market.126 The country also has standardized arrangements in place between balance response parties and independent aggregators.127 These factors have contributed to the development of a commercially active market with a high demand for flexibility.

11.6.1 Role of the transmission system operator 11.6.1.1 Demand response/demand-side management schemes Electricity consumers can currently participate in demand-side management through tariff-based schemes where they are encouraged to move their usage to cheaper off-peak times: examples include the NightSaver tariff. EirGrid also operates two demand response schemes focused on large electricity users: Short-Term Active Response (STAR) and Powersave.128 STAR Electricity consumers are contracted to make their load available for shortterm disruptions. Previously known as the “Interruptible Load” scheme, STAR has been running for 20 years. Powersave Participating consumers are encouraged to reduce their energy demand on days when the demand is close to available supply, through payment based on the kWh reductions achieved.

11.6.1.2 Demand side unities Medium to large users can also participate, as Individual Demand Sites, in a Demand Side Unity (DSU) or Aggregated Generating Unit (AGU).129 EirGrid provides incentives (capacity payments) to encouragement enrollment. The first DSU became operational in July 2012; the second in December 2012. A DSU Aggregator may contract with Individual Demand Sites and aggregate them together to operate as a single DSU: the DSU Aggregator 126. Smart Energy Demand Coalition, 2017. “Explicit Demand Response in Europe: Mapping the Markets 2017,” Smart Demand Energy Coalition, Brussels, pp. 117 124. 127. Ibid. 128. EirGrid Group, “Demand Side Management,” [Online]. Available at: http://www.eirgridgroup.com/customer-and-industry/becoming-a-customer/demand-side-management/. 129. Ibid.

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then coordinates and manages the reduction from Individual Demand Sites and offers this management service to the system. The DSU Aggregator is therefore a third-party company specializing in demand-side participation. DSUs must satisfy a number of preconditions: for one, a Supply License is required from the CRU; DSUs must also register as a party to and unit of the I-SEM, as well as obtain from EirGrid an Operational Certificate. DSUs must have a minimum demand reduction capability of 4 MW. There is no lower limit to the demand reduction capability of Individual Demand Sites comprising a DSU, but Individual Demand Sites with a demand reduction capability of 10 MW or greater must be a DSU in their own right. Presently, the DSU arrangements are focused on medium and large energy consumers. However, even greater flexibility could be realised if demand response market participation was extended to small consumers, including domestic dwellings. The need for further research on small-scale demand-side participation is identified in the SEAI’s smart grid roadmap.130

11.6.1.3 Balancing services STAR and Powersave are on offer as balancing services for large electricity users. The DS3 programme has introduced Interim Arrangements for balancing market ancillary services. The Interim Arrangements opened up the ancillary services market to demand response. The following ancillary services are available in the balancing market as part of the Interim Arrangements: Fast Frequency Response, Primary Operating Reserve, Secondary Operating Reserve, Tertiary Operating Reserve 1 and 2, Replacement Reserve—Synchronised, and Ramping Margin 1, 2, and 8.131 Aggregators which fulfill the DSU requirements can participate in the balancing market. 11.6.1.4 Capacity auction market The redesign of the SEM necessary to create the European-wide I-SEM has entailed the overhauling of Ireland’s wholesale energy market arrangements, including the reconfiguration of Ireland’s capacity market. In the SEM, generators received a payment, known as the Capacity Payment Mechanism, for being available to generate electricity on demand. In the I-SEM, a similar mechanism now exists, called the CRM.132 The crucial difference between the two mechanisms is that in the I-SEM payments 130. Sustainable Energy Authority of Ireland, “Smartgrid Roadmap,” [Online]. Available at: https://www.seai.ie/resources/publications/Smartgrid-Roadmap.pdf. 131. Smart Energy Demand Coalition, 2017. “Explicit Demand Response in Europe: Mapping the Markets 2017,” Smart Demand Energy Coalition, Brussels, p. 120. 132. Sustainable Energy Market Committee, “Capacity Remuneration Mechanism,” [Online]. Available at: https://www.semcommittee.com/capacity-remuneration-mechanism.

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are made available through a competitive auction process. Ireland’s first capacity auction market for the I-SEM took place in December 2017. The first contract pursuant to the new auction model was awarded to EnerNOC, an Enel subsidiary. EnerNOC has been tasked with the delivery of 217 MW of demand response capacity; Enel will hold 40% of the demand response market in Ireland as a result of the contract.133 The capacity auction market is now fully functional, although teething issues have been identified. DSUs are able to participate in the capacity auction market as generators. However, while they receive availability payments, they do not currently receive utilization payments.134 It has also been revealed that DSUs with a limited duration for demand reduction (of less than or equal to 6 h) will now be hit with the same derating factors used for energy storage, despite the fact that demand response and storage are different technologies.135 This change will apply from capacity year 2019/20. Critics argue that this will discourage DSR providers from participating within the I-SEM and the capacity market by reducing the available revenues. The CRM has received State Aid clearance from the European Commission. However, the changes relating to DSUs may leave the CRM open to the accusation that DSR technologies are being hampered from participating effectively alongside generation. This issue is particularly relevant given the recent ruling of the General Court of the EU, which has resulted in the temporary suspension of the UK capacity market.136

11.6.2 Role of the distribution system operator ESB Networks is developing its network to facilitate the participation of all customers in future demand response services. It has forecasted that by 2030 there will be 2500 MW of DSR capability in its customers’ premises and plans to invest to ensure this capability is realized.137 ESB Smart Energy Services is a business line within ESB Networks which offers clients managed energy services using, among other technologies, demand response management platforms.138 133. Renews.biz, “Enel Answers Irish Demand,” [Online]. Available at: https://renews.biz/33490/enelanswers-irish-demand. 134. Smart Energy Demand Coalition, 2017. “Explicit Demand Response in Europe: Mapping the Markets 2017,” Smart Demand Energy Coalition, Brussels, p. 122. 135. Pratt, D., “Demand response facing de-rating in Irish capacity market,” Current, 8 June 2018. [Online]. Available at: https://www.current-news.co.uk/news/demand-response-facing-derating-in-irish-capacity-market. 136. Case T-793/14 Tempus Energy Ltd and Tempus Energy Technology Ltd v European Commission supported by United Kingdom of Great Britain and Northern Ireland, 15 November 2018. 137. ESB Networks, “Flexibility on Our Networks,” [Online]. Available at: https://www.esbnetworks.ie/who-we-are/innovation/our-innovation-strategy/flexibility-on-our-networks. 138. ESB, “Smart Energy Services,” [Online]. Available at: https://www.esb.ie/our-businesses/ smart-energy-services/smart-energy-services-overview.

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11.6.3 Smart meters, demand response, and the smart grid Existing demand response schemes focus on the provision of services to medium and large electricity customers. However, the proposed rollout of smart meters at a residential level over the next 5 years should open up a larger market for demand response schemes, particularly in light of Ireland’s proposed ToU tariff structure. Power Off and Save is a pilot programme involving up to 1500 residential customers over an 18 month period. Participants are being asked to switch off their appliances for about 30 min each time on 10 occasions when demand is particularly high.139 The program is being run by EirGrid in partnership with Electric Ireland. Power Off and Save could help the TSO to assess the viability of extending demand response services to the domestic market. Further pilot projects on demand response services in the domestic context, and incorporating smart meter technology, would be welcomed.

11.7 Data protection The Data Protection Acts 1988, 2003, and 2018, together with the General Data Protection Regulation (“GDPR”), comprise the basic legal framework for data access and privacy within Ireland. The observance and implementation of these and related regulations is monitored by the Comisiun Cosanta Sonrai or Data Protection Commission (English translation). Data controllers and data processors must register with the Office of the Data Protection Commissioner, subject to the exemptions articulated under the 1988 Act, as amended, and S.I. No. 657/2007. Data controllers have certain key responsibilities in relation to the information that is kept on individuals; data processors are subject to lesser responsibilities, and their compliance with these is overseen by the data controller. The deployment of smart meters and the creation of a data management model are matters to be addressed at the Member State level. Yet in Ireland there is limited guidance about how smart meters will fit into the wider data protection framework. Among other matters, it will be necessary to clarify in the future which of the data collected by smart meters is “personal” data: consumption data which is used for the purposes of billing and setting tariff rates could certainly be treated as “personal” data, but may arguably be better viewed as less sensitive “technical” data. It will also be important to delineate clearly the roles of data “controller” and “processor.” The actors involved in the smart grid chain will be numerous and their roles varied: assigning these actors the appropriate legal definition will prove vital with regard to the application of the data protection framework. Finally, all personal data must be kept safe and 139. EirGrid Group, “Power Off and Save,” [Online]. Available at: http://www.eirgridgroup. com/how-the-grid-works/power-off-save/.

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secure; to date however there is very little guidance as to what measures should be taken to ensure that personal data accrued pursuant to smart meters is kept private. The EU has adopted a light regulatory approach such that the matter is left in the hands of the Member States, but given the systemic vulnerabilities apparent in the smart grid context, guidance on the security issues is sorely needed. The CCS/DPC could provide valuable guidance to this end. Notably, the GDPR adds a new obligation on data controllers, who must now conduct a privacy impact assessment where “high risk” processing is carried out. The DPC is entitled to draw up a list of those processing operations which are or are not subject to this requirement: a draft list of the operations requiring an impact assessment was published in June 2018.140 The European Data Protection Board released its opinion in September 2018, including a set of recommendations.141 In response, Ireland issued a revised list incorporating the EDPB’s recommendations in November 2018.142 The rather broad-brush approach to the categorization of processing operations evident from the publication underlines the continued lack of clarity about the role of Ireland’s smart grid operators within the data protection framework.

11.8 Electric vehicles and electricity storage 11.8.1 Electric vehicles Electric vehicles feature prominently in Ireland’s strategy to mitigate climate change, as expressed in its 2017 NMP.143 According to the NMP, the transport sector was the fastest growing source of GHG emissions between 1990 and 2015: the sector represented 27.5% of Ireland’s non-ETS emissions in 2015. Moreover, emissions from the sector are forecasted to increase during the period up to 2050. Accordingly, the decarbonization of the sector is one of the key aims of Ireland’s climate action strategy. The important role of electric vehicles in Ireland’s energy strategy is also observable in the Government’s National Development Plan, which included an ambitious target to increase the number of EVs on Irish roads to 500,000 by 2030.144 Meanwhile, the National Policy 140. An Coimisiun um Chosaint Sonrai (Data Protection Commission), 2018. “Public Consultation: Draft List of Types of Data Processing Operations which Require a Data Protection Impact Assessment,” An Coimisiun um Chosaint Sonrai (Data Protection Commission). 141. European Data Protection Board, “Opinion 11/2018: On the Draft List of the Competent Supervisory Authority of Ireland Regarding the Processing Operations Subject to the Requirement of a Data Protection Impact Assessment (Article 35.4 GDPR),” EDPB, Adopted 25 September 2018. 142. An Coimisiun um Chosaint Sonrai (Data Protection Commission), 2018. “List of Types of Data Processing Operations which require a Data Protection Impact Assessment,” An Coimisiun um Chosaint Sonrai (Data Protection Commission), Dublin. 143. Department of Communications, Climate Action and Environment, 2017. “National Mitigation Plan: July 2017,” DCCAE. 144. Government of Ireland, 2018. “Project Ireland 2040: National Development Plan 2018 2027,” Government of Ireland, p. 75.

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Framework on Alternative Fuels Infrastructure for Transport in Ireland 2017 30 includes the policy aim that from 2030 all new cars and vans sold will be zero emission (or zero-emission capable).145 In addition to these self-imposed targets, Directive 2009/28/EC specifies a legally binding 10% renewable energy in transport target to be achieved by all Member States by 2020. Achieving these targets will require a sea-change in consumer behavior. There were 2.68 million vehicles on the road in 2017146; however, some 914 new electric vehicles were registered. This was the highest number yet recorded.147 According to the SEAI, there are now approximately 5500 electric vehicles on the road.148 Nevertheless, the use of electricity as a fuel source remains negligible in comparison to the use of fossil fuels. Ireland has taken a lead in recognizing the importance of a consumer-driven transition to the decarbonization of the transport sector. To this end, the SEAI has created an online information hub on its website, through which it makes readily available to the general public its research and other publications on the transport sector.149 The online hub also includes sections on, among other matters, finding a dealer of EVs; a costs and emission savings calculator; and general information on the grants available for those wishing to purchase an EV. The Biofuels Obligation Scheme is the primary mechanism being deployed to achieve Ireland’s 10% renewable energy target for the transport sector by 2020.150 This scheme places an obligation on suppliers to ensure that a proportion of the transport fuel placed on the market in Ireland consists of environmentally sustainable biofuels. The Biofuels Obligation rate is currently 8% (by volume). A draft order on the proposal to increase the biofuel obligation rate to 10% (by volume) from 2019 was published in April 2018. Consultations on this have now closed. The Biofuels Obligation Scheme notwithstanding, Ireland is encouraging the EV transition by way principally of support schemes, including through grants and generous tax reductions. Current grant schemes include those offered by the SEAI, of up to h5000 for the purchase of a BEV or PHEV.151 Meanwhile, the Accelerated Capital Allowance scheme encourages the 145. Department of Transport, Tourism and Sport, 2017. “National Policy Framework: Alternative Fuels Infrastructure for Transport in Ireland 2017 to 2030,” Department of Transport, Tourism and Sport, p. 44. 146. Department of Transport, Tourism and Sport, 2018. “Transport Trends: An Overview of Ireland’s Transport Sector 2018,” Department of Transport, Tourism and Sport, p. 3. 147. Ibid, p. 28. 148. Sustainable Energy Authority of Ireland, “Electric Vehicles,” [Online]. Available at: https:// www.seai.ie/sustainable-solutions/electric-vehicles/. 149. Ibid. 150. Department of Communications, Climate Action and Environment, “Increase to Biofuel Obligation Rate Consultation,” [Online]. Available at: https://www.dccae.gov.ie/en-ie/energy/ consultations/Pages/Biofuel-Obligation-Scheme-Consultation.aspx. 151. Sustainable Energy Authority of Ireland, “Electric Vehicle Grant Values,” [Online]. Available at: https://www.seai.ie/grants/electric-vehicle-grants/grant-amounts/.

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purchase of energy efficiency assets by corporations by allowing companies to write off up to 100% of the purchase value of qualifying equipment against profits.152 Finally, Gas Networks Ireland has set up a Natural Gas Vehicle Fund to support the deployment of dedicated compressed natural gas (“CNG”) vehicles in what has been coined the “Causeway Project.”153 The fund, which is worth h700,000, has been set up to fund the difference in cost between a conventional vehicle and a CNG vehicle. With respect to taxation, a zero-emissions band for electric vehicles applies for motor tax purposes;154 VRT relief of up to a maximum of h5000 is also available.155 In the 2018 Budget, it was announced that the VRT relief on BEVs will continue up to 2021, and until end 2019 for PHEVs and hybrids. Furthermore, a carbon tax, whereby a tax is levied on the carbon content of fuels, was introduced in the 2010 budget.156 However, despite much public support for an increase in the 2018 budget, the current rate of h20 per ton of CO2 emitted continues to apply. The adoption of natural gas as a transport fuel is also being encouraged with the excise rate applied set at a reduced rate.157 Finally, since July 2018 drivers of electric vehicles have been able to avail themselves of a toll tax reduction scheme.158 A full electrification of the car fleet of the kind envisaged by the Government’s decarbonization strategy could represent a feasible option for Ireland, but the supporting grid infrastructure must also be developed. A pilot project looking at the delivery of the distribution system necessary to support electric vehicle uptake was canceled in 2018, following a decision by the CRU to cancel the funding for the assets developed during the course of the project.159 While the cancellation of this project is unfortunate, other projects are ongoing. The Causeway Project is considering the impact of the 152. Sustainable Energy Authority of Ireland, “Accelerated Capital Allowance,” [Online]. Available at: https://www.seai.ie/energy-in-business/accelerated-capital-allowance/. 153. Gas Networks Ireland, “The Causeway Project,” [Online]. Available at: https://www.gasnetworks.ie/business/natural-gas-in-transport/the-causeway-project/. 154. Department of Planning, Housing and Local Government, “Rates of Duty on Motor Vehicles (effective 1 January 2016) Environment, Community and Local Government,” December 2015. [Online]. Available at: https://www.housing.gov.ie/sites/default/files/publications/files/20170626_amended_motor_tax_rates_01_january_2016_0.pdf. 155. Revenue Irish Tax and Customs, “Calculating Vehicle Registration Tax: Electric and hybrid vehicles,” [Online]. Available at: https://www.revenue.ie/en/importing-vehicles-duty-free-allowances/guide-to-vrt/calculating-vrt/electric-and-hybrid-vehicles.aspx. 156. Citizens Information, “Carbon Tax,” 21 March 2017. [Online]. Available at: http://www. citizensinformation.ie/en/money_and_tax/tax/motor_carbon_other_taxes/carbon_tax.html. 157. Revenue: Irish Tax and Customs, “Excise Duty Rates,” [Online]. Available at: https://www. revenue.ie/en/companies-and-charities/excise-and-licences/excise-duty-rates/electricity-and-otherenergy-products.aspx. 158. eToll, “What is the Electric Vehicle Toll Incentive (EVTI)?,” [Online]. Available at: http:// www.etoll.ie/electric-vehicle-toll-inc/. 159. Commission for Regulation of Utilities, 2017. “ESBN Electric Vehicle Pilot and Associated Assets (CRU17283),” CRU, Dublin.

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deployment of CNG refueling infrastructure in Ireland: the construction and deployment of refueling stations and gas injection point will continue until 2019, with a projected completion date sometime in 2020. Meanwhile, a pilot project is to take place on the island of Cape Clear, which could see the first fully electric fleet of public buses; the tender process for the contract is ongoing.160 A similar, albeit smaller-scale pilot, may also be in the pipeline for Dublin.161 Further infrastructure projects will be necessary if Ireland is to continue to make solid progress on its EV and transport targets.

11.8.2 Electricity storage In Ireland, there is currently only one bulk energy storage facility: the Turlough Hill PHES facility. Commissioned in 1974, it has an installed capacity of 292 MW.162 There is no bulk energy storage facility in NI. Storage technologies have a prominent role in Ireland’s wider energy strategy. To support higher levels of renewable energy generation and reinforce the robustness of the network as part of its DS3 programme, EirGrid (alongside its Northern Irish counterpart) has opened up a procurement process for new System Services.163 The System Services on offer include fast frequency response products, as well as primary, secondary, and tertiary reserve products. Consultations on the arrangements are ongoing. Storage projects are now being accepted by EirGrid under its new ECP, the new connections processing framework which has replaced the old “gate” system.164 Over 370 MW of energy storage projects, along with 1.25 GW of solar, have been accepted in the first batch of projects assessed under ECP.165 Meanwhile, EirGrid is pushing ahead with two DS3 storage projects: Kelwin and Schwundgrad Energie.166 The goal of the former is to develop a 37 MW wind farm in Co Kerry: each turbine will have an integrated battery 160. Hilliard, M., “Tiny Irish island to become first area with fully electric buses,” The Irish Times, 26 October 2018. [Online]. Available at: https://www.irishtimes.com/news/environment/ tiny-irish-island-to-become-first-area-with-fully-electric-buses-1.3676033. 161. McGee, H., “Electric Dublin Buses may start running this year,” The Irish Times, 26 January 2018. [Online]. Available at: https://www.irishtimes.com/news/politics/electric-dublinbuses-may-start-running-this-year-1.3369945. 162. ESB, 2008. “40 Years of Turlough Hill,” ESB. 163. EirGrid Group, “DS3 Programme,” [Online]. Available at: http://www.eirgridgroup.com/ how-the-grid-works/ds3-programme/. 164. EirGrid, ESB Networks, 2018. “Enduring Connection Policy (ECP-1): 2018 Batch,” EirGrid, ESB Networks. 165. Pratt, D., “Ireland to process 373 MW of energy storage under new connections procedure,” Energy Storage News, 5 September 2018. [Online]. Available at: https://www.energy-storage. news/news/ireland-to-process-373mw-of-energy-storage-under-new-connections-procedure. 166. EirGrid, “Key Innovation Projects,” [Online]. Available at: http://www.eirgridgroup.com/ how-the-grid-works/innovation/enhanced-user-facilitatio/.

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and the project will test how these batteries can be used to capture, storage, and feedback excess energy. The latter is a flywheel-battery pilot project. A recently introduced pilot micro-generation scheme for solar also promotes storage technologies.167 The scheme offers homeowners access to grants of h700 per kW of solar installed up to 2 kW; any installation up to 4 kW will also be supported in the event that a battery storage system is installed. In such cases, a grant of h1000 is available toward the battery storage system. The pilot scheme will run until December 31, 2020. In terms of barriers to storage technologies, high capital costs are one of the most significant barriers to the widespread deployment of the technology in Ireland, as elsewhere. Given the high start-up costs, storage often struggles compete alongside existing flexible generation and interconnectors. For storage to properly participate in the market, there needs to be a clear cost benefit analysis that shows the operational benefits delivered by storage. Accordingly, emerging energy storage technologies would benefit from a friendlier market environment in the EU overall. Additional support may be necessary to justify the business case for their deployment, alongside network reinforcement and/or flexible generation. Ireland’s pilot micro-generation scheme is therefore a step in the right regulatory direction, and the results of the scheme will undoubtedly inform future support schemes. A crucial oversight in the Irish electricity regulatory framework is the failure of to recognize electricity storage as a licensable activity in its own right. Absent such recognition, the business of an entity engaged in the storage of electricity falls to be regulated as a generation asset. However, this classification does not recognize the potential contribution of storage as a demand response asset. Moreover, those owning and operating storage units are liable to be double-charged for generating as well as using electricity; storage units are also charged for the electricity distributed.168 A new definition of storage, reflected in appropriate amendments to the system charges structure, could therefore facilitate the removal of many of the current barriers to its deployment. That being said, the new I-SEM market rules for the balancing market now include reference to storage technologies.169

11.9 Conclusions Decarbonization is a cornerstone of Ireland’s energy strategy. Its commitment to binding targets under Directive 2009/28/EC has pushed renewables and energy efficiency to the forefront of the energy agenda. But while 167. Department of Communications, Climate Action and Environment, “Minister Denis Naughten Launches Pilot Micro Generation Scheme Targeting Domestic Customers and Self-Consumption and Announces Increase to Grant Supports for Home Insulation,” 31 July 2018. 168. EirGrid Group, “Storage Technology Workshop,” 15 May 2018. [Online]. Available at: http://www.eirgridgroup.com/site-files/library/EirGrid/Storage-Technology-Workshop-Slide-Deck.pdf. 169. SEMO, “Balancing Market Rules,” [Online]. Available at: http://www.sem-o.com/rulesand-modifications/balancing-market-modifications/market-rules/.

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Ireland has made good progress toward these targets, stronger efforts are now required. The 2020 target for gross electricity generation from renewables is 40%, but as of 2016 renewable energy sources contributed to only 27.2%.170 It should also be recalled that the renewable share of thermal energy was 6.8% in 2016, still significantly below the 2020 target of 12%.171 On energy efficiency, Ireland also lags behind. While 39% of the national energy savings target was achieved at the end of 2012, efforts need to be accelerated in order to meet the 2020 target, which commits to savings equivalent to 20% of the historical average energy use during the period 2000 05.172 Ireland’s progress on reducing GHG emissions is dispiriting: current forecasts suggest that non-ETS GHG emissions will be reduced by only 1% by 2020. The target is 20%.173 Ireland must also consult on how to advance its progress toward its EU interconnection target. The Commission Expert Group behind the 2017 report on electricity interconnection targets identified Ireland as one of the regions most in need of improved interconnectivity, with interconnection levels well below 30%.174 Improved interconnectivity levels would be essential following the UK’s exit from the EU. The so-called “Brexit” would impact on trade through the existing Ireland UK interconnectors. Moreover, the United Kingdom would, as a third-party country, no longer be obliged to observe the EU’s solidarity principle in the event of supply disruptions or shortages. Accordingly, Ireland should consider making plans now to ensure the security of its supply after the United Kingdom exits the EU. At the same time, Ireland should consult closely with the United Kingdom about the contingency measures to be put in place to enable the functioning the I-SEM in a post-Brexit environment. In terms of decentralization, Ireland’s energy market remains distinctly centralized compared to the market of its closest neighbor, the United Kingdom. The TSO is a state-owned entity, and the DSO is a subsidiary of the state-owned utility company, ESB. Meanwhile, Ireland’s retail energy market was opened relatively recently, in 2017. Therefore it has significantly fewer players than that of the United Kingdom, with the market dominated by the incumbent utility, the state-owned ESB.

170. Sustainable Energy Authority of Ireland, 2017. “Energy in Ireland: 1990 2016 (2017 Report),” Sustainable Energy Authority of Ireland, pp. 20 21. 171. Ibid, pp. 31 32. 172. Department of Communications, Energy and Natural Resources, 2014. “National Energy Efficiency Action Plan 2014,” DCCAE, Dublin, Introduction p. 1. 173. Environmental Protection Agency, 2018. “Ireland’s Greenhouse Gas Emissions Projections 2017 2035,” EPA, Dublin, p. 10. 174. Commission Expert Group on Electricity Interconnection Targets, 2017. “Towards a Sustainable and Integrated Europe: Report of the Commission Expert Group on Electricity Interconnection Targets,” European Commission.

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Disrupting the domination by the incumbent market players will require the adoption of a new distributed, digital market model. Locally based networks will need to become the new norm. To help achieve this end, Ireland is now commencing the rollout of its Smart Metering programme. But rather than put delivery in the hands of the utility suppliers, as happened in the United Kingdom, Ireland has put this under the wing of the DSO. This has helped to put the consumer at the heart of the rollout. However, Ireland faces public resistance to the program, which if it remains unchecked may hamper Ireland’s efforts to democratize the grid. Accordingly, the rollout may benefit from being redesigned or adapted in a way that both engages and reflects the demands of the consumer. To this end, Ireland must consider how best to communicate the benefits of digitalisation and democratization to the residential consumer. Media campaigns to advance smart meters’ visibility will help up to a point, but further research and consultation into how to incentivise behavioral change is the most pressing issue. Ireland has established a robust governance system and comprehensive regulatory framework focused on the implementation of its energy strategy, with the smart grid at its heart. But while Ireland is at the forefront of the transition towards a smart grid in many respects, gaps do remain. In particular, but not exclusively, Ireland will need to ensure that a suitably robust infrastructure is in place to enable the streamlined integration of indigenous renewable technologies; this will undoubtedly be aided by the ongoing DS3 programme. With domestic consumer generation and nonsynchronous technologies forming an ever larger part of Ireland’s energy mix in its medium to long-term future, innovative market mechanisms to facilitate the deployment of demand response and storage technologies should be prioritized. Meanwhile, Ireland should not lose sight of its early successes in the uptake of electric vehicles: further progress in this regard will hinge however on the appropriate modifications being made to Ireland’s nationwide transport infrastructure.

Chapter 12

Energy decentralization and energy transition in Estonia Chana Gluck1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

12.1 Energy profile Energy mix for the production of electricity:1

1. Estonian Statistics. Available online: http://pub.stat.ee/px-web.2001/Dialog/varval.asp?ma 5 KE032& ti 5 ELEKTRIJAAMADE 1 V%D5IMSUS 1 JA 1 TOODANG&path 5 ../Database/Majandus/ 02Energeetika/02Energia_tarbimine_ja_tootmine/01Aastastatistika/&lang 5 2 Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00020-7 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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Consumption of energy in general in Estonia: 2009

2010

2011

2012

2013

2014

2015

2016

113,024 21,303 35,559 5324 23,278 27,560

118,782 20,904 37,710 5626 24,821 29,721

114,800 19,931 38,625 4606 23,818 27,820

119,682 20,583 39,126 5495 25,127 29,351

117,421 21,187 37,661 6582 24,486 27,505

116,153 20,263 39,140 5272 24,863 26,615

115,289 18,960 39,783 5926 24,663 25,957

121,688 19,457 39,882 7289 26,284 28,776

100 17 34 4 21 24

100 17 33 5 21 24

100 18 32 6 21 23

100 17 34 5 21 23

100 16 35 5 21 23

100 16 33 6 22 23

Consumption, TJ Energy total Solid fuel Liquid fuel Gas fuel Electric energy Heat

Percentage of whole consumption, % Energy total Solid fuel Liquid fuel Gas fuel Electric energy Heat

100 19 31 5 21 24

100 17 32 5 21 25

Renewable energy made up 16.9% of the total amount of electric energy consumed in Estonia in 2017, while altogether 1612 GWh of renewable energy was produced in the 12 months.2

12.1.1 Energy dependency Estonia is among the European Union (EU) countries that are least dependent on energy imports. Due to the use of oil shale and also increasingly use of renewable fuels, Estonia can largely meet the energy requirements of the country.3 Electrical energy balance as of September 1, 2017 (GWh):4

Gross production Net production Import Import from Russia Import from Latvia Import from Lithuania Import from Finland

2009

2010

2011

2012

2013

2014

2015

2016

8779 7884 3025 0 562 2328 135

12,964 11,732 1100 0 664 172 264

12,893 11,356 1690 0 815 374 501

11,966 10,526 2710 0 554 545 1611

13,275 11,823 2712 0 335 0 2377

12,444 11,013 3730 0 108 0 3622

10,417 9062 5452 0 175 0 5277

12,176 10,424 3577 0 328 0 3249

2. Estonian Wind Power Association. Available online: http://www.tuuleenergia.ee/en/2018/01/ renewable-energy-accounted-for-16 8-pct-of-estonias-electricity-consumption-in-2017/ 3. Ministry of Economic Affairs and Communications. Available online: https://www.mkm.ee/ en/objectives-activities/energy-sector 4. Estonian Statistics. Available online: https://www.stat.ee/34170

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Liquid and gas fuel balance as of September 21, 2018:5 2013

2014

2015

2016

2017

0 0 678

0 0 530

0 0 471

0 0 518

0 0 492

0 0 12.6

0 0 16.2

0 0 26.4

0 0 35.8

0 0 40.0

655

636

660

687

665

434

403

483

453

Natural gas, million m3 Primary energy production Converted energy production Import Liquid gas, thousand tons Primary energy production Converted energy production Import Diesel fuel, thousand tons Import

Gasoline for cars, thousand tons Import

358

12.1.2 Renewable energy production In Estonia, renewable energy is mainly based on wind; other sources include biomass, waste, biogas, solar, and hydropower. Based on the data of the Estonian Renewable Energy Association, the division between renewable energy sources is as follows:6

5. Estonian Statistics. Available online: https://www.stat.ee/34176 6. Estonian Renewable Energy Association. Available online: http://www.taastuvenergeetika.ee/ en/renewable-energy-estonia/

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The production of renewable energy has been incentivized by renewable energy subsidies paid for the electricity generated from renewable sources, from biomass in cogeneration of heat and power (CHP) mode, or in efficient CHP mode. Renewable subsidies are regulated in Electricity Market Act (EMA), in particular in its y 59 et seq. According to the EMA, it is the transmission system operator (TSO), that is Elering, which pays out the subsidies. The cost of financing the subsidies is passed on to consumers in proportion to their consumption of network services and the amount of electricity consumed through direct lines. According to y 591 of the EMA, producers of electricity from wind energy may receive subsidies until a total of 600 GWh of electricity has been produced from wind sources in Estonia in a calendar year. Calculations are kept separately for each calendar year. According to y 59(1) and (22) of the EMA, renewable energy producers who had started works on their investment project by December 31, 2016 (so-called existing producers) are entitled to a fixed subsidy amount based on the following rates for 12 years from starting production: Subsidy rate (h/kWh)

Conditions for payment

0.0537 0.0537 0.032 0.032

From renewable energy sources, except biomass From biomass in CHP mode In efficient CHP mode from waste, peat, or oil shale retort gas In efficient CHP mode using generating equipment with a capacity of not more than 10 MW

CHP, cogeneration of heat and power.

Renewable subsidies for new producers (i.e., producers who have started works on their investment project after December 31, 2016) will be based on competitive bidding processes. At date of today’s date, no bids have taken place thus far, but the rules for the bidding process are being prepared. Based on y 59(24) of the EMA, for renewable producers with an electrical capacity of less than 1 MW, fixed rate renewable subsidies are available if their installation generates electricity at the latest by December 31, 2018. The current renewable support scheme and the new bid-based scheme have been approved in the light of EU state aid rules by the European Commission decision of December 17, 2017, State Aid SA.47354 (2017/NN)—Estonia, Amendments to Estonian RES and CHP support scheme.

12.1.3 Predictions for the demand in renewable energy Pursuant to the “National Development Plan of the Energy Sector Until for 2020,”7 the Estonian Government is required to provide measures that will 7. National Development Plan of the Energy Sector Until 2020. Available online: https://www. mkm.ee/sites/default/files/taastuvenergia_tegevuskava.pdf (in Estonian)

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increase the proportion of renewable energy in total the Estonian energy mix. The Renewable Energy Action Plan is intended to provide the steps required for Estonian to achieve its renewable energy goal of a 25% proportion of renewable energy proportionate to total energy consumption.

12.1.4 Gas production Estonia does not produce natural gas or liquid gas and hence relies on imports regarding gas. However, there is a relatively small production of biogas.8 Since 2017, the total power production from biogas has remained at a level of 10.56 MW. Biogas production power:9

12.1.5 Interconnection lines with Estonia’s neighbors Grid interconnectors are essential to any power pooling initiatives within regions. In this regard, Estonia has established interconnection lines, as well as a further interconnection line under construction (see the section “Balticconnector Project”). This points to the fact that arguably Estonia may be seen as a potential energy hub in a regional power pool initiative.

12.1.5.1 EstLink projects EstLink 1 is the first high voltage direct current (HVDC) interconnection between Estonia and Finland with nominal transmission power of 350 MW. With the development of the electricity market, a need for additional interconnections arose. EstLink 2 is the second HVDC interconnection between Estonia and Finland that triples the transmission capacity between the Baltic and Nordic regions. As a result of EstLink 2, Estonia and Finland have 8. Estonian Bio Gas Association, p. 30. Available online: http://eestibiogaas.ee/tootmine-jakasutamine/ 9. Renewable Energy—Yearbook 2017. Available online: http://www.taastuvenergeetika.ee/taastuvenergia-aastaraamat-2017 2/

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essentially become one market area.10 The construction of the EstLink 2 cable was jointly financed by Elering and Fingrid Oyj. Further, pursuant to a decision by the European Commission on July 8, 2010, the EU contributed 100 million euros into the capital investment project.11 EstLink 1 350 MW 6 150 kV

EstLink 2 Nominal transmission power Nominal voltage

650 MW 450 kV

12.1.5.2 Estonia Latvia and Estonia Russia electricity landlines Estonia is connected, via three 330 kV lines, to the power systems of Russia and with two lines of the same capacity to Latvia12 (in addition to submarine connection lines EstLink 1 and EstLink 2 with Finland described above). The electricity import and export can be observed in real time over Elering’s website: https://dashboard.elering.ee/en/transmission/cross-border. 12.1.5.3 Estonia Russia and Estonia Latvia gas pipelines The need for regional connectivity is evidenced by the support that Estonia receives from both the Latvian and Russian markets. Given that the Estonian gas system does not have its own compressor station, the pressure required for transmission within the Estonian system is provided by compressor stations that form part of the Russian transmission system or the compressor station in Latvia. The Estonian electricity markets are connected to Russia through Narva and Va¨rska-Izborska and to Latvia via Karksi.13 The type of common support system and pooling of electricity infrastructure is key to regional integration of electricity market. Balticconnector project The merging of the Finish and Estonian energy markets will be further solidified by the Balticconnector project, a gas pipeline under construction between Finland and Estonia. This pipeline will connect Estonian and Finnish gas grids and assist in enabling the security of gas supply in the region.14 Pursuant to a decision of the European Commission, the EU will fund surveys amounting to 5.4 million euros for constructing Balticconnector. 10. Estlink’s website. Available online: http://estlink2.elering.ee/en/ 11. Elering’s website. Available online: https://elering.ee/en/european-commission-agrees-put100-million-euros-estlink-2-capital-project 12. Ministry of Economic Affairs and Communications. Available online: https://www.mkm.ee/ en/objectives-activities/energy-sector/electricity-market 13. Ministry of Economic Affairs and Communications. Available online: https://www.mkm.ee/ en/objectives-activities/energy-sector/gas-market 14. BEMIP Gas Regional Investment Plan 2012 2021 (Report). Available online: https://www. cire.pl/pliki/1/GRIP_BEMIP_MAIN3.pdf

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Balticconnector has been included in trans-European energy networks (TEN-E). Further, Balticconnector has been included in the Projects of Common Interest (PCI) list of the EU Connecting Europe Facility (CEF) programme. The support of the European Commission has been instrumental in funding this project: on July 15, 2016, the European Commission decided to cofund the establishment of Balticconnector up to 75% and the enhancement of Estonia Latvia gas connection up to 50%, with total funding amounting to 206 million euros.15 General information Type Partners Expected

Natural gas Elering Balticconnector OY 2020

Technical information Length Maximum discharge Diameter

151 km (94 mi) 2 billion m3 per annum (71 3 109 cu ft/a) 20 in (508 mm)

12.2 Governance system 12.2.1 Relevant institutions in the energy sector 12.2.1.1 Legislative power The Parliament (Riigikogu) is the single-chamber parliament of Estonia, with the main task of fulfilling the function of establishing legal acts (laws). Therefore all the main laws in the field of energy are also adopted by the Riigikogu. The most important legal acts passed by Riigikogu in the field of energy are: EMA and Natural Gas Act (NGA). 12.2.1.2 Government Regulations implementing the aforementioned laws are passed by either the Government of the Republic or the relevant minister. The Ministry of Economic Affairs and Communications is responsible inter alia for the activities in the energy sector in relation to the electricity market, energy efficiency, renewable energy, heating sector, gas market, and liquid fuels. 12.2.1.3 Regulators and agencies The Estonian Competition Authority is the main energy market regulator in Estonia, as regards issuing relevant operational licenses and approving prices that are subject to price subject to price regulation as well as terms and 15. Elering’s webpage. Available online: https://elering.ee/en/balticconnector

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conditions of services that are subject to approval requirement by law. The Estonian Competition Authority also performs supervision over the compliance with competition law rules. The Estonian Technical Surveillance Authority is responsible for securing safety and efficient use of resources, inter alia in the field of energy. The Estonian Consumer Protection Board is responsible for protecting consumers’ rights, inter alia in the field of energy. The two latter authorities will be merged as of January 1, 2019. All the aforementioned authorities are administrative bodies with the power to conduct surveillance over the compliance of laws by the market participants in their areas of responsibility; they can also issue fines for violations.

12.2.1.4 Market participants with administrative functions A wholly state-owned public limited company Elering is the Estonian electricity and gas TSO with the task of connecting the producers, various network operators, and consumers who make up the system into a unified whole. Elering has also some administrative functions, such as operating renewable energy support scheme (including establishing renewable energy charges payable by energy consumers and paying out subsidies to renewable energy producers). Elering is in the administrative area of competence of the Ministry of Economic Affairs and Communications, and the shareholders’ rights over Elering are executed by the minister of Minister of Economic Affairs and Infrastructure. The effective central government supported by a robust regulator plays a crucial role in Estonian energy policy and has the competence and ability to determine national energy development. This strong central government supported by an effective regulatory framework lays the ground for further implementation of EU energy policies. 12.2.2 Tariff structures 12.2.2.1 Tariff structures and setting prices for energy products The price of electricity and gas is not regulated in Estonia, and market participants are free to set their prices. The only exception relates to dominant sellers of gas. Section 91(3) and (4) of the NGA provides that the sales price of gas of a dominant gas seller must ensure the reimbursement of operating costs and that a commercial profit is made. Further, the Estonian Competition Authority may request evidence to ensure compliance with the foregoing conditions. In addition, y 10 of the NGA regulates the selling price of gas to household customers by dominant gas sellers. Therefore it can be noted that other than as set out above, the Estonian electricity and gas market is a liberalized market. The price of heat in respect of district heating is regulated by District Heating Act (DHA). According to y 9(1) of DHA, the approval of the Estonian Competition Authority is required in relation to the price ceiling for heat. Section 8(3) of the DHA sets out the criteria for establishing the price

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ceiling for the price of heat. Therefore provided that the price ceiling is not exceeded and the price for heat is not regulated. While the prices of electricity and gas are generally not regulated, the prices and standard terms and conditions of network services (for both transmission network services and distribution network services, as well as district heating network) are regulated by the law (y 71 74 of the EMA, y 23 232 of the NGA and y 10 12 of the DHA) and must be approved with the Estonian Competition Authority. Also, the price of balancing services for electricity and gas and standard terms and conditions of balance agreement are regulated, respectively, by y 53 of EMA and y 12 of NGA.

12.2.2.2 Levies and tolls To finance the renewable energy subsidies, renewable energy charges are payable by all energy consumers. According to y 592 of the EMA, Elering as the TSO determines the charge payable each year.16 In addition, excise duties apply to fuel,17 gas, and electricity. The basis for such excise duties is established in Alcohol, Tobacco, Fuel and Electricity Excise Duty Act (Excise Duty Act), and the collection excises is generally managed by the Estonian Tax and Customs Board. In the case of natural gas, the y 22(1) 74 of the Excise Duty Act provides when this excise must be paid by network operators. The excise for gas transmitted to consumers is charged by the network operators from consumers. In the case of electricity, y 22(1) 75 of the Excise Duty Act provides that excise must be paid by network operators who consume electricity or transmit electricity to consumers, consumers of selfproduced electricity, and consumers of electricity transmitted through a direct line. As in the case of gas, the excise for electricity transmitted to consumers is charged by the network operators from consumers.18 12.2.3 Proposals to save energy The Ministry of Economic Affairs and Communications is primarily responsible for developing measures to save energy and increase energy efficiency and ensure the compliance of the goals set out in Energy Efficiency Directive 2012/27/EU. According to information on the website of the Ministry of Economic Affairs and Communications, the following energy efficiency goals and measures are in place: 1. Imposing the obligation to save annually 1.5% of the energy sold to final customers over the period from January 1, 2014 until December 31, 16. The details of determining and collecting the charge is set out in y 592 of the EMA 17. Fuel is defined in section 19 of the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act. 18. Available online: https://www.emta.ee/eng/business-client/excise-duties-assets-gambling/fueland-electricity.

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2020. To meet that goal, energy efficiency must become a mandatory requirement for distribution network undertakings and/or energy retailers. As an alternative, each country has the right to choose other state-level energy efficiency measures to meet this obligation. In Estonia, this would mean continued implementation of the activities carried out by KredEx,19 Environmental Investment Centre (EIC),20 and Riigi Kinnisvara AS.21 2. Ensuring final customers with easy access to their consumption data in real time and in retrospective, free of charge, by introducing individual measuring instruments with improved accuracy. 3. Large enterprises will be required to conduct an energy audit every 4 years to explain the options available for energy efficiency and to inspire small- and medium-sized enterprises to follow their example. The energy audit requirement is set out Energy Sector Organisation Act.22 Promoting renewable energy. As noted above, the renewable energy support scheme is set out in the EMA and implemented mainly by TSO, Elering.

12.2.4 General planning in the energy sector The general planning of energy sector is in the administrative area of competence of the Ministry of Economic Affairs and Communications. However, the general development plans have been approved by the Government of the Republic in the National Development Plan of the Energy Sector until 2030, which describes the objectives of Estonia’s energy policy until 2030, the vision for the energy sector until 2050, as well as the overall and specific targets and actions to meet them.

12.2.4.1 Security of supply In the field of electricity, the EMA sets out the requirements for securing the supply, imposing respective obligations mainly on Elering. In the field of natural gas, the NGA sets out the requirements for securing the supply, imposing respective obligations also mainly on Elering. The supervision over the implementation of security of supply measures lies with the Estonian Competition Authority. Elering has recently published Security of Supply Report 2018, available at: https://elering.ee/sites/ default/files/public/Infokeskus/elering_vka_2018_web_trc_ENG_v4.pdf. 19. KredEx is mostly involved in improving the energy performance of apartment houses, but also individual houses to a certain extent providing various support measure. KredEx is also responsible for the development of accumulator vehicle program, ELMO. 20. EIC administers support measures for the improvement of the energy performance of public sector infrastructure, renovation of district heating distribution networks, and reconditioning street lights. 21. Riigi Kinnisvara AS used the so-called CO2 investments to improve the energy performance of 540 public buildings in 2010 2013. The functions of the public limited company also include the renovation of buildings of governmental authorities. 22. Website of the Ministry of Economic Affairs and Communications. Available online: https:// www.mkm.ee/en/objectives-activities/energy-sector/energy-efficiency.

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12.2.5 Transmission and distribution network services The transmission and distribution network services providers charge network service charges. The prices and standard terms and conditions of network services (for both transmission network services and distribution network services, as well as district heating network) are regulated by the law (y 71 74 of the EMA, y 23 232 of the NGA and y 10 12 of the DHA) and must be approved with the Estonian Competition Authority. The Estonian Competition Authority prepares annually Estonian electricity and gas market reports, in which it provides a detailed market overview. The reports in English are available at the Estonian Competition Authority’s website: https://www.konkurentsiamet.ee/index.php?id 5 14463. The report of 2017 describes in detail the principles regarding determining electricity network charges.

12.2.6 Planned structural reforms in the electricity sector On October 20, 2017, the Government of the Republic approved the National Development Plan of the Energy Sector until 2030, which highlights all of the most important near future plans and reforms in the energy sector. In the area of renewable energy, the most important upcoming change is the introduction of competitive bidding process for renewable support. The conditions for the bidding process are currently being prepared.

12.3 Energy regulatory framework The key legal acts in the field of energy are EMA, which implements various EU electricity directives,23 and NGA, which implements various EU gas directives.24 The EU legislative package deals with an array of questions such as ownership unbundling, regulatory oversight and cooperation, network cooperation, transparency, and record keeping. While the government has the ability to influence prices for political reasons such as to limit inflation, for instance. Estonia has implemented and followed EU legislation. Both in electricity and gas, the ownership unbundling between the production and transmission system operation has been implemented. In the field of electricity, the basis for unbundling is y 16 of the EMA, and, in the field of gas, the basis for unbundling is y 81 of the NGA. The Estonian Competition Authority’s latest Estonian Electricity and Gas Market Report comments the fulfilment of the ownership unbundling obligation in the field of electricity as follows: 23. By way of example, Directive 2009/72/EC of the European Parliament and of the Council and Directive 2001/77/EC of the European Parliament and of the Council. 24. By way of example Directive 2009/73/EC of the European Parliament and of the Council and Directive 2009/28/EC of the European Parliament and of the Council.

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“In the second half of 2013 the Competition Authority conducted the assessment of compliance of Elering AS the transmission network undertaking upon its application or, the so-called certification process. In the assessment the Competition Authority followed in addition to the provisions of the Electricity Market Act also the requirements provided for in Regulation (EC) No 714/2009 of the European Parliament and of the Council (that treats of the network access conditions in the cross-border electricity trade). The Authority confirmed the compliance of the undertaking to the requirement by its decision made in December 2013. A distribution network undertaking shall form a separate business entity if the number of customers exceeds 100 000 and shall not operate in other area of activity than the provision of network service. Respective requirement applies only to the distribution network Elektrilevi OU¨ that belongs to the Eesti Energia AS group, while other distribution network undertakings have less than 100 000 customers. If a distribution network undertaking has less than 100 000 customers it shall separate its accounts by areas of activity as follows: G G G

provision of network service; sale of electrical energy; ancillary activity.

Also, all distribution network operators, regardless of their size, shall keep their accounts on the same principles, as separate undertakings operating in the same area of activity should have been required to keep. Therefore, a distribution network operator that is not required to form a separate business entity is obliged to keep its accounts similarly to a business entity and shall submit in its accounts separately the balance sheet, profit and loss account, management report and other reports provided for in the Accounting Act both for network services, electricity sales and ancillary activities. Respective information shall be submitted in their annual report and made public. The auditor shall give its evaluation on the separation of the fields of activity.”25

The Estonian Competition Authority’s latest Estonian Electricity and Gas Market Report notes the fulfilment of the ownership unbundling obligation in the field of electricity as follows: “From 1 March 2016 the complete ownership unbundling of the Estonian system operator is finalised and the Estonian gas system operator is Elering AS (100% in the ownership of the Estonian state). From the beginning of 2016 Elering AS consolidated the electricity and gas transmission networks into one company and continuous its activity as the operator of the joint system. 25. Estonian Electricity and Gas Market Report, 2017. Available online: https://www.konkurentsiamet. ee/index.php?id 5 14463, p. 12, see also following pages regarding equal treatment obligation.

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In the second half of 2016, upon the application submitted by Elering AS, the Competition Authority conducted the evaluation of the latter as the natural gas system operator’s compliance to the requirements or, the so-called process of certification. Besides the bases of the Natural Gas Act in the evaluation the Competition Authority adhered also to the provisions of Regulation no. 715/ 2009 of the European Parliament and of the Council (treats of the network access conditions). In December 2016 the European Commission informed that it agrees with the draft resolution prepared by the Competition Authority upon the application of Elering AS and the Authority confirmed the undertaking’s compliance to the requirements by its decision made in December 2016.”26

12.3.1 Interconnection The EU recommended in 2002 that all Member States should reach by 2020 a minimum of a 10% interconnection ratio (import capacity vs installed generation capacity). Estonia is well over the threshold in respect of the advocated interconnection capacity of 10%. Estonia has, as of 2014, exceeded the advocated thresholds for 2020 and 2030. Relying on studies by ENTSO-E, the future perspective of Estonia regarding interconnection capacity is ranked high among Member States in respect of interconnection capacity.27 In 2017 the electricity interconnection level of Estonia was 23.7%.28 New cross-border links do not per se have to be established and financed to meet the EU electricity interconnection standards as these standards have already been met. However, the transfer capacity on the Latvian Estonian border will be improved in the following years, and the existing bottlenecks will be removed in several stages by 2020, 2024, and 2025 through the construction of the Estonia Latvia third interconnection and the enhancement of transfer capacity of internal lines within the Baltic states.29 In 2015 the European Commission decided to finance the construction of the Estonia Latvia electric power transmission line with 112 million euros. The sum covers 65% of the project’s planned 172 million total cost.30 While formerly an “energy island,” the Baltic states region is connected with European partners through recently established electricity lines with Poland (LitPol Link), Sweden (NordBalt), and Finland (EstLink). These projects were made possible and built with EU support. For historical reasons, however, the Baltic states’ electricity grid is still operated in a synchronous mode with the 26. Estonian Electricity and Gas Market Report, 2017. Available online: https://www.konkurentsiamet.ee/index.php?id 5 14463, page 13. 27. Towards a sustainable and integrated Europe Report of the Commission Expert Group on electricity interconnection targets November 2017. Available online: https://ec.europa.eu/energy/sites/ener/files/ documents/report_of_the_commission_expert_group_on_electricity_interconnection_targets.pdf 28. Brussels, 23.11.2017 SWD(2017) 391 final COMMISSION STAFF WORKING DOCUMENT, Energy Union Factsheet Estonia, p. 5. Available online: https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-estonia_en.pdf 29. Ibid. 30. Elering’s website. Available online: https://elering.ee/en/third-estonia-latvia-interconnection

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Russian and Belarusian systems. On June 28, 2018, the heads of state of Poland and the Baltic states and the European Commission agreed on the Political Roadmap for synchronizing the Baltic states’ electricity grid with continental Europe. The synchronization project is included on the third EU list of Projects of Common Interest and will also qualify for EU support.31 The pan-national developments noted above appear to constitute a favorable picture for the market penetration of the set of solutions and technologies brought by the WiseGRID project in the Estonian electricity market. The resilience of the Estonian electricity market can be evidenced by the electricity interconnection level of Estonia was 23.7% (as of 2017). Moreover, the strong electricity exchange capacities are conducive to the integration of increased renewables on to the Estonian national grid. Indeed, as noted in this case study, smart grid applications are being sought after as a means for Estonian consumers to make energy-efficient choices.

12.3.2 Organisation of the Estonian energy market In Estonia, the selling prices of electricity and gas are not fixed by the government and both electricity and gas markets are fully liberalized. Further, contractual conditions for the sale of electricity are not regulated. The EMA only sets out certain minimal requirements for the invoices submitted to consumers for the sale of electricity in y 751. The EMA (yy 761 763) also regulates the sale of energy by way of universal service—this is available for small consumers, who are able to buy electricity from the network operator at an equitable price. The selling price of gas is subject to certain legal requirements only in the case of dominant gas sellers. As regards terms and conditions and other obligations of gas sellers, yy 9 10 of the NGA provide the requirement concerning the sale of gas, which includes inter alia the obligation to service all household customers and the obligation to publish the terms and conditions for the contracts relating to the sale of gas publicly available. In relation to the wholesale market for electricity and gas, the prices or contractual conditions are not regulated. In relation to the wholesale of electricity in an open market, market participants have the ability to trade through bilateral agreements as well as on the electricity exchange. According to y 111 of the EMA, a power exchange operator is the nominated electricity market operator designated by the Estonian Competition Authority in accordance with the requirements set out the Commission Regulation (EU) 2015/1222 (OJ L197, 25.07.2015, pp. 24 72). Currently, Nord Pool is the power exchange operator. Nord Pool offers day-ahead and intraday markets. The day-ahead market is the main arena for trading power, and the intraday market supplements the dayahead market and helps secure balance between supply and demand.32 31. Available online: http://europa.eu/rapid/press-release_MEMO-18 4285_en.htm. 32. Website of Nord Pool. Available online: https://www.nordpoolgroup.com/

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The wholesale of gas is based on bilateral agreements but can also be operated through Baltic Gas Exchange operated by GetBaltic. Baltic Gas Exchange organizes trade for physically settled spot and forward gas products in the market areas located in Estonia, Latvia, and Lithuania. All the participants of the natural gas market, who have the participant’s status, may execute trade on the exchange.33

12.3.2.1 Operation market To ensure the operation of both electricity and gas markets in Estonia, the TSO, Elering, acts as the central point. Elering Live brings together data about the Estonian electricity and gas system including electricity production and consumption, cross-border energy flows, and energy balance.34 As the energy markets are liberalized, the role of market regulator is relevant only as concerns network services, but not the market operation per se. The system operator both for electricity and gas is Elering, and market operators are Nord Pool for electricity and GetBaltic is for natural gas. Indeed, given the rather limited role of market regulator, the diagram on the functioning of the electricity market available at Elering website35 does not contain the market regulator:

33. Website of GetBaltic. Available online: https://www.getbaltic.com/en/exchange/trade_on_the_ exchange 34. See Elering LIVE website. Available online: https://dashboard.elering.ee/en. 35. Elering’s website. Available online: https://www.elering.ee/en/electricity-market#tab1.

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As noted above, the Estonian electricity system is divided between generation, transmission, distribution, and sale (see below the scheme of the electricity system as depicted on Elering’s website36). The market is generally liberalized; except that as described above, the prices and standard terms and conditions are regulated and must be approved by the Estonian Competition Authority.

12.4 Smart homes/smart meters37 In relation to electricity consumption: as of 2017, all the electricity meters have been updated to remotely read meters. This is due to the fact that the Estonian Grid Code y 39 (1) states that all standard electricity meters in Estonia had to be replaced by the network operator, by remotely read meters by the end of 2016.38 Remotely read meters are meters which record data in relation to the amounts of electricity by the hour and allow for automatic transmission of such data, without a need to physically access the metering device. In relation to gas consumption: there is no data on the amount of remotely read meters in the market. NGA y 24 (6) set-outs the obligation for the procedure and timeframes for the transition to remote metering systems. However, as of the date of this case study, no transition to remotely read meters have been adopted in the respective network code. Therefore, in 36. Elering’s website. Available online: https://www.elering.ee/en/electricity-system. 37. “Smart Home” in this context is defined as a home that includes appliances and smart devices that can be accessed or can be controlled using smart devices or systems. At the EU level, smart metering systems or intelligent metering systems are 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. 38. The Estonian Grid Code. Available online: https://www.riigiteataja.ee/akt/12831412? leiaKehtiv and an English translation of the Grid Code as of 2012 available online: https://www. riigiteataja.ee/en/eli/ee/VV/reg/511052016001/consolide

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contrast to the electricity market, on the gas market, there are currently no general obligations to ensure the transition to remotely read meters. It should be noted that y 2 (4) of network code governing the operation of the gas market, provides a definition for the remotely read meters defined as: remotely read meters are meters that record data regarding amounts of gas by the hour and enable instantaneous transmission of data without a requirement to physically access the metering device. Nevertheless, pursuant to NGA y 24 (13), a network operator will be obliged to ensure that all measuring points where gas is consumed in the amount of at least 750 m3 per year are equipped with a measuring system that measures the temperature of gas in the system and enables the collection of measurement data remotely by January 1, 2020. Similarly, NGA y 24 (14) provides that a network operator must ensure that by January 1, 2020, all measuring points where gas is consumed at pressure of more than 20 millibars are equipped with a measuring system that measures the pressure and temperature of gas in the system and enables the collection of measurement data remotely.

12.4.1 Estonia’s legislative portfolio related to smart metering systems The main legislative acts related to smart metering systems are the EMA and the NGA, which primarily state that the obligation to ensure the installation of remotely read meters is on the network operator and in addition establishes the minimum requirements of such remotely read meters. From the perspective of data protection that is related to processing of data via smart metering systems, the respective regulation is provided in Personal Data Protection Act and General Data Protection Regulation (EU) 2016/679 (General Data Protection Regulation [“GDPR”]), which is directly applicable in Estonia. Due to the fact that as of 2017 all electricity meters in Estonia have been replaced with remotely read meters that transmit consumption information by the hour, it is possible for the consumers to make decisions regarding billing based on real consumption. For example, Eesti Energia (state-owned energy company) has developed a mobile app that allows consumers to view consumption volumes with hourly precision and enables comparison over longer periods (week, month, and year) for a more thorough analysis. The application also shows consumers the exchange prices of electricity for the next day. By planning consumption on the basis of actual prices, a consumer can directly influence his/her electricity bill. The application delivers the greatest benefit in regard to the Exchange Package39 if a consumer selects the hourly price calculation.40 39. In the Exchange Package, the price of electricity depends entirely on the exchange price and changes every hour as a combined result of many factors. 40. Eesti Energia’s website. Available online: https://www.energia.ee/en/tark-tarbimine/mobiiliapp.

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12.4.2 Energy security considerations: interplay between Estonian policies and policies issued by the European Commission41 The Estonian energy security considerations run in parallel with EU policies, and the Ministry of Economic Affairs and Communications has confirmed that Estonia’s policies regarding energy efficiency and savings are in line with EU policies. Estonia is planning its activities in the area of development of energy efficiency in line with the EU energy efficiency directive 2012/27/EU adopted in 2012. To ensure the implementation of the large number of measures specified in the directive to all the economic sectors, a new, horizontal Energy Management Act42 has been adopted in Estonia that transposes the measures of the directive to national law.43 To guide Member States in this smart-metering transition, the Commission Recommendation 2012/148/EU outlines a series of functionalities to ensure technical and commercial interoperability or at least ensure the possibility to add such functionalities at a later stage.44 In general, Estonia has managed to comply with the minimum requirements for functionalities of the “smart” meters regarding electricity meters; however, for some functionalities, by way of example, the data exchange frequency of every 15 min is yet to be achieved also regarding electricity meters. The gas meters currently installed in Estonia do not meet the majority of requirements for functionalities.

41. In general, the anticipated rollout of roughly 200 million smart meters by 2020 in the Member States’ electricity industries falls under the objective to promote energy efficiency in the EU. The EU has set itself the challenge to hit a 20% and 27% energy savings target by 2020 and 2030, respectively. The premise is that more efficient energy use can generate multiple positive outcomes. Energy efficiency can cut energy bills for European citizens, reduce CO2 emissions, and foster energy security by alleviating energy dependency on external suppliers. 42. Adopted on 09.07.2018 and currently available only in Estonian. 43. Ministry of Economic Affairs and Communications website. Available online: https://www. mkm.ee/en/objectives-activities/energy-sector/energy-efficiency 44. The recommendation calls for a sufficient frequency at which consumption data can be updated and made available for the consumer (and third party designated by the consumer) to achieve energy savings. The recommendation claims that an update rate of every 15 min is needed to this end. The European Commission itself recognizes that this suggested feature is the most challenging one. However, the European Commission also deems this functionality as the most effective as it would allow consumers to make informed decisions on their consumption patterns. This bottom-up approach places consumers at the helm as they will be contributing to the efforts to promote energy efficiency and security. Smart metering and billing are critical to maximize demand response. Demand response is even more important in the light of the expected increase in the share variable renewable energy integrated in the national grid. Energy efficiency and demand response are better-suited avenues to balance demand and supply rather than keeping in operation or manufacturing new power plans and network lines. In that vein, real-time energy consumption data is key to maximize energy efficiency and consumer savings. By rendering them more aware of their consumption trends, consumers are able to adjust their behavior to save electricity. It is estimated that household energy consumption could be reduced to up to 9% as a result of the rollout of smart meters. Smart meters are streamlining the paradigm shift in the electricity market by making the sector more consumer-centric. In other words, smart metering systems allow consumers to reduce their electricity bills through demand.

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The gas and electricity meters installed in Estonia provide readings directly to the customer and any third party designated by the consumer. User interfaces and applications have been developed by service providers to allow easy access to consumption data as described elsewhere in this case study. All the electricity consumption meters in Estonia allow remote reading of meters by the operator and provide two-way communication between the smart metering system and external networks for maintenance and control of the metering system. As described above, by definition, current remotely read meters both for gas and electricity must enable data recording by the hour. This means, that even though the current meters in use may have the capacity to record consumption data more frequently than by the hour, there is no obligation on the network operators to (and they do not) process data at such frequency. Therefore, as of today’s date, the update rate of every 15 min for remotely read meters is not achieved in Estonia. As far as support of advanced tariff systems goes, due to the fact that as of 2017 all electricity meters in Estonia have been replaced with remotely read meters that transmit consumption information by the hour, it is possible for the consumers to make decisions regarding billing based on real consumption as described in Section 12.4.1. In relation to privacy, the current electricity meters only measure the total amount of electricity consumed each hour, and once a day the number of kilowatt-hours the consumer has consumed is transmitted. The data sent by the meter does not show which devices the consumer has been using, and they cannot even be used to determine whether anyone is at home or devices are being switched on automatically. Access to the data on the amount of electricity each customer consumes is restricted by law, and the network operators have rules in place to ensure that only authorized personnel can access the data and that they can monitor who is viewing the information. When network operators handle data, they use the same modern security measures to ensure the security of their customers’ information as banks, online stores, or medical institutions.45

12.5 Data protection As smart grids rely on retention of data, it is critical to understand data protection regulation and policies in light of Estonian and European data protections and how Estonia has implemented the European directives on data protection. The safeguard of consumer privacy is a question of the utmost importance, especially in the context of the European internal energy market. The effective deployment of smart metering systems must be subject to the adequate management of consumption data streams. Data protection and consumer privacy are imperative as they constitute basic requirements for the success of the large-scale deployment of smart meters. In turn, smart meters represent one of the most promising tactics to encourage energy efficiency 45. Elektrilevi’s homepage. Available online: https://www.elektrilevi.ee/en/abi/arvesti#meter_q4

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as a means to tackle energy security challenges. The pace of innovation has enabled smart grids to integrate information and communication technologies capable of monitoring energy consumption almost in real time. Estonia’s data protection regime is in general regulated by the EU GDPR which became directly applicable to all the EU Member States on May 25, 2018. Although the GDPR is directly applicable, the GDPR allows the Member States to derogate from some of the provisions and add certain specifications. For that purpose, the Members States, including Estonia have adopted national laws on data protection which would regulate the derogations from the GDPR. The Estonian Parliament passed the national law on data protection—Personal Data Protection Act (PDPA)—on December 12, 2018. For the PDPA to enter into force, the President of Estonia must proclaim the law. There are no relevant derogations or specifications in the PDPA which would have material impact on the data protection with regards to the use of smart grids. Therefore the general principles and conditions of the GDPR must be taken into consideration. As described above, the privacy of data subjects is a question of the utmost importance and is an important factor to take into account in the topic of energy market. First, it is important to detect to what extent the personal data is processed in the use of smart grids. Inevitably the registration data provided by the data subject when entering into a contract for using the smart meter (name, address, and information on consumer’s billing data and payment methods) are considered personal data. But the metering and consumption data, which at first sight might be considered as technical data, is linked with the natural person who is responsible for the metering account via a unique identifier, such as a meter identification number. The aforementioned data are therefore also regarded as personal data because they are associated with an identified or identifiable user and disclose information on his/her energy usage, thereby providing insights on the daily life of the data subject. The Article 29 Working Party46 has also reached a conclusion in one of its opinions that the use of smart meters falls within the processing of personal data.47 The European Commission has issued a recommendation on March 9, 2012 on preparations for the rollout of smart metering systems (2012/148/EU)48 in which it emphasizes the importance of data protection in the use of smart grids and brings out five main tools that should be used and taken into account: G G

data protection impact assessment (DPIA), data protection by default,

46. A former advisory body made up of a representative from the data protection authority of each EU Member State, the European Data Protection Supervisor and the European Commission. 47. Art 29 Working Party, Opinion 12/2011 on smart metering, WP 183 (2011). Available online: https://ec.europa.eu/justice/article-29/documentation/opinion-recommendation/files/2011/ wp183_en.pdf 48. Commission’s Recommendation of 9 March 2012 on preparations for the roll-out of smart metering systems (2012/148/EU). Available online: https://eur-lex.europa.eu/legal-content/EN/ TXT/HTML/?uri 5 CELEX:32012H0148&from 5 EN

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data protection by design, privacy enhancing technologies (PETs), and best available techniques (BATs).

Although this recommendation was issued before the GDPR entered into force, all five tools are also relevant in the context of the GDPR. According to Art 35 (1) of the GDPR, where a type of processing, in particular using new technologies, and taking into account the nature, scope, context, and purposes of the processing, is likely to result in a high risk to the rights and freedoms of natural persons, the controller shall, prior to the processing, carry out an assessment of the impact of the envisaged processing operations on the protection of personal data. The use of smart grids entails without a doubt such type of processing. To guarantee the protection of personal data throughout the EU, the Commission’s Recommendation stipulated that a data protection impact assessment template should be developed on EU level49 and which has been developed accordingly.50 The Commission’s Recommendation also encouraged the incorporation of data protection by design and data protection by default settings in the deployment of smart grids and smart metering. These principles have also been included in the Art 25 of the GDPR, and the last two tools—privacy enhancing technologies and best available techniques—could also be categorized under the aforementioned principles. Furthermore, in the use of smart grids, it is essential to detect the relevant parties participating in the data processing, who would be regarded as data controller, processor, or simply an authorized third party in accordance with the GDPR. The allocation of roles and responsibilities is important because when several parties are involved, their responsibilities must be clearly determined. According to Art 28, the data processor and the data controller must conclude an agreement concerning the data processing. Furthermore, data subject must know whom to they can turn when they want to exercise their rights under the GDPR. Data subjects’ rights are another important factor to take into account. The right to be informed when personal data are being collected and processed, the right of access as well as the right to object to certain processing activities (including profiling) and to automated individual decision-making are relevant in the smart metering systems’ context. Among the new rights, the right to data portability is also likely to be of relevance when smart meters are fully operational. Concerning the right of access, a mechanism of access to personal data should be established and information on its particular details would best be provided by means of the relevant services contract, once entered with subscribers. For those data controllers who do not establish a direct relationship 49. Available online: https://ec.europa.eu/energy/sites/ener/files/documents/dpia_for_publication_2018.pdf 50. Available online: https://ec.europa.eu/energy/en/data-protection-impact-assessment-smartgrid-and-smart-metering-environment

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with data subjects whose data they process, an access mechanism needs to be devised in cooperation with other data controllers that maintain such relationships. The driving factor is that individuals need to be able to establish where their data are found and to also be able to obtain copies thereof.51 Article 17 of the GDPR stipulates the right to be forgotten and Art 20 the right to data portability which in the meaning of smart grids means that the customers have the right to switch between service providers and the same time decide what amount of data to be transferred to the new service providers and what amount of data to be forgotten. Another important issue to consider is that the processing of personal data in the use of smart grids would be based on valid legal basis. Art 6 of the GDPR lists different legal basis which can be used for data processing, consent being one of them. If processing is based on consent, according to Article 7 and section 32 of the preamble of the GDPR, such consent needs to be freely given, specific, informed, and unambiguous indication of the data subject’s agreement to the processing of personal data. In the smart grid context, consent might prove unsuitable, mostly due to the fact that the data subjects can freely withdraw it. This is why the legal basis of performance of a contract might be of more relevance to the smart grid purposes: once an individual applies for or has entered a contract for the provision of smart grid services, this will perhaps constitute a more relevant legal basis governing the same individual’s personal data processing. In the smart grid context, individual consent means that all information pertaining to the processing needs to be made available to the individual before entering the relevant subscription contract, at which point the contractual terms shall apply. In addition, entering into such contract must be indeed “free” meaning that the data subjects must have a possibility to choose not enter into such contract.52 Considering the volume and sensitivity of the data they process; smart meters need to feature secure storage systems as well as backup and contingency policies. Analyzing the smart metering data of end user enables to derive surprisingly precise observations about their private lives: time spent at home, working schedule, holidays, use of particular appliances, their habits, and so forth. Such information is valuable for third parties for a number of reasons. The practice of consumer profiling puts the privacy of consumers at stake. It should be noted that the Estonian Data Protection Act does not contain any specific regulations with regard to the profiling of data subjects, the requirements of GDPR apply. As smart meters require the retention of data to be effective and the GDPR requires the protection of data, there is a careful balancing act required between the European data protection legislation and the implementation of smart meters. While there is no specific legislation in Estonia which would cover the data protection issues in the use of smart meters, EMA prescribes several obligations for 51. S. Goel, et al., Smart Grid Security, SpringerBriefs in Cybersecurity, p. 81. 52. S. Goel, et al., Smart Grid Security, SpringerBriefs in Cybersecurity, p. 84.

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the TSO. Of note, EMA y 64 (7) and (8) stipulate that the TSO must publish information on its website how the consumer can access its consumption data and that the consumption data shall be disclosed to the consumer in accordance with the application form regulated in the Estonian Grid Code. Furthermore, EMA y 421 (2) stipulates that if the personally identifiable consumption data is to be transferred to any other party (with whom the consumer does not have a valid contract) though the use of data exchange platform, the consumer must give its consent for such transfer. Such consent must meet the requirements stipulated in the GDPR. In light of the above, arguably the Estonian legislation (via the implementation of GDPR) manages the aforementioned balancing act effectively.

12.6 Electric vehicles 12.6.1 Market penetration of electric vehicles As of December 31, 2017, the Estonian Road Administration register includes 1190 electrical vehicles. There is a total of 725,944 cars registered; therefore, the percentage of electrical vehicles is just 0.16%.53 The distribution of manufacturers of electrical vehicles registered in Estonia is as follows:54

There are 167 quick charger stations in Estonia. Out of which, 102 quick chargers are in towns and 65 by roads. Out of larger towns, 38 quick 53. Accelerista’s website (source Estonian Road Administration). Available online: https://www. accelerista.com/arvamus/mitu-elektriautot-eestis/ 54. Ibid.

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chargers are in Tallinn, 11 in Tartu, 5 in Pa¨rnu, 3 in Viljandi, and 2 in Narva. The charging stations are distributed as follows: G G

G G G

All roads with dense traffic are covered. The distance between quick charging points is 40 60 km, suitable and frequently visited places are considered as locations for quick charging stations, for example, petrol stations, cafes, shops, etc. Ports servicing international private transport and local travel ports. All settlements with over 5000 inhabitants. In towns, charging points are built in locations where people move anyway—for example, next to shopping centers, petrol stations, post offices, bank buildings, parking lots, and so forth.55

In March 2011, the Government of the Republic of Estonia concluded a contract with Mitsubishi Corporation for the sale of AAUs (Assigned Amount Unit) in the amount of 10 million AAUs to start the Estonian electrical mobility programme. The programme consisted of three parts: G

G

G

507 Mitsubishi iMiev electric cars were commissioned by the Ministry of Social Affairs as an example; the Ministry of Economic Affairs and Communications developed a support system for natural and legal persons for acquisition of electric cars; and infrastructure for charging electric cars was created to cover the whole country.

Distribution of the purchase grant and the administration of the quick charging network was organized by Foundation KredEx. It was possible to apply for the grant to purchase electric cars from July 18, 2011 until August 7, 2014. The quick charging network of electric cars was constructed in Estonia by ABB.56 There have been rumors that the Government of the Republic of Estonia is planning to reinstate the support system for the purchase of electrical vehicles; however, as of today’s date of no such systems have been launched. Given the small size of Estonia, the internal transport is mostly conducted by road transportation—air or marine transport, in most cases, is not feasible. Transportation of goods by transport classes:57 Transportation of goods, thousand tons

Total Road Railway Marine Air

2009

2010

2011

2012

2013

2014

2015

2016

2017

67,681 27,928 38,392 1361 —

79,127 30,276 46,705 2146 —

81,057 31,007 48,378 1672 —

78,142 31,733 44,731 1678 1

78,726 33,131 43,682 1911 2

75,141 37,269 36,289 1580 3

66,219 36,778 28,026 1411 4

65,354 38,810 25,364 — —

56,434 28,966 27,256 — —

55. ELMO website. Available online: http://elmo.ee/charging-network/ 56. ELMO website. Available online: http://elmo.ee/elmo/ 57. Estonian Statistics. Available online: https://www.stat.ee/389969

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The Estonian transport sector largely relies on liquid fuels to sustain its energy needs. Taken into account that the percentage of electrical vehicles in Estonia is just 0.16% and there are altogether approximately 8000 gas vehicles, that is, approximately 1.1% of all the vehicles, the transport sector heavily relies on liquid fuels. For example, car gas represented only 0.5% of all types of fuel (petrol, diesel, and gas) in 2017.58 During the last 6 months of 2017, 468.8 million liters of fuel were sold in Estonia. Diesel formed two-thirds of total Estonian transportation fuels:59

Approximately 25% of the energy consumed in Estonia is spent by the transport sector. Liquid fuels are imported from abroad for that purpose. Of note, 94% of the transport sector energy consumption is attributable to transport by road and vehicles. As Estonia has no oil resources, Estonia does not produce or process oil, and liquid fuels are mostly imported from works in Finland and Lithuania; smaller quantities also come from Belarus and Sweden. Over the last 10 15 years, the volume of energy and fuels consumed by transport sector has increased by more than 33%. Only in the recession years, 2008 2009, fuel consumption somewhat decreased.60 The Estonian government has issued regulations and policies geared toward advancing a “smarter” and more sustainable transport industry.61

58. Alexela Oil homepage. Available online: https://www.alexelaoil.ee/est/uudised.n/autogaasimuuk-kasvas-moodunud-aastal-ligi-viiendiku-vorra 59. OSPA homepage. Available online: http://www.ospa.ee/eesti-vedelkutuste-turu-kokkuvote/ 60. Ministry of Economic Affairs and Communications website. Available online: https://www. mkm.ee/en/objectives-activities/energy-sector/liquid-fuels 61. The electrical vehicle (EV) will play a crucial role in the electricity architecture of the future, particularly in terms of distributed energy storage systems as EVs can integrate storage capacity in smart grids. Indeed, vehicle-to-grid (V2G) systems allows EVs to power and to be powered by the grid. Further, V2G permits the storage of electricity so that it can be used in hours of low production. The promotion of EVs can bring about several benefits. Smart charging during valley hours contributes to flatten the demand curve; EVs will help optimize electricity grid surpluses and will enable a greater share of RES to be integrated in the domestic grid. In addition, the deployment of EVs will assist in reducing CO2 emissions, mitigating dependency from foreign energy supplies as well as improving air quality and curtailing noise pollution in cities

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Indeed, the Estonian Government has had a major role in developing the electric charging stations and promoting purchases of electric vehicles in Estonia as described above. Estonia is under the obligation of achieving a situation by 2020 whereby 10% of the transport sector’s energy consumption is provided by renewable sources of energy. The main measures applied to ensure the availability of the required quantities of energy from renewable sources are the obligation to supply liquid fuels with a bio component and the facilitation of the use of alternative types of fuel. The latter measure includes continued implementation of the ELMO programme (referred to in Section [9] of the case study) and facilitation of the use of biomethane in the transport sector. The new Transport Sector Development Plant 2014 2020 also establishes long-term goals for that purpose. The National Transport Development Plan 2014 2020 describes the plans for both international passenger and carriage of goods for the next 6 years. Economic efficiency and environmental soundness have become the most important aspects for planning the development of the transport sector Estonia’s main goals in the development of the transport sector over the next years are related to the following areas:62 Although the main goals do not per se refer to “smart” solutions, the National Transport Development Plan 2014 2020 does note that Estonia has the potential to be a good location for companies to develop and test new solutions thanks to the nationwide electric charging stations for electrical vehicles.63 Therefore despite the nationwide electric charging stations network and government grants to purchase electric cars from July 18, 2011 until August 7, 2014, the number of electric vehicles in Estonia is still marginal. As noted above, as of December 31, 2017, the Estonian Road Administration register includes 1190 electrical vehicles and the percentage of electrical vehicles is just 0.16%. Therefore arguably the implementation of the electric vehicle in Estonia to date has not been effective and further developments are required.

12.7 Demand response The concept of aggregator for demand response (DR) does not currently exist in Estonia. Indeed, there is no specific legislation within Estonia to support DR, albeit it is not directly prohibited. It should be noted that at the end of 2017 the Baltic TSOs conducted a study on DR. The study was the first report prepared by the Baltic TSOs with the goal to develop a proposal for a harmonized market framework for explicit DR and aggregation service integration in the Baltic countries. 62. Ministry of Economic Affairs and Communications website. Available online: https://www. mkm.ee/en/objectives-activities/transport 63. Ministry of Economic Affairs and Communications website. Available online: https://www. mkm.ee/en/objectives-activities/energy-sector/liquid-fuels

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The goal of this chapter was to present the concept of harmonized Baltic DR market model for aggregators participating in balancing market (mFRR standard product). Overview of explicit DR integration in EU:64

As noted above, there is no specific legal framework for DR. The ambiguous legal framework currently presents a barrier to the development of demand response and a specific legal framework would be required for the effective implementation of demand response.

64. Demand response Through Aggregation—A Harmonized Approach in Baltic Region, Concept proposal 2017. Available online: https://elering.ee/en/closed-consultations#tab1

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Electricity Decentralization in the European Union

12.8 Conclusions As evidenced by this case study, the implementation of policies and regulations relating to the electricity and gas market in Estonia has resulted in a fully liberalized market where the sale price of electricity and gas is not determined by the government. Further, both in the electricity and gas markets, the unbundling of ownership between the production and transmission systems has been fully implemented. Thus the market is able to operate competitively, and consumers are able to choose their suppliers. The foregoing would support the set of solutions and technologies brought by the WiseGRID project in the Estonian electricity market. In relation to smart meters in the electricity market, as noted in this case study, since the beginning of 2017, all standard electricity meters in Estonia have been replaced by remotely read meters. Therefore the regulation regarding smart meters in the Estonian electricity market has arguably been effective in supporting the transition to smart grids. However, as opposed to the electricity market, in the gas market, there is currently no requirement to make the transition to remotely read meters. Nevertheless, by January 1, 2020, gas network operators will be required to ensure that measuring points with larger consumption amounts must also complete the transition to remotely read meters. Therefore the Estonian regulation regarding smart meters in the gas market supports the eventual transition to smart grids. Furthermore, there is a mobile application that allows consumers to view consumption volumes precisely by the hour and enables comparison over longer periods (week, month, and year) for a more detailed analysis. The mobile application also shows consumers the exchange prices of electricity for the next day. The existence of such technology confirms that Estonia would be receptive to the transition to smart grids and the implementation of the goals of the WiseGrid project. Lastly, it should be noted that both the National Development Plan of the Energy Sector until 2030 and National Transport Development Plan 2014 2020 have placed an emphasis on the utilization of smart meters and smart grids, which arguably will contribute to Estonia adopting further regulations in support of smart grids, to give effect to the above-mentioned plans. In terms of whether the regulatory models provide the right incentives for investment in smart grid technologies, Estonia is a country governed by rule of law, where policies and regulations have created an enabling environment for the transition to smart grids, alongside liberalized and unbundled electricity and gas markets. Hence, from a legal perspective, the regulatory models provide an enabling environment for investment in smart grid technologies. Based on the above, it can be concluded that the policies and regulations in Estonia have been and are currently robust in supporting the transition to smart grids and would be receptive to the WiseGrid Project.

Chapter 13

Energy decentralization and energy transition in Slovenia Stanislava Boskovic1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

13.1 Slovenia 13.1.1 Energy profile Flexible, available, reliable, and affordable electric power is key to the growth and stability of contemporary states, and consequently the smart grid concept is becoming an increasingly important factor in power generation, transmission, and distribution.

13.1.2 Energy mix in Slovenia In the years following the 2012 Eurozone crisis, the Slovenian economy has been steadily recovering (5.1% in GDP for 2018).1 The country’s overall energy demand is increasing, and this is reflected in all energy markets. Slovenia only has one nuclear power plant (NPP), the NEK (Nuklearna Elektrarna Krˇsko), located in Virbia in the Municipality of Krˇsko.2 It was built as a joint venture between Slovenia and Croatia, which were at the time both part of the Socialist Federal Republic of Yugoslavia. Half of all electricity produced at Krˇsko is transmitted to the Republic of Croatia based on the bilateral treaty between the Government of the Republic of Slovenia and the Government of the Republic of Croatia, which entered into force on March 11, 2003.3 1. Slovenian Institute of Macroeconomic Analysis and Development. Urad RS za makroekonomske analize in razvoj. Available at: http://www.umar.gov.si 2. The plant was connected to the power grid on October 2, 1981 and came on-stream on January 15, 1983. 3. IAEA. Country Nuclear Power Profiles. Country Nuclear Powers Profiles. Slovenia. Available at: https://cnpp.iaea.org/countryprofiles/Slovenia/Slovenia.htm Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00014-1 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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13.1.2.1 Electricity The Krˇsko NPP still accounted for 40% of all electricity generated in Slovenia last year. The country’s energy report states4 that renewable energy sources (RES) contributed 30% (hydropower, wind power, solar power, and biomass) and fossil fuels provided the remaining 30% of generated electricity. Table 13.1 illustrates the stable dynamics of production from domestic resources (82.9%) in the period from 2013 to 2017 and a growing dependency on imports. TABLE 13.1 Electricity production, consumption, and import dependency in the period 2013 17.5

According to provisional data from the Slovenian office of statistics6 in December 2018, “Slovenia’s net electricity production increased by 12% monthon-month to 1479 GWh in November 2018,” while the total electricity production “increased by 6 GWh to 1209 GWh.” In the same period “the output of hydropower plants increased by 70%, whereas the output of thermal power plants fell by 3%” Krˇsko Nuclear Plant’s electricity production dropped by 2% and fuel consumption decreased by 1%. Finally, Renewable Now7 states that, “Slovenia imported 560 GWh of electricity and exported 828 GWh” in November 2018. Table 13.2 shows Statistical Office of the Republic of Slovenia (SURS) data on electricity price dynamics over the last 6 years (in orange). It can be seen that the average electricity price for households in the first quarter of 2018 decreased by 1% over the previous quarter and is equivalent to 0.15 EUR/kWh. The graph also shows a 5% increase in the average electricity price without value-added tax for industry (0.08 EUR/kWh) over the same period (in blue). 4. Ibid, pp. 14 17. 5. Ibid, p. 23. 6. SURS Statistical Office of the Republic of the Slovenia. Energy. Available at: https://www. stat.si/statweb/en/home 7. Renewables Now. Slovenia’s net power output rises in Nov. Available at: https://renewablesnow.com/news/slovenias-net-power-output-rises-in-nov-637853/

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TABLE 13.2 Electricity prices from March 2012 to April 2018, Slovenia.8

In Slovenia, there are nine companies that operate large power facilities with a capacity of over 10 MW:9 G G G G G G G G G

ˇ ˇ stanj Thermal Power Plant10 (TES), Soˇ 11 Nuclear Power Plant Krˇsko (NEK), Drava Electric Power Plant Maribor12 (DEM), Sava Electric Power Plant Ljubljana13 (SEL), Soˇca Hydro Power Plant14 (SENG), Spodnji sava Hydro Power Plants15 (HESS), Brestanica Thermal Power Plant16 (TEB), Energetika Ljubljana17 (JPEL), and HSE—Energy Holding Trbovlje18 (HSE ED Trbovlje).

8. SURS Statistical Office of the Republic of Slovenia. Prices of Energy Sources, Slovenia, 1st quarter 2018. Available at: https://www.stat.si/StatWeb/en/News/Index/7260 9. Energy Agency Report on the energy sector, Slovenia, 2017, p. 18. Available at: http://www.agen-rs-si ˇ stanj. Available at: http://www.te-sostanj.si/en/ 10. Termo elektrarna Soˇ 11. Nuklearna elektrarna Krˇsko. Available at: https://www.nek.si/ 12. Dravske elektrarne Maribor. Available at: http://www.dem.si/en-gb/ 13. Savske elektrarne Ljubljana. Available at: http://www.sel.si/ 14. Soˇske elektrarne Nova Gorica. Available at: https://www.seng.si/en 15. Hidroelektrarne na spodnji Savi. Available at: http://www.he-ss.si/eng/ 16. Termoelektrarna Brestanica. Available at: https://www.teb.si/ 17. Javno podjetje Energetika Ljubljana. Available at: http://www.energetika-lj.si/ 18. HSE—Energetska druˇzba Trbovlje. Available at: http://www.hse.si/si/druzbe-hse/druzbe-vsloveniji/termoelektrarna-trbovlje

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Electricity Decentralization in the European Union

TABLE 13.3 Natural gas sources in the period 2014 17.19

13.1.2.2 Natural gas Slovenia has no domestic sources of natural gas. The same situation is true for natural gas storage and liquefied natural gas terminals. Consequently, the natural gas market is limited to imports of natural gas through neighboring transmission systems from Austria, Italy, and Croatia (Table 13.3). Prior to independence, Slovenia had long-term contracts with natural gas producers from Russia. These contracts have been either replaced or are in the process of being replaced with short-term contracts with gas hubs, power exchanges, etc. The same graph20 shows that 75% of natural gas was imported from Austria in 2017. The same source reveals that natural gas consumption increased in 2017 for all consumer groups in the Slovenian market for the third consecutive year, totaling some 900 million Sm3 or 9678 GWh. Volumes of natural gas distributed to consumers in closed distribution systems (CDS) rose by more than 3.6%. Various factors, such as weather conditions, a reliable supply with competitive natural gas prices, favorable economic conditions, together with other factors, are resulting in higher consumption. Plinovodi d.o.o.,21 a private company, manages the natural gas transmission system. 2017 Energy Agency Report22 describes the structure of the transmission system operator (TSO): “The system consists of 947 kilometres of high-pressure pipelines with a nominal pressure of more than 16 bars and 211 kilometres of pipelines with a 19. Ibid, p. 140. 20. Energy Agency Report on the energy sector, Slovenia, 2017, p. 139. Available at: http:// www.agen-rs-si 21. Plinovodi d.o.o. Connected with energy. Available at: http://www.plinovodi.si/en/ 22. Energy Agency Report on the energy sector, Slovenia, 2017, p. 111. Available at: http:// www.agen-rs-si

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nominal pressure less than 16 bars. The transmission system also consists of 200 metering-regulation stations, 42 metering stations, 7 reducing stations, and compressor stations in Kidriˇcevo and Ajdovˇscˇ ina. The Slovenian gas transmission system is connected to the gas transmission networks of Austria (Cerˇsak ˇ Mrs), Italy (Sempeter Mrs) and Croatia (Rogatec Mrs).” The border points are also relevant points of the transmission system. Gas trading on the wholesale market is collected at virtual points. The same source23 reports that the distribution of natural gas is carried out as a service of general economic interest by a distribution system operator (DSO) for the general consumption of gas in towns and settlements and for the distribution of gas to industrial and business consumers on CDS. In 2017 35 consumers were recorded in three CDS areas (Jesenice, Kranj, and Kidriˇcevo), a first for Slovenia. Of note, 612 GWh of natural gas were distributed to consumers in these areas. Access to CDS is only available to customers within the closed area of these systems (Table 13.4). TABLE 13.4 Delivered, distributed, and consumed quantities of natural gas in 2017 in GWh.24

23. Ibid, p. 112. 24. Ibid, p. 110.

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Electricity Decentralization in the European Union

Since 2016 the level of investment in gas transmission has been gradually increasing. A 2017 Report25 indicated that TSO invested EUR 10.8 m in the transmission system, 47% more than the previous year. Investments in expansion and reconstruction amounted to EUR 4.5 m, and other investments totaled EUR 6.4 m—or 75% more than 2016. The TSO started with the construction of the R38 Kalce Godoviˇc transmission pipeline, which is also intended to connect the distribution system supplying the municipality of Idrija. As shown in Table 13.5, “in metering-regulation station Rogatec the distribution system for the municipality of Rogatec was connected, which was previously connected to the Croatian distribution system. Renovation of the transmission pipeline M1—crossing the Zlatoliˇcje Channel and section of the pipeline R26 Deˇsen on a landslide area—was completed.” When work began to enable bidirectional flow at metering regulation station Rogatec, the preparations of projects for obtaining the status of projects of common interest (PCI) continued. The Energy Agency approved the “Ten-Year Network Development Plan of the Gas Transmission Network for the Period

TABLE 13.5 Natural gas transmission system in December 2017.26

25. Ibid, p. 124. 26. Ibid, p. 125.

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2018 2027.”27 The Slovenian development plan is complemented by the “Ten-Year Network Development Plan by ENTSOG TYNDP2017.”28 At the same time, the Energy Agency also approved the Investment Plan for the period 2018 20.29 The figure for business and household consumers, as shown in Table 13.6, remained virtually static between 2016 and 2017. The final prices of natural gas dynamics for typical household consumers in Slovenia remained below the EU-28 average level, illustrated in Table 13.7.

TABLE 13.6 Number of consumers according to consumption type in 2016 and 2017.30 Business consumers on the transmission system

132

133

102,27

Business consumers on distribution systems

13,724

13,782

100.42

Business consumers on closed distribution systems

34

35

102.94

Household consumers

119,583

119,678

100.08

Total

133,473

133,630

100,12

Source: Energy hqency.

Table 13.8, which shows SURS data on natural gas price dynamics over the last 6 years, reveals that the average natural gas prices for households in the first quarter of 2018 increased by 4% over the previous quarter and is equivalent to 0.05 EUR/kWh. The same period saw a 3% increase in the average electricity price (excluding value-added tax) for industry (0.03 EUR/kWh). G

The use of RES (hydropower from watercourses, wind power, solar power used in photovoltaic plants, and energy from biomass and biodegradable waste) increased by almost 22% in 2017.

27. Plinovodi d.o.o. Extended summary of ten-year gas transmission network development plan for the 2018 2027 period. Availible at: http://www.plinovodi.si/wp-content/uploads/2011/09/ extended_summary_tyndp_2018-2027.pdf. 28. European Network of Transmission System Operators for Gas (ENTSOG). The Ten-Year Network Development Plan. Available at: https://www.entsog.eu/tyndp#entsog-ten-year-network-development-plan-2020 29. Energy Agency Report on the energy sector, Slovenia, 2017, p. 125. Available at: http://www. agen-rs-si 30. Ibid, p. 111.

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TABLE 13.7 Final natural gas prices including all taxes and levies for typical household consumers (D2) in Slovenia and other European Union countries in 2016 and 2017.31

As an European Union (EU) Member State, Slovenia actively promoted the use of renewable sources of energy, especially for electricity generation. This has major implications for the country’s national energy policy, bringing as it does significant direct and indirect benefits. The “EU Renewable Energy Directive 2009/28/EC”32 sets a mandatory national target for each Member State—25% in Slovenia’s case—and “it sets the overall share of gross energy consumption that must come from renewable energy sources by 2020.” According to the abovementioned energy report,33 21.8% of energy consumption in Slovenia came from RES in 2017. Water is the most utilized energy source for electricity production in Slovenia. It has an abundance of resource, with 59 major rivers running across the country, of which the Drava and Sava are the most important. Slovenia consequently has a large number of hydropower plants (more than 375). These hydropower plants (small and large) represent the major portion of RES and harbor the greatest potential for future exploitation. Besides renovating older hydropower plants and constructing five new plants on the river Sava, the country is also tapping the potential of biomass to generate heat and power: Slovenia’s agricultural sector is a rich source of animal waste, which could be harnessed to generate electrical energy. 31. Ibid, p. 146. 32. Directive 2009/28/EC of the European Parliament. Available at: http://data.europa.eu/eli/dir/ 2009/28/oj 33. Energy Agency Report on the energy sector, Slovenia, 2017, p. 24. Available at: http://www. agen-rs-si

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TABLE 13.8 Natural gas prices dynamics from March 2012 to April 2018.34

To incentivize auto manufacturers which have the ability to generate electricity from RES, a feed-in tariff system is in effect in Slovenia. Held et al.35 state that “the Feed-in Tariff System is fully compliant with EU legislation regarding state aid, and was approved in May 2009. The 2009 Government Decree on financial support for electricity produced from RES uses the feed-in principle.” The Res-e Regions project study defines this as “prices for individual classifications of qualified producers using different types of renewable energy sources are different and also depend on the generating capacity of the power plant. [. . .]The government, or other competent agency, defines a buying price and obligates electrical energy distributors to buy the electricity.”36 34. SURS Statistical Office of the Republic of Slovenia. Prices of Energy Sources, Slovenia, 1st quarter 2018. Available at: https://www.stat.si/StatWeb/en/News/Index/7260 35. Held, A., Ragwitz, M., Resch, G., Nemac, F., Vertin, K. Feed-In Systems in Germany, Spain and Slovenia—A comparison. December 2010, p. 24. Availible at: http://www.mresearch.com/ pdfs/docket4185/NG11/doc44.pdf 36. RES-e Regions. Slovenia. RES-e Map: Electricity from renewable energy sources (RES-e). Available at: http://www.res-regions.info/fileadmin/res_e_regions/ULFME_Technology_map_en_01.pdf

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The study also indicates that the region has a significant potential to harness solar energy for electricity production. However, due to high initial investment costs and a low level of system efficiency, solar power plants are expensive to construct and maintain, with these costs often making the price of solar electricity higher than that generated from any other renewable source.

13.1.2.3 Transmission system operator Slovenia’s sole TSO for electric power is ELES, a state-owned company.37 It is tasked with ensuring the efficient operation of the transmission line network and supplying electricity to consumers. Furthermore, ELES purchases and sells the electricity to the distribution companies and to the larger endconsumers. The company provides live online information on the transmission network. Table 13.9 illustrates sample activity of 400 kW and 220 kW transmission lines on January 9, 2019. TABLE 13.9 Transmission network on January 9, 2019, 17:30 (CET).38

13.1.2.4 Distribution system operator The main electricity distributors in Slovenia are: Elektro Ljubljana d.d.,39 40 x Elektro Maribor d.d., x

37. ELES—Elektro—Slovenija, d.o.o. About the company. Available at: https://www.eles.si/en/ about-the-company 38. ELES—Elektro—Slovenija, d.o.o. Transmission network. Available at: https://www.eles.si/ en/transmission-network 39. Elektro Ljubljana. Available at: https://www.elektro-ljubljana.com/elektro-ljubljana 40. Elektro Maribor. Network. Available at: http://www.elektro-maribor.si/index.php/omrezje

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Elektro Celje d.d.,41 42 x Elektro Primorska d.d, and 43 x Elektro Gorenjska d.d. x

SODO d.o.o.44 is a single DSO in Slovenia, established by the state in 2007 and still state-owned. It received a DSO license from the Slovenian Energy Agency in the same year, as well as the right to distribute electricity for the next 50 years, which was explicitly identified as a public service. Five listed main distribution companies are contracted by SODO d.o.o. for the lease of infrastructure for the distribution of electricity to end consumers in different regions of Slovenia, as detailed in the Slovenia RES-Integration report.45

13.1.3 Governance system: support schemes and selection bases The principal legislation governing RES and the combined heat power and electricity support scheme is the Energy Act.46 This Act details the method used for ensuring support for the production of electricity from RES and high-efficiency cogeneration.47 The support scheme had to comply with relevant EU legislation on state aid to avoid falling foul of EU principles of fair competition between Member States.48 The scheme overcame this potential hurdle and was approved by the European Commission decision SA.419980f of October 10, 2016,49 designated as a permissible form of state assistance. More than 2500 producers (3864 production facilities) had been included in the support scheme by the end of 2017. Under the initial support scheme approved by European Commission decision no. SA.28799,50 operators of eligible installations were automatically entitled to support. After January 1, 2017, all beneficiaries had to be selected through a competitive two-phase tender. 41. Elektro Celje d.d. Available at: https://www.elektro-celje.si/si/ 42. Elektro Primorska d.d. Available at: http://www.elektro-primorska.si/ 43. Elektro Gorenjska d.d. Available at: https://www.elektro-gorenjska.si/ 44. SODO—Sistemski Operater Distribucijskega Omrezja. Available at: https://www.sodo.si 45. RES-Integration. 2011. Country report Slovenia. Integration of electricity from renewables to the electricity grid and the electricity market. Available at: https://www.eclareon.com/sites/ default/files/slovenia_-_res_integration_national_study_nreap.pdf 46. Energetski zakon—EZ-1 (Uradni list RS, sˇt. 17/14 z dne 7. 3. 2014). Available at: http:// www.pisrs.si/Pis.web/pregledPredpisa?id 5 ZAKO6665 47. Official Gazzette of the Republic of Slovenia, no. 74/16. Available at: http://www.svz.gov.si/ en/legislation_and_documents/ 48. Global Legal Insights. Ulicar, M.Bozicko, P.Energy. Slovenia. Available at: https://www.globallegalinsights.com/practice-areas/energy-laws-and-regulations/slovenia 49. European Commission. Competition. State Aid Cases. Slovenia. SA.419980f. Available at: http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code 5 3_SA_41998 50. European Commission. State Aid SA.41998 (2015/N) Slovenia. Available at: http://ec. europa.eu/competition/state_aid/cases/258741/258741_1837726_154_2.pdf

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In respect of cogeneration of heat installations, the EU rules state that aid may only be granted to high-efficiency cogeneration installations as defined in the “Guidelines on state aid for environmental protection and energy 2014 2020.”51 Table 13.10 illustrates a review of projects submitted in 2016 and 2017. TABLE 13.10 Review of projects submitted to public tender, compiled by electricity generation technology.52 Technology

Renovated/ new

Public tender— December 2016

Public tender— September 2017

Number of projects

Installed capacity (MW)

Number of projects

Installed capacity (MW)

Hydropower plants

New

25

7.80

11

6.07

Hydropower plants

Renovated

26

3.47

14

3.68

Solar power plants

New

105

12.33

84

17.00

Wind power plants

New

41

56.19

70

139.65

Power plants on wood biomass

New

39

11.89

21

13.56

Biogas power plants-waste

New

3

0.41

Power plants using biogas from wastewater treatment facilities

New

1

0.20

1

0.20

Biogas power plants

New

3

6.03

CHP using fossil fuels

New

26

6.67

29

9.98

CHP using fossil fuels

Renovated

6

19.15

2

4.19

275

124.14

232

194.32

All submitted projects Source: Energy Agency.

51. Eur-Lex. Guidelines on state aid for environmental protection and energy 2014 2020. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 CELEX%3A52014XC0628%2801%29 52. Energy Agency Report on the energy sector, Slovenia, 2017, p. 28. Available at: http://www. agen-rs-si

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Granting authorities: Ministry of Energy and Energy Agency of Slovenia 2017 public tender supported 78 projects 2018 public tender supported 93 projects

The number of completed public tenders for the support scheme are an encouraging sign, revealing a high degree of interest among potential investors to invest in renewable energy systems and cogeneration of heat installations facilities.

13.1.3.1 Deficit in wind power plants The construction of wind power plants in Slovenia is very complex and timeconsuming due to the geographic characteristics of the country. Currently, wind power plants contribute only approximately 3 MW of rated electric power in the support scheme, according to the 2017 Energy Report.53 Nevertheless, Table 13.11 shows that the sector is continuing to grow and gives an indication of the huge potential for wind electricity generation in Slovenia in the coming years, in addition to projected increases in RES and combined generation of heat and power (CHP). TABLE 13.11 Estimation of the additional electricity generated by the implementation of all selected projects for RES and CHP generating plants within both public tenders.54

53. Ibid, p. 30. 54. Ibid, p. 30.

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13.1.4 Electricity market 13.1.4.1 Regulatory framework The Slovenian Energy Agency is continuing to adhere to the guidelines it adopted on the active regulation of energy activities, and also those covering future networks. The SEA’s focus is on identifying suitable solutions to improve the regulatory framework, if and where appropriate. It has been prioritizing the introduction of smart grids to enable flexibility, accessibility, reliability of the electricity supply, and cost-efficiency. The concept of the smart grid also encompasses investment in innovative metering infrastructure. The SEA has concluded that “pilot projects and the results of cost-benefit analysis show that the advanced metering infrastructures in Slovenia offer much more than simple measurements and the transmission of measurement data, and because of lower operational costs the introduction for all users would be a rational decision.”55 According to a recent report covering the 2017 18 period,56 the implementation of the EU Third Package of energy legislation57 in Slovenia was enabled through the passing of the Energy Act.58 The Act included: G G G

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Rules on the balancing of the electricity market59 A decree establishing the infrastructure for alternative transport fuels60 The methodology determining the regulatory framework for the electricity distribution system61 The methodology for determining the regulatory framework for gas distribution62 The methodology for determining network charges for natural gas distribution

55. The Energy Agency. Slovenia. Smart Grids. Available at: https://www.agen-rs.si/web/en/smart-grids 56. Global Legal Insights. Energy. Ulicar M., Bozicko P, Slovenia. Available at: https://www. globallegalinsights.com/practice-areas/energy-laws-and-regulations/slovenia 57. “The third package has been enacted to improve the functioning of the internal energy market and resolve structural problems. It covers five main areas: unbundling energy suppliers from network operators; strengthening the independence of regulators; establishment of the Agency for the Cooperation of Energy Regulators (ACER); cross-border cooperation between transmission system operators and the creation of European Networks for Transmission System Operators and increased transparency in retail markets to benefit consumers.” Available at: https://ec.europa.eu/energy/en/topics/markets-and-consumers/market-legislation 58. Official Gazette of the Republic of Slovenia, N 17/14. Available at: http://www.svz.gov.si/ en/legislation_and_documents/ 59. Official Gazette of the Republic of Slovenia, N 28/17. Available at: http://www.svz.gov.si/ en/legislation_and_documents/ 60. Official Gazette of the Republic of Slovenia, N 41/17. Available at: http://www.svz.gov.si/ en/legislation_and_documents/ 61. Official Gazette of the Republic of Slovenia, N 46/18. Available at: http://www.svz.gov.si/ en/legislation_and_documents/ 62. Official Gazette of the Republic of Slovenia, N 21/18. Available at: http://www.svz.gov.si/ en/legislation_and_documents/

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Cyber and information security provisions63 A 2015 amendment that altered the tender process (from a one- to tworound public tender process)64

The most significant amendment to the scheme is the introduction of a tender process to select its beneficiaries and to determine the exact level of support they receive. Slovenia has introduced a two-round public tender process designed to make it more competitive and ensure that support is granted to the best-value projects. The European Commission65 has assessed the scheme and concluded that the measure is compatible with the internal market. This measure will expire on December 31, 2019. The legal framework for smart grid development is laid out in the Energy Act66 (“Energetski zakon”). The Slovenia RES-Integration report67 states that “the Energy Act regulates the generation, transmission, sale, export, import and transit of electricity and the economic and technical management of the power system.” It also prescribes the main principles for the connection of RES plants to the grid. The same document68 of two other important legal sources are identified; the “Regulation on general conditions for the supply and consumption of electricity valid for transmission system operator”69 and the “General conditions for the supply and consumption of electricity valid for the distribution system operator.”70 Different companies are expanding the smart grid pilot in Slovenia, such as the “New Energy and Industrial Technology Development Organisation” (NEDO), Siemens, and Slovenian’s own ELES. The Slovenian Ministry of Economic Development and Technology signed a memorandum of cooperation71 last October to expand the “Smart 63. Official Gazette of the Republic of Slovenia, N 21/18. Available at: http://www.svz.gov.si/ en/legislation_and_documents/ 64. Official Gazette of the Republic of Slovenia, N 30/18. Available at: http://www.svz.gov.si/ en/legislation_and_documents/ 65. European Commission. State Aid Cases. Available at: http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code 5 3_SA_41998 66. Energetski zakon EZ-1 (Uradni list RS, sˇ t. 17/14 z dne 7. 3. 2014). Available at: http:// www.pisrs.si/Pis.web/pregledPredpisa?id 5 ZAKO6665 67. RES-Integration. Country report Slovenia. 2011. Integration of electricity from renewables to the electricity grid and the electricity market. p. 19. Available at: https://www.eclareon.com/ sites/default/files/slovenia_-_res_integration_national_study_nreap.pdf 68. Ibid, p. 20. 69. Uredba o sploˇsnih pogojih za dobavo in odjem elektriˇcne energije. Uradni list RS, sˇt. 117/ 02, 21/03 popr., 51/04 EZ-A, 126/07 in 37/11 odl. US. Available at: http://www.pisrs.si/ Pis.web/pregledPredpisa?id 5 URED2654 70. Sploˇsni pogoji za dobavo in odjem elektriˇcne energije iz distribucijskega omreˇzja elektriˇcne energije. Uradni list RS, sˇ t. 126/07, 1/08 popr., 37/11 odl. US in 17/14 EZ-1 Available at: http://www.pisrs.si/Pis.web/pregledPredpisa?id 5 DRUG2905 71. NEDO. New Energy and Industrial Technology Development Organisation. News List. October 2, 2018. Available at: https://electricenergyonline.com/article/organization/33246/723619/ NEDO-Amended-MOC-MOM-and-MOU-with-the-Government-of-the-Republic-of-Slovenia-toStart-Cloud-Based-Advanced-Energy-Management-System-Demonstration-Project.htm

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Community Demonstration Project” until March 2021, aiming “to improve security and to prevent power outages through autonomous operation during a grid failure, ensure the quality of factory electricity through voltage dip mitigation measures, and provide frequency control to electricity transmission system operators.”72 At the signing, NEDO announced that “the parties will integrate an advanced cloud-based energy management system with a battery energy storage system installed on consumer sites.” Smart Energy International73 states that the pilot is being implemented in part as a result of Slovenia’s difficulties in meeting an increasing demand for energy and “will be used to develop a business model to expand Europe’s portfolio of distributed resources integrated with the main grid.”

13.1.4.2 Energy security dimension The integration of renewable energies into the Slovenian grid is vital to maximize utility operations and pilot and adopt new technologies and infrastructure. As a result of the increased level of interconnections, Slovenia is now more integrated into the single European electricity market; stronger coordination between energy markets is bringing tangible benefits to end consumers. It is also helping to strengthen the Slovenian electricity price index SIPX.74 G

Aging of infrastructure to be more closely controlled

The frequent outages in the Slovenian electricity system—primarily a consequence of aging infrastructure—have acted as a stimulus for the state to replace the conventional grid with smart grid technology. On December 12, 2017,75 an unfortunate chain of events resulted in a tragic accident at the Baumgarten natural gas hub located on the AustrianSlovakian border. The hub suffered a fire, followed by an explosion which interrupted the supply of natural gas at the Cerˇsak entry point for several hours. Slovenia has no storage facilities and is highly dependent on natural gas transfer from Austria. The government responded to the accident by importing gas from Italy, which is in turn dependent on Russian supply for almost one-third of its demand. The result was confusion in the market and a price rise. Consumer supply was not disturbed, and the gas transmission 72. Idem. 73. Smart Energy International. Slovenia expands Smart Community Demonstration. September 28, 2018. Available at: https://www.smart-energy.com/industry-sectors/business-finance-regulation/slovenia-expands-smart-community-demonstration/ 74. SURS Statistical Office of the Republic of Slovenia. Prices of Energy Sources, Slovenia, 1st quarter 2018. Available at: https://www.stat.si/StatWeb/en/News/Index/7260 75. BBC news. Austria gas plant burns after deadly explosion. 12 December 2017. Available at: https://www.bbc.co.uk/news/world-europe-42321217

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FIGURE 13.1 Interconnections in the 2030 EU power system model.76

system worked properly. However, this incident raised serious concerns relating to the security of the country’s gas supply (Fig. 13.1). Slovenia’s primary focus is on finding innovative solutions which will lead to greater grid flexibility. It is particularly important for cross-border projects. The “Sincro.Grid”77 is a smart grid investment project of panEuropean importance, which is being rolled out in the territory of Slovenia and Croatia. The Sincro.Grid PCI,78 cofinanced by the Connecting 76. IRENA, “Renewable Energy Prospects for the European Union,” February 2018, p. 61. Available at: https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2018/Feb/IRENA_ REmap_EU_2018.pdf 77. Sincro.Grid. Project. Available at: https://www.sincrogrid.eu/en 78. PCI—Projects of Common Interest. Available at: https://ec.europa.eu/energy/en/topics/infrastructure/projects-common-interest

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European Facility fund,79 aims to respond to Slovenia and Croatia electricity grid’s challenges. The project80 is predicated on the successful cooperation between the power systems of Croatia and Slovenia through the construction of the 400 kV TESLA loop. Similar political transformations in 1990 and legislative changes after 2000 in these two countries have left them with a system that was designed to operate in different conditions. There are numerous similarities between the technical deficiencies of Slovenia and Croatia. This has consequently led to a search for a joint, collaborative, solution with a focus on smart grids, between the TSOs (HOPS81 and ELES) and distribution networks (HEP—ODS82 and SODO83) of Croatia and Slovenia (Fig. 13.2).84

FIGURE 13.2 Project partners (after image on the “Sincro.Grid” project website).85

79. European Commission. INEA. Connecting Europe Facility. Available at: https://ec.europa. eu/inea/en/connecting-europe-facility. 80. ELES. SmartGrid Project. Available at: https://www.eles.si/en/sincro-grid-project/background 81. HOPS Ltd. Croatian Transmission System Operator. Available at: http://www.hops.hr 82. SODO d. o. o., Electricity distribution system operator. Available at: http://www.sodo.si 83. HEP-Operator distribucijskog sustava d.o.o. Available at: http://www.hap.hr/ods 84. ELES. SmartGrid Project. Available at: https://www.eles.si/en/sincro-grid-project/background 85. SINCROGRID. Project. Available at: https://www.sincrogrid.eu/en/News/ArticleID/139/ Presentation-of-the-project-at-E-DSO-for-Smart-Grids-Project-Committee

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The partners in the “Sincro.Grid” project have assembled various traditional and novel approaches in a smart grid package, which includes investment in infrastructure, technology, and processes. The TSO will manage the project, with each operator having responsibility for the implementation of new technologies in their respective systems. The monitoring of the distribution grid operators will also be strengthened. Moreover, the control centers of distribution and transmission grid operators will be connected via IKT infrastructure and integration systems (primarily using the semantic Common Information Model—CIM).86 The main goal of the project87 is to “establish operating conditions that will provide for increased generation from renewable energy sources and dispersed generation, as well as greater potential for their penetration into distribution and transmission grids in Croatia and Slovenia.” Consequently, it expects to increase transfer capacities through the dynamic monitoring of overhead transfer capacities (DTR). Additionally, the project88 aims to “ensure technical control of dedicated and non-dedicated sources of reactive power [. . .] and establish the control and centralized management of generation from renewable energy sources and system variables on the high-voltage and medium-voltage networks of Croatia and Slovenia.” Another objective of the project is to alleviate “local power flows in the 110 kV grid and provide alternative ancillary services (secondary regulation) in a range of up to 12 MW.” The project also aims to introduce real-time control of the operational limits of network elements. Other important elements of the project focus on monitoring of distribution and transmission networks by the use of advanced tools for the assessment of operating limits (SUMO89). This system enables improved utilization of the extant infrastructure, thanks to the implementation of dynamic operational limits in accordance with weather conditions. Additional objectives include improving the monitoring of RES, “the communication platform for the demand-side management (DSM) tertiary reserve,” introducing “real-time control of operational limits,” and guaranteeing “an additional 5 MW of tertiary reserve by establishing a joint

86. ELES. SmartGrid Project. Available at: https://www.eles.si/en/sincro-grid-project/goals-andpositive-effects-of-the-project 87. ELES. SmartGrid Project. Goals and positive effects. Available at: https://www.eles.si/en/ sincro-grid-project/goals-and-positive-effects-of-the-project 88. Idem. 89. Souvent, A., Kosmac, J., Pantos, M., Voncina, R., Maksic, University of Ljubljana, Faculty of Electrical Engineering. SUMO - a system for real-time assessment and short-term forecast of operational limits in the Slovenian transmission network. Poster on First South East European Regional CIGRE´ Conference—Portoroz, Slovenia, 7 8 June 2016. Available at: http://hro-cigre. hr/downloads/SEERC_CD/papers/posters/P13_poster.pdf

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communication platform for DSM, which will provide TSOs with more accurate and accessible data.”90 Another significant international project is the abovementioned SlovenianJapanese Smart Grids demonstration project.91 “Total Slovenia”92 has reported that the project is entering its second phase, which focuses on smart communities. It states that “the development of advanced solutions will focus on efficient energy use in urban communities, mainly in capital Ljubljana and city of Indrija, and the use of batteries for emergency situations.” Its main aims are to reduce investment costs and lower costs for end consumers. In 2018 grid operator ELES announced it had signed a preliminary agreement with Croatian grid operator HOPS to construct a 1.2 km segment of the 400 kW line “between Cirkovce, a town near Ptuj, and Pince, a village on the border with Hungary” by 2021.93 The project is estimated to cost between EUR 120 m and EUR 130 m and will be partly funded by the EU. The new line is “meant to improve the reliability of Slovenia’s grid system and allow the country to access eastern electricity markets.” This being an international power line, operated by ELES, HOPS, and Hungarian grid operator MAVIR.94 The Slovenian operator will not be required to pay for the use of the segment located in Croatia.

13.1.5 Smart metering systems The Economy Ministry is responsible for drafting legislation dealing with the national implementation of the third EU energy market package. Presently in Slovenia there is no defined legislation regarding the introduction of smart meters. The existing legal framework does not exclude the rollout of smart meters by distribution network operators. So far, there have been no serious discussions between Slovenian stakeholders about the benefits of smart metering for different stakeholder groups. Nor have data security, privacy issues, and the possibility of time-of-use tariffs been discussed in detail. 90. ELES. SmartGrid Project. Goals and positive effects. Available at: https://www.eles.si/en/ sincro-grid-project/goals-and-positive-effects-of-the-project 91. Balkan Green Energy News. ELES joins Japanese-Slovenian smart grids project. December 17, 2015. Available at: https://balkangreenenergynews.com/eles-joins-japanese-slovenian-smartgrids-project/ 92. Total Slovenia. Slovenian-Japanese Energy Project Enters Second Phase, Focussing on Smart Grids News. 8th May 2018. Available at: https://www.total-slovenia-news.com/business/ 1191-slovenian-japanese-energy-project-enters-second-phase-focussing-on-smart-grids 93. The Slovenia Times. Slovenia set to start building power grid link with Hungary, October 30th 2018. Available at: http://www.sloveniatimes.com/slovenia-set-to-start-building-power-gridlink-with-hungary 94. MAVIR. Hungarian Transmission System Operator Company Ltd. Available at: http://mvm. hu/mvm-group/mavir-hungarian-transmission-system-operator-company-ltd/?lang 5 en

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It is expected that the main policy objectives for Slovenia will be fully compliant with EU legislation. In 2008 EIMV (Milan Vidmar Electric Power Research Institute) carried out an analysis95 of the rollout of AMI systems which evaluated the costs and benefits of the systems for household and small business customers. All 890,000 measuring sites in Slovenia were analyzed, with the assumption that the systems of all five Slovenian distribution network operators would be harmonized. The total investment costs were assessed at the time at about EUR 235 million, which averages out at EUR 266 per consumption site. The assessment of the advantages of the system’s implementation, carried out by EIMV,96 identified the following benefits: G G G G

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Lower costs for meter readings DSM Combined automated meter reading for electricity, gas, water, and heat Better information of customers about their consumption (inhouse displays) Accurate monthly billing

Omahen et al.97 noted the following additional important aspects of smart metering in Slovenia: G G G G G

Accurate data enables more cost-efficient distribution system planning Faster detection of power outages Easier integration of distributed generation Lower administrative costs for supplier switching More accurate consumption planning

In the assessment, EIMV calculated98 a net present value of approximately EUR 115 m with an internal rate of return of 10.4%. The expected payback period was 11 years. According to a European Smart Metering Landscape Report,99 EIMV carried out another cost benefit analysis in 2010 for SODO d.o.o., with a more favorable outcome because of the intervening reduction in the cost of smart meters. For the time being, however, no official cost benefit analysis has been carried out as per the requirements of Directive 2009/72/EC. Whether 95. EIMV, Elektroinstitut Omahen, G., Souvent, A., Luskovec, B. Advanced meter infrastructure for Slovenia, CIRED, 20th International Conference on Electricity Distribution, Prague, 8 11 June 2009. 96. EIMV, Elektroinstitut Milan Vidmar, Ljubljana. Available at: http://www.eimv.si 97. Omahen, G., Souvent, A., Luskovec, B., 2009. Advanced meter infrastructure for Slovenia, IET Conference Publications. 98. Renner, S., Albu, M., van Elburg, H., Heinemann, C., Łazicki, A., Penttinen, L., et al., European Smart Metering Landscape Report, SmartRegion Deliverable 2.1, February 2011. p. 78. 99. Ibid.

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or not this occurs is dependent on the Ministry of the Economy; they may deem the existing analysis to be sufficient. Renner et al.100 state that “in the current legal framework, the electricity distribution system operator is responsible for the installation, calibration and maintenance of the meters as well as for invoicing. There is at least one meter-reading per year for household and small business customers. Industrial customers and other customers with contracted power of more than 41 kW are equipped with AMR-systems.” These meters measure the daily load profiles of the customer every 15 min. So far, only one of the five Slovenian Distribution Companies—Elektro Gorenjska—has decided to start a full-scale rollout of smart metering systems. The decision for the rollout was based on the first cost benefit analysis of EIMV in 2008, after a successful small-scale pilot project. Slovenia has successfully corrected its imbalances. An assessment of the progress the country has made on structural reforms,101 carried out by EU last March, indicates that: “Risks arising from weaknesses in the banking sector, corporate indebtedness and short-term fiscal situation have receded. Government debt peaked in 2015, but has been shrinking since then. The corporate sector underwent a substantial deleveraging after the crisis, which temporarily weakened investment and potential growth.” Investment is now increasing—particularly foreign direct investment. Banking sector restructuring has coincided a significant reduction in the number of nonperforming loans on corporate balance sheets. There are, however, still unresolved questions concerning the pension system, healthcare, and long-term care systems that remain key priorities for the state.

13.1.6 Demand response One of the principal objectives of creating a single European energy market is providing reliable, affordable, and simple energy services to all users. The distinction between consumer and supplier is being gradually being broken down as many consumers (including households) are becoming both energy consumers and energy suppliers. In many EU countries, large customers have been providing system operators based on demand response for a number of years. Small- and mid-sized consumers are increasingly able and prepared to offer such types of services.

100. Ibid, p. 79. 101. European Commission. European Semester Winter Package: reviewing Member States’ their economic and social priorities. 7 March 2018. p. 21. Available at: http://europa.eu/rapid/ press-release_IP-18-1341_en.htm

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New energy services are carried out mainly by pooling resources (i.e., of consumers and producers), and the Slovenian Energy Agency102 is encouraging system operators to use these services, which are provided by different market participants: suppliers; independent aggregators; and energy services companies. As Leal-Arcas et al.103 point out, “Smart meters, sensors, and demand response mechanisms can mediate and manage the variability and unpredictability of power markets by providing both mechanisms for controlling energy use and amassing precise information on the state of the power system and the supply-demand equilibrium.” Electricity production must therefore be sufficient to cover high levels of consumption at any given time. In periods of peak demand, production is also expensive. The Energy Agency in Slovenia104 is working on the development of programs designed to change on-site demand. This is of key importance for the use of advanced metering systems and the deployment of electro-mobility and energy efficiency. Leal-Arcas et al.105 summarize the importance of smart applications for improving energy efficiency: “Instructing the washing machine to wash the clothes at the lowest price of electricity during the day can lead to optimal results for both the consumer and the grid. Dynamic price contracts are also a useful tool for demand management. Based on their consumption patterns, consumers are encouraged to negotiate suitable contracts with electricity suppliers. From the side of utilities, welltargeted, flexible contracts should increasingly become part of their corporate strategy to cater to customers’ individualized needs. The forces of competition can work well in this sector and lead to a wave of easily adjustable contracts.”

In the 2016 18 regulatory period, incentives designed to promote investment in smart grids and related markets mechanisms in Slovenia focused on testing the effectiveness of active customer engagement in customization programs using dynamic tariffs. The Energy Agency approved the application of the pilot dynamic tariff to two projects; the “Flex4Frid project”106 (distribution area Elektro Celje dd) and the “Peak equalization/the area of RTP Breg” (distribution area Elektro Maribor dd) project. A critical peak 102. The Energy Agency. Slovenia. Pametna omrezja. Available at: https://www.agen-rs.si/izvajalci/elektrika 103. Leal-Arcas, R., Lasniewska, F., Proedrou, F. 2018. Smart grids in the European Union: Assessing energy security, regulation & social and ethical considerations, Columbia J Euro Law, 24, 307 104. The Energy Agency. Izvajalci energetskih dejavnosti. Available at: https://www.agen-rs.si/ izvajalci/elektrika. 105. Leal-Arcas, R., Lasniewska, F., Proedrou, F., 2018. Smart grids in the European Union: Assessing energy security, regulation&social and ethical considerations, Columbia J Euro Law, 24, 307. 106. Flex4Grid. Description. Available at: https://www.flex4grid.eu/

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tariff aimed at dynamically redirecting end users from the system load during peak hours to peak load is anticipated. This will take the availability of energy from RES, energy generated in cogeneration of electricity and heat with high efficiency, and distributed generation of electricity into account. By the end of 2018, up to 10,000 household or small business customers were able to participate in programs tailored to their specific energy needs, implemented by distribution companies within the framework of the above projects.

13.1.7 Data protection The Slovenian Government is currently developing the new Slovenian Data Protection Act “ZVOP-2,”107 that encompasses the key elements of the GDPR and supersedes the current Act. According to Leal-Arcas et al.,108 it is “essential to redefine the risks in the operation of the power markets and their management. What is considered acceptable risk now must be adjusted to the new operating conditions of smart grids and power markets.” Data protection is thus playing an increasingly important role in establishing an efficient and functional energy market.

13.1.7.1 Cyber security The same is true for the cyber security essential for the development and functioning of smart grids. Network security measures and information systems are governed by the Act on Information Security,109 which came into force in May 2018. The same paper110 highlights the obligations incumbent upon the operators of essential services in the energy sector, such as to: G

G

G

take measures to manage the risks posed to the security of network and information systems, take appropriate measures to prevent and minimize the impact of incidents affecting the security of network and information systems, and notify the competent authority or the CSIRT111 of incidents having a significant impact on the continuity of the essential services they provide.

107. Government of Slovenia. Predlog zakona o varstvu osebnih podatkov. Available at: http://www. mp.gov.si/fileadmin/mp.gov.si/pageuploads/mp.gov.si/novice/2018/ZVOP-2_javna_razprava_2.pdf 108. Leal-Arcas, R., Lasniewska, F., Proedrou, F., 2018. Smart grids in the European Union: Assessing energy security, regulation&social and ethical considerations, Columbia J Euro Law, 24, 308. 109. Government of Slovenia. Office for the protection of classified information. Available at: http://www.uvtp.gov.si/en/legislation_and_documents/legal_acts_in_force/ 110. Leal-Arcas, R., Lasniewska, F., Proedrou, F., 2018. Smart grids in the European Union: Assessing energy security, regulation&social and ethical considerations, Columbia J Euro Law, 24, 389. 111. A Computer Security Incident Response Team. Available at: http://www.csirt.org

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13.1.8 Electric vehicles and storage 13.1.8.1 Electric vehicles In a time of rising energy demand and the increasing impact of local and global pollution on the environment and the population, efficient energy use is key to ensuring better living conditions for current and future generations. The transport sector is the largest consumer of final energy and a major environmental pollutant. It thus directly or indirectly affects the lives of every individual in modern society. Slovenian private expenditure on transport and the hours spent in road congestion (Table 13.12) are less than the EU average. However, the market share of electric passenger vehicles is relatively low, and the share of renewable energy in transport fuel consumption (Table 13.13) is among the lowest in the EU. Slovenia nevertheless actively invests in research and advanced infrastructure to facilitate the future development of electric vehicles (EVs).

TABLE 13.12 Hours spent in road congestion annually in Slovenia compared to Europe and Croatia.112

112. Idem.

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TABLE 13.13 Slovenia’s new passenger vehicles using alternative fuels compared to Europe and Croatia.113

TABLE 13.14 Electrical vehicles charging points in Slovenia compared to Europe and Croatia.114

This is evidenced by a higher number of charging points than the EU average (Table 13.14).115 113. Idem. 114. Idem. 115. European Commission. Mobility and Transport. Available at: https://ec.europa.eu/transport/ facts-fundings/scoreboard/countries/slovenia/energy-union-innovation_en

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The rapid introduction of EVs into the transport sector could pose a major challenge to the effective operation of the existing electricity grid. Without the ability to control the charging times or locations of EVs, there is a real risk of the system overloading, especially at sites containing a high density of charging stations (e.g., clusters of single-family houses, garage houses, car parks) and in rural areas of the network. The Energy Agency116 underlines the importance of appropriate investment and/or solutions, which will be needed to counteract the deleterious effects of charging EVs on the grid. To facilitate a deeper understanding of the topic, assist in the design of programs in this field, and create the conditions for effective introduction of EVs, the Electric Agency has conducted two cycles of a public consultation process on EVs, applying the AREDOP model (Fig. 13.3).

FIGURE 13.3 AREDOP model—document active regulation of energy activities and future networks.117

The government of Slovenia has adopted a strategy that aims to boost the uptake of EVs (Green Vehicle Deadline of 2030),118 increase the use of alternative fuels in the transport sector, and reduce carbon emissions. Under the new framework, vehicular carbon emissions are being capped at 50 g/km. In addition, the banning of diesel and petrol cars is expected from 2030.

116. The Energy Agency. Elektromobilnost. Available at: https://www.agen-rs.si/izvajalci/elektrika/elektromobilnost 117. AREDOP—Aktivno Reguliranje Energetskih Dejavnosti in Omrezij Prihodnostti. Available at: https://www.agen-rs.si/documents/10926/20705/DEL_20130901_AREDOP_EDI_ RazprˇsenaProizvodnja_V2-0_1930.pdf/37013260-4b3b-4678-a388-30a781622b12p.1 118. Emerging Europe. Slovenia Sets Green Vehicle Deadline of 2030. Available at: https:// emerging-europe.com/news/slovenia-sets-green-vehicle-deadline-2030/

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Currently, according to Energy Agency, the Slovenian car ownership rate, at 523 cars per 1000 individuals, is one of the highest rate in the world. The Slovenian government has also set targets for EVs’ share of the transport mix. Under the scheme, 17% of all passenger vehicles and 12% of all vans and lorries should be electric by 2030. Other targets to be achieved by 2030 include raising the percentage of buses powered by natural gas to 25%. The use of liquefied petroleum gas for 12% of heavy lorries is also expected. In the first 8 months of 2017, there were 900 registrations of EVs in Slovenia, a threefold increase compared to the same period in 2016. In 2016, however, of 1,470,000 cars sold, 53% were petrol-fueled, 46% used diesel, and only 1% used liquefied petroleum gas. The standards adopted by Slovenia also call for the government to expand the number of EV charging stations in the country from 227 to 1200 by 2020, 7000 by 2025, and 22,300 by 2030.119

13.1.8.2 Storage According to a recent CMS study,120 no major electricity storage projects are currently taking place in Slovenia, “with the exception of the hydroelectric pumped-storage facility in Avˇce (which has a capacity of 185 MW) on the Soˇca River, which is (ultimately) state owned.” The need for electricity storage, together with potential subsidies, could generate future investment in this area. As the study points out, there have been encouraging examples of local experiments in electricity storage, such as “the installation of vanadium-flow batteries at a restaurant in the Slovenian Alps.” Storage is not yet dealt with by Slovenian law, but it is mentioned in the Action Plan for Energy Efficiency over the 2014 20 period.121 The need for effective electricity storage may yet press the state into providing subsidies for their construction and operation, as could falling technology costs. These factors have the potential to encourage further investment in Slovenia at some point in the future, but regulatory obstacles, a lack of state support, and underdeveloped technology are currently a deterrent to investors. The same CMS study states122 that “depending on the technology used (e.g., pumped storage) the storage of electricity might be considered as electricity generation, meaning that the construction of such projects of more 119. Smart Energy. Slovenia adopts framework to expand adoption of EVs. Available at: https:// www.smart-energy.com/regional-news/europe-uk/electric-vehicles-slovenia-shell/ 120. CMS. Regulatory related challenges. Slovenia. Available at: https://eguides.cmslegal.com/ energy_storage?_ga 5 1.26647742.2054083135.1467878055#slovenia 121. National Energy Efficiency Action Plan 2014 2020. Available at: https://ec.europa.eu/ energy/sites/ener/files/documents/NEAPSLOVENIA_en.pdf 122. CMS. Regulatory related challenges. Slovenia. Available at: https://eguides.cmslegal.com/ energy_storage?_ga 5 1.26647742.2054083135.1467878055#slovenia

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than 1 MW connected to public grid requires permission granted by the Minister for Infrastructure.”

13.2 Conclusions Since the beginning of the 21st century, there has been a marked change in Slovenian energy policy. Energy governance has been decentralized, and new actors have emerged. The Slovenian electricity sector, in line with an EU-wide trend, has undergone a major transition, as vertically structured electricity companies which controlled production, transmission, distribution, and supply activities, have seen their services unbundled. In the current energy mix, nuclear power still provides around 40% of all electricity generated in Slovenia, with RES (hydropower, wind power, solar power, and biomass) delivering approximately 30% of the country’s energy needs. Fossil fuels provide the remaining 30% of generated electricity. The Slovenian energy sector is facing challenges that can only be overcome by the sustainable use of natural sources. It is crucial that this is achieved while also simultaneously fostering competitiveness and maintaining the security of the country’s energy supply. The increasing adoption of renewable resources is extremely encouraging, and there is substantial scope for further reducing the use of fossil fuels through their replacement in the energy mix by RES. Renewables play a key role in decarbonization, improving energy efficiency, and involving more end consumers in energy management—some of whom are also becoming producers. Smart grids are vital to realising the vision of a more environmentally sustainable energy market, offering unparalleled flexibility and end user participation. Recent years have seen significant developments with the launch of numerous international projects. One of the most important smart grid projects currently underway is the “Sincro.Grid,” which is being rolled out in Slovenia and Croatia. Interconnectivity is thus key: Slovenia’s heightened integration in the single European electricity market has facilitated improvements in monitoring and meeting EU environmental targets. Over the last few years, the Slovenian retail electricity market has become markedly more competitive and the liquidity of wholesale markets has improved. It is important to note that although the main transmission and distribution operators remain fully state-owned, there are more market participants. The competitiveness and efficiency of the electricity and natural gas markets have increased in tandem with consumption increase, itself a consequence of Slovenia’s robust economic growth. Prior to independence, Slovenia had long-term contracts with natural gas producers from Russia. Those contracts are now being replaced with shortterm contracts with gas hubs and power exchanges. Public tenders for investors to submit projects for production facilities for electricity generation

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from RES and CHP to enter the support scheme are carried out as part of a competitive selection process. All support schemes are fully compliant with EU legislation regarding state aid. The implementation of the EU Third Package was enabled through the passing of the Energy Act. The actual realization of these projects also depends on spatial planning and obtaining environmental permits. As already mentioned, Slovenia’s most utilized energy source for electricity production is water. Hydropower plants make up the lion’s share of RES’s currently being used, and hydropower also has the greatest potential for further exploitation as an energy source. The on-going renovation of aging hydropower facilities and the construction of five new plants on the river Sava is indicative of the importance of hydropower in the RES mix. Aside from hydro, the principal RES in the country are biomass and wind, with the latter having the potential to provide both heat and power. Slovenia is working to hit the European Commission targets by 2020, and in the period 2005 17, the growth in the share of energy from RES in total gross consumption and changes in RES per individual sectors indicate that progress is being made. However, Slovenia’s energy policy requires the implementation of additional measures if those obligations are to be met by 2020, as well as the objectives set out by the EU and in the Paris climate change agreement. Presently there is no defined legislation on smart metering and storage, but other key EU-compliant objectives have been established in law. In giving consumers a greater degree of autonomy to exercise their rights, it is possible to observe increased awareness—through switching suppliers, for example, in which the decision to change is driven not only by price, but also by other factors such as the supplier’s flexibility. Digitization of energy management and an open market allow consumers to participate to become more self-sufficient and active in the management of energy, both in production and demand response. To conclude, the future operation and management of Slovenia’s energy network, in which near-permanently dynamically unbalanced smart grids will play a major role—requires close cooperation and convergence between the power systems and data analytics communities. In the area of energy efficiency, suppliers of energy products will be obliged to implement measures for achieving energy savings. The present situation and the development of the electricity and natural gas market, the effort to attain key objectives in the areas of renewable sources and cogeneration, and energy saving strategies focusing on the efficient use of energy and heat supplies are all positive indications of Slovenia’s commitment to combatting climate change—both directly and indirectly. Together they form a solid foundation for making decisions in national energy policy and decisions related to the development and further investment in the power sector.

Chapter 14

Energy decentralization and energy transition in Croatia Stanislava Boskovic1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

14.1 General overview Croatia is a relatively small country of around 4.28 million on the Adriatic Sea and is rich in potential sources of renewable energy. It consequently has the possibility of attaining a high degree of energy efficiency. It occupies a liminal position at the crossroads of Central and Southeast Europe and borders of Slovenia to the northwest, Hungary to the northeast, Serbia to the east, and Bosnia and Herzegovina and Montenegro to the southeast. It also shares a maritime border with Italy. Croatia’s capital city is Zagreb and the country has a land surface area of 56,594 square kilometers. Croatia has a very diverse territory that includes flat plains, lakes, low mountains, and rolling hills. The Croatian coast is approximately 1800 km long is located between the Dinaric Alps and the Adriatic Sea. One of the striking characteristics of the Croatian coast is that it has more than 1000 islands, islets, rocks, and reefs. Croatia declared independence from the Socialist Federal Republic of Yugoslavia in 1991. On July 1, 2013 Croatia became a member of the European Union (EU) and joined the EU energy market.

14.2 Energy profile 14.2.1 Energy mix in Croatia Croatia produces about half of its own electricity, which came from hydropower, around 20% of the oil, and around two-thirds of natural gas, wind, biomass, and solar. Croatia no longer has its own coal reserves, unlike other

Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00003-7 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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Western Balkan countries.1 HEP—Hrvatska Elektroprivreda2—owns most of the country’s electricity generation capacity and has a 50% stake of the Krˇsko Nuclear Power Plant situated in Slovenia. The country’s advantageous meteorological conditions offer the country the possibility of meeting a large part of its electricity needs through the harnessing of wind and solar power. G

Different energy sources and their place in the market and electricity market

Croatia has access to the rich sources of renewable energy, but according to a recent report,3 it: “has not developed a new energy strategy since the overly ambitious and outdated 2009 plan, so there has been no systematic debate about the country’s energy direction in recent years.” Following EU state aid rules, “Croatia has now switched to auctioning and feed-in premiums rather than feed-in tariffs, but as of May 2018, it has not yet approved the supporting legislation that would enable the system to function.” Croatia’s potential for energy efficiency improvements is very considerable, especially in the energy efficiency of the residential sector. Its geographical position creates specific potential for RES. There are around 50 inhabited islands. They could be energy self-sufficient from locally available renewable energy sources. Detailed studies carried out for the three islands in the North Adriatic and three in the south Adriatic Sea have identified “the importance of building smart energy systems on the Croatian islands order to increase penetration of renewable energy sources and make local transport more sustainable”.4 The country would benefit from expanding the proportion of energy it derives from RES and developing energy storage, hydrogen, and electric vehicles in order to devise better strategies for building smart energy systems.

14.2.1.1 Natural gas Croatian gas sector market is significantly related to its geopolitical relations. By joining the EU, Croatia has started the process of gradually liberalizing the market for gas, particularly in the areas of supply and distribution, in which 90 firms 1. Bank Watch. Energy sector in Croatia. Available from: https://bankwatch.org/beyond-coal/ the-energy-sector-in-croatia. 2. HEP GROUP. Hrvatska elektroprivreda. Available from: https://www.hep.hr/en (accessed 11.12.19) 3. Bank Watch. Energy sector in Croatia. Available from: https://bankwatch.org/beyond-coal/ the-energy-sector-in-croatia (accessed 12.012.18) 4. Pfeifer, A., Boˇskovi´c, F., Dobravec, V., Matak, N., Krajaci´c, G., Duji´c, N., Puksec, T., 2017. Building smart energy systems on Croatian islands by increasing integration of renewable energy sources and electric vehicles. 2017 IEEE International Conference on Environment and Electrical Engineering and 2017 IEEE Industrial and Commercial Power Systems Europe (EEEIC/I&CPS Europe). Available from: https://ieeexplore.ieee.org/document/7977401/authors#authors (accessed 21.12.18)

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currently operate. The key aim of liberalization is to abolish state monopolies. This objective is to be met through the introduction of market pricing mechanisms, which is expected to ensure higher standards of service, more competitive pricing, and a more secure gas supply. A study of the gas sector indicates that “as a result of the liberalization of the country’s gas supply, the overall market share of private firms has increased, whereas firms with minority state ownership have gradually been squeezed out of the market”.5 The final prices of natural gas dynamics in Croatia remained below the EU-28 average level, illustrated in Table 14.1.

TABLE 14.1 Final natural gas prices including all taxes and levies for typical household consumers (D2) in Croatia and individual EU countries in 2016 and 2017.6

14.2.2 Transmission system operator The key market actors include the following companies and organizations7: G G

The Croatian Energy Regulatory Agency (HERA)8 The Croatian Transmission System Operator (HOPS)9

5. IJF. FISCUS, October 2016. The Gas Sector in the Republic of Croatia Liberalisation and Financial Operations. No3. Available from: https://www.ijf.hr/upload/files/file/ENG/FISCUS/3.pdf 6. Energy Agency Report on the energy sector, Slovenia, 2017, pp.146. Available from: http://www. agen-rs-si 7. ERRA. Energy Regulators Regional Association. Activity Report 2016. Available from: https://erranet.org/erra-activity-report-2016/ 8. HERA. Hrvatska energetska regulatorna agencija. Available from: https://www.hera.hr/hr/ html/index.html 9. HOPS. Hrvatski operator prjenosnog sustava. Available from: https://www.hops.hr/wps/portal/hr/web

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Croatian Distribution System Operator (HEP-ODS)10 The Croatian Energy Market Operator (HROTE)11

14.3 Governance system 14.3.1 Relevant institutions 14.3.1.1 Central government: Directorate-General for Energy The general guidelines of Croatia’s government policy in relation to the electricity sector are set out in their Energy Development Strategy.12 At the time the Strategy was adopted (June 2009), Croatia’s main aim was to adjust and prepare the energy sector in general—including the electricity sector—for accession to the EU and participation in the single EU market, but at the same time to protect Croatia’s national interests. A state-energy regulation study states that “the strategy is to achieve a balance between the liberalization of the electricity market and necessary government intervention, in order to enhance energy efficiency and to use more alternative energy sources and technologies that help to preserve the natural environment.” Croatia’s further aim is to achieve security of supply (especially in the import of electricity) and competitiveness in the international market and ensure sustainable energy development”.13 Consequently, study identifies that “although its main principles remain active, the Strategy is not entirely aligned with the current market and some of its goals will be difficult to attain. As a result, the government has adopted several national action plans which modify the Strategy’s aims, and which implement specific measures for the realization of EU and national energy targets”.14 By joining the EU energy market, one of Croatia’s obligations as part of its accession process was the incorporation of the EU Third Energy Package.15 The foundation of the Croatian Power Exchange16 in 2015 represented a major step toward further liberalization, and the improvement of the Croatian power market. It has met all the basic legal requirements in accordance with the “EU CACM Regulation for the implementation of cross-border market coupling”. At the same time, as stated at the launch of CROPEX: “the beginning of intraday trading has significantly improved the preconditions for the 10. HEP-ODS. Operator distribucijskog sustava. Available from: https://mojamreza.hep.hr/#!/login 11. HROTE. Hrvatski operator trzista energije. Available from: https://www.hrote.hr 12. Energy strategy of the Republic of Croatia. Available from: https://www.mzoip.hr/doc/energy_strategy_of_the_republic_of_croatia.pdf 13. Energy Regulation. Croatia, November 18. Available from: https://gettingthedealthrough. com/area/12/jurisdiction/80/electricity-regulation-croatia/ 14. Energy Regulation. Croatia, November 18. Available from: https://gettingthedealthrough. com/area/12/jurisdiction/80/electricity-regulation-croatia/ 15. The latest round of EU energy market legislation, known as the third package, has been enacted to improve the functioning of the internal energy market and resolve structural problems. 16. CROPEX. Hrvatska burza elektricne energije. Available from: https://www.cropex.hr (accessed 7.01.19)

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expected full implementation of the market integration of the renewable energy by the EKO balance group leader in accordance with the applicable Croatian laws and regulations”.17

14.4 Electricity market 14.4.1 Regulatory framework Croatia adopted new legislation governing the activities and functioning of the electricity sector in line with EU legislation in 2013.18 It was consequently amended via the Energy Act,19 the Energy Activities Regulations Act20 and the Electricity Market Act.21 An Energy Regulation study indicates22 that “these acts incorporate respective EU directives, in particular Directive 2009/72/EC,23 2009/28/EC,24 and 2005/89/ EC25 and a number of EU regulations.” Croatia has been a party to the Energy Community Treaty.26 The Croatian Constitution states that international agreements take priority over domestic laws and form an integral part of Croatian legislation. Further relevant statutory instruments and regulations include: G G G G G G G G

Act on the Regulation of Energy Activities27 Act on the Electricity Market28 Act on the Gas Market29 Act on the Oil and Oil Derivatives Market30 Act on Production, Distribution and Supply of Thermal Energy31 Act on Energy Efficiency32 Rules on the balancing of the electricity market A decree establishing the infrastructure for alternative transport fuels

17. CROPEX. Croatian Power Exchange. Available from: https://www.cropex.hr/en/news/129cropex-unutardnevno-tr%C5%BEi%C5%A1te-uspje%C5%A1no-pokrenuto-2.html 18. Macetic, M., November 18. Electricity Regulation. Croatia. Available from: https://gettingthedealthrough.com/area/12/jurisdiction/80/electricity-regulation-croatia/ 19. Official Gazette No. 120/12, 14/14, 95/15, 102/15 and 68/2018 20. Official Gazette No. 120/12 and 68/2018. https://www.ecolex.org/details/legislation/law-onregulation-of-energy-activities-lex-faoc105025/? 21. Official Gazette Nos. 22/13, 102/15 and 68/2018 22. Macetic, C. November 18. Electricity Regulation. Croatia. Available from: https://gettingthedealthrough.com/area/12/jurisdiction/80/electricity-regulation-croatia/ 23. Directive 2009/72/EC https://eur-lex.europa.eu/legal-content/EN/ALL/?uri 5 celex%3A32009L0072 24. Directive 2009/28/ EC https://eur-lex.europa.eu/legal-content/EN/ALL/?uri 5 celex%3A32009L0028 25. Directive 2005/89/EC https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri 5 CELEX: 32005L0089&rid 5 7 26. Official Gazette International Treaty No. 6/06 27. Official Gazette No. 120/12 28. Official Gazette No. 22/13 29. Official Gazette No. 28/13,14/14 30. Official Gazette No. 19/14 31. Official Gazette No. 80/13,14/14,102/14 32. Official Gazette No. 127/14

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The methodology for determining the regulatory framework for the electricity distribution system

The Croatian Electricity Market Act regulates six electricity activities: “generation, transmission, distribution, supply, retail, and electricity market organization”.33 Traditionally, all these activities were carried out exclusively by the Croatian national electricity utility, HEP.34 The process of liberalization, which opened up much of the electricity sector to market competition, led to certain electricity activities becoming market activities, while others remained within HEP’s exclusive remit. HEP Group consists of Hrvatska Elektroprivreda dd (HEP dd), the parent company as well as several subsidiaries,35 each of which performs regulated and market activities. A recent research into electricity regulation in Croatia indicates that “in August 2018, there were 52 registered electricity generation undertakings, 17 suppliers, and 33 retail undertakings”.36 Although the number of registered electricity undertakings has been growing continuously, HEP retains a dominant position within the market. This is changing, however, as a result of new market entrants. German RWE and Slovenian GEN are active in the Croatian market, particularly the supply market, and their low prices have forced HEP into cutting its own prices.

14.4.2 Energy security dimension To construct and operate generation facilities, two types of authorizations are required: licenses for the performance of electricity generation activities and energy authorization for the construction of new generation capacities.

33. Macetic, M. Electricity regulation. Croatia. Available from: https://gettingthedealthrough. com/area/12/jurisdiction/80/electricity-regulation-croatia/ 34. Hrvatska elektroprivreda (HEP Group) https://www.hep.hr/about-hep-group/2502 35. HEP d.d. owns following subsidiary companies:HEP-Proizvodnja d.o.o. (HEP Generation) http:// proizvodnja.hep.hrHEP-Operatordistribucijskogsustavad.o.o. (HEP DSO) https://www.hep.hr/ods/ HEP Elektra d.o.o. http://www.hep.hr/elektra/ HEP-Opskrba d.o.o. https://www.hep.hr/opskrba/HEPTrgovinad.o.o. (HEP Trade) https://www.hep.hr/hep-group-companies-2506/hep-trgovina-d-o-o-2575/ 2575 HEP-Toplinarstvo d.o.o. (HEP District Heating) http://www.hep.hr/toplinarstvo/ HEP-Plin d.o.o., (HEP Gas) https://www.hep.hr/plin/ HEP-Opskrba plinom d.o.o. (HEP Gas Supply) https://www.hep. hr/plin/o-nama/djelatnosti-hep-plina/opskrba-plinom/1535 HEP ESCO d.o.o. https://www.hep.hr/esco/ HEP-Upravljanjeimovinomd.o.o. (HEP Asset Management) https://www.hep.hr/drustva-hep-grupe/hepupravljanje-imovinom-d-o-o/191 Plomin Holding d.o.o. https://www.hep.hr/drustva-hep-grupe/plominholding-d-o-o/1412 Program Sava d.o.o. (Programme Sava Ltd) http://zagrebnasavi.hr HEPTelekomunikacije d.o.o. (HEP Telecommunications) https://www.hep.hr/hep-group-companies-2506/ hep-telekomunikacije-d-o-o-2578/2578 36. Macetic, M. Electricity regulation. Croatia. Available from: https://gettingthedealthrough. com/area/12/jurisdiction/80/electricity-regulation-croatia/

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The license for electricity generation is issued by the Croatian Energy Regulatory Agency37 in accordance with the Rules on Energy Licences and Maintenance of Registry38 of Issued and Revoked Energy Licences.39 In a study of electricity regulation in Croatia,40 it is stated that the energy authorization for the construction of generation capacity is granted by the Ministry of Energy.41 Other construction, location, and environmental licenses are issued by authorized administrations or ministries in accordance with relevant legislation. If and when it finds it is necessary, the government may decide on the construction of additional electricity generation facilities through a public tender procurement process in the interests of safety of supply. The same study points out “under the Electricity Market Act, HOPS must provide nondiscriminatory access to the transmission grid according to the regulated third-party access regime”.42 Any new generator should consequently file a request for connection to the transmission grid, which HOPS must accept if all the prerequisites set out in the General Conditions for Grid Usage and Electricity Supply43 and the Grid Code are met. HOPS may not deny access to a new generator based on possible future network limitations or additional costs related to an increase in network capacity. “Upon issuing consent for connection to the grid, an agreement is concluded between HOPS and the new grid user. A new generator, the access of which to the grid is denied, may appeal against HOPS’ decision to HERA”.44 Croatia has been a party to the Treaty establishing the Energy Community since 1 July 2006,45 which enabled the country to become part of the European energy market. It also allows a single mechanism for cross-border transmission or transport of interconnected energy for the whole of Europe.

37. HERA. Croatian Energy Regulatory Agency. Available from: https://www.hera.hr/en/html/ index.html 38. HROTE. Hrvatski operator trzista energije. Available from: https://www.hrote.hr/marketparticipants 39. Official Gazette Nos. 88/15, 114/15 and 66/2018 40. Macetic, M. Electricity regulation. Croatia. Available from: https://gettingthedealthrough. com/area/12/jurisdiction/80/electricity-regulation-croatia/ 41. Republika Hrvatska. Ministarstvo zaˇstite okoliˇsa i energetike. Available from: https://www. mzoip.hr/en/ministry.html 42. Macetic, M., Electricity regulation. Croatia. Available from: https://gettingthedealthrough. com/area/12/jurisdiction/80/electricity-regulation-croatia/ 43. Official Gazette No. 85/15. http://www.pristupinfo.hr/wp-content/uploads/2014/03/ZPPI-procisceni-tekst-eng.pdf 44. Macetic, M. Electricity regulation. Croatia. Available from: https://gettingthedealthrough. com/area/12/jurisdiction/80/electricity-regulation-croatia/ 45. Eur-Lex. The Energy Community Treaty. Available from: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 LEGISSUM%3Al27074)

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In accordance with the terms of the Energy Community treaty, the HOPS has adopted the “Rules on Allocation and Use of Cross-border Transfer Capacities”.46 G

2018 coupling of the Croatian and Slovenian market implementation

Croatia is currently focusing on finding innovative solutions to achieve greater grid flexibility (Fig. 14.1). This is of particular relevance for cross-border projects.

FIGURE 14.1 Interconnections in the 2030 EU power system model after Fig. 19 in Renewable Energy Prospects for the European Union, February 2018, p. 61.47

46. HOPS. Rules on allocation and use of cross-border transmission capacities. Available from: https://www.hops.hr/wps/wcm/connect/3da9ec34-91b9-465e-855b-b16316f8fd95/Rules.pdf?MOD 5 AJPERES 47. IRENA. Renewable Energy Prospects in the European Union. Available from: https://www. irena.org/-/media/Files/IRENA/Agency/Publication/2018/Feb/IRENA_REmap_EU_2018.pdf

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In the Sincro.Grid project48 Croatia and Slovenia worked on the development of a shared smart grid, with extensive collaboration between the transmission system operators (HOPS49 and ELES) and distribution networks (HEP-ODS50 and SODO51). The Croatian and Slovenian partners (Fig. 14.2) in the “Sincro.Grid” project have assembled various traditional and novel approaches in a smart grid package, which includes investment in infrastructure, technology, and processes.

FIGURE 14.2 Project partners (after image on the “Sincro.Grid” project website).52

48. SINCROGRID. Project. Available from: https://www.sincrogrid.eu/ (accessed 13.11.18) 49. HOPS Ltd. Croatian Transmission System Operator. http://www.hops.hr 50. SODO d. o. o., Electricity distribution system operator. http://www.sodo.si 51. HEP-Operator distribucijskog sustava d.o.o. http://www.hap.hr/ods 52. SINCROGRID. Project. Available from: https://www.sincrogrid.eu/en/News/ArticleID/139/ Presentation-of-the-project-at-E-DSO-for-Smart-Grids-Project-Committee (accessed 13.12.18)

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The main goal of the project is to “establish operating conditions that will provide for increased generation from renewable energy sources and dispersed generation, as well as greater potential for their penetration into distribution and transmission grids in Croatia and Slovenia”.53 Consequently, it expects to increase transfer capacities through the dynamic monitoring of overhead transfer capacities.

14.4.3 Renewable energy As already mentioned, Croatia’s natural features and geographical position make the use of alternative energy sources viable. The exploitation of these resources is embedded in one of the country’s principal strategies for the future of energy development.54 In 2013 Croatia adopted a “National Action Plan for Renewable Energy Sources until 2020”55 for the realization of “EU targets (20-20-20)”56 and a national energy strategy. Presently, Croatia has already reached its 20% target. A recent research on Energy Regulation in Croatia57 details the provisions of the Energy Act,58 which “also expressly states that use of alternative energy sources and CHP is in Croatia’s interest” while the Electricity Market Act stipulates that “any generator that uses renewable energy sources may be awarded eligible producer status.” The new “Act on Renewable Energy Sources and High Efficient Cogeneration”59 (RES Act), effective from January 1, 2016, harmonizes national and EU legislation60 in the field of renewable energy and introduces a market premium as the new incentive model. Feed-in tariffs have only been retained as an incentive model for smaller plants (up to 30 kW).

14.5 Smart metering systems The implementation of a smart metering system is still in development in Croatia. “The electricity distribution subsidiary of Croatian state-owned

53. ELES. SmartGrid Project. Goals and positive effects. Available from: https://www.eles.si/en/ sincro-grid-project/goals-and-positive-effects-of-the-project (accessed 14.12.18) 54. Energy strategy of the Republic of Croatia, Available from: https://www.mzoip.hr/doc/energy_strategy_of_the_republic_of_croatia.pdf 55. Fourth National Energy Efficiency Action Plan of the Republic of Croatia for the Period from 2017 to 2019. Available from: https://ec.europa.eu/energy/sites/ener/files/hr_neeap_2017_en.pdf 56. RECS International European 20-20-20 Targets. Available from: http://www.recs.org/glossary/european-20-20-20-targets 57. Macetic, M. Electricity regulation. Croatia. Available from: https://gettingthedealthrough. com/area/12/jurisdiction/80/electricity-regulation-croatia/ 58. Official Gazette 120/12, 14/14 and 95/15 59. Official Gazette No. 100/15, 123/16, 131/17 60. Directives 2009/28/EC and 2012/27/EU

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power utility HEP, HEP-ODS, has to replace all existing electricity meters with new smart meters by 2030 at its own expense. In the next 5 years, HEP ODS must install smart meters for customers with connection power greater than 20 kW and within 10 years for all business customers with connection power less than 20 kW”.61 According to the Balkan Green Energy News,62 about 4.3 million smart meters are currently installed and “by the 2021 about 35 million smart meters at more than 95% of the measuring points are planned.” Pandˇzi´c et al.63 have examined the liberalization of electricity markets in Croatia, noting the ongoing “embedding and development [of] remote metering points reading systems.” The same report also states that the Croatian System “contains technology which allows, on demand or by predefined schedule, automatic readings of electricity consumption data, control values, events, and alarms.” Croatian electric power companies are exploring the possibilities for cooperation with international partners for further strengthening smart metering systems.

14.6 Demand response As a recent study points out, “demand response is not yet properly regulated in Croatia”.64 The electricity market remains concentrated in the hands of relatively few players and the liberalization process has been proceeding slowly, although recent years have shown improvements toward a market for demand response.

61. Balkan Energy, May 2018. HEP ODS to install smart meters to all consumers by 2030 Croatia. Available from: http://balkanenergy.com/hep-ods-install-smart-meters-consumers-2030croatia-4-may-2018/ (accessed 07.02.19) 62. Balkan Green Energy News, August 2017. Croatian HEP and French EDF want to establish cooperation in smart meters area. Available from: https://balkangreenenergynews.com/croatianhep-and-french-edf-plan-to-establish-cooperation-in-smart-meters-area/ (accessed 07.02.19) 63. Pandˇzi´c, H., Boˇsnjak, D., Kuzle, I., Boˇskovi´c, M., Ili´c, D., Sept. 8 10, 2010. The Implementation of Smart Metering Systems for Electricity Consumption in Croatia, 17th Symposium IMEKO TC 4, 3rd Symposium IMEKO TC 19 and 15th IWADC Workshop Instrumentation for the ICT Era, Kosice, Slovakia Available from: https://www.researchgate.net/ publication/277248058_The_Implementation_ of_Smart_Metering_Systems_for_Electricity_Consumption_in_Croatia 64. Bertoldi P., Boza-Kiss B., Zanchella P., July 2016. Demand response status in EU Member States. Available from: https://www.researchgate.net/publication/305315798_Demand_response_ status_in_EU_Member_States

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The market is inching toward full liberalization and consumers have demonstrated a greater willingness to switch suppliers despite price regulation— Energy Community Regulatory Board 2012.65 Croatia is moving away from bilateral contracts. Demand response is still not supported by a relevant statutory instrument, but there is a current focus on increasing unbundling and removing price regulation.

14.7 Data protection In May 2018 Croatian Government adopted66 The Act on Implementation of the General Data Protection Regulation (AIGDPR)67 that encloses main GDPR aspects and revokes the current act. G

Cyber security The National Cyber Security Strategy68 was approved in October 2015.

14.8 Vehicles and storage 14.8.1 Electric vehicles Croatia has started to open its rail freight market to competition. The passenger segment, however, remains a state monopoly. The EC Mobility and Transport study69 noted that in July 2017 Croatia has received consistently high scores relating to “its transposing of transport-related EU directives into national law.” There has been a recent uptick in the share of employment in high growth transport enterprises following the preceding year’s downturn. On average, Croatian private expenditure on transport and the average number of hours spent in congestion (Table 14.2) are significantly less than the EU median. However, the share of renewable energy in

65. Procedural Act No 02/2012 of the Energy Community Regulatory Board Available from: https://energy-community.org/dam/jcr:5004fb43-65bb-4983-af19-d44787d63b5a/PA_2012_02_ ECRB_network_code.pdf 66. AIGDPR. Zakon o provedbi opce uredbe o zastiti podataka. Available from: https://narodnenovine.nn.hr/clanci/sluzbeni/2018_05_42_805.html (accessed 9.02.19) 67. Official Gazette no 42/2018 68. European Union Agency for Network and Information Security. Available from: https:// www.enisa.europa.eu/topics/national-cyber-security-strategies/ncss-map/strategies/croatian-cybersecurity-strategy/view 69. European Commission. Mobility and Transport. Available from: https://ec.europa.eu/transport/facts-fundings/scoreboard/countries/slov

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TABLE 14.2 Hours spent in road congestion annually in Croatia compared to Europe and Slovenia.70

TABLE 14.3 Croatia’s new passenger vehicles using alternative fuels compared to Europe and Slovenia.71

transport fuel consumption (Table 14.3) and the market share of electric passenger vehicles (Table 14.4) are among the lowest in the EU. 70. European Commission. Mobility and Transport. Available from: https://ec.europa.eu/transport/factsfundings/scoreboard/countries/slovenia/energy-union-innovation_en (accessed 27.12.18) 71. European Commission. Mobility and Transport. Available from: https://ec.europa.eu/transport/factsfundings/scoreboard/countries/slovenia/energy-union-innovation_en (accessed 27.12.18)

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TABLE 14.4 Electrical vehicles in Croatia compared to Europe and Slovenia.72

The Balkan Green Energy News73 reported that “Croatia will get 133 electric and 1 plug-in cars, 224 electric bikes, and 56 electric motorcycles” as a result of the incentives provided by the Croatian Environmental Protection and Energy Efficiency Fund.74 “The public invitation for individuals, closed just one day after it was opened due to strong interest, resulted in the approval of HRK 12 million (EUR 1.62 million), including HRK 10.5 million (EUR 1.4 million) for electric cars, HRK z935,000 (EUR 126,000) for bicycles, and HRK 520,000 (EUR 70,000) for motorcycles, the fund said in a statement”.75 Depending on the type of vehicles, they can be financed with loans or through leasing agreements. Incentives for purchasing EVs are rare in the Balkan region. Croatia has dedicated incentives for citizens and businesses interested in buying electric vehicles. Albania, Kosovo, Macedonia, Bosnia and Herzegovina, Montenegro, and Serbia do not currently offer them, in contrast to their EU neighbors.

72. European Commission. Mobility and Transport. Available from: https://ec.europa.eu/transport/factsfundings/scoreboard/countries/slovenia/energy-union-innovation_en (accessed 27.12.18) 73. Balkan Green Energy News, June 2018. Number of electric vehicles in Croatia to rise by 64% this year. Available from: https://balkangreenenergynews.com/number-of-electric-vehiclesin-croatia-to-rise-by-64-this-year/ (accessed 28.12.18) 74. ‘Environmental Protection and Energy Efficiency Fund’. Balkan Green Energy News. Number of electric vehicles in Croatia to rise by 64% this year. June 2018. Available from: https://balkangreenenergynews.com/number-of-electric-vehicles-in-croatia-to-rise-by-64-thisyear/ (accessed 28.12.18) 75. Balkan Green Energy News, June 2018. Number of electric vehicles in Croatia to rise by 64% this year. Available from: https://balkangreenenergynews.com/number-of-electric-vehiclesin-croatia-to-rise-by-64-this-year/ (accessed 28.12.18)

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In July 2017 Total Croatia News76 announced that HEP had installed 46 “ELEN” charging stations in Croatia and planned to install the first highpower fast-charging stations for electric vehicles.

14.8.2 Storage Electricity storage is not specifically regulated or supported by Croatian law. The RES Act77 prescribes that renewable energy demonstration projects shall not be supported through market premium or feed-in tariff incentive models, but rather through general research and development and innovation support programs.

14.9 Conclusion In recent decades there has been a marked change in Croatian energy policy. Energy governance has been slowly moving toward liberalization and decentralization and new actors have emerged, though the sector is dominated by a relatively small number of players. In line with EU legislation, Croatia adopted new legislation which governs the activities and functioning of the electricity sector. According to the Croatian Constitution, international agreements take priority over domestic laws and form an integral part of Croatian legislation. The lack of incentives for renewable energy production made the development of the renewable energy market less dynamic. One of the reasons that the government—and the public—are more sensitive to introducing new incentives is that the previous renewable support scheme resulted in significant financial obligations on the part of the state, and therefore higher electricity bills for end-consumers. Electricity suppliers’ obligations on the regulated purchase price for renewables were postponed from 2017 until 2019. The electricity market remains concentrated and the liberalization process has been proceeding slowly, although recent years have shown improvements toward a market for demand response. This is not yet supported by legislation, however. Consumers are displaying a greater willingness to switch suppliers in spite of price regulation. The country is also moving away from only bilateral contracts. Additionally, the foundation of the Croatian Power Exchange represented a major step toward further market liberalization. Croatian electric power companies are exploring the possibilities for cooperation with international partners for further strengthening smart metering systems. Croatia is concentrating resources on achieving a greater degree 76. Total Croatia News, April 2018. More electric vehicle charging stations coming to Croatia. Available from: https://www.total-croatia-news.com/business/27742-more-electric-vehicle-charging-stations-coming-to-croatia (accessed 28.12.18) 77. Act on Renewable Energy Sources and High-efficiency Cogeneration (Zakon o obnovljenim izvorima energije I visokoucinkovitoj kogeneraciji). Official Gazette 100/15 and 123/16. Available from: https://narodne-novine.nn.hr/clanci/sluzbeni/2015_09_100_1937.html

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of grid flexibility. “Sincro.Grid,” an EU-funded project, is being rolled out in Slovenia and Croatia and is one of the most important smart grid projects aimed at integration into the single European electricity market. Electricity storage is not specifically regulated or supported by Croatian law. Croatia has dedicated incentives for citizens and businesses interested in buying electric vehicles. Croatia’s potential for energy efficiency improvements is considerable, especially in the residential sector. While it has made progress in developing innovative energy systems, many additional possibilities for energy efficiency could nevertheless be explored. Considering the country’s meteorological and geographical advantages, solar thermal is a promising candidate as a future RES driver. Croatia’s unique chain of islands also offers significant potential for harnessing renewable energy resources. The country would benefit from increasing the share of energy derived from renewable energy sources, and developing energy storage, hydrogen, and electric vehicles for building better strategies for building smart energy system.

Chapter 15

Energy decentralization and energy transition in Austria Muhammad Syed Abubakr Karimabadi1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

15.1 Energy profile In 2015 Austria’s final energy consumption amounted to 27.3 Mtoe—a 14% increase compared to 2000. The main driver for the increase is a rise in final energy consumption in the transport sector (129%) and in the industry sector (121%) over this period. Final consumption also rose in the agricultural sector (14%) and the services sector (12%). However, final consumption of households, which is adjusted for climatic corrections, recorded a 3% lower consumption in 2015 than in 2000. In 2015 the transport sector had the highest share of final energy consumption with 33%, followed by industry (30%), households (24%), services (11%), and agriculture (2%).1 The Austrian energy efficiency index for the whole economy (ODEX) improved by 18% between 2000 and 2015, which is the same level as for the European Union (EU). The average improvement rate was 1.3% per year. Most of the efficiency improvements were achieved in the residential sector, for which efficiency increased by 31%, compared to 27% for the EU. The least efficiency progress was recorded in the transport sector, where energy efficiency recorded 10%, which is 3% less than the EU. Efficiency in industry in Austria rose by 15%, which is 5% less than the EU as a whole.2 The Austrian energy market has drastically changed as a result of deregulation at the turn of the century. The focus on market economy structures required reorganizing the grid in both legal and practical aspects. Transmission system operators (TSOs) found themselves having to reform

1. OECD Austria: Country Health Profile 2017 2. Energy Efficiency Trends and Policies in Austria, Austrian Energy Agency 2018 Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00005-0 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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their ownership by reorganizing themselves as independent systems operators or independent transmission operators (ITOs). Despite the liberalization of the electricity market, the transmission and distribution grids are closely supervised by regulatory bodies; EnergieControl (E-Control) is largely responsible for the balance of supply and generation in accordance with the country’s competition rules. The state still maintains at least half of shares in Austrian electricity companies. Hydroelectric power is the country’s main energy source, but it maintains a strong emphasis on renewable energy—such as wind, geothermal, and photovoltaic. The country relies upon hydroelectric power plants, 68% of the country’s electricity is sourced this way. In total, 75% of electricity consumption is produced by renewable sources.3 It leaves the country with roughly 10% having to be produced by fossil fuels.4 Germany and the Czech Republic make up 15.5% of Austria’s electricity imports.5 Energy security is a complex concept that has been best categorized by Cherp and Jewell in their four As: Availability, Accessibility, Affordability, and Acceptability. They have argued the possibility of adding climate change as a fifth. The recommendation has been to focus on the context of its use rather than focus on its applicability in its purest meaning.6 The International Energy Agency (IEA) concluded that Austria’s energy securitization at this point in time is robust. However, it has also called for greater production in domestic gas and an expansion of its activities into the wider European energy market.7 The reason is Austria opts for an energy policy focused on efficiency and renewable energy. Furthermore, there are two problems: it relies on energy imports for industry, transport, and agriculture; it continues to be a growing consumer of energy without balancing its net import percentages. The conclusion is that Austria will remain an importer of energy for the foreseeable future. It remains a concern in meeting not only sustainable development goals but also cheaper electricity for consumers; imports rely on a healthy trade relationship premised on a stable political situation. This has led to calls to abandon the country’s no-nuclear policy; however, it remains a minority few among the public and their representatives. The same position is held towards exploiting shale gas. The IEA suggests Austria strengthens its integration of electricity and natural gas markets.8 However, there are substantial difficulties in doing this. For

3. Energy Efficiency Trends and Policies in Austria, Austrian Energy Agency 2018 4. Austria: total energy consumption by fuel - European Environment Agency 2018 5. Wagner, B. “A review of hydroelectric power in Austria: past, present and future” 2015 6. Cherp, A., Jewell, J., 2014. “The concept of energy security: beyond the four As.” Science Direct. 7. IEA Review of Austria’s Energy Policies, 2014 8. OECD/IEA 2014.

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example, Germany has made the intention of building technological barriers between its own electrical infrastructure and Austria’s. Although it may seem to be a politically motivated move, that is not the case. Germany finds itself supporting Poland’s outdated grids—which cannot absorb Germany’s production. Germany’s higher production is the result of new strategy of moving away from nuclear power by using wind energy plants in the northern part of Germany. This has ultimately resulted in higher costs and to cover for this expenditure, the policy has been implemented to push Austria to buying additional capacity on the stock exchange. These additional costs will set Austria back h100 m.9 Austria may find itself having to spend even more of its budget in updating its own grids, just as Poland. Martin Graf, the CEO of “E-Control” has called for more than h5bn in investment to avoid the disaster of blackouts.10

15.2 Governance system The Austrian Constitution requires the regulation of electricity be divided between the central government and the federal states. There is no state autonomy concerning this element of legislation; the state enacts law in accordance with federal law. The Federal Electricity Management and Organisation Act 2010 (EJWOG 2010) and state-level law give guidance to the regulatory bodies of the Austrian electricity market. The primary objectives of the EJWOG are: G G G

G

To provide affordable and high-quality electricity. To ensure the market remains in compliant with EU law. To ensure power-heating is used and that a legal framework is maintained to push to use of sustainable energy. To ensure to the involvement of public service bodies in matters pertaining to electricity.

E-Control is a public institution that is fully independent—at least in principle. It is made up of three bodies: managing board, regulatory commission, and supervisory board that oversee the regulation of the electricity market.

15.3 Electricity market The overwhelming production of electricity is carried out by VerbundGesellschaft. Provincial state entities make up the bulk of what is left of production. The primary distribution system operators (DSOs) were former provincial state entities and now they are key players in the generation and supply markets.11 9. Kishko, I., 2015. “Electric shocks from Germany.” 10. Pohoryles, R., 2015. “Combing energy security with energy safety and energy efficiency.” ICCR Foundation. 11. E-Control “The Austrian Electricity Market” 2013.

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15.3.1 Transmission system operators The TSO systems combine the responsibilities of network operator and transmitter of power. The main TSO is the Austrian Power Grid, which is classified as an ITO as it owns and operates virtually all transmission grids in the country.12

15.3.2 Distribution system operators DSOs work in compliance with contracts established between producers and withdrawers in exchange of payment for system charges by the regulator. Network stability is of upmost priority as it has the power to take any necessary action to maintain it and is required to consistently look for innovative ways of maintaining the network. The DSOs have the following responsibilities to: G G G G

finalize contracts with consumers, ensure consumers receive electricity, keep record of consumption and find patterns, and share data with the clearing and settlement agent. There are more than 130 DSOs.13

15.3.3 Supply Customers now have the choice to choose between suppliers and paying an energy tariff to the supplier and a tariff to the DSOs. Suppliers have the responsibilities14 to: G G G

finalize contracts with consumers, share consumption forecasts, and correctly bill their customers for consumption.

The liberalization of the market imposed “unbundling” requirements on suppliers: G G G G

freedom from instructions, autonomy in investment matters, independence from other business enterprises, and transparency.

12. EU Country Reports, 2014. 13. E-Control, 2013. “The Austrian Electricity Market”. 14. E-Control. Monitoring Report - Versorgungssicherheit Strom. Vienna: Energie-Control Austria, 2013. p. 13.

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With respect to the autonomy of a company, a stock company is the most preferred business structure. TSOs must be unbundled or work as independent operators.15

15.3.4 Ownership After the Second World War, politicians came to the conclusion that the public must maintain ownership in the energy sector and as a result, the government created Verbund-Gesellschaft and the 9 provincial electricity suppliers. The second nationalization law was amended in 1987 and it stipulates: Austria shall own 51% of Verbund-Gesellschaft and 51% of share capital of the nine provincial supplied must be owned, either directly or indirectly, by regional bodies.16

15.4 Smart metering systems 15.4.1 Overview Austria was working toward smart meter coverage of 95% of households by 2019, equivalent to 5.7 m end points.17 Austrian DSOs are at the heart of deployments, both from an installation and data collection perspective. Distribution companies are working within a tightly regulated framework to produce a smart meter rollout that meets Austrian requirements. After the country mandated smart gas and electricity meters—following a favorable ¨ sterreichs Energie laid out a set cost-benefit analysis—industry association O of guidelines for DSOs to follow. Minimum requirements of the Austrian smart meter rollout are high security and privacy standards—smart meters can only transmit the overall electricity consumption of a household, not individual devices in a bid to protect personal data. Meters must also have a customer interface and a remote ability to make daily meter readouts available to consumers via a consumption visualization portal. Another mandatory function of Austrian smart meters is a breaker to allow the DSO to disconnect and reconnect the customer, in part to meet the DSO’s need to manage changes in household tenancies. Austria has advanced its electrical infrastructure by moving to used G3power line communication for transmission. It allows for a greater amount of data to be transmitted and also protects the network from sudden changes, which helps it meet the demands of the regulatory bodied. 15. Getting The Deal Through: “Gas Regulation” 2018. 16. Section 5(1), nationalisation law (as amended), Federal Law Gazette No. 321/1987. 17. Balmet, D., Petrov. K., 2010. “Regulatory aspects of smart metering” ERRA Licencing and Competition Committee.

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15.4.2 Landis 1 Gyr projects Energy management company, Landis 1 Gyr, has been working within Austria’s regulated energy market by helping Netz Burgenland to go from pilot rollout to large-scale deployment. Netz Burgenland, a fully owned subsidiary of Energie Burgenland, is one of Austria’s seven largest electricity DSOs and has more than 200,000 metering points in its network. Landis 1 Gyr began a partnership with the eastern Austria energy company in 2015 with a pilot of 3000 G3-PLC communicating meters and the head end system—“as a way to validate performance and build up IT systems to support the business processes,” says Landis 1 Gyr Austria country manager Helmut Scherzer. A further 18,000 metering points followed in early 2016 and then in December 2016, Landis 1 Gyr secured a contract for the remaining 180,000 metering points as a part of the complete advanced metering infrastructure solution. Commenting on the rollout so far, Peter Sinowatz, Managing Director of Netz Burgenland, says, “After 15,000 installed devices, the balance sheet looks very good. The smart meter installation is straightforward, and the customers are fundamentally positive about the new technology.” Sinowatz adds, “We are currently replacing about 3,000 meters a month. And over the year the deployment will ramp up to more than 6,000 a month.”18 Landis 1 Gyr’s Scherzer says the experience of working closely with Netz Burgenland since 2015 has highlighted two key learnings for a successful smart meter project. First, the vendor utility relationship has to be an open partnership with a clear alignment of mutual expectations between the DSO and the technology provider. And second, the importance of pilots in allowing the DSO “to prepare and understand the complexity that’s needed to integrate a head end system into third party systems.” “A pilot reveals how all utility processes are affected by smart meters,” says Scherzer, “and offers the chance to address vulnerabilities before a massscale deployment.”19 In Upper Austria, policy has moved to making greater use of photovoltaics. This will be achieved by implementing the 2030 Energy Strategy— R&D projects supported by numerous federal departments to create pioneering energy systems. This will be achieved by analyzing consumer behavior and finding a way to simply the demand and supply coordination in photovoltaic systems.

18. Landis 1 Gyr Austria’s smart meter rollout: a case study of meeting local regulations, 2017. 19. Ibid.

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15.4.3 Other projects Energie AG Obero¨sterreich is responsible for the rollout of 100.000 units. The EU requires all households have smart meters installed by 2020. Energie AG Obero¨sterreich will ultimately move to installing smart meters for 500.000 customers. These smart meters will record the consumption of electricity and natural gas and then transmit that data to the grid operator. The objective is to replace a quarter of a million electricity meters with smart meters by 2025.20

15.4.4 Applicability Smart meter rollouts are part of a utility’s need to scale up for the future as well as lay a digital energy platform for further use cases such as load management and home automation. As Brunner et al. point out,21 smart meters collect data that can then be used to review customer satisfaction as well as energy-saving strategy of which is working best. The cost of the smart meter rollout will be placed upon customers; however, the sheer number of customers will be affected means that the burden can be shared, resulting in an incremental rise price. There is equal benefit for the entire country. There are basic benefits for consumers in the form of operational savings, cheaper energy costs as a result of renewable energy use, efficient management of the network, and fewer incidents of fault and fraud. The fact that there is greater access of information from generator to customer will only enhance the regulation, transparency, and reliability of the service. There is concern pertaining to the impact of EU policy on smart metering and its relationship with households and fuel poverty.22 The introduction of this technology could potentially damage households in the short term and therefore consideration of their circumstances will be necessary. However, the benefits are fast. The simplest digital meter can offer accurate billing information. The European Commission requires monthly billing be sufficient enough that a consumer can regulate their own levels of consumption (EC, 2010).23 This is a welcome news for Austria, where mandatory meter reading could extend to nearly 2 years. There is anxiety with estimated billing; however, smart meters allow customers to receive in-depth information in the form of graphics to explain their consumptions and ways in which they can reduce 20. Federal Ministry Republic of Austria: transport, innovation and technology Energie Systeme der Zukunft, 2018. 21. Brunner, K.-M., Christianell, A., Spitzer, M., 2011. Fuel poverty. A case study of vulnerable households in Vienna, Austria. Proceedings of the European Council for an Energy-Efficient Economy. 22. Darby, S., 2011. “Metering: EU policy and implications for fuel poor households”. 23. EC, 2010b. Interpretative note on Directive 2009 72/EC concerning common rules for the internal market in electricity.

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costs. Another important benefit is the presence of an in-home display system. This can help families organize their activities in conjunction with live reporting of the consumption. The displays can show in real time how much gas, water, heat, and electricity are being used. For example, a customer can easily read how much it will cost them to have a shower as opposed to a bath. Time-varying tariff is a direct product of smart metering. It allows a consumer to record during regular intervals their amount of usage (e.g., every 30 min).

15.4.5 Pricing There is now the ability to switch between credit and repayment. This is especially helpful for places that require air-conditioning at certain times during the year. This gives time of use tariffs the ability to move away from the static status and become more flexible in their estimations. A more complex form of pricing is real-time pricing which is a sophisticated method premised on variable pricing. This has been made specifically for “nonbiddable” sources as renewable source (wind, wave, and solar) or when there is uncertainty surrounding usage during the winter period. In this situation, customers can contribute to generation in order to meet demand by balancing the network. The third form of pricing, critical peak pricing, can be implemented for exceptional situations. This could be when supply is considerably high in a blazing summer season or a bitter winter period. Customers will usually be informed of this prior to its implementation. Smart metering allows for different forms of pricing and helps manage load reduction and storage problems during peak times. Households could opt to use heating containers in such scenarios and may receive incentives in the form of favorable tariffs to do so.24

15.4.6 Data concerns There are privacy concerns surrounding smart meters, even though many countries, which have adopted the technology early on, such as Italy and the Scandinavian countries, have done so without much controversy. The most obvious concern being with whom this data will be shared,25 but beyond a guarantee and regulatory oversight, the trade-off seems fair. The utility will be used to offer tailored tariffs which will ultimately be of benefit to the customer. Moreover, customer feedback could help with diagnostics. It is primarily with the issue of marketing, in which concerns relating to confidentiality arise. The public’s perception of the government through its regulatory bodies will go a long way toward its acceptance. The public’s 24. Darby, S., 2011. “Metering: EU policy and implications for fuel poor households.” 25. KEMA, 2011. Smart meters in the Netherlands. Revised financial analysis and policy advice. http://smartgridsherpa.com/wp-content/uploads/2011/05/10-1193-Final-report-smart-meteringEZ.pdfS.

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perception of the energy sector is even more pertinent. The UK regulator, Ofgem, conducted a survey of 100 customers and found that they all shared concerns about unwanted commercial intrusion. However, most customers accepted the trade-off to be fair and that the data is essential to the government and suppliers to deliver the best possible service. There were slight concerns about “spying.”26

15.4.7 Direct load control Direct load control provides the consumer with remote control of their electrical appliances. This technology is especially common in warmer climates, which, despite Austria’s year-long cool climate, can move from time to time to sweltering condition. Remote control electrical space and water hearing could benefit households by balancing its use between peak times and storage periods. This, nonetheless, poses risks as it provides the customer the opportunity to substitute demand or storage capacity for more favorable prices. It will be beneficial to low-income customers but there is room for exploitation. Ultimately, there has been little research done into this theory, but it is worth bearing in mind. Even so, very few would be able as they lack the know-how to switch between load and storage and then negotiate spot prices.

15.4.8 Prosumers Smart metering has helped households benefit from microgeneration but the fuel poor in Austria have found difficulty in finding a door to microgeneration. The introduction of feed-in tariffs across the EU may help improve that situation by implementing community access schemes but the difficult in its access may result in weakened impact.27 There is a strong argument that those with little access to energy or affordable energy will benefit mainly from heat as opposed to electricity with respect to feed-in tariffs. There is not yet substantial evidence for this, but mere instillation ease does not qualify it. Smart metering’s skillful installation, ease of maintenance, good feedback systems, and institutional backing give rise to the idea that it would work better for the fuel poor, but it is a complex development that has not yet given conclusive results.28

26. https://www.ofgem.gov.uk/sites/default/files/docs/2011/07/panel-report-2011_0.pdf 27. Baker, W., White, Z., 2008. Toward sustainable energy tariffs. A Report to the National Consumer Council by the Centre for Sustainable Energy. CSE, Bristol. 28. Bergman, N., Eyre, N., 2011. What role for microgeneration in a shift to a low carbon domestic energy sector in the UK? Energy Efficiency 4, 335 435. https://doi.org/10.1007/s12053-011-9107-9.

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15.5 Data protection 15.5.1 Current law Regulation (EU) 679/201629 on the processing of personal data, General Data Protection Regulation (GDPR), has been applied since 25th May 2018. The Austrian Data Protection Act 2018 will seek to apply the regulation domestically. However, GDRP does not support legal entities and therefore basic protection under section one of the Data Protection Act 2018 was necessary. In order to bridge this divide, trade secrets for business are protected by Directive 2016/943/EU—Trade Secrets Directive.30

15.5.2 Smart grids Baloglu and Demir (2014) published a study on the relationship between data protection and smart grid metering infrastructure.31 They investigated the electric industry’s move toward smart grid metering and data gathering and concluded, “Privacy concerns emerge due to the data engineering and data mining techniques which analyze large volumes of private data rapidly.” The electric power industry has to cooperate with information technologists to adopt cyber security into the smart grid to maintain the reliability because reliability requires security. Sender authentication and privacy preserving of consumer data are two major security problems in smart grid communication. Applications and services should be designed in a way to operate efficiently without intruding on the privacy of consumers.32 The current methodologies combine monitoring power consumption in household appliance with regular interval readings. The concern is that the collection of data from a personal setting such as what time you sleep or what time you go to work can give rise to a variety of purposes, including robbery or even assassination. There must be strict oversight in ensuring this data is used solely for smart grid applications and must be encrypted.

15.5.2.1 Security Liang et al. conducted a study in 2012 into cyber security surrounding smart grid technology. They concluded that tackling privacy issues may require adopting 29. Regulation (EU) 679/2016 on the processing of personal data, General Data Protection Regulation (GDPR), has been applied since 25th May 2018. 30. Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. 31. Baloglu, U., Demir, Y., 2018. Lightweight privacy-preserving data aggregation scheme for smart grid metering infrastructure protection, Int. J. Crit. Infrastruct. Prot. 32. Hawk, C., Kaushiva, A., 2014. “Cybersecurity and the smarter grid,” Electr. J., 27(8), 84 95.

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anonymous and camouflage communication technologies.33 In the same year, Yan et al. conducted further research into security challenges and solutions in the same field. They offered several existing solutions that have already been applied to real homes and industries but have also added seven encryption and anonymization techniques.34 A year later, Wang and Lu (2013) conducted a similar study. Their conclusions were similar to those of Yan et al., explaining the smart grid is a demanding environment for security and reliability. The authors provide an indepth analysis of cryptographic authentication and key management. The trade-off between latency and privacy remains a point of contention in smart grid security, especially in wireless communications. If secure communication is increased and maintained, security of privacy will work in tandem with it.35 In 2014 Komninos et al. commented on the current security goals that must to be tackled and what sort of potential pitfall may exist between current smart home technology and its interaction with smart grid entities. They also tackle multiple privacy-preserving methods based again on encryption and anonymization. The conclusion was that a legal framework specifically aimed at potential abuse of privacy in the smart grid network as essential. It will help organize management and aggregation components mechanisms in the most effective way.

15.5.2.2 Privacy Erkin et al. (2013) focus their study on data aggregation. They present the existence of complex systems that can disseminate reading and deliver a more acute prediction between an appliance being turned on and off. They suggest using cryptographic protocols related to hardware limitation and signal processing as a way to secure privacy.36 Finster and Baumgart deliver high-quality methodologies toward tackling the issue of consumer privacy. They introduce two terms that must be solved first: billing and operations in smart meters. They argue of a trade-off between sampling frequency attribution and exactness against privacy. They categorize different methods to accentuating this trade-off using aggregation, cryptography, imprecise data, etc.37 33. Liang, X., Barua, M., Lu, R., Lin, X., Shen, X.S., 2012. HealthShare: achieving secure and privacy-preserving health information sharing through health social networks. Comput. Commun., 35 (15), 1910 1920. 34. Yan, Y., Qian, Y., Sharif, H., Tipper, D., 2012. A survey on cyber security for smart grid communications. IEEE Commun. Surv. Tutor, 14(4), 998 1010. https://doi.org/10.1109/ SURV.2012.010912.00035. 35. Wang, W., Lu, Z., 2013. Cyber security in the smart grid: survey and challenges. Comput. Network., 57(5), 1344 1371. https://doi.org/10.1016/j.comnet.2012.12.017. 36. Erkin, Z., Troncoso-Pastoriza, J.R., Lagendijk, R.L., Perez-Gonzalez, F., 2013. Privacy preserving data aggregation in smart metering systems: an overview. IEEE Signal Process. Mag., 30 (2), 75 86. https://doi.org/10.1109/MSP.2012.2228343. 37. Finster, S., Baumgart, I., 2015. Privacy-aware smart metering: a survey. IEEE Commun. Surv. Tutor., 17(2), 1088 1101. https://doi.org/10.1109/COMST.2015.2425958.

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The aforementioned studied do not cover the more recent, state-of-the-art methods that have been introduced since 2015. Nonetheless, the concerns persist and a detailed analysis on the taxonomy of the state with respect to preserving privacy in smart grids.

15.5.3 Challenges Ferrage et al. summarized the main trend and directions for both industry and academia with respect to privacy in smart grid technology as follows: “Privacy-preserving schemes that are applied on smart grid mostly use cryptography as a basic countermeasure; most of the proposed privacy-preserving schemes do not encounter sufficiently key-based attacks but focus on data-based attacks; a smart grid is constituted from several different systems (smart meters, electric vehicles [EVs], etc.)”38 The challenges in the future will range from detecting new attacks to privacy for the Internet of Things and with it, further research must be conducted, especially as more and more countries add smart grid technology to their infrastructure.

15.6 Demand response 15.6.1 Mechanisms Meisel et al.39 conducted a thorough examination into the demand response (DR) mechanisms in place and being developed in Austria. In order to assess the possible success and implication of each mechanism, a short description and assessment is provided. They judged them based on four criteria: load management potential, sustainability, market potential in 10 years, and degree of innovation. Mechanism

Explanation

Load management

Microgrid for buildings with photovoltaic generation

The risk of Low to medium; unpredictable overload. if it is coupled with renewable energy, then it has greater promise, otherwise it is lacking. There is a delay in installing thermic storages and may not be in place for another decade or so.

Sustainability

Market potential

Degree of innovation

Medium to high; this scenario presents environmental promise and ability to merge into the grid.

Medium to high; as a result of costs decreasing in PV, high disaggregation rates are very much possible.

Medium; it is medium for office buildings but low for households.

potential

(Continued ) 38. Ferrage, M. et al., 2018. “A systematic review of data protection and privacy preservation schemes for smart grid communications.” Science Direct. 39. Meisel, M., Ornetzeder, M., Schiffleitner, A., Leber, T, Haslinger, J. Pollhammer, K., 2013. Demand response for Austrian smart grids.

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(Continued) Mechanism

Explanation

Load

Sustainability

management potential Medium to high; the scenario helps to integrate REs into the grid, enables more decentralized generation without the need for reinforcing the existing grid infrastructure, and uses existing infrastructure versus new devices. Low to medium; Battery grid— All chargers need to be Low; the infrastructure plugged into a separate scenario could coupling of needs and contribute to power outlet of a existent material costs overall grid accumulators second controlled are low, and the stability and power circuit feeding sum of devices prevent electricity on a connected to the demand supply basis. blackouts. grid could shift loads. Low; depends on Low; new Wireless An owner of such a infrastructure mass adoption charging system could offer the needs to and charging device as a complement service to keep cost of participation. additional purchase for the user at devices and an extremely affordable clear any level to gain electrical smog. importance. Medium; positive Reuse of Reuse of batteries can Medium; it effects depend on batteries drastically improve the depends on the ecological balance. market and state available battery technology. There with respect to is concern how electrical old batteries can vehicles and be processed and state-of-the-art how efficient new batteries. batteries can be. Microgrid for Rural municipalities are municipalities greater in number and ensuring that they share smart grid technology is essential.

Medium to high; it is very pragmatic as a result of belonging within an energy balancing group thereby making it easily able to connect with renewable sources.

Market

Degree of

potential

innovation

Medium; it depends on the market and the costs it undertakes in implementing the technology.

Medium; it has already been implemented in certain areas.

Low; depends on High; not done yet. reasonable business models (e.g., special tariffs, products, and bundling)

Low; similar to battery grid scenario.

Low to medium high for wireless charging part and low for the service part.

High; not Medium; done yet. depends very much on market penetration of electric vehicles (EVs) and/or new battery technologies and on recyclables.

15.6.2 EU review The EU conducted an assessment into the status of DR in respective Member States and its conclusions for Austria were discussed in the following sections.40

40. Bertoldi, P., Zancanella, P., Boza, B., 2016. “Demand response status in EU Member States” JRC Science for Policy Report.

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15.6.2.1 Lessons learned Despite the liberalization process was completed rapidly, Austria remains a small market and competition is limited. DR can bring new actors and enhance the liquidity of the market. Although apparently Austria will not face capacity issues in the near term, the infrastructure may be stressed by consumption trends, delocalized generation, and increased share of renewables: DR can play a vital role. Transparency and participation are at the basis of the new regulatory framework that will allow evolving from generation-driven electricity markets to actor-neutral products and services markets. The close cooperation of all actors, TSOs, DSOs, and all the stakeholders, and particularly with the future (new) market participants, shall enforce a consistent transition. 15.6.2.2 Recommendations Encourage new market participants: New participants provide more liquidity to all markets. For that, existing and potential barriers shall be removed and prevented; information shall be provided to all participants and participation of customers and pools shall be supported. On the regulatory front, a common level playing field for all participants should be designed as well as a technical entity in charge. Technical requirements to participate in the markets shall be adapted to all participants including DR. Bidding sizes shall be adapted to DR. The entire process should be carried out transparently and in consultation with all parties involved, including TSOs, DSOs, and market operators. Specific products, considering, for example, revised time slices and lower minimum. DR shares promise in that it can possibly maintain the balance between supply and demand in area of large density and it can achieve this through renewable source. However, to achieve this, further developments around DR scenarios are necessary. The current scenarios provide policy makers, industry experts, and inventors the chance to analyze growth to and fill the technological gap but in order to do this, they will have to explore more scenarios by surveying manufacturers, financiers, regulators, and focus groups. This will combine social, ecological, technological, and economic factors for future implementation. The goal should be to develop every aspect of demand side management.

15.7 Electric vehicles 15.7.1 Overview ¨ sterreich (VCO ¨ ), an Austrian campaignFigures compiled by Verkehrsclub O ing organization that promotes sustainable mobility, found that Austria has the highest share of electrical vehicles in the EU. They have shown that EV cars have doubled in 2015, with a total of 3826 being registered in 2015.

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This means that 1.2% of Austria’s newly made cars are electric, more than France and the Netherlands.41 Within Austria, the state of Vorarlberg had the highest share of new electric cars, ahead of Salzburg (1.5%) and Styria (1.3%). Vorarlberg registered 355 new electric cars, three times more than the whole of Poland. Austrian sustainable mobility and transport experts say that tax incentives, in force since last year, have contributed significantly to the higher numbers. They add that a new e-mobility package launched by the Austrian federal government on March 1 could trigger a new surge in registrations.42

15.7.2 Taxation At this current time, there are three forms of taxation with regards to passenger automobile transport: G G G

Normverbrauchsabgabe (NoVA): an upfront fuel consumption tax, Motorbezogene Versicherungssteuer: an engine tax, and Mineralo¨lsteuer (Mo¨ST): fuel tax.

The taxes are levied as a percentage of the car’s value and the car’s fuel economy—this is achieved using a bonus/malus system in relation to CO2 emissions. Electrical vehicles, however, receive 500 EUR bonus, whereas cars outside this remit are charged 20% VAT, including fuel tax. EV cars are exempt from engine related tax in Austria, whereas diesel and gasoline have 20% VAT, respectively.43 Gass et al. (2012) reviewed policy instruments geared toward promoting EVs. They compare total costs of ownership, including charges and taxes as well as recycling and disposal. Four alternative measures have been assessed to promote EV until 2015 and beyond:44 G

G G G

Policymakers should support research and development into R&D and implement stringent framework for a sustainable transport system. CO@ and NoVA taxes must be exempt for electrical vehicles. A low upfront cost to make up for the loss in exempted taxes. Policymakers should provide an infrastructure for large-scale adoption of EV.

¨ Report: 2012. 41. VCO 42. Ibid 43. Linszbuer, W., 2017. “Austria: electric vehicle taxation” Austrian Vehicle Industry Association. 44. Gass, V., Schmidt, J., Schmid, E., 2011. “Analysis of alternative policy instruments to promote electric vehicles in Austria” World Renewable Energy Congress.

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15.8 Storage As part of smart grids, storage facilities can help to ensure a reliable energy supply even if an increasing share of fluctuating sources of energy is integrated into grids. Via the strategic process, Smart Grid 2.0, the Federal Ministry for Transport, Innovation and Technology (bmvit) is actively supporting this development in collaboration with the stakeholders from the energy sector, industry, and research. The aim is to jointly evaluate the results obtained so far from research and demonstration, and to derive medium-term strategies and concrete plans of action for Austria from these.45 Energy generation and consumption can be harmonized in grids by means of options for rescheduling loads and/or changing the rate of supply from generation facilities in response to an external signal (so-called flexibilities). Flexibility options including tying in energy storage devices—such as classical pumped-storage power stations or power-to-gas facilities. Batteries in electric-powered vehicles can also serve as storage devices and help to reschedule loads if they are charged appropriately. The system can also be made more flexible overall by means of active distribution grids (e.g., with controllable substations). Linking the sectors of electricity, heat, and natural gas together in hybrid networks and systems has considerable potential. Utilizing power-to-heat or power-to-gas technologies can turn heat or natural gas storage facilities into functional energy storage, making the energy system much more flexible than would be possible purely with electrical load rescheduling. With the study “Stromspeicher 2050” by Vienna University of Technology on behalf of the Climate and Energy Fund, a first-ever analysis was performed of how the demand for electricity storage will develop in the Austrian and German electricity system up to 2030 and 2050 as the share of renewables in power generation increases. A number of scenarios were simulated, leading to a reduction in carbon-dioxide emissions of 76% 90% for the sectors of power generation, space heating, hot water, and car traffic. With the aid of HiREPS, a simulation model with hourly resolution developed by the Energy Economics Group at Vienna University of Technology, the technical feasibility of a large proportion of electricity from renewables, and the cost-effectiveness of flexibility options have been successfully simulated. The simulations show that expanding storage facilities, plus power-toheat and managed charging for electric cars, can contribute to integrating a large proportion of electricity from renewables cost-effectively.46

45. https://www.energy-innovation-austria.at/wp-content/uploads/2016/05/eia_02_16_E_fin.pdf 46. Totschning, G., Hirner, R., Kloess, M., 2015. “Assessment of pumped storage needs and alternative integration measures of renewable in Austria and Germany.” Institute of Energy Systems and Electric Drives.

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15.9 Conclusion Austria remains ahead of many EU countries in supporting the rollout of smart technology as well as promoting research and development in this area. It will be interesting to commence a review of policies in 2020 to see how energy efficient and independent the country has become and to what extent has it implemented EU Regulations in order to meet the overall sustainable development objectives of the EU, UN, and the Paris Agreement 2015. The future of smart grids hinders on pricing, load management, risk, and social and economic factors. The evidence suggests that it is in the consumer’s interest to accept this technological revolution.

Chapter 16

Energy decentralization and energy transition in Luxembourg Muhammad Syed Abubakr Karimabadi1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

16.1 Energy profile Luxembourg is not like Qatar or Kuwait, where the country’s respective wealth is a direct result of its natural resources. Luxembourg does not refine petroleum, it does not export any fossil fuels. As a result of its size, it has the highest ratio of consumption in the European Union (EU)—61% of its electricity consumption is imported.1 Much like Austria, its power generation depends upon hydropower—Luxembourg also uses gas. In 2010 the country consumed more than double the EU average, making it the third highest consumer by capita in the EU. With respect to electricity, total output equaled 689 MW in 2012. This excludes pump storage which is located in Vianden and is a part of the Amprion electricity grid. In the Creos zone, total output is 313 MW, which is a significant increased to what it was in 2011 (264 MW). This is in large part due to the increasing use of photovoltaic plants and wind power.2 Luxembourg is in a key geographical and economic area of Europe by virtue of being in-between the Netherlands and Belgium. As a result, the energy balance has been centered on transport and is demonstrated by the fact that in 2000, 1.93 Mtoe was required and in 2015, 2.43 Mtoe. This is obviously due to increase economic activity in the country and an increased population. However, despite this, the energy sector has decreased its share in the energy balance by implementing structural changes and improving efficiency.3

1. European Energy Network, 2013. Available at: http://www.enr-network.org/ 2. Luxembourg: Energy Efficiency Report, 2013. Available at: http://www05.abb.com/global/ scot/scot380.nsf/veritydisplay/5210f680e6b18129c1257be80054e4b7/$file/Luxembourg.pdf 3. ODYSSEE-MURE ‘Luxembourg, Energy Profile,’ 2018 Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00008-6 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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16.1.1 Renewable energy As many of its European neighbors move toward diversifying their energy portfolio by venturing into renewable energy, Luxembourg remains hindered in its ability by virtue of its physical size. The country simply does not have access to major reservoirs or geothermal energy. The country does not have the necessary meteorological environment to welcome other renewable sources, such as solar, wind, and biomass energy—at least not on any significant scale. Moreover, it does not have the space to create installations for energy crop production. Its bleak renewable future was confirmed by the National Renewable Energy Action Plan by predicting, rather generously, that 11% of energy consumption shall be as a result of renewable energy.4 In 2010 wind power covered just 1.1% of energy use. The fact that it falls among countries that have been welcomed into the EU relatively recently and with countries that have gained independence within the last 40 years is a testament to its situation—countries such as Slovakia and Slovenia generate less electricity from wind power. Ireland, on the other hand, can produce more than half of its electric output on wind power alone if conditions are at optimal levels.5

16.1.2 Future The Luxembourg government recognize that this is deeply concerning, especially for a country with as much wealth as it. Policymakers seek to improve security of supply by setting up interconnectors with neighboring countries. At present, natural gas resources are entirely dependent on imports and by moving to partnerships with neighboring countries would ease current concerns. The relationship between the EU and Russia remains deeply unstable, making it even more imperative for Luxembourg to secure its energy future.

16.1.3 Energy security In the 2016 OECD report of Luxembourg, oil and gas account for 86% of total primary energy supply. With no internal production of oil and gas, the country is fully dependent on imports. Oil consumption is dominated by the transport sector and is heavily dominated by diesel oil (88%). Natural gas account for over 90% of the country’s electricity production and 45% of it is used by the transformation sector. Oil refineries are centered in Antwerp in Belgium, only 255 km from Luxembourg City. The rest of its oil, roughly 4. European Environment Agency ‘National Renewable Energy Action Plan,’ 2011. 5. ILNAS, 2013. Standards analysis - energy sector - Luxembourg. Available at: http://www. ilnas.public.lu/fr/publications/normalisation/etudes-nationales/standards-analysis-energy-sectoroctober-2013.pdf

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20%, is shared between Germany, France, and the Netherlands. The distribution of oil is mainly transported by road, rail, and barge, but aviation kerosene is supplied by pipeline.6

16.1.3.1 Oil The permits for storage depots that allow for Luxembourg to store oil will expire this year which will force the country to become even more dependent on stocks abroad. If the country does not act urgently, it will cause significant disruption to logistics in the country which may lead to labor strikes or devastating problems if weather conditions turn dangerous for fuel delivery.7 At present, the government has implemented the creation of new storage capacity, equating to 480,000 m3. 16.1.3.2 Gas Luxembourg’s main gas supplier is Norway, which provides half of its imports. As for the Russian Federation, it provides a quarter. There are eight companies that supply gas to customers, including four integrated distribution system operators (DSOs). SOTEG provides all gas to the four suppliers. The transmission system operators are E.ON (20%), ArcelorMittal (20%), Cegedel (19%), Saar Ferngas (10%), and state-owned SNCI (10%). In 2009 SOTEG merged with Cegedel and Saar Ferngas to form Enovos International SA in order to solidify Luxembourg’s energy security. The country lacks a demand restraint program and there is no policy to ensure users swap in the event of an energy shortage. Legislation has moved toward ensuring network operators, suppliers, and wholesale customers that supply is maintained year-round as insurance as the country seeks ways to secure its energy security future.

16.2 Governance system The ILR (Institut Luxembourgeois de Re´gulation) is the primary regulator for the energy and gas market. It is independent and does not receive funding from the state. It is instead funded by operators, who are also under the regulatory purview of the ILR. It gives rise to a conflict of interest by the state feels it is better if the ILR remains as independent as possible. Further, it monitors competition by ensuring no operator holds a dominant position. The ILR also sets the method by which tariffs shall be calculated and regulates access to the network.8 6. Luxembourg OECD Report, 2016 7. International Energy Association OECD Energy Supply Security, 2014. 8. ILR, 2012.: National Report. Available

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The duties of the Institute include: G

G

G

G

overseeing and making sure the energy market is functioning as efficiently as possible; following up the whether the market is maintaining a base service that is in the interests of consumers; promoting competition by avoiding discriminatory measures against new entrants into the market; and providing a market that delivers choice and range for consumers at fair and competitive prices.

The supply and demand of electricity is overseen by the Government Commissioner for Energy. It is the only arm of the government that takes an active role in energy regulation and the commissioner reports to the ILR biennially.9 In 2012 after the government feared exploitation and distortion of its vertical integration, it added an additional criterion to the Institutes’ jurisdictions. It can now monitor communication practices of operators. Operators must keep their activities between the distribution and supply branches of the operator.10

16.3 Electricity market 16.3.1 Overview The heavy reliance on imported oil is best explained by truckers taking advantage of low excise taxes compared with border countries. The way in which Luxembourg maintains its obligations to the IEA and EU in terms of oil stockholding is by ensuring importers provide stock worth of 90 days of deliveries relative to domestic consumption. The country keeps more than three quarters of storage capacity outside the country.11 The natural gas market is vertically structured and is dominated by a small number of companies. Creos Luxembourg S.A owns and runs the transmission system and is the dominant supplier in the market. The state itself owns 40% of the company through shares and the Socie´te´ Nationale de Cre´dit et d’Investissement. The company which dominates the rest of the market is the Socie´te´ de Transport de l’Electricite´. The rest of the market is owned by municipalities.12

9. Ibid. 10. Institut Luxembourgeois De Regulation, 2012. National Report 11. OECD Report ‘Fossil Fuel Support Country Note,’ 2016. 12. CREOS, 2010. Creos Annual Report 2010: Available at: http://www.paperjam.lu/sites/ default/files/fichiers_contenus/rapports_annuels/2013/creos_2010_en.pdf

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16.3.2 Wholesale markets In Institut Luxembourgeois De Regulation’s 2012 report identified the market to have 278.496 customers consuming 6.36 TWh of energy. Their consumption is spread between 11 different suppliers. The Institute has found difficulties in analyzing the activity of suppliers in residential areas and small private sector areas. In terms of industrial consumers, there has been a significant shift as rate of supplier change has increased to 15.4%. In the natural gas sector, national consumption was 13.6 TWh, which compared to the previous year, is an increase of just 0.2%. There is now roughly 287.043 Nm3/h which is shared between eight suppliers on the national market, three in the residential market, and seven in the industrial market.13 As opposed to other countries in Europe, there is no transmission capacity limit. As a result of efficient cross-border network, Luxembourg can trade on the German exchange as it is integrated with the German prize zone. Moreover, there is no major market for natural gas as much of the supply is imported and as a result, the market price is set by the price of neighboring countries. The Institute does not regulate cross-border transaction prices on wholesale electricity or natural gas. In terms of competition in the markets, the 2012 report identifies the presence of multiple foreign supplies, and therefore prices are maintained as foreign supplies compete between themselves. The Institute did not report any abuses of the market by a dominant entity.14

16.3.3 Retail markets There are 11 companies, 7 of which are active in the residential sector but all 11 are active in nonresidential markets. It has an unusually high number of players in its market for a country of its size. As a result, there is not enough to be shared between companies. In the natural gas market, growth is far slower than the electricity market. In 2012 the rate of switching between providers was 9.7% in volume terms and 0.22% by customers. Business customers have a higher switching rate compared to residential customers. In the industrial sector, the rate is 15.4% and in the natural gas sector, it is below 0.1% and only 29 switches between all categories.15

16.4 Smart metering systems Luxembourg is implementing a nationwide smart meter revolution. This revolution is headed under the title “Project Scope”. Its purpose is to have all citizens using smart meters in gas and electricity. The project began in 13. Institut Luxembourgeois De Regulation, 2012. National Report 14. Ibid. 15. Ibid.

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July 2016 and was expected to conclude in December 2019 for electricity and 2020 for gas. The project is funded by all DSOs in the electricity and gas sectors. The long-term benefits shall be customer awareness in relation to their consumption, better analysis for the smart grid, more data for DSOs for investment and planning, and greater value-for-money tariffs and better forecasting.16 There are risks involved, the primary of which concerns engineering standardization as well as general concerns such as costs, customer apprehension, and technical issues. These concerns are offset by standardization bodies, transparency, and public bodies. All data collected will be transported to individual data contractors and an enhanced security system shall ensure end-to-end security.17

16.5 Demand response The regulatory bodies have their method for calculating network tariffs outlined in the Protection of Persons with regard to the Processing of Personal Data Act 2002.18 It stipulates that customers ought to participate toward improving the overall efficiency of the system, including demand response. Network tariffs must take into consideration savings achieved from demand side and demand response measures. They must also take into consideration savings procured from the cost of delivery or investment in the grid to maintain optimal operation. Article 27 of the amended Act now stipulates the demand response duties (via Articles 27 and 33) concerning the electricity and gas markets, respectively. They are now obligated to treat suppliers of demand response services without prejudice and solely on their ability to meet technical requirements that are inherent in the operation of networks. Article 5419 also requires regulatory bodies to encourage demand response in wholesale and retail markets. Similar to the duties imposed on providers, the regulatory bodies must enforce upon network operators a duty to support access and participation of demand response mechanisms in all system service markets. In doing so, the regulatory body shall outline the technical requirements for achieving this and must include participation of aggregators.

16. OECD Energy Supply Security 2014. Directive, 2015. 17. Press Release, 2015. https://www.prnewswire.com/news-releases/sagemcom-delivers-1stmulti-energy-solution-for-luxembourgs-smart-metering-roll-out-518178871.html 18. Coordinated Text of the Law of 2 August 2002 on the Protection of Persons with regard to the Processing of Personal Data https://cnpd.public.lu/dam-assets/fr/legislation/droit-lux/doc_loi02082002_en.pdf 19. Ibid.

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16.6 Data protection The EU’s most recent and wide-ranging legislation pertaining to data protection is Regulation 679/2016,20 the General Data Protection Regulation. This has been in effect since May 25, 2018. It outlines an entirely new raft of rules concerning data collection and retention for Member States. The rules apply to all smart grid providers. Luxembourg’s National Data Protection Commission (Commission Nationale pour la Protection des Donne´es) (CNPD) outlined 10 guiding principles for the electricity market to ensure it is compliant with the Regulation:21 G

G

G

G

G

G

G

G

G

Legitimacy: The processing of data must be made on reasonable and justifiable grounds. Purpose: The controllers of data must present the purpose in explicit terms and must be processed for those terms alone. Necessity and proportionality: The processing of data must be conserved to accomplishing its stated goals and must demonstrate a direct and clear link between process and outcome. Accuracy of data: The data cannot be unreliable or inaccurate as it risks harming the person to whom the data relates. If any data is found to be inaccurate, it must be corrected or deleted. Fairness: The collection of data must be performed on good faith. This means the person to whom the data concerns must be aware of it and aware of the reasons as to why it is being processed. The principle of trust is emphasized here. Security and confidentiality: The data must be protected, especially in the hands of subcontractors. The data must remain confidential and stored in a reliable and secure place. If there is noncompliance, the entity processing the data shall be held responsible. Transparency: The natural or legal person who wishes to process personal data must inform the data subject as soon as it is collected, or if the data is passed onto third parties. If the data is passed onto third parties, the person to whom the data relates must be made aware of this. There must be complete transparency relating to the handling of data at every stage. Sensitive data is subject to more stringent protection: Sensitive data must be given the highest form of protecting and authorization for such data must be gained from the CNPD. Surveillance is strictly limited by law: Authorization by the CNPD is in principle required before technical means can be used to monitor persons

20. Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data 21. National Data Protection Commission // Luxembourg https://cnpd.public.lu/en.html

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(such as video cameras and computerized tracing). Express authorization from the CNPD is required to monitor persons, such as in CCTV cameras or computer tracing. Advertising/marketing: Use of personal data for advertising or marketing purposes requires permission. If the data will be used for marketing purposes, it will need further permission.

This area of law and technology is new and it will take a few years before an assessment can be made on its application.

16.7 Electric vehicles 16.7.1 Rollout A study into the introduction of electric vehicles in Luxembourg, a strategy for a standardized system for charging was prepared.22 The electricity market, suppliers, and distributers must work in conjunction with each other to establish a national charging infrastructure based on a common central unit. This will allow the consumer to choose freely their electricity suppliers. The DSOs will be responsible for the practical elements of maintaining the infrastructure as it pertains to setting up and operation. The Grand-Ducal Regulation of December 3, 2015 aimed to establish 800 public charging stations and 2 exclusively reserved for electric vehicles by 2020. The first of these have already been set up and the government is looking to establish charging stations on motorways and key locations throughout the country.23

16.7.2 Reform In order to achieve its goal of having a nationwide grid for electric vehicle charging, the government of Luxembourg has enacted the following:24 G

G

G

The focus of “elektromobilite´it.lu” platform is on promoting electromobility. Contributions are made from all stakeholders from electricity suppliers to car manufactures to research centers. Until the end of 2014 the purchase of an electric vehicle was supported by a EUR 5000 subsidy. From January 2017 electric vehicles for private use are entitled to the same subsidy. By 2016, 150 charging station have been set up for the public.

22. Schwartz and Co, Etude technico-e´conomique pour la mise en oeuvre nationale de l’e´lectromobilite´ au Luxembourg ‘Technical and economic study on the nationwide implementation of electromobility in Luxembourg,’ 2011. 23. Government of the Grand Duchy of Luxembourg Ministry of Economy Fourth National Energy Efficiency Action Plan Luxembourg, 2017. 24. Ibid.

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There have been many pilot projects for “car-sharing” with electric cars in places such as Carloh and Nordstadt. As the country has significant cross-border transport, there is a view of creation intermodal platform across main access routes at border points.

16.8 Storage Policymakers are considering a highly ambitious plan of achieving a fully clean energy reliant economy by 2050. Deputy Prime Minister, Etienne Schneider strongly endorsed the Ministry for Economic and Chamber of Commerce’s 475-page proposal: The 3rd Industrial Revolution Strategy Study for the Grand Duchy of Luxembourg.25 He said it “constitutes a general direction for future development of the country”.26 The team explains this Herculean effort will require the cooperation of all sectors in Luxembourg and will rest on communications technology and clean mobility. With respect to energy, the study made four recommendations: 1. 2. 3. 4.

improving efficiency and focusing all efforts on technological efficiency, greener alternatives to oil, replacing consumption of energy with renewable sources up to 70%, and decreasing the share of imports.

They also promote the creation of a legal framework that will promote self-consumption and moving to 100% electric vehicles. The authors predict, “The phase-in and integration of the Renewable Energy Internet and the generation of near-zero marginal cost renewable energy in Luxembourg will enable every business, neighborhood, and homeowner to become a producer of electricity,” and that the transition will result in an increase in “aggregate efficiency and productivity, and an equally dramatic reduction in ecological footprint and the marginal cost of doing business”,27 Luxembourg has set aside $2.2 billion but the International Energy Agency argues only a fifth of that goes toward productive work. It has concluded a mix of policy and price variance as well as investment incentives could lead to a 30% reduction in energy requirements and achieving this will boost economic growth by way of job creation.28

25. Accessed at http://www.troisiemerevolutionindustrielle.lu/ 26. https://www.greentechmedia.com/articles/read/the-plan-for-an-energy-internet-revolution-inluxembourg#gs.XzyLSbL1 27. Ibid. 28. Ibid.

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16.9 Conclusion Luxembourg’s vast resources and economic growth allow it to experiment and promote innovative ways to revolutionize its energy grids. The country has certainty made a progressive and leading effort in making its technological infrastructure energy efficient. The future of smart grids may help it become more energy dependent using renewable energy resource; however, it is unrealistic to presume Luxembourg will cease being so heavily dependent on imports for energy.

Chapter 17

Energy decentralization and energy transition in Denmark Marius Greger1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

17.1 General overview Denmark is a sovereign state located in Northern Europe on the peninsula of Jutland accompanied by an archipelago of more than 400 islands to the east, including the island of Zealand where its capital Copenhagen is located. Denmark is part of the Northern European region known as Scandinavia, including Norway to the north, and Sweden to the east. Bordering Denmark in the south is Germany. Denmark is also separating two maritime territories: the North and Norwegian Sea to the west and the Baltic Sea leading up to the Gulf of Bothnia to the east. The country is divided into 5 main regions spanning 98 municipalities. Denmark also comprises two autonomous constituent countries in the Atlantic: the islands of Greenland and the Farao Islands. Denmark covers 41,500 square kilometers and has a population of 5.6 million. Due to its flat landscape with no surrounding mountains, it shares a similar climate to the other northwestern European coastal cities, with defined seasons throughout the year. Denmark is at the epitome of renewable energy and sustainable development. With 27% of its total energy production sourced from wind turbines and 24% from natural gas, it is one of the leading countries in the world in terms of renewable and sustainable energy production and consumption. Denmark has been the pioneer country in the areas of grid usage as its primary source of transmitting electrical energy to its end-users and is an excellent profile for WiseGRID.

17.2 Energy profile 17.2.1 Brief history of Denmark’s energy policy The oil and gas crisis in 1973 was a wake-up call for Denmark’s environmental and energy strategy. The Danish energy supply was heavily dependent on Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00012-8 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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imported oil prior to the embargo of 1973. In an effort to ensure security of energy supply, Denmark took immediate and long-term measures. Two important features to secure its vigorous development agenda were establishment of a regulatory regime and the construction of a diversified energy supply. Their new outlook made them rethink their production and consumption of carbon-based energy sources. In order to succeed the turnaround from extreme oil and gas dependency, governmental deregulation was vital. Following extreme measures to influence the Danish population to consume less energy, an increased interest in energy issues cultivated amongst ministers, and the Danish Energy Agency (DEA) was founded in 1976, as a ministerial branch to overlook the electricity market.1 The DEA identified three main tasks required for the turnaround: Reduce vulnerability of energy system via diversification and stock building in accordance with IEA and EC guidelines. Reduce the growth rate of energy consumption by enhancing efficiency in production and consumption. Recognize energy-related issues by promoting research and development. The efforts of a multitiered energy supply system instigated a shift in energy consumption from imported sources to national energy sources. This stressed the country to embellish its exploration activity in the Danish segment of the North Sea with an ambition to house natural gas as an important share of its future energy stockpile. Strategies for increased diversification was identified early and raised the importance of security of supply and other behavioral traits such as regulation on reduced imported fuels to increase national supply. This would not only support its energy security but also help the Danish economy support a growing population, responding to increased demand in the coming decades. In conclusion, the oil crisis changed the scene from a largely marketdriven model to a policy-driven system, where planning and regulation were at the heart of the strategy to secure electrical energy supply, and to reduce dependency on fossil fuels. Although planning was the main tool used to achieve the targets, financial and tax incentives were also introduced to change consumer behavior and demand. In the 1980s efforts grew to explore renewable energy sources (RESs) of generating electrical energy. A target was set at 4% of energy production to come from RES. Wind turbines was already well established in Denmark and was popular amongst policymakers. Initially, commercial companies found it too expensive and cumbersome to build and maintain wind turbines. However, in 1990, the center-right government introduced “Energy 2000,” designed to reduce energy consumption and CO2 emission. The main contributor identified 1. Ru¨diger, M., 2014. “The 1973 Oil Crisis and the Designing of a Danish Energy Policy.” Historical Social Research/Historische Sozialforschung, vol. 39, no. 4 (150), Special Issue: The Energy Crises of the 1970s: Anticipations and Reactions in the Industrialized World, pp. 94 112.

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to achieve energy saving, enhanced efficiency, and a greener energy output was a combination of wind, biomass, and natural gas. This would in return replace the national dependency on fossil-based fuel. Today, Denmark has ambitious targets of continuously growing their Energy and Climate Outlooks. These targets are deeply imbedded in its political strategy to become more sustainable, and with a continuous effort to mitigate its GHG emission. The current energy agreement expires in 2020, and for the next decade to 2030, there is a gap that needs to be filled to meet the needs of future energy policy framework.2

17.2.2 Energy profile—electrical energy Denmark’s energy dependency is quite unique compared to the rest of EU. In fact, Denmark is almost entirely self-sustained in its energy usage. The Danes have a passion for clean energy; in fact, almost 30% of total energy production derive from RESs. Wind turbines take great advantage of the windy climate and flat landscape, both on and offshore. For the last 15 years, Denmark has had the highest wind energy production per capita and is almost twice that of the runner up of industrialized countries in the OECD.3 The overall production of wind energy in 2016 was 12,782 GWh, which saw a reduction from the previous year at 14,133 GWh. This is mostly aligned with other countries such as Sweden, Canada, France, and Italy; however, the difference in population is significant. If one look at kWh produced per capita in 2016, this amounts to 2282.5 kWh, which is almost twice that of Sweden and greater than any other OECD countries (Fig. 17.1).

17.2.2.1 Renewable energy Looking at Denmark’s production, it is a trend seen in other EU states, with the highest contributor to energy production being crude oil. However, Denmark is also displaying a positive movement with its energy production from RESs. By closer examination, it is evident that renewable energy as a share of total energy production has grown significantly since the turn of the century. Figures from the year 2000 reveal that renewable energy consisted of 6.9% of total energy production. Renewables in 2016 amounted to 24%, and natural gas 27% of total energy production. Denmark’s renewable energy production has now reached almost a quarter of its total energy production. 2. “Danish Energy Agreement for 2012 2020.” International Energy Agency - Policies and Measures, October 30, 2017. https://www.iea.org/policiesandmeasures/pams/denmark/name42441-en.php (accessed 15.01.19). 3. “Denmark: The most wind energy producing country per capita.” State of Green, August 09, 2017. https://stateofgreen.com/en/partners/state-of-green/news/denmark-the-most-wind-energy-producing-country-per-capita/ (accessed 15.01.19).

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Total Energy Producon 2%

Crude Oil

24% Natural Gas 47% Renewable Energy Waste, non biodegradable

27%

FIGURE 17.1 Energy production data, 2016.4

Renewable Energy Producon Solar 6% 6% 3%

Wind 30%

Hydropower Geothermal Energy

0% 55%

Bio mass Bio gas Heat pumps

FIGURE 17.2 Annual RES production of total energy produced data, 2016.5 RES, Renewable energy source.

Since 1990 renewable energy production has swelled by a staggering 240.5%, where the two most improved are solar (4659%) and wind power (1994%), with the latter being the single highest contributor to its renewable energy production at one-third. As depicted in Figure 17.2, combined biomass production topples wind power at 55% of total renewable energy production. Also compared to more recent figures, it is evident that renewable energy production is constantly on the rise as regulation and market demand is seeking and supporting new solutions for green technology (Fig. 17.2). 4. Energistyrelsen, November 01, 2018. “Annual and Monthly Statistics.” https://ens.dk/en/our-services/statistics-data-key-figures-and-energy-maps/annual-and-monthly-statistics (accessed 14.01.19). 5. Energistyrelsen, November 01, 2018. “Annual and Monthly Statistics.” https://ens.dk/en/our-services/statistics-data-key-figures-and-energy-maps/annual-and-monthly-statistics (accessed 14.01.19).

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Data available for electrical energy generation reveals that wind power alone stood for 43.4% of electrical generation in 2017.6 In 2015 wind turbines generated energy during 1460 out of 8760 h in a year in western Denmark (DK1). One-sixth of total hours in a year is used to generate electrical energy, and it is therefore very important that grid systems are operating at max efficiency. When there is a surplus of energy, this needs to be transported to the neighboring countries such as Norway, Sweden, and Germany, and vice versa when there’s a scarcity of electrical energy on the grid due to, for example, lack of or too much wind. In 2015 65 h in western and 36 h in eastern Denmark generated more electricity than needed and thus creating negative prices. This is also where combined heat and power (CHP) plants play an important role to create more flexibility in electrical energy production and storage. The numbers presented for electrical energy generation by wind turbines in Denmark are famously setting records worldwide whilst displaying a steady rise every year (see Fig. 17.3 below).7 However, there is much more behind the numbers than records; they also illustrate that the Danish and European energy systems are under drastic change and give an insight into how renewable energy is changing the way the electrical energy system operates. It is crucial that policies and regulations advocate for this change to continue its trend forward. Grids need to account for new sources of electrical energy production, and governments need to deregulate to allow for new market players to enter. Digital systems are also fundamental to process all the new data accompanied with new technologies for producers and consumers. At the heart of data collection, is also consumer protection. In order to continue a larger scale objective of decarbonize our climate, interstate cooperation will have to be facilitated amongst the European countries where multiple grids are connected together to form a multilateral network. Not only have renewables and biomass production increased over the years, but perhaps more importantly is the reduction of fossil fuels. Between 2012 and 2016, data from the DEA displays significant reduction, and thus dependency on, in fossil fuels. Denmark’s crude oil production went down by 31% in this 4-year period. Furthermore, out of the 82,707 GWh crude oil produced in 2016, over 50% of this was not retained for domestic consumption, but exported to other countries that are more dependent on burning fossil fuels.8 Export of commodities such as oil is still a strong economic model, which in the short-to-medium

6. Denmark: energy and climate pioneer status of the green transition Report, April 01, 2018. https:// en.efkm.dk/media/12032/denmark_energy_and_climate_pioneer_pdfa.pdf (accessed 15.01.19). 7. Energinet.dk., January 15, 2016. “Dansk Vindstrøm Sla˚r Igen Rekord 42 Procent.”. https:// energinet.dk/Om-nyheder/Nyheder/2017/04/25/Dansk-vindstrom-slar-igen-rekord-42-procent (accessed 15.01.19). 8. 46,309 gWh exported in 2016.

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FIGURE 17.3 Wind turbine generation (measured in TJ) from 1999 to 2016.

term may assist in funding medium-to-long-term RES production and technological advancements, including electric grid technologies. This commitment by both private and public sectors is supporting Denmark’s climate goals of completely removing fossil fuels in the energy system by 2050.

17.2.2.2 Consumption Denmark’s total consumption in 2016 was 15.02 million ton of oil equivalent. In descending order of electrical energy consumption, transportation and residential occupy 34% and 31%, respectively. Closely followed is industry at 20% and trade and service at 13%. These numbers help identify which areas are consuming the most amount of energy. Naturally, transportation is amongst the highest consumers of energy, and there is a great need to decarbonize this sector. However, residential is also a high energy liability, where consumption may be reduced by incentivizing end-users to consume less. 17.2.3 Highlighted challenges There are always elements that can be improved upon, and these are extremely important to highlight. Denmark has a strong foundation and wellequipped energy system to maintain its position of strength and recognizing its green potentials. The energy sector continues to evolve, and more rapid changes have happened in the last few years. Trends are constantly changing and this is challenging the current approach to energy policy and execution. The Danish Energy Commission admits that Denmark is facing certain

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policy challenges in order to maintain an affordable, world-leading energy system. Some of these challenges that have been recognized with the Danish Smart Grid system require new strategic choices.9 The challenges of highest significance have been described in the following sections.

17.2.3.1 Large financial commitments Although large financial contributions have already been deployed to develop the Danish grid, there is still more needed to secure the continuous ambitions of growth. Instilled in the 2016 PSO agreement, a positive change in the National Budget saw fruition to secure a major portion for green transition costs. This is still an important agenda of each fiscal prioritization discussions. On the contrary, increased expenses and taxes might negatively impact consumer spending ability and the competitiveness of Danish businesses. Though the cost of decarburization is high, the Danish government should be incentivized to formulate a transition strategy at the lowest cost possible. 17.2.3.2 Need for deregulation to foster modernization and funding of the energy system In the last few decades, energy policy has been dominated by strict regulation and planning. There is therefore a direct correlation between the decided subsidies for the energy market, green technologies, and politicians (policy makers). In a market that is constantly changing on a global scale, micromanaging policies is not an effective solution. There is greater need for deregulation on the market in order to allow for organic growth and new players to enter the market. It is evident that the regulatory chains also impinges the ability to let RES prosper on market conditions, but rather via less cost-effective methods which ultimately reflect back on consumer pricing. Deregulation shows that offshore wind turbines, subject to competition, have displayed avid benefits in pricing and development. Also concurrent in the Danish regulation is the fact that only power plants are able to directly access the electricity market. This highly limits the potential of innovative and entrepreneurial business models that could provide more cost-effective solutions. This would be accomplished through flexible and integrated systems, which in the foreseeable future will be necessary as renewable energy becomes more prominent. Though complex, the current tax and subsidy structure, based on an era of fossil fuel reliance to produce electricity, needs an overhaul. The prohibitive taxes on electrical heating and electricity in general create obstacles to greener energy solutions as self-generating technology and the electricity it produces are too expensive to use. 9. Denmark: energy and climate pioneer status of the green transition report, April 01, 2018. https:// en.efkm.dk/media/12032/denmark_energy_and_climate_pioneer_pdfa.pdf (accessed 15.01.19).

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Also on socioeconomic terms, this is a double negative: green solutions such as heat pumps are not utilized due to less disposable income and high taxes, and further development and competition to develop such solutions are halted. In turn, savings and benefits for the population and economy at large are lost. There is therefore a great need for flexible consumption to be explored in detail. With an electricity system that has historically been centered around power plants, regulation is not able to keep up with the increasing volumes of fluctuating green energy from smaller sources as well as international sources of energy. Larger power plants will decline earnings under pricing pressure. On that basis, the systems operating framework requires examination—need to think larger scale, connecting multiple grids together. This is what WiseGRID is currently exploring, and Denmark is a great benchmark model for developing the methods and policies to further this objective.

17.2.3.3 Proliferation of renewable energy sources is pushing the grid capacity Expanding the practical usage of green energy and green energy technology is a strong aim of Denmark along with other countries. However, due to the expensive technology, the cost of producing energy goes up, which reflects back on the prices the renewable energy is sold at. When technology is in early stages, optimization is not the main priority, thus limiting security of supply. In an effort to innovate, Denmark will need to face up to the increasing volume of renewable energy and renewable energy technology, in a more flexible and integrated system. If not, it will be too costly to maintain the current security of supply in the energy, heating, and gas section. Adapting to new technologies means investing in storage and off-grid solutions. These types of technological advancements are crucial to help balance the system in times of over- and undersaturation of production. Digitization is a key in the energy sector. A large-scale breakthrough is yet to take place, though we are seeing growing use of smart meters in homes around Europe. Taking advantage of digitized solution and commercialization of data is an important step forward to generate efficiency, improvement in energy supply, and reduction in cost; for example, charging your electrical vehicle during night when electricity prices are fairer. 17.2.3.4 Decentralization of energy policy is required Reports are backing claims that wind and solar energy will double in northwestern Europe between 2020 and 35.10 The increasing volume of renewable energy will require even greater international. We are therefore seeing that security of supply is transitioning from being a national issue to a 10. RE Outlook, Danish Energy 2017.

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supranational issue. This might be classified as a positive problem, where grid systems in multiple countries will be adjoined. There are further evidence to support this. For instance, the price of wind power in Germany and the hydroelectric power produced in Norway is influencing electricity prices in Denmark more than that produced domestically. Policy drafters will therefore need to keep this in mind when designing future incentives and trade agreements. Price fluctuation is even seen within the national borders. During 2017 92% of west Denmark had similar prices to one or more neighboring countries, whilst east Denmark shared the same prices with neighbors 96% of the year.

17.3 Governance system There have been works on smart grids in Denmark for several years. First identified in 2010 when a smart grid network was established together with major market players to make recommendations on how they thought the electricity sector and authorities to front of smart grids. Through careful governance, the Energy Agreement 2012 established political support to transition into a greener energy market, with an ambition to achieve 50% of electricity demand to be covered by wind power. In order to achieve ambitious climate targets, a close relationship between the central government and the energy sector is important. The energy sector carries out an important role of developing technology that will be adopted by the consumer, making it attractive for households and businesses to make their consumption available for the smart grid system. Emerging trends are also key for the policymakers to keep an eye on. For example, there have been many initiatives for developing wind turbine technology.11

17.3.1 Legislation Ensembled with other executive orders, the main legislation governing the Danish electricity grid and energy trade is Act No. 1009 of June 27, 2018— Danish Electricity Supply Act (ESA).12 ESA ensures that the electricity market is regulated and governed to safeguard the security of energy in conjunction with social, economic, environmental, and consumer protection. ESA also sets an objective to secure consumers’ access to low-cost electricity and influence of the electricity sector’s values. 11. Energistyrelsen, May 07, 2018. “Wind power.”. https://ens.dk/en/our-responsibilities/windpower (accessed 15.01.19). 12. https://www.retsinformation.dk/Forms/r0710.aspx?id 5 202155#id769f69fb-1c47 4ce3 8171d25abb723685.

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There is also Act No. 1288 of October 27, 2016—Promotion of Renewable Energy.13 Perhaps equally as important, this Act is established to promote production of energy by using RESs, and with a view to preserve climate and socioeconomic values, it intends to mitigate the dependency of fossil fuels, secure energy of supply, and reduce carbon-based emission. The legislation also works as an incentive scheme for wind turbines and other electrical production facilities that use RESs; measures to promote construction of wind turbines; access to use hydro and wind energy on sea, and; regulating electrical generation based on renewable sources.

17.3.2 Authorities There is a clear structure of roles and responsibilities of the main market participants of the Danish electrical energy market. The Danish Ministry of Energy, Utilities and Climate Change (the Ministry) supervises and regulates the energy industry and is in charge of developing overall strategies.14 Beneath the Ministry is the DEA and is authorized under the ESA to issue executive orders and other regulations as well as to ensure compliance with the ESA for the relevant sections.15 The DEA is also responsible for issuing and making decisions to issue licenses related to electricity production, transmission, and distribution. The Danish Energy Regulatory Authority (DERA) was previously in charge of overlooking prices and market terms for distribution and transmission companies connected to the grid. However, following a governance change that took effect on July 1, 2018, the Danish Utility Regulator (DUR) has taken over all tasks previously carried out by DERA.16 DUR is established under the Act No. 690 of June 8, 2018. There is also an independent appeal body under the Ministry, the Danish Energy Board of Appeal, where decisions made by the DUR and the DAE may be formally questioned. In addition, the Energy Supplies Complaints Board handles legal complaints and disputes between private household consumers and the energy companies regarding the purchase and supply of electricity, gas, and heat. The Danish Transmission System Operator (TSO) is Energinet.dk, a state-owned, independent public entity established in accordance with the ESA. TSO is responsible for the security of supply of electricity and gas, and healthy running of the respective markets. As well as developing the

13. https://www.retsinformation.dk/Forms/R0710.aspx?id 5 184376. 14. https://en.efkm.dk/. 15. Energistyrelsen, May 07, 2018. “About the Danish Energy Agency.” https://ens.dk/en/aboutus/about-danish-energy-agency (accessed 15.01.19). 16. “About.” English: Forsyningstilsynet, 2018. http://forsyningstilsynet.dk/tool-menu/english/ (accessed 15.01.19).

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Danish electricity and gas transmission grid infrastructure, they are responsible for ensuring the short- and long-term security of supply. Energinet.dk is also responsible, as the owner, of DataHub and its operation. Denmark is part of the Nord Pool Group, a European electricity exchange, where the balance responsible party oversees the buying and selling of electricity on the exchange. On a daily basis, a balance responsible party must submit scheduling plans to the Danish TSO (Energinet) for the expected energy consumption and production during the coming 24 h. In Denmark the Distribution System Operator (DSO) fully owns and controls the network between the transmission grid and the consumer and also has monopoly on transportation of electricity in its geographically demarcated grid.17 Part of its responsibilities is to measure electricity consumption and generation within its grid area, which may be reported to a metering point administrator.

17.3.3 National and regional transmission The distribution grid is owned and operated by approximately 57 local electricity distribution companies. These are usually owned and controlled by municipalities or organized end-users within the respective grid supply area. Some of the key market players include companies such as DONG Energy A/S, Vattenfall A/S, SEAS-NVE, SE, NRGi, Energi Fyn, Energi Danmark A/S, and Danske Commodities A/S. A quick glance at the total electricity generation in Denmark from RESs in 2015 was 27,704 GWh. The generation was as follows: The year 2015 marked a historically low level of electricity generation from fossil fuel thermal plants, and an increase in electricity production from wind and solar panels. Overall, wind power generation increased by 8% and covers a c. 42% of electricity consumption in 2015 (Fig. 17.4).

17.3.4 Public service obligation and smart metering The Danish TSO charges a public service obligation (PSO) tariff to cover the costs related to the PSOs of the TSO and the grid companies as provided in the ESA and the Danish Promotion of Renewable Energy Act (“PREA”). The Tariff is paid by the supplies to the TSO (and ultimately by the endusers) based on the amount of electricity consumed in their area of delivery. In November 2016 an agreement regarding the PSO was reached by a majority in the Danish Parliament. The tariff will be phased out and integrated into the national budget instead. Since January 1, 2018 the DEA calculates and sets the quarterly and yearly PSO tariffs. 17. y19 ESA.

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Origin 2014 Electricity from central power 13,281 plants

2015

Change

9,493

-29%

Electricity from decentralised power plants Electricity from onshore wind turbines Electricity from offshore wind turbines Electricity from hydro plants and solar panels

3,643

3,454

-5%

7,913

9,300

18%

5,165

4,833

-6%

613

624

2%

FIGURE 17.4 Data from Danish Energy Agency.18

The rollout of smart meters has been sourced to independent companies. Several grid companies are currently in the process of installing smart meters in their supply area.19 By 2020 intelligent remote-readable electricity meters should be installed in each of Denmark’s 3.3 million usage points.

17.3.5 Interstate cooperation The Danish Ministry of Energy, Utilities and Climate—key government institution affecting national regulation and international relations together with the ministry of foreign affairs (the Trade Council) on matters in regards to energy and trade of energy. Denmark has a closely managed energy partnership with Germany to the south. This is a formal continuation of earlier relationships, where the aim for a 2-year period between 2017 and 2019 is to enhance cooperation between the two authorities, and to use this valuable partnership to share and learn from each other’s experiences in an effort to transition toward a greener energy dependency. Danish and German stakeholders have shared that the association aims to develop the areas of CHP production, district heating and energy efficiency in buildings and industry, and energy production facilities. The intergovernmental partnership brings a rich history of strong energy regulation and technological advancement to the table. Denmark can leverage decades of experience in transforming their energy system coupled with knowledge of other past and ongoing collaborations with numerous countries on information sharing of green efforts for clean, prudential, and stable energy systems. Similarly, this cooperation will explore topics in the aforementioned areas by analyzing different policy measures, infrastructure, 18. Energistyrelsen, November 01, 2018. “Annual and monthly statistics”. https://ens.dk/en/our-services/statistics-data-key-figures-and-energy-maps/annual-and-monthly-statistics (accessed 14.01.19). 19. Hansen, Louise V., January 28, 2017. “Radius and Kamstrup begins roll-out of large-scale smart metering project.” State of Green. https://stateofgreen.com/en/partners/kamstrup/news/ radius-and-kamstrup-begins-roll-out-of-large-scale-smart-metering-project/ (accessed 15.01.19).

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obligation schemes, taxes and legislations, solution for storage, interaction between energy sources, and so on. Specialists in the respective fields from Danish governmental institutions have been assigned to aid the international cooperation. The cooperation takes place by the exchange of experts and specialists from the DEA and the Danish Embassy in Berlin within the respective fields, and as part of the Ministry, the DEA is able to closely manage and engage from a regulatory point of view. There is also evidence of close connections between the Embassy, the DEA, and external organizations and businesses, which can advise on matters related to technical developments and regulatory affairs and framework in Germany. This form of knowledge exchange and creation is imperative to foster strong interstate relationships and facilitate a deregulated market where multiple participants can create an interlinked interstate grid network throughout the EU and EEA.

17.4 Electricity market 17.4.1 Regulatory framework The main law governing electrical energy in Denmark is Act No. 1009 of June 27, 2018, Elforsyningsloven (Danish ESA). Its purpose as stated is to secure that electrical energy distribution in Denmark is carried out safely in accordance with a socioeconomic, climate-friendly, and consumer-protective environment. The aim of the legislation is to secure that consumer have access to low-cost electrical energy and retain an influence over the values it depict. Accordingly the legislation supports the promotion of sustainable energy use by encouraging energy savings, use of CHP, and renewable and environment-friendly sources of energy, whilst securing the efficient use of financial resources to support healthy competition on market of production and trade of electricity. Smart grids are at the epitome of the Danish energy strategy—fully supporting grid technology and connectivity to the grid and constantly investing in new technologies. There are defined incentive and subsidies for renewable and green technology for energy production. One example is subsidies for wind turbines found in the PREA, y 18, and yy 34 43. Onshore gridconnected wind power, connected from February 2008, benefits from a feedin premium of DKK 0.25 per kWh of electricity for the first 22,000 h. Offshore wind farms are subject to separate incentive schemes. A feed-in premium by wind farm at Horns Rev 2 enjoys an added DKK 0.518 per kWh, and wind farm at Rødsand 2 receives 0.629 per kWh. These premiums apply to electricity production of 10 TWh for a maximum of 20 years. Act No. 619 of May 29, 2018 promotes grid and distribution entities’ cost-effective and low-energy consumption methods for energy consumers

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and society. The Act implements Directive 2012/27/EU, October 25, 2012 regarding energy efficiency and change of Directive 2009/125/EF and 2010/ 30EU. The main focus of this Act is to ensure that distribution and grid entities envisage efforts of energy saving for the end-user. Annex 1 to the Act, together with y6, displays targets for the average energy saving distribution and grid companies will strive to achieve.

17.4.1.1 Regulated and nonregulated activities In order to carry out activates related to exploration, production, transmission, distribution, and storage, a license is required by the DEA. Furthermore a permit is necessary for the establishment of plants and for any expansion or changes to plants where the pollution may increase.20 Such permits are issued locally by either city or regional councils, depending on the size of the plant. If a major plan is to be built, a public hearing and a duty to carry out environmental impact assessment may be required under the Planning Act.21 When it comes to offshore plants, these are mainly subject to meet the requirements set out in the Subsoil Act and the Continental Shelf Act. The installation of offshore projects is also subject to approvals and permits issued by the DEA. Health and safety as well as socioeconomic contingency plans are required by the DEA for such permits related to the operating, manning, organization, and the conditions of the offshore installation. 17.4.1.2 Status of unbundling Danish competition law since 1998 has been strongly influenced by EU competition legislation, but Denmark has chosen to take a stricter approach regarding support for free competition. In this regard, the level of unbundling surpasses the requirements of the Electricity and Gas Directive. The main transmission grid has secured unbundling. Following the decision by the European Commission to agree with the draft proposal by DERA to certify the Danish system operator Energinet.dk, the certification of Energinet.dk was finalized in February 2012. Energinet. dk is the sole TSO in Denmark and operates the Danish electricity grid.22 Conversely, there are 50 DSOs in Denmark covering a total distribution grid of 159,000 km delivering electrical power to approximately 3.3 million end-users. The obligations in the Electricity Directive Article 26 on Unbundling are integrated in the Danish ESA.23 The legislation together with Executive Order No. 667 of 2016 sets out the legal framework that 20. 21. 22. 23.

Act No. 1317 of 19 November 2015. Act no 1529 of 23 November 2015. “National Report 2017,” Danish Energy Regulatory Authority, 2017, p. 11. Act No. 1009 of June 27 2018.

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DSOs are bound to ensure that they will not be incentivized by commercial means or interests. The electricity industry is legally required to be unbundled related to monopolistic characters in the value chain. ESA does not permit grid and transmission licenses to be admitted to the same company. There are also protective measures against conflicts of interest. Executives and managers of distribution activities must not directly or indirectly be associated with an undertaking selling or producing electricity. Nor can they take part in or be associated with another company that indirectly owns such undertakings. The same goes for board members of distribution companies not to be involved with the operation or management of associations selling or producing electricity.

17.4.1.3 Tariffs Tariffs for the use of electricity grid are fixed by the grid owners and subject to regulation by DERA.24 Tariffs are regulated based on a revenue framework that sets out the maximum annual revenue for a distribution company. In principle, the tariffs are fixed at a level corresponding to the 2004 tariffs and may, as a general rule, only increase by a regulated inflation rate. Capital costs for necessary new investment, or other expenses by the grid companies, may also result in increased tariffs subject to the approval of DERA. Tariffs and actual revenues are reviewed annually by DERA and any differences between the regulatory-approved revenues and actual revenues are settled in the tariffs. Since the TSO, Energinet.dk, is a fully state-owned company, it is regulated not to build up any equity or pay dividends to the Danish Ministry of Energy, Utilities and Climate—its owner.25 This strict cost plus regime is closely monitored for the TSO to only recover necessary costs and return on capital to ensure its efficient running. In the event that the TSO encounters any surplus capital gains, it must transfer this back to the consumer via reduced tariffs. This return to the consumer normally happens the following calendar year following the surplus—though in some cases it may take longer for balancing purposes. Should the TSO suffer a loss, this will also reflect on consumer pricing. Energinet.dk is scrutinized by DERA, which, according to ESA, is required to approve the annual report submitted by the TSO to carefully review whether there are any capital gains or losses. DERA also determines the capital returns ceiling allowed by DSO. As of May 2017, there were 49 DSOs, which is a reduction by approximately 60% since 2004, mostly due to mergers between customer-owned DSO, but also 24. Executive Order No. 816, 2016. 25. y71 ESA.

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sale of municipally owned DSOs to customer-owned companies. The revenue cap allowed by Danish DSOs is a regulatory price per kWh multiplied by the anticipated kWh transported in the following year. This ensures that fixed price tariffs are not unduly increased and allow the market price to be controlled. ESA determines that the maximum returns on grid assets are fixed to the yield of a long-term mortgage bond rate plus 1%. The relevant legal instruments to govern tariffs are the ESA and executive order no. 195 of March 4, 2016 on revenue framework for distribution companies and regional transmission companies. Tariffs have historically been composed of a grid tariff, a system tariff, and a PSO tariff.26 The grid tariff covers the TSO’s costs relating to the operation and maintenance of the national and regional transmission grids (400/150/132 kV), whilst the system tariff covers costs relating to reserve (production) capacity and system operation. Please review the following table for details of the tariffs for 2018: Grid and system tariffs (øre/kWh) (1 øre 5 1/100 of DKK 1, 5 h0.0013) as of 2019. Grid tariff System tariff PSO tariff

3.8 4.2 11.9

The PSO tariff covers the TSO’s costs relating to PSOs as provided for in ESA. The tariff is paid by the supplier (and ultimately the end-users) based on the amount of electricity consumed in their area of delivery. The PSO tariff was previously set by Energinet.dk, but due to a change in system, the DEA is not responsible to determine the tariff quarterly.27 The Danish consumer advice agency “Kontant” recently unveiled a misuse of Danish consumer’s energy bills.28 A small percentage of the amount presented on the bill contributes to the Danish Energy Subsidy scheme. The subsidy scheme is supposed to assist consumers who chose to build ecofriendly households that consume less energy. For instance, if a consumer carries out improvement work to better isolate his household in order to better retain heat, a subsidy may be paid out to that consumer. However, there are no review mechanisms checking whether the work has been completed or installed at the particular address. This means that a subsidy may be paid more than once for the same energy improvement work if the consumer 26. “Tariffer.” Energinet.dk. https://energinet.dk/El/Tariffer (accessed 15.01.19). 27. Energistyrelsen, December 14, 2018. “Aktuel PSO-tarif.”. https://ens.dk/service/statistikdata-noegletal-og-kort/aktuel-pso-tarif (accessed 15.01.19). 28. Misbrug Af Dine Penge. November 29, 2018. https://www.Dr.dk/tv/se/kontant/kontant-10/ kontant-2018 11-29?fbclid 5 IwAR3nAX4EJ5KBfcRtgEDiSC3sVNMaI7CJ2xp2CXHsrPBTrbL4WyMuv40rz8#!/ (accessed 15.01.19).

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applies more than once. In the end, this means that the amount presented on each consumer’s energy bill will slightly increase to keep up with the subsidy scheme. In 2017 the subsidy scheme paid DKK 1.5 billion, equivalent to EUR 200.9 million. The subsidy scheme was one based on consumer trust, and the Danish DSO did not anticipate that there would be any abuse. The Ministry of Energy has requested that all energy companies that have paid out the subsidy more than once reveal which consumers this is. However, by sharing such information would constitute a breach of data privacy. Ultimately, it is the tax payer’s money that are being abused, and the Danish government will need to find a solution to stop the abuse.

17.4.1.4 Incentives September 10, 2015 marked a date for a new subsidy scheme for electricityintensive businesses.29 This new scheme offers companies financial support by contributing to part of their PSO fee for electricity consumption. In total the scheme established a pool of 185 million DKK30 to cover the period of 2015 20, for which eligible companies can apply to cover part of their PSO related to their electricity usage. Furthermore, the government abolished PSO tax at the beginning of 2018, allowing more investment in coastal areas for offshore wind turbines and farms. In general, the government has also invested 1 billion DKK in wind and solar technology for 2018 and 2019.

17.4.2 Energy security dimension The Danish electricity system is in a state of rapid transformation. There is clear evidence of proliferation in renewable energy and interconnections with other countries. Denmark is a major participant to the North-European Nord Pool grid. New and different production and technology patterns are creating a new-era demand which, in effect, will lead to a Danish electricity system that is significantly different from today. By increasing the number of interconnectors, Denmark will become a key part of a regional, rather than a national, electricity grid system. Comparable developments are also taking place in neighboring countries. The Nordic model is displaying an important value of emerging toward the same holistic goal. The European Council endorsed a plan to support an energy union to further promote regional connectivity and collaboration on security of supply.

29. Act No. 1288. 30. 1 EUR 5 7.47 DKK, 185 m DKK 5 24.77 million EUR.

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17.4.2.1 Renewable energies in the grid The objective of the PREA is to promote renewable energy and the security of energy supply whilst reducing greenhouse gas emission.31 Together with ESA it successfully implements the EU Directive of Renewable Energy. The legislation has established a “green scheme” together with the Ministry to provide grants to companies to undertake renewable energy projects and offshore energy exploration and allow for more wind turbines to be connected to the grid.32 Building on the green scheme, the legislation offers detailed feed-intariffs33 for the production of electrical energy by use of renewable resources and enforce reporting obligations on participating grid companies.34 There is also an initiative to fund small-scale renewable energy plant developments that are connected to the grid. The fund allows for up to DKK 25 million per year for 4 years and is to be managed by Energinet.dk. Determined by Energinet.dk, the grant received for the electricity produced by renewable means is based on “spot prices” on the electricity market. At this point in time, renewable energy plants are still unable to financially compete with fossil-based energy production plants, therefore subsidies may be provided for wind turbine owners. The subsidy amount is based on when the wind turbines were connected to the grid and their size.35 17.4.2.2 Energy trading and cross-border relations Entrance to the energy market as a trader requires no license, nor are there any requirements to have a presence or a local subsidiary in order to pursue local energy trade. Where there is a lack of a formal license under ESA to trade, an approval needs to be granted by the TSO to be admitted as a balance responsible trader. At first glance, this may seem great, to deregulate the system to allow for foreign traders and investors to participate in energy trade. However, this also may construe a bias toward some traders over others, depending on their trading history and strategy. The lack of guidelines to how the TSO may decide to whom they grant access is slightly vague. The absence of a license to trade physical power between a wholesaler and end-users makes it possible to supply all Danish end-users with physical power without a license. Despite this, strict reporting requirements are in place under ESA y31 for all commercial users and traders. These are in place 31. REA y1. 32. REA y18. 33. International Energy Agency, September 09, 2013.“Feed-in premium tariffs for renewable power (Promotion of Renewable Energy Act).” (accessed 15.01.19). https://www.iea.org/policiesandmeasures/pams/denmark/name-24650-en.php (accessed January 15, 2019). 34. REA y22(4). 35. Act No. 1288 of 17th October 2015 y35.

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to protect the market and to secure healthy competition. The reporting must include information about any immediate future electricity trade. Denmark’s interconnections are divided between the western and eastern side of the country. In the east, there are four AC connectors consisting of two 400 kV and two 132 kV cable connections with Sweden. Total export capacity of eastern Denmark is 1700 MW to its Swedish neighbor and has an import capacity of 1300 MW. The Swedish link also connects Denmark to the Nordic grid. Germany is also connected via the eastern side of Denmark and consists of a 300 kV DC connection where the capacity is 600 MW. The AC/DC converter station near the Danish city Køge and on the German coastline is fully owned and controlled by the Danish TSO. In the west there is an additional connection with Sweden which consists of two 285 kV DC connections with a total export capacity of 740 MW and import capacity of 680 MW. Western Denmark also governs the interconnection with Norway and consists of three DC connectors with a total transmission capacity of 1700 MW. It also hosts another four AC connectors with Germany where the export capacity is 1500 MW and import capacity is 1780 MW. There is a balance of interconnected trade which increases important security supply dimensions of the Danish energy market, and by extension, the EU market. Denmark is trading with nearly all its geographical neighbors. Although some are not physical energy traders, Denmark are large suppliers of wind turbines and assist with the construction process of large wind parks.

17.5 Smart metering systems Denmark’s electrical energy system is wholly based on a supplier-centric model (Engrosmodellen). This model was introduced in April 2016 with an objective to introduce a new market design to increase competition and allow for new product and service developments to satisfy consumer needs and demands. The function of the supplier-centric model permits 100% of consumer contracts to be directly via the electricity suppliers. This leads to the consumer receiving one bill and has one single point of contact to the electricity market. The electricity supplier bills the consumer directly for network, energy taxes, and levies, before settling their end with the TSO and DSO (see model below) (Fig. 17.5). This particular model is greatly reliant on flow of data, all facilitated by DataHub, introduced in March 2013, and established in ESA y5(2) as an IT platform fully owned and controlled by Energinet.dk. DataHub, as a common data platform, facilitates and automates market interactions, including business transactions of the retail market, and receives meter readings from approximately 3.3 million metering points for both production and consumption. The centralized data system provides the market and all its participants with a leveled playing field.

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FIGURE 17.5 The Supplier-Centric Model by Energinet.

Ensuring a leveled playing field is extremely important for market transparency, allowing new players to enter the market at a lower entry cost. DataHub enables a standardized process for registration and distribution of market data, ultimately allowing businesses, suppliers, and consumers access to the same data at the same time. The consumer-centric model also allows any consumer to easily switch provider through a single point of entry. Denmark has gone to great length in understanding consumer needs by granting them easy access to their metering data as well as a clear definition of the DSO, electrical suppliers, and separation of roles. There is a major difference in before and after DataHub was initialized and is illustrated below (Fig. 17.6). In essence, DataHub developed a four-layer approach to describe its functionality. First, the security layer provides a protected access portal where the user’s information is retained in an encrypted and traceable environment. Second is the presentation layer which houses services related to market support and monitoring as well as operational administration for the general running of the electrical services. Third is the business logical layer, this handles alterations in consumer information, such as address change, provider change, and submission of consumer master data. A large portion of processing, calculation, and flow of data also occurs in the third layer. Finally, the fourth layer contributes aggregation and reconciliation and is known as the data layer. This is also where DataHub process time series, meter readings, and master data.

17.5.1 Smart meter penetration Act 1358 of December 3, 2013 incorporates EU Directive 2012/27/EU to install a smart meter in every Danish household by December 31, 2020. When the act was implemented, 3.25 million units were identified to comply with the installation target.36 36. y2 of Act 1358 of December 3, 2013 (Bekendtgørelse om fjernaflæste elma˚lere og ma˚ling af elektricitet i slutforbruget).

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FIGURE 17.6 The Danish Electrical Energy Market by Energinet.

In conjunction with its 2020 objective, Energinet.dk has been moving toward hourly settlement of electricity. The model is currently in effect with smaller and larger consumers whose consumption exceeds 100 MWh per year. Currently, large consumers are in excess of 50% of electricity consumed. In order to achieve hourly settlements, hourly data readings from smart meters are essential. Almost two-thirds of Danish consumers, or approximately 2 million, have a smart meter installed. In order to achieve this objective, all IT systems currently in place, including DataHUB, must be able to read and receive hourly data from smart meters, for hourly settlement. Technical specifications set out in Act 1358 stipulate that remote meters (smart meters) must be able to register and deliver data on electrical energy in intervals not exceeding 15 min.37 The registered data must also be stored for the consumer to review their consumption and anticipated cost. The transmitted data is used by grid companies to estimate consumption and determine pricing. The data generated from smart meters is and will continue to be readily available for consumers and market needs. Transparency echoes through the Danish model and showcase areas where the Danes may inspire other countries to emulate the same. Increasing transparency for the consumer via hourly rates and price signals from the wholesale market makes it easy to identify the real cost of energy. The expectations of smart meters and the data they provide are incentives to Danish consumers to adjust consumption according to price; for instance, charging your electrical vehicle at night when the price is low, or switching off appliances that consume a lot of energy. Ideally, smarter technology should be able to detect this via

37. y4-y7 for technical specifications, of Act 1358 of December 3, 2013 (Bekendtgørelse om fjernaflæste elma˚lere og ma˚ling af elektricitet i slutforbruget).

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integrated AI systems and regulate a household’s energy consumption without manual input. In terms of actual usability and impact on consumer prices, Radius, an energy supplier, has published their new hourly tariffs post smart meter installations.38 The current hourly tariff during the winter months39 is 83.50 øre/kWh (including VAT) between 5 p.m. 8 p.m., and 32.36 øre/kWh during all other hours of the day. Comparably, the average price was 37.51 øre/kWh, which means 122/16 in increase/saving potential. Smart meters, and possibly smart homes, allow consumers a better insight into when they use their heavy consumption utilities (washing machines/tumble dryer, TV, oven, etc.) and when they should use them for better cost-efficiency. However, if the majority of consumption lies within the 3-h timeslot of 5 p.m. 8 p.m., this is a significant increase in cost over the year. Danish consumers have voiced their concerns regarding this.40 Overall, Denmark is clearly on track to reach 100% smart meter penetration by 2020. The rollout is widely known to Danish consumers and will assist smart grids to further develop by delivering valuable data insights into consumer demand.

17.6 Demand response Demand response, according to the Federal Energy Regulatory Commission, is defined as: “Changes in electric usage by end-use customers from their normal consumption patterns in response to changes in price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardised.”41 The Committee on Industry, Research and Energy (ITRE) of the European Parliament has stated during one of their workshops that in order to cope with an increasing amount of intermittent RES, the old paradigm of supply based on consumption (demand) will no longer be applicable. Instead, to ensure a more cost-efficient model, the electricity system needs to become more flexible to secure a constant balance between supply and demand.42 There are two basic goals of demand response: to lower overall demand and to flatten the peaks and troughs in the daily demand curve with a focus 38. “Din Elpris Besta˚r Af Flere Dele.” Radius Elnet. https://radiuselnet.dk/Elkunder/Priser-ogvilkaar/Din-elpris-bestaar-af-flere-dele (accessed 15.01.19). 39. October to March. 40. Ekstra Bladet, November 27, 2017. “Thorkild Har Fa˚et Ny “spion”-elma˚ler: Nu Er Han Stiktosset.” https://ekstrabladet.dk/nationen/thorkild-har-faaet-ny-spion-elmaaler-nu-er-han-stiktosset/6933447 (accessed 15.01.19). 41. http://www.ferc.gov/. 42. “The Potential of Electricity Demand Response,” Chaired by Mr Jaromir Kohlicek, ViceChair of ITRE, 30th May, 2017.

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on the peak demand periods. In a comparison of demand data carried out between 2007 and 2017, there’s little to no change in response—and where improvement is visible it is only negligible. Demand response seen from a smart meter installation perspective has a target of reducing nationwide electrical energy demand in Denmark of 2% by 2020.43 In overall electricity demand reduction in Denmark, there has been a reduction of approximately 10% per capita over the 10-year period (2007 17). During this period, residential electricity rates are increased by approximately 16%.44 There is a correlation between increase in residential rates and decrease in per capita demand. Having determined the most dominant actor for demand reduction, it is important to look at alternative schemes introduced by the Danish government. Perhaps the only other tangible step that has been taken by the Danish government is installation of smart meters. As of 2016 over half of Danes have a smart meter installed in their household. Compared to its overall nationwide reduction of 2% if 100% of households have smart meters installed, half of this would signify a 1% reduction in demand. In the case that this reduction took place, it would be nearly impossible to detect that smart meters stood for this change. Although the direct effect of demand response is minimal by the installment of smart meters, it projects an important step forward, by harnessing user data which may be analyzed and developed into more tangible strategies in the future. The price increase and demand decrease must be countermeasured against an increasing population. In the 10-year time span (2007 17), the population is increased by B300,000. This will ultimately increase demand for electrical energy and will require greater market flexibility. Several recommendations on demand flexibility on the Nordic market have been published via a report by THEMA Consulting Group.45 If increasing the purchase rate is the only tangible measure the Danish government is taking in reducing demand it might indeed reduce demand, but perhaps at the cost that many Danes will be unable to pay their electricity bill. Compared to the rest of Europe, Denmark (and Germany) already has the highest electricity rates. It is therefore not wise disincentives to the general public by continuing to increase the price of electricity without also allowing consumers better options and opportunities to resell excess production of own energy (either via SV panels, hydropower, wind, heat pumps, and other green technologies) back to the grid.

43. Andrews, R., 2018 “Why “Demand Response” Won’t Work.” Energ. Matter., euanmearns. com/why-demand-response-wont-work/. 44. 0.2579 EUR per kWh in 2007, 0.3049 EUR per kWh in 2017, source: https://ec.europa.eu/ eurostat/tgm/table.do?tab 5 table&init 5 1&language 5 en&pcode 5 ten00117&plugin 5 1. 45. See, “Demand response in the Nordic electricity market strategy on demand flexibility.” THEMA Consulting Group. 2014 (Nordic Council of Ministers 2014).

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The Danish ESA describes that the grid shall consider measures of energy efficiency when expanding the grid, where control of demand and decentralized production can replace the need to expanded capacity. With the proliferation of renewable energy technologies, and the Danish Government’s ambition of replacing fossil fuels with RES by 2050, the electricity grid will experience a vast increase in volume and with that, growing challenges. Smart grid technologies will be vital in order to better support this development and is expected to enable DSOs to automatically adjust the electricity consumption of end-users. This may be done by shifting the consumption to off-load the grid, for instance by lowing temperature, light, or ventilation levels in household or other structures. One of the main contributors to the lack of demand response in Denmark is due to a low amount of demand and flexibility from the TSOs and the DSOs. The Danish grid is running at a sufficient rate with a highly functioning electricity market, compared to the rest of Europe. Denmark is therefore able to handle its challenges of balancing the electricity market. In terms of market participation, aggregation is legal in Denmark. That said, there is a weak business structure and a difficult regulatory environment creating barriers for independent demand response participation. Since this can also only take place with retailers, it has led to there being no independent demand response aggregators today. The list of barriers is therefore longer than the list of enablers.

17.7 Data protection 17.7.1 Digitalization to promote smart grids The Danish Ministry of Energy, Utilities and Climate believes in transparency and value creation through digitalization. Their use of data collection, processing, and distribution are all part of an important play in which Denmark believes it will enhance important potentials in streamlining and growth of renewable energy technologies. By supporting data sharing among major market contributors such as authorities and companies, new value and important profits are being brought to society. These efficiency gains can be achieved via centralized data collection which is readily available to a number of administrative systems and sectors. Currently all data on energy is collected via DataHub.

17.7.2 Danish data protection and smart meters Denmark’s data protection regulation is set out in Act No. 502 of May 23, 2018. This comprehensive piece of legislation is of general application and therefore applies to smart grids by extension. It defines personal data broadly, to include not just data related to natural persons but also data by

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which a person may be indirectly identified by particular reference to other kinds of personally identifiable information. The legislation has successfully incorporated EU Regulation 2016/679 (General Data Protection Regulation—“GDPR”) to cover the collection and processing of personal data carried out, in full or in part, that is contained or is intended to be contained in a filing system. It sets out a firm framework to cover all the basic requirements for securely using, processing, and collecting personal data. Obligations include prior consent to personal data collection and processing, registration of data controllers and processors, security obligations on data controllers to uphold data security, obligations to promptly inform data subject and the Data Protection Authority (DPA) of data breaches which compromise personal data, data subject access request, data subject data deletion request, and portability rights. The Danish DPA (Datatilsynet) is the national DPA and is responsible to ensure compliance with the data protection act and the successful rollout and compliance for entities required to follow its provisions. The act aims to generally supplement and implement the articles set out in the GDPR to protect a person’s rights and freedoms and mitigate the unlawful processing and collection of personal data. Furthermore, the data protection act requires controllers and processors of personal data to draft internal regulations to ensure compliance and data security. A sturdy compliance regime would also endorse training and informing its staff of the data protection measures of internal governance. DSOs are required under the Act 502 of May 23, 2018 to submit information regarding consumption to consumers. Most Danish end-users these days will already have a smart meter installed, and the Act then requires DSOs to publish hourly consumption data. DataHub is the central source of information where end-users may log into their account to view and download their energy consumption and billing information. All consumer data is stored on DataHub’s central platform and submitted to energy suppliers via encrypted files. Suppliers may only view data for their own consumers, unless otherwise consented.46 Smart metering data is therefore the property of Energinet’s DataHub (DSO) but the aspect of data collection lies with energy distributors to submit data to suppliers, DataHub, and end-users for billing and payment purposes. Smart meters themselves have technical requirements to store encrypted data which must be readily available for the consumer.47 This data is also sent energy distributers who are responsible for providing hourly meter readings to DataHub. Energy companies have a responsibility to protect

46. Energinet. dk, May 09, 2018. “Vilkar for deltagelse i DataHub Elleverandoer”. https:// energinet.dk/-/media/96E84DC389B240129926F186E3CE1B9C.pdf (accessed 15.01.2019). 47. y4(3) of Act 1358.

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consumer information and are subject to the Data Protection laws as a controller and processor of data.

17.7.3 Consumer safeguarding The Danish data protection act requires controllers to ensure that any processor they instruct will guarantee adequate personal data security and compliance with the GDPR. In this respect, controllers must have contractual obligations with its processors containing enhanced processor clauses. These measures aid to protect personal data insofar that processors are liable to report on any breach of data. The contractual clauses written by controllers also have the ability to instruct third parties of additional security measures and control to be incorporated in their operation. Any data breach that meets the requirements must be reported to the data protection authority within 72 h, and if found to have a high severity and high likelihood of impact to an individual’s rights and freedoms, then communication must also be sent to the data subject without undue delay from the time of awareness.48 Consumer safeguarding is of highest priority to the European internal energy market. In order to successfully deploy and develop smart technology, such as smart meters or smart homes, data management technologies must be in place to be able to securely encrypt and handle increasing amount of consumption data. Consumer privacy protection reflects basic requirements to protect an individual’s rights and freedoms and must be one of the foundational building blocks to smart meter technologies. Once in place, smart meters may be used as an important tactic to motivate consumers to be more energy efficient by being more aware of their consumption and also aid in creating a more resilient energy security system. Danish technology, amongst other European countries, has displayed that integrating innovative IT and communication systems can give real-time readings and monitoring of energy consumption. Although smart meters have taken a great leap, its continuous development is crucial to better handle, store, and communicate data. Bearing in mind the drastic expansion of smart meter installations in Denmark and generally in Europe leading up to 2020, they need to feature state-of-the-art secure storage and backup systems as well as convincing contingency plans. A smart meter is essentially a big data collector where you get an intimate look into a household’s daily habits such as time spent at home, schedule for work and school, appliance usage, and other habits. Such information is extremely valuable for many parties and makes the consumer a key stakeholder for future insights and development of household energy technology and consumer needs. 48. GDPR Article 33 and 34.

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17.7.4 Concerns of smart meters Several concerns have been raised in Denmark regarding the amount of data collected, by which means, and what happens with the data. In an era where large conglomerates and small start-ups are all fighting to get their hands on consumer data in order to get a better picture of consumer demand, this puts a high price on an individuals’ data. Consumer data has become one of the most valuable commodities. Some Danish consumers are alarmed by the forced installation of smart meters in their home and have raised arguments that the State is concealing the true purpose of smart meters. Though there are data protection mechanisms in place, the consumers have the right to choose what data is collected and what is done with this data. However, there is seemingly no consumer choice whether to have a smart meter installed in their household, which gathers meter reading data. It is somewhat an invasion of privacy, contrary to the Article 8, protection of personal data, in the EU Charter of Fundamental Rights. It is the thought that government agencies and energy companies are monitoring and controlling consumer patterns of their household consumption that puts many Danes at unease.

17.8 Electric vehicles and storage Exemplified by the Danish government, Denmark has an ambitious target of selling its last petrol-fueled vehicle in 203049 and becoming independent of fossil fuels by the year 2050—including the transport sector. Currently, personal vehicles account for approximately half of emission within the transport sector.50 Electric vehicles (EV) are likely to play a prominent part to help Denmark reach this target.51 EVs have a high level of energy efficiency and are also able to broadly utilize electricity generated from RESs. Denmark’s dependency of installing enough EVs to reduce energy consumption and CO2 emission within the transport sector will be highly influenced on international trends. Due to the lack of a domestic automotive industry, the availability and affordability of transport technology will be highly influenced by external producers. However, this does not mean that Denmark will lack influence in the sphere of developing policies to promote such technologies. 49. Minister of Energy, Utility and Climate, “Regeringens Klima- Og Luftudspil.”. https://www. efkm.dk/temaer/regeringens-klima-og-luftudspil/ (accessed 15.01.19). 50. Flere Elbiler Pa˚ De Danske Veje Forslag Til Pejlemærker Og Virkemidler Til Elektrificering Af Personbilerne, January 2018. https://www.klimaraadet.dk/da/system/files_force/downloads/ elbilanalyse_final.pdf?download 5 1 (accessed 15.01.19). 51. State of Green, January 13, 2017. “How can electric vehicles be an asset to the power system?”. https://stateofgreen.com/en/partners/powerlabdk/news/how-can-electric-vehicles-be-an-asset-to-thepower-system/ (accessed 15.01.19).

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17.8.1 Electric vehicles In Denmark, the approximate number of EVs is 10,000. Due to the lack of any domestic automotive manufacturing, they are solely reliant on importing cars where the import tax can reach 180%. Denmark’s 2030 goal is to stop the sale of new internal combustion vehicles and sell 100% zeroemission cars—whether this is electric or plug-in hybrids.52 Until 2016 registration fee for EVs was waived, which attracted many buyers. However this buyer’s remorse was halted when the liberal government decided that this was an impingement on the free market model and determined to reintroduced registration fees of EVs until a parity is reached with conventional vehicles in 2022. The removal of this incentive scheme has had a major impact of the sale of EV in Denmark from 2016 onward. There is currently a lack of incentives for consumers to choose an EV or hybrid vehicle over an internal combustion vehicle in Denmark. Despite other barriers such as lack of charging station, lack of free urban parking, high costs of EVs, and short range, sale of EVs in Denmark in 2018 landed on 1593, up from 700 sold in 2017, an increase of 127%.53 However, compared to its Nordic neighbors, this number is extremely low. Norway sold 33,791 EVs or plug-in hybrid vehicles (PHEVs) in 2017 and projected a total sale of 71,078 EVs or PHEVs for 2018. This may be due to the extreme incentives provided by the Norwegian government working toward an ambitious target of 100% of sale of new cars in 2025 to be zero-emission vehicles. In contrast, the Danish social government has promised 1 million EVs or PHEVs on the Danish roads by 2030. In order to reach 1 million EVs and PHEVs by 2030, the government is rethinking its strategies to incentivize consumers in making the switch from internal combustion based vehicles.

17.8.1.1 Regulatory improvements and incentives The relevant legislation that has adopted the clean vehicles directive is Act No. 1394 December 14, 2010 on climate-conscious purchases of vehicles for road transportation. The Act’s purpose is to promote cleaner and more energy efficient vehicles for road transportation. This requires contractors and official bodies to, when purchasing EVs, consider the vehicle’s energy and environmental impacts of the entire lifecycle. This includes impacts around energy consumption, CO2 emission, and emission of NOx NMHC and other particles.54 52. “Regeringens Klima- Og Luftudspil.” Minister of Energy, Utility and Climate. Accessed January 15, 2019. https://www.efkm.dk/temaer/regeringens-klima-og-luftudspil/. 53. Dansk Elbil Alliance, 2018. “Statistik.” https://danskelbilalliance.dk/statistik (accessed 15.01.19). 54. Technical specifications and requirements can be found in Annex 1 of the Act, https://www. retsinformation.dk/forms/r0710.aspx?id 5 134614.

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Though the act somewhat promotes the purchase and regulation of climate-conscious vehicles, there are no direct incentives incorporated in the act for purchasing a climate-friendly vehicle. This should have been an ample chance for the Danish government to create regulatory incentives for EV and PHEV buyers. A report generated by Ea Energy Analyses collaborating with the DEA has specifically looked at EU incentives and measures that can be used in a Danish context.55 An option identified may be to establish an EU-wide measure or obligations on Member States to promote the use of EVs. Examples have been evident in the Cars Regulation and the EU Emission Trading Scheme that specifically target car manufactures. Similarly, an EU-wide legislation could establish mandatory minimum EV targets for EU countries. Self-regulation and national policy on how to reach the targets would be at the heart of this model. As a negative, this option places a burden on the government to either facilitate the implementation via tax and registration tariffs, or directly to the consumer at the point of purchase. Such a strain might be too demanding for some governments, and a holistic implementation would be difficult. Conversely, this model could instead target the automotive industry, shifting the economic burden away from the central government. The report draws a comparison to the Californian model of Zero Emission Vehicle mandate. Automotive manufacturers can use other means of tackling EV and PHEV targets—they can simply reduce their profit margin by lowering the purchase price per vehicle. As these types of vehicles become more inexpensive to produce and they have the acquired sufficient market penetration, they can start playing with higher profit margins. Whereas it might not be directly applicable to EVs, fuel taxation can play a large contributing role on a purchaser’s decision. The energy taxation Directive 2003/96/EC lays out the minimum levels of taxation on energy and electricity products. Generally speaking, taxes on diesel and petrol are much higher than that of electricity. Although Denmark and the Netherlands are amongst those who have extremely high tax duties on electricity, Denmark is, however, displaying avid actions to reduce electricity tax in order to incentivize EV drivers and future buyers. The Danish Climate Council, an independent expert organization, annually reviews several climate issues within the Danish sector and writes recommendation to the relevant government institutions. The 2017 report contained several suggestions of how the Danish government can do more to better promote EV market penetration. See following main points from the report:

55. “Ea Energy Analyses, Promotion of electric vehicles, EU incentives & measures seen in a Danish context. Prepared with support from the Danish Energy Agency” Ea Eenergy Analyses. January 2015.

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1. There needs to be a long-term climate strategy for transportation with a focus on reducing CO2 emission. The following elements could help contribute: a. Denmark needs to establish a specific minimum amount of zeroemission vehicles by 2030. An ambitious but realistic goal should be at least 500,000—EVs should be in the majority. b. From the year 2030 the sale of personal vehicles fueled partly, or wholly by petrol or diesel should come to a complete halt. 2. The current tax on vehicles is not socioeconomically viable; however, the Climate Council recommends that there are regulatory changes made to the registration fee for personal vehicles: a. Subsidies for large batteries should be made permanent, extending beyond the deadline of 2021. b. No more minimum limit in the registration fee. Smaller EVs will benefit greatly from this. 3. Better economic support for the sale of EVs and PHEV. This is based on a subsidy scheme can be limited, but not by years, rather by vehicles sold.56 The Council’s report is extremely detailed and have contain further suggestions on how the Danish government can shift their policies to better promote and favor the sale and usability of EV nationally.

17.8.1.2 Research in electric vehicles The DEA has between 2008 and 2015 provided funding for 76 projects surrounding the use of EVs in the Danish electrical grid system. These projects have contributed to new supporting and practical experiences with EVs and the necessary infrastructure required for its proper functioning on the grid.57 The projects have been designated to research the following areas: the possibility to use EVs as a flexible storage unit for electricity in the Danish grid; which barriers are evident in the development and use of EVs; areas where EVs have a significant advantages and perspectives; technical, organizational, and environmental conditions related to the use and maintenance of EVs. So far the DEA has supplemented DKK 37 million to the abovementioned projects. One of the projects, “test an electric vehicle,” designated 198 EVs to drive 4 million kilometers which saved 315 ton CO2 emission for 1578 participating Danish test families between 2010 and 2014. This was at the time Europe’s largest ever EV test project. During the project, vast amount of 56. Flere Elbiler Pa˚ De Danske Veje Forslag Til Pejlemærker Og Virkemidler Til Elektrificering Af Personbilerne, January 2018. https://www.klimaraadet.dk/da/system/files_force/downloads/ elbilanalyse_final.pdf?download 5 1 (accessed 15.01.19). 57. Energistyrelsen, June 18, 2018“Forsøgsordning for Elbiler.” https://ens.dk/ansvarsomraader/ transport/alternative-drivmidler/forsoegsordning-elbiler (accessed 15.01.19).

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data was collected around security of use, EV charging pattern/optimization, and driving needs.58 The majority of the project’s hypotheses were confirmed. Some of their findings around charging confirmed that intelligent charging mitigates more CO2 emission compared to a conventional vehicle, it also results in a larger economic saving for every kilometer driven. Additional findings confirmed that knowledge of location and functioning of public charging spots would incentivize EV owners to more frequently use them. The report also displayed that the majority of EV owners charge their EV at home; out of 55,000 charges, 70% happened at home, 22% outside of the home by use of AC structures, and 8% by use of DC structures. Although charging may be one of the more important features of an EV, some daily long-distance commuters (100 km 1) found that missing infrastructure at their workplace made it more inconvenient. However, there is a real opportunity to incentivize employers to install proper infrastructure for charging EVs. In turn this would be a deciding factor for a person to purchase an EV in the future.

17.8.1.3 EU-wide measure to promote electric vehicles nationally Implementing an EU-wide industry mandate to deliver a set minimum target of EVs would increase the number of EVs in Denmark, as well as other markets. Such measure could also boost research and development in EV production, units, and battery. In return this could yield better vehicles with longer range, lifespan, and be more cost-effective resulting in better prices for consumers. The short-term market penetration for manufacturers would also have long-term learning effects. This type of policy could also set minimum standards for EV in order to mitigate compliance vehicles that are low quality, thereby addressing several consumer concerns. Denmark has for a long time been leading in wind turbines, it is time it diversifies its climate efforts to include transportation in order to reach its long-term prospects of a fossil free future. 17.8.2 Storage An inherent factor in creating a balance to the energy system’s fluctuation between supply and demand is efficient energy storage systems. Ideally, storage systems will have the ability to detect when there is excess generation of electrical energy entering the electrical grid from several sources such as wind, solar, and other renewables. Surplus energy will subsequently flow back into the grid when generation is scarce or demand is above par. At present, it is difficult to efficiently store energy at the required scale without significant loss. Denmark, as well as many other countries, requires a close 58. “Test an EV”

Clever A/S (2010 2014)

funding received: DKK 6 million.

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symbiosis between several technologies to fulfill the role of storage. Due to inadequate technological advances, several energy systems are currently integrated to form multiple local storage units. We see for example electrical energy converted to gas, used in EVs, or at thermal energy plants.59 There are many projects exploring the possibilities to better facilitate storage in Denmark. The Danish government has agreed to use DKK 130 million (17.5 million EUR) to develop large-scale storage systems.60 These storage utilities would assist with optimizing the Danish grid to handle increased renewable energy generation.61 The Danish Ministry of Foreign Affairs promoting foreign investments has highlighted a few examples of projects that are currently being explored and tested.62 Amongst these projects is the Copenhagen residential area EnergyLab Nordhavn.63 This particular project is exploring innovative energy solutions (including storage) for urban areas and has incorporated a full-scale smart city energy lab to its test area.64 Since its commencement it has demonstrated how intelligent solutions can create a flexible and optimized energy system by integrating electricity, heating, energy-efficient buildings, and EVs. In terms of hard storage technologies, battery technologies have been supplied by ABB65 for this particular project and are able to supply power to circa 200 apartment units during peak demand hours. Other projects include SEAS-NVE,66 exploring storage of high volumes of energy in heated rock; exploration into energy convergence with biogas (conversion of renewable energy to hydrogen); and also Denmark’s salt caverns are being investigated. StoRE project is focusing on developing newfound ideas around bulk energy storage technologies (EST) such as pumped hydro energy storage and compressed air energy storage. Bulk EST may be one of the foundational keys to a large amount of variable electricity generation from RES, allowing for the correct technologies to be innovated and developed. 59. State of Green, 2017. “Energy Storage.” https://stateofgreen.com/en/sectors/smart-energysystems-balanced-energy-systems/energy-storage/ (accessed 15.01.19). 60. “Denmark Ready to Fund Large-scale Energy Storage Projects.” Business in Copenhagen We Can Help Free of Charge, March 28, 2018 http://www.copcap.com/newslist/2018/denmarkready-to-fund-large-scale-energy-storage-projects (accessed 15.01.19). 61. Pedersen, Maria B., February 2, 2018. “Ny Aftale: 130 Millioner Til Energilagring.” Energy Supply DK. https://www.energy-supply.dk/article/view/583327/ny_aftale_130_millioner_til_energilagring (accessed 15.01.19). 62. “Great Conditions for Smart Grid Research in Denmark.” Invest In Denmark. https://investindk.com/set-up-a-business/cleantech/energy-storage-and-smart-grid (accessed 15.01.19). 63. http://www.energylabnordhavn.com/. 64. State of Green, December 19, 2018. “Utilising bricks for heat storage in new test project.” Accessed January 15, 2019. https://stateofgreen.com/en/partners/state-of-green/news/utilisingbricks-for-heat-storage-in-new-test-project/ (accessed 15.01.19). 65. http://www.abb.com. 66. https://www.seas-nve.dk/english.

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In Denmark’s IDA Climate Plan 2050,67 Danish CO2 emission is expected to be reduced by 90% compared with levels at the year 2000.68 This climate plan assumes that the external transmission capacity remains the same. The plan describes a scenario where transmission between the western and eastern Danish grid is increased significantly, removing any bottlenecks. Carrying out such a plan requires the transmission net to accommodate a large amount of renewable energy penetration. Traditional electricity consumption will also have to decline to facilitate for a more flexible electricity model, rendering new electricity production to be consumed imminently to fit the fluctuation of RESs. Similarly, the pricing structure is assumed to suit a model of flexibility, providing incentives to consume when electricity production is high. According to the plan, the main elements that will take advantage of this model are electric heat pumps, EVs, and refrigerators. This is a model that will take full advantage of technological and policy advancement of smart grids. The TSO has published a twofold model to display their short-, medium-, and long-term goal for power system balancing and integration of RE electricity into other sectors. The report does not accompany the above figure with specifications of what is meant by short-, medium-, and long-term goals, but rather its priorities. Evidently, energy storage is placed under the long-term section, after the implementation of its short and medium targets. Therefore a conclusion may be drawn that there are currently no electricity storage plans in Denmark, and those in place are still negligible.

17.9 Conclusion The Danish climate strategy is one with the holistic ethos of “if we all make an effort, together we can change the world.” This is apparent in the policies and regulation that has been passed by the central government and advice from independent market players and the general public. The Danish government was in a state of crisis in the late 1970s but was able to self-reflect and realize its shortcomings and aspirations. In this scenario, the Danish government found a way to turn their energy strategy around to become one of the leading countries in the world on renewable energy—with particular focus on wind power. The Danish smart grid is particularly advanced to accommodate connectivity of an increasing amount of renewable energy. The Act on Promotion of Renewable Energy has been established to enhance this measure, and the 67. https://en.energinet.dk/-/media/8A788741E1B549FE98D3C756C9A14CE1.pdf. 68. The IDA Climate Plan 2050 published by The Danish Society of Engineers, IDA in August 2009.

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Danish electricity market is maturing, with growing trends of renewable energy generation, and sinking trends of fossil fuel dependency. There is also clear evidence of large-scale investment in technological project within smart cities, EVs, smart meters, and energy storage and projects that strengthen Denmark as a great study for WiseGRID. This is a promising fact for Denmark, which will over the time continue to increase its energy flexibility within western and eastern Denmark to increase energy trade with neighboring countries in line with EU targets. Though Denmark may be viewed as a pioneer, there are still challenges it needs to face, not least by keeping the end-consumer in mind. Allocating large amount of public spending to grid technology and renewable energy will ultimately cost the tax payer and the electricity user. Consumers are also experiencing tax hurdles and barriers to selling self-generated energy back to the grid as prosumers. This is ultimately hurting the market and restraining competition to occur outside government-funded projects. Restructuring to phase out public spending is vital to better integrate and create a stronger energy system. Therefore it is essential to focus on finding cost-effective ways to promote impending innovation.

Chapter 18

Energy decentralization and energy transition in Sweden Hanna Knigge1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

18.1 General overview The Kingdom of Sweden is a sovereign state located in Northern Europe on the Scandinavian Peninsula and covers an area of 447,435 km2 .1 The population is approximately 10 million people, and the GDP per capita is among the highest in the world (51,405 USD in 2017).2 The country borders Norway to the north and west, Finland to the east, and is separated from ¨ resund). Even though the country lies Denmark in the south by The Sound (O quite far north, the climate of Sweden varies somewhat between its regions due to its size. The northern parts are categorized as subarctic, while the southern parts have cold cloudy winters and cool partly cloudy summers. Overall, a fairly favorable climate.3 The northern landscape (Norrland) is dominated by wooded highlands, with mountains to the west (Svealand) and fertile plains to the south (Go¨taland). Sweden is a constitutional monarchy with a parliamentary democracy dating back to the 1917. Sweden is primarily governed as a unitary state, but its 21 counties and 290 municipalities have some delegated powers.4 They entered the European Union on January 1, 1995. Besides being a Member State in the EU, Sweden is also one of the so-called 1. “Key facts about sweden”, 2018 (http://www.sweden.se) ,https://sweden.se/society/key-factsabout-sweden/. (accessed 01.12.18). 2. “Selected indicators for Sweden” (http://www.data.oecd.org) ,https://data.oecd.org/sweden. htm. (accessed 01.12.18). 3. Enander, H., Helmfrid, S., Norman, L.T., Larson, S.R., Sandvik, G., Weibull, J., 2018 “Sweden” (http://www.britannica.com/sweden) ,https://www.britannica.com/place/Sweden. (accessed 01.12.18). 4. Enander, H., Helmfrid, S., Norman, L.T., Larson, S.R., Sandvik, G., Weibull, J., 2018 “Sweden” (http://www.britannica.com/sweden, 2018) ,https://www.britannica.com/place/ Sweden. (accessed 01.12.18). Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00015-3 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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Nordic countries, a region known for close cooperation, legally and politically, as well as in business. The energy and climate policies in Sweden are based on EU legislation, but also national targets. In 2008 the Swedish government implemented a large-scale climate and energy policy, with numerous targets to be meet by 2020.5 Amongst other things, the Swedish government decided that by 2020, 50% of the country’s energy production should come from renewable energy sources. As such, they were committed to reach a target 1% higher than the EU Directive and the 2020 Strategy called for.6 In fact, they already met this target in 2012 and are expected to reach a production level of 55% from renewables by 2020. Furthermore, Sweden has reduced greenhouse gas (GHG) emissions by 22.% between 1990 and 2016, meeting its national targets. However, due to an increase in primary energy consumption during 2016, the country pushed slightly away from meeting the 2020 targets7 [the EU target being 17% less emissions compared to 2015, and national target being 40% (two-thirds within Sweden) less than in 1990].8 Sweden is also committed to increasing energy efficiency with 20% by 2020 compared to 2008. Additionally, the aim was to have at least 10% of the transport sector be based on renewable energy by 2020.9 To further Sweden’s commitment toward a more sustainable energy profile, the government tasked the parliamentary commission in 2014; CrossParty Committee on Environmental Objectives, with determining a comprehensive long-term climate strategy for Sweden.10 The goal was to establish a broad cross-party agreement regarding the country’s energy policies that would not be easily changed, for example, with the election of new

5. Proposition 2008/09:162 och 163 “En Sammanha˚llen Klimat. Och Energipolitik Energ Klimat” (Government Bill 2008/09:162 and 163 An Integrated Climate and Energy Policy). 6. Directive 2009/28/EC of the European Parliament and 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, Annex 1 A. 7. “Europe 2020 indicators Sweden” (report by Eurostat June 2018) ,https://ec.europa.eu/ eurostat/statistics-explained/index.php/Europe_2020_indicators_-_Sweden#Overview. (accessed 05.12.18). 8. “Headline targets and Sweden’s national targets”, 2017 (http://www.government.se) ,https:// www.government.se/sweden-in-the-eu/europe-2020/headline-targets-and-swedens-national-targets/. (accessed 05.12.18). 9. “Energiindikatorer 2018: Uppfo¨ljning av Svergies Energipolitiska Ma˚l” (Energy indicator 2018: Follow-up on Swedens Energy Policy Goals) (http://www.energimyndigheten.se) ,https:// epi6.energimyndigheten.se/PageFiles/54644/Energiindikatorer%202018.pdf. (accessed 06.12.18). 10. “Energiindikatorer 2018: Uppfo¨ljning av Svergies Energipolitiska Ma˚l” (Energy indicator 2018: Follow-up on Sweden’s Energy Policy Goals) (http://www.energimyndigheten.se) ,https://epi6.energimyndigheten.se/PageFiles/54644/Energiindikatorer%202018.pdf. (accessed 06.12.18).

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consecutive governments, thus achieving a more controlled and agile transition into a completely renewable electricity system.11 The Framework Agreement presented by the committee12 was adopted by the parliament (Riksdagen) in 2017, resulting in the Climate Act,13 a Climate Council, and new climate goals.14 The overall goal is for Sweden to have a 100% renewable electricity production by 2040, to have net-zero GHG emissions into the atmosphere by 2045, and to increase energy efficiency with 50% by 2030 compared to 2005 (measured in supplied energy in relation to GDP).15 These goals will apply alongside the 2020 (and 2030) targets in accordance with EU legislation.

18.2 Energy profile Sweden, like most other European countries, depends on imports to meet their domestic energy demand, including natural gas and nuclear fuel. This is especially the case in the transport sector, which is still heavily dependent on fossil energy (oil), for which Sweden has no indigenous resources. However, the supply of fossil fuels to the Swedish energy system has decreased significantly since the 1980s, mainly due to the introduction of nuclear power and the later increased energy production stemming from biofuels. In terms of domestic renewable sources of energy, Sweden generates energy from hydro, wind, and biofuel, as the main sources.16 Eurostat estimates Sweden’s overall dependence level to be 32% (2014).17

11. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18). 12. The Framework Agreement between the Swedish Social Democratic Party, the Moderate Party, the Swedish Green Party, the Centre Party and the Christian Democrats, “Agreement on Swedish Energy Policy” (2016) (http://www.government.se) ,https://www.government.se/49d8c1/contentassets/8239ed8e9517442580aac9bcb00197cc/ek-ok-eng.pdf. (accessed 06.12.18). 13. Svensk Fo¨rfattningssamling 2017:720 Klimatlag (The Swedish Code of Statues 2017:720 Climate Act). 14. Statens Offentliga Utredningar SOU 2016:21 and SOU 2016:47 (Official Reports of the Swedish Government 2016:21 and 2016:47). 15. Proposition 2016/17:146 “Ett Kilmatpolitisk Ramverk fo¨r Sverige” (Government Bill 2016/ 17:146 Climate Policy Framework for Sweden). 16. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18). 17. “Energy Statistics” report by Eurostat, 2017 Edition (http://www.ec.europa.eu) https://ec. europa.eu/eurostat/documents/4031688/7772824/KS-06 16-230-EN-N.pdf/536884a4-83c5-4640b87c-a77a160c0910. (accessed 05.12.18).

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18.2.1 Electricity The dominant form of energy used in Sweden is electricity, with total final energy use amounting to 125 TWh (2016).18 The country is in fact a net exporter of electricity, amounting to 12 TWh in 2016.19 Most of Sweden’s electricity production comes from nonfossil sources, dominated by hydro and nuclear power with market shares of about 41% and 40%, respectively (2016).20 In addition to hydro and nuclear, Sweden also produce electricity from wind (15.5 TWh, 2016), combined heat and power (CHP) (5.5 TWh in industry, and 9 TWh in district heating), and a very small amount from solar (74 GWh, 2017).21 While the electricity production at this time is mostly based on hydro and nuclear power, the electricity production from wind and biofuel is steadily increasing.22

18.2.1.1 Electricity transmission and distribution The public utility and the responsible authority for the national grid is Svenska Kraftna¨t, which operates the transmission lines, substations, and international 400 and 202 kV interconnections. Additionally, Svenska Kraftna¨t functions as the sole system operator for electricity (TSO) in Sweden.23 Through the national grid, electricity is transported from the major producers to the regional grids, then the regional operators transport the electricity either to the local grids or directly to large-scale consumers. Distribution system operators (DSOs) of three major companies own most of the regional grids; Vattenfall Eldistribution AB, Eon Energidistribution AB, and Ellevio AB, which together account for about 97.8% of all energy outtake. Moreover, these three, together with Skelleftea˚

18. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). 19. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). 20. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). 21. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). 22. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18). 23. “The electricity market in Sweden and the role of Svenska Kraftna¨t” by Svenska Kraftna¨t information, 2011 (http://www.business-sweden.se) ,https://www.business-sweden.se/contentassets/5f98d5aacf234bef8acede35503dbc64/electricity-market-in-sweden.pdf. (accessed 04.01.19).

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Kraft Elna¨t AB, account for about 99.2% of all energy distribution.24 Sweden’s power lines are 545,000 km long in total, 329,500 of which is underground cables, and is connected to about 5.2 million customers (2016).25 In the local grids across Sweden there are about 156 operators (2017), which are either owned by the state, municipalities, private companies, or economic associations. However, about half of the Swedish customers purchase electricity from the three largest DSOs, mentioned above, which also own about half of the local grids.26 Every grid owner must attain a grid license from the Energy Market Inspectorate in order to build power lines.27 Furthermore, the license obliges each operator to collect and report measurements on production and consumption, and to connect electricity plants in their area to the grid,28 the cost of which is covered by the producer through network tariffs.29 In terms of obligations to connect power plants to the grid, a principle of nondiscrimination is practiced, meaning that renewable energy producers are not given priority, nor are they discriminated against. Furthermore, under certain conditions, a grid operator may reasonably deny a producer grid connection, the main reason being that the grid capacity is insufficient.

18.2.2 Consumption Energy usage in Sweden can be divided into three main sectors: the industry, transport, and the residential and service sector. The gross final energy consumption, according to Eurostat, is at a level of 32.6 TOE, of which 53.8% was from renewable sources in 2016.30 Yet, Sweden’s national consumption

24. “Leveranssa¨kerhet i Sveriges elna¨t 2017: Statistik och analys av elavbrott,” Ei R2018:16 (Security in the Swedish Electricity network 2017: Statistics and analysis of power outages, Report No R2018:18, by the Swedish Energy Market Inspectorate), 2018 (http://www.ei.se) ,https://www.ei.se/Documents/ Publikationer/rapporter_och_pm/Rapporter%202018/Ei_R2018_16.pdf. (accessed 04.01.19). 25. Smart Grids Innovation Challenge: Country Report 2017, report by Mission Innovation (http://www.smarygrids.no) ,https://smartgrids.no/wp-content/uploads/sites/4/2018/04/ MI_IC1_Country_Report_2017.pdf. (accessed 01.12.18). 26. Widegren, K. “The Swedish Action Plan for Smart Grid” (http://www.cleanenergysolutions. org) ,https://cleanenergysolutions.org/sites/default/files/documents/widegren_karin_isgan_webinar_1_21_15_0.pdf. (accessed 02.01.19). 27. Svensk Fo¨rfattningssamling (SFS) Ellag 1997:857 kap. 3, y 6. (The Swedish Code of Statues, Electricity Act 1997:857, chapter 3, y 6). 28. “Grid companies” (http://www.swedishsmartgrid.se) ,http://swedishsmartgrid.se/in-english/ the-swedish-electricity-market/grid-companies/. (accessed 02.01.19). 29. Svensk Fo¨rfattningssamling (SFS) Ellag 1997:857 kap. 4, y 2. (The Swedish Code of Statues, Electricity Act 1997:857, chapter 4, y 2). 30. “Share of renewable energy in gross final energy consumption by sector”, 2018 (http://www. eurostat.eu) ,https://ec.europa.eu/eurostat/tgm/table.do?tab 5 table&plugin 5 1&language 5 en& pcode 5 sdg_07_40..

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target pursuant to the 2020 goals is 30.3 TOE.31 In 2016 the total final energy use was 559 TWh including losses and nonenergy use, whereas 375 TWh in sectors.32 Moreover, according to the Swedish Energy Agency, Sweden’s energy system is always in balance, meaning that the country’s energy input is equal to the energy output, including energy losses. The total final energy use has been slightly decreasing in the three main sectors over the last decade, remaining quite steady in the industry and residential and service sectors, albeit fluctuating somewhat, mostly impacted by outdoor temperatures. The largest decrease has been in the transport sector, from 93 TWh used in 2007 to 87 TWh in 2016; however, most of this decrease can be attributed to the introduction of more fuelefficient vehicles.33 While the decrease in energy consumption is not impressive as of yet, there has in fact been a slight decrease despite growth in both population and GDP per capita.34 Another important point is that the use of oil and other fossil fuels is declining, while the use of renewables is increasing. In fact, biomass has become the third largest energy carrier in Sweden.35 Despite the relatively constant energy consumption rate, and the slight decrease over the last decades, Sweden’s energy consumption is still about 50% higher than the EU average. This is explained by Sweden having an energy-intense industry, a high transport demand due to long distances between populated areas, and a relatively cold climate. As such, it will be challenging for Sweden to reduce energy consumption to a more sustainable level.36 The main source of energy in the transport sector is oil, and derived products such as diesel, petrol, and aviation fuel, accounting for 67 TWh

31. “Europe 2020 indicators, final energy consumption”, 2018 (http://www.eurostat.eu, 2018) ,https://ec.europa.eu/eurostat/web/europe-2020-indicators/europe-2020-strategy/main-tables. (accessed 05.12.18). 32. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). 33. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-insweden -facts-and-figures-2018-available-now/. (accessed 05.12.18). 34. “There are more of us, but we use less electricity” by the Statistics Sweden, 2018 (http:// www.scb.se) ,https://www.scb.se/en/finding-statistics/statistics-by-subject-area/energy/energysupply-and-use/annual-energy-statistics-electricity-gas-and-district-heating/pong/statistical-news/ electricity-gas-and-district-heating-supply-2017/. (accessed 31.12.18). 35. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18). 36. Proposition 2017/18:228 “Energipolitikens Inriktning” (Government bill 2017:18/228) (http://www.regjergingen.se) ,https://www.regeringen.se/497262/contentassets/5fe7ecdee2b440eb81348fc722324c91/energipolititikens-inritkning-prop.-201718228. (accessed 24.12.18).

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of the total 87 TWh used in 2016.37 However, the Swedish government has, as part of its long-term climate goals, set a target for the country’s vehicle fleet to be fossil fuel independent by 2045.38 While biofuels (mainly biogas, biodiesel, and ethanol) and electricity are growing sources of energy in this sector, amounting to 17 and 3 TWh, respectively, in 2016,39 Sweden is still far from reaching its goal, albeit a complete transition naturally takes time.40 On the other hand, almost all fossil fuel consumption in Sweden can be attributed to the transport sector,41 and a shift away from this source would therefore have great impact on the country’s overall energy profile. The industry sector accounts for 142 TWh (around 38%) of the total energy use,42 and most of the energy is derived from biofuels and electricity, with 56.3 and 49.2 TWh, respectively (2016). Additionally, some energy generated from coal and coke (13.4 TWh), oil products (9.4 TWh), natural gas (4.2 TWh), district heating (3.7 TWh), and other fuels (6 TWh). As mentioned, energy consumption in the industry sector has been relatively unchanged, albeit with a slight decrease in recent years, despite a moderate increase in production. The reason why the increase in production has not led to an increase in energy use is mainly due to some of the industry actors making structural changes and becoming more energy efficient.43 Still, there is room for improvement in both energy efficiency and choice of energy carriers in the Swedish industry. As early as 1991 Sweden was one of the first countries to introduce a carbon tax scheme, shifting industry’s tax burden from labor to carbon and energy consume. Several studies indicate that this reform had an influence on reducing GHG emissions and affecting the move toward the use of biomass in the district 37. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). 38. Statens Offentliga Utredningar “Fossilfrihet pa˚ Veg Del 1,” SOU 2013:84 (Official Reports of the Swedish Government SOU 2013:84 “Fossil-freedom on the road Part 1”). 39. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). 40. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18). 41. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18). 42. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/ statistik/energilaget/. (accessed 07.12.18). 43. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18).

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heating system.44 Over the years many different tax schemes have been introduced in order to stimulate a reduction in energy usage, especially from fossil sources. These taxes broadly include energy taxes, pollution taxes, resource taxes, and transportation taxes.45 However, it should be mentioned that while these taxes impacted the decline in GHG emissions (accounting for some variation over time), a steady decline actually occurred before these schemes was introduced. Due to the international oil crisis in the 1970s, Sweden introduced nuclear energy to its energy mix, in order to be less dependent upon the imports of oil (especially considering the fact that oil dominated the district heating market with around 90% of energy used for this purpose).46 This, combined with the simultaneous increase in renewables, such as biomass, resulted in a decrease in oil use. As such, it should be stressed that energy tax schemes are instruments that can influence GHG emissions, albeit not enough to significantly reduce or achieve net-zero emissions.47 The residential and service sector mainly uses energy from electricity (73 TWh) and district heating (46 TWh), in addition to biomass (14 TWh) and oil (11 TWh), accounting for 146 TWh (around 39%) of the total energy use in Sweden as of 2016.48 Electricity is the main source of energy in this sector, whereas heating and hot water account for about half of the energy used, including both residential and nonresidential housing. Additionally, a large portion of electricity goes toward household electricity (22.2 TWh) and business electricity (29.8 TWh).49 District heating is the main source of heating for dwellings and nonresidential buildings, accounting for over half of the heating market. The one main competitor to district heating is heat pumps, with a market share of around a quarter of the heat supply and growing.50 In broad terms, district heating is currently the most common heat source in dense urban areas, while individual heat pumps are most common in rural and suburban areas.51

44. Shmelev, S.E., Speck, S.U., 2018. “Green fiscal reform in Sweden: econometric assessment of the carbon and energy taxation scheme”. Renewable Sustainable Energy Rev. 90, 969 981. 45. Shmelev, S.E., Speck, S.U., 2018. “Green fiscal reform in Sweden: econometric assessment of the carbon and energy taxation scheme”. Renewable Sustainable Energy Rev. 90, 969 981. 46. Shmelev, S.E., Speck, S.U., 2018. “Green fiscal reform in Sweden: econometric assessment of the carbon and energy taxation scheme”. Renewable Sustainable Energy Rev. 90, 969 981. 47. Shmelev, S.E., Speck, S.U., 2018. “Green fiscal reform in Sweden: econometric assessment of the carbon and energy taxation scheme”. Renewable Sustainable Energy Rev. 90, 969 981. 48. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). 49. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). 50. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18). 51. Werner, S., 2017. “District heating and cooling in Sweden”. Energy 126, 419 429.

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District heating was initially, from the time of implementation in 1948 and onward, fueled by fossil fuels. However, over the last few decades the energy input has changed to include heat recycling and renewable fuels. The largest amount of energy input today comes from biomass (46%) which was a natural development, given the scale of Sweden’s forestry industry with large amount of biowaste available. The second largest input source is waste incineration (24%), in addition to a small amount from other sources, including fossil fuels such as oil and coal. For contributing to the increased use of both organic waste (biomass) and other waste for incineration purposes, two bills were introduced in 2002 and 2005, respectively, with the aim to ban dumping of organic waste and combustible waste.52 Moreover, in order to meet the national ambition of no fossil fuels in heating supply by 2020,53 district heating distributers will have to move away from these energy input sources completely. By using new technology to implement better detection systems, thereby accounting for errors in the system and individual thermostats at an earlier stage, it is estimated that district heating will no longer need fossil fuels to meet peak demands, as they currently do.54

18.2.3 Challenges One of the most controversial issues surrounding energy policies in Sweden is related to nuclear power. There has been some political and public pressure toward phasing out nuclear power, and various policies have been made going back and forth between phasing it out, and later suspending such measures. For example, a national referendum in 1980 resulted in the decommissioning of Barseback’s two nuclear units in 1999 and 2005, while other decommissions were suspended until 1997. Another example is the thermal capacity tax scheme that was introduced in 1984, later revamped in 2000, and later still, gradually abolished according to the Framework Agreement in 2016.55 Moreover, the Framework Agreement stipulates that the Government Bill of 200856 repealing the Nuclear Phase-Out Act57 is still in effect, and 52. Fo¨rordning 2001:512 om Deponering av Avfall yy 9 10 (Ordinance 2001:512 on Disposal of Waste, section 9 10) ,https://lagen.nu/2001:512#R4. (accessed 14.12.18). 53. Proposition 2008/09:162 och 163. “An Integrated Climate and Energy Policy” 2008/09:162 and 163 (Government Bill 2008/09:162 and 163). 54. Gadd, H., Werner, S., 2015. “Fault detection in district heating substations”. Appl. Energy 157, 51 59. 55. “Ma˚l for Energipolitikken” (Energy Policy Goals), 2018 (www.regeringen.se) ,https://www. regeringen.se/regeringens-politik/energi/mal-och-visioner-for-energi/. (accessed 06.12.18). 56. Proposition 2008/09:163, En sammanha˚llen klimat- och energipolitikk (Government Bill 2008/09:163 “A Cohesive Climate and Energy Policy”). 57. Svensk Fo¨rfatningssamling Lag 1997:1320 om Ka¨rnkraftens Avvecling (Nuclear Phase-Out Act 1997:1320).

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that no such act will be reintroduced.58 Unsurprisingly, nuclear power is a contentious area in Swedish politics, given that Sweden has been and still is quite heavily reliant on nuclear power for electricity production.59 Additionally, studies show that at this point in time, replacing nuclear power in Sweden is likely to increase GHG emissions and negatively impact electricity prices as energy import would have to increase.60 As it stands now, phaseout of nuclear power will not be enforced by the government.61 Moreover, it is permitted to build new reactors in Sweden at this time, albeit only on existing sites. However, as the Framework Agreement also stipulates, Sweden is supposed to meet a target of 100% renewable electricity production by 2040, and as such it seems unlikely that investors would find building new nuclear reactors attractive.62 In fact, due to policy decisions, low electricity prices, and the age of existing reactors, it is expected that more reactors will be shut down earlier than intended. As of now, there are eight active reactors in Sweden, four of which will be decommissioned by 2020,63 which shortens the timetable for implementing measures to ensure reliability and energy security in Sweden. Electricity is, as of now, one of the most important sources of energy in Sweden. Meeting the demand for electricity will be exceedingly challenging with the phaseout of nuclear power and increased use of renewables. While increased use of electricity as energy source is a positive in that it replaces fossil fuel, especially in the industry and transport sector, it is also adding pressure on Sweden’s grid and electricity system, to meet the heightened demand from fewer (different) input sources.64 The electricity grid in Sweden is one of the world’s oldest national grids, and many of the installations are in their operational end-cycle. Due to the inclusion of more 58. The Framework Agreement between the Swedish Social Democratic Party, the Moderate Party, the Swedish Green Party, the Centre Party and the Christian Democrats, “Agreement on Swedish Energy Policy”, 2016. (http://www.government.se) ,https://www.government.se/49d8c1/contentassets/8239ed8e9517442580aac9bcb00197cc/ek-ok-eng.pdf. (accessed 06.12.18). 59. Wang, Y., 2006. “Renewable electricity in Sweden: an analysis of policy and regulations.” Energy Policy 34(10), 1209 1220. 60. Hong, S., Qvist, S., Brook, B.W., 2018. “Economic and environmental costs of replacing nuclear fission with solar and wind energy in Sweden”. Energy Policy 112, 56 66. 61. “Ma˚l for Energipolitiken” (Energy Policy Goals), 2018. (http://www.regeringen.se) ,https:// www.regeringen.se/regeringens-politik/energi/mal-och-visioner-for-energi/. (accessed 06.12.18). 62. Herbert Smith Freehills, 2017. European Energy Handbook: A Survey of the Legal Framework and Current Issues in the European Energy Sector (Legal Guide, Tenth Edition) ,https://www.herbertsmithfreehills.com/latest-thinking/european-energy-handbook-2017. (accessed 22.12.18). 63. Statnett, Energinet, Svenska Krantna¨t, Fingrid, 2016. “Challenges and opportunities for the Nordic power system” (http://www.svk.se) ,https://www.svk.se/contentassets/ 9e28b79d9c4541bf82f21938bf8c7389/stet0043_nordisk_rapport_hele_mdato1.pdf. (accessed 07.01.19). 64. Statens Offentliga Utredningar SOU 2017:2 “Kraftsamling fo¨r Framtidens Energi” (Official Reports of the Swedish Government 2017:2 “Mobilising for the Future Energy”).

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intermittent energy, an upgrade is required to secure reliability across the grid in the coming future. Svenska Kraftna¨t is currently working on both assessing the grid and expanding new lines to meet these needs, as well as preparing for a common European electricity market.65 In addition to upgrading the physical grid, these changes will require increased flexibility in planned production, and the possibility for energy storage and demand response/flexibility in the user sectors, to ensure a reliable power system.66

18.2.4 Smart grid’s current status Overall, the current status of smart grids in Sweden is in research stages. A variety of R&D and pilot projects have been, and are currently running, in an attempt to establish the most cost-effective, durable, and efficient way to implement smart grid solutions in Sweden. In 2012 the government established the Swedish Coordination Council for Smart Grid (Samordningsra˚det Fo¨r Smarta Elna¨t),67 which was tasked with establishing a national platform (website) for knowledge sharing and with drafting an action plan for the expansion of smart grid solutions in Sweden. The action plan named “Planera fo¨r Effekt!” (planning for effect) was published as the council’s final report in 2014.68 In broad terms, the action plan is based on three main pillars: (1) political framework and market terms and conditions, (2) customer participation and societal aspects, and (3) R&D, innovation, and growth.69 After receiving the action plan, the government established the Swedish Smart Grid Forum as a permanent successor to the council.70 SweGRIDS is another R&D organization, established as a partnership between academia, industry, and public utilities, in large part funded by the Swedish Energy Agency. The organization is running many different research projects related to smart grid; development of the electric power grids, ways to manage more renewable energy input, and widespread energy trading. The research projects will run until 2021.71 65. “We are Developing the National Grid” (http://www.svk.se, 2016) ,https://www.svk.se/en/ grid-development/driving-forces/?id 5 838. (accessed 14.12.18). 66. Proposition 2017/18:228 “Energipolitikens Inriktning” (Government Bill 2017:18/228 “The Energy Policy Orientation”). 67. Kommite´direktiv 2012:48: Samordningsra˚d med Kunnskapsplatform for Smartare Elna¨t (Council Directive 2012:48 on a Coordination Council for Smart Grid). 68. The Councils final report: Statens Offentliga Utredningar SOU 2014:84 Planera fo¨r Effect! (Official Reports of the Swedish Government 2014:84 “Planning for Effect”). 69. Statens Offentliga Utredningar SOU 2014:84 “Planera fo¨r Effect!,” parts 4.2 4.3 (Official Reports of the Swedish Government 2014:84 “Planning for Effect,” parts 4.2 4.3). 70. “Bakgrund Samordningsra˚det fo¨r smarta elna¨t” (http://www.swedishsmartgrid.se) ,http:// swedishsmartgrid.se/om-oss/bakgrund-samordningsradet-for-smarta-elnat/. (accessed 23.12.18). 71. “Swedish centre for smart grids and energy storage”, 2018 (http://www.kth.se/swegrids) ,https://www.kth.se/swegrids. (accessed 12.12.18).

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Another pilot project was initiated in 2012 and lasted until June 2017. The project was run by a cooperation between the Swedish Energy Agency, the Swedish Smart Grid Forum, relevant industry actors, and private individuals. The aim of the project was to implement smart grid solutions at Gotland, a small island in Sweden, in order to test how different solutions would affect the electricity grid, the customer experience, and consumption. By installing smart meters, the grid operators are given near real-time updates on the grid status, and the costumers were able to shift their usage to take advantage of peak production hours (lower prices, with greater access to renewable energy) as opposed to peak load hours (higher prices, and possibly reserve energy sources).72 The project was also implemented to test the functionality of existing grids with higher amounts of wind power infusion, as well as to test and illustrate how new smart technology can improve the electricity quality in rural grids with high levels of distributed power production at a low cost (societal and economic).73 Another Swedish pilot project, aimed at building the world’s smartest electricity grid, is the Stockholm Royal Seaport (Norra Djurga˚rdsstaden). The project, similarly to the Gotland project, involves the Swedish Energy Agency, together with the Royal Institute of Technology, various industry actors, in cooperation with C40 (the Cities Climate Positive Development Program). The project started in 2009 and it is estimated that the construction of homes, workplaces, and infrastructure will be completed in 2030. One of the main objectives of the project is to drastically reduce GHG emissions and develop a climate positive urban district.74 The main difference between the two aforementioned large-scale R&D projects is that the Gotland project is testing smart grid solutions in a rural setting, while the Stockholm Royal Seaport is an urban project. These examples are just a selection of many such R&D projects conducted in Sweden. Evaluation of more specific smart grid solution in relation to Swedish regulations will be discussed below; however, the overarching assessment is that most smart grid solutions are in research or preliminary stages, and not yet fully in effect.

72. “About the project”, 2017. (http://www.smartgridgotland.se) ,http://www.smartgridgotland. se/eng/background.pab. (accessed 06.12.18). 73. “Sub Projects,” 2017 (http://www.smartgridgotland.se) ,http://www.smartgridgotland.se/ eng/subproj.pab. (accessed 06.12.18). 74. “Stockholm Royal Seaport” (http://www.va¨xer.stockholm.se) ,https://va¨xer.stockholm/omraden/norra-djurgardsstaden/in-english/. (accessed 08.02.18).

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18.3 Governance system The climate policy framework of Sweden, as of January 2018, consists of three pillars: the Climate Act75, the climate goals76 and a Climate Policy Council.77 The Climate Act (Klimatlagen),78 which came into force on January 1, 2018 is the overreaching legislation in Sweden related to the climate project. For instance, it requires the government to implement policies based on the climate goals mentioned below. Additionally, the Swedish government is obligated to present an annual climate report in together with presenting the state’s Budget Bill, and to draw up a climate policy action plan every fourth year. The aim of the Climate Act is to, by law, obligate each consecutive government to pursue a coherent climate policy, based on the goals set out in the Framework Agreement.79 The role of the Climate Policy Council is to independently assess whether or not each government’s policy framework is consistent with the climate goals. As mentioned above, Sweden has established a goal to have 100% renewable electricity production by 2040. This is, however, described as a goal and does not automatically prohibit nuclear electricity production after 2040. Additionally, Sweden is attempting to become 50% more energy efficient by 2030 compared to 2005, and to reduce GHG emissions by at least 70% by 2030 compared to 2010 in the domestic transport sector (excluding domestic aviation).80 Furthermore, Sweden is attempting to have net-zero GHG emissions by 2045 and thereafter achieve negative emissions.81 More specifically, Sweden is committed to reduce emission by 85% compared to 1990 with the short-term goals, that is, to have emissions at least 63% lower by 2030 compared to 1990 and 75% lower by 2040.82 This may be achieved by increasing the forests’ CO2 uptake, and by investing in various climate projects abroad, in addition to actual GHG reduction.83 Still, such measures may only account 75. Svensk Fo¨rfattningssamling Klimatlag 2017:720 (The Swedish Code of Statues 2017:720 Climate Act). 76. Proposition 2016/17:146 “Ett Kilmatpolitisk Ramverk fo¨r Sverige” (Government Bill 2016/ 17:146 Climate Policy Framework for Sweden). 77. Fo¨rordning 2017:1268 (Ordinance 2017:1668). 78. Svensk Fo¨rfattningssamling Klimatlag 2017:720 (The Swedish Code of Statues 2017:720 Climate Act). 79. Statens Offentliga Utredningar SOU 2016:21 and SOU 2016:47 (Official Reports of the Swedish Government 2016:21 and 2016:47). 80. Domestic aviation is not included in the European Union Emissions Trading System and is therefore excluded from the statistics of this goal as well. 81. Proposition 2016/17:146 ‘Ett Kilmatpolitisk Ramverk fo¨r Sverige’ (Government Bill 2016/ 17:146 Climate Policy Framework for Sweden). 82. “Energy in Sweden 2017” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-insweden -facts-and-figures-2018-available-now/. (accessed 05.12.18). 83. In the sectors covered by The EUs Effort Sharing Regulation (http://www.ec.europa.eu) ,https://ec.europa.eu/clima/policies/effort_en. (accessed 11.12.18).

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for a maximum of 8% of the 2030 and 2% of the 2040 emission targets, respectively.84 A climate policy framework of any country is susceptible to change after an election where a new government formation takes place. The existing government’s initiatives might be changed with a new government taking the reins, and climate-friendly policies might “suffer.” However, a positive aspect of the Swedish policy framework with the Climate Act, the Climate Council, and the overarching goal is that this fosters legally required coherence and consistency in policy initiatives across party lines, regardless of the specific party formation in government and parliament. However, the Climate Act does not contain any possibilities for placing sanctions on a government that is not fulfilling its duty toward the climate goals. As stated in the Swedish constitution, it is each government’s privilege to govern in the way it sees fit, albeit with some constraints relating to finance (Budget Bills) and foreign policy.85 As such, any government may amend or abolish the Climate Act, if majority in the parliament is achieved (albeit, this would be the case for any act passing through parliament).86 Additionally, the Climate Act is only setting out the overarching climate goals and does not specify in what way the government is supposed to proceed with its policy making. Consequently, only time will show whether the Act will in fact be pioneering and enhancing the Swedish government’s efforts in climatepreserving measures, or if it will simply stand as a political document with no real impact.87 The goals, set by the Swedish government, may in large parts go beyond the EU targets, although it should be noted that the EU targets are in some instances more specific and binding. Overall, Sweden is ranked by CAN Europe to have the best climate policy framework within the EU; however, they ranked only as high as second place, as no country was doing enough to be rewarded first place.88 This underlines that, even if Sweden has a good policy framework, there is still room for further improvements. 84. Proposition 2016/17:146 “Ett Kilmatpolitisk Ramverk fo¨r Sverige” (Government Bill 2016/ 17:146 “Climate Policy Framework for Sweden”). 85. Svensk Fo¨rfattningssamling (SFS) Lag 2011:109, kap 9 och SFS 2011:203. (The Swedish Code of Statues, Act 2011:109 chapter 9, and Act 2011:203). ˚, 86. Bonde, I., Kuylenstierna, J., Ba¨ckstrand, K., Eckerberg, K., Ka˚berger, T., Lo¨fgren, A Rummukainen, M., So¨rlin, S. “Det Klimatpolitiske Ramverket: rapport 2018” (Climate Policy Framework, report 2018) ,https://www.klimatpolitiskaradet.se/wp-content/uploads/2018/09/ detklimatpolitiskaramverketrapport2018inklengsammanf.pdf. (accessed 23.12.18). 87. “New Climate Act Pioneering or Meaningless?” by Advokanfirman Lindahl, 2017 (http:// www.lexology.com) ,https://www.lexology.com/library/detail.aspx?g 5 241ce380-87a8-44f2a099-4f1061a5cb44. (accessed 24.12.18). 88. Climate Action Network Europe, June 2018. “Off target: ranking of EU countries ambition and progress in fighting climate change” (http://www.caneurope.ord) ,http://www.caneurope. org/docman/climate-energy-targets/3357-off-target-ranking-of-eu-countries-ambition-and-progress-in-fighting-climate-change/file. (accessed 21.12.18).

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Institutions responsible for various energy policy areas, include, but are not limited to: The Ministry of Environment and Energy (MEE) (Miljo¨-och Energidepartementet) The Ministry of Environment and Energy (MEE) is in charge of the country’s overall energy and climate policy. The ministry is further divided into specialized policy areas, including a division for Energy Objectives, Environmental Objectives, Environmental Assessment, Chemicals, Natural Environment, Coordination and Support, Legal Services, International Services, Communication, and Climate.89 Under the MEE, there are a number of different agencies that are assigned various tasks related to energy, climate, and the environment. Some of these are as follows: The Energy Commission (Commission) The Commission was appointed in 2015 and comprises 11 representatives from the parliamentary parties, in addition to the Director General of the Swedish Energy Markets Inspectorate, Svanska Kraftna¨t, and the Swedish Energy Agency.90 It is tasked with setting the agenda, introducing policy proposals, and updating Sweden’s climate goals.91 The Commissions’ most notable achievement was creating the basis for the Framework Agreement.92 The Climate Policy Council (Klimatpolitiske ra˚det) The Climate Policy Council is, as mentioned, one of the pillars in Sweden’s new climate policy framework.93 The Council will work as an expert body and is tasked with both overseeing and advising the government and relevant institutions on their progress in relation to various climate and energy policies.94 The Council is an independent body, and its secretariat is currently hosted by the Swedish Research Council for Sustainable Development (Forskningsra˚det fo¨r miljo¨, areella na¨ringar och smaha¨llsbyggande, Formas).95 While there are many

89. The Ministry of Environment and Energy’s Organisation. “Miljo¨ og Energidepartementets Organisation” (http://www.regeringen.se) ,https://www.regeringen.se/sveriges-regering/miljooch-energidepartementet/organisation/. (accessed 24.12.18). 90. Herbert Smith Freehills, 2017. “European energy handbook: a survey of the legal framework and current issues in the European Energy Sector” (Legal Guide, Tenth Edition) ,https://www. herbertsmithfreehills.com/latest-thinking/european-energy-handbook-2017. (accessed 22.12.18). 91. “Energiindikatorer 2018” (“Energy Indicators”) (http://www.energimyndigheten.se) ,https:// energimyndigheten.a-w2m.se/Home.mvc?ResourceId 5 5738. (accessed 22.12.18). 92. The Framework Agreement between the Swedish Social Democratic Party, the Moderate Party, the Swedish Green Party, the Centre Party and the Christian Democrats, “Agreement on Swedish Energy Policy”, 2016. (http://www.government.se) ,https://www.government.se/49d8c1/contentassets/8239ed8e9517442580aac9bcb00197cc/ek-ok-eng.pdf. (accessed 06.12.18). 93. Fo¨rordning 2017:1268 (Ordinance 2017:1668). 94. “Va˚rt Uppdrag” (“Our Tasks”) (http://www.klimapolitiskaradet.se) ,https://www.klimatpolitiskaradet.se/uppdrag/. (accessed 23.12.18). 95. Blomberg, E., 2017. “What we do,” (http://www.formas.se) ,http://www.formas.se/en/ About-Sustainability-Formas-Research-Council/This-is-how-our-work-is-directed/. (accessed 22.12.18).

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other agencies tasked with researching and analyzing Sweden’s climate policy, the Climate Policy Council is still unique in that it has been given a broad mandate to evaluate the government’s policies independently, and to focus on the societal transition required for the country to meet these goals.96 The Swedish Energy Agency (Energimyndigheten) The Agency is subordinate to the Ministry of the Environment and Energy, and its budget and assignments are decided by the government and parliament. Some of the Agency’s main tasks are to develop and disseminate energy knowledge, to produce and finance research and official statistics related to consumption, price development, and the energy balance, as well as to create annual indicators on implementation of official energy policies.97 Much of the Agency’s work is also related to international cooperation in the fields of climate, environment, and energy,98 and it manages the Electricity Certificate System and the EU Emission Trading System.99 In order for Sweden to meet its target of becoming 50% more energy efficient by 2030, the government tasked SEA with producing sector-specific codes of conduct related to energy efficiency, in cooperation with industry actors.100 The Agency is also responsible for financing research on smart grids and renewable energy technologies. The Swedish Energy Markets Inspectorate (Energimarknadsinspektionen) The Energy Market Inspectorate is an independent regulator in charge of supervising the electricity, gas, and district heating markets.101 The Swedish Smart Grid Forum (Forum fo¨r Smarta Elna¨t) The successor to the Coordination Council for Smart Grids which was active between 2012 and 2014.102 It was established by the government in

˚, 96. Bonde, I., Kuylenstierna, J., Ba¨ckstrand, K., Eckerberg, K., Ka˚berger, T., Lo¨fgren, A Rummukainen, M., So¨rlin, S., “Det Klimatpolitiske Ramverket: rapport 2018” (Climate Policy Framework, report 2018) ,https://www.klimatpolitiskaradet.se/wp-content/uploads/2018/09/ detklimatpolitiskaramverketrapport2018inklengsammanf.pdf. (accessed 23.12.18). 97. “Statistik”(“Statistics”), 2018. (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/.. 98. “Cooperation” (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/en/ cooperation/. (accessed 23.12.18). 99. “Energy in Sweden” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-sweden -facts-and-figures-2018-available-now/. (accessed 05.12.18). ¨ verenskommelse om Sveriges Ma˚l fo¨r Energieffektivisering” (“Agreement on Swedens 100. “O Energy Efficiency Goals”), 2016. (http://www.regjeringen.se) ,https://www.regeringen.se/pressmeddelanden/2016/11/overenskommelse-om-sveriges-mal-for-energieffektivisering/. (accessed 24.12.18). 101. Om Ei (“About the Energy Market Inspectorate”) (http://www.ei.se) ,https://www.ei.se/en/ ei-s-verksamhet/. (accessed 23.12.18). 102. “Bakgrund Smaordningsra˚det fo¨r Smarta Elna¨t” (“Background Coordination Council for Smart Grids”) (http://www.swedishsmartgrid.se) ,http://swedishsmartgrid.se/om-oss/bakgrund-samordningsradet-for-smarta-elnat/. (accessed 23.12.18).

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2016, and is supporting the government in research, information dissemination and smart grid planning.103 The Swedish Environmental Protection Agency (Naturva˚rdsverket) The public agency tasked with all matters related to the environment, domestically, internationally, and within the EU. The Agency’s main task relates to information gathering and dissemination, developing environmental policies, and implementing environmental policies as they pass through government and parliament.104 Coordinated under the Swedish Environmental Protection Agency are eight other agencies responsible for one or more objectives related to environment and climate:105 1. The Swedish Agency for Marine and Water Management (Havs och Vatten Myndigheten) 2. Fossil Free Sweden (Fossilfritt Sverige) 3. The National Board of Housing, Building and Planning (Boverket) 4. The National Chemical Agency (Kemikalieinspektionen) 5. The Swedish Geotechnical Institute (Statens geotekniska institut) 6. The Swedish Forrest Agency (Skogsstyrelsen) 7. The Swedish Board of Agriculture (Jordbruksverket) 8. The Geological Survey of Sweden (Sveriges Geologiska Underso¨kning) The Environmental Objectives Council (Miljo¨ma˚lra˚det) The Council was established by the government in order to better coordinate many different agencies responsible for various environmental and climate objectives. The Council delivers annual reports, evaluating the government’s policy efforts, and provides measures for improvements.106 The Swedish Radiation Safety Authority (Stra˚la¨kerhetsmyndigheten) The Agency is overall responsible for nuclear safety, radiation protection, nuclear security, and nonproliferation.107

103. Statens Offentliga Utredningar SOU 2014:84 Planera fo¨r Effect! (Official Reports of the Swedish Government 2014:84 “Planning for Effect”). 104. “About the Swedish Environmental Protection Agency” (http://www.swedishepa.se) ,http://www.swedishepa.se/About-us/. (accessed 23.12.18). 105. “Environmental objectives” (http://www.miljomal.se) ,https://www.miljomal.se/ Environmental-Objectives-Portal/Undre-meny/About-the-Environmental-Objectives/. (accessed 23.12.18). 106. “Environmental objectives” (http://www.miljomal.se) ,https://www.miljomal.se/ Environmental-Objectives-Portal/Undre-meny/About-the-Environmental-Objectives/. (accessed 23.12.18). 107. Herbert Smith Freehills, 2017. “European energy handbook: a survey of the legal framework and current issues in the European Energy Sector” (Legal Guide, Tenth Edition) ,https:// www.herbertsmithfreehills.com/latest-thinking/european-energy-handbook-2017. (accessed 22.12.18).

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The Municipalities While the governing structure of Sweden is mainly unitary and most policy decisions are taken at state level by the government and/or the parliament, Sweden’s 290 municipalities are delegated power to handle certain responsibilities. As such, the municipalities function as policy implementers, enforcers, and stakeholders in different energy, climate, and environmental projects. The municipalities are focusing on reducing GHG emissions, for example, in the transport sector by expanding infrastructure for bicycles and the public transport system and by expanding use of renewable fuel in public transport.108 Furthermore, the municipalities are also focusing on reducing GHG emissions among their citizens by making housing (and public buildings) more energy efficient. One initiative includes making an energy adviser available in each municipality, to advise the public on how to improve energy efficiency.109 It has been recognized in Sweden that such measures are more effective at the local level, than conversely on the state level. Also, improving energy efficiency by empowering the public through information campaigns at the local level is increasingly important with Sweden’s move toward a decentralized energy system (including microenergy systems).110 Indeed, if Sweden is to reach the goal of becoming an emission-free state in a few decades, it is of great importance to reduce emissions from households, as households in fact make up 87 TWh of the total energy use (559 TWh).111 On the other hand, a problem with having semiautonomous regions and municipalities is that there will be disparities between regions with regards to effort and results.112

18.4 Electricity market Sweden’s sole TSO is Svenska Kraftna¨t, a public utility,113 and the Swedish Energy Market Inspectorate is the main supervisory and regulatory authority. ¨ ppna Ja¨mfo¨relser Miljo¨arbetet i Regioner och Landsting 2018” (“Environmental work 108. “O in Regions and County Councils”) (http://www.skl.se) ,https://webbutik.skl.se/bilder/artiklar/ pdf/7585-702-2.pdf?issuusl 5 ignore. (accessed 23.12.18). 109. “Key facts about Sweden”(http://www.sweeden.se) ,https://sweden.se/nature/swedentackles-climate-change/. (accessed 01.12.18). 110. Kjeang, A.E., Palm, J., Venkatesh, G., 2017. “Local energy advising in Sweden: historical development and lessons for future policy-making”. Sustainability 9 (12), 2275. 111. “Energy in Sweden Facts and Figures 2018” (annual collection of statistics by the Swedish Energy Agency) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/statistik/energilaget/. (accessed 07.12.18). ¨ ppna Ja¨mfo¨relser Miljo¨arbetet i Regioner och Landsting 2018” (“Environmental work 112. “O in Regions and County Councils”) (http://www.skl.se) ,https://webbutik.skl.se/bilder/artiklar/ pdf/7585-702-2.pdf?issuusl 5 ignore. (accessed 23.12.18). 113. Herbert Smith Freehills, 2017. European energy handbook: a survey of the legal framework and current issues in the European Energy Sector (Legal Guide, Tenth Edition) ,https://www. herbertsmithfreehills.com/latest-thinking/european-energy-handbook-2017. (accessed 22.12.18).

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The Swedish electricity market went through a structural reform in 1996, which opened the market to competition in trading and production of electricity, aiming for a more effective use of production resources.114 The electricity market consists of two main attributes: the transmission network and the financial trading of electricity. The electricity grid includes the national grid, operated by Svenska Kraftna¨t, and the regional and local grids which transport electricity from the producers, via the grid and to the endconsumer. The electricity is sold by the producers to competing electricity traders, either directly or through the power exchange. The traders/suppliers then sell the electricity to the end-consumer, and the end-consumer is charged with two service fees: one for the physical transmission and the other for the consumption of electricity.115

18.4.1 Electricity trade The Swedish electricity system is part of an integrated Nordic system and market. As part of liberalizing the electricity market, the Nordic countries formed a common Nordic electricity market, Nord Pool. Nord Pool was established by Sweden and Norway in 1996, and has since expanded both on the owner side and on the market side for which it operates in, including Sweden, Norway, Denmark, Finland, and later expanded to include the Baltic countries, Lithuania, Latvia, and Estonia. Exchanges on Nord Pool, and the overall sale of electricity, is one of the main sources of income for renewable energy projects, in addition to the green certificates described below. As of now, Nord Pool is the leading power market in Europe, with total volume of 512 TWh traded in 2017.116 As Nord Pool is a free market, the prices are determined by supply and demand and can therefore be highly volatile, a reflection of several factors. One such important factor in the case of Sweden is weather changes, which affect production (amount of wind and rain available to wind and hydro power plants), and demand (e.g., during colder winter days).117 While trading can transpire directly between seller and buyer, and internally within the electricity company, most of Sweden’s electricity trading occurs on the Nord Pool day ahead market (Elspot) or intraday market 114. Goding, L., Elfwe´n, A., Wigenborg, G., Edsborg, S., Friso¨, D., 2018. “The Swedish Electricity and National Gas Market 2017: Ei R2018:11” (http://www.ei.se) ,https://www.ei.se/ PageFiles/313846/Ei_R2018_11.pdf. (accessed 23.12.18). 115. “Electricitys two Routes”, 2016. (http://www.svk.se) ,https://www.svk.se/en/national-grid/ operations-and-market/electricitys-route/. (accessed 26.12.18). 116. “History”, 2018 (http://www.nordpoolgroup.com) ,https://www.nordpoolgroup.com/Aboutus/History/Z. (accessed 11.12.18). 117. Finjord, F., Hagspeil, V., Lavrutich, M., Tangen, M., 2018. “The impact of NorwegianSwedish Green Certificate Scheme on Investment Behaviour: a wind energy case study” Energy Policy 123, 373 389.

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(Elbas). 118 In fact, around 90% of the electricity produced in Sweden is traded through Nord Pool.119 There are about 120 different traders active in the Swedish electricity market in various scale, including large power utilities, municipally owned companies, and coowned companies, often consisting of municipalities that have merged in order to form a joint trading company120 as well as a number of smaller independent trading entities. Svenska Kraftna¨t is currently working toward the launching of an EU single market for trading electricity and working closely with its Nordic counterparts to create a Nordic single retail market, in order for consumers to be able to purchase electricity from any of the Nordic Suppliers.121 The electricity market within Sweden and in the larger Nordic system is changing, most notably, the inclusion of additional actors, both on the supply side and on the demand side. The increasingly decentralized nature of the new energy system will require clearer definition of roles and responsibilities, in addition to increased coordination measures among the many actors, in order to ensure an efficient energy market for the future.

18.4.2 Regulatory framework In the interest of stimulating increased electricity production from renewable energy sources, Sweden has introduced a number of different policy strategies. The most important policy for incentivizing investments is the certificate scheme, but there are other subsidy schemes in place, as well as various tax regulation mechanisms.

18.4.2.1 Tax regulation mechanisms In Sweden, owners of power plants (and in some instances land owners) are obligated to pay an annual real estate tax. This tax does not differentiate between fossil and renewable energy sources (0.5%), except for wind power plants which are subject to a lower tax (0.2%).122 Until 2017 hydroelectricity plants were subject to a higher tax rate compared to other electricity plants; however, this has now been changed in accordance with the Framework 118. “Energy in Sweden 2017”, 2018 (Annual report published by the Swedish Energy Agency) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18). 119. “Energy in Sweden 2017”, 2018. (Annual report published by the Swedish Energy Agency) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-swedenfacts-and-figures-2018-available-now/. (accessed 05.12.18). 120. “Electricity traders and balancing services” (http://www.swedishsmartgrid.se) ,http://www. swedishsmartgrid.se/in-english/the-swedish-electricity-market/electricity-traders-and-balancingservices/. (accessed 23.12.18). 121. “International cooperation,” 2016. (http://www.svk.se) ,https://www.svk.se/en/nationalgrid/operations-and-market/international-cooperation/. (accessed 26.12.18). 122. Svensk Fo¨rfattningssamling (SFS) Lag 1984:1052 om statlig fastighetsskatt y 6 (f). (The Swedish Code of Statues, Act 1984:1052 on State Property Tax y 6 (f)).

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Agreement. The State Property Tax Act now states that for hydro power plants, over a 4-year period beginning from 2017, the property taxes will be gradually reduced to the same level as for other electricity production plants,123 from 1% (2019) to finally 0.5%.124 Furthermore, there exists an obligation to pay taxes for the consumption of electricity, placed on commercial electricity producers.125 The Energy Tax Act differentiates between different sources of energy, in order to incentivize electricity use from renewable energy. No tax is levied on generators with a capacity lower than 50 kW, if the electricity has not been transferred to a licensed grid. If the electricity is produced from wind or wave energy, the threshold increases to 125 and 225 kW for solar energy.126 Some microproducers produce more electricity than they use, which they feed back into the grid. As these microproducers earn profits from their excess electricity, this profit is regulated as income, and thereby taxable. However, from 2015 Sweden has implemented a special tax reduction scheme for microproduction of renewable electricity. This means that if a microproducer takes out and feeds electricity through the same connection point, and the connection point has a maximum fuse of 100 amps,127 that entity or private individual is eligible to receive a tax reduction. The tax reduction is amount to 60 o¨re/KWh (  hct. 0.6), for the amount of electricity fed into the grid only if this amount does not exceed the amount withdrawn from that same access point, and for a maximum of 30,000 KWh.128

18.4.3 Green certificates Sweden has, together with Norway, a tradable certification subsidy scheme, for the purpose of incentivizing production and investments in renewable energy. Sweden introduced this system in 2003 and the platform was extended to include Norway in 2012. The joint goal is for the certification 123. The Framework Agreement between the Swedish Social Democratic Party, the Moderate Party, the Swedish Green Party, the Centre Party and the Christian Democrats, ‘Agreement on Swedish Energy Policy’ (2016) (http://www.government.se) ,https://www.government.se/ 49d8c1/contentassets/8239ed8e9517442580aac9bcb00197cc/ek-ok-eng.pdf. (accessed 6.12.18). 124. Svensk Fo¨rfattningssamling (SFS) Lag 1984:1052 om statlig fastighetsskatt y 6 (d). (The Swedish Code of Statues, Act 1984:1052 on State Property y6 (d)). 125. Svensk Fo¨rfattningssamling (SFS) Lag 2018:1887 amending 1994:1776 om skatt pa˚ energi, kap. 11 y 5 (The Swedish Code of Statues, Act 2018:1887 amending Act 1994:1776 on Energy Tax, chapter 11 y 5). 126. Svensk Fo¨rfattningssamling (SFS) Lag 2018:1887 amending 1994:1776 om skatt pa˚ energi, kap. 11 y 2, 7, 1 2. (The Swedish Code of Statues, Act 2018:1887 amending Act 1994:1776 on Energy Tax, chapter 11 y 2 par. 7 1 and 2). 127. Svensk Fo¨rfattningssamling (SFS) Inkomstskattelag 1999:1229, kap. 67 y 27 (The Swedish Code of Statues, Act 199:1229 on Income Tax, chapter 67 y 27). 128. Svensk Fo¨rfattningssamling (SFS) Inkomstskattelag 1999:1229, kap. 67 yy 30 31 (The Swedish Code of Statues, Act 199:1229 on Income Tax, chapter 67 yy 30 31).

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scheme to contribute to 28.4 TWh renewable electricity production in the two countries by 2020; however, some parts of the regulation related to the certificates differ in the two countries. Amongst other things, in April 2017 the Swedish government issued a bill extending the certification scheme until 2045 and increased the total quota with an additional 18 TWh until 2030,129 while Norway decided not to change targets.130 Having a joint certification scheme, rather than having two separates, increases the size of the market and is also believed to be more efficient and cost-effective, as investments are directed toward the best projects.131

18.4.3.1 How the system works The price of the certificates is determined by supply and demand. Electricity suppliers and even some large consumers132 are required to respect a quota of green electricity, meaning that each year, these entities are obligated to purchase certificates corresponding to a certain proportion of the electricity they sell or consume, with failing to do so resulting in fines.133 In Sweden this proportion amounted to 24.7% in 2017.134 As such, the quota curve decided by the Swedish and Norwegian governments, respectively, regulates the demand, whereas the supply amounts to the number of certificates issued for that year in addition to possible surplus of certificates from previous years.135 The cost of the quota obligation is assumed by the Swedish and Norwegian electricity consumers, by suppliers adding a surcharge to their 129. Svensk Fo¨rfattningssamling (SFS) Lag 2011:1200 om elcertifikat y 1 par. 1(c) (The Swedish Code of Statues, Act 2011:1200 on Electricity Certificates y 1 par. 1(c)). 130. ‘Government Presents Extension of Electricity Certification System and Increased Target’ by Advokatfirman Lindahl, 2017. (http://www.internationallawoffice.com) ,https://www.internationallawoffice.com/Newsletters/Energy-Natural-Resources/Sweden/Advokatfirman-Lindahl/ Government-presents-extension-of-electricity-certificate-system-and-increased-target. (accessed 25.12.18). 131. Finjord, F., Hagspeil, V., Lavrutich, M., Tangen, M., 2018. ‘The impact of NorwegianSwedish Green Certificate Scheme on Investment Behaviour: a wind energy case study’ 123 Energy Policy 373 389. 132. Consumers that consume self-produced electricity, if the electricity consumed amounts to more than 60 MWh/year and is produced from a plant with installed power higher than 50 KW. And consumers that use electricity they have imported or purchased on the Nord Pool spot exchange. 133. Svensk Fo¨rfattningssamling (SFS) Lag 2011:1200 om elcertifikat kap. 4 yy 1, 4 (The Swedish Code of Statues, Act 2011:1200 on Electricity Certificates chapter 4 yy 1 and 4). ˚ rsrapport 134. Asserup, C., Anne Vera Skrivarhaug ‘En svensk-norsk Elcertifikatsmarknad - A fo¨r 2017’ (‘A Swedish-Norwegian Electricity Certification Market - Annual Report 2017’) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/globalassets/fornybart/ elcertifikat/marknadsseminarium-2018/elcertifikat-arsrapport-2017-se_web.pdf. (accessed 03.01.19). 135. Finjord, F., Hagspeil, V., Lavrutich, M., Tangen, M., 2018. ‘The impact of NorwegianSwedish Green Certificate Scheme on Investment Behaviour: a wind energy case study’ 123 Energy Policy 373 389.

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services.136 Furthermore, the governments issue certificates for every MWh of produced renewable energy, for which the producer can subsequently trade on the certification exchange to increase its profit. In order for a producer to obtain certificates it must get approval from the Swedish Energy Agency (in Sweden). When the application is approved and the production has started, certificates can be issued for a maximum 15-year term. Also, certificates may only be allocated for electricity production from any one of these six sources: hydro power, biomass fuels (including peat for CHP plants in Sweden), wind power, solar power, wave power, or geothermal power.137 While the Norwegian regulation stipulates that for an electricity producer to be eligible to receive certificates, production was expected to start by December 31, 2021 (and may last until 2035),138 the Swedish regulation has no such deadline. In contrast, Swedish investors are only restricted by the end-date for the certificate scheme, which in the case of Sweden is the end of year 2045.139 A recent study suggests that the optimal strategy to increase investments is the Norwegian model, with a clear medium-term deadline (preferably year 2022), albeit if the goal is to boost long-term investments. If the goal is to boost short-term investment, the study suggests that an earlier deadline date will have a greater impact.140 As such, it could be beneficial for Sweden to amend the deadline to a nearer point in the future. Overall, the study shows that uncertainty is a major factor affecting investment in renewable energy, which for the certification scheme specifically regards uncertainty related to future electricity and certificate prices.141 As such, this suggests that for investors to take on large-scale production of renewable electricity, especially in newer areas (such as offshore wind or wave power) for which there are even greater uncertainties, the certificate scheme might not be enough of an incentive to attract larger investments. ˚ rsrapport 136. Asserup, C., Anne Vera Skrivarhaug “En svensk-norsk Elcertifikatsmarknad - A fo¨r 2017” (“A Swedish-Norwegian Electricity Certification Market - Annual Report 2017”) (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/globalassets/fornybart/ elcertifikat/marknadsseminarium-2018/elcertifikat-arsrapport-2017-se_web.pdf. (accessed 03.01.19). 137. Svensk Fo¨rfattningssamling (SFS) Lag 2011:1200 on elcertifikat and Fo¨rordning 2011:1480 om elcertifikat (The Swedish Code of Statues, Act 2011:1200on certificates and Ordinance 2011:1480 on certificates). 138. Norges Lover 2011 Lov om Elsertifikater y 8 par. 4 (Norwegian Code of Statues 2011 on electrical certificates y 8 par. 4). 139. Svensk Fo¨rfattningssamling (SFS) Lag 2011:1200 om elcertifikat kap. 2 y 11 (The Swedish Code of Statues, Act 2011:1200 on Electricity Certificates Chapter 2 y 11). 140. Finjord, F. Hagspeil, V., Lavrutich, M., Tangen, M., 2018. “The impact of NorwegianSwedish Green Certificate Scheme on Investment Behaviour: a wind energy case study”. Energy Policy 123, 373 389. 141. Finjord, F., Hagspeil, V., Lavrutich, M., Tangen, M., 2018. “The impact of NorwegianSwedish Green Certificate Scheme on Investment Behaviour: a wind energy case study”. Energy Policy 123, 373 389.

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The aforementioned finding is further supported by the fact that the certification scheme is technology neutral, meaning that all types of renewable energy technologies are funded equally under the current scheme. This, in turn, is favorable to the more mature technologies, for example, wind (onshore) and hydro power in Sweden, and less so toward newer technologies. Again, this might lead to competitive disparities and fewer investments in newer renewable energy technologies, therefore leading to a less favorable development of the energy sector as a whole long term.142 Studies show that some industry actors/investors are more diversified in their investment portfolios related to renewable energy than others. For example, in the Swedish market, biopower investors are generally better adapted to handle technical changes and more inclined to diversify into other (albeit related to some degree) industries. Investors in the wind power sector, on the other hand, tend to be the least inclined to diversify and invest in other renewables.143 This suggests that Sweden might need to look into policy tools that target subsectors more directly, in order to increase investments in the less mature technologies before market structures can beneficially regulate growth.144 On the other hand, there are also legitimate reasons to not excessively subsidize the renewable energy market. If the certification scheme or other subsidies are used in too large a scale, it might hamper market features, such as regulating demand and the amount of electricity produced. If too much electricity is produced and Sweden was to export large quantities, this would affect electricity prices and might lead to noncompetitive price structures. Moreover, the current certification scheme is not linked to the genuine market demand for produced electricity and does not adequately reward producers with installed availability for deficit periods. Clearer targets for the required amount of baseload power, besides the established hydro power reserve (see below), could be needed in the future, in addition to stimulating more inclusion of demand flexibility and storage solutions to further ensure delivery reliability.145

18.4.4 Distributed electricity production: solar In November 2018 the EU launched “The Clean Energy for All Europeans Package” consisting of eight different legislative texts, with 142. Darmani, A., 2015. “Renewable energy investors in Sweden: a cross-subsector analysis of dynamic capabilities”. Utilities Policy 37, 46 57. 143. Darmani, A., 2015. “Renewable energy investors in Sweden: a cross-subsector analysis of dynamic capabilities”. Utilities Policy 37, 46 57. 144. Darmani, A., 2015. “Renewable energy investors in Sweden: a cross-subsector analysis of dynamic capabilities”. Utilities Policy 37, 46 57. 145. Bondesson, T., Bra¨nnlund, R., 2017. “Electricity market of the future: a project report: IVA Electricity Crossroads Projects” (http://www.iea.org) ,https://www.iva.se/globalassets/infotrycksaker/vagval-el/vagvalel-framtidenselmarknad-english.pdf. (accessed 02.01.19).

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the rules being formally adopted in the first months of 2019. The package is aimed at reaffirming and enhancing the climate targets for the EU as a whole going forward.146 Amongst other things, the package emphasizes the importance of empowering the consumers, in order to successfully transition into a more efficient energy system. The Swedish government has also recognized the need for more activity among distributed energy producers.147 The market for photovoltaic (PV) panels is growing in Sweden. While the country is not ideally located in order to extract solar energy compared to countries in the south, there is still some potential for households in the southern part of Sweden (where most of the population live) to produce and sell solar energy (the potential is estimated at 10 40 TWh/year, similar to that of Northern Germany).148 Two surveys conducted between 2008 09 and 2014 16 show that the interest among Swedish households to engage in electricity production (become “prosumers”) is increasing.149 In the first wave of interviews conducted between 2008 and 2009, it is demonstrated that the most prominent motive for installing PVs, at least among those asked, was environmental concerns. However, in the next round of interviews conducted between 2014 and 2016, similar to the first round of interviews, all but three households mentioned environmental concerns. However, in contrast to the first round, all individuals asked in the second round mentioned financial motives for installing PVs.150 While the surveys were quite small in size (20 and 43 households, respectively), they do show the signs of “prosumer-centric” trend in Sweden, or at least an increased awareness of the potential for financial gain through “prosumer” initiatives. Different policies introduced by the Swedish government have impacted this development. From 2009 a subsidy grant scheme available for private individuals, companies, and municipalities has been in effect for the installation of PVs.151 Initially, the grant equaled 60% of the total installation cost and has since been gradually reduced and now amounts to maximum 30% of 146. “Clean energy for all Europeans”, 2018. (http://www.ec.europa.eu) ,https://ec.europa.eu/ energy/en/topics/energy-strategy-and-energy-union/clean-energy-all-europeans. (accessed 02.01.19). 147. Statens Offentliga Utredningar SOU 2018:15 “Mindre Akto¨rer i Energilandskapet Genomga˚ng av Nu¨laget” (Government Bill, SOU 2018:15 “Small Actors in the Energy Market Review of the current situation”). 148. Palm, J., 2018. “Household installation of solar panels motives and barriers in a 10-year perspective”. Energy Policy 113, 1 8. 149. Palm, J., 2018. “Household installation of solar panels motives and barriers in a 10-year perspective”. Energy Policy 113, 1 8. 150. Palm, J., 2018. “Household installation of solar panels motives and barriers in a 10-year perspective”. Energy Policy 113, 1 8. 151. Fo¨rordning 2009:689 om statlig sto¨d til solceller (Ordinance 2009:689 on Grants for the Installations of Photovoltaic Installations).

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the installation cost.152 The grant scheme only lasts until 2020, and as such, all eligible installations must be completed within the year 2020.153 Another option for Swedish households is the ROT-deduction tax scheme. Some households have chosen this rout instead, mostly due to it being more certain that they will receive this deduction, albeit less profitable than the grant scheme. 154 ROT-tax deduction refers to work related to either repairs, conversion, or extension of residential housing.155 It is not a tax deduction specifically aimed at PVs but can be allocated in relation to the labor cost of installing PVs, and various other efforts related to energy efficiency (e.g., heat pumps). Arguably, contradicting the government’s intent to incentivize prosumers,156 a new tax was implemented in 2016, obliging every large producer of electricity from PVs (over 255 kW) to pay taxes on the electricity they produce, even if that energy is being consumed by said producer.157 After a contentious debate within the government and in the public, the government proposed that the tax be reduced from the initially intended 29.5 SEK o¨re (  hct. 0.29) to only 0.5 SEK o¨re/kWh (  hct 0.05), which was approved by the parliament.158 While the tax may negatively affect incentives for developers to install PVs on chain stores and apartment buildings,159 the effect on small household producers is arguably insignificant, as they seldom exceed 255 kW produced. As such the incentives to install PVs on small households could still be quite effective.160 Moreover, from a socioeconomic viewpoint, there is in fact reason to reduce the

152. Ordinance 2009:689 om statlig sto¨d til solceller y 5 par. 1 (Ordinance 2009:689 on Grants for the Installations of Photovoltaic Installations y 5 par. 1, amended by Ordinance 2017:1300). 153. Ordinance 2009:689 om statlig sto¨d til solceller y 2 par. 3. (Ordinance 2009:689 on Grants for the Installations of Photovoltaic Installations y 2 par. 3). 154. Palm, J., 2018. “Household installation of solar panels motives and barriers in a 10-year perspective”. Energy Policy 113, 1 8. 155. “ROT and RUT Work” (http://www.skatteverket.se) ,https://www.skatteverket.se/servicelankar/otherlanguages/inenglish/businessesandemployers/declaringtaxesbusinesses/rotandrutwork.4.8dcbbe4142d38302d793f.html. (accessed 04.01.19). 156. Statens Offentliga Utredningar SOU 2018:15 “Mindre Akto¨rer i Energilandskapet Genomga˚ng av Nu¨laget” (Government Bill, SOU 2018:15 “Small actors in the energy market review of the current situation”). 157. Svensk Fo¨rfattningssamling (SFS) Lag 2018:1887 amending 1994:1776 om skatt pa˚ energi, kap. 11 y 2, 7, 1 (The Swedish Code of Statues, Act 2018:1887 amending Act 1994:1776 on Energy Tax, chapter 11 y 2 par. 7 1) 158. “Utvidat skattebefrielse fo¨r Egenproducerad Fo¨rnybar El” (Skatteutskottes Beta¨nkande 2016/17 SkU30) (Extending the tax exemptions for small scale production on renewable energy, The Tax Committee Report 2016/17 SkU30), 2017. (http://www.riksdagen.se) ,https://www. riksdagen.se/sv/dokument-lagar/arende/betankande/utvidgad-skattebefrielse-foregenproducerad_H401SkU30. (accessed 26.12.18). 159. As the tax is linked to the organisation number of the owner og the planels, not the panels themselves. 160. Nilsen, J., 2016. “Sverige Innfører Omstridt Skatt pa˚ Solcelleanlegg” (“Sweden Introduces Controversial Tax on Photovoltaic Installations”) (http://www.tu.no) ,https://www.tu.no/artikler/sverige-innforer-omstridt-skatt-pa-solcelleanlegg/349267. (accessed 26.12.18).

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tax exemptions related to microproduction of solar electricity, as too much support for this technology in turn might distort the market. This is substantiated by the fact that production of solar power is most effective during the summer, and peak demand usually occurs during winter months. Therefore it might be undesirable for the Swedish government to stimulate to excessive solar production, as it would neither be cost-effective nor increase delivery reliability in the long term161 (except, perhaps if storage capacity is developed). Despite deciding to levy taxes on solar electricity, the government presented a proposal to increase the grants for PV installations (in relation to the 2017 Autumn Budget Bill), attracting criticism from both the industry organization, Solar Energy Association of Sweden (Svensk Solenergi) and the National Institute of Economic Research (NIER) (Konjunkturinstitutet). Due to the current market trend of reduced prices, substantial growth and increased profitability, an increased grant would, according to NIER, be neither cost-effective nor technically neutral (as other subsidies in Sweden are, namely, the certification scheme).162 Therefore the Solar Energy Association of Sweden argues that there is no longer a need for subsidies; rather, the government should focus on simplifying the administration and regulations, making it easier and more efficient to produce and sell micro-generated electricity.163 Furthermore, in a report the Swedish Energy Agency state that they advised the government to phase out the grant from beginning of year 2018 and rather rely on tax reductions such as the ROT-tax scheme.164 Nonetheless, the government decided to increase the grant from the initially intended 10% 30%, to be allocated in different amounts depending on whether or not the applicant were eligible to receive, for example, tax deductions, to the current 30% for all applicants.165 While acknowledging that the new scheme simplifies the application 161. Bondesson, T., Bra¨nnlund, R., 2017. “Electricity market of the future: a project report: IVA Electricity Crossroads Projects” (http://www.iea) ,https://www.iva.se/globalassets/info-trycksaker/vagval-el/vagvalel-framtidenselmarknad-english.pdf. (accessed 02.01.19). ¨ kade Ekonomiska Sto¨det til Solceller” Interpellation 2017/18:8 162. Hultberg, J., 2017. “Det O (http://www.riksdagen.se) ,http://www.riksdagen.se/sv/dokument-lagar/dokument/interpellation/ det-okade-ekonomiska-stodet-till-solceller_H5108. (accessed 31.12.18). 163. Lo¨wenheim, W., Dalenba¨ck, J.O., Lindahl, J., 2017. “Debatt: Fasa ut Sto¨det til Solceller” (Debate article: phase-out the grant for solar panels) (http://www.svensksolenergi.se) ,https:// svensksolenergi.se/press/pressmeddelanden-debattartiklar/debatt-fasa-ut-stoedet-till-solceller. (accessed 31.12.18). 164. Energymyndigheten raport ER 2018:19 “Fo¨renklad Administrasjon av Solcellesto¨det” (The Swedish Energy Agency report ER 2018:19 “Simplify the Administration of the Photovoltaic Installations Grant Scheme”), 2018. (http://www.energimyndigheten.se) ,https://www.energimyndigheten.se/contentassets/e3f3b7a4796d43a895720fd1ecf6669f/er201819-forenklad-administration-av-solcellsstodet_slutversion.pdf. (accessed 31.12.2018). 165. Energymyndigheten raport ER 2018:19 “Fo¨renklad Administrasjon av Solcellesto¨det” (The Swedish Energy Agency report ER 2018:19 “Simplify the Administration of the Photovoltaic Installations Grant Scheme”) (http://www.energimyndigheten.se) ,https://www.energimyndigheten.se/contentassets/e3f3b7a4796d43a895720fd1ecf6669f/er201819-forenklad-administration-avsolcellsstodet_slutversion.pdf. (accessed 31.12.2018).

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and allocation process somewhat, and that implementing a total reduction at this point would be counterproductive, the Agency in accordance with the opinion of the Solar Energy Association of Sweden,166 suggests that the grant should be reduced to 15% in 2019 and abolished after 2020.167 It is somewhat curious that, while several of the closest official advisers to the government and the major players in the solar industry were negative to the amendments, the government still choses to implement it as proposed. Additionally, international research and lessons learned in other European countries with similar subsidy schemes for PVs, stating that making the solar energy market reliant upon governmental grants and the Budget Bills, rather than letting the market conform to normal market powers, may lead to market crash (so-called boom and busts)168 when the subsidy scheme is eventually concluded, were also disregarded.169 While the government did not adhere to the industry’s advice on abolishing the grant scheme, they did, however, task the Swedish Energy Agency with implementing an information portal to coordinate information on PVs and identify barriers, aiming to ease the process of becoming “prosumers” of solar energy.170

18.4.5 Distributed electricity production: other In addition to solar energy, microproduction of wind, hydro, and bio-CHP power for electricity (and heating) also exists in Sweden. However, the amount of energy generated by this microproduction is not particularly high, which could be interpreted as a sign that there is room for improvement. Hydro power production has the longest standing tradition in Sweden, and it is here the largest volume of microproduction occurs, amounting to about 4.3 TWh/year, which is about 0.5% 166. Lo¨wenheim, W., Dalenba¨ck, J.O., Lindahl, J., 2017. “Debatt: Fasa ut Sto¨det til Solceller” (Debate article: phase-out the grant for solar panels) (http://www.svensksolenergi.se) ,https:// svensksolenergi.se/press/pressmeddelanden-debattartiklar/debatt-fasa-ut-stoedet-till-solceller. (accessed 31.12.18). 167. Energymyndigheten raport ER 2018:19 “Fo¨renklad Administrasjon av Solcellesto¨det” (The Swedish Energy Agency report ER 2018:19 “Simplify the Administration of the Photovoltaic Installations Grant Scheme”), 2018. (http://www.energimyndigheten.se) ,https://www.energimyndigheten.se/contentassets/e3f3b7a4796d43a895720fd1ecf6669f/er201819-forenklad-administration-av-solcellsstodet_slutversion.pdf. (accessed 31.12.2018). 168. Pedraza, J.M., 2015. Electrical Energy Generation in Europe: The Current Situation and Perspectives in the Use of Renewable Energy Sources and Nuclear Power for Regional Electricity Generation (first edition, Springer) chapter 4. 169. Lo¨wenheim, W., Dalenba¨ck, J.O., Lindahl, J., 2017. “Debatt: Fasa ut Sto¨det til Solceller” (Debate article: phase-out the grant for solar panels) (http://www.svensksolenergi.se) ,https:// svensksolenergi.se/press/pressmeddelanden-debattartiklar/debatt-fasa-ut-stoedet-till-solceller. (accessed 31.12.18). 170. Regleringsbrev fo¨r Budgeta˚ret 2018 avseende Statens Energimyndighet, M2017/03110 (Appropriation letter to the Swedish Energy Agency for 2018).

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of the total hydro power generation.171 Hydro power production, including microproduction, is essential for a reliable energy supply in Sweden, due to hydro power being a more constant source of energy, compared to, for example, wind power. Furthermore, hydro power may provide inertia in local energy grids, and a more decentralized electricity production (including hydro) may help reduce the vulnerability in the Swedish energy supply in the long term.172 Besides expanding production sites, there are technical measures that can be deployed, which carry the potential to make even the microproduction of hydro plants more efficient. Making existing plants more efficient is important in order to produce larger amounts of electricity. Furthermore, this is important due to the fact that the necessity for (new) hydro power plants will always have to be balanced against other environmental concerns, such as the physical environment and the ecosystem in and around lakes and streams, and new plants may therefore not be granted construction permits.173 In accordance with the Framework Agreement, the Swedish government is currently attempting to make the regulation and the authorization process for hydro power plant more flexible and better adapted to microproduction by, amongst other things, the mentioned reduction in property tax.174 Wind power is one of the more mature renewable technologies, and the expansion in Sweden has been extensive over the last 10 years. However, wind power represents a great opportunity which is currently unexploited, onshore, and especially offshore.175 While there currently exist some offshore wind farms in Sweden and seven projects have been granted construction permits, the expansion processes have been slow and characterized by uncertainty. The main reason for Sweden having yet to exploit its offshore wind power potential is attributed to high costs of construction and the cost connecting to the grid. However, there are signs that the cost of establishing offshore wind farms is falling to competitive levels,176 and the Swedish government has proposed to remove the cost of connecting to the grid, reducing 171. Proposition 2017/18:243 “Vattenmiljo¨ och Vattenkraft” (Government Bill 2017/18:243) (http://www.riksdagen.se) ,https://data.riksdagen.se/fil/FC5D5C9C-440D-459B-A15E7610DEE5C910. (accessed 01.01.19). 172. Proposition 2017/18:243 “Vattenmiljo¨ och Vattenkraft” (Government Bill 2017/18:243 “Aquatic Environment and Hydro Power”). 173. Statens Offentliga Utredningar SOU 2018:15 “Mindre Akto¨rer i Energilandskapet Genomga˚ng av Nu¨laget” (Government Bill SOU 2018:15 Small Actors in the Energy Market Review of the current situation). 174. Proposition 2017/18:243 “Vattenmiljo¨ och Vattenkraft” (Government Bill 2017/18:243 Aquatic Environment and Hydro Power). 175. Finjord, F., Hagspeil, V., Lavrutich, M., Tangen, M., 2018. “The impact of NorwegianSwedish Green Certificate Scheme on Investment Behaviour: a wind energy case study”. Energy Policy 123, 373 389. 176. Statens Offentliga Utredningar SOU 2018:15 “Mindre Akto¨rer i Energilandskapet Genomga˚ng av Nu¨laget” (Government Bill 2018:15 “Small Actors in the Energy Market Review of the current situation”).

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the project cost of establishing new wind farms by about 10%.177 However, Sweden’s wind power industry is still requesting a comprehensive long-term plan from the government so as to facilitate investments. Moreover, they propose establishing pilot projects to strengthen knowledge and experience in the field, and a subsidy scheme directed at offshore wind production specifically, outside of the current certificate scheme.178 Decentralized microproduction from wind power might be more difficult to expand in Sweden, in part due to the size of the area necessary for production, a set of legalizations that is difficult to maneuver, and the noise restrictions in relation to neighbors. As the general trend in wind power production is moving toward larger turbines and thus, for larger farms, microproduction becomes a less suitable way to meet production demand. However, a possibility does exist for small actors to have joint ownership in larger wind farms. 179

18.4.6 Energy security dimension Ensuring available transmission capacity at all times is key to a wellfunctioning market, as well as Sweden’s energy security.180 Sweden is currently interconnected directly with six European countries, with alternating current connections to Finland, Norway, and Denmark and direct current connections to Germany, Poland, and Lithuania, in addition to being indirectly connected to the wider European continent and the other Baltic countries through these interconnections.181 Overall, Sweden has an estimated electricity interconnection capacity of 25.6% (2017), which is already well above the EU targets, 10% by 2020, and 15% by 2030.182 However, a recent 177. Energimyndighetens raport ER 2018:6 “Slopade Anslutningskostnader fo¨r Havbaserad Vindkraft” (Report by the Swedish Energy Agency, ER 2018:6, on the Ablosishment of Grid Connection Cost for Offshore Wind Power). 178. Remissvar pa˚ Energimyndighetens Rapport om Havbaserad Vindkraft, ER 2017:3 (M2017/ 00518/Ee) (Comment on the Svedish Energy Agency’s Report on Offshore Wind Power, ER 2017:3 (M2017/00518/Ee)). 179. Statens Offentliga Utredningar SOU 2018:15 “Mindre Akto¨rer i Energilandskapet Genomga˚ng av Nu¨laget” (Government Bill, SOU 2018:15 “Small Actors in the Energy Market Review of the current situation”). 180. “Meeting Sweden’s current and future challenges” by the Swedish Energy Market Inspectorate, 2016. (http://www.ei.se) ,https://www.ei.se/Documents/Nyheter/Nyheter%202016/ Meeting%20Swedens%20current%20and%20future%20challanges%20slutlig%202016-08-29. pdf. (accessed 08.01.19). 181. Swedish Interconnectors, COMP case No 39351, Monitoring Report No 13, (Report by Svenska Kraftna¨t, the Swedish TSO, to the EU Commission) (http://www.svk.se) ,https://www. svk.se/siteassets/om-oss/rapporter/2017/swedish-interconnectors-report-no.-13_rapport.pdf. (accessed 07.01.19). 182. Commission Staff Working Document: Energy union Factsheet Sweden (SWD 2017, 411 final) (http://www.ec.europa.eu) ,https://ec.europa.eu/commission/sites/beta-political/files/ energy-union-factsheet-sweden_en.pdf. (accessed 07.01.17).

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report by the Swedish Energy Market Inspectorate indicates that Sweden’s dependence upon cross-border electricity trade in the future will be even greater, resulting in more interconnections being required.183 Currently, there exist 11 interconnection lines between the Nordic countries and Europe, four additional lines are under construction, and four more lines currently in the development phase. Furthermore, many cross-border connections are operational between the Nordic countries, and one line between Finland and Sweden is currently in the development phase. However, it is expected that more cross-border corridors are needed, which is to be presented in the Nordic Grid Development Plan in 2019.184 Introducing more renewable energy to the grid, combined with the forecasted decommissioning of both thermal and nuclear power plants, causes challenges for the TSO. The main challenge concerns the ability to meet the demand for flexibility, especially considering the variation in temperature between seasons in Sweden, which is essential with regards to guaranteeing security of supply to the market while maintaining sufficient inertia in the system to ensure operational security. This will become increasingly challenging considering the move toward a smarter power system with the introduction of smart meters, microgrids and automated demand response, and with new participants, such as prosumers and aggregators.185 Due to the long-standing tradition of Nordic cooperation, the Nordic TSOs (including Sweden’s Svenska Kraftna¨t) are committed to meeting many of the challenges that emerge with the transition into a new power system.186 In a joint report by the Nordic TSOs, different challenges and possible solutions are discussed. While deciding not to officially establish a single Nordic TSO, the TSOs are taking measures to operate more as “one TSO.”187 The Nordic TSOs also cooperate specifically on electricity security under the Nordic Contingency Planning and Crisis Management Forum 183. “Meeting Sweden’s current and future challenges” by the Swedish Energy Market Inspectorate, 2016 (http://www.ei.se) ,https://www.ei.se/Documents/Nyheter/Nyheter%202016/ Meeting%20Swedens%20current%20and%20future%20challanges%20slutlig%202016-08-29. pdf. (accessed 08.01.19). 184. “Nordic Grid Development Plan 2017” report by Svenska Kraftna¨t, Fingrid, Enrginet.dk and Statnett (http://www.svk.se) ,http://www.svk.se/siteassets/om-oss/rapporter/2017/nordicgrid-development-plan-2017-eng.pdf. (accessed 08.01.19). 185. Statnett, Energinet, Svenska Krantna¨t, Fingrid, 2016. “Challenges and opportunities for the Nordic power system” (http://www.svk.se) ,https://www.svk.se/contentassets/9e28b79d9c4541 bf82f21938bf8c7389/stet0043_nordisk_rapport_hele_mdato1.pdf. (accessed 07.01.19). 186. Statnett, Energinet, Svenska Krantna¨t, Fingrid, 2016. “Challenges and opportunities for the Nordic power system” (http://www.svk.se) ,https://www.svk.se/contentassets/9e28b79d9c4541 bf82f21938bf8c7389/stet0043_nordisk_rapport_hele_mdato1.pdf. (accessed 07.01.19). 187. Statnett, Energinet, Svenska Krantna¨t, Fingrid, 2016. “Challenges and opportunities for the Nordic power system” (http://www.svk.se) ,https://www.svk.se/contentassets/ 9e28b79d9c4541bf82f21938bf8c7389/stet0043_nordisk_rapport_hele_mdato1.pdf. (accessed 11.12.18).

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(NordBER). On the other hand, while ENTSO-E states that the Nordic power system will be able to cover demand within these countries in 2025, their statement is based on current definitions which are not synonymous in the respective countries’ national regulations. Consequently, harmonizing definitions and regulation and ensuring better coordination of methodologies are needed among the Nordic TSOs, to be able to operate more as “one TSO” and manage the challenges ahead.188 Moreover, it is important to also consider the connection points. If grid connections are enabled in deficit areas, it might affect the price of electricity in Sweden. Additionally, if the grid infrastructure of the connecting country is strained, it might create bottlenecks and could affect both the Swedish, and the Nordic infrastructure at large. This is, for instance, the case regarding congestion between the Nordic region and Germany caused by internal bottlenecks in Germany.189 Moreover, Sweden’s energy-intensive industry, which is competing in global markets, is highly reliant upon imports in times of scarcity in Swedish supply in order to remain competitive. Therefore it is important for Sweden to consider whether certain connection points to the wider continent will be able to also export energy to Sweden, when needed.190 Sweden, per request by the EU Commission, divided the country up in four bidding zones, in effect from November 1, 2011.191 The purpose of this division is to avoid transmission constraints in one area of the grid unjustly affecting the prices for the entire grid. As such, prices between different zones may diverge, but the prices within one zone will be the same. Additionally, smaller bidding zones makes it more efficient to discover where in the grid readjustments are needed due to insufficient transmission capacity. Despite the relatively extensive interconnections between the Nordic countries, as of now, the bidding zones line up with the state borders. Arguably, a more ideal approach would be to have the zone borders align

188. Statnett, Energinet, Svenska Krantna¨t, Fingrid, 2016. “Challenges and opportunities for the Nordic power system” (http://www.svk.se) ,https://www.svk.se/contentassets/ 9e28b79d9c4541bf82f21938bf8c7389/stet0043_nordisk_rapport_hele_mdato1.pdf. (accessed 07.01.19). 189. Swedish Energy Market Inspectorate, 2016. “Meeting Sweden’s current and future challenges” (http://www.ei.se) ,https://www.ei.se/Documents/Nyheter/Nyheter%202016/Meeting% 20Swedens%20current%20and%20future%20challanges%20slutlig%202016-08-29.pdf. (accessed 08.01.19). 190. Nordling, A., 2017. “Asweden’s future electrical grid: a project report”, IVA Electricity Crossroads Project, report by the Royal Academy of Engineering Sciences (http://www.iva.se) ,https://www.iva.se/globalassets/info-trycksaker/vagval-el/vagvalel-swedens-future-electricalgrid.pdf. (accessed 10.01.19). 191. “Swedish Interconnectors COMP Case No 39351, Monitoring report No 13” by Svenska Kraftna¨t to the EU Commission 2017 ,https://www.svk.se/siteassets/om-oss/rapporter/2017/ swedish-interconnectors-report-no.-13_rapport.pdf. (accessed 08.01.19).

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with the points where the transmission system is constrained, to better utilize the Nordic grid as a whole.192 Due to the threat of power outages and scarce supply, Sweden has placed an obligation on the part of Svenska Kraftna¨t to ensure a strategic reserve, in addition to having a fixed target for reliability standards.193 According to the Electricity Act, all electricity suppliers are obligated to supply the amount of energy required by their consumer, and it is ultimately the responsibility of Svenska Kraftna¨t to oversee that this is maintained.194 Winters in Sweden, especially in the northern parts, can be quite cold, which makes planning ahead essential for reliability in the market. Svenska Kraftna¨t has therefore procured contracts (in effect between November 16 and March 15) with a selection of electricity producers with backup power plants, in order to secure sufficient delivery of electricity in the case of a demand spike.195

18.5 Smart metering systems The smart grid envisioned for the EU is reliant on accurate and real-time data from smart meter readings. Sweden, as one of the first EU countries, started the first phase of smart meter rollout in 2003, making monthly readings of electricity mandatory (hourly for large-scale consumers), and obligated the DSOs to install smart meters for all their customers by 2009. The law was effective, and practically all end-consumers now have smart meters in place, in compliance with the 80% by 2020 target.196 While it is assumed that all consumers now have installed smart meters, the numbers are not entirely clear, as there are over a hundred different DSOs in Sweden, all responsible for enabling smart meters for their respective costumers.197

192. Wittstein, M., Scott, J., Muhamad Razali, N.M., 2016. “Electricity security across borders: case studies on cross-border electricity security in Europe” (International Energy Agency Insight Series 2016) (http://www.ies.org) ,https://www.iea.org/publications/insights/insightpublications/ ElectricitySecurityAcrossBorders.pdf. (accessed 08.01.19). 193. Wittstein, M., Scott, J., Muhamad Razali, N.M., 2016. “Electricity security across borders: case studies on cross-border electricity security in Europe” (International Energy Agency Insight Series 2016) (http://www.ies.org) ,https://www.iea.org/publications/insights/insightpublications/ ElectricitySecurityAcrossBorders.pdf. (accessed 08.01.19). 194. “Operations and market”, 2017 (http://www.svk.se) ,https://www.svk.se/en/national-grid/ operations-and-market/. (accessed 14.12.18). 195. “Power reserve”, 2018. (http://www.svk.se) ,https://www.svk.se/en/national-grid/operations-and-market/power-reserve/. (accessed 26.12.18). 196. Directive 2009/72/EC of The European Parliament and of the Council, Concerning Common Rules for the Internal Market in Electricity and repealing Directive 2003/54/EC, Annex 1 on measures on consumer protection, Section 2 (4). 197. Shivakumar, A., Pye, S., Anjo, J., Miller, M., Rouelle, P.B., Densing, M., Kober, T., 2018. “Smart energy solutions in the EU: state of play and measuring progress”. Energy Strategy Rev. 20, 133 149.

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After 2012 hourly metering was made available for all Swedish consumers;198 however, it is currently the choice of the consumer to implement this through contracts with their DSO, albeit at no extra cost for the consumer. Moreover, while the rollout and deployments of smart meters have been successful, data management systems are currently unable to handle the surge in communication information. In 2010 a year after the completed rollout, the data management systems only had the capacity to process approximately 30% of the hourly data received.199 As such, upgrades are still needed for the technology of smart meters in Sweden to be effective overall. However, this data management problem might be solved with the implementation of the “Data hub,” explained in more details below.200 Furthermore, the smart meters deployed up until 2009 are now approaching the end of their technical life span and will need to be replaced by 2020.201 Some of the Swedish DSOs have started the process of rolling out the nextgeneration smart meters, but the process has been slow due to regulatory difficulties. New functionality requirements for smart meters were implemented by the government in June 2018 and must be in place for all consumers by January 1, 2025.202 The aim is to further empower the consumer by requiring the new smart meters to be able to send and retrieve more information at a higher frequency.

18.6 Demand response Demand response is considered to be an important tool to handle peak load situations, enable renewable integration, improve market competition and consumer empowerment, and is therefore an important part of the EUs Clean Energy Package.203 In order to fully utilize the positive effects from demand response, each Member State must ensure to enable both explicit and implicit demand response mechanisms. Explicit demand response refers to the aggregated demand-side recourses which are traded in the wholesale, balancing, 198. Svensk Fo¨rfattningssamling (SFS) Ellag 1997:857 (The Swedish Code of Statues, Electricity Act 1997:857). 199. “Recommendations on Common Nordic Metering Methods” Report 2/2014 by the Nordic Energy Regulators (NordREG) (http://www.nordicenergyregulators.org) ,http://www.nordicenergyregulators.org/wp-content/uploads/2013/02/Common-Nordic-Metering-Methods.pdf. (accessed 08.01.19). 200. “Data Hub” (http://www.svk.se) ,https://www.svk.se/en/stakeholder-portal/Electricity-market/data-hub/. (accessed 08.01.19). 201. “Summary of the Report from Ei bout Smart Meters” (Ei R2017:08)( http://www.ei.se) ,https://www.ei.se/PageFiles/311116/Summary_of_the_report_smart_meters_Ei_R2017_08. pdf. (accessed 08.01.19). 202. Fo¨rordning 1999:716 om ma¨ting, bera¨kning och rapportering ac o¨verfo¨rd el, a¨ndrat av 2018:1426 yy 25 28, 30 och 31 (Ordinance 1999:716 on measurement, calculation and reporting of transferred electricity, amended by Ordinance 2018:1426 yy 25 28, 30 and 31). 203. Directive 2009/72/EC of The European Parliament and of the Council, Concerning Common Rules for the Internal Market in Electricity and repealing Directive 2003/54/EC.

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and capacity mechanism markets. Consumers can choose to either profit from their generation flexibility individually, or by contracting with an aggregator (third-party aggregator, retailer, and DSO). With implicit demand response, the individual consumer has the opportunity to change consumption patterns in reaction to dynamic market or network pricing signals.204

18.6.1 Explicit demand response While both demand response participation and aggregation of demand-side resources are legally possible in ancillary services, the wholesale market (Nord Pool, Elspot and Elbas), the strategic reserve, and, to some extent, in the distribution network services, there are still issues related to accessing the different markets and the accompanying product requirements. (As Sweden has no capacity mechanisms, this area is not an option).205 A report conducted by the SEDC concludes that there is a need for clearer definitions of the roles and responsibilities of the different actors in the Swedish regulations, in order to ensure that consumers can choose their demand response service provider. Furthermore, while the primary and tertiary reserves are legally open to the demand side, participation is still quite limited due to regulatory barriers. Most notably, for an independent thirdparty aggregator to be able to operate, there should be a balance responsible party (BRP) in addition to having a contractual agreement with the consumer’s retailer/BRP. This contractual relationship between competitors in the market may impede the demand response potential.206 Moreover, the minimum bid size requirements to participate in the Nood Pool Elspot and Elbas markets are relatively low (around 0.1 MW), which should allow demand-side participation. Conversely, the minimum bid size requirement for the balancing market is considerably higher (e.g., around 10 MW in the Nordic Regulating Power Market) and may hamper participation from the demand side.207 Furthermore, the current settlement period of 204. Explicit demand response in Europe: mapping the markets 2017, report by Smart Energy Demand Coalition (CEDC) (http://www.smarten.eu) ,https://www.smarten.eu/wp-content/ uploads/2017/04/SEDC-Explicit-Demand-Response-in-Europe-Mapping-the-Markets-2017.pdf. (accessed 09.01.19). 205. Explicit demand response in Europe: mapping the markets 2017, report by Smart Energy Demand Coalition (CEDC) (http://www.smarten.eu) ,https://www.smarten.eu/wp-content/ uploads/2017/04/SEDC-Explicit-Demand-Response-in-Europe-Mapping-the-Markets-2017.pdf. (accessed 09.01.19). 206. Explicit demand response in Europe: mapping the markets 2017, report by Smart Energy Demand Coalition (CEDC) (http://www.smarten.eu) ,https://www.smarten.eu/wp-content/ uploads/2017/04/SEDC-Explicit-Demand-Response-in-Europe-Mapping-the-Markets-2017.pdf. (accessed 09.01.19). 207. NordREG, 2016. “Status report on regulatory aspects of demand side flexibility,” (http://www. nordicenergyregulators.org) ,http://www.nordicenergyregulators.org/wp-content/uploads/2016/12/ NordREG-Status-report-on-regulatory-aspects-of-demand-side-flexibility.pdf. (accessed 09.01.19).

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60 min is insufficient, and a move to 15 min intervals, which is currently being discussed within Nord Pool, might help reduce this market barrier, allowing participants to react to scarcity in real time.208

18.6.2 Implicit demand response The largest potential impact from demand response is estimated to be within the Swedish residential and housing sector. As such, it is important to utilize the benefits of engaging and empowering the end-consumer.209 The technical functionality of most of the smart meters installed in Sweden does not support hourly or 15-min metering frequency. The ongoing rollout of newer smart meters will be key in facilitating implicit demand response, in addition to developing communication and collection systems that are able to handle the data load. However, there are additional barriers that might hamper the utilization of demand response. For instance, in the Nordic region, a majority of the DSOs offer volumetric tariffs with no time differentiation. While this approach may incentivize overall energy efficiency, it does not incentivize demand response.210 In Sweden, it is entirely up to the DSO to design the tariffs, with the only restraint being that they have to be objective, nondiscriminatory, and compatible with efficient energy usage.211 A regulatory amendment might be necessary in order to specify that DSOs should use tariffs in a way that fosters more demand response, not only general energy efficiency.212 In fact, in the aforementioned Stockholm Royal Seaport pilot project, one of the aims was to test the response of the participating households in relation to a Time-of-Use-based electricity price tariff. A subsequent study of the data gathered from the project suggests, similar to other studies, that 208. “Flexible demand for electricity and power: barriers and opportunities,” study by TemaNord (2017:567) for the Nordic Council of Ministers (http://www.norden.diva-portal. org) ,http://norden.diva-portal.org/smash/get/diva2:1167837/FULLTEXT01.pdf. (accessed 09.01.19). 209. “Flexible demand for electricity and power: barriers and opportunities,” study by TemaNord (2017:567) for the Nordic Council of Ministers (http://www.norden.diva-portal.org) ,http://norden.diva-portal.org/smash/get/diva2:1167837/FULLTEXT01.pdf. (accessed 09.01.19). 210. NordREG, 2016. “Status report on regulatory aspects of demand side flexibility” (http:// www.nordic energyregulators.org) ,http://www.nordicenergyregulators.org/wp-content/uploads/ 2016/12/NordREG-Status-report-on-regulatory-aspects-of-demand-side-flexibility.pdf. (accessed 08.01.19). 211. Svensk Fo¨rfattningssamling (SFS) Ellag 1997:857 (The Swedish Code of Statues, Electricity Act 1997:857). 212. “Flexible demand for electricity and power: barriers and opportunities,” study by TemaNord (2017:567) for the Nordic Council of Ministers (http://www.norden.diva-portal. org) ,http://norden.diva-portal.org/smash/get/diva2:1167837/FULLTEXT01.pdf. (accessed 09.01.19).

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demand response together with dynamic pricing tariffs has the potential to significantly reduce household consumption, albeit in various degree depending on the type of household and other variables.213 Certain Swedish DSOs already offer tariffs that stimulate demand response; however, there are great disparities between the many different DSOs.214 While there is uncertainty regarding when tariffs that are better suited to stimulate demand response will be introduced throughout Sweden, the introduction is likely considering Swedenergy (Energifo¨retagens Sverige, an industry organization), as well as the Nordic regulators (NordREG) have engaged in discussions on amending and harmonizing the tariff designs.215 Overall, the Swedish consumer is not particularly engaged in demand response. In addition to the reasons previously stated, an important factor is the type of contract and the accompanying electricity prices. A prerequisite for demand response to function optimally is dynamic pricing mechanisms. Nonetheless, while Swedish DOSs to some extent offer various electricity contracts, the most common contract type at the present time usually comes with either a fixed monthly price, or with variable prices adjusted for seasonal factors.216 Thus there exists no real incentive for the Swedish consumer to adjust consumption patterns.217 In short, the most important changes to be made in Sweden, together with the other Nordics, is to change and harmonize the tariff designs to enable dynamic price signals to the endconsumer, and thereby to incentivize behavioral change. On the other hand, even if incentives for the end-consumer to change its consumption patterns are enabled through dynamic price signals, there might still be quite a few consumers that are not incentivized enough by the fact that they might save money. Aggregated demand response resources could fil this gap in the market, where the consumer does not bother adjusting consumption (or in cases where the customer is not the end-consumer). Therefore it is important for Sweden to enable, through regulation and other 213. Nilsson, A., Lazarevic, D., Brandt, N., Kordas, O., 2018. “Household responsiveness to residential demand response strategies: results and policy implications from a Swedish Field Study”. Energy Policy, 122, 273 286. 214. NordREG, 2016. “Status report on regulatory aspects of demand side flexibility”. (http:// www.nordic energyregulators.org) ,http://www.nordicenergyregulators.org/wp-content/uploads/ 2016/12/NordREG-Status-report-on-regulatory-aspects-of-demand-side-flexibility.pdf. (accessed 08.01.19). 215. “Flexible demand for electricity and power: barriers and opportunities,” study by TemaNord (2017:567) for the Nordic Council of Ministers (http://www.norden.diva-portal.org) (accessed ,http://norden.diva-portal.org/smash/get/diva2:1167837/FULLTEXT01.pdf. 09.01.19). 216. Kjeang, A.E., Palm, J., Venkatesh, G., 2017. “Local energy advising in Sweden: historical development and lessons for future policy-making.” Sustainability 9(12), 2275. 217. Shivakumar, A., Pye, S., Anjo, J., Miller, M., Rouelle, P.B., Densing, M., Kober, T., 2018. “Smart energy solutions in the EU: state of play and measuring progress”. Energy Strategy Rev. 20, 133 149.

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measures, further use of aggregation services, which can gather demand flexibility from a multiple set of consumers, thereby alleviating both the costs and nuisance related to the administration requirements. Aggregation services can be provided by different market actors, such as the DSOs, electricity retailers, or other actors; hence, the importance of regulating them on equal terms is currently not the case under Swedish law.218

18.7 Data protection While the expansion of new technology and digitalization of the energy system is a positive and necessary development, it also poses new risks and challenges, especially in terms of cyber security of the network and data protection with regards to personal information.219 Like the other EU countries, the smart grid solutions of Sweden, including smart metering systems, will have to be compliant with the data protection and privacy regulations at the EU level, most notably the recently adopted General Data Protection Regulation (GDPR) (Dataskyddsfo¨rordning in Swedish).220 At least to the extent that the information gathered and processed is categorized as “personal information.”221 One of the intended functions of smart meters is to gather data about the household’s consumption patterns, which is subsequently analyzed by different entities to, amongst other things, create a customer profile containing historic and current user data. With access (authorized, or unauthorized) to metadata from smart meters, or the customer profile, it would be possible to deduce, for example, when people of the household are usually home. These datasets are therefore highly likely to be considered personal data pursuant to GDPR. This could, in turn, lead to consent from the data subject being required in order for the processing to be lawful. This means that the DSO and other entities processing smart metering data will, most likely, fall under the scope of the regulation. According to the regulation, different actors involved in data processing are given different level of responsibilities, namely, “controller,” 218. “Flexible demand for electricity and power: barriers and opportunities,” study by TemaNord (2017:567) for the Nordic Council of Ministers (http://www.norden.diva-portal. org) ,http://norden.diva-portal.org/smash/get/diva2:1167837/FULLTEXT01.pdf. (accessed 09.07.19). 219. Andersson M., Westerdahl, L. “The Swedish Electricity Supply System: how to deal with increasing vulnerability” report by the Swedish Defence Research Agency (FOI) (http://www.foi.se) ,https://www.foi.se/rest-api/report/FOI%20Memo%206204. (accessed 08.01.19). 220. Svensk Fo¨rfattningssamling (SFS) Lag 2018:218 Dataskyddsfo¨rordning (The Swedish Code of Statues, Data Protection Act 2018:218). 221. Regulation 2016/679 of The European Parliament and of The Council on the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of such Data, and Repealing Directive 95/46/EC (General Data Protection Regulation, GDPR) Article 4 section (1).

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“processor,” or authorized “third parties.”222 The DSOs are the owners and operators of smart meters in Sweden and would likely be categorized as the controller pursuant to the regulation. However, due to the number and complexity of relationships related to the processing of metering data (especially when the system becomes increasingly decentralized), assigning the right definition to each and every actor involved could prove challenging.223 Being aware of this, and other related concerns, the EU Commission has proposed amendments to the existing Directive on the Internal Market in Electricity,224 in an effort to regulate data protection for smart meters in more detail.225 The legislative procedure for the proposed recast is ongoing, and the specifics are therefore not completely clear. However, the provisions of the GDPR will, in most circumstances, be applicable, but perhaps a clarification as to the electricity sector, smart metering, and the participating actors can be achieved through the recast. The EU Member States have chosen slightly different ways of handling dissemination of information, and the security and data protection aspects of smart metering systems. In Sweden, the Energy Market Inspectorate was tasked with investigating and recommending a general framework for information management suited for the future electricity market.226 Consequently, the Data Hub (Elmarknadshubben) was established by Svenska Kraftna¨t in consultation with the Energy Market Inspectorate, by government mandate in 2015.227 The Data Hub is tasked with, amongst other things, being an access and exchange point for information from the increasingly “smart” electricity system,228 and to take into account the privacy and data protection risks

222. Regulation 2016/679 of The European Parliament and of The Council on the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of such Data, and Repealing Directive 95/46/EC (General Data Protection Regulation, GDPR), Article 4, section (7), (8) and (10). 223. Fratini, A., Pizza, G., “Data protection and smart meters: the GDPR and the “Winter Package” of EU Clean Energy Law”, 2018 (http://www.euanalysis.com) ,http://eulawanalysis. blogspot.com/2018/03/data-protection-and-smart-meters-gdpr.html. (accessed 11.01.19). 224. Directive 2009/72/EC of The European Parliament and of The Council Concerning Common Rules for the Internal Market in Electricity and Repealing Directive 2003/54/EC. 225. Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) COM (2016) 864, Procedure 2016/0380/COD. 226. “An information management model for the future Swedish Electricity Market,” report by the Swedish Energy Market Inspectorate, No Ei R2015:15 (http://www.ei.se) ,https://www.ei. se/PageFiles/140613/ Ei_R2015_15_An_information_managment_model_for_the_future_Swedish_electricity_market. pdf. (accessed 11.01.19). 227. Regeringsbeslut 11:4, M2015/2635/Ee, Uppdrag att utveckla och driva en central informationshanteringsmodell (Government Mandate 11:4, M2015/2635/Ee, Mandate to Develop and Operate a Central Information Hub). 228. “Data Hub” (http://www.svk.se) ,https://www.svk.se/en/stakeholder-portal/Electricity-market/data-hub/. (accessed 08.01.19).

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accompanied with this dissemination of information.229 Additionally, the Data Hub will most likely reduce data handling costs for the DSOs and others and help address the previously mentioned problem of low data managing capacity.230 As of 2019, the Data Hub was not yet up and running, but was expected to be operational by 2020 2021.231

18.7.1 Information security In addition to the data protection rules aimed at regulating the lawful use of personal data, there is also a growing concern related to data theft or fraud from cyberattacks on smart meters and related technology.232 As of 2016 information security in the energy sector (and other essential services) at the EU level is regulated by the NIS-directive,233 which was formally implemented as law in Sweden in 2018 (Lag om Informasjonssa¨kerhet fo¨r Samha¨llsviktiga och Digitala Tja¨nster).234 However, even though the Act is concerned with the energy sector, it does not mention any specific requirements targeting smart grids and smart meters. Moreover, micro and small enterprises offering digital services are exempt from the Acts’ provisions, arguably so as to not disproportionally burden smaller enterprises. However, the same micro and small enterprises are envisioned to be an important part of the future smart grid of Sweden and the EU. As such, this may cause a significant deficit in the information security of the entire system.

229. “An information management model for the future Swedish Electricity Market,” report by the Swedish Energy Market Inspectorate, No Ei R2015:15 (http://www.ei.se) ,https://www.ei. se/PageFiles/140613/ Ei_R2015_15_An_information_managment_model_for_the_future_Swedish_electricity_market. pdf. (accessed 11.01.19). 230. Shivakumar, A., Pye, S., Anjo, J., Miller, M., Boutinard Rouelle, P., Densing, M., Kober, T., 2018. “Smart energy solutions in the EU: state of play and measuring progress”. Enery Strategy Rev. 20, 133 149. 231. “Data Hub” (http://www.svk.se) ,https://www.svk.se/en/stakeholder-portal/Electricity-market/data-hub/. (accessed 10.01.19). 232. Andersson, M., Westerdahl, L. “The Swedish Electricity Supply System: How to Deal with Increasing Vulnerability” report by the Swedish Defence Research Agency (FOI) (http://www.foi.se) ,https://www.google.com/url?sa 5 t&rct 5 j&q 5 &esrc 5 s&source 5 web&cd 5 9&ved 5 2ahUKEwjbxbW0oN7fAhUQiKYKHV54CVAQFjAIegQIAxAC&url 5 https%3A%2F%2F.A% 255CReportSearch%255CFiles%255C33991c43-3b33-4129-be8b-26977bfffb86.pdf&usg 5 AOvVaw1Lbk6I1FjvzAh17Q2CuT-1. (accessed 08.01.19). 233. Directive 2016/1148 of the European Parliament and of The Council Concerning Measures for a High Common Level of Security of Network and Information System Across The Union. 234. Svensk Fo¨rfattningssamling (SFS) Lag 2018:1174 om informasjonssa¨kerhet fo¨r samha¨llsviktiga och digitala tja¨nster (The Swedish Code of Statues, Act 2018:1174 on Information security in Essential and Digital Services, implementing the NIS-Directive).

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Moreover, with the forecasted rollout of the next-generation smart meters, it became apparent that a standard for required functionalities in the new meters were needed. Accordingly, the Energy Market Inspectorate was tasked with developing this standard. A proposal to add functionality requirements to the existing Ordinance on Electricity Metering235 was published in 2017.236 The proposal did, however, attract criticism from industry actors, most notably from Svenska Kraftna¨t. Specifically, in relation to protecting personal data from, for example, unauthorized access, the industry deemed that the proposal did not adequately consider or protect the privacy and security of the customer’s personal information.237 Svenska Kraftna¨t suggested that in order to correctly authenticate that the right individual is given access to the right information, the authentication process should go through the Data Hub by means of electronic ID (such as bank ID) or a single-use code.238 However, the government chose not to follow Svenska Kraftna¨t’s suggestion in the new ordinance. Perhaps, it is possible that such (or similar) measures will be implemented once the Data Hub is operational, but pursuant to current regulation, an authentication process through an open customer interface is deemed sufficient.239 There is cause for concern, with regards to the implementation of smart meters increasing the systems vulnerability in the sense that the attack surface expands (the possible points of attack multiplies); hence, it is important that adequate security measures are in place at each “entry point.” Furthermore, it requires a greater level of coordination in terms of security measures deployed, and for the continued monitoring and controlling of all

¨ verfo¨rd el (Ordinance 235. Fo¨rordning 1999:716 om Ma¨ting, Bera¨ktning och Rapportering av O 1999:716 on Measurement, Calculation and Reporting of Transmitted Electricity). 236. “Funktionskrav pa˚ Elma¨tere Forfattningsfo¨rslag” (Functionality requirements for smart meters Proposal for Ordinance), report by the report by the Swedish Energy Market Inspectorate, No Ei2017:08. 237. “Remissvar till Energimarknadinspektionens rapport Ei R2017:08, Funktionskrav pa˚ Elma¨tere” (Comment on the Energy Market Inspectorates report Ei R2017:08, Functionality Requirements for Smart Meters). ,https://www.svk.se/siteassets/om-oss/remissvar/remiss-avenergimarknadsinspektionens-rapport-ei-r2017.o8-funktionskrav-pa-elmatare-m20i7.02657.ee. pdf. (accessed 08.01.19). 238. “Remissvar till Energimarknadinspektionens rapport Ei R2017:08, Funktionskrav pa˚ Elma¨tere” (Comment on the Energy Market Inspectorates report Ei R2017:08, Functionality Requirements for Smart Meters). ,https://www.svk.se/siteassets/om-oss/remissvar/remiss-avenergimarknadsinspektionens-rapport-ei-r2017.o8-funktionskrav-pa-elmatare-m20i7.02657.ee. pdf. (accessed 08.01.19). ¨ verfo¨rd el, A ¨ ndrad med 239. Fo¨rordning 1999:716 om Ma¨ting, Bera¨ktning och Rapportering av O Fo¨rordning 2018:1426 (Ordinance 1999:716 on Measurement, Calculation and Reporting of Transmitted Electricity, Amended by Ordinance 2018:1426).

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components within the system.240 The NIS-directive and other regulations, such as the GDPR241 and the smart meter functionality requirements,242 all stipulate an obligation to ensure an appropriate level of security in all information processing services, and in the smart meters specifically. Still, specific requirements as to what is deemed appropriate or adequate security for each specific component or service are currently ambiguous or nonexistent. To this end, the Data Hub will have a challenging and important task in Sweden. It is also possible that the EU will introduce more specific security regulation for smart grids in the future, similar to the intended recast of the Electricity Directive.243 In fact, The Energy Market Inspectorate, the Data Hub project, the EU, as well as multiple industry actors are currently working on establishing security standards and measures to protect the grid and all its component. Avoiding security breaches, developing more comprehensive legal frameworks to this end, and showing the public that great emphasis is placed on securing the integrity of the smart meters in their homes will probably also increase peoples’ trust and confidence in the technology and possibly lead to increased participation.244

18.8 Electric vehicles and storage 18.8.1 Electric vehicles As part of Sweden’s long-term climate goals, they have set a goal for their vehicle fleet to be fossil fuel independent by 2040.245 This might be one of Sweden’s greatest challenges, as their transport sector is heavily reliant upon 240. Andersson, M., Westerdahl, L. “The Swedish Electricity Supply System: how to deal with increasing vulnerability” report by the Swedish Defence Research Agency (FOI) (http://www.foi.se) ,https://www.google.com/url?sa 5 t&rct 5 j&q 5 &esrc 5 s&source 5 web&cd 5 9&ved 5 2ahUKEwjbxbW0oN7fAhUQiKYKHV54CVAQFjAIegQIAxAC&url 5 https%3A%2F%2FError! Hyperlink reference not valid.A%255CReportSearch%255CFiles%255C33991c43-3b33-4129-be8b26977bfffb86.pdf&usg 5 AOvVaw1Lbk6I1FjvzAh17Q2CuT-1. (accessed 08.01.19). 241. Regulation 2016/679 of The European Parliament and of The Council on the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of such Data, and Repealing Directive 95/46/EC (General Data Protection Regulation, GDPR), Article 32. ¨ verfo¨rd el, A ¨ ndrad med 242. Fo¨rordning 1999:716 om Ma¨ting, Bera¨ktning och Rapportering av O Fo¨rordning 2018:1426, yy 25 28, 30, 31 (Ordinance 1999:716 on Measurement, Calculation and Reporting of Transmitted Electricity, Amended by Ordinance 2018:1426, yy 25 28, 30 and 31). 243. Holzleitner, M.T., Reichl, J., 2017. “European provisions for cyber security in the smart gird an overview of the NIS-Directive” e & i Elektrotechnik und Informationstechnik 134(1), 14 18. 244. Fratini, A. Pizza, G., 2018. “Data protection and smart meters: the GDPR and the “Winter Package” of EU Clean Energy Law” (http://www.euanalysis.com) ,http://eulawanalysis.blogspot.com/2018/03/data-protection-and-smart-meters-gdpr.html. (accessed 11.01.19). 245. Statens Offentliga Utredningar “Fossilfrihet pa˚ Veg Del 1,” SOU 2013:84 (Official Reports of the Swedish Government “Fossil-freedom on the road Part 1” No. 2013:84).

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fossil fuels at this time. However, Sweden does have, behind Norway (6.4%) and the Netherlands (1.6%), the third largest share of electrical vehicles (EV) in the world, amounting to 1% (2017).246 In fact, EVs accounted for 6.3% of new sales in 2017,247248 including both battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). The trend in Sweden is that PHEVs are gaining popularity faster than BEVs, with 79% of the EVs sold in 2017 being PHEVs.249 A report by the International Energy Agency’s (IEA), “Nordic EV Outlook 2018,” describes the Nordic region as world leaders in EV market penetration and argues that the main reason for this is the range of different policy support measures implemented by the governments. The key role of policy instruments for growth in the EV market becomes evident when comparing Denmark to the other Nordic countries. Whereas the Nordic countries have had relatively reliable EV policy schemes in place over the last years, the Danish government decided to make a shift in 2016, which subsequently resulted in a substantial decline in market growth.250 This implies that to accomplish further EV market growth, continue to appeal to customers, encourage upscale in EV production, and reduce risk for investors, favorable policy measures are still necessary in Sweden, as well as the Nordic region. In 2006 Sweden introduced purchase incentives for energy-efficient vehicles or vehicles fueled by renewable energy. First in the form of a rebate, then changed in 2012 to a purchase subsidy (supermiljo¨bilspremie) for vehicles with lower than 50 g CO2/km (20,000 SEK,  h2160) or zero-emission vehicles (40 000 SEK,  h4317).251 In 2016 the government changed the policy again, introducing the current bonus malus scheme, in effect for vehicles registered after July 1, 2018.252 The new subsidy scheme provides a

246. International Energy Agency (IEA), 2018. “Global EV Outlook 2018: towards cross-modal electrification,” (http://www.iea.org) ,https://webstore.iea.org/download/direct/1045? fileName 5 Global_EV_Outlook_2018.pdf. (accessed 11.01.19). 247. Sales exclude second-hand imports. 248. International Energy Agency (IEA), 2018. “Nordic EV Outlook 2018: insights from leaders in electric mobility,” (http://www.iea.org) ,https://webstore.iea.org/download/direct/1010? fileName 5 NordicEVOutlook2018.pdf. (accessed 11.01.19). 249. International Energy Agency (IEA), 2018. “Nordic EV Outlook 2018: insights from leaders in electric mobility,” (http://www.iea.org) ,https://webstore.iea.org/download/direct/1010? fileName 5 NordicEVOutlook2018.pdf. (accessed 11.01.19). 250. International Energy Agency (IEA), 2018. “Nordic EV Outlook 2018: insights from leaders in electric mobility,”(http://www.iea.org) ,https://webstore.iea.org/download/direct/1010? fileName 5 NordicEVOutlook2018.pdf. (accessed 11.01.19). 251. Statens Offentliga Utredningar SOU 2011:1590 (Official Reports of the Swedish Government 2011:1597). 252. Statens Offentliga Utredningar SOU 2016:33 “Ett Bonus-Malus-System fo¨r Nya La¨tta Fordon” (Official Reports of the Swedish Government 2016:33 “A Bonus-Malus-System for New Light Vehicles”).

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bonus for private or company cars with lower than 60 g CO2/km [maximum SEK 60,000 (  h6475) and minimum SEK 10 000 (  h1079)], and progressively higher taxes on cars exciding 60 g CO2/km, in the first 3 years after registration.253 Additionally, low-emission vehicles registered before July 1, 2018 are exempt from the circulation tax, which is based on the weight of the vehicle and CO2/km, in the first 5 years after registration. For low-emission vehicles registered after July 1, 2018, this exemption will no longer apply. The main reason for the government deciding to abolish this tax-exemption was that the definition of low-emission vehicles in the Vehicle Tax Act254 resulted in small (light) diesel vehicles being eligible for the exemption. The effect of purchasing incentives are, arguably, only as effective as the final purchase price. The bonus mechanism in Sweden reduces the price of EVs, but due to EVs being slightly more expensive than internal combustion engine (ICE) vehicles (when similar models are compared), the bonus is usually not sufficient in closing the price gap for the initial purchase.255 Conversely, a study, comparing more variables equaling the total cost of ICE, PHEVs, and BEVs, found that BEVs could be the slightly cheaper option.256 However, relevant data to make such comparisons are not readily available to consumers and might therefore not have the desired impact on the diffusion of EVs, implying that more transparency is needed. While the Swedish EV share is one of the highest in the world, the adoption rate of EVs is still slow and varies considerably across municipalities. Additionally, while the share of EVs among the new vehicle sales is increasing, most of these were PHEVs in 2017, whereas BEVs would be preferable. Since electricity production in Sweden is generated, in large parts, from renewable energy sources, combined with the fact that BEVs only require electricity as fuel, the impact of increasing the share of BEVs over PHEVs would indeed increase Sweden’s ability to significantly reduce GHB emissions from the transport sector.257

253. “Bonus-malus och Bra¨nslebytet” (Bonus-Mauls and change of fuel) (http://www.regeringen. se, 2017) https://www.regeringen.se/artiklar/2017/09/bonus-malus-och-branslebytet/. (accessed 12.01.19). 254. Svensk Fo¨rfattningssamling (SFS) Fordonsskattelagen 1988:327 (The Swedish Code of Statues, Vehicle Tax Act 1988:327). 255. International Energy Agency (IEA), 2018. “Nordic EV Outlook 2018: insights from leaders in electric mobility,” (http://www.iea.org) ,https://webstore.iea.org/download/direct/1010? fileName 5 NsordicEVOutlook2018.pdf. (accessed 11.01.19). 256. Hagman, J., Ritze´n, F., Stien, J.J., Susilo, Y., 2016. “Total cost of ownership and its potential implications for battery electric vehicle diffusion” Res. Transp. Bus. Manag. 18, 11 17. 257. Egner, F., Trosvik, L., 2018. “Electric vehicle adoption in Sweden and the impact of local policy instruments”. Energy Policy 121, 584 595.

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The choice between BEVs and PHEVs is not only related to policy and incentive measures.258 There is also a technological restraint related to the range of EV batteries, especially concerning BEVs.259 This might also, to some extent, explain the variations in adoption across the Swedish municipalities, as citizens in some municipalities and cities (especially in the south) experience shorter distances between work, home, etc., while other municipalities have substantially greater distances.260 Therefore it might not be possible or, at least, practical for every Swedish citizen to choose BEVs at this time. However, in view of the current development within battery technology, the range of BEVs might not be a deterrent in the future.261 Moreover, expanding the charging points for EVs across the country would have a positive effect,262 not only in rural areas, but also in urban areas. Swedish people who live in detached houses prefer, to a large degree, home charging. To this end, from January 1, 2018, the government offers a grant to private individuals installing home charging points.263 In the larger cities, it is more common to live in dwellings and flats, where limited parking with charging points may affect customer choices for vehicles. Increasing the number of publicly available charging points will be important in this regard. For example, as of 2019, so-called charging streets were being built in the capital, Stockholm, aiming to establish 500 charging points along certain streets by 2020.264 Another interesting Swedish initiative;265 to build the world’s first electric road, has been established in Ga¨vleborg, which is supplying larger transport vehicles with electricity while traveling. As of 2019, the project consisted of a 2-km stretch road, with a new pilot stretch 258. “Fo¨rutsa¨ttningar fo¨r att Elfordon ska fo Genomslag” (Prerequisites for Market Penetration of Electrical Vehicles), 2014. (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/nyhetsarkiv/2014/forutsattningar-for-att-elfordon-ska-fa-genomslag/. accessed 11 January 2019. 259. Hagman, J., Ritze´n, F., Stien, J.J., Susilo, Y., 2016. “Total cost of ownership and its potential implications for battery electric vehicle diffusion” Res. Transp. Bus. Manag. 18, 11 17. 260. Egner, F., Trosvik, L., 2018. “Electric vehicle adoption in Sweden and the impact of local policy instruments”. Energy Policy 121, 584 595. 261. International Energy Agency (IEA), 2018. “Global EV Outlook 2018: towards cross-modal electrification,” (http://www.iea.org) ,https://webstore.iea.org/download/direct/1045? fileName 5 Global_EV_Outlook_2018.pdf. (accessed 11.01.19). 262. “Fo¨rutsa¨ttningar fo¨r att Elfordon ska fo Genomslag” (Prerequisites for Market Penetration of Electrical Vehicles), 2014. (http://www.energimyndigheten.se) ,http://www.energimyndigheten.se/nyhetsarkiv/2014/forutsattningar-for-att-elfordon-ska-fa-genomslag/. (accessed 11.01.19). 263. Fo¨rordning 2017:1318 om Bidrag till Privatpersoner fo¨r Installation av Laddningspunkt till Elfordon (Ordinance 2017:1318 on Grant for Private Individuals for the Installation of Charging Points for Electrical Vehicles). 264. “Laddgator i Stockholm” (Charging streets in Stockholm), 2018. (http://www.stocholm.se) ,http://www.stockholm.se/Fristaende-webbplatser/Fackforvaltningssajter/Miljoforvaltningen/ Miljobilar/Bilar-branslen/Miljobranslen/#Laddgator. (accessed 11.01.19). 265. Financed by the Swedish Transport Agency, the Swedish Energy Agency, VINNOVA, Scania and Simens.

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that was expected to be announced in the summer of 2019, aiming to test two different charging techniques. Depending on the effectiveness of these roads, it could prove to be an important instrument in reducing emissions, especially from the heavy goods vehicle traffic.266 According to current procurement legislation in Sweden, public authorities and municipalities are mandated to consider the environmental impact of vehicle purchases, with a few exemptions for example, emergency vehicles, albeit not obligating them to purchase EVs specifically.267 Additionally, in 2016 the government implemented an electric bus premium for public transport, for which eligible municipalities and regional public transport agencies can apply. The amount of the grant varies between SEK 100,000 and SEK 700,000 (  h10 730 75,120), depending on the transport capacity and whether it is a BEV or a PHEV.268 Both initiatives are aimed at encouraging the diffusion of EVs in the public transport sector, which may also cause positive spillover effects to the EV market generally. For example, if EVs becomes a larger part of the public fleet, it may influence public opinion and awareness by making EV more commonplace, it may influence prices by bulk purchasing, encourage upscale in EV production, and stimulate increased investment in charging services.269 To further stimulate these effects, another large purchasing group may have the potential to be influential when purchasing company cars, that is, the private sector. A cooperation forum named Fossil Free Sweden was established, aiming to bring together government agencies, municipalities, organizations, and industry actors from across the country, in order to meet the goal for Sweden to become one of (if not the) first fossil-free welfare country.270 One of Fossil Free Sweden’s initiatives in this regard has been to launch a challenge for the business community. Namely, that all company cars, bought or leased from the year 2020 or earlier, should be either be BEV, PHEV, or biogas vehicles. So far 92 actors have signed up for the challenge, and this number is expected to increase.271

266. “The world’s first electric road on the E16”, 2018 (http://www.regiongavleborg.se) ,http:// www.regiongavleborg.se/regional-utveckling/samhallsplanering-och-infrastruktur/elvag/the-electric-highway-in-english/. (accessed 12.01.19). 267. Svensk Fo¨rfattningssamling (SFS) Lag 2011:846 om Miljo¨krav vid Upphandling av Bilar of Vissa Kollektivtja¨nster y2 (The Swedish Code of Statues, Act 2011:846 on Environmental Requirements for Procurement of Vehicles and certain Public Services, y 2). 268. Fo¨rordning 2016:863 om Elbusspremie (Ordinance 2016:863 on Electric Bus Premium). 269. International Energy Agency (IEA), 2018. “Nordic EV Outlook 2018: insights from leaders in electric mobility,” (http://www.iea.org) ,https://webstore.iea.org/download/direct/1010? fileName 5 NordicEVOutlook2018.pdf. (accessed 11.01.19). 270. “Roadmaps for fossilfree competitiveness”, 2018 (http://www.fossilfritt-sverige.se) ,http:// fossilfritt-sverige.se/in-english/. (accessed 21.12.18). 271. “The company car challenge”, 2018 (http://www.fossilfritt-sverige.se) ,http://fossilfrittsverige.se/utmaningar/tjanstebilsutmaningen/. (accessed 21.12.18).

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A major part of Sweden’s industry is the automobile industry, and there are signs of changes occurring in this sector as well. Volvo has launched a separate electric vehicle brand, Polestar.272 Saab went bankrupt in 2012, but its main assets were acquired by a new company, National Electric Vehicle Sweden (NEVS). NEVS is focusing solely on EV manufacturing, starting in the Chinese market, then aiming to expand globally.273 Another Swedish electric vehicle company is Uniti, which started as a research project at the Swedish university Lund. Uniti vehicles are currently only available for preorder, but they have announced a partnership with E.ON to provide Swedish customers with 5 years of electricity (guaranteed from solar) for home charging when purchasing a Uniti vehicle.274 While Sweden’s electric vehicle actors are mostly in introductory stages, these examples indicate a nominal change in the industry and market. Currently, the electricity demand from EVs has little effect on the total electricity demand in Sweden, and also on the electrical grid. Considering the current low adoption percentage of EVs, this is not surprising; however, the number of EVs are expected (and intended) to increase substantially in coming years. While the Swedish grid, compared to other EU countries, is generally more resilient, increased demand could potentially stress the distribution grids unless properly managed. Smart grid solutions, such as demand response, dynamic electricity pricing, automated regulation of charging, and vehicle-to-grid solutions, will be important to address the increase in electricity demand from an increased number of EVs.

18.8.2 Storage Storing electrical energy is of increasing importance as Sweden introduces more intermittent renewable energy into the grid. While Sweden does have large reserves of stored hydropower, amongst other things, the Suvora dam which stores around 6 TWh.275 Beyond this, there are no substantial storage capacities in Sweden, and the market interest has been relatively small thus far.276 272. “About us”( http://www.polestar.com) ,https://www.polestar.com/about-us/. (accessed 12.01.19). 273. “About us” (http://www.necs.com) ,https://www.nevs.com/en/about/. (accessed 12.01.19). 274. “History,” (http://www.uniti.earth) ,https://www.uniti.earth/company/history/. (accessed 12.01.19). 275. Nordling, A., 2017. “Sweden’s future electrical grid: a project report,” IVA Electricity Crossroads Project, report by the Royal Academy of Engineering Sciences (http://www.iva.se) ,https://www.iva.se/globalassets/info-trycksaker/vagval-el/vagvalel-swedens-future-electricalgrid.pdf. (accessed 10.01.19). 276. Nordling, A., Englund, R., Hembjer, A., Mannberg, A., 2016. “Energy storage: electricity storage technologies,” IV’s Electricity Crossroads Project, report by the Royal Swedish Academy of Engineering Sciences (http://www.iva.se) ,https://www.iva.se/globalassets/rapporter/vagval-el/201604-iva-vagvalel-ellagring-rapport-english-e-ny.pdf. (accessed 10.01.19).

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Pursuant to the Energy Act, the TSO or the DSOs of Sweden are legally permitted to own stored energy, but the energy is only to be used in emergency situations (e.g., to cover grid losses or in case of power failures),277 and it is not permitted to store energy for the purpose of later trading this energy, as to not influence the market price of electricity. Therefore amendment to the Electricity Act is needed for energy storage to become commercially possible and attractive for these (and other) actors. With more storage capacity, Sweden would also increase its self-sufficiency level, thereby require less imports from other countries.278 Even if the grid operators only have a few circumstances where they can legally use their stored energy, they still have the option of purchasing stored energy from third-party actors. However, various actors may be deterred from utilizing this option, since an entity selling electricity must, as mentioned above, either be a BRP or have a contract with a BRP. Also, the energy tax would be applicable to these entities, both in relation to the stored energy and conversion losses. Furthermore, the entity selling energy to the grid operators would be paying for the distribution of the energy through having to pay both grid and connection tariff. Contrary to the DSOs, these entities will not be able to earn this back when selling the electricity to end-consumers. As such, they might have to sell electricity to the grid operators at a higher price to make it profitable.279 On the other hand, as mentioned above, these individual entities (or households) could combine their storage capacities to be managed by an aggregator; nevertheless, laws and regulations would have to be amended to better correspond to the different market actors, related to minimum bid size, communications, and fees.280 Still, in terms of short-term storage, batteries are beneficial, convenient, and expected to make up a larger part of the Swedish energy system in the future, with regards to residential storage, as well as the penetration of electric vehicles.281 In 2016 the government introduced a support grant to private 277. Svensk Fo¨rfattningssamling (SFS) Ellag 1997:857 kap. 3 yy 1 (a) and (f) (The Swedish Code of Statues, Electricity Act 1997:857, chapter 3 yy 1 (a) and (f)). 278. Nordling, A., 2017. “Sweden’s future electrical grid: a project report,” IVA Electricity Crossroads Project, report by the Royal Academy of Engineering Sciences (http://www.iva.se) ,https://www.iva.se/globalassets/info-trycksaker/vagval-el/vagvalel-swedens-future-electricalgrid.pdf. (accessed 10.01.19). 279. Hansson, M., Johansson, O., Normark, Bo. “Energilager i Energisystemet,” report by Power Circle to the Coordination Council for Smart Grids, 2014 (http://www.powercircle.org) ,http:// powercircle.org/wp-content/uploads/2014/09/Underlagsrapport-Energilager-i-energisystemet. pdf. (accessed 10.01.19). 280. Flexible demand for electricity and power: barriers and opportunities, study by TemaNord (2017:567) for the Nordic Council of Ministers (http://www.norden.diva-portal.org) ,http://norden.diva-portal.org/smash/get/diva2:1167837/FULLTEXT01.pdf. (accessed 09.01.19). 281. Nordling, A., Englund, R., Hembjer, A., Mannberg, A., 2016. “Energy storage: electricity storage technologies,” IV’s Electricity Crossroads Project, report by the Royal Swedish Academy of Engineering Sciences (http://www.iva.se) ,https://www.iva.se/globalassets/rapporter/vagval-el/201604-iva-vagvalel-ellagring-rapport-english-e-ny.pdf. (accessed 10.01.19).

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individuals for the storage of self-produced energy.282 A grant amounting to 60%, or maximum 50 000 SEK (  h5365), can be attained for the purpose of installing a storage system.283 The grant was, however, only applicable for measures initiated between January 1, 2016 and December 31, 2019, and only if the system was both connected to the grid and to a plant for self-production of renewable energy.284 In addition to this subsidy scheme, Sweden will have to clarify and amend existing rules for the energy storage market to develop further.

18.9 Conclusion The Swedish electricity system is, compared to most other electricity systems in the world, both more sustainable and better equipped with regards to managing flexibility. The natural high availability to hydropower is the main reason, both for why Sweden has a predominantly sustainable electricity production, and why the introduction of intermittent renewable energy from wind and solar has yet to cause major problems in the systems balancing ability.285 The hydropower reserves are, however, not unlimited and the introduction of even larger quantities of intermittent electricity will cause difficulties if not managed properly. It places increased demands for balance and flexibility in the electricity system, especially, considering the phaseout of nuclear power. 286 Wind power is expected to assume a larger share of the electricity production in Sweden,287 but the current offshore wind projects are not attracting the necessary investment to be able to offset the nuclear phaseout within the 100% renewable timeframe, year 2045. To this end, stronger commitment from the government and a clearer long-term plan is needed.288 There 282. Foro¨rdning 2016:899 om bidrag till lagring av engenproducerad elenergi (Ordinance 2016:899 on support for storage of self-produced electricity) 283. Foro¨rdning 2016:899 om bidrag till lagring av engenproducerad elenergi y 5 (Ordinance 2016:899 on support for storage of self-produced electricity y 5). 284. Foro¨rdning 2016:899 om bidrag till lagring av engenproducerad elenergi y 2 par. 1 (Ordinance 2016:899 on support for storage of self-produced electricity y 2 par. 1). 285. Proposition 2017/18:243 “Vattenmiljo¨ och Vattenkraft” (Government Bill 2017/18:243) (http://www.riksdagen.se) ,https://data.riksdagen.se/fil/FC5D5C9C-440D-459B-A15E7610DEE5C910. (accessed 01.01.19). 286. Nordling, A., 2017. “Sweden’s future electrical grid: a project report,” IVA Electricity Crossroads Project, report by the Royal Academy of Engineering Sciences (http://www.iva.se) ,https://www.iva.se/globalassets/info-trycksaker/vagval-el/vagvalel-swedens-future-electricalgrid.pdf. (accessed 10.01.19). 287. Finjord, F., Hagspeil, V., Lavrutich, M., Tangen, M., 2018. “The impact of NorwegianSwedish Green Certificate Scheme on Investment Behaviour: a wind energy case study”. Energy Policy 123, 373 389. 288. Remissvar pa˚ Energimyndighetens Rapport om Havbaserad Vindkraft, ER 2017:3 (M2017/ 00518/Ee) (Comment on the Swedish Energy Agencys Report on Offshore Wind Power, ER 2017:3 (M2017/00518/Ee)).

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is a high level of electrification in Sweden at this time, which is also expected to increase substantially in coming years. Ensuring reliable supply and a competitive price structure is essential for parts of the industry in Sweden, but also for the system as a whole. Subsidy schemes with the aim of stimulating increased renewable electricity production have been effective, especially in the onshore wind sector. However, there is a concern that too intensive subsidy schemes kept in place for too long will in turn hamper natural market growth, specifically concerning the conceived deterrent with regards to baseload power installments that can ensure supply in the winter months, as such actions are currently unprofitable. Clearer specific goals and policy adjustments are needed from the government in order to further steer the market in the preferred direction.289 The reliability of the Swedish power system can be sustained but is dependent upon the implementation of more smart grid solutions. Amongst other things, allowing consumers access to the grid as prosumers,290 for which the regulation needs to be amended and simplified if this is to become a viable option for larger parts of the Swedish society. This is also the case for the storage market, where there are substantial legal barriers hampering the utilization of storage possibilities. While a grant is in place to enable individuals to install storage capacity,291 on a larger scale and for aggregators, the barriers are still substantial, and the definitions and ownership rules are unclear at this time.292 Other smart grid solutions, such as demand response, dynamic electricity pricing, automated regulation of charging, and vehicle-to-grid, will be important in the electricity system going forward. As of now, Swedish policies and regulation affecting these solutions are not ideal. Another important point in the case of Sweden is that the technical possibilities linked to the current smart meters are limited. Smart grid solutions, especially demand response and dynamic pricing, are dependent upon the features enabled by the smart meters (and vice-versa). Therefore the rollout of new smart meters is both essential to enable other smart grid solutions and might also cause spillover

289. Bondesson, T., Bra¨nnlund, R., 2017. “Electricity market of the future: a project report: IVA Electricity Crossroads Projects” (http://www.iea) ,https://www.iva.se/globalassets/info-trycksaker/vagval-el/vagvalel-framtidenselmarknad-english.pdf. (accessed 02.01.19). 290. “Energy in Sweden” (Annual report published by the Swedish Energy Agency, 2018) (swedishenergyagency.se) ,http://www.energimyndigheten.se/en/news/2018/energy-in-sweden-factsand-figures-2018-available-now/. (accessed 05.12.18). 291. Foro¨rdning 2016:899 om bidrag till lagring av engenproducerad elenergi (Ordinance 2016:899 on support for storage of self-produced electricity). 292. Nordling, A., 2017. “Sweden’s future electrical grid: a project report,” IVA Electricity Crossroads Project, report by the Royal Academy of Engineering Sciences (http://www.iva.se) ,https://www.iva.se/globalassets/info-trycksaker/vagval-el/vagvalel-swedens-future-electricalgrid.pdf. (accessed 10.01.19).

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effects because it becomes more visible to the users what the technology can enable. Besides ambitious policy goals (the Framework Agreement), there is a greater need for specific policies which directly target the different smart grid features. While there are the signs of Sweden moving in the right direction concerning regulation and policies, there is still a substantial gap between the overarching goals and enforced policies at this time. On the other hand, there is arguably a need for further study before comprehensive regulatory amendments are deemed warranted, as well as ensuring increased consumer and industry awareness about smart solutions and their benefits, before these markets can be expected to grow.293 To this end, Sweden has, in cooperation with academia and industry actors, introduced a variety of R&D pilot projects, aimed at increasing consumer awareness, testing responses, and expanding industry knowledge on various solutions. These projects are in turn expected to influence further developments and present the possibility for new markets to take form.

293. Kester, J., Noel, L., Zaraxua de Rubens, G., Sovacool, B.K., 2018. “Promoting vehicle to grid (VG2) in the Nordic region: Expert Advice on Policy Mechanisms for Accelerated Diffusion”. Energy Policy 116, 422 432.

Chapter 19

Energy decentralization and energy transition in Hungary Andrew Filis1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

19.1 Introduction The European Union has developed sophisticated policies to promote the shared and collective interests of its members to, among other things, energy security.1 To that end, energy policy at the EU level is by no means limited to the external aspects of energy—including, exports, imports, trade deals, trade tariffs, and broader energy diplomacy—but also extends to internal issues, including the attainment and optimization of a well-integrated internal electricity system and market2 in line with other—not directly energyrelated—EU policy objectives including the “greening” of the EU economy, the empowerment of citizens/consumers, decentralization, digitalization, and the resilience of the economy. A diversity of EU policies is in place including such that impose positive obligations on Member States of varying degrees of compulsion. An example is the promotion of smart grids at the national and EU-wide levels. This article examines the realities surrounding Hungary’s electricity sector vis-a`-vis broader EU policy in relation to the “smartening” of electricity systems. The purpose of this review is to provide useful insights concerning Hungary’s electricity sector and critically assess the extent to which its state is conducive to EU “smart grid” objectives. To that end, the article opens with an exposition of the principal contours of Hungary’s electricity sector, includes an exposition of the “smart grid”-related features of its network,

1. Leal-Arcas, R., Filis, A., 2013. Conceptualizing EU Energy Security through an EU Constitutional Law Perspective, Fordham Int. Law J. 36, 1224 1300. 2. Leal-Arcas, R., Filis, A., 2015. The energy community, the energy charter treaty, and the promotion of EU Energy Security, Queen Mary School of Law Studies Research Paper No., 203. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00029-3 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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and concludes with a set of recommendations for policymakers concerning legal, regulatory, and other issues.

19.2 Hungary’s electricity market 19.2.1 Key figures concerning energy and electricity in Hungary Energy consumption in Hungary has for the most part been fairly stable between 1990 and 2016. For instance, total (final) energy consumption in 1990 stood at 20,689 kilotonne of oil equivalent (ktoe) and in 2016 at 19,387 ktoe. While there has been some variation in the composition of the energy mix over that period, the share of hydrocarbons, for the most part,3 has been stable and dominant in the mix. For instance, in 1990 oil and natural gas consumption figures stood at 7117 and 6200 ktoe, respectively, while in 2016 at 648 and 6095 ktoe, respectively.4 On a more positive note, coal consumption dropped, while, conversely, consumption of biofuels rose markedly.5 It should be noted that Directive 2009/28/EC requires that Hungary derives at least 13% of its gross energy consumption from renewables by 2020. Hungary has raised this target to 14.65% in its National Reform Programme and is generally on track to meet it.6 As part of that energy mix, in 2016 electricity consumption indicates a modest increase (c. 1 17.4%) vis-a`-vis 1990 figures—3192 v. 2717 ktoe, respectively.7 What is more, electricity accounts for c.16% of total energy consumption, with industry being the principal consumer, followed by households, and other commercial sectors.8 Presented differently, total electricity

3. While coal consumption has dropped significantly namely, from 2,360 ktoe in 1990 to 333 in 2016 oil and natural gas consumption has remained largely steady. IEA World Energy Balances 2018 https://www.iea.org/statistics/?country 5 HUNGARY&year 5 2016&category 5 Energy%20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES (last accessed 05.07.19). 4. Ibid. 5. In 1990, coal and biofuels consumption stood at 2,360 ktoe and 618 ktoe, respectively. In 2016 this was 333 ktoe and 2,155 ktoe, respectively. Cf., https://www.iea.org/statistics/?country 5 HUNGARY&year 5 2016&category 5 Energy%20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES (last accessed 08.07.19). 6. Bertoldi, P, Zancanella, P, Boza-Kiss, B., Demand response status in Member States, EUR 27998 EN (p. 93), http://publications.jrc.ec.europa.eu/repository/bitstream/JRC101191/ldna27998enn.pdf (last accessed 25.07.19). 7. Cf., https://www.iea.org/statistics/?country 5 HUNGARY&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES (last accessed 25.07.19). 8. IEA, 2017 Energy Policies of IEA Countries: Hungary 2017 Review, (p. 67), https://www.iea. org/publications/freepublications/publication/EnergyPoliciesofIEACountriesHungary2017Review. pdf (last accessed 11.07.19).

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consumption stood at 35.5 terawatt hours (TWh)9 in 1990, c.31 TWh in 1993, c.40 TWh in 2008, c.37.8 TWh in 2009, and c.41 TWh in 201610 Unsurprisingly, drops in consumption have followed disruptive events as, undoubtedly, were Hungary’s socio-political and economic transition during the early 1990s,11 and the 2008 Financial Crisis. In terms of electricity consumption per capita, figures for 1990 stood at 3.43 Megawatt hours (MWh)/ capita, and for 2016 at 4.18 MWh/capita.12 For its part, electricity generation has exhibited very modest growth (c. 1 8.6%) when comparing 1990 and 2016 figures. In 1990 it stood at 28,436 Gigawatt hours (GWh)13 and in 2016 at 30,896 GWh.14 Official figures for 2017 and 2018 suggest generation to have been c.32,871 and 31,905 GWh, respectively.15 While domestic generation has not increased per se, demand has remained stable and met by domestic generation and imports. Historically, domestic electricity generation has predominantly relied on nuclear and hydrocarbon sources. In relation to the 28,436 GWh of electricity generated in 1990, 13,731 GWh came from nuclear means, 8669 GWh from coal, and 4473 GWh from gas. This trend did not change much in 2016 where, in relation to the 30,896 GWh of electricity generated, more than 9. A Watt (W) is 1 joule per second (j/s)—it is a unit of power—and a joule is a unit of energy. For instance, a device marked as 1 W is expected to run for 1 hour if supplied with 1 Wh of energy. In that sense, power and energy are different concepts. The latter has to do with the energy that is ultimately available for consumption whilst the former with the capacity to deliver that energy. A terawatt hour relates to a unit of power which has the capacity to deliver one trillion Wh. For further information on units and terminology, cf., https://www.confusedaboutenergy.co.uk/index.php/energyresources/756-what-is-a-kwh-what-is-a-twh (last accessed 05.07.19). 10. Diachronic (1990 2016) figures based on the International Energy Agency (IEA) World Energy Balances 2018 publication cf., https://www.iea.org/statistics/? country 5 HUNGARY&year 5 2016&category 5 Electricity&indicator 5 undefined&mode 5 chart&dataTable 5 INDICATORS (last accessed 05.07.19). 11. Cf., the Global Energy Network Institute’s (GENI) Electricity Report on Hungary where it is stated that, “After 1990, and most markedly in 1992, imports from the Soviet Union were reduced because of increasingly unattractive prices and unfavourable terms but also because of unreliable supply. One year later, Ukraine suspended all exports to Hungary due to domestic shortages,” cf., http://www.geni.org/globalenergy/library/national_energy_grid/hungary/09-hun. htm (last accessed 10.07.19). 12. Cf., https://www.iea.org/statistics/?country 5 HUNGARY&year 5 2016&category 5 Electricity& indicator 5 ElecConsPerCapita&mode 5 chart&dataTable 5 INDICATORS (last accessed 08.07.19). 13. Gigawatt hours, abbreviated as GWh, is a unit of energy representing one billion watt hours / one million kilowatt hours, cf., https://ec.europa.eu/eurostat/statistics-explained/index.php/ Glossary:Gigawatt_hours_(GWh) (last accessed 08.07.19). 14. https://www.iea.org/statistics/?country 5 HUNGARY&year 5 2016&category 5 Electricity& indicator 5 ElecGenByFuel&mode 5 chart&dataTable 5 ELECTRICITYANDHEAT and https:// www.iea.org/statistics/?country 5 HUNGARY&year 5 2016&category 5 Electricity&indicator 5 ShareElecGenByFuel&mode 5 chart&dataTable 5 ELECTRICITYANDHEAT (last accessed 08.07.19). 15. Cf., Hungarian Energy Authority, “4.2 Annual data on gross electricity production, 2014 2018” spread-sheet, http://www.mekh.hu/annual-data (last accessed 10.07.19).

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half—16,054 GWh—came from nuclear means, 5758 GWh from coal, and 6479 GWh from gas.16 The latest figures (2017) compiled by, MAVIR, the national transmission system operator (TSO), suggest that up to 50% of electricity generation came from nuclear, up to 40% from hydrocarbons (oil, gas, coal, lignite etc.), and up to 10% from renewables.17 Renewables have historically accounted for a puny fraction of electricity generation in Hungary. For instance, in 1990 they represented a mere 0.6% of total electricity generation while in 2016 c.3.7%.18 The latest Eurostat figures (2018) indicate that the total electricity supply in Hungary stood at 44,157 GWh of which an estimated 40,801 GWh was domestically consumed. Total gross electricity production in Hungary stood at 31,905 GWh while total net production at 29,809 GWh. Electricity imports for 2018 stood at 18,613 GWh while exports at 4265 GWh.19 Furthermore, it is worth noting that during 2018 c.3355.8 GWh of electricity was lost during distribution20—the figure for 2017 stood at c.3456 GWh.21 This represents c.7.6% in relation to the total electricity supply for 2018 (44,157 GWh), and, as such, remains within normal levels,22

16. Ibid. 17. Cf., MAVIR Data of the Hungarian Electricity System 2017 report (p. 23) http://www.mavir. hu/documents/10262/222691710/MAVIR_VER_2017_web_2.pdf/072248af-03f6-e6ed-9079767d2000c71b (last accessed 11.07.19). 18. NB., concerning 28,436 GWh of electricity generated during 1990, only 178 GWh came from renewable sources (namely, hydro). Concerning 30,896 GWh of electricity generated during 2016, only 1,144 GWh came from inexhaustible renewables (namely, 259 GWh from hydro, 201 GWh from solar, and 684 GWh from wind) cf., https://www.iea.org/statistics/? country 5 HUNGARY&year 5 2016&category 5 Electricity&indicator 5 RenewGenBySource&mode 5 chart&dataTable 5 RENEWABLES (last accessed 08.07.19). 19. Figures exported from Excel file titled “2018 early estimates for electricity” available at the following Eurostat page: https://ec.europa.eu/eurostat/statistics-explained/index.php?title 5 Energy_balances_-_early_estimates#Electricity_0.26_heat (last accessed 08.07.19). 20. Concerning distribution losses, the World Bank defines these as “[e]lectric power transmission and distribution losses include losses in transmission between sources of supply and points of distribution and in the distribution to consumers, including pilferage,” cf., https://databank.worldbank.org/reports. aspx?source 5 2&type 5 metadata&series 5 EG.ELC.LOSS.ZS (last accessed 08.07.19). 21. Cf., https://ec.europa.eu/eurostat/statistics-explained/index.php?title 5 Energy_balances__early_estimates#Electricity_0.26_heat (last accessed 08.07.19) 22. Distribution loss v. total electricity supply 2018 figures concerning France, Germany, and the United Kingdom stood at c.7.3%, 4.8%, and 8%, respectively. NB., values based on raw data at each country’s profile on the Eurostat Excel file titled “2018 early estimates for electricity” available here: https://ec.europa.eu/eurostat/statistics-explained/index.php?title 5 Energy_balances__early_estimates#Electricity_0.26_heat (last accessed July 8, 2019). This suggests that while there is room for improvement, Hungary’s electricity distribution grid is far from the inefficiency witnessed in other countries cf., the World Bank’s comparative list on 2014 data: https://data.worldbank.org/ indicator/eg.elc.loss.zs (last accessed 8.07.2019 July 2019). For an interactive map based on IEA/ World Bank et al. figures (2014), cf., the “Index Mundi” data aggregator website accessible at: https://www.indexmundi.com/facts/indicators/EG.ELC.LOSS.ZS/map/europe (last accessed 08.07.19).

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nonetheless the efficiency of the transmission and distribution networks— including their capacity for efficient distribution, responsiveness, storage, and loss prevention—is relevant to Hungary’s attempts to attain a “smart grid,” and, more generally, its energy security interests.

19.2.2 Key characteristics and structure of Hungary’s electricity market Hungary’s domestic electricity market has undergone substantial reforms since the mid-90s, including privatization, marketization, and the relative unbundling between its generation, transmission, distribution, wholesale trade, and supply aspects. Consequently, according to Hungary’s electricity regulator, electricity transmission and distribution are, for the most part, conducted by separate actors to those involved in generation. Power plants— mainly private although some are state-owned (or otherwise subject to state control—for instance, through minority, albeit “golden”—that is, controlling—shares concerning mergers and acquisitions etc.,)—produce electricity that they sell to wholesale traders and suppliers who, in turn, resell it on the wholesale market or directly to consumers. Transmission and distribution are generally performed by private companies not ordinarily involved in generation or supply.23 Previously, the bulk of the electricity market had been state-owned and operating, for the most part, outside market conditions.24 Currently, while much of the electricity market is privately owned, state ownership is present across the entire spectrum of the domestic electricity market— not just in relation to transmission and distribution. However, this is broadly compliant with the free market and Hungary’s liberalization obligations vis-a`-vis the EU. For instance, Hungarian Electricity Ltd., (MVM Zrt)—the leading entity within MVM Group, that is, an entirely state-owned Hungarian energy and utilities conglomerate—25 is involved

23. According to the Hungarian Energy Authority the electricity market and other utilities regulator, transmission and distribution “are to be performed by independent companies that cannot be involved in electricity generation or supply,” cf., http://www.mekh.hu/electricity (last accessed 9.07.19). This however is not entirely in line with the Hungarian reality, given that the state-owned electricity distributor and supplier namely, MVM Zrt is also heavily involved in generation. 24. Cf., the Global Energy Network Institute’s (GENI) extensive Electricity Report on Hungary for a detailed account of Hungary’s pre-EU Accession era electricity market, http://www.geni. org/globalenergy/library/national_energy_grid/hungary/09-hun.htm (last accessed 10.07.19). ´ ¨r˝uen m˝uko¨d˝o Re´szve´nytarsas ´ ´ (i.e., Hungarian Electrical 25. Magyar Villamos M˝uvek Zartko ag Works Private Limited Company), abbreviated to “MVM Zrt/MVM,” is the largest power company in Hungary responsible for generation, distribution, and sale of electricity. Cf., http://mvm. hu/tevekenysegunk-en/the-mission-of-mvm/?lang 5 en for further information (last accessed 08.07.19).

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in the generation,26 wholesale trade, retail market,27 distribution, and transmission aspects of the electricity market. Notably, MVM Zrt had also been party to various power purchase agreements (PPAs) with other power generation plants which the European Commission investigated between 2005 and 2008 and found to amount to prohibited state-aid due to their anticompetitive effects.28 As a consequence, such PPAs have now been brought in line with EU rules. Despite the substantial liberalization of Hungary’s electricity market over the last three decades, the state is far from absent. Not only does the state own some entities across the electricity market spectrum, in more recent years, the state has also intervened in setting electricity prices, primarily for household consumers, to address high energy costs to family budgets in the post-2008 Financial Crisis landscape. More specifically, household prices

26. Cf., the MVM Group Annual Integrated Report (2017), where it is stated that one of MVM’s power plants namely, Paks generated a “record quantity of electricity of 16,097.6 gigawatt hours in total last year [i.e., 2016], which accounted for 50 per cent of the domestic output, with the highest availability value in its history.” Cf., http://mvm.hu/download/Evesjelentes_2017_EN_v4.pdf/? lang 5 en (p. 5) (last accessed 10 July 2019). Such dominant position, if abused, could attract scrutiny and penalisation under, inter alia, EU competition rules, including Article 102 TFEU. For a summary of the general parameters of EU competition law relating to market dominance, cf., http://ec.europa. eu/competition/antitrust/procedures_102_en.html (last accessed 10.07.19). 27. According to the IEA, MVM is a dominant player in the retail market with an 80% market share though operating in various aspects of the market. Cf., the OECD/IEA Energy Policies of IEA Countries: Hungary (2017) report (p. 72) cf., https://www.iea.org/publications/freepublications/publication/EnergyPoliciesofIEACountriesHungary2017Review.pdf (last accessed 12.07.19) 28. The European Commission instigated a formal investigation in 2005 under EC Treaty stateaid rules (Article 88(2)) into Hungary’s long-term PPAs concluded between MVM Zrt the state-owned electricity network operator and power generators. Under the PPAs generators are guaranteed risk-free returns. Given that up to 80% of the Hungarian electricity generation market had been within the scope of such PPAs, the Commission was of the view that they presented barriers to new market entrants and a potential obstacle to market liberalisation. In the event, the Commission reached a decision in 2008 that the PPAs amounted to prohibited state-aid and were anticompetitive. Cf., European Commission Final Decision on the State Aid awarded by Hungary through Power Purchase Agreements (notified as document number C41/05) (C (2008) 2223 final (Brussels, 2008.VI.04)), with particular reference to recitals 338, 432 & 441, and Articles 1 5, cf., http://ec.europa.eu/competition/state_aid/cases/201965/201965_827719_388_1. pdf (last accessed 9.07.19). Also, note a resulting ICSID arbitral decision (Electrabel S.A. v Republic of Hungary, ICSID Case No. ARB/07/1) which, in sum, did not find host-state Hungary’s termination of a PPA, pursuant to its implementation of the Commission’s Final Decision, to amount to an expropriation nor to be contrary to Hungary’s fair and equitable treatment obligations under the Energy Charter Treaty. Cf., https://www.iisd.org/itn/ 2016/02/29/icsid-tribunal-dismisses-final-claim-for-compensation-in-relation-to-hungarys-2008termination-of-power-purchase-agreement-electrabel-sa-v-republic-of-hungary-icsid-case-no-arb07-1/; also, for details of the arbitral award, cf., https://www.italaw.com/sites/default/files/casedocuments/italaw4495.pdf (last accessed 09.07.19).

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were slashed by 10% in 2013, followed by cuts in 2013 and 2014, resulting, overall, in a 26% reduction in relation to pre-2013 tariffs.29 In relation to the foregoing, the Hungarian electricity retail market is structured in two segments: a universal service segment and a competitive market segment. Consumers entitled to universal service (i.e., cheaper power rates) have their requirements met mainly by former public utility service providers licensed for that segment. Consumers not entitled to universal service rates may only access rates available on the competitive market. What is more, universal service providers are exempt from the requirement to purchase renewable feed-in generation. This dichotomy is an important structural feature of the national electricity market and has been criticized as being cost-ineffective, causing financial loss to utility companies,30 and for contributing to Hungary ranking low (22nd among 29 countries during 2015) in terms of electricity retail market competiveness.31 In terms of the electricity generation sector, there are currently 13 companies operating power plants of 50 MW or higher capacity. There are an additional 200 companies that operate more than 300 small power plants under 50 MW.32 That said, one nuclear power plant alone has provided up to 50% of electricity generated in Hungary.33 High-voltage electricity is transmitted on a single common transmission line network owned and operated by a subsidiary of MVM Zrt, namely, MAVIR Zrt. In line with Hungary’s market liberalization efforts in 2005, MVM Zrt established an independent transmission operator (ITO)/TSO by transferring its transmission activities and assets to MAVIR Zrt which is licensed for its system operation and transmission activities. This unbundling, completed in 2009, aimed at providing the domestic electricity market with a TSO/ISO that would guarantee independence, transparency, and non-

29. Cf., IAEA country nuclear power profiles: Hungary (2018), cf., https://cnpp.iaea.org/countryprofiles/Hungary/Hungary.htm (last accessed 12.07.19). The IEA expresses concern as to the scope that such tariff reductions create for tariff deficits. Cf., IEA Energy Policies of IEA Countries: Hungary (2017) (at pp. 9 10, 81 and elsewhere) cf., https://www.iea.org/publications/freepublications/publication/EnergyPoliciesofIEACountriesHungary2017Review.pdf (last accessed 12.07.19). 30. Ibid., (pp. 72, and 81 83). 31. Cf., the 2015 IPA Advisory Ltd., Final report on ranking the competitiveness of retail electricity and gas markets: a proposed methodology to the agency for cooperation of energy regulators, cf., https://www.acer.europa.eu/en/Electricity/Market%20monitoring/Documents_Public/ IPA%20Final%20Report.pdf (last accessed 15.07.19), and IEA Energy Policies of IEA Countries: Hungary (2017) (p. 79). 32. Cf., IAEA country nuclear power profiles: Hungary, 2018. https://cnpp.iaea.org/countryprofiles/Hungary/Hungary.htm (last accessed 12.07.19). 33. Namely, the Paks plant, owned and operated by energy and utilities conglomerate, MVM Group. Cf., the 2017 MVM Group Annual Integrated Report (at p. 5) http://mvm.hu/download/ Evesjelentes_2017_EN_v4.pdf/?lang 5 en (last accessed 12.07.19).

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discrimination in the transmission market concerning market participants.34 In that regard, it operates in accordance with the Independent Transmission Operator (ITO) model35 whereby MAVIR Zrt owns and operates the transmission network,36 is responsible for grid management and system security, and guarantees equal access to all participants. Incidentally, MAVIR Zrt is under mutual assistance obligations with the TSOs of neighboring states—a good indicator of its interconnectivity with surrounding networks.37 Given that almost half of Hungary’s electricity supply is imported, it is evident that the degree and effectiveness of the interconnectedness of Hungary’s electricity network to those of its import partners are crucial to Hungary’s energy security. Overall, Hungary’s transmission system is well integrated with that of its neighbors and with the broader regional and continental European systems, with multiple existing interconnections with neighboring countries (Austria, Croatia, Romania, Serbia, the Slovak Republic, and Ukraine), and with plans for cross-border capacity extensions with the grid of Slovenia.38 In relation to Ukraine, notably, Hungary’s transmission system is well connected despite the fact that previously, following the collapse of the Soviet Union, Hungary had made its grid incompatible with that of Ukraine by adapting it to western standards in order to integrate with western European transmission systems.39

34. Cf., http://mvm.hu/tevekenysegunk-en/transmission-system-operation/?lang 5 en (last accessed 10 July 2019) for an exposition of the background to and function of MAVIR Zrt, i.e., the Hungarian Transmission System Operator, whose responsibilities include: the management of grid assets, their development for security of supply purposes, the harmonisation of the transmission system with the grids of neighbouring countries, and the grid development strategy. 35. According to such model, it must operate “independently of the other economic operators that use the transmission network, and its independence is prescribed by legislation” cf., IAEA Country Nuclear Power Profiles: Hungary (2018). 36. Cf., the TSO’s website, http://www.mavir.hu/web/mavir-en/mavir-ltd (last accessed 10.07.19). 37. Cf., IEA Energy Policies of IEA Countries: Hungary, 2017 (p. 25). 38. Ibid. Also, cf., European Commission, November 2019. Electricity interconnections with neighbouring countries, Second report of the Commission Expert Group on electricity interconnection targets, (pp. 12 14), https://publications.europa.eu/en/publication-detail/-/publication/ 785f224b-93cd-11e9-9369-01aa75ed71a1/language-en?WT.mc_id 5 Searchresult&WT. ria_c 5 37085&WT.ria_f 5 3608&WT.ria_ev 5 search (last accessed 16.07.19). In relation to interconnecting points with the grids of non-EU neighbouring countries, there are four with Ukraine, and two with Serbia. 39. Hungary had previously been integrated with the United Power System/Integrated Power System (UPS/IPS) that connected the Soviet Union and its neighbouring partners within the context of the Council of Mutual Economic Assistance (COMECON). At the beginning of the 1990s, Hungary took steps to connect to the Western European “UCPTE” (Union pour la coordination de la production et de la transmission de e´nergie e´lectrique) system, along with the Czech Republic, Poland, and the Slovak Republic. Such synchronisation required the disconnection with UPS/IPS. For a detailed account of Hungary’s pre-EU Accession electricity sector, cf., the Global Energy Network Institute’s (GENI) Electricity Report on Hungary.

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Subsequently, in 2010 in line with liberalization efforts, MAVIR for its part, established a subsidiary, the Hungarian Power Exchange Company Ltd. (HUPX) to promote the liquidity of Hungary’s electricity market, as a leading market within the broader region of Central and Eastern Europe, by seeking to provide a transparent and unified market mechanism to facilitate trade and investment in the electricity market and sector.40 Broadly, HUPX activities are organized around Day-Ahead Market, Intraday Market, and Physical Futures trading41 and also relate to coupling with the neighboring electricity markets of the Czech Republic, Romania, and Slovakia,42 in line with EU objectives concerning greater electricity market liberalization and integration through, among other means, market liquidity. Such market coupling has resulted in gradual market price convergence in the region, and more effective use of interconnector capacities, which has encouraged further plans to expand regional market coupling between those four markets and those of Northwestern European and Central-eastern European regions.43 Concerning electricity distribution, there are six regional distribution companies responsible for operating networks (120 kV and below) and supply for consumers.44

19.2.3 Policy responsibility and regulation Overall responsibility for energy policy in its wide sense, and the electricity sector and market more specifically, rests with central government, shared between various departments at the highest political level, including the Prime Minister’s Office, the Ministry of National Development, the Ministry of Foreign Affairs and Trade, and the Ministry of National Economy. Following the 2018 parliamentary elections, there have been developments to energy governance with the Ministry for Innovation and Technology currently assuming, or, at least sharing, responsibility for energy matters.45 The National Research, Development and Innovation Office and the Hungarian Central Statistical Office are relevant institutions answerable to the PM’s Office, while the Hungarian Atomic Energy Agency and the 40. Cf., HUPX Ltd., official website, https://hupx.hu/en/about-us/company-info# (last accessed 11.07.19). 41. According to the MAVIR Data of the Hungarian Electricity System 2017 report (p. 41), during 2017 c.24.3 TWh of electricity was traded on the Day-Ahead Market, Intraday Market, and Physical Futures markets, amounting to 53.95% of gross domestic electricity consumption. Since its establishment (2010), c.96.2 TWh have been traded within the context of HUPX. 42. For more information on the coupling of neighboring electricity markets, cf, https://hupx.hu/ en/market-coupling/history (last accessed 11.07.19). 43. Cf., the IEA Energy Policies of IEA Countries: Hungary (2017) report, (p. 74). 44. Cf., IAEA Country Nuclear Power Profiles: Hungary, 2018. 45. Cf., IAEA Country Nuclear Power Profiles: Hungary, 2018 and Hungarian government website, cf., https://www.kormany.hu/en/ministry-for-innovation-and-technology (last accessed 11.07.19).

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Hungarian Office for Mining and Geology are answerable to the Ministry of National Development.46 Moreover, the Hungarian Energy and Public Utility Regulatory Authority (HEA)47 is the key body involved in, among other things, Hungary’s electricity market,48 as successor to the erstwhile Hungarian Energy Office.49 The HEA establishes electricity network access rules and fees, distributor rates, and criteria for, and rates of, electricity connection fees.50 In that respect, it carries out competition regulation and enforcement functions, and thus compliments the work of the Hungarian Competition Authority (GVH).51 It is also instrumental in overseeing the implementation of the price-setting policy of the electricity retail market (cf., universal segment, discussed earlier). A key policy blueprint issued in 2012 by the Hungarian government is the National Energy Strategy 2030 (NES 2030). Among various policies aimed at Hungary’s energy security, the government lists the need for closer integration with Central European electricity networks and the further expansion or construction of the necessary cross-border connections.52 Specific aspects of Hungarian energy policy pertaining to the electricity market, the deployment of new tools and technologies, and decentralization shall be explored in subsequent parts of the present case-study. As expected, EU rules further condition Hungary’s policy development on those aspects of energy policy that engage sole or shared EU

46. See the IEA, 2017 Energy Policies of IEA Countries: Hungary 2017 Review, (p. 21). ´ ´ Hivatal. For an introduction, cf., http://www. 47. Magyar Energetikai E´s Ko¨zmu-Szabalyoz asi mekh.hu/introduction (last accessed 08.07.19). 48. Article 1(1) of Act XXII of 2013 on the Hungarian Energy and Public Utility Regulatory Authority which states that the HEA is responsible for “duties related to electricity, natural gas, district heating supply and water utility services of the state, as well as preparation of price regulation related to public waste management services.” Cf., http://www.mekh.hu/download/c/1b/ 10000/act_xxii_of_2013_on_the_hungarian_energy_and_public_utility_regulatory_authority.pdf (last accessed 8.07.19). 49. Cf., Article 23(1) of Act XXII of 2013. 50. Cf., Article 12(a) of Act XXII of 2013. ´ Versenyhivatal (GVH) cf., http:// 51. NB., The Hungarian Competition Authority/Gazdasagi www.gvh.hu/en/gvh/responsibilities_of_the_gvh (last accessed 8.07.19). According to the GVH, the HEA “plays a very important role in the operation of the regulated and competitive markets (the electricity and natural gas market have been liberalised during the recent years) by issuing licences for market players, regulating companies which act as natural or legal monopolies and at the preparation of decisions on prices and by supervising the market. The purpose of the agreement between the GVH and the (HEA) is the following: strengthening the competition in the wire/pipeline energy market, enforcing the protection of market operations, increasing the efficiency of the regulation, and promoting uniform law enforcement.” Cf., http://www.gvh.hu/ en/gvh/cooperation_agreements/hungarian_energy_office (last accessed 08.07.19). 52. Cf., National Energy Strategy 2030, (NES 2030) Ministry of National Development, 2012. (p. 7) https://2010-2014.kormany.hu/download/7/d7/70000/Hungarian%20Energy%20Strategy% 202030.pdf (last accessed 23.07.19).

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competence.53 That said, it should be noted that far-reaching structural and other reforms to Hungary’s electricity market actually predate Hungary’s EU accession, having commenced in the early 1990s, albeit with a view to Hungary’s greater economic integration with Western Europe, and to it becoming a key regional player given its geostrategic position. In that sense, key EU energy policies are highly pertinent, as are various EU bodies, to Hungary’s energy including electricity-related policy. Consequently, the relevant acquis communautaire is a source of regulation over Hungary’s electricity market, etc.

19.2.4 Geopolitical considerations As briefly mentioned earlier, Hungary’s location is geostrategic, and its power system is well connected and integrated not just with those of all its neighbors, but also with the broader central, eastern, southern, and overall continental European systems. Imports compete with domestic electricity generation, and the country has become more dependent on electricity imports in recent years, while domestic electricity generation has stagnated, if not declined. In 2014 Slovakia was the largest electricity exporter to Hungary (c.49% of net imports) followed by Ukraine (c.29%). With regard to Hungary’s electricity exports, 78% were destined for Croatia while 22% for Serbia.54 Notably, in addition to Hungary’s evident commitment to integrating its electricity system with that of its neighbors—predominantly EU members— Hungary’s system is well integrated with that of Ukraine. What is more, Hungary pursues energy diplomacy with Russia beyond the purposes of merely securing access to Russian gas, crude oil, etc., upon which its energy imports heavily rely.55 This is unsurprising given that both Ukraine and Russia are not only energy significant (cf., energy endowment and transit capacity, respectively), but also given that, like Hungary, they have both experienced deep structural transformation from command economies toward market-based systems. What is more, Hungary and Russia have concluded agreements for technical and financial support to expand nuclear energy generation capacity, according to which Russia commits to providing a credit line to the tune of EUR 10 billion along with technical support.56 53. Leal-Arcas, R., Filis, A., 2013. “Conceptualizing EU Energy Security through an EU Constitutional Law Perspective,” Fordham Int. Law J. 36, 1224 1300, for an exposition of the complexity at play, and a full rundown of EU competence concerning energy policy. 54. Cf., IEA, 2017 Energy Policies of IEA Countries: Hungary 2017 Review, (p. 70). 55. Ibid., (passim including pp. 13, 24, 102, 109, 110, and 119). 56. Hungary and Russia signed an agreement in January 2014 for the construction and technical support of two units with 1,200 MW(e) at the existing Paks site. A further agreement was signed in March 2014 whereby Russia provides 80% of the costs of the project while Hungary assumes the remaining 20%. Cf., IEA Energy Policies of IEA Countries: Hungary 2017 Review, (pp. 13, 102 103).

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Furthermore, internal political developments also set the tone of Hungary’s international discourse. The rise of right-wing nationalist populism in Hungarian politics over the last decade or so has led to a more assertive, often antagonistic, tone. For instance, Hungarian government ministers have expressed some resentment at what the Hungarian government perceives as the existence of double standards on the part of the European Commission concerning pipeline projects that benefit different parts of the EU (e.g., the developed, more affluent, core v. the developing, post- or intratransition, periphery).57

19.3 How “smart” is Hungary’s electricity system? Under EU legislation, Member States, including Hungary, are under the obligation to encourage the modernization of their distribution networks, including through the introduction of “smart grids,” in a manner that encourages energy efficiency and the decentralization of energy generation. The European Commission’s Energy 2020 Communication58 contains a number of priorities, including the integration of electricity systems, the fostering of technological and innovative developments, energy security and affordability, and the empowerment of consumers. Efforts to “smarten” the electricity networks through the development and application of diverse technologies that facilitate and/or enhance different aspects of electricity systems—for example, generation, transmission, distribution, and storage—are certainly potent instruments in addressing such priorities. Much that pertains to developing optimal energy networks—including smart grids—has to do with endowing them with dynamic processes that, among other things, allow the flow of relevant information—not just power—between all connected participants including power generators 57. For instance, at a Eurasian energy security forum in Belgrade, Hungarian Minister of Foreign Affairs and Trade, Pe´ter Szijj´arto´ declared that “close cooperation is required in central, eastern, and southern parts of Europe to enable the realisation of those projects that serve the region’s energy security [. . .] it must be made clear that the countries of Central and Eastern Europe have exactly the same rights and must be treated exactly the same way as Western European countries [. . .] Gazprom is constructing two Turkish Stream pipelines, one for the Turkish market, and one, which we hope will serve the Balkans and Central Europe. This pipeline will transport gas via Bulgaria and Serbia to Hungary, and from there to Slovakia and Austria [. . .] if the European Commission has no objection to the Western European gas pipeline, why has it objected to the smaller pipeline planned by the countries of Central Europe?” Furthermore, the Minister was dismayed at what he perceived as the unfair treatment of Central and Eastern European countries which he considers are often criticised for cooperating with Russia within the field of energy while it is in fact Western European countries that cooperate much more closely with Russia in energy matters etc. Cf., https://www.kormany.hu/en/ministryof-foreign-affairs-and-trade/news/close-cooperation-is-required-in-the-central-eastern-and-southern-parts-of-europe-within-the-field-of-energy-security (last accessed 08.07.19). 58. A strategy for competitive, sustainable and secure energy (COM(2010)639 final).

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(including micro-producers), TSOs, distribution system operators (DSOs), traders, and consumers. Such data flows can be conducive to greater responsiveness in the overall system, and this may result in greater efficiencies for all participants. This may require setting up suitable infrastructure, and in the case of existing infrastructure, depending on its state, may require retrofitting or replacement to allow for greater interoperability, including transmission of key data through smart metering and other systems, across its expanse. Predictably, such efforts may require substantial capital investments that are unlikely to ordinarily materialize through the market due to low levels, or a lack, of profitability. In such cases, substantial public—be it state or supranational—funding may be necessary. While government policy cannot ordinarily create profitable conditions, it has a role to play in injecting some certainty and predictability into the landscape in so far as regulation goes, given that the presence of uncertainty—including regulatory uncertainty— could compound this issue.59 In the case of Hungary, as discussed earlier, the entire electricity market has been restructured along unbundling and broader liberalization lines, with efforts commencing well ahead of Hungary’s 2004 EU accession involving considerable infrastructural adjustments aimed at integrating Hungary’s electricity system with that of Western Europe. However, as shall be mentioned in subsequent parts of this article, Hungary has sought substantial financial support in piloting smart grid-related projects (namely, its smart metering pilot project managed by its TSO). The various aspects of Hungary’s smart grid policy and practice are enumerated and explored in the following sections.

19.3.1 Research and development—investments and funding At the EU/EFTA level, up to EUR 5 billion were dedicated to 950 smart grid-related research and development (R&D) projects across the EU, Switzerland, Norway, and other third-party states involving projects shared with an EU/EFTA member. There is great divergence between the Member States due to particular market and other factors. Private investment remains the most important source of such projects although EU and national public funding are also present and pivotal in attracting private investment. The highest R&D investment is administered by DSOs and is dedicated to smart

59. Hungary acknowledges that the renewal of its energy infrastructure (power plants, grid, metering appliances, etc.) is “investment-intensive, the predictability of the investor environment and a system of institutions ensuring rapid administration must be established. The failure of the above may prevent the projects indispensable for a long-term security of supply.” Cf., NES 2030 (p. 15).

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network management, demand-side management, and the integration of electricity generation and storage.60 According to the IEA, Hungary has no specific energy technology research, development, and innovation (RDI) strategy per se, and the NES 2030 contains no specific energy tech-related and innovation goals or objectives per se. That said, Hungary’s “National Smart Specialisation Strategy” (S3) is organized in three general rubrics—namely, systems science, smart production, and sustainable society—within which, conceivably, energy, including electricity, matters aptly sit.61 Energy is also listed as one of the eight national priorities in the S3, therefore only projects engaging at least one of those priorities may qualify for funding. A range of sectoral priorities is also highlighted in S3, including the promotion of clean and renewable energy, energy efficiency, and the reduction of energy dependency.62 In relation to fostering a sustainable environment, an energy-related S3 objective pertains to Hungary’s digital transformation aimed at, among other things, “efficient energy networks.” In relation to attaining intelligent transport systems in the vehicle industry or “smart city” in the energy domain, energy-related objectives pertain to “efficient energy networks and low energy computing,” “intelligent intermodal and sustainable urban areas (smart cities),” and the “Internet of Things” (e.g., connected devices, sensors, and actuator networks). In relation to clean(-er) and renewable energy, the objectives pertain to reducing energy dependency, promoting the sustainability of locally produced energy and greater use of renewable energy from bioenergy sources. The attainment of such objectives engages digital transformation means toward efficient energy networks and low-energy computing.63 Data for 2012 suggest that energy-related R&D spending was in the region of EUR 86 million (which is almost double the IEA median—0.088% 60. Cf., Gangale F., Vasiljevska J., Covrig F., Mengolini A., Fulli G., 2017. Smart grid projects outlook 2017: facts, figures and trends in Europe, EUR 28614 EN, doi:10.2760/701587 (pp. 2 & 3) https://ses.jrc.ec.europa.eu/sites/ses.jrc.ec.europa.eu/files/u24/2017/sgp_outlook_2017-online.pdf (last accessed 19.07.19). NB., the European Commission’s 2017 database suggests that between 2004 and 2015 there was a total of 950 projects across 800 sites in 36 countries, 626 of which are national projects, and 324 are multinational projects with an average of 14 countries per project. 540 projects relate to R&D while 410 to demonstration. Investments peaked in 2012 (EUR 936 million) and incrementally fell by 2015 (EUR 634 million for 2013, 608 million for 2014, and 472 million for 2015) (pp. 3 & 10). 61. Cf., IEA Energy Policies of IEA Countries: Hungary 2017 Review (p. 152). 62. Ibid., (p. 154). 63. Cf., Hungary’s country profile on the European Commission Smart Specialisation Platform re Innovation Priorities in Europe which visualises public investment priorities for innovation across the EU (entries last updated in September 2018) cf., http://s3platform.jrc.ec.europa.eu/map? p_p_id 5 captargmap_WAR_CapTargMapportlet&_captargmap_WAR_CapTargMapportlet_non-eucountry 5 true&_captargmap_WAR_CapTargMapportlet_non-euregion 5 true&_captargmap_WAR_CapTargMapportlet_regionids 5 499 (last accessed 16.07.19).

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v. 0.048% GDP, respectively), the overwhelming part of which from 2008 onward has been dedicated to “energy efficiency” and to a lesser extent to “renewables”.64 For its part, MVM dedicates funds to RDI (c., USD 10 million) for financing R&D activities including the development of green technologies. More recently, it established Smart Future Lab Ltd., to be responsible for supporting R&D and innovative technologies, and, to that end, to serve as incubator for domestic start-ups and to provide seed financing.65 The Hungarian government could certainly do more to encourage smart grid-related R&D investment from the private sector by placing national smart grid objectives more prominently in its national agenda and thus attract investors who are looking for assurances that their involvement in Hungary’s electricity market is strategically important to the state. To such end, Hungary could clearly define and fund its priorities for energy-tech RDI, integrate its research and innovation (RI) programs into international cooperation frameworks, develop more robust evaluation processes to assess its RI outcomes, and better integrate its energy-related research program with the programs of other relevant policy areas.

19.3.2 Smart grids The term “smart grids” may mean different things to different people. While various definitions are in circulation, that proposed by the European Energy Regulators Group for Electricity and Gas (ERGEG) and espoused by the Council of European Energy Regulators (CEER) is certainly serviceable—a smart grid “is an electricity network that can cost-efficiently integrate the behaviour and actions of all users connected to it generators, consumers and those that do both in order to ensure economically efficient, sustainable power systems with low losses and high levels of quality and security of supply and safety”.66 The Hungarian government in its 2012 energy policy blueprint (viz., NES 2030, mentioned earlier) notes that the spreading of smart grids and meters must be encouraged, and that it should set an example particularly with 64. Cf., IEA Energy Policies of IEA Countries: Hungary 2017 Review (pp. 151 and 155). Contrast this this with the fact that overall R&D in Hungary, at c.1.37% GDP in 2014, is “significantly below the OECD average,” cf., the Innovation Policy Platform (World Bank Group and OECD) Science, Technology, and Innovation Outlook 2016 Country Profile for Hungary, https:// www.innovationpolicyplatform.org/content/hungary (last accessed 16.07.19). 65. Cf., the MVM Group Annual Integrated Report, 2017. (pp. 37 & 55). Figures concerning 2016 to 2020. http://mvm.hu/download/Evesjelentes_2017_EN_v4.pdf/?lang 5 en (last accessed 18.07.19). 66. Cf., Council of European Energy Regulators, Status Review on European Regulatory Approaches Enabling Smart Grids Solutions, February 2014, (p. 10), https://www.ceer.eu/documents/104400/-/-/f83fc0d2-bff9-600b-3e0f-14eccad7a8d8 (last accessed 16.07.19).

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regard to smart building and grid solutions in the public sector with regard to “smart cities” related objectives in promoting smart buildings and smart transport systems.67 As early as 2012 Hungary was of the view that its primary and main distribution grids already qualified as smart grids and considered the development of the distribution grid as indispensable to decentralizing power generation.68 Overall, Hungary’s attitude toward the attainment of a smart grid is positive, lauding its potential, among other things, to optimize electricity consumption, promote decentralized power generation, facilitate decarbonization efforts, and empower consumers.69 That said, there is very little information concerning whatever “smart” aspects of Hungary’s grid exist.70 Moreover, Hungary approaches the attainment of a Europe-wide smart transmission grid with some trepidation, as it considers any “mandatory feed-in of certain energy products” to be a risk.71 MAVIR, the national TSO, initiated a large-scale smart grid pilot project for the purposes of introducing smart metering and smart grids in Hungary. The Ministry of National Development sought EUR 38 million from the EU for the pilot project and nominated MAVIR as project executor. MAVIR set up a subsidiary, KOM Central Smart Metering Ltd., (KOM), to prepare for the introduction of smart metering and smart grids in Hungary. KOM received grants to implement the Smart Grid Pilot Project in 2015 to 2017.72 There is a real dearth of official information; however, MAVIR states that a description of the Model for the Smart Network Central Operator has been prepared with further detail on the Operating Model proposed, and that it is consulting widely with electricity sector “key players”.73 The European Commission decided to allocate EUR 20.9 million for smart metering to MAVIR/KOM for managing the pilot project.74

19.3.3 Smart metering The aim of the EU was to replace at least 80% of electricity meters with smart meters by 2020, wherever this was cost-effective [i.e., by subjecting 67. Cf., NES 2030, Ministry of National Development, 2012, (pp. 100 & 103). 68. Ibid., (p. 39). 69. Ibid., (pp. 25, 39, 73, & 100). 70. There is no mention of Hungary in the May 2016 (2nd ed.,) National and Regional Smart Grids initiatives in Europe: cooperation opportunities among Europe’s active platforms, nor in the Bridge Horizon 2020 Cooperation between Horizon 2020 Projects in the fields of smart grids and energy storage: The BRIDGE initiative and project fact sheets (June 2017). Also, there is a real dearth of information in official EU publications on smart grid development in Hungary. 71. NES 2030, Ministry of National Development, 2012, (p. 73). 72. Cf., the MVM Group Annual Integrated Report, 2017, (pp. 43 & 48). 73. Cf., MAVIR announcement on “SMART Programme” http://www.mavir.hu/web/mavir-en/ smart-programme (last accessed 16.07.19). 74. Cf., IEA, 2017 Energy Policies of IEA Countries: Hungary 2017 Review, (p. 78).

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this to cost-benefit analysis (CBA)], which, along with smart grid rollout, may have resulted in up to 9% EU emissions and household energy consumption reductions.75 In 2012, under its NES 2030, Hungary lauded smart metering as empowering consumers to adopt energy-efficient behavior, access the benefits of market competition, and avoid those most vulnerable running into debt. It also lauded the job creation aspects of the introduction and rollout of smart metering mainly in relation to domestic manufacturing of smart metering appliances,76 although the consistency of any such aspiration with EU and WTO rules is far from certain. In the same breath, however, the government stated that smart metering should be postponed until conclusions may be drawn from the Hungarian pilot projects and international experiences.77 Hungary—as is the case for its EU peers—is required to introduce smart metering systems in line with EU Directives 2009/72/EC and 2009/73/EC subject to CBAs of, among other things, smart metering models at the national level. Hungary notified the Commission of its CBA in December 2013.78 Again, these objectives are subject to CBAs concerning market participants.79 DSOs in Hungary have implemented smart metering pilot projects in 2013 and 2014 aimed at, among other things, data collection and research. However, these projects are not universal. As stated earlier, KOM is involved in the implementation of smart metering pilot project, which is in the closing phase. In line with the leeway afforded to Member States (namely, through CBAs), according to the CBA submitted by Hungary, the key assumptions

75. Cf., European Commission Energy Directorate webpage on smart grids and meters, https:// ec.europa.eu/energy/en/topics/markets-and-consumers/smart-grids-and-meters (last accessed 16.07.19). According to the information listed at that webpage, “close to 200 million smart meters for electricity [. . .] will be rolled out in the EU by 2020. This represents a potential investment of h45 billion. By 2020 [. . .] almost 72% of European consumers will have a smart meter for electricity.” On average, smart meters provide savings of h309 for electricity per metering point (distributed amongst consumers, suppliers, distribution system operations, etc.) as well as an average energy saving of 3%. 76. Cf., NES 2030, Ministry of National Development, 2012, (p. 94) where it is stated that increased smart-meter penetration would lead to the scrapping of about 15 million appliances and their replacement with appliances which could be manufactured, installed, and serviced by Hungarian businesses thus benefitting domestic industry. 77. Ibid., (pp. 61, 62, and 97). 78. Cf., Report from the Commission, Benchmarking smart metering deployment in the EU-27 with a focus on electricity, (p. 4, fn. 8), https://eur-lex.europa.eu/legal-content/EN/TXT/? uri 5 COM:2014:356:FIN (last accessed 23.07.19). 79. European Commission Energy Directorate webpage on smart grids and meters, https://ec. europa.eu/energy/en/topics/markets-and-consumers/smart-grids-and-meters (last accessed 16.07.19).

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were that between 2015 and 2023 smart metering would have covered 80% of electricity meters and would be likely to reduce electricity consumption by 1.5% and electricity pilfering by 50%.80

19.3.4 Demand-side policies/demand response Briefly, demand response (DR), within the context of greater energy efficiency, pertains to policies—typically through some tariff or program— aimed at incentivizing changes in electricity consumption patterns in response to changes in the price of electricity over time or to incentivize payments aimed at inducing lower electricity use during high price periods or when there is grid reliability is unstable.81 Under the Energy Efficiency Directive (2012/27/EU),82 Member States are required not only to remove whatever disincentives to overall energy efficiency in generation, transmission, distribution, and supply of electricity or that may hamper participation in DR may exist, but to further ensure that network operators are incentivized to improve energy efficiency including DR (cf., Art. 15.4). Further provisions require that Member States take particular regulatory and technical steps to facilitate DR and DR participants (cf., Art. 15.8). The requirements of Art. 15 could be arranged in four themes: DR should be encouraged to participate within aspects of the electricity market in a way that supply does; TSOs and DSOs must treat DR providers—including aggregators—in a nondiscriminatory manner and on the basis of their technical capabilities; national regulators should set clear technical rules and modalities for DR providers’ market participation; and that specifications should enable aggregators.83 In relation to Hungary, its command-economy past casts a long shadow in terms of attitudes toward DR. Hungary’s electricity system—in fact its broader energy system—has historically focused on supply overcapacity. Incidentally, what had historically come close to DR within the context of Hungary’s past had been demand restraint as an administrative tool, ranging 80. Cf., Institute of Communication & Computer Systems of the National Technical University of Athens (ICCS-NTUA), Athens, & AF Mercados EMI, Madrid final report Study on cost benefit analysis of Smart Metering Systems in EU Member States (final report), June 2015, prepared for the European Commission’s Energy Directorate (p. 62), https://ec.europa.eu/energy/sites/ ener/files/documents/AF%20Mercados%20NTUA%20CBA%20Final%20Report%20June%2015. pdf (last accessed 16.07.19). 81. Bertoldi, P, Zancanella, P, Boza-Kiss, B., Demand response status in Member States, EUR 27998 EN (p. 2), http://publications.jrc.ec.europa.eu/repository/bitstream/JRC101191/ldna27998enn.pdf (last accessed 26.07.2019). 82. Directive 2012/27/EU on energy efficiency, amending Directives 2009/125/EC AND 2010/ 30/EU and repealing Directives 2004/8/EC and 2006/32/EC, 25 October 2012. 83. Bertoldi, P, et al., Demand Response Status in Member States, (pp. iii-iv).

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from the imposition of restrictions on vehicular use for short distances, reductions in building temperatures, speed restrictions, brief driving embargos to the introduction of quotas on fuel, etc.84 Consequently, DR in relation to the electricity market is relatively an alien notion to policymakers, and public perception is low, as, historically, capacity concerns have not featured much. In that sense, there has been very little basis for DR and associated smart solutions and renewables tech that are mainly driven by EU policy.85 As a result, the European Commission regards Hungary—along with Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Italy, Latvia, Lithuania, Malta, Portugal, Slovakia, and Spain—as having yet to earnestly engage in DR reforms. While the mandatory parts of relevant EU law may have been transposed, very little has been done to facilitate DR. Consequently, DR may be legally possible in Hungary but there are “no defined means for aggregators to offer the demand-side resources, no way to measure or pay for the resources and no markets in which consumers or aggregators can sell the resources”.86 More specifically, within the Hungarian electricity system, while DR is allowed to join the network, licensing is frequently turned down on questionable grounds. As a result, very few applications participate in DR, and there is very little market pressure for DR expansion. For instance, dynamic pricing does not exist primarily due to the fact that smart metering is not extensive which would otherwise have assisted in this regard.87 In terms of technical barriers, a 2016 comparative report for the European Commission found that the structurally built-in load-management system used for DR is “outdated” and a “key barrier” to DR in Hungary.88

19.3.5 Self-generation A fundamental goal of the European Commission’s Clean Energy Package is to make households active participants in the electricity system and to decentralize electricity generation. To such end, it encourages residential electricity generation, storage, and consumption real-time data sharing (e.g., smart metering), etc. In Hungary, as of 2017, subsidization of projects concerning electricity generation from renewable sources takes place within the context of the ´ R programme—a fundamental reform of the previous feed-in tariff META ´ T system)—that the government expects to (FIT) system (namely, the KA

84. 85. 86. 87. 88.

Ibid., (pp. 94 95). Ibid., (pp. 92 93). Ibid., (p. iv). Ibid., (p. 94). Ibid., (pp. 126 & 128).

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result in a cost-effective, less expensive, and more predictable system.89 Both programs run side by side but new entrants are to be admitted under the latest. MAVIR (i.e., the national TSO, discussed previously) manages the program.90 ´ R, renewable electricity generators, save for non-wind Under the META power plants under 0.5 MW and those are already in receipt of an FIT, may sell power on the market. Different market premiums apply according to power plant capacity, that is 0.5 MW and below (save for wind energy), the generated power is purchased by MAVIR which, in turn, sells it on the wholesale market exchange (HUPX, discussed previously). This arrangement protects small producers from market risks; in relation to producers of 0.5 1 MW capacity a premium is paid with no need for competitive bidding; and, lastly, for larger producers (i.e., 1 MW and above), a premium is paid subject to competitive bidding through the HEA. Such tendering exer´ R programme attracted the cises engage EU rules, and Hungary’s META attention of the European Commission which, in the event, confirmed in 2017 that it complies with EU state-aid rules.91 ´ R, notably the bulk In relation to the number of applications under META related to generation capacity of 0.5 MW and below which have positive implications for the self-generation and decentralization goals associated to a more responsive and efficient grid system.92 Additionally, renewable energy plants are given priority for grid connection and access, and the connection costs and grid expansion may be borne by the grid operator, should the producers qualify for this support.93

19.3.6 Electric vehicles At the EU level there are particular commitments to decarbonize the economy dramatically—GHG emission reduction by 80% 95% over 1990 levels by 2050. With regard to transport, a 2011 White Paper aimed to reduce ´ R is made up of four different options depending on power generation capacity 89. The META and/or particular renewable/recyclable source. Cf., the MVM Group Annual Integrated Report (2017) for further details. 90. A detailed account of Hungary’s FIT programme is available at the RES LEGAL Europe professionally-edited database (i.e., a European Commission initiative), cf., http://www.res-legal.eu/ search-by-country/hungary/single/s/res-e/t/promotion/aid/feed-in-tariff-10/lastp/143 (last accessed 24.07.19). 91. Cf., European Commission press release, 11 July 2017. http://europa.eu/rapid/pressrelease_IP-17-1983_en.htm (last accessed 26.07.19). 92. During 2018 the number of applications stood at c.231 covering a capacity of over 110 MW ´ R, cf., with a total 2 billion Hungarian forint (c., EUR 6.1 million) made available under META the Hungarian Investment Promotion Agency (HIPA) Report, (p. 6), http://www.investhipa.hu/ images/hipa_kiadvany_intro_greenenergy_web_201808.pdf (last accessed 24.07.19). 93. Cf., RES LEGAL Europe introduction to Hungary RES policy http://www.res-legal.eu/ search-by-country/hungary/ (last accessed 24.07.19).

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GHG emissions by 60% over 1990 levels, and for the use of conventionally fuelled vehicles in urban transport to be halved by 2030 and to be entirely phased out by 2050.94 Take-up of zero- and low-emission vehicles95 is clearly indispensable to such aspirations. What is more, the European Commission in its strategy publication for low-emission mobility calls for a variety of measures to encourage this transition, including supporting low- and zero-emission mobility innovation, raising consumer awareness, and incentivizing take-up regarding larger vehicles (lorries, buses, and coaches), by, among other things, introducing robust sustainability targets regarding public procurement.96 Encouragingly, according to the International Renewable Energy Agency (IRENA), dramatic reductions in EV battery costs are leading to substantial increases in EV take-up. For instance, the cost of an EV battery was dropped by 73% when comparing 2010 and 2016 prices. By the end of 2016 the total stock of EVs was c.2 million—cf., with 1 million in 2015. What is more, the total stock of two- and three-wheel EVs is c.250 million, while China alone has c.300,000 on its roads.97 In relation to charging points, the total number has increased rapidly over recent years to c.92,000 public charging points across the EU/EFTA plus Turkey region. That said, they are not distributed evenly. Across the Netherlands there are 23,000 points, Germany in excess of 14,000, France c.13,000, and the United Kingdom c.11,500. However, there are fewer than 40 in Bulgaria, Cyprus, Iceland, and Lithuania. There had been proposals in the past for charging point quotas per Member State which would have resulted in up to 8 million charging points by 2020 with at least 800,000 available to the general public but these were shelved during negotiation in favor of governments designing their own national action plans placing at their discretion the appropriate number of points. Also, under EU Directive 2014/94 it is recommended that there be at least one public charging point for every 10 electric vehicles (EVs).

94. The 7th Environment Action programme (EU, 2013) pertains to the overall commitment, and the 2011 Transport White Paper (EC, 2011) to the latter. Cf., the 2016 European Environmental Agency Report on Electric Vehicles in Europe (No 20/2016), (p. 7), cf., https://www.eea.europa. eu/publications/electric-vehicles-in-europe (last accessed 25.07.19). 95. Cf., Report on Electric Vehicles in Europe (No 20/2016), (pp. 17 22) re a typology of lowand zero-emissions vehicles. 96. Cf., A European Strategy for Low-Emission Mobility, COM(2016) 501 final (pp. 6 9) https://eur-lex.europa.eu/resource.html?uri 5 cellar:e44d3c21-531e-11e6-89bd-01aa75ed71a1. 0002.02/DOC_1&format 5 PDF (last accessed 25.07.19). 97. Cf., IRENA, Electricity Storage and Renewables: Costs and Markets to 2030, 2017, (p. 6), https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2017/Oct/IRENA_Electricity_ Storage_Costs_2017_Summary.pdf?la 5 en&hash 5 2FDC44939920F8D2BA29CB762C607BC 9E882D4E9 (last accessed 22.07.19).

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Furthermore, under the EU’s Trans-European Transport Network (TENT) programme 115, high-power recharging points have been deployed on a pilot basis across central European roads aimed at the sustainability and decarbonization of long-distance driving.98 The precise number of charging points available to the public in Hungary is not entirely clear. According to ChargeMap, an EU-wide EV user community online resource—it would appear to be fewer than 700.99 While the relative dearth of charging points must be addressed by the Hungarian government given how it may discourage EV take-up, other incentives exist ´ nyos Plan)100 for EV take-up under the E-mobility Programme (the Jedlik A and for increasing the number of EV charging stations. Additionally, the government intends to introduce green license plates for low- and zeroemission EVs, permit the use of bus lanes, and to introduce parking and road tax incentives.101 For instance, exemptions or reductions of up to 100% for registration fees/taxes and road/circulation tax are available in Hungary.102 In terms of other initiatives, Smart Charging Ltd.—a company partially owned by Smart Future Lab Ltd., a start-up incubator, and seed financing MVM subsidiary, discussed earlier—is involved in the development of applications in regarding route planning and battery charge level to assist EV users.103 In sum, while Hungary should develop a plan to exponentially increase the number of charging points available to the public, incentives exist in the form of registration and road/circulation tax exemptions, and practical support such as permitting access to bus lanes.

19.3.7 Storage Technological developments and drops in associated costs have facilitated greater take-up of electricity generation from renewable sources. Moreover, technological solutions have arisen to the historical challenge of electricity storage. Traditionally, electricity has not been amenable to storage. Electricity generation is typically planned to meet projected demand, and this inherent uncertainty, on occasion, could lead to outages, unstable supply quality concerning voltage and frequency, and other disruptions. Longitudinal projections concerning the increased share of renewable sources in electricity generation make the cause of storage all the more pressing. 98. Report on Electric Vehicles in Europe (No 20/2016), (pp. 29 and 34). 99. Cf., ChargeMap lists public and semi-public points where it is suggested that the number is c.647. NB., figure is based on manipulating the map available here https://chargemap.com/map (last accessed 25.07.19). ´ nyos Plan. 100. 1487/2015 Government Decision on legislative tasks related to the Jedlik A 101. Cf., IEA, 2017 Energy Policies of IEA Countries: Hungary 2017 Review, (p. 61). 102. Report on Electric Vehicles in Europe (No 20/2016), (pp. 60 & 64). 103. Cf., the MVM Group Annual Integrated Report, 2017, (p. 44).

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The IRENA estimates that by 2050 at least 80% of global electricity could quite plausibly come from renewables, and, more specifically, that solar and wind could provide as much as 52%.104 Storage-related technological solutions would be necessary to facilitate such projections, to permit greater system flexibility and to accommodate the notorious changeability of generation through weather-dependent sources. Storage issues are key to such decarbonization efforts and should receive due levels of attention in terms of R&D funding priorities given that resulting storage developments could facilitate rapid decarbonization.105 Currently, electricity can be stored in EVs, and in such solar home systems and mini-grid systems that generate their own electricity. As mentioned earlier, significant drops in EV battery costs have translated in greater take-up of EVs106 and the potential for further cost reduction is likely to have positive implications for the further development of storage solutions.107 The Hungarian government in its NES 2030 energy policy blueprint recognizes that Hungary’s lack of electricity storage capabilities represents a weakness in its efforts to promote its energy security and that more must be done to improve system controllability, particularly by developing storage capacity. It recognizes that the intended increases in the shares of nuclear and renewable sources vis-a`-vis electricity generation necessitate serious efforts at the national and regional/collective level to address storage needs. Moreover, the government recognizes that some economic compulsion through legislative means may be necessary to incentivize electricity generators to invest in storage development.108

19.3.8 Data privacy and protection considerations Developments in smart grid-related technology have implications for other policy areas. For instance, the data privacy and protection aspects of such technologies may give rise to concern as it is not always clear how the latter might compromise consumer/user privacy interests, nor whether existing data protection suffices to address any such risk. Moreover, the fact that a breach of any section of a decentralized smart grid network could involve a leak of data that could potentially facilitate the identification of natural persons and the further vulnerability of sensitive data warrants serious consideration. In the case of smart meters, interoperability between terminals at either end of the distribution network—typically, between the end-user and the 104. Cf., IRENA, Electricity Storage and Renewables: Costs and Markets to 2030 (2017), (p. 4). 105. Ibid., (pp. 5 6). 106. Ibid., (p. 6). 107. Ibid., (p. 12). 108. Cf., NES 2030, Ministry of National Development, 2012, (pp. 42, 73, 78, & 79).

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distributor/supplier—allows for the exchange of data including those pertaining to user consumption. Such data gathering and processing are subject to EU data protection rules as they involve data that can be linked to identifiable individuals/natural persons. As is the case with all EU Member States, the principal source of data protection regulation in Hungary109 is Regulation 2016/679,110 the EU’s new General Data Protection Regulation, which regulates the processing by an individual, a company, or an organization of personal data relating to individuals in the EU. At the EU level, under data protection rules, personal data may be collected and processed to the extent that there is consent on the part of the data subject—that is, the individual to whom the data pertain—or some other applicable ground under the current rules, including to the extent that processing is necessary to execute a contract involving the data subject, ensure compliance with legal requirements, or to protect the vital and/or legitimate interests of third parties.111 Incidentally, what constitutes personal data is according to the rules an objective question that turns on the fact of whether the information relates to an identified or identifiable natural person.112 Under current rules, it is possible to circumvent the requirement for consent or the other applicable grounds in so far as the data are truly anonymized, as that this would rule out the possibility of the data subject’s identification. Extra care should be taken to ensure that the data are entirely anonymized and not pseudoanonymized, that is, potentially attributable to a natural person by use of additional information.113 In relation to smart metering, consumer/user consent to personal data gathering and processing could be sought from the outset accompanied by assurances that the data will be processed in line with the declared purposes for which they are collected, for example, for real-time cost estimates, to analyze consumption patterns, for supply efficiency and so on. Some consumers may be skeptical but their fears could be allayed by efforts to raise public awareness about smart metering, data protection, and the relatively low probability for data breaches and/or misuse. In that respect, it would be for Hungary to ensure that those involved in the installation and marketing of such technologies are being transparent about their purposes. Hungary could

109. Cf., the DLA Piper Data Protection Laws of the World entry for Hungary, https://www.dlapiperdataprotection.com/index.html?t 5 law&c 5 HU (last accessed 22 July 2019). 110. Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation). 111. Cf., Article 6, GDPR. 112. Cf., Article 4y1, GDPR. 113. Cf., Recital 26, GDPR.

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also target potentially resistant consumers with focused campaigns to publicize the perceived benefits of smart metering and other smart grid technologies that engage personal data, and to explain how personal data are protected under national and EU rules.

19.4 Conclusion It must be acknowledged that Hungary’s electricity market has undergone substantial reform since the collapse of the various bureaucratic command economies, including that of Hungary. Restructuring the Hungarian electricity sector along western market-based lines and positioning it for integration with Western Europe have been the key parameters of such reforms and have included greater liberalization, unbundling, market liquidity, and modernization. At the same time, notably, the role of the state is not entirely limited to regulatory oversight, given that it has proprietary interests—often absolute— in various electricity market participants including those involved in, among other things, electricity generation, distribution, supply, and trading. The TSO is also state-owned, although it operates along ITO lines to ensure fair and equal access to all participants. What is more, features typically associated with sophisticated smart grid systems—including universal smart metering, storage capacity, EV proliferation, self-generation, and DR—are generally either at an early stage or not widely adopted. Cases in point are the limited extent of Hungary’s smart metering efforts and the dearth in EV charging points, which both undermine Hungary’s other goals. For instance, the lack of more universal smart metering undermines DR efforts, and the lack of charging points discourage greater EV take-up. In turn, both outcomes undermine Hungary’s efforts toward, among other things, energy efficiency and the decarbonization of the economy.

19.4.1 Recommendations The Hungarian government could do more to signal a firmer commitment to smart grid development and optimization, for instance, by listing it more prominently in its national policy priorities, given the implications for domestic and foreign investment. Presenting smart grid development as a strategic matter could attract the necessary investments as it may promote greater certainty among investors. In relation to state intervention in pricing, a key segment of the electricity market—namely, the provision of “affordable” electricity to households—this has had implications for those participants at the supplier end of the electricity market (i.e., retail market) who find state-imposed tariffs restrictive on their ability to compete profitably. As a consequence, some suppliers are unlikely to

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renew their licenses and are thus likely to exit the electricity market altogether or redirect their resources to other aspects of the market. This could lead to fewer participants at the retail/supply end of the market, which could conceivably undermine the competiveness of the market.114 The Hungarian government should consider refining its pricing policy to ensure that it does not rob from Peter to pay Paul. For instance, restricting price setting to protect the most vulnerable—for example, those experiencing “energy poverty” (i.e., when energy costs amount to at least 10% of household income) or some other apposite criterion—could reverse these effects. In relation to smart meter rollout, while the government has expressed support and its willingness to examine whatever conclusions may be drawn from the limited in geographic scope pilot schemes and from international experience, it should recognize that smart metering is a very effective means of smartening its national grid as very few technologies hold such potential to hit a number of objectives (including more efficient electricity use, empowering consumers, real-time exchange of data to facilitate greater efficiency in planning, and so on). While CBAs in some national contexts may suggest that the perceived benefits are not compelling vis-a`-vis the costs of purchasing and installing the equipment, this could be an area for which the government could consider legislatively requiring all market participants and save, for instance, consumers, who are likely to benefit from this measure to fund it collectively and proportionally. The government has highlighted how the universal rollout of smart meters could present an “extraordinary opportunity” for Hungarian industry including job creation;115 however, it should be mindful of its international obligations under, among other things, EU and WTO rules to ensure that any resultant policy does not compromise national treatment and most-favored-nation-related commitments, respectively, nor compromise its subsidy/state-aid-related commitments under international instruments applicable to Hungary. In relation to the expansion of low- and zero-emission mobility/EVs, the government should consider tweaking the existing set of measures to further incentivize greater take-up of EVs and the progressive phasing out of polluting vehicles. A low-hanging fruit would be to exponentially increase the currently puny amount of charging points available to the public. What is more, Hungary’s existing public transport fleet is relatively old, and EVs should feature in decisions to phase out older vehicles for more energy-efficient and electricity-powered replacements. In relation to DR, while Hungary honors have transposed EU legislation to make DR legally possible, regulatory, market, and technical/infrastructural factors and barriers impede greater expansion. What is more, the fact that 114. Cf., IEA, 2017 Energy Policies of IEA Countries: Hungary 2017 Review, (pp. 82 83). 115. Cf., NES 2030, 2012. Ministry of National Development (p. 94) concerning the apparent unprofitability of the universal service segment of the retail market.

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smart metering—a key instrument in DR given that it assists end-users to adjust their consumption—is limited in Hungary further undermines the development of DR. Additionally, the pricing policy for households may also disincentivize DR and, more broadly, energy efficiency. Consequently, the government should consider how to better balance its other aims (e.g., supporting households through electricity tariff setting) with its efforts to promote energy efficiency through, among other things, facilitating DR.

Chapter 20

Energy decentralization and energy transition in Cyprus Mariya Peykova1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

20.1 Introduction In line with the European Union’s energy and climate targets for 2030, the European Commission has put forward a vision of an integrated energy system capable of delivering energy efficiency and a low-carbon economy.1 The increasing digitalization of the energy system will serve as the vehicle to a carbon-free, decentralized, and democratic system of energy generation and transmission. The introduction of smart grids across the EU Member States will contribute to the shift toward a more sustainable energy system. This chapter will assess Cyprus’s eligibility and readiness for the implementation of smart grids. The main focus of the article is the electricity market in Cyprus. It is in this context that the article will assess the extent to which the regulatory framework in the country is favorable to the successful implementation of smart grid technology. It is anticipated that the findings contained therein will be applicable and of interest to states within and outside the EU facing similar issues, or states and private entities wishing to invest in energy projects in the EU or Cyprus, in particular. In the light of our findings, we will offer recommendations to policy makers to enable them to adopt policies conducive to the faster and more efficient deployment of smart grid technology, as well as provide an insight into the current state of smart grid deployment on the island, to enable future investors to make the right decisions. In particular, we will focus on the legal and regulatory framework in the country, assessing the extent to which it has enabled the liberalization of the electricity market and the establishment of an effective data and consumer protection regime. We will then look at the current state of smart meter deployment on the island and offer recommendations on how this process can be expedited and/or 1. European Commission, 25 February.2015. “Energy union package,” Brussels, COM(2015) 80 final, [online], available at https://setis.ec.europa.eu/system/files/Communication_Energy_Union_en.pdf Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00018-9 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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rendered more efficient, to support ongoing efforts of smartening the grid. Finally, we will look at smart vehicle deployment and grid integration, as well as available storage options on the island. Appropriate recommendations will be made to assist policy makers and potential investors.

20.2 The smart grid: a vehicle to a more sustainable energy system The European Commission defines smart grids as energy networks that can automatically monitor energy flows and adjust to changes in energy supply and demand accordingly. When coupled with smart metering systems, smart grids reach consumers and suppliers by providing information on real-time consumption. With smart meters, consumers can adapt—in time and volume—their energy usage to different energy prices throughout the day, saving money on their energy bills by consuming more energy in lower price periods. Smart grids can also help to better integrate renewable energy. While the sun does not shine all the time and the wind does not always blow, combining information on energy demand with weather forecasts can allow grid operators to better plan the integration of renewable energy into the grid and balance their networks. Smart grids also open up the possibility for consumers who produce their own energy to respond to prices and sell excess to the grid.2 The smart grid is defined in Data Privacy for the Smart Grid as “the modernization of electric, natural gas and water grid infrastructure. . .the convergence of remote monitoring and control technologies with communications technologies, renewables generation, and analytics capabilities so that previously non-communicative infrastructures like electricity grids can provide time-sensitive status updates and deliver situation awareness.”3

20.3 Cyprus electricity market Due to its isolated geographical position4 and the lack of primary sources of energy domestically, Cyprus’ electricity market is still emerging. The Mediterranean state is one of the EU countries with the lowest percentage of electricity generated by renewable sources. In fact, only 8.6% of the country’s electricity is generated from renewable sources,5 and the island is heavily dependent on oil/petroleum imports for the production of electricity, which makes it highly susceptible to price unpredictability6 and impedes the 2. European Commission, “Smart grids and meters,” 2019, [online], available at https://ec. europa.eu/energy/en/topics/markets-and-consumers/smart-grids-and-meters 3. Herold, R., Hertzog, C., 2015. Data Privacy for the Smart Grid, CRC Press, USA. 4. Nikolaidis, P. Chatzis, S., Poullikkas, A., 2018. “Renewable energy integration through optimal unit commitment and electricity storage in weak power networks,” Int. J. Sustain. Energy. 5. Eurostat, “Share of energy from renewable sources,” available at https://ec.europa.eu/eurostat/ web/products-eurostat-news/-/DDN-20180921-1 (accessed 13.04.19). 6. Schwartz, D.L., 2017. “The Energy Regulation and Market Review.” Sixth Edition, pp. 115 126.

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effective and prompt reduction of carbon emissions. However, a wave of recent natural gas discoveries in the Cypriot Exclusive Economic Zone (“EEZ”) in the Mediterranean brings promises of diversification through the use of natural gas for electricity generation.7 This development is likely to strengthen the need for smart grid technology with a view to enabling the electricity sector to absorb more renewables in a smart and efficient manner, making thus the adoption of smart grids a priority for policy makers. The discovery of natural gas in the EEZ has also placed Cyprus on the map as a major emerging player in the field, increasing thus opportunities for investment in clean energy projects and smart grid technologies in the field of electricity.

20.3.1 Key players The Electricity Authority of Cyprus (“EAC”) is an independent semigovernmental utility established by the Development of Electricity Law, Cap 171. The EAC had a monopoly on the generation and supply of electricity throughout the island until the accession of Cyprus to the EU in 2004. Other major players in the electricity market include the Ministry of Energy, Commerce, Industry and Tourism (‘MCIT’), which is the relevant competent ministry under which a number of governmental authorities are based, and the TSO, which was established following the decision to liberalise the electricity market in the country (the body functions independently from the Distribution System Owner and Operator, which is the EAC).8 However, a number of challenges remain; these will need to be addressed before Cyprus can successfully implement smart grid technology and make full use of it in its emerging electricity market.

20.3.2 Legal and regulatory framework A series of legal and regulatory changes following Cyprus’ accession to the EU in 2004 have aimed at aligning the existing regulatory framework with EU policy. It is anticipated that the relevant changes will provide for a legal and regulatory environment that is conducive to the implementation of smart grids, as they aim to create an open and competitive market. However, some of these changes have not yet taken full effect and are still in the “trial-anderror” phase. Policy makers are currently in the process of formulating new policies that will boost competitiveness by introducing lower electricity prices and issues still remain in respect of EAC’s control over distribution. 7. Lavinder, K., 20 March 2018. “Cyprus offshore gas discoveries hold promise for diversification & clean energy,” South EU Summit, [online], available at https://www.southeusummit.com/ europe/cyprus/cyprus-offshore-gas-discoveries-hold-promise-diversification-clean-energy/ 8. Cyprus Energy Regulatory Authority, 2017 National Report to the European Commission, July 2016 July 2017, [online], available at https://www.ceer.eu/documents/104400/5988265/ C17_NR_Cyprus-EN.pdf/ff6348c4-9372-e9ff-7cb1-ea607ecaa3d2

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In addition, no regulatory or legal action has yet been taken to encourage investment in smart grid technology. The legal framework governing the electricity market in Cyprus is made up of three interrelated pieces of legislation. The first one is the Electricity Law, Cap 170, which regulates the generation, transmission, and distribution of energy on the island. The Development of Electricity Law, Cap 171 (as subsequently amended) regulates the relationship between the EAC, the state, and consumers. Finally, the Electricity Market Regulation Law 122(I) 2003 (subsequently amended) (the “Electricity Law”) has sought to align the internal electricity market of the Republic of Cyprus with EU policy and has amended and repealed a number of sections of the Electricity Law and the Development of Electricity Law mentioned above.9,10 The Cyprus Energy Regulation Authority (“CERA”), an independent national regulatory authority, was established in 2003 pursuant to the provisions of the Electricity Law. CERA has a number of executive powers and responsibilities, such as the power to grant, amend, or revoke licenses, the power to advise competent authorities (such as the MCIT) on all matters relating to electricity, the power to ensure compliance with transmission and distribution rules and electricity market rules, and the power to regulate tariffs, charges, and other conditions applied in relation to licenses.11 A large number of the legislative and regulatory changes in the field of electricity were driven by the desire to create an even playing field in the electricity market, stimulate competition, and ensure the uninterrupted supply of electricity to consumers. For example, the relevant changes introduced by the Electricity Law permit possible competitors of the EAC to enter the domestic market; full third-party access to the transmission and distribution systems is now authorized by the relevant legislation in place.12 In addition, the establishment of an independent Transmission System Operator (the CTSO), the role of which is to regulate access to the grid, is aimed at enabling independent energy producers to operate in a properly regulated environment and ensuring an uninterrupted supply of electricity to all consumers.13 The establishment of CERA as an independent regulatory body with the power to grant licenses aims to ensure that the market is open, transparent, and competitive.

9. The provisions of the Electricity Directive have been effectively transposed into domestic legislation by the Regulation of the Electricity Market Law 122(I)/2003, as amended (the Electricity Market Law). 10. Herbert Smith Freehills, 3 October 2017. European Energy Handbook 2017, [online] available at https://www.herbertsmithfreehills.com/latest-thinking/european-energy-handbook-2017 11. Ibid 12. Ibid 13. Ibid

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20.3.3 Liberalization of the market and the status of unbundling in the country Despite the regulatory overhaul which has taken place on the island, the electricity market is still dominated by the EAC, with no new providers on the market yet. Full liberalization of the electricity market is expected to take place sometime in 2020 21. The CTSO is the agency tasked with writing up the rules for full liberalization, but it has failed to deliver on the various timetables set for full liberalization; as a result the deadline for full liberalization has been pushed back multiple times.14 CERA’s proposal for the full opening up of the market entails a “net pool” model where the operations of the state-owned EAC are completely unbundled; production and supply operations are to be separated and the EAC would then enter bilateral agreements with suppliers for the sale of energy at regulated prices.15 These plans have been further stifled by unions in the country, as they are perceived as moves which could force the privatization of the state-owned power company.16 In fact, following the recession and the bailout in 2013, the privatization of EAC was approved by the Council of Ministers, as one potential avenue of improving the country’s financial position. The plan to privatize, however, has not proceeded as planned, as it has been vehemently opposed by workers’ unions and government opposition.17 Although the CTSO is an independent body,18 the EAC is the owner of both the transmission and distribution systems in the country and also holds the power to designate the DSO.19 Cyprus has also decided not to apply the provisions of the Electricity Directive with respect to the unbundling of distribution system operators, transmission systems, and transmission system operators. Although the decision to do so is understandable given the small isolated system which the EAC is serving, this raises the question of whether the CTSO and DSO are sufficiently independent to enable the transition to smarter grids to take place effectively. For example, in late September 2018 the EAC reportedly declined a tender concerning specialized software to be purchased by the DSO for the purpose of operating a new system designed 14. Hazou, E., April 9, 2019. “Anger at the House as liberalised electricity market delayed again,” Cyprus Mail, [online], available at https://cyprus-mail.com/2019/04/09/anger-at-thehouse-as-liberalised-electricity-market-delayed-again/ 15. European Commission, January 2019. Cyprus’ Draft Integrated National Energy and Climate Plan for the period 2021 2030, [online], available at https://ec.europa.eu/energy/sites/ener/files/ documents/cyprus_draftnecp.pdf 16. Ibid 17. Schwartz, D.L., 2017. “The Energy Regulation and Market Review.” Sixth Edition, pp. 115 126. 18. The Cabinet decided on 7 December 2017 to proceed with the full independence of the Cyprus Transmission System Operator. See https://www.news.cyprus-property-buyers.com/2018/ 10/29/larnaca-marina-investors-more-time/id 5 00154901. 19. The EAC is the country’s DSO. See https://thelawreviews.co.uk/edition/the-energy-regulation-and-markets-review-edition-6/1144316/cyprus.

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to match supply and demand and fix contract prices for when the market is fully liberalized.20 This event highlights the need for stricter regulation to ensure that the competencies of the CTSO, the DSO, and the EAC are clearly defined and separate. Regulatory changes are needed to encourage DSO participation in the process of smartening the grid (i.e. by incentivizing DSOs to test and innovate), while ensuring that consumers are protected from excessive charges by a DSO, especially where state-owned.21 As DSOs hold a crucial role in the implementation of smart grid technology, they need to be able to make independent decisions in relation to tenders for new technology and investment opportunities which will eventually enable the effective introduction of smart grid technology. This can only happen if the legislative and regulatory framework in place allows for this degree of autonomy. Cypriot policy makers and legislators need to focus on the formulation of laws and policies to effectively mitigate or minimize the impact of EAC’s control over distribution and improve competition in the sector. Effective DSO participation is further hindered by the fact that there are currently no incentives in place aimed at encouraging the DSO to adopt and fund smart grid projects.22 In most European countries incentives are provided through a number of regulatory mechanisms, initiatives sponsored by the government, and other EU initiatives.23 Furthermore, as TSOs have overall responsibility for system security, the role of the CTSO in the implementation of smart technology is crucial in a system where consumers will gradually become more involved in the production of electricity. Pursuant to the Electricity Market Law, the EAC currently provides the personnel of the CTSO, and the CTSO budget is covered by the EAC’s budget. Changes need to be made to the CTSO’s internal structure and the way it receives its funding to ensure its full independence from the EAC. Finally, as confidence in the CTSO management has significantly waned due to the agency’s failure to adhere to different liberalization timetables, it may be necessary to restructure the management team and review the methods by which the relevant timeframes are calculated and set.

20.3.4 Energy security dimension As seen above, Cyprus is a small isolated energy system, heavily reliant on oil products for its energy needs. Recent natural gas discoveries in the Eastern Mediterranean have unlocked newfound potential for the island to 20. E. Hazou, 18 September 2018. “Deadline to liberalise energy market passes again,” Cyprus Mail. 21. Leal-Arcas, R., Lasniewska, F., Proedrou, F., 2017. “Smart grids in the European Union: assessing energy security, regulation & social and ethical considerations” Queen Mary University of London, School of Law Legal Studies Research Paper No. 263/2017, p. 36. 22. Ibid, at p. 34 35. 23. Ibid.

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diversify its energy supply and become more energy independent through the use of renewable energy sources. The discovery of natural gas, however, has intensified existing geopolitical tensions between Cyprus and Turkey, particularly in relation to the rights of the Turkish Republic of Cyprus (“TRC”) to the natural gas reserves, given its questionable status in international law. While the Secretary General of the UN has expressed the view that the natural gas reserves belong to both sides, the issue continues to be politically fraught, significantly slowing down any process of exploration of the reserves, especially since there continues to be disagreement regarding the relevant rights of the various parties involved. Some projects are currently underway; the Aphrodite natural gas field24 contractor and the Republic of Cyprus are in discussions regarding the finalization and agreement on the Aphrodite Development and Production Plan.25,26 A number of legal and political issues arise out of the exploration of the various blocks within the EEZ which—although outside the scope of this paper—have an impact on efforts to commence exploratory drilling in the area.27 It is anticipated that the production and export of natural gas will significantly decrease Cyprus’ dependence on petroleum imports, catering for an environment that is conducive to the implementation and successful operation of smart grid technology.28 However, success is largely dependent on the effective resolution of the political deadlock that is currently obstructing further efforts to commence exploratory drilling. The status of the TRC in international law is a sensitive political and legal issue that has been at the forefront of Cypriot politics for a significant period of time. Unless the legal rights of the Republic of Cyprus (“RoC”) and the TRC with respect to the relevant areas in the EEZ are clearly defined and demarcated, further efforts to exploit the natural gas reserves will be stifled for years to come, and this will undoubtedly have a negative impact on the effective implementation of smart grid technology on the island.

24. The Aphrodite gas field is an offshore gas field off the southern coast of Cyprus located at the exploratory drilling block 12 in the country’s maritime Exclusive Economic Zone. 25. The Aphrodite field gas, according to the proposed DPP, is going to be transmitted to Egypt, mainly to Idku LNG Terminal for liquefaction and reexport as well as for the domestic market. Moreover, in February 2018, the ENI/Total joint venture completed the first exploratory well “Calypso 1” in Block 6, which resulted in a gas discovery. The ExxonMobil/Qatar Petroleum Consortium proceeds with its plans for two exploration wells in Block 10 in late 2018 early 2019. See https://ec.europa.eu/energy/sites/ener/files/documents/cyprus_draftnecp.pdf. 26. European Commission, January 2019. Cyprus’ Draft Integrated National Energy and Climate Plan for the period 2021 2030, [online], available at https://ec.europa.eu/energy/sites/ener/files/ documents/cyprus_draftnecp.pdf 27. For example, Turkey threatened to mobilize its naval forces should Cyprus proceed with its plans to commence drilling in the Aphrodite field gas (also known as Block 12). 28. The introduction of renewable energy sources in the field of electricity will increase the need for flexible smart grids, encouraging policy makers to consider the introduction of smart grid technology and take the relevant measures to enable their effective implementation.

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20.3.5 Electricity interconnections Another aspect of energy security, particularly in the field of electricity, is the existence of interconnections with neighboring states. Stable electricity interconnections are vital to the gradual smartening of the electricity network, as security of supply needs to be maintained while new technologies are adopted and tested. So far, the electricity system in Cyprus has been operating without cross-border links. The position is set to change with the introduction of the “EuroAsia Interconnector Project,” which is promoted as a Project of Common Interest.29 The project was proposed for the electricity interconnection between Israel, Cyprus, and Greece, and it consists of three distinct projects: Israel Cyprus, Cyprus Crete, and Crete Attica. It is anticipated that the implementation of this project will bring an end to Cyprus’ energy isolation. The project is also expected to contribute to the achievement of EU goals for the integration of the internal electricity market, security of supply, energy efficiency, and better backup supply in emergencies.30 Interconnections with other states will become more attractive once Cyprus begins to produce and export natural gas. Apart from increasing energy security, contributing to more affordable prices in the internal market, as well as reducing environmental impact, a well-interconnected grid will naturally need to be smartened in order to operate more efficiently and cost-effectively in the future. It is thus anticipated that the existence of a well-connected grid system will inevitably strengthen the need for smart technology; a growing and more complex grid system with multiple interconnections would certainly benefit from modern technology aimed at making it more easily manageable and efficient.

20.4 Smart metering systems Smart meters are essential for the digitalization of the energy sector, enabling households to control their consumption and participate more actively in the energy market. There are three main domains of applications for the smart grid network: the High-Voltage network used for the electricity transmission, the Medium-Voltage network used for the electricity distribution, and the Low-Voltage (LV) network used to provide electricity to endusers. Smart metering is a key part of the LV network, as it contributes to transmission, energy consumption, generation of data toward the utilities, and information toward the smart meters.31 Therefore smart meters play a key role in energy management and saving. 29. Euro-Asia Interconnector, [online], available at https://www.euroasia-interconnector.com/atglance/the-big-picture/official-support/ 30. Cyprus Energy Regulatory Authority, “2018 National Report to the European Commission for the year 2017 and the first half of 2018,” [online], available at https://www.ceer.eu/documents/104400/6319351/C18_NR_Cyprus-EN.pdf/163f9df5-09b1-b9ce-b3a2-9f90003872ce 31. Andreadou, N., Guardiola, M.O., Fulli, G., 2016. “Telecommunication technologies for smart grid projects with focus on smart metering applications,” Energies 9, 375.

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However, Cyprus has decided against a national roll-out meter plan.32 This decision runs contrary to EU requirements to introduce smart metering in Member States, with a view to achieving the 80% target agreed by all EU countries for 2020.33 One of the reasons why some states, including Cyprus, have been reluctant and/or slow to introduce smart metering is because the requirements set by the EU are not legally binding. Although there is currently no official national roll-out plan, steps have been taken by EAC for the gradual introduction of smart metering in the country. In 2014 EAC announced its plans to launch a smart metering initiative; it launched a tender for the purchase of 3000 smart meters to be installed in various households and businesses around the island.34 More recently, a comprehensive design for the installation of 400,000 smart meters to replace existing ones was prepared based on a decision by CERA; the project is anticipated to be completed in the next 8 years and represents a step in the transformation of the distribution system into a smart network.35 Despite recent developments, the process of smart meter deployment has been slow. As mentioned above, one of the reasons is because the requirements for deployment are not strictly enforceable, which offers states significant leeway and flexibility. It is perhaps time for policy makers (both domestically and at the EU level), to consider the implementation of stricter policies and requirements, in an effort to speed up the process. Another reason why the deployment of smart meters has not necessarily been at the top of policy makers’ to-do lists is because the experience from other EU Member States has been that end-users are not as involved in the process as they should or were anticipated to have been.36 This could make policy makers reluctant to deploy smart meters if end-users are not particularly interested in learning how to make use of them effectively. One solution to this problem—which might be easier to implement in a relatively small market such as Cyprus—would be to educate users on the efficient use of smart meters before deployment (where deployment were to be effected in tranches). This could be done through online tutorials or leaflets sent to endusers’ home addresses.

32. Simon, F., 29 January 2019. “Smart meter woes hold back digitalisation of EU power sector,” Euractiv, [online], available at https://www.euractiv.com/section/energy/news/smart-meterwoes-hold-back-digitalisation-of-eu-power-sector/ 33. European Commission, “Smart Grids and Meters,” [online], available at https://ec.europa.eu/ energy/en/topics/markets-and-consumers/smart-grids-and-meters 34. Gold News, 10 July 2014. “EAC explores smart metering initiative.” [online], available at http://www.goldnews.com.cy/en/energy/eac-explores-smart-metering-initiative 35. Cyprus Profile, 31 December 2018Speech by the Chairman of the EAC Board of Directors. [online], available at https://www.cyprusprofile.com/en/articles/speech-by-the-chairman-of-theeac-board-of-directors/ 36. Gurzu, A., 29 May 2018. “Smart meters undercut by human nature,” Politico, [online], available at https://www.politico.eu/article/smart-meters-undercut-by-human-nature/

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To further speed up the process of smart meter deployment, policy makers need to ensure that vulnerable and low-income households are provided with adequate support to enable them to benefit fully from a technological advancement that does not, on its own, automatically benefit them.37 Studies conducted in other EU Member States have revealed that smart meters in themselves do not automatically lead to energy savings in the residential sector without additional support, advice, and feedback mechanisms such as accompanying in home displays.38 Energy poverty has not yet been officially defined; however, the first official definition adopted by the United Kingdom (1991)—which is still unofficially used by other countries—is that “a household is said to be fuel poor if it needs to spend more than 10% of its income on fuel to maintain an adequate level of warmth.”39 While there is no precise official definition, and the concept of energy poverty is measured by reference to a number of different variables and indicators, studies have shown that Cyprus is among the EU states with the highest levels of energy poverty.40 To ensure optimum results from the upcoming mass deployment of smart meters, Cypriot policy makers must ensure that consumers, especially those in low-income households and the elderly, are provided with the relevant tools and knowledge to understand their energy consumption and make use of new technology in the most efficient way.

20.5 Demand response Demand response can be defined as the changes in electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time.41 In the context of the electricity market, the concept of demand response involves the targeted reduction of electricity during high peak and demand periods. Hence, the primary concern of those 37. European Commission, EU Energy Poverty Observatory, 9 July 2018. “New research reveals importance of additional support in engaging vulnerable consumers in smart metering,” [online], available at https://www.energypoverty.eu/news/new-research-reveals-importance-additional-support-engaging-vulnerable-consumers-smart-0 38. Ibid 39. European Commission, Energy, “Share of households” expenditure on electricity, gas and other housing fuels’, [online], available at https://ec.europa.eu/energy/en/content/share-households-expenditure-electricity-gas-and-other-housing-fuels 40. “European Parliament, Directorate General for Internal Policies, Policy Department A: Economic and Scientific Policy,” “Energy Poverty,” 2017, [online], available at http://www. europarl.europa.eu/RegData/etudes/STUD/2017/607350/IPOL_STU(2017)607350_EN.pdf; Alexandru, M., Costica, M., Apostoaie, C.-M., Popescu, C., 2016. “Implications and measurement of energy poverty across the European Union,” Sustainability 8(5), 483, [online], available at https://www.mdpi.com/2071-1050/8/5/483/htm 41. Tellidou, A., Bakirtzis, A., November 2007. “Agent-based analysis of capacity withholding and tacit collusion in electricity markets,” IEEE Trans. Power Syst., 22(4), 1735 1742.

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looking at demand response programmers is how to introduce lower electricity prices for consumers.42 However, the current market conditions in Cyprus do not permit the implementation of demand response measures; a pre-condition is the full and actual liberalization of the electricity market, a development that has been continuously postponed since 2009.43 The government has announced its plans to implement various demand response measures by 2022, starting with a revision of the regulatory framework to define the technical modalities for the participation of demand response in the electricity market.44 There are also plans to introduce a system based on “supplier compensation.”45 It is anticipated that demand response services will be provided by Demand Response Service Providers and will include the participation of aggregated loads.46 The preliminary timeframe given by the government is 2022.47 In order to successfully implement effective demand response measures, the government must first ensure that the relevant market conditions are in place. The primary goal of policy makers should thus be to open up the electricity market to demand response, so as to ensure that independent aggregators will be able to compete on a level playing field.

20.6 Data protection The decentralized nature of smart grids makes the grid less susceptible to physical attacks such as terrorist attacks.48 However, the use of ICT in network management also renders the system more vulnerable to new types of threats, such as cyberattacks which could undermine the functionality of the entire grid, or lead to leaks of sensitive personal data. In order to optimize the benefits of smart grid technology and minimize ICT-associated risks, strong cybersecurity and data protection measures must be adopted.

20.6.1 Current legal framework As with all EU Member States, the Cypriot data protection framework is governed and shaped by the General Data Protection Regulation (Regulation (EU) 2016/679) (“GDPR”), the European Union law which entered the force 42. Ibid 43. Bertoldi, P., Zancanella, P., Boza-Kiss, B., “Demand response status in EU Member States,” EUR 27998 EN; doi: 10.2790/962868. 44. Republic of Cyprus, January 2019. “Cyprus” Draft Integrated National Energy and Climate Plan for the Period 2021 2013, [online], available at https://ec.europa.eu/energy/sites/ener/files/ documents/cyprus_draftnecp.pdf 45. Ibid 46. Ibid 47. Ibid 48. Brown, M.A., Sovacool, B.K., 2011. “Climate change and global energy security: technology and policy options,” MIT, Cambridge.

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in 2016, and after a transition period of 2 years became directly applicable in all European Member States on May 25, 2018.49 There are more than 50 areas where Member States are allowed to legislate differently, thus there is wide scope for different interpretation in different Member States.50 In addition, the NIS (Directive on security of network and information systems) Directive provides legal measures to boost the level of cybersecurity in Europe (see below); it is the first piece of EU-wide legislation on cybersecurity.51 The Directive was adopted by the EU Parliament on July 6, 2016 and entered the force in August 2016;52 it has been fully transposed in Cyprus.53 On July 31, 2018 Cyprus enacted the Protection of Natural Persons Regarding the Processing of their Personal Data and the Free Movement of such Data Law 125 (I) of 2018 (“the 2018 Law”). The purpose of the 2018 Law was to supplement the GDPR and offer a tailored approach to data protection.

20.6.2 Third-party control Third-party control of and access to personal data is restricted to individuals and/or bodies that fall under the definition of “data processor” under the GDPR, recognized foreign jurisdictions,54 third-party organizations such as businesses that are not based in an EU Member State but are subject to EU Law, or international agencies, and organizations, provided that the appropriate safeguards are in place.55 A data processor is a natural or legal person, public authority, agency, or other body which processes personal data on behalf of the controller.56 In the context of smart electricity grids this could 49. DLA Piper, 2019. “Data Protection Laws of the World,” accessed 18.05.19, available at https://www.dlapiperdataprotection.com/index.html?t 5 law&c 5 CY 50. Ibid 51. European Commission, Digital Single Market, Policy, The Directive on security of network and information systems (NIS Directive), at https://ec.europa.eu/digital-single-market/en/network-and-information-security-nis-directive, (accessed 19.05.19). 52. Ibid 53. European Commission, Digital Single Market, Policy, Implementation of the NIS Directive in Cyprus, at https://ec.europa.eu/digital-single-market/en/implementation-nis-directive-cyprus, (accessed on 19.05.19). 54. Transfers of personal data by a controller or a processor to third countries outside of the EU (and Norway, Liechtenstein and Iceland) are only permitted where the conditions laid down in the GDPR are met (Article 44). The European Commission has the power to make an adequacy decision in respect of a third country, determining that it provides for an adequate level of data protection, and therefore personal data may be freely transferred to that country (Article 45(1)). Transfers to third countries are also permitted where appropriate safeguards have been provided by the controller or processor and on condition that enforceable data subject rights and effective legal remedies for the data subject are available. See DLA Piper, “Data Protection Laws of The World: Cyprus,” 2019, pp.8 9; [Online], Available at: https://www.dlapiperdataprotection.com 55. Chapter 5 GDPR, Articles 44 50. 56. Article 4 (8) GDPR.

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be any natural or legal person who acts as an intermediary or processes data in some way on behalf of the data controller.57 The term “data processing” has a wide definition; it is defined as any operation or set of operations which is performed on personal data or on sets of personal data, whether or not by automated means, such as collection, recording, organization, structuring, storage, adaptation or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, alignment or combination, restriction, erasure, or destruction.58 It is clear from the above broad definitions and the numerous qualifications to third-party data sharing that a number of third parties could—subject to certain conditions being met—have access to personal data. The degree and extent of control over such third parties depends partly on whether they fall under the definition of “data processor” or qualify in some other way under one or more of the prescribed exceptions under the GDPR. For example, a higher degree of control can be exercised over a “data processor” based in the EU or subject to EU Law. On the other hand, a third party based in a non-EU jurisdiction with analogous duties to those of a data processor is by default outside the ambit of the GDPR. The development of further interconnectors in combination with the smartening and expansion of the grid opens up the possibility for data transmission across borders into non-EU territory. The smarter, more interconnected, and more intricate the grid becomes, the higher the risk of “data spillage” into jurisdictions not covered by the GDPR. The current legal framework may need to be refined or supplemented in order to ensure that the personal data of consumers will not simply be lost in the grid or cross over into a foreign jurisdiction without adequate safeguards.

20.6.3 The effects of smart metering on the current legal framework To facilitate the development of smart grids, the European Commission has encouraged the deployment of smart meters across all EU Member States.59 A closer look at the impact smart metering has had (if any) on the Cypriot data protection framework will enable policy makers to paint a clearer picture of some of the issues that may arise in the context of operating and managing smart grids. Even though Cyprus has not published official rollout data, plans are in place for the deployment of a significant number of 57. The data controller, as defined in Article 4 (7) of the GDPR, is the natural or legal person, public authority, agency or other body which, alone or jointly with others, determines the purposes and means of the processing of personal data; where the purposes and means of such processing are determined by Union or Member State law, the controller or the specific criteria for its nomination may be provided for by Union or Member State law. 58. Article 4(2) GDPR. 59. European Parliament, 2015. “Smart Electricity grids and meters in the EU Member States,” Briefing, [online], available at http://www.europarl.europa.eu/RegData/etudes/BRIE/2015/ 568318/EPRS_BRI%282015%29568318_EN.pdf

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smart meters on the island. As these plans are currently underway and are expected to take a number of years to come to full fruition, there is presently no official data on the impact of smart metering on the current data protection framework. However, some potential effects can be anticipated based on data gathered from other European Member States. Smart meters use the latest digital technologies, update information regularly, and provide two-way electronic communication between consumers and the grid.60 Smart meters record how much electricity is used and send that automatically to the energy supplier. Through a “home display,” which is part of most smart meters, the user can monitor their energy use, how much is spent on electricity, and other information about the user’s energy use.61 Because of the way information is transmitted, it can be anticipated that the deployment of smart meters will highlight certain shortcomings in the existing data protection framework in Cyprus. Pilot schemes introduced at the early stages of deployment in other EU Member States have highlighted key concerns surrounding the deployment of smart meters, such as the risk of user profiling through high-frequency data reading.62 To minimize the risk of user profiling, the first step for policy makers is to ensure that the relevant legal framework is clear and comprehensible, and that it minimizes the risk of data leakage and the misuse of personal information. For example, as smart meters process large amounts of data, it is yet unclear whether all information processed by these devices will qualify as “personal data”63 for the purposes of the applicable law in Cyprus. Policy makers may need to focus on clarifying the boundaries between information that is classed as “personal data” for the purposes of the GDPR and information or data that does not fall under the definition, considering the vast amount of energy data that will flow between the grid and consumers. This will minimize the risk of user profiling and will secure public trust in smart metering technology. In addition, as the implementation of smart meters will involve a number of different actors who will interact with each other and the grid in novel and complex ways, the allocation of responsibilities between them might not be clear at first. For example, there may be an overlap between the duties

60. Ibid 61. Centre for Sustainable Energy, 2013. “Smart meters,” [online], available at https://www.cse. org.uk/advice/advice-and-support/smart-meters 62. European Commission, 17 June 2016. Report from the Commission, “Benchmarking smart metering deployment in the EU-27 with a focus on electricity,” [online], available at https://eurlex.europa.eu/legal-content/EN/TXT/PDF/?uri 5 CELEX:52014DC0356&from 5 EN 63. Personal data is defined under Article 4 (1) GDPR as any information relating to an identified or identifiable natural person (“data subject”); an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person.

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and responsibilities of “data controllers” and “data processors”; this might require amendments to the current legal framework to ensure that clearer lines are drawn to delineate the duties of the different actors involved.

20.6.4 Consumer protection Smart grids hold the potential to transform the way consumers interact with the grid, by allowing customers to respond to dynamic prices or network needs, and deliver distributed generation.64 Their deployment, however, raises concerns about the impact on vulnerable consumers, especially low-income households, the handicapped,65 and the elderly. A robust consumer protection framework can mitigate some of the relevant risks associated with the smartening of electricity grids, such as the impact of high prices on those who are most susceptible. Consumer protection laws were not particularly developed on the island until Cyprus’ accession to the European Union, when a number of developments took place through various European initiatives;66 the Cypriot consumer protection framework is mostly based on and has largely been shaped by EU Law in the area. The relevant consumer protection laws are enforced by the Consumer Protection Service, a division within the Ministry of Energy, Commerce and Industry.67 There are laws in place on, inter alia, unfair commercial practices,68 consumer protection, protection from misleading and comparative advertising, product guarantees and pricing, and unfair contract terms.69 For the purposes of the Unfair Commercial Practices Act 2013, a “product” is defined as “every good or service, including real estate or immovable property.” The General Product Safety Law 2004 (No. 41(I) of 2004)70 defines a product as “any product - including in the context of providing a service - which is intended for consumers or likely, under reasonably foreseeable conditions, to be used by consumers even if not intended for them, and is supplied or made available, whether for consideration or not, in the course of a commercial activity, and whether new, used or 64. Heffner, G. “Smart Grid smart customer policy needs,” IEA, ECEEE 2011 Summer Study, Energy Efficiency First: The Foundation of a Low-Carbon Society, 517 524. 65. Ibid 66. Himoni, M, 27 October 2016. “Cypurs: consumers” protection under Cyprus Law, P.N. Kourtellos & Associates, [online] available at http://www.mondaq.com/cyprus/x/538746/ Consumer 1 Trading 1 Unfair 1 Trading/Consumers 1 Protection 1 Under 1 Cyprus 1 Law 67. Consumer Protection Service, Ministry of Energy, Commerce and Industry website, [online], available at http://www.mcit.gov.cy/mcit/cyco/cyconsumer.nsf/page01_en/page01_en?OpenDocument 68. The Unfair Commercial Practices Act 2013, enacted in accordance with Directive 2005/29/ EC, [online], available at http://www.mcit.gov.cy/mcit/cyco/cyconsumer.nsf/page24_en/page24_en?OpenDocument (main text available only in Greek). 69. Consumer Protection Service website, Legislation, [online], available at http://www.mcit. gov.cy/mcit/cyco/cyconsumer.nsf/page24_en/page24_en?OpenDocument 70. The General Product Safety Law 2004 (English translation), [online], available at http:// www.olc.gov.cy/olc/olc.nsf/all/94ACE966785A0C2AC225748E001F4076/$file/Law%2041(I)% 20of%202004.pdf?openelement

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reconditioned and irrespective of whether it is supplied in the course of rendering services.” The advent of smart grids and the increased involvement of consumers through the use of bidirectional communication will raise a number of questions, such as whether “energy” is a product or a service, and hence whether it is covered by all the protections afforded by national consumer protection laws. In the future, Cypriot courts may need to clarify the definition of “product” and/or “service” as adopted in the relevant legislative text. As seen above, the experience of some EU Member States with smart metering has highlighted certain issues in respect of affordability and other relevant risks associated with high pricing which could affect the experience and rights of consumers. If these issues are emerging in the context of deployment and operation of smart meter technology, then they will most likely persist throughout the gradual process of smartening the grid and could significantly impede its future development. To ensure that the process will be as smooth as possible, and to safeguard the rights of consumers, adequate legal protection needs to be provided. At present, the Cypriot consumer protection regime does not directly cater for the rights and needs of vulnerable consumers, such as those in low-income households, the handicapped, and the elderly; it is those individuals who may under-heat their homes, reduce their consumption of other essential goods and services, or get into debt to meet their energy needs.71 It is for this reason that a more robust and targeted legal framework needs to be put in place to guarantee their rights.

20.6.5 Protection from cyberattacks The emergence of commercial trends such as the industrial internet of things (“IoT”) and the smartening of electricity grids are part of a larger shift toward the use of cyber physical systems to enable optimization and better management. From a security perspective, the wave of such changes poses a number of challenges.72 Smart grids will use ICT to enable the faster integration of renewable energy and provide faster and more advanced energy services. As the internet will be used to enable the operation of smart grids, all known cybersecurity risks could potentially arise in the context of smart grid operation; the societal impact of potential cybersecurity breaches in the context of smart grid operation, however, is much more severe due to the scale of such operations and the impact on people’s lives. For this reason, EU 71. European Commission, Directorate-General for Energy, Vulnerable Consumer Working Group, 2015. “Working Paper on Energy Poverty.”, [online], available at https://ec.europa.eu/ energy/sites/ener/files/documents/Working%20Paper%20on%20Energy%20Poverty.pdf 72. Urquhart, L., Derek, M., Assessing information security regulations for domestic and industrial cyber-physical systems (May 22, 2017). TILTing Perspectives 2017: Regulating a Connected World, Tilburg, Netherlands, 17 19 May 2017, [online], available at SSRN: https:// ssrn.com/abstract 5 2971991

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Member States need to introduce technologies and legislation that will offer robust protection against potential cybersecurity threats.73 Cyprus’s cybersecurity capacity maturity has been assessed by the Global Cyber Security Capacity Centre, which rates cybersecurity capacity as “start-up,”74 “formative,”75 “established,”76 “strategic,”77 and “dynamic”78 based on a multitude of factors.79 In terms of policy and strategy, Cyprus has been gauged to range from start-up to established levels of maturity, and the legal and regulatory frameworks range between formative and established levels of maturity.80 In terms of the legal framework in place, a number of domestic and EU laws have been implemented in recent years.81 As seen above, Cyprus has transposed the NIS Directive in full and has taken the route toward full implementation of all ENISA82-related

73. Kubeczko, Klaus and Langer, Lucie and Paier, Manfred F., Smith, Paul, “on socio-technical concerns for smart grid security and resilience” (February 27, 2015), [online], available at SSRN: https://ssrn.com/abstract 5 2824408 or https://doi.org/10.2139/ssrn.2824408 74. At this stage either no cyber security maturity exists, or it is very embryonic in nature. There might be initial discussions about cyber security capacity building, but no concrete actions have been taken. There is an absence of observable evidence at this stage. 75. Some features of the aspects have begun to grow and be formulated, but may be ad-hoc, disorganized, poorly defined—or simply “new.” However, evidence of this activity can be clearly demonstrated. 76. The elements of the aspect are in place, and working. However, there is not well thought-out consideration of the relative allocation of resources. Little trade-off decision-making has been made concerning the “relative” investment in the various elements of the aspect. But the aspect is functional and defined. 77. Choices have been made about which parts of the aspect are important, and which are less important for the particular organization or nation. The strategic stage reflects the fact that these choices have been made, conditional upon the nation’s or organization particular circumstances. 78. At this stage, there are clear mechanisms in place to alter strategy depending on the prevailing circumstances such as the technology of the threat environment, global conflict or a significant change in one area of concern (e.g., cybercrime or privacy). Dynamic organisations have developed methods for changing strategies in stride. Rapid decision-making, reallocation of resources, and constant attention to the changing environment are features of this stage. 79. Global Cyber Security Capacity Centre, 2017. “Cyber Security Capacity Review: Republic of Cyprus”. [online], available at http://www.ocecpr.org.cy/sites/default/files/cmm_cyprus_report_2017_final.pdf 80. Ibid, at page 9. 81. Ibid, at pp. 61 65. 82. ENISA (European Union Agency for Network and Information Security) is a center of expertise for cyber security in Europe. ENISA is actively contributing to a high level of network and information security (NIS) within the Union, since it was set up in 2004, to the development of a culture of NIS in society and in order to raise awareness of NIS, thus contributing to proper functioning of the internal market. The Agency works closely together with Member States and private sector to deliver advice and solutions. This includes the pan-European Cyber security Exercises, the development of National Cyber security Strategies, CSIRTs’ cooperation and capacity building, but also studies on secure Cloud adoption, addressing data protection issues, privacy enhancing technologies and privacy on emerging technologies, eIDs, and trust services, and identifying the cyber threat landscape, and others. ENISA also supports the development and implementation of the European Union’s policy and law on matters relating to NIS.

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mechanisms.83 Gaps in the legislative framework have been identified; there is currently no system enabling the reporting of online incidents and complaints.84 A fully functional system enabling the reporting of online incidents and complaints must be introduced to ensure that incidents and complaints arising in the context of smart grid operations are dealt with quickly and efficiently. Despite recent developments in the field of cybersecurity, the introduction of smart grids will bring a new set of challenges which the current cybersecurity framework is not yet fully equipped to meet. Smart grids are vulnerable to, inter alia, natural disasters, infrastructural failure, and cybersecurity attacks which could be employed as a method of warfare.85 At present, Cyprus has a single active CSIRT86 in place, which might not be sufficient to meet the needs of an expanding and developing grid. By contrast, neighboring Turkey has in total seven active CSIRTs in place, which are a combination of private and state-owned initiatives.87 RoC’s political situation, with approximately 40% of the island under Turkish occupation, means that the implications of this disparity for the security of the Cypriot information system are grave.88 To ensure that RoC is prepared to protect its growing and developing grid from politically motivated attacks to its security system, policy makers need to ensure that the number of active CSIRTs is increased to enable it to meet and address potential threats to its security infrastructure. Additional issues were identified, such as the lack of appropriate training opportunities for those employed in ICT and the absence of relevant cybersecurity initiatives, borne out by the government’s reluctance to invest in the ICT sector.89 The management of smart grids will be undertaken in part by teams of specialized ICT professionals, whose role in the successful operation of the grid is crucial. The government needs to ensure that such

83. Petrikkos, P. “Building Infrastructures: Reviewing Cypriot Cybersecurity Practices,” Global Risk Insights, April 9, 2019, [online], available at https://globalriskinsights.com/2019/04/building-infrastructures-reviewing-cypriot-cybersecurity-practices/ 84. Global Cyber Security Capacity Centre, “Cyber Security Capacity Review: Republic of Cyprus,” 2017, at p. 66, [online], available at http://www.ocecpr.org.cy/sites/default/files/ cmm_cyprus_report_2017_final.pdf 85. Otuoze, A.O, Mustafa M.W, Larik R.M, December 2018. “J. Electr. Sys. Inf. Technol.,”5(3), Pages 468, [online], available at https://www.sciencedirect.com/science/article/pii/S2314717218300163 86. Computer Security Incidence Response Team. See European Union Agency for Network and Information Security, CSIRTs by Country, Interactive Map, [online], available at https://www.enisa. europa.eu/topics/csirts-in-europe/csirt-inventory/certs-by-country-interactive-map#country 5 Cyprus 87. Petrikkos, P., April 9, 2019. “Building infrastructures: reviewing cypriot cybersecurity practices,” Global Risk Insights, [online], available at https://globalriskinsights.com/2019/04/building-infrastructures-reviewing-cypriot-cybersecurity-practices/ 88. Ibid 89. Global Cyber Security Capacity Centre, 2017. “Cyber Security Capacity Review: Republic of Cyprus,” 74, [online], available at http://www.ocecpr.org.cy/sites/default/files/cmm_cyprus_report_2017_final.pdf

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specialized teams are in place, and that they are appropriately trained. More needs to be done in terms of investing in the ICT sector and offering the appropriate education and training opportunities.

20.7 Electric vehicles and storage 20.7.1 Electric vehicles Electric vehicles can play a crucial role in the decarbonization of the economy. Their interaction with the grid will be instrumental to the delivery of the Commission’s goals. Electric vehicles have the potential to serve the grid as an independent distributed energy source;90 they can be integrated into power systems and operate with different objectives such as the dynamic loads by drawing power from the grid (during charging) or by feeding power to the electric grid.91 By remaining connected to the grid even when stationary, electric vehicles can provide the gird support by delivering the ancillary services such as peak power shaving, spinning reserve, voltage, and frequency regulations, through the concept of vehicle to grid (“V2G”).92,93 The introduction of smart vehicles will thus complement efforts to smarten the grid and render it more efficient; by acting as distributed energy sources,94 electric vehicles will effectively contribute to the decentralization of the energy system and increase the functionality of the grid. The higher cost of electric vehicles and the absence of appropriate infrastructure have rendered their widespread commercialization a difficult task.95 The infrastructure in Cyprus is not yet entirely conducive to the widespread deployment of electric vehicles, and the costs associated with electric vehicles are still relatively high compared to the costs of regular vehicles. However, plans are currently underway to install charging stations by the end of 2019,96 and free parking has been introduced for hybrid and electric cars in the municipality of Nicosia.97 Tax incentives have also been 90. F. Mwasilu, J.J. Jackson, E.K. Kim, T.D. Do, J.W. Jung, 2014. “Electric vehicles and smart grid interaction: a review on vehicle to grid and renewable energy sources integration,” Renew. Sust. Energ. Rev. 34 501 516. 91. Ibid 92. Ibid 93. Kempton. W., Letendre S, 1997. “Electric vehicles as a new power source for electric utilities,” J. Transp. Res. Part D. 2(3),157 175. 94. Distributed energy sources (“DERs”) are small-scale units of local generation connected to the grid at distribution level. 95. Kempton. W., Letendre S, 1997. “Electric vehicles as a new power source for electric utilities,” J. Transp. Res. Part D. 2(3),157 175. 96. Ioannidou, L., 29 November 2019. “Electric car charging stations islandwide by the end of next year,” Cyprus Mail, [online], available at https://cyprus-mail.com/2018/11/29/electric-carcharging-stations-islandwide-by-end-of-next-year/ 97. “Free parking for hybrid and electric cars,” 5 January 2018. Cyprus Mail, [online], available at https://cyprus-mail.com/2018/01/05/free-parking-hybrid-electric-cars/

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introduced by the government; vehicles emitting less than 120 g CO2/km are exempt from registration tax and pay the lowest rate of tax under the annual road tax.98 The DSO has been operating and managing the electric vehicle charging system, and it is expected that by the end of 2019, there will be sufficient charging stations to cover the entire island.99 The government can do more by way of incentivizing consumers to switch to electric vehicles, such as exempting all electric vehicles from tax for the first few years of use. However, introducing further incentives might not be a priority for the Cypriot government at this stage, given the high percentage of transport fuel tax it appears to collect annually.100 One way of resolving this would be to increase the percentage of environmental tax in the country to make up for the inevitable drop in revenue from fuel tax. However, as the country’s revenue from environment-related taxes is already higher than the EU average,101 the idea of raising environment-related taxes may not be very appealing to policy makers. The recent discoveries in the EEZ hold the key to generating additional revenue on the island as investment opportunities will undoubtedly generate additional tax, making it easier for the government to stomach the losses in fuel tax incurred by the wider use of electric vehicles.

20.7.2 Storage Electricity storage will play a key role in the transformation of the energy system, as it will enable solar and wind power generation and allow the sharp decarbonization of certain sections of the energy sector.102 The proper integration of storage into the grid is crucial to the shift from the current centric-oriented paradigm to a distributed cellar-oriented grid with plenty of renewable energy feed-in at distribution level.103 The use and integration of 98. European Automobile Manufacturers Association (ACEA), “Overview on tax incentives for electric vehicles in the EU,” [online], available at https://www.acea.be/uploads/publications/ EV_incentives_overview_2018_v2.pdf 99. Cyprus Profile, 31 December 2018. “Speech by the Chairman of the EAC Board of Directors,” 31 December 2018, [online], available at https://www.cyprusprofile.com/en/articles/ speech-by-the-chairman-of-the-eac-board-of-directors/ 100. European Commission, “Taxation trends in the European Union: Data for the EU Member States, Iceland and Norway,” pp. 40, [online], available at https://ec.europa.eu/taxation_customs/ sites/taxation/files/taxation_trends_report_2018.pdf 101. European Commission, “The Environmental Implementation Review,” Cyprus, [online], available at http://ec.europa.eu/environment/eir/pdf/factsheet_cy_en.pdf 102. IRENA, October 2017. “Electricity storage and renewables: costs and markets to 2030,” October 2017, 4, [online], available at https://www.irena.org/-/media/Files/IRENA/Agency/ Publication/2017/Oct/IRENA_Electricity_Storage_Costs_2017_Summary.pdf?la 5 en&hash 5 2FDC44939920F8D2BA29CB762C607BC9E882D4E9 103. Konomis, C., “First for Cyprus as it commissions PV and ESS Project,” Energy Storage Journal, [online], available at http://www.energystoragejournal.com/2018/03/08/first-cyprus-commissions-pv-ess-project/

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storage tools will be particularly beneficial, given the country’s enormous potential for solar energy generation; the storage of variable renewables will catalyze the country’s transition to a green economy and the more efficient use of its developing grid. Cyprus’s first battery storage project is currently in the initial phases of construction.104 In 2013 the University of Cyprus obtained permission from the UN to develop a 10 MW photovoltaic park inside the UN buffer zone in Nicosia, the country’s capital.105 The process of obtaining the relevant licenses finally concluded in early 2019. It is anticipated that the project will primarily cover the University’s electricity needs; it will also be used as a means to test the EU-funded Delta research and innovation project.106 During the period between 2013 and 2019, a number of other storage projects have been implemented in Cyprus (run by local and international investors), such as a number of EBRD-funded photovoltaic parks in the areas of Frenaros, Nisou, Dhali, Paliometocho, and Malounta.107 The process of obtaining the relevant licenses for the buffer zone project lasted 6 years; this highlights certain deficiencies in the system, which need to be addressed in order to ensure that potential investors will not be deterred by the prospect of long and arduous licensing procedures. It is arguable that because of its location, the buffer zone storage project was inevitably (and understandably) subject to additional licensing requirements, being contingent, inter alia, on authorization by the UN. On any view, however, 6 years is an unreasonably long time; policy makers must focus their efforts on building a reliable and efficient licensing system conducive to the proliferation of storage projects across the island and attracting investment.

104. Tsagas, I., 27 March 2019. “Cyprus set to install its first battery storage and blockchain systems,” PV Magazine, [online], available at https://www.pv-magazine.com/2019/03/27/cyprus-setto-install-its-first-battery-storage-and-blockchain-systems/ 105. Tsagas, I., 2 January 2013. “10 MW installation in Cyprus buffer zone,” PV Magazine, [online], available at https://www.pv-magazine.com/2013/01/02/10-mw-installation-in-cyprusbuffer-zone_10009701/ 106. DELTA is a 3-year Research & Innovation Action project commencing May 05, 2018 and running until April, 30 2021. The project team comprises 10 organizations from 8 countries. DELTA proposes a Demand-Response (DR) management platform that distributes parts of the Aggregator’s intelligence into a novel architecture based on Virtual Power Plant (VPP) principles. It will establish a more easily manageable and computationally efficient DR solution and will deliver scalability and adaptiveness into the Aggregator’s DR toolkits. The Project will employ a permissioned blockchain system and utilize smart contracts to improve efficiency in demand response settings; the purpose of this is that aggregators can supply more flexibility to the grid from small- and medium-scale prosumers than currently available. As the University of Cyprus and the Electricity Authority of Cyprus are two of the 10 partners in the Delta Project, Delta will have access to the data generated within the buffer zone and will be able to test the potential benefits of the use of blockchain for data aggregators and prosumers. 107. Reiserer, A., 1 July 2016. “EBRD supports expansion of solar energy in Cyprus,” European Bank for Reconstruction and Development, [online], available at https://www.ebrd.com/news/ 2016/ebrd-supports-expansion-of-solar-energy-in-cyprus.html

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The current political situation on the island, however, is not particularly favorable to new investments; Turkey’s constant disregard for RoC’s exclusive rights in the EEZ has led to escalating tensions between the two states, contributing to and exacerbating underlying historical tensions. Turkey has recently started drilling operations in the EEZ; its actions have been widely condemned by the international community, in particular the United States, the European Union, and Greece.108 Cyprus has written to the UN Secretary General reiterating that Turkey’s activities in the Eastern Mediterranean constitute a violation of international law,109 but it appears that at present no official stance has been adopted by the UN. Turkey’s actions undoubtedly raise concerns about its future behavior in respect of the buffer zone photovoltaic park. Although it appears unlikely that Turkey will act in any way to adversely affect the operation of the buffer zone photovoltaic park, it is not entirely improbable, given its recent aggressive tactics, especially in the light of a future condemnation by the UN, or an adverse finding by an international body such as the ICJ. To ensure an abundance of safe and reliable storage capacity, concerted efforts need to be made on RoC’s territory, where the risk of disruption is lower, and a safer environment for investors can be guaranteed more easily.

20.8 Conclusions and recommendations The primary concern for policy makers at this stage should be the full liberalization of the electricity market in order to ensure full participation of all relevant actors, increase competition in the sector, and enable the implementation of effective demand response measures. A restructuring of the CTSO management team may be necessary to ensure a more consistent and reliable approach to the relevant liberalization timetables and restore confidence in the agency. In addition, changes to the regulatory and legal framework may be necessary to remove the EAC’s tight grip on distribution and transmission and introduce effective regulatory incentives for investment. In order to ensure that end-users will benefit from the upcoming smart meter deployment on the island, policy makers must focus on providing them with the necessary information on how to best utilize the new technology and ensure that low-income households in particular are able to make use of smart metering in the most efficient and cost-effective manner. Changes to the current data protection framework may be necessary in the 108. Offshore Energy Today, 6 May 2019. “Concerns over Turkey’s drilling operations offshore Cyprus,” [online], available at https://www.offshoreenergytoday.com/concerns-over-turkeys-drilling-operations-offshore-cyprus/ 109. United Nations, General Assembly, seventy-third session, “Letter dated 19 February 2019 from the Permanent Representative of Cyprus to the United Nations addressed to the SecretaryGeneral,” 20 February 2019, A/73/753 S/2019/160, [online], available at https://undocs.org/en/ A/73/753

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future; as the grid develops and becomes more interconnected, the legal definitions of certain actors and the extent of their powers may need to be redefined. Such changes could be introduced by legislative action or by courts developing the common law. To safeguard the integrity and security of a well-connected and developed grid that will incorporate electric vehicles and meet growing electricity demands, the government should invest more in the ICT sector, for example, by creating more training opportunities for those employed in the field and by improving existing mechanisms for incident reports. What is more, to enable and encourage the widespread use of electric vehicles, more charging stations need to be introduced, as well as better tax or other economic incentives to make electric vehicles more appealing to the public. Even though a number of storage projects are currently underway on the island, they are progressing relatively slowly; one of the reasons appears to be because the process of obtaining the relevant licenses appears to be lengthy. Finally, the present political climate in Cyprus is plagued by rising tensions; Turkey’s aggressive external policy has threatened to disturb the fragile peace on the island and could become an unwelcome deterrent to further investment. In addition, the country’s geographical proximity to the ongoing war in Syria has recently yielded some unpleasant side effects which could further deter potential investment. A speedy resolution of the relevant political issues would certainly assist in increasing investment opportunities on the island.

Chapter 21

Energy decentralization and energy transition in Lithuania Marius Greger1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

21.1 Introduction: Lithuania, a population in major decline A trend that has been observed since the early 1990s displays the transition from population growth, to flatline, to decline (Fig. 21.1).1 Negative population growth is often influenced by economic decline but quickly becomes a viscous cycle of a downward spiral in the overall economy, tax revenues, decline in service provision, and social infrastructure, leading to more abandoned houses and factories.2 Once negative growth has established itself within a region, it makes it less attractive to the population left behind and increases the likelihood of them leaving as well. Lithuania, as well as the other Central Eastern European countries, was under the Soviet communist regime. The regime promoted a command

1. See Fig. 21.1. 2. Ubareviciene, R., van Ham, M. “Population Decline in Lithuania: Who Lives in Declining Regions and Who Leaves?” Taylor & Francis, http://www.tandfonline.com/doi/full/10.1080/ 21681376.2017.1313127 Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00001-3 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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FIGURE 21.1 Eurostat, Lithuanian population (1960 2018).3

economy model based on central planning principles.4 During this time, population movement was regulated domestically as well as between the communist states with an aim to create an even population spread. This would establish a spatial distribution of economic and human resources.5 During the Soviet regime, Lithuania was a major contributor of agricultural supply and the population was encouraged to live and work in rural settlements under government provided housing and monetary income. Toward the end of the Soviet era, close to one-third of the Lithuanian population resided in rural areas and were employed in agricultural like jobs. The sudden change in political and economic situation taking place in the 1990s was a clear indicator of a new regional development shaping Lithuania.6 The former Soviet system did not meet the needs of the postsocialist society. The extreme negative population growth and regional disparities in Lithuania can be linked to the former Soviet-regulated planning principles. People who had been provided jobs by the Soviet central government became unable to continue a sufficient level of employment and standard of living under the new economic system. Lithuania thought initially that a free market model would solve its former problems, but it did not.7 This reversed the previously controlled flow of population movement, and 3. Ibid. 4. Ibid. 5. Ibid. 6. Siaurasevicius, A., 12 Mar. 1990. “Lithuania breaks away from the Soviet Union”, https:// www.theguardian.com/world/1990/mar/12/eu.politics. 7. Supra, 5.

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more people sought the larger cities for better opportunities. The rise in unemployment and economic hardship combined with accession to the European Union ended with mass emigration. In fact, 80% of population decline in Lithuania in the last decade is due to emigration and is amongst the highest in the EU.8 Simultaneously, birth rates dropped, and both have contributed to the negative growth. Between 1992 and 2018 nearly one-fifth of the population was lost, making it one of the greatest population decline in the world (currently).9 As a result, the major population decline has affected Lithuania’s potential revenue from income tax.10 Positively, total revenue received from tax is steadily increasing but could affect the national budget to allocated resources according to environmental, climate change, and electricity grid infrastructure.

21.2 The Lithuanian electrical grid 21.2.1 Setting the scene For the past decades, Lithuania together with the other Baltic States and Poland has been connected to the old Soviet Russian electricity grid.11 This has led to an electricity network that is low-tech, asynchronized from the rest of Continental Europe and at an overall energy deficit. Lithuania has become extremely energy dependent and relies heavily on supply from other states to cover its national energy demand.12 In 2018 Lithuania imported 36% of its total electricity demand from Russia, whereas national generation was only at 25% of national demand.13 It is therefore more important than ever for Lithuania and the other Baltic States to take full advantage of developing smarter grids and decentralization to permit better interconnectivity to allow flexibility to invest in renewable energy and ensure self-sufficiency and long-term sustainability. Recent efforts have secured the decoupling agreements of the Baltic States and Poland from the Russian electricity network.14 The agreement will end years of bickering for the three Baltic States to integrate their grids with the Continental Synchronous Area. With the backing of the EU, they 8. Migration trends: Lithuania. http://123.emn.lt/en/ 9. 1992: 3.7 million, 2018: 2.8 million. https://ec.europa.eu/eurostat/web/population-demography-migration-projections/visualisations. 10. OECD, “Revenue statistics”. 11. Litgrid, 2019. “Grid development.”, http://www.litgrid.eu/index.php/grid-development-/strategic-projects-/strategic-projects-/779. 12. Litgrid, 2019. “Power system”, http://www.litgrid.eu/index.php/power-system/power-systeminformation/national-electricity-demand-and-generation/3523. 13. Ibid. 14. Carbonnel, A. de, 29 June 2018. “Baltic states to decouple power grids from Russia, link to EU by 2025.” Reuters, Thomson Reuters, http://www.reuters.com/article/us-baltics-energy-eurussia/baltic-states-to-decouple-power-grids-from-russia-link-to-eu-by-2025-idUSKBN1JO15Q.

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will assist with negotiations on how to make the transition as smooth as possible. By 2025 the decoupling is estimated to be complete and the Baltics will be fully connected and synchronized to the EU electricity grids. It will also pave the way to benefit from the EU’s $1.2 billion to fund the project.15 Under the new agreements, the terms dictate that states will use the current overland LitPol link between Lithuania and Poland as well as around the territorial seas of Kaliningrad. Russia still maintains some bargaining power with Brussels on how to continue securing energy supply to Kaliningrad.

21.2.2 Energy governance and smart grid optimization The Third Energy Package was adopted by the EU in 2009. This legislative measure was aimed at liberalizing EU energy markets, allowing for superior grid connectivity between Member States ensuring energy democratization and decentralization on an EU level. In accordance with the energy package, Lithuania reformed its electrical sector by separating transmission from generation and supply activities, achieving unbundling.16 This has been an important step toward accomplishing increased efficiency of the electricity system, preventing discrimination against new market participants, optimizing use of grid infrastructure, incentivizing domestic and foreign investment, and ensuring competitive prices for end-users.17 The energy package was fully integrated in Lithuania by 2012, when the Government adopted a resolution approving the activities required to separate transmission of electricity undertakings from generation and supply.18 Shortly following the successful implementation, procedures for certifying LitGrid AB as Lithuania’s transmission system operator was enacted. In Lithuania, electricity generated from renewable sources is mainly promoted through a floating feed-in-premium. This is a type of price based policy instrument where eligible renewable energy generators are compensated by a premium price on top of the wholesale price. Renewable energy sourced (RES) plants with a capacity exceeding 10 kW secure such a rate through tenders.19 An immediate area of improvement within the regulation is to extend the support scheme to new RES installations. However, there are plans to introduce technology-neutral tenders together with fixed feed-inpremiums during 2019. Furthermore, all producers of electricity from renewable energy may apply for loans and subsidies through the Environmental 15. Deutsche Welle, 28 June 2018. “Baltic States to Decouple Power Grids from Russia, Link to EU by 2025: DW: 28.06.2018.” DW.COM, http://www.dw.com/en/baltic-states-to-decouplepower-grids-from-russia-link-to-eu-by-2025/a-44449454. 16. Ministry of Energy of the Republic of Lithuania, 14 Sept. 2015. “Electricity sector,” http:// enmin.lrv.lt/en/sectoral-policy/electricity-sector-1. 17. Ibid. 18. Ibid. 19. Law on Renewable Energy, Article 20(3).

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Project Management Agency (EPMA) in cooperation with the Climate Change Special Programme.20 Solar, wind, and biomass production is currently benefitting from net metering.21 Further support schemes exist for RES related to cooling and heating purposes, which are exempt from environmental pollution tax and are also eligible for subsidies and loans under EPMA.22 Consequently, there is a priority purchase for all heat suppliers to purchase heat produced from RESs, unless renewable heating is exceeding demand.23 Lithuania’s electrical energy policy is mainly governed by the Law on Electricity (LoE).24 and the Law on Energy from Renewable Sources (LERS).25 The former establishes the legislative framework for the organization of the Lithuanian electricity sector and regulates the relationship between all the market players.26 The legislation ensures the unbundling from commercial interest of the electricity market for transmission and distribution grid operators.27 Furthermore, it promotes the development of the internal electricity market and its interconnectivity and the modernization of technical market implementations. The advancement of technological measures and increased interconnectivity echoes through the regulation and promotes a healthy future for developing the energy efficiency of the Lithuanian electricity grid. This will allow for new technologies based on RES to foster growth and connectivity. Articles 1 5 of LERS establish the purpose and objective of the legal regulation and promotion of energy produced from renewable sources.28 The legislation quickly ascertains that the legal basis will be provided to state administration, who will supervise and control the renewable energy sector and all related activities and parties. It is evident that there are still Soviet influences in the language of the legislation, almost an unwritten obligation to carefully monitor the movement and undertakings related to the energy sector. Having said that, there is still a clear objective and purpose to establish sustainability of the use of RESs and to promote further development and innovation of technologies and consumption of energy from renewable sources.29 LERS also understands the need to promote

20. Profile, 2018. “Republic of Lithuania - Environmental Projects Management Agency APVA Profile.”, http://www.environmental-expert.com/companies/republic-of-lithuania-environmentalprojects-management-agency-apva-26200. 21. Law on Renewable Energy, Article 13(2). 22. “EU structural assistance for 2014 2020,” https://www.apva.lt/en/epma-services/eu-structural-assistance-2014-2020/. 23. Supra 21, Article 3(2). 24. Law on Electricity, 20 July 2000 No VIII-1881 Vilnius, amended 21 June 2012 No XI-2095. 25. Law on Energy From Renewable Sources, May 12 2011, No XI-1375 Vilinus. 26. LoE Article 1. 27. Ibid, Article 3(4). 28. LERS Articles 1 5. 29. Ibid.

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international relations in order to foster strong interconnectivity and energy trading to secure supply and balance of energy. By 2020 three mandatory targets related to the energy sector has been targeted by the legislation: 1. A minimum of 10% of energy consumption in the transport sector must be sourced from renewables. 2. Twenty percent of gross annual energy consumption must derive from RESs. 3. Sixty percent of district heat and eighty percent of household heating produced must come from RESs.30 Furthermore, the legislation informs of an additional four targets related to the electricity sector: 1. to increase total installed capacity of wind power plants that are connected to the grid up to 500 MW; 2. to increase total installed capacity of solar energy plants connected to the grid up to 10 MW, excluding smaller installations generating less than 30 kW; 3. to increase the total installed capacity of hydro power plants connected to the grid up to 141 MW; and 4. to increase total installed capacity of biofuel power plants connected to the grid up to 105 MW.31 The targets reflect the country’s initiative to establish energy independence and ultimately energy democratization. Developing renewable energy technologies and enhancing the electricity grid from the bottom-up to handle digital computerized equipment will allow for smarter grid solutions. The Lithuanian network of transmission lines, substations, transformers, and other sources that deliver electrical energy from power plants to households and businesses will become more technically advanced and permit a two-way communication between the various end points. It will be much easier to monitor the efficiency of the network through computer systems that will oversee automation, control, and provide instant analysis of the network’s balancing equation.

21.2.3 Proactive consumer participation The National Energy Independence Strategy has defined in their long-term perspective that electricity consumer will eventually become proactive participants (prosumers) and benefit from self-generation and new technologies including smart meters. This will allow prosumers the opportunity to use 30. Ibid, Article 1(5). 31. LOERS Article 13(3).

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energy generated from RESs for their own needs and receive a reward for any surplus energy supplied back to the grid.32 According to national targets in the report, prosumers are perceived to account for 2% of all consumers by 2020, at least 305 by 2030, and at least 50% by 2050.33 There are many advantages of allowing prosumers to enter the market in a smart grid scenario, and it is something Lithuania could benefit from by decentralizing its domestic source of energy generation and storage. Regulation in this area must be more encouraging and requires further development and support to allow consumer become prosumers. A large prosumer network would assist in creating flexibility with the electricity grid by the transfer and storage of surplus energy. Smart grid technology would eventually be able to self-analyze where energy is needed and balance the supply and demand equation.

21.2.4 Support schemes An important factor for the Baltic States on achieving energy independence from the Russian controlled IPS/UPS system and joining a decentralized and democratized European power system is to reduce reliance on energy generated from fossil fuels. Lithuania will thereby transcend a lot of the already adapted methods available in Europe which will aid them in better exchange of energy. Lithuanian legislation is showing avid signs of support the release from fossil fuels through supportive quota obligations, subsidies, and tax regulation mechanisms.34 (Table 21.1). The various regulatory support schemes are attempting to indirectly deter the use of fossil fuel based energy sources. In return, the balancing equation Lithuanian policymakers are attempting to establish are allowing alternative fuels from renewable sources to ascertain themselves in the market. Together with obligations of grid expansion and optimization, this will allow for increased capacity of electricity generated from RES. However, where there is a desire to install an offshore windfarm, the applicant must apply and be granted a license to use territorial sea within the exclusive economic zone (EEZ) in the Baltic Sea for development and maintenance of the windfarm.35 The current legislation only grants tenders which last 35 years without a possibility of extension.36 There is therefore an unanswered question as to what happens when the tender has expired. This is an area of improvement, to either allow for longer term tenders, or with the possibility to extend or renew the agreement to operate in the Baltic Sea or the coastal areas within Lithuania’s EEZ. 32. On the approval of national energy independence strategy, June 26, 2012 No XI-2133 Vilnius https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.429490. 33. Ibid. 34. See Table 21.1. 35. LOERS Article 22. 36. Resolution No. O3 229 (Skatinimo kvot˛u paskirstymo aukcion˛u nuostatai Rules for tenders allocating financial support for electricity generation from renewable sources).

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TABLE 21.1 Support schemesa. Support scheme

Custodian

Description

Quota obligation

Law on Energy from Renewable Sources

Fuel traders are obligated to sell petrol containing 5% 10% biofuels and diesel containing at least 7% biofuels. The share of biofuels in petrol and diesel is set by the Government or its authorized institutionsb.

Subsidies

National Paying Agency under the Ministry of Agriculture

Part of the price of rapeseed oil used for the production of rapeseed methyl ester and part of the price of rapeseed and cereal grain purchased for the production of dehydrated ethanol will be reimbursedc.

Tax mechanisms

Law on Environmental Pollution Taxes

Natural and legal persons using biofuels in vehicles are exempt from the environmental pollution tax on their vehicle emissiond.

Relief from Excise Duty

Excise tax relief applies to biofuels for transport. The rate of excise tax is reduced in proportion to the percentage of biomass per ton of biofuel. The relief applies to bioethanol, biodiesel, bioETBE, and vegetable oile.

a

Tallat-Kelpˇsaite, ˙ J., 19 December 2018. “Summary of Support Schemes.” Promotion in Lithuania PDF, Legal Sources On Renewable Energy, http://www.res-legal.eu/search-by-country/lithuania/toolslist/c/lithuania/s/res-e/t/promotion/sum/160/lpid/159/. b LOERS Article 36(7). c Chapter I Item 3. Order No. 3D-417/2008, Chapter V Item 11. Order No. 3D-417/2008, Chapter IX Item 18. Order No. 3D-417/2008. d Law on Environmental Pollution Taxes, Article 5(3)(4). e Law on Excise Taxes, Article 40.

21.2.5 LitGrid—the transmission system operator The system operator for the Lithuanian electricity grid is LitGrid. Its purpose is to support the stable operation of the electricity system and to manage the flow of electricity and to establish conditions for healthy competition in the electricity market.37 LitGrid is also responsible for integrating the Lithuanian electricity system into the European electricity infrastructure. LitGrid is also responsible for the continuous growth and expansion of the distribution and transmission grid. This includes reconstructing the existing and installing new distribution grids from the bottom-up by considering 37. Litgrid, “About.” http://www.litgrid.eu/index.php/about-us/activities/599.

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smart grid technologies and development trends seen in other markets.38 Moreover, the grid operator must ensure that the grid is evolved enough to secure reliable operation of the distribution grid and its interconnections with other grids.39 Lithuania’s grid strategy is also outlined in its Smart Specialisation Strategy and covers development strategies for all technologies related to building and supporting the development of Lithuania’s smart grid.40 Lithuanian legislations are showing ample engagement to foster growth and enhance its smartness and technological capabilities. LitGrid is acting upon its legislative duties and displaying real-time operational data on the power system, grid development, and electricity market through their intuitive online tools, accessible to everyone.41 Especially interesting and relevant is grid development projects and grid performance. LitGrid publishes 10-year grid development plans and reviews them on an annual basis.42 Included in the plans are forecast for electricity demand, power plant capacity, power balances, and information on the transmission grid, its development, and current and planned investments. The current investment value spanning 2018 27 amounts to EUR 766 million.43 LitGrid is overseeing the Synchronization Project, ensuring that the Baltic States are completely decoupled from the Russian infrastructure and connected to continental Europe by 2025.44 The cost of completing this project is estimated to range between EUR 435 million and EUR 1.071 billion. In addition, there are currently nine grid infrastructure projects listed in their repertoire to be under construction or planned for development.45 Furthermore, there is an imposed obligation on the grid operator to allow RES plants to not only connect to the grid but also receive a premium condition. An RES plant can require the grid to undergo large-scale enhancement to ensure it is optimization, volume handling, and continuous expansion. An RES plant will either be connected to the transmission grid or the distribution grid depending on the scale of its electricity generation. A thorough procedure flow on how an RES plant is to be connected to the grid is specified in the LERS.46

38. LoE Article 39(2). 39. Ibid, Article 39(3). 40. COMM/JRC/J2/, 2019. “Smart Specialisation Platform.” Republic of Lithuania - Smart Specialisation Platform, s3platform.jrc.ec.europa.eu/regions/LT/tags/LT. 41. http://www.litgrid.eu/. 42. Litgrid, “Grid development.”, http://www.litgrid.eu/index.php/grid-development-/strategicprojects-/strategic-projects-/779. 43. LitGrid Network development plan 2017 2026. 44. Litgrid, 2019. “Grid development - Synchronization”, http://www.litgrid.eu/index.php/griddevelopment-/strategic-projects-/synchronous-operation-/137#synchronization_visual. 45. Supra 45. 46. LERS, Article 14(1).

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In terms of distribution of cost, 40% shall be borne by the RES plan operator for installations exceeding 350 kW capacity, and 20% of connection cost for plants with lower capacity. The remainder of the cost is covered by a public service obligation tariff which is ultimately paid for by consumers.

21.3 Achieving energy democratization At present, there are two sides to Lithuania’s electricity problem. First, Lithuania is dependent on Russian electrical energy to fulfill national demand.47 Second, it depends on Russian grid infrastructure.48 Following the shutdown of the nuclear power plant in Ignalina in 2009, import of electricity covered nearly three quarters of its demand.49 In addition to being on Russian infrastructure, the frequency at which the electricity flows, the voltage of the lines and balance of the grid is also controlled by the Russian system. It is therefore imperative for Lithuania and the other Baltic States to ensure European integration and decoupling from the Russian system to seek energy democracy with continental Europe. Once decoupled from the Russian controlled network, Lithuania will be able to take better advantage of the Continental European power system and adopt better European transparent standards for system control of the power network. Integration into the European power grid is arguably the number one strategic priority for Lithuania’s grid system operator LitGrid.50 Conversely, to address these concerns, LitGrid implemented two strategic projects: NordBalt and LitPol linking the Lithuanian grid to the Swedish and Polish, respectively.51 This secures a steady flow of energy supply from the two countries to help cover Lithuania’s national demand. In 2018 the NordBalt link from Sweden supplied 23% of total energy demand for Lithuania and has been a key supplier since its upstart in 2015.52 This is part of the longer term grid decentralization—connecting to the North European electricity markets first and subsequently to the common European electricity market. Currently, Lithuania is involved in four projects related to the synchronization of power systems, which involves three power transmission lines 47. Hoellerbauer, S., 23 March 2016. “Lithuania moves to bolster electricity security.” Foreign Policy Research Institute, http://www.fpri.org/article/2016/03/lithuania-moves-bolster-electricitysecurity/. 48. Ibid. 49. Ibid. 50. Litgrid, 2019. “Grid development”, http://www.litgrid.eu/index.php/grid-development-/strategic-projects-/strategic-projects-/779. 51. Backaitis, S., 2015. “Are all Lithuanian energy problems now resolved?” Lithuania’s Energy Timeline from Total Dependence to Independence, vilnews.com/2015-10-are-all-lithuanianenergy-problems-now-resolved. 52. Litgrid, 2019. “Power system”, http://www.litgrid.eu/index.php/power-system/power-systeminformation/national-electricity-demand-and-generation/3523.

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between Krunois PSP—Alytus (300 kV), Marijampol˙e Lithuanian border (400 kV), and Visaginas NPP-Kruonis PSP (330 kV), as well as various aspects of integrating the Baltic States’ network to the continental European network.53 These are part of the European Commission’s common interest project, presently consisting of 195 key energy infrastructure projects.54 In April 2019 the European Commission approved a scheme to support electricity production from RESs in Lithuania.55 The support scheme is open to all types of renewable energy generation and will contribute to the EU environmental objectives. A total budget of EUR 385 m has been allocated to all Lithuanian renewable installations and aims to contribute to Lithuania’s transition to low-carbon and climate-friendly energy supply, in line with national and EU environmental objectives as well as state aid rules.56 On a national level, Lithuania implemented this scheme to support new RES installations, including wind, solar, and hydropower. This aims to help Lithuania stretch for its new 2025 target of 38% gross energy consumption to be sourced from renewable sources.57

21.4 Smart metering systems One of the duties imposed on the distribution grid operator is to organize, install, operate, and maintain the metering of electricity transmitted through the distribution grids, and ensure the installation of smart metering systems.58 LitGrid as the grid operator must also carry out measurements of electricity distributed through the grid from the point of generation to the end user and ensure the technological enhancement of the grid in accordance with its smart grid objectives.59 The state-owned energy distribution operator JSC Energijos Skirstymo Operatorius (ESO), is responsible for Lithuania’s procurement to roll out smart meters and is also the distribution system operator (DSO). According to EU measures, smart meter roll-out for Lithuania was supposed to achieve 80% by 2020; however, that was not the case.60 The same EU report has made key 53. Supra 21. 54. Litgrid. “Grid development”, http://www.litgrid.eu/index.php/grid-development-/strategicprojects-/strategic-projects-/779. 55. “State Aid: Commission Approves h385 Million Support for Production of Electricity from Renewable Sources in Lithuania .” European Commission - PRESS RELEASES - Press Release - State Aid: Commission Approves h385 Million Support for Production of Electricity from Renewable Sources in Lithuania , 23 Apr. 2019, europa.eu/rapid/press-release_IP-19-2230_en. htm. 56. Ibid. 57. Ibid. 58. ERSA Article 39(4). 59. Ibid. 60. European Commission, 2015. “Study on cost benefit analysis of smart metering systems”, p. 65.

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assumption data for Lithuania and anticipated a 2.3% reduction in energy consumption per household with smart meters. Other benefits to cost of installation include reduced administration of meter readings, reduced technical losses, electricity cost savings, reduction in commercial losses, reduction of CO2 emission, and an avoided (continued) investment cost in standard meters.61 ESO carried out a pilot project to test the benefit and implementation of smart meters in various locations in Lithuania, ranging from urban, suburban, and rural areas as well as old and new buildings, a total of 2927 smart meters.62 Following a survey, the main benefits recognized by the respondents were automatic meter readings, easier to pay bills, tracking of energy consumption, and average of 7.1% electricity saved. Ultimately, the pilot wanted to confirm and conclude the benefits to household consumers, that is, consumers are given better control and transparency of their energy usage and how their energy bill is broken down with close to real-time accuracy. This allows consumers to identify how they could save money by changing their energy consumption habits, or changing their electricity provider. Additionally, the pilot has helped ESO to set a target for deployment of smart meters. By the end of 2023 fully integrated IT systems and data exchange platforms will be implemented and ready to receive incoming data from approximately 1.8 million smart meters. In early March 2019 ESO issued a call for tenders to purchase 1.76 million smart meters and accompanying IT solutions. The tender is estimated to last for 10 years where the winning bidder will commence smart meter rollout in the fourth quarter of 2020 with a planned completion at the end of 2023.63 In the late fall of 2017 EY Baltic together with state-owned ESO conducted an extensive cost benefit analysis of installing smart meters in Lithuania.64 The analysis is based on different data and assumptions to provide a supporting report on the installment and application of smart meters. The analysis disclaims that it was not approved by the National Commission for Energy Control and Prices and has not included assessment of any regulatory aspects.65 The report assesses multiple areas of the Lithuanian gas and electricity sector to display trends and spikes in hourly demand. Most of the figures used are from 2016 but should provide an accurate and relevant scope for future consumer demands with emerging technologies in mind. 61. Ibid, p. 66. 62. Zibaitis, E., 19 September 2018. Head of Smart Metering Development Division. ESO Smart metering program and procurement strategy. ˇ 63. Zibaitis, E., 19 September 2018. “Smart Metering Program.” ESO, ESO, http://www.eso.lt/ stream/101696/20180919%20eso%20-%20smart%20metering%20programee%20(presentation). pdf. 64. EY and ESO, 27 November 2017. “Iˇsmaniosios energijos apskaitos diegimo Lietuvoje kaˇst˛u ir naudos analiz˙e,”, http://www.eso.lt/en/smart-metering-program/smart-program-update.html (only available in Lithuanian). 65. Ibid.

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Fig. 21.2 displays hourly electricity demand per month in 2016. Though there is a trend of slightly lower usage during the summer months, the curve evidences a similar pattern throughout each 24 h cycle with the first raise at around 5:30 a.m. The electricity demand remains fairly stable from 8 a.m. through 4 p.m. This could signal that the Lithuanian population are steadily engaging in consumption throughout the day and only slowing down consumption during the late hours. Recognizing and capturing these trends are essential to understand how to build a strong response program.

FIGURE 21.2 In 2016, hourly electricity consumption in Lithuania, MhW23.66

Educating the population about when they consume energy and how that reflects on their monthly energy bill may influence their behavior. The installation of smart metering technology would allow the individual user to discover their consumption patterns. Additionally, consumption data would also be captured by the grid operators to better understand when peak demand is during the day. This is valuable information to solve the balancing equation for when supply is needed in the different geographical regions (Fig. 21.3).

21.5 Demand response There is an inherent importance in acknowledging the significance for integrating demand response (DR) and energy efficiency measures in EU Member States. Such measures have been conducted by LitGrid AB and 66. Ibid, page 59.

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FIGURE 21.3 Hourly electricity prices in 2016 in Lithuania, Eur/MhW24.67

ESO AB through a study published in 2019.68 The study provides an oversight over the current EU regulatory standing and show how DR may assist toward deregulation and decentralization of electricity distribution. DR involves instigating new consumption patterns in order to balance the supply of electricity. It aims to when supply is low demand of its users’ need to reflect this, and when there is an abundance of generated electricity, demand will need to utilize this. DR helps both keeping the cost of electricity down as well as to overall reduce energy consumption at peak points of the day. The report by LitGrid and ESO identified four main types of DR relevant to Lithuania: 1. 2. 3. 4.

shifting of electricity demand from one period of time to another.69 fuel shift.70 utilization of back-up systems.71 peak shaving/valley filling.72

67. Supra 67, p. 60. 68. Demand response: potential DR services and technical requirements, 5 September 2017. WP1. 69. This may include water treatment plants or industry with a number of pumping processes that do not need to run continually and can therefore run during times with low electricity prices. 70. With end-user application to better rely on more than one fuel input in order to coincide with their heat and/or electricity needs. 71. Targeting public, industrial, and commercial sites and building that have back-up generators when electricity supply is interrupted. These may also be utilized for demand response as it maintains a certain amount of reserve energy. 72. This refers to reducing electricity demand when the prices are high, without using the same electricity at another point in time. Valley filling is the opposite. This type is best utilized for changing consumer habits in times of extreme pricing circumstances.

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Within Europe, the Smart Energy Demand Coalition (SEDC) performs regular status updates of regulatory frameworks for incentive-based DR.73 The latest status report highlights a few items: 2 2 2 2 2

Regulatory framework for DR in Europe is showing progression. Restricted consumer access to DR remains a barrier. Noteworthy progress has been made in opening balancing markets to demand-side resources. The wholesale market must become more open to demand-side resources. Local system services are not yet commercially tradeable in European countries.

The SEDC has concluded that markets operating in the Nordic spot trading are not offering good frameworks for incentive-based DR. The same extends to Lithuania that has been excluded from the overall status report due to little or no progress in DR development.74 Most EU Member States face similar development challenges when it comes to DR.75 Small-scale end-users are pressed to have smart meters installed in order to measure their usage, prices, and trends, allowing them to self-analyze when it is best to consume energy. Relying on smart meter technology is not a negative in itself but requires a large-scale installation procedure, which costs tax payers for the device and administration fees (installation). Smart metering technology is arguably one of the key business enablers for smart grids.76 Lithuanian legislation covers monitoring of the balancing equation between demand and supply in relation to the reliability of the transmission and distribution grids.77 In that regard, the National Control Commission for Prices and Energy (the Commission) are obligated to publish annual reports containing information about the electricity demand and supply balance at national level, expected future demand of electricity, and supply proposals. It shall also include development of electricity capacity and measures for satisfying electricity demand at peak times.78 By returning to Lithuania’s consumption data, it is clear to see that total demand for electricity between 2014 and 2018 increased by nearly 10%.79 Comparing the 73. Supra 43. 74. Ibid, p. 42. 75. SEDC, 2015. “Mapping demand response in Europe today”. 76. Bertoldi, Paolo, et al., 2016. “Demand response status in EU Member States.” JRC Science for Policy Report, European Commission, publications.jrc.ec.europa.eu/repository/bitstream/ JRC101191/ldna27998enn.pdf. 77. LoE Article 19(1). 78. Ibid. 79. Litgrid, 2019. “Power system”, http://www.litgrid.eu/index.php/power-system/power-systeminformation/national-electricity-demand-and-generation/3523.

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demand to the price per kilowatt-hour for households, data displays that there has been a price reduction of about 18% over the same period.80 The increase in supply and reduction of price per kWh coincides with various occurrences; connection of NordBalt power line to Sweden and LitPol link to Poland, increased export of electricity, especially to Poland, increased import of electricity from Sweden, and an increase in electricity generated from renewable sources.81 The National Control Commission for Prices and Energy plans is to lay down the technical modalities for DR measures, which will include consumer access to such measures and participation of DR measures in the electricity market. Lithuania offers dynamic pricing for DR measures via network or retail tariffs, including time-of-use tariffs and real-time pricing. The prices for electricity are state regulated, and the DSO provides six to eight plans for consumers having consumption, time zones, and minimum amount consumed into account.82 Furthermore, there is also an aim to switch from regulated electricity prices to a market-based model. This is based on the balance of supply and demand, and together with European Union backing, it will promote consumer empowerment with the establishment of decentralized system development, distributed generation, and increased renewable resources in the household sector. Future aspects aim at inviting domestic consumers to participate in the electricity market and connect to the grid as a prosumer. Domestic renewable integration will be widely used to aid in user load management and energy storage management with an aim to improve energy efficiency and decarbonization at a lower cost.83

21.6 Cross-border relations and power grid synchronization Lithuania as well as other Baltic states has long been controlled by the Russian government agencies and Russian owners of power infrastructure.84 In July 2018 a political agreement was signed in Brussels to free the Baltic States from the Russian regime and bring power synchronization with the Continental European electrical grids.85 80. Tiseo, I., 22 May 2019. “Lithuania: electricity prices for households 2010 2018.” Statista, http://www.statista.com/statistics/418098/electricity-prices-for-households-in-lithuania/. 81. Supra 64. 82. Lithuanian Ministry of Energy and Ministry of Environment, 14 December 2018. “Integrated National Energy and Climate Plan of the Republic of Lithuania” (draft version), https://ec. europa.eu/energy/sites/ener/files/documents/lithuania_draftnecp_en.pdf. 83. Ibid. 84. European Commission, EC, June 2018. “Juncker Commission ends energy isolation and increase solidarity and energy security,” https://ec.europa.eu/energy/sites/ener/files/energy_solidarity_security.pdf. 85. DELFI, BNS, 2 February 2019. “Power grid synchronization is final step in Lithuania’s European Integration - President.”, en.delfi.lt/business/power-grid-synchronization-is-final-stepin-lithuanias-european-integration-president.d?id 5 78431331.

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FIGURE 21.4 LitGrid flow of supply from interconnectors.

Lithuania is a net importer of electrical energy,86 and there is a genuine concern amongst the Lithuanian population around energy security, due to its reliance on the Russian gas sector.87 Since nuclear power is not an option, it is imperative that the government looks to invest in renewables in an effort to improve their energy system (Fig. 21.4). Comparably, Lithuania is one of the smallest energy consumers in the Baltic region as well as the EU. Yet it represents one of the most complex examples of energy security issues. In 2009 Lithuania shut down its final nuclear reactor, which was of similar construction to the ones in the Chernobyl plants in Ukraine. Nuclear power was the main source of electrical energy generation and Lithuania was able to export 58% of total electrical energy generated.88 The closure of the power plant increased the need to import energy to satisfy demand. In order for Lithuania to become more independent, they need to transition to smarter and more sustainable solutions for energy generation and reduce their import dependencies from Russia, which was 63% in 2012. 86. See Fig. 21.4. 87. Energiewende Team, 15 September 2017. “Lithuania’s energy transition at a crossroads”, https://energytransition.org/2017/09/lithuanias-energy-transition-at-a-crossroads/. 88. Nordel, 2 October 2009. “Market based analysis of interconnections between Nordic, Baltic and Poland areas in 2025”.

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Interconnections to other Baltic states as well as the Nordic states are the key features of Lithuania’s effort in decentralizing its electricity grid.89 The Baltic Energy Market Interconnection Plan (BEMIP) is looking to achieve exactly this; end energy isolation by creating an open and integrated regional electricity and gas market between EU states in the Baltic Sea region.90 Initially, the focus under the BEMIP was to establish routines around gas and electricity and build infrastructure to increase power generation. A second Memorandum of Understanding was signed between a number of parties on June 8, 2015, extending the initiative’s gambit to include security of supply, energy efficiency, renewable energy generation, and the integration of the Baltic States’ synchronization to the Continental European electricity grid.91 Evidence of the BEMIP’s initiative is the interconnectivity of LitPol with the Nordic electricity markets (Finland and Sweden). In addition to Estlink and Nordbalt, the Baltic States have reached an interconnectivity of 23% and have become one of the best interconnected regions in Europe.92 Nonetheless, further efforts and longer term projects will need to be developed to ensure continuous growth and sustainability. Lithuania and the Baltic region will need to continue focus on making the most of renewable energy potential. The three Baltic States are currently still synchronized to the Russian and Belarusian electricity systems. BEMIP has established specific working grounds to achieve synchronization of the Baltic grid with the network in continental European by 2025. A political roadmap was endorsed by the Heads of State or Governments of Lithuania, Latvia, Estonia, and Poland together with EC President Juncker for synchronizing the Baltic electricity grid by 2025.93

21.7 Data protection in smart grids With the two-way digital communication between supplier and consumer rewarding support to intelligent metering and monitoring system, smart grids are an advantageous and beneficial tool to society at large. However, the dependency on computer and cloud networks supporting future smart grids inhibits a risk and vulnerability to malicious attacks possible devastating effects. 89. Ibid. 90. Energy - European Commission, 4 July 2019. “Baltic Energy Market Interconnection Plan (BEMIP).”, ec.europa.eu/energy/en/topics/infrastructure/high-level-groups/baltic-energy-marketinterconnection-plan. 91. Ibid. 92. Ibid. 93. European Commission, 2018. “Political roadmap on the synchronisation of the Baltic States’ electricity networks with the Continental European Network via Poland”, https://ec.europa.eu/ energy/sites/ener/files/documents/c_2018_4050_en_annexe_acte_autonome_nlw2_p_v2.pdf.

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Much like the 10 commandments in the US constitution, data protection is a human right in the EU. Article 8 of the European Convention on Human Rights provides every EU and EEA citizen the right to respect for private and family life, which can be extended to mean protection of personal data. This is perhaps the basis for which Regulation 679/2016 (General Data Protection Regulation, “GDPR”) was founded. It may also be the reason for the proliferation of new data protection/privacy laws and regulation developing around the world. The current landscape is changing drastically and giving stronger protective rights to consumers and individuals. New data protection regulations are flourishing in California (California Consumer Protection Act), India (India Privacy Bill), New Zealand (Privacy Amendment Bill), Thailand, Singapore, and Canada to mention a few. The GDPR is directly applicable to all EU Member States and applies by extension to all natural persons in Lithuania. The implementation of GDPR into Lithuanian law was achieved on July 16, 2018.94 This means that grid companies operating externally and internally to the electricity grid have an obligation to ensure the safe collecting, processing, handling, and storage of personal data belonging to EU citizens. This is especially important for personal data activities related to smart meters and smart grids. After a year of following the successful implementation of GDPR, trends are revealing how the legal landscape has reacted to the new privacy laws. Various customer rights under the Regulation are being enacted such as Subject Access Requests, Right to be Forgotten, and Right to [easy] Portability. However, the largest scare factor for the new data protection law is perhaps data breaches. A personal data breach that has a high likelihood and high severity of harm must be reported to the relevant Data Protection Authority within 72 h of awareness.95 A notification to the impacted data subjects may also be required and should be issued without undue delay.96 Failure to comply may result in administrative fines of up to 2% or 4% of total global revenue.97 The EU Commission established a Smart Grid Task Force in 2009 designed to advice on issues related to smart grid deployment and development. Out of the five Expert Groups, Expert Group 2 has been assigned to mitigate the risks to personal data.98 In that regard the Expert Group has issued guidance on data protection, privacy, and security surrounding customer protection related to smart grids. It has also specifically designed a DPIA template for smart grid and smart metering systems.

94. The Law on Legal Protection of Personal Data. 95. GDPR Article 33. 96. GDPR Article 34. 97. GDPR Article 83. 98. Energy - European Commission, 5 July 2019. “Smart grids and meters.”, ec.europa.eu/ energy/en/topics/markets-and-consumers/smart-grids-and-meters.

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A DPIA is a process designed to evaluate risks to the rights and freedoms of individuals. It aims to assess the origin, nature, and severity of risk as well as to analyze measures, safeguards, and control mechanisms utilized to control these risks on an ongoing basis. A DPIA allows data controllers to adequately determine its internal rules, procedures, and controls for collecting personal data with regard to proportionality and legitimate interest. Controllers must show that they practice privacy by design. The specific DPIA template was designed with the collection and usage of personal data (for instance, household consumption) in relation to and as a key business enabler for the successful operation of smart grids and smart metering systems. Therefore it is essential that the risks to the rights and freedoms of EU natural persons are properly addressed and mitigated through compliance to the GDPR and monitored by the EU regulators to ensure personal data is collected proportionally and with legal basis. Lithuanian legislation is echoing this and ensures that the electricity grid operators must establish a high level of protection of consumer rights and electricity household consumers.99 Further privacy recommendations that Lithuania should consider when developing its smart grid are the ones published by the European Union Agency for Network and Information Security (ENISA).100 The recommendations allow decentralization of smart grids from a data protection point of view. There is a focus on interdependencies and communication between various actors in the value chain of smart grids, including cross-market support.101

21.8 Electric vehicles and storage 21.8.1 Electric vehicles Currently, there are a few major competitive technologies in the vehicle spectrum: battery electric vehicles (EV), plug-in hybrid electric vehicles, hybrid electric vehicles, and internal combustion engine vehicles (ICEVs). Though the latter technology is by far the most popular, EVs are advancing as the related technologies are getting better in addition to more awareness of climate sustainability. At the present day, the Lithuanian population is heavily invested in ICEVs and hosts a large second-hand market of ICEVs. This is mainly due to the affordability and availability of such vehicles. According to the Lithuanian Electric Vehicles Association, there are currently fewer than a hundred registered EVs.102 In the transport sector, electrification is considered as the main technological alternative which has significant potential to reduce greenhouse gas 99. LoE Article 10(1). 100. ENISA, 28 June 2016. “Smart grids.”, http://www.enisa.europa.eu/topics/critical-information-infrastructures-and-services/smart-grids. 101. ENISA, 2016. Communication network interdependencies in smart grids. 102. http://www.elektromobilis.org/en/about/.

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emission and dependency on fossil fuels.103 To expand upon the potentials, EVs may aid in reaching climate targets, deploy alternative sources of energy generation, clean urban transport, and enhance energy consumption efficiency. EVs may also support the electricity grid in a smart grid scenario by allowing the EV to operate as a transmission of electricity between the vehicle-to-grid, vehicle-to-household, vehicle-to-building, and grid-tovehicle.104 Invest Lithuania are promoting investors to set up shop in Lithuania to help develop EV-related technology in accordance with sustainable manufacturing guidelines.105 Especially within the sphere of battery gigafactories, Lithuania’s government is willing to offer favorable conditions for large-scale projects, facilitated through a fast-track setup process. The investment scheme shares the renewable energy targets stipulated in LOERS, which may look attractive for long-term investors. Additionally, Lithuania’s higher educational institutions are targeting course programs to echo industry needs within the private sector, thus creating a designated workforce that are willing and knowledgeable about real-world needs.106

21.8.1.1 Electric vehicle support schemes EV support schemes are targeted incentives and inducement mechanisms which are central to the early development and deployment of EVs. These support schemes may range from direct or primary to indirect and secondary and may apply to all phases of the value chain. Different sectors may be targeted such as battery R&D, infrastructure expansion (for instance, charging stations), and the purchasing phase. Drivers in Lithuania lack eco-driving awareness and culture.107 In addition, current prices of EVs are unobtainable when compared to the average salary of the Lithuanian population.108 For instance, a new Nissan Leaf is priced at EUR 39,900, for an average Lithuanian earner, this would take 31 monthly salaries to pay off, and in comparison it would take a German average earner 10 monthly salaries to pay off.109 Furthermore, replacement 103. Lutsey, N., Sperling, D., 2012. “Regulatory adaption accommodating electric vehicles in a petroleum world.” Energy Policy 45,308 3016. 104. Tuttle, D.P., Baldick, R., 2011. “The evolution of plug-in electric vehicle and grid interactions”. IEEE Trans Smart Grid 2012 (3),500 505. 105. Invest Lithuania, “Reasons to choose Lithuania” https://investlithuania.com/key-sectors/ manufacturing/ev-batteries/. 106. Ibid. 107. Azzopardi, B. et al., 2015. “Electric vehicles challenges and opportunities: Lithuanian review,” Renewable Sustainable Energy Rev. 108. Average salary Q1 2019 5 EUR 1262/month, up from EUR 935 Q3 2018. Comparably, Germany average salary per month is EUR 3932. https://tradingeconomics.com/lithuania/wages. 109. Ibid, Nissan, “Nissan announces new LEAF 3.ZERO and new LEAF e 1 3.ZERO with higher output and longer range” 9 Jan 2019, https://europe.nissannews.com/en-GB/releases/ release-90b1ce83155c6b12ec5c018c9a0239df-nissan-announces-leaf-3zero-and-leaf-3zero-e-limited-edition-with-higher-output-and-longer-range-2#.

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of EV battery systems is still at an disproportionate cost compared to the lifetime of an EV. Suggestions may be made to allow preferential treatment of taxation of EVs through government subsidies.110 In order to fund this, taxes could increase on internal combustion vehicles, which could also have a knock-on effect to move away from ICEVs. However, the government has been skeptical to fund tax incentives and other subsidies for EVs. There is a perception in Lithuania that EVs are only for the high earners in society, and there is no value in promoting such schemes to the national budget.111 Currently, it is still a large step forward to be made before policy subsidies are fully introduced. That being said, there are other incentives Lithuania could explore apart from financial incentives to promote the EV measure. For instance, 57 new charging stations were planned to be built before the end of 2018 with EU backing the country with 1.5 million Euros plus an additional 15% by the local municipalities housing the new charging stations.112 An increased network of electric charging station is a necessary infrastructure pillar to support the proliferation of EVs. Many of the charging stations are installed along major highways and along the trans-European road network, inviting cross-European support and influence. Furthermore, there are other indirect schemes supporting zero-emission transportation solutions. A great example is SPARK eGO.113 This is a car-sharing scheme priced at a very competitive rate.114 Some immediate advantages for drivers utilizing the SPARK scheme is the use of “A lanes” (public transport lanes), free parking in the cities of Vilnius, Kaunas, and Trakai as well as loyalty points per kilometer driven. SPARK is an easy-to-use service that has an interactive map on its website of available EVs, parking, and charging stations. Some of the incentives of using the service mimic that of Norway’s governmental incentives for car owners to choose EVs over petrol-based vehicles. In Norway, EV owners may also use public transport lanes, pay no road tax, free parking at allocated lots located around the nation, and enjoy lower vehicle tax and point of purchase. Other support schemes that are objectively considered as good practices to deploy EVs and stimulate development include capital incentives such as tax credits and public tenders for projects related to EVs.115 The investment cost for the average Lithuanian is still extremely high, and without any direct 110. Supra 85. 111. Ibid. 112. The Baltic Course | Baltic States News & Analytics, 8 Aug. 2018. “57 New charging stations for electric cars to be installed in Lithuania.”, http://www.baltic-course.com/eng/good_for_business/?doc 5 142181. 113. https://www.espark.lt/en/. 114. Ibid, at EUR 1.8 per minute for the first 12 minutes and EUR 0.15 for every extra minute. One can also commit to a daily rate EUR 22. 115. Supra 85.

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financial incentives, EV deployment will take a very long time. Direct incentives that Lithuania may consider are value added tax relief, exemption from road tax, and other subsidies related to R&D and allow for EVs to be added to the Green Investment Scheme as seen in other EU countries.116 A variety of support schemes would be a better suited model for Lithuania as it may interact with several types of renewable energy technologies in relation to grid connectivity and optimization. Lithuania’s EV market is facing a number of challenges. These range from weak representation of original equipment manufacturers, prevailing second-hand market of old vehicles, low purchasing powers of citizens, high global prices of EVs, and lack of direct capital state subsidies and support.117 However, there are a number of strengths and opportunities that policymakers in Lithuania could target to support a long-term deployment strategy of EVs. For instance, Lithuania is well positioned in science and IT related to transport and EV technologies.118 This position could be angled toward climate-related targets of reducing GHG emission and dependency of fossil fuels, much like investing in RES plants and zero-emission transport technology could create an organic transition toward more EVs on the roads.

21.8.1.2 EU-wide measure to promote electric vehicles nationally Implementing an EU-wide industry mandate to deliver a set minimum target of EVs could put pressure to increase the number of EVs sold in Lithuania. Such measure could also boost research and development in the value chain related to electric. Subsequently, this could yield better EVs with longer range and life span, and be more cost-effective for costumers. Such a mandate could also address compliance vehicles that are low quality but sold quantitatively to meet quota obligations. Although electrification of the transport sector may not be the number one priority for Lithuania, it should take measures to diversify its potentials to expand to eliminate GHG emission in transportation. 21.8.2 Storage An important factor in establishing good balancing mechanisms to the energy system’s fluctuation of demand and supply is efficient storage solutions. In a smart grid scenario, storage systems will have the ability to detect when there is excess electrical energy entering the grid, whether that is from 116. “Green Investment Scheme,” 2018, https://www.nfosigw.gov.pl/en/priority-programmes/ green-investment-scheme/. 117. Azzopardi, B. et al., 2015. “Electric vehicles challenges and opportunities: Lithuanian review”. Renewable Sustainable Energy Rev. 118. Ibid.

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generated or imported supply. Naturally, an excess of energy in storage systems will subsequently flow back into the grid when generation is scarce or demand is high. Presently, there are technological limitations to effectively store energy at the necessary scale without significant loss. Although Lithuania has development plans for electricity storage infrastructure in related to smart grids, there is still much to be done.119 Currently, the largest storage facility in Lithuania is the Kruonis Pumped Storage Hydroelectric Plant (KPSHP) located in the center of the country near the major city of Kaunas and is the only power plant of this type in the Baltic region.120 The plant has a total capacity of 900 MW The intention of the plant is to effectively assist with the balancing equation between supply and demand, and it is also capable to ensure 94% of Lithuania’s power reserve in case of an emergency outage. The KPSHP is able to operate in two different modes: during low demand at night, it operates in pump mode and utilize cheap surplus energy to raise the water from the lower reservoir to the higher and when demand is high, or at peak, the plant operates as a traditional hydroelectric plant. There are various projects exploring the possibilities of better energy storage facilities in Lithuania. For example, the Lithuanian Business Support Agency has granted $267,000 to support the development of an experimental floating photovoltaic power plant at the existing HPSHP. At full capacity, the solar system, covering the entire aquatic surface of the KPSHP, will be able to generate 200 250 MW and could be connected to additional battery energy storage systems. This is an innovative way of maximizing the potential of both the hydro power plant and the floating photovoltaics’ capacity. The solar power could help power the hydropower plant when it is in pump mode.

21.9 Conclusion There is a thematic approach that echoes through Lithuanian legislative efforts to promote the development of sustainable and renewable energy technologies and ensures its connectivity to the Lithuanian electricity grid. Although there are many challenges to decentralize and progress toward a true smart grid, there are many opportunities to build strength and learn from pioneering markets such as Denmark. The LOERS provides adequate support mechanisms to promote RES plants and installations and ensures its continuous prosperity through climate targets. Although Lithuania is lagging behind on EU targets, they are showing strong willingness to solve the current 119. LOERS Article 13(4). 120. “Kruonis Pumped Storage Hydroelectric Plant (the KPSHP): brief overview” https://gamyba.le.lt/en/our-activities/electricity-generation/kruonis-pumped-storage-hydroelectric-plant-thekpshp/4188.

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setbacks. The major asynchronization is prioritized project for creating an integrated electricity grid with the rest of Continental Europe. In achieving a synchronized electricity system, Lithuania can start taking advantages of the increased security of supply flowing from its neighboring countries. Smart grid development is also strongly mentioned in the LoE. Efforts are showing avid signs of strong research and development being carried out to increase the technological smartness of the power grid. An important effort in achieving smarter solutions is to build from the bottom-up. Smart metering projects have been initiated by Lithuania, where mass rollout has begun in 2019, and targets for large-scale usage is set for 2023. Although this is behind EU targets and what some other EU markets are able to achieve, Lithuania has realized that it needs to be realistic. With all new technology that relies on computerized systems handling data, it is important to ensure strong data protection mechanisms. Lithuania has successfully implemented the GDPR that came into force on May 25, 2018. The regulation offers strong privacy rights, and regulators have been awarded with large enforcement powers, with administrative sanctions ranging up to 4% of a corporations’ global revenue, or 10 million Euros. Further efforts have been completed on EU level to ensure data protection and cyber security within the smart grid sector. Lithuania should therefore ensure that undertakings processing consumer data should complete a Data Protection Impact Assessment (DPIA) to identify areas of risk. Also in the sector of transport, Lithuania is struggling. With prices of EVs being disproportionally high compared to average earnings, other incentives need to be explored. It is still important for the Lithuanian transport sector to foster a mindset of green development within personal transportation. The dependency on fossil fuels takes time to reduce, and diversifying the zero-emission portfolio will be rewarding in the future.

Chapter 22

Energy decentralization and energy transition in Romania Andrew Filis1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

22.1 Introduction The European Union (EU) pursues complex policies to promote the shared and collective interests of its members to, among other things, energy security.1 To that end, energy policy at the EU level is by no means limited to the external aspects of energy—such as energy trade policy (including trade tariffs), EU-third-party infrastructural projects, broader energy diplomacy, etc.—but also extends to internal matters, including the attainment and optimization of a well-integrated internal electricity system and market2 in line with other—not directly energy-related—EU policy objectives, including the “greening” of the EU economy, the empowerment and protection of citizens/ consumers, decentralization, digitalization, and the resilience of the economy. A diversity of EU policies is in place including such that impose positive obligations of varying degrees of compulsion on Member States. An example is the promotion of smart grids at the national and broader regional and EU levels. This chapter examines the realities surrounding Romania’s electricity sector vis-a`-vis broader EU policy in relation to the “smartening” of electricity systems. The purpose of this review is to provide useful insights into Romania’s electricity sector and critically assess the extent to which its current state is conducive to EU “smart grid” objectives. To that end, the chapter opens by sketching the principal contours of Romania’s electricity sector. This is followed by an exposition of the “smart grid”-related features of

1. Leal-Arcas, R., Filis, A., 2013. Conceptualizing EU Energy Security through an EU Constitutional Law Perspective, Fordham Int Law J 36, 1224 1300. 2. Leal-Arcas, R., Filis, A., The energy community, the energy charter treaty, and the promotion of EU energy security, Queen Mary School of Law Studies Research Paper No. 203/2015. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00017-7 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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Romania’s electricity system. The chapter concludes with a set of recommendations for policymakers.

22.2 Romania’s electricity market 22.2.1 Key figures concerning energy and electricity In Romania, overall energy consumption witnessed a dramatic drop (approximately 245.5%) between 1990 and 1999 and has remained relatively stable since.3 For instance, energy consumption in 1990 stood at 43,027 kilotons of oil equivalent (ktoe), which by 1999 dropped to 23,533 ktoe, and by 2016 to 22,878 ktoe.4 As energy consumption has hitherto been a fairly reliable indicator of overall levels of development and living standards in less developed economies,5 diachronic energy consumption figures make for sober reading, particularly when considered against the backdrop of the economic and social impact that the collapse of the various bureaucratic command economies in the early 90s—including that of Romania following the 1989 uprising that toppled the Ceaușescu regime—and of the 2008 Financial Crisis. For instance, per capita electricity consumption levels dropped in relation to 1990 figures. In 1990 consumption per capita stood at 2.92 MWh, which subsequently dropped by 33% in 1999 to 1.94 MWh before rising to 2.69 MWh in 2016. While the 2016 figure represents an increase over that for 1999, it remains approximately 8% below 1990 levels.6 In terms of the principal purposes behind overall energy consumption for 2015, in descending order, these were: heating and cooling needs of the services sector

3. Calculation authors’ own based on figures for 1990 and 1999 as appear in International Energy Agency (IEA) World Energy Balances 2018, Available at: https://www.iea.org/statistics/ ?country 5 ROMANIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES. 4. Cf., International Energy Agency (IEA) World Energy Balances 2018, Available at: https:// www.iea.org/statistics/?country 5 ROMANIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES. 5. That said, it is not a determinative factor given that in sustainable and robust economies where energy intensity has decreased, energy consumption no longer acts as an indicator of economic growth. Cf., Cloete, S., “Can We Really Decouple Living Standards from Energy Consumption?,” Energy Central, 8 June 2015. Available at: https://www.energycentral.com/c/ec/ can-we-really-decouple-living-standards-energy-consumption. Until such time, however, particularly in relation to less developed economies such as Romania, energy consumption may be taken into account, along with other indicators such as literacy, longevity, and so on to deduce levels of human wellbeing. For a general discussion on the relationship between energy consumption and living standards, cf., Goldemberg, J., 2001. Energy and Human Well-Being. Available at: http://hdr.undp.org/en/content/energy-and-human-well-being. 6. Calculations based on IEA World Energy Balances 2018 figures. Available at: https://www. iea.org/statistics/?country 5 ROMANIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 ElecConsPerCapita&mode 5 chart&dataTable 5 INDICATORS.

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and households, industrial processes, passenger transport, other industrial uses, and freight transport.7 In terms of the composition of the energy consumption mix, while it remains dominated by hydrocarbons, encouragingly, their overall share has decreased over the years. For instance, in 1990 coal, gas, and oil collectively accounted for approximately 73.5% of the mix while in 2016 for approximately 64%. Much of this is due to considerably reduced use of coal and gas—for instance, while in 1990 approximately 3013 ktoe of coal and 19,854 ktoe of gas were used, in 2016 the figures were 643 ktoe and 5479 ktoe, respectively.8 Remarkably, the energy mix had included no nuclear prior to 1996.9 On the other hand, the share of recycled and/or renewable energy sources (RES), albeit historically meager, has increased. For instance, in 1990 it stood at just 1.36%, rising to 11.9% in 1999, and to 16.4% in 2016.10 In relation to 2017 figures, the European Commission considers Romania’s efforts pursuant to its obligations under Directive 2009/28/ EC11—namely, that by 2020 at least 24% of total energy consumption comes from RES—to be well on track.12

7. Cf., Cıˆrstea, S., ¸ et al., 2018. Current situation and future perspectives of the Romanian renewable energy, Energies 11, 3289 (p. 3), where it is stated that in relation to the 254 TWh equivalent of energy consumed during 2015, 39% (97 TWh) was for the heating and cooling needs of the services sector and households (roughly on a 4/5ths to 1/5th basis), 48 TWh for “industrial processes,” 48 TWh for passenger transport, 27 TWh for the “rest of industrial” consumption, 17 TWh for freight transport, and c.4 TWh for agriculture. 8. Calculations based on IEA World Energy Balances 2018 figures. Available at: https://www. iea.org/statistics/?country 5 ROMANIA&year 5 2016&category 5 Energy%20consumption &indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES. 9. That said, the share of electricity ranged between 10.8% and 16.2% of the final energy consumption mix between 1990 and 2016. Electricity itself, however, is generated from a variety of sources including nuclear. However, between 1990 and 1995, no electricity had been generated from nuclear. However, nuclear electricity generation commenced in 1996 and took off in earnest by 2008, cf., IEA World Energy Balances 2018. Available at: https://www.iea.org/statistics/ ?country 5 ROMANIA&year 5 2016&category 5 Electricity&indicator 5 ElecGenByFuel& mode 5 table&dataTable 5 ELECTRICITYANDHEAT. 10. Ibid. Also note that “biofuels and waste,” and “geothermal and solar etc.,” are the resource categories included under this rubric. Incidentally, according to the IEA, Romania’s methodology re-estimating domestic geothermal energy generation/production differs from IEA standards, therefore, data comparisons with other countries may be misleading. Cf., IEA World Energy Balances: Database Documentation (2018 edition) (p. 175). Available at: http://wds.iea.org/wds/ pdf/worldbal_documentation.pdf. 11. Cf., 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 (Annex I, p. 46). Available at: https://eur-lex. europa.eu/legal-content/EN/TXT/PDF/?uri 5 CELEX:32009L0028&from 5 EN. 12. Cf., European Commission Renewable Energy Progress Report, COM(2019) 225 final (p. 6). Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri 5 CELEX:52019DC0225 &qid 5 1559033163855&from 5 EN.

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While the share of electricity vis-a`-vis the composition of the total consumption energy mix diachronically has risen—namely, from approximately 10.8% in 1990, to approximately 12.4% in 1999 and 16.26% in 2016,13 as mentioned earlier, the figures for 1999 and 2016 remain below 1990 figures in absolute terms. For instance, electricity consumption stood at 4663 ktoe in 1990, dropping to 2917 ktoe in 1999, before partially recovering to approximately 3719 ktoe in 2016.14 Put differently, 67.86 TWh of electricity were consumed in 1990, 43.5 TWh in 1999, and 52.96 TWh in 2016.15 Incidentally, the electricity consumption ratio between nonhousehold vis-a`vis household end users stood at 74%/26% during 2017.16 As is the case with other countries transitioning from bureaucratic command economy to market models, drops in energy consumption are also witnessed in the case of Romania following such disruptive socio-political and economic events such as the collapse of such regimes and the 2008 Financial Crisis, albeit, in relation to the latter, to a lesser extent for Romania.17 In relation to energy production, diachronic figures indicate a significant drop over 1990 figures as not only has production failed to return to 1990 levels it has yet to surpass 2008 levels. For instance, energy production stood at 40,840 ktoe in 1990, 27,961 in 1999, 28,978 in 2008, 28,339 in 2009, and 24,868 in 2016. The drop between 1990 and 1999 is approximately 231.5%, and between 1990 and 2016, approximately 239.2%.18 When considering this trend along with energy consumption trends, the fact that industry and transport account for approximately 54%19 and, more generally, that 13. Calculations based on IEA World Energy Balances 2018 figures. Available at: https://www. iea.org/statistics/?country 5 ROMANIA&year 5 2016&category 5 Energyconsumption &indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES. 14. Ibid. Calculations based on figures therein. 15. Calculations based on IEA World Energy Balances 2018 figures. Available at: https://www. iea.org/statistics/?country 5 ROMANIA&year 5 2016&category 5 Energyconsumption &indicator 5 undefined&mode 5 chart&dataTable 5 INDICATORS. 16. Cf., ANRE National Report 2017 (published on 31 August 2018) (p. 105). Available at: https://www.anre.ro/en/about-anre/annual-reports-archive. 17. A year after the outbreak of the 2008 Crisis, Romania’s total energy consumption dropped from 26,205 ktoe (2008) to 23,341 ktoe (2009). Subsequent annual figures have neither exceeded nor returned to 2008 levels, and have generally hovered between 23,807 ktoe (2011) and 22,878 ktoe (2016). Calculations based on IEA World Energy Balances 2018 database figures (though navigating the various parameters available therein). Available at: https://www.iea.org/statistics/? country 5 ROMANIA&year 5 2009&category 5 Keyindicators&indicator 5 TPESbyPop &mode 5 table&dataTable 5 BALANCES. 18. Cf., IEA World Energy Balances 2018 database. Available at: https://www.iea.org/statistics/? country 5 ROMANIA&year 5 2009&category 5 Electricity&indicator 5 ElecGenByFuel& mode 5 table&dataTable 5 BALANCES. 19. Namely, the share of total energy consumption is 26.6% for transport, and 27.6% for industry, cf., IEA World Energy Balances 2018. Available at: https://www.iea.org/statistics/? country 5 ROMANIA&year 5 1990&category 5 Energyconsumption&indicator 5 TFCShare BySector&mode 5 chart&dataTable 5 BALANCES.

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nonhousehold use accounts for approximately 76% of energy consumption, it is fair to assume that they are reflective of the general state of the Romanian economy over the period in scope, particularly in relation to population and Gross Domestic Product (GDP) levels for 1990 vis-a`-vis 1999 and 2008 vis-a`-vis 2009.20 While economic growth has generally been robust, this has chiefly been through consumer spending and salary increases. However, outward migration has been rife, which has resulted in a shrinking workforce and skills shortages that, in turn, have undermined Romania’s competitiveness internationally. What is more, inequality and poverty remain high with increasing regional disparities, rates of inflation and child poverty are the highest in the EU, and investment flows remain volatile despite Romania having one of the highest investment ratios (approximately 22.6% of GDP in 2017) in the EU.21 In relation to electricity generation, although the trends are broadly reflective of those indicated earlier regarding 1990 vis-a`-vis 1999 and 2008 vis-a`-vis 2009, the absolute figures regarding 1990 vis-a`-vis 2016 represent a slight increase (11.23%).22 The mix and share of the sources behind electricity generation have changed diachronically. For instance, concerning the 64,309 GWh generated in 1990, 22,573 came from gas, 18,502 from coal, 11,823 from oil, and 11,411 from hydro. Concerning the 50,719 GWh generated in 1999, 14,930 came from coal, 8,437 from gas, 3,855 from oil, 5,198 from nuclear, and 18,290 from hydro. Concerning the 64,956 GWh generated in 2008, 25,882 came from coal, 17,195 from hydro, 11,226 from nuclear, 9,924 from gas, 700 from oil, 24 from biofuels, and 5 from wind. Concerning the 58,014 GWh generated in 2009, 21,773 came from coal, 15,807 from hydro, 11,752 from nuclear, 7,632 from gas, 1,031 from oil, 10 from biofuels, and 9 from wind. During 2016, 65,103 GWh of electricity was generated of which 18,536 was from hydro, 15,981 from coal, 11,286 20. In 1990, Romania’s population and GDP stood at 23 million and 124 billion USD, respectively, which dropped to 22 million and 107 billion USD in 1999. In 2008, the figures were 21 million and 182 billion USD, respectively, before dropping to 20 million and 169 billion USD in 2009. In 2016, these were 19.7 million and c.199 billion USD, respectively. Cf., IEA World Energy Balances 2018. Available at: https://www.iea.org/statistics/?country 5 ROMANIA& year 5 2016&category 5 Energyconsumption&indicator 5 TFCShareBySector&mode 5 table& dataTable 5 INDICATORS & IEA Key World Energy Statistics 2018 (based on 2016 figures) (p. 33). Available at: https://webstore.iea.org/key-world-energy-statistics-2018. 21. For an overview of the Romanian economy, cf., European Commission, Commission Staff Working Document, Country Report Romania 2019 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances, SWD(2019) 1022 final (pp. 3 19 and 35 73). Available at: https://ec.europa.eu/info/sites/info/files/file_import/2019-european-semester-country-report-romania_en.pdf. 22. Electricity generation stood at 64,309 in 1990, 50,710 in 1999, 64,956 in 2008, 58,014 in 2009, and 65,103 in 2016 (figures in gigawatt hours (GWh)). Cf., IEA World Energy Balances 2018. Available at: https://www.iea.org/statistics/?country 5 ROMANIA&year 5 2016&category 5 Electricity&indicator 5 ElecGenByFuel&mode 5 table&dataTable 5 ELECTRICITYANDHEAT.

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from nuclear, 9,655 from gas, 6,590 from wind, 1,820 from solar, 704 from oil, and 531 from biofuels.23 Concerning the 64,003 GWh generated in 2017, 16,591 came from coal, 14,853 from hydro, 11,508 from nuclear, 10,656 from gas, 7,114 from wind, 1,855 from solar, and 458 from biofuels. Lastly, in relation to the 64,383 GWh generated in 2018, 17,999 came from hydro, 15,809 from coal, 11,377 from nuclear, 10,394 from gas, 6,322 from wind, 1,771 from solar, and 312 from biofuels.24 As is the case with total energy production, hydrocarbons feature heavily in the electricity generation mix. More positively, however, their overall share is decreasing, while, conversely, the share of nuclear, recyclable, and renewable sources—representing low- and zero-emissions electricity generation—is in fact increasing. Nuclear currently accounts for up to 17.6% of electricity generation25 and, according to national policy, is set to remain an important component in future energy mixes. For instance, there are plans to extend current nuclear power capacity by the construction of two more units of approximately 706.5 MW output capacity each. In relation to RES, in 2018 their cumulative share (for the most part, wind, solar, and hydro) accounted for approximately 40.6% of electricity generation thus going head-to-head with the cumulative share of hydrocarbons (for the most part, solid fossil fuels, and gas) accounting for approximately 40.8%.26 In fact, in 2015 Romania was the first Member State to achieve its target regarding RES share in the electricity generation mix well ahead of the 2020 deadline.27 Romania’s efforts to draw more of its energy needs from RES are evident in its fast-growing wind market in relation to

23. Figures gleaned through annual datasets from IEA World Energy Balances 2018. Available at: https://www.iea.org/statistics/?country 5 ROMANIA&year 5 1990&category 5 Electricity& indicator 5 ShareElecGenByFuel&mode 5 table&dataTable 5 ELECTRICITYANDHEAT. 24. Note that these come from a different dataset—namely, that of Eurostat (i.e., the EU’s Statistical Service), cf., Excel file titled “2018 early estimates for electricity.” Available at: https://ec.europa.eu/eurostat/statistics-explained/index.php?title 5 Energy_balances__early_estimates#Electricity_26_heat-while 1990 2016 figures come from IEA datasets. 25. Calculation based on 2018 electricity generation and energy mix composition data listed earlier. In relation to plans for expansion of nuclear capacity, cf., the US Department of Commerce, International Trade Administration exports service. Available at: https://www.export.gov/article? id 5 Romania-Energy. 26. Calculations based on Eurostat figures as per Excel file titled “2018 early estimates for electricity.” Available at: https://ec.europa.eu/eurostat/statistics-explained/index.php? title 5 Energy_balances_-_early_estimates#Electricity_26_heat. 27. For a comprehensive exposition of RES development in Romania, cf., Cıˆrstea, S., ¸ et al., 2018. Current situation and future perspectives of the Romanian renewable energy, Energies 11, 3289. Note that between 2009 and 2013 the RES share in the EU’s energy generation mix went from 9% to 16% well on track to reaching 20% by 2020. By 2015—with a RES share of 24.7%—Romania exceeded its 2020 EU target of 24% (pp. 1 3).

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the broader Southeast European region.28 For instance, its installed wind generation capacity alone went from 7 MW in 2007 to 1941 MW in 2018.29 As a consequence, the share of wind in electricity generation has increased considerably, as the diachronic figures cited earlier indicate. This is projected to increase to approximately 3000 MW by 2020 and to 4300 MW by 2030. A similar trend is likely for solar given current projections—namely, approximately 1500 MW by 2020 vis-a`-vis approximately 3100 MW by 2030.30 In terms of RES exploitation in its broad sense, it is worth noting that the greatest share relates to electricity production (44% based on 2014 figures), followed by heating and cooling (28%), and transportation (4.5%).31 What is more, the latest figures (2018) indicate that the total electricity supply stood at approximately 55,711 GWh of which approximately 49,754 GWh was domestically consumed. As mentioned earlier, total gross electricity production in Romania stood at 64,383 GWh while total net production was at 58,722 GWh. Electricity imports for 2018 stood at just approximately 3696 GWh while exports was at 6241 GWh.32 In that sense, Romania’s electricity needs are not heavily dependent on the broader regional electricity system/s. What is more, the primary sources for Romanian electricity generation— namely, solid fossil fuels under the “coal” rubric (e.g., coal, coke, lignite, etc.), gas, hydro, and nuclear—are, for their most part, available domestically. In that sense, arguably, Romania enjoys relative electricity security when its supply and demand aspects are analyzed.33 This issue, along with the degree of interconnectedness of Romania’s electricity system with that of its neighbors and the broader regional electricity system, shall be explored elsewhere in this report. 28. For an overview of Romanian wind electricity generation, cf., Chioncel, C.P., et al., 2017. Overview of the wind energy market and renewable energy policy in Romania, International Conference on Applied Sciences (ICAS2016), IOP Conf Series: Mater Sci Eng 163, 012009. 29. Cf., the United States’ Department of Commerce, International Trade Administration, exports service. Available at: https://www.export.gov/article?id 5 Romania-Energy. 30. Cf., Integrated National Energy and Climate Change Plan for 2021 2030 (NECP) submitted by the Romanian government to the European Commission on 31 December 2018 (p. 65, Graph 6). Available at: https://ec.europa.eu/energy/sites/ener/files/documents/romania_draftnecp_en.pdf. 31. Cf., Gușilov, E., RES development strategy in Romania and Bulgaria, Policy Brief, June 2018, Romania Energy Center (p. 2). 32. Cf., the United States’ Department of Commerce, International Trade Administration, exports service. Available at: https://www.export.gov/article?id 5 Romania-Energy. 33. This is in line with broader regional—namely, non-OECD Europe (including Romania) and Eurasia—trends where, although energy production is very unevenly distributed, the region as a whole is energy self-sufficient, and where the regional electricity mix (for 2016) was dominated by gas (40%), coal (22%), and nuclear (17%). Incidentally, the “non-OECD Europe and Eurasia” region was the second largest nuclear-producing region globally with Armenia, Bulgaria, Romania, Russia, and Ukraine producing 11.8% of global nuclear power. RES, for their part, accounted for 19% of the regional electricity mix. Cf., IEA World Energy Balances: Overview 2018, (pp. xxii-xxiii). Available at: https://webstore.iea.org/world-energy-balances2018.

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Lastly, in terms of distribution losses,34 during 2018 approximately 5957 GWh of electricity was lost during transmission and distribution. This represents approximately 10% of total net electricity production over 2018 figures (namely, approximately 58,722 GWh). During 2017 the loss rate had been approximately 11.8% (namely, approximately 6993 of approximately 59,063 GWh).35 While these figures are generally within normal ranges,36 losses, when preventable, suggest inefficiencies that grid participants—particularly those involved in the transmission and distribution aspects of the Romanian electricity sector—ought to address. As shall be explored in subsequent parts of this report, optimizing the smart-grid aspects of Romania’s electricity system—particularly through, among other things, stimulating demand responsiveness and storage capacity development, and the promotion of self-generation—could result in greater energy efficiencies and thus enhance Romania’s energy security.

22.2.2 Key characteristics and structure of Romania’s electricity market As mentioned earlier, Romania shares certain legacy features with other former bureaucratic command economies and, in line with its Euro-Atlanticist orientation following the collapse of the Ceaușescu regime,37 has undergone deep structural reforms similar to other EU peers including Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Slovakia, and Slovenia.38 34. The World Bank defines distribution losses as “power transmission and distribution losses include losses in transmission between sources of supply and points of distribution and in the distribution to consumers, including pilferage,” cf., Available at: https://databank.worldbank.org/ reports.aspx?source 5 2&type 5 metadata&series 5 EG.ELC.LOSS.ZS. 35. Cf., the Eurostat Excel file titled “2018 early estimates for electricity.” Available at: https://ec. europa.eu/eurostat/statistics-explained/index.php?title 5 Energy_balances__early_estimates#Electricity_26_heat (last accessed 1 August 2019). Percentile figure calculated based on figures therein. Note that 2018 losses are close to 2014 levels (namely, 11%) thus grouping Romania with Angola, Bangladesh, Botswana, Cameroon, Colombia, Costa Rica, the Dominican Republic, Egypt, El Salvador, Jordan, Lebanon, Oman, Peru, Portugal, Russia, Spain, Sri Lanka, Ukraine, and Uruguay, cf., Available at: https://data.worldbank.org/indicator/eg.elc.loss.zs. 36. Cf., the World Bank’s comparative list of electricity loss based on figures for 2014. Available at: https://data.worldbank.org/indicator/eg.elc.loss.zs (last accessed 1 August 2019). The “Index Mundi” data aggregator has taken the 2014 World Bank dataset and has produced an interactive map concerning electricity losses, cf., Available at: https://www.indexmundi.com/ facts/indicators/EG.ELC.LOSS.ZS/map/europe. 37. For an account of geopolitical developments in the region, including Romania’s 2004 accession to the North Atlantic Treaty Organisation, cf., Sava, I. N.,—Geopolitical Patterns of EuroAtlanticism: A Perspective from South Eastern Europe, June 2004, Central & Eastern Europe Series 4/16. Available at: https://www.files.ethz.ch/isn/97318/04_Jun.pdf. 38. For a 2016 appraisal and analysis of the reforms in transition economies, cf., Havrylyshyn, O., et al., 25 Years of Reforms in Ex-Communist Countries: Fast and Extensive Reforms led to Higher Growth and More Political Freedom, (2016), Cato Institute, Policy Analysis No. 795. Available at: https://www.cato.org/publications/policy-analysis/25-years-reforms-ex-communistcountries-fast-extensive-reforms-led.

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FIGURE 22.1 The breakup of the vertically integrated electricity sector. Maxim 2013.

Romania’s energy sector—including electricity—has been no exception. As had been the case with all major utilities, during the bureaucratic command economy years, the entire electricity sector amounted to a vertically integrated state-owned and -run operation (cf., Fig. 22.1).39 This changed around 1998 with the initial steps toward its reform in light of efforts to integrate within the global economy including joining the EU. More specifically, the electricity sector underwent substantive reform40 involving extensive privatization, market liberalization (including price deregulation, unbundling, and fair access for all market participants), energy mix diversification (including RES share increase), and marketization/liquidity to facilitate domestic and cross-border wholesale trade and price convergence aimed at achieving greater energy efficiencies across the EU and further integration concerning the Internal Energy (including electricity) Market (IEM) and, more

39. As appears in Maxim, A., 2013. The impact of the changes in the Romanian electricity markets on the household consumer, Rev Econ Business Stud, VI(1), 92 109, (cf., table at p. 99) based on Romanian Government datasets for 1998, 2000 02, and 2013 40. For a thoroughly readable account of the history of Romania’s electricity sector reforms, cf., Maxim, A., 2013. The Impact of the Changes in the Romanian Electricity Markets on the Household Consumer, Rev Econ Business Stud, VI(1), 92 109.

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generally, the Energy Union on a market basis.41 The consequences included the emergence of two distinct electricity markets: retail and wholesale.42 In relation to the former, it pertains to transactions between suppliers and end users (household and commercial alike), while, in relation to the latter, to facilitate transactions involving large volumes of electricity primarily between generators, market intermediaries, and suppliers. Furthermore, prior to 2018, the retail electricity market itself had been divided between the competitive and the universal service segments. Households were eligible for regulated tariffs set by the Autoritatea Naționala˘ de Reglementare Iˆn Domeniul Energiei (ANRE), that is, the national energy regulator. According to 2016 figures concerning electricity prices across the EU, Romania had the sixth lowest EU average household price (EUR 132/MWh), and the third lowest industrial price (EUR 80/MWh).43 Further to successive price deregulation—commencing c.2007 in response to IMF, World Bank, and European Commission recommendations—nonhousehold tariffs were entirely deregulated by 2014, followed by household tariffs by 2018, which brought about the full liberalization of the electricity market per se.44 Prior to that, the universal service segment amounted to just approximately 13% and 10% of domestic electricity consumption, respectively, for 2016 and 2017, and following its termination, 100% of households are now on the competitive market segment.45 Overall, since 2013 the average final price for households varied very little while for nonhousehold end users it declined.46 However, this is contradicted by a systematic review on the impact that RES-related levies had had on household prices, which suggests that some price increases took place.47 Notwithstanding the above, some tariff

41. For a summary including the legal basis concerning the Energy Union and Internal Energy Market, cf., European Parliament factsheet. Available at: http://www.europarl.europa.eu/factsheets/en/sheet/45/internal-energy-market. 42. For a 2016 extensive study on Romania’s electricity markets, cf., Florea, A., & Belciu, A., 2016. Study on electricity markets in Romania, Database Systems J, VII(4/2016). 43. Based on Eurostat data for 2016, as per Cıˆrstea, S., ¸ et al., 2018. Current situation and future perspectives of the Romanian renewable energy, Energies 11, 3289 (p. 5). 44. “Romania’s electricity market is now fully liberalized,” Balkan Green Energy News, 12 January 2018. Available at: https://balkangreenenergynews.com/romanias-electricity-marketis-now-fully-liberalised/. Also, cf., ANRE National Report 2017 (pp. 5, 6 & 112) in relation to European Commission, IMF, and World Bank involvement. 45. For 2017, cf., ANRE National Report 2017 (p. 5). For 13% re 2016, cf., 2016 ANRE National Report (p. 6). 46. ANRE National Report 2017 (p. 128). 47. Cf., Maxim, A., 2015. Relevant attributes of renewable energy development in the case of Romanian households, Proc Econ Finance 20, 372 382, where it is stated that “after the introduction of the [tradable green certificates] system, the annual growth rate of electricity retail prices [. . .] saw a fivefold increase.” Consequently, the government reduced and partially suspended the scheme (p. 373).

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regulation on the part of ANRE does take place chiefly in relation to tariffs imposed on participants for grid access, connection, transmission etc., to ensure fair and equal access to the national network, and in relation to the various surplus components paid by end users that are added to the final price of electricity consumed.48 In terms of the wholesale electricity market, transactions are carried out by market participants licensed by ANRE and include sale and resale of electricity. In that sense, volumes traded exceed the physical quantity delivered from production to consumption. There are several components to the wholesale market including a regulated agreements market, directly negotiated agreements market, centralized bilateral agreements with neighboring markets, the Intra-Day Market (IDM) for transactions within an hour and up to a day, Day-Ahead Market (DAM) for 24 48 h, and the Balancing Market on which participant owners of dispatchable units of power sell or buy active electricity to or from the transmission system operator (TSO).49 A further market is that for “green certificates” (GCs) issued to RES electricity generators to encourage greater use of cleaner energy sources. Producers would receive up to six certificates per MWh of electricity produced depending on the resource and plant type,50 although the number per resource/type was reduced by ANRE in 2013 shortly after launching the scheme.51 In 2017 the government set up the market mechanism for trading GCs on a centralized anonymous basis to encourage competitive, transparent, public, and nondiscriminatory trading. ANRE along with Societatea Comerciala˘ Operatorul Pie¸tei de Energie Electrica˘ (OPCOM)—that is, the power market operator—provide effective regulation over the markets for GC spot transactions and GC term transactions.52

48. ANRE National Report 2017 (p. 127) for a breakdown of the final price paid by end users into its components (e.g., value added tax, RES support, actual electricity use etc.). 49. Ibid, p. 83. In relation to the BM, it is described as where the “balance between electricity demand and production is established on a commercial basis, in real time [. . .] to ensure the availability of enough energy so as to balance the system [. . .]. The BM is a mandatory market, which means that participants [. . .] must market all the available electricity here” (p. 12). For a fuller account on how the various markets operate, cf., Florea, A., & Belciu, A., 2016. Study on electricity markets in Romania, Database Systems J, VII(4/2016). 50. For a breakdown, cf., IEA RES profile for Romania. Available at: https://www.iea.org/policiesandmeasures/pams/romania/name-33751-en.php. Also, note that the value of GCs ranged between EUR 27 and EUR 55. 51. Cf., Cıˆrstea, S., ¸ et al., 2018. Current situation and future perspectives of the Romanian renewable energy, Energies 11, 3289 (pp. 13 & 18). For a summary of RES development in Romania, cf., Gușilov, E., RES development strategy in Romania and Bulgaria, Policy Brief, June 2018, Romania Energy Center. 52. Cf., Gușilov, E., RES development strategy in Romania and Bulgaria, Policy Brief, June 2018, Romania Energy Center (p. 4) and the EU’s RES LEGAL entry for Romania. Available at: http://www.res-legal.eu/search-by-country/romania/.

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In terms of market liquidity and cross-border wholesale trade, this takes place through a variety of mechanisms including bilateral market mechanisms with most neighboring countries—Bulgaria, Hungary, Moldova, Serbia, and Ukraine—through long-term (monthly and annual) auctions and shortterm (daily and intra-daily) explicit or implicit auctions principally facilitated through national TSOs.53 In relation to the DAM, a price coupling mechanism with those of the Czech Republic, Hungary, and Slovakia—namely, the 4M Market Coupling mechanism—is in operation.54 What is more, in 2017, TSOs and designated electricity market operators from Austria, the Czech Republic, Germany, Hungary, and Romania (with Croatia joining subsequently) signed an agreement to establish a cross-border IDM mechanism to couple their respective IDMs for electricity.55 The Power Exchange Central Europe is also in operation since 2007 and as of 2016 it offers trading in Czech, Hungarian, Polish, Romanian, and Slovak electricity.56 Furthermore, Romania has committed to the integration of its DAM and IDM into the broader European Single Day-Ahead and Intra-Day Coupling power markets (SDAC and SIDC, respectively).57 While all these are developments upon which the EU looks favorably, the European Commission has recommended more be done to further promote regional market integration through optimal market liberalization that currently seems to be obstructed by some practices.58 In terms of electricity generation, the sector is chiefly based along the lines of the primary input resource. The principal plants remain stateowned—including the Cernavod˘a nuclear plant, 208 hydropower plants, and 10 coal-fired power plants—although private sector is also involved in the generation and is licensed by ANRE. It is worth noting that during 2017 the

53. Cf., ANRE National Report 2017 (pp. 44 48 and 94 96). There is less activity in relation to Moldova. 54. Cf., Florea, A., Belciu, A., 2016. Study on electricity markets in Romania, Database Systems J, VII(4/2016), 18. 55. Cf., ANRE National Report 2017 (p. 77). 56. Bertoldi, P, et al., Demand Response Status in Member States, EUR 27998 EN (p. 89). Available at: http://publications.jrc.ec.europa.eu/repository/bitstream/JRC101191/ldna27998enn. pdf. 57. Romanian Government, draft Integrated National Energy and Climate Change Plan for 2021 2030, submitted to the EU on 31 December 2018. Available at: https://ec.europa.eu/ energy/sites/ener/files/documents/romania_draftnecp_en.pdf (p. 12) 58. In its review of Romania’s integrated National Energy and Climate Plan, the Commission specifically recommended that Romania take further action in relation to optimal market integration, and listed the need to eliminate “barriers to cross-border trade, including export restrictions [. . . that] negative impact of wholesale price regulation,” thus suggesting that such practices remain an issue in Romania. Cf., Commission Recommendation of 18 June 2019 on the draft integrated National Energy and Climate Plan of Romania covering the period 2021 2030, Brussels, C(2019) 4423 final (Recommendation 4, pp. 4 5).

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five largest producers accounted for approximately 76.5% of electricity generated that year.59 In terms of transmission, the transmission system along with its interconnections with the systems of neighboring countries is operated by, Compania Na¸tionala de Transport al Energiei Electrice “Transelectrica SA.,” (Transelectrica), the national TSO, majority-owned by the Romanian state.60 Transelectrica operates according to the ownership unbundling model.61 Transelectrica also manages the operation of the electricity market and is responsible for operational stability and safety, grid and market infrastructure development, and coordination of electricity exchanges with neighboring electricity systems.62 The total length of the transmission system is approximately 8834 km of overhead electricity lines. In terms of supply and distribution, currently 151 suppliers are licensed by ANRE to supply electricity63 and 51 to distribute electricity.64 However, five large electricity suppliers dominate—namely, CEZ Vanzare S.A., E.On Energie Romania S.A., ENEL Energie S.A., Electrica Furnizare S.A., and ENEL Energie Muntenia S.A.—who are licensed by ANRE to cover different regions.65 In that sense, although this form of market sharing is endorsed by the national regulator—than a product of cartel behavior per se—anticompetitive effects may still arise, should, among other things, licensing be preferential or otherwise restrictive, or there be other barriers for prospective entrants to the distribution and supply side of the electricity market. Should this be the case, violations of EU competition rules may also be at play.66

59. Cf., ANRE National Report 2017 (pp. 80 81). Namely, in relation to 61,324 GWh of electricity produced in 2017, Complexul Energetic Oltenia SA produced 14,933, Hidroelectrica SA 14,039, SN Nuclearelectrica SA 11,509, OMV Petrom SA 3,645, and Electrocentrale București SA 2841 GWh. 60. 58.7% owned by the state, 33.9% by legal entity shareholders, and 7.4% by natural person shareholders. Cf., ANRE National Report 2017 (p. 10). Also, cf., Romania profile. Available at: https://uk.practicallaw.thomsonreuters.com/4-566-2907?transitionType 5 Default&contextData 5 (sc.Default)&firstPage 5 true&bhcp 5 1. 61. ANRE National Report 2017 (p. 10). Also, cf., Transelectrica Annual Report 2017 (p. 19). Available at: http://www.transelectrica.ro/documents/10179/6633653/1_Rap_Anual_2017_ ENG_v 1 30 1 03 1 2018_2 1 30 1 AM.pdf/6325d856-8d16-404e-9d7c-4ccfc6afcc33. Note that TSO classification is subject to an EU certification process resulting in one of three possible classifications concerning a TSO’s model: namely, ownership unbundling (OU), independent system operator (ISO), and independent transmission operator (ITO). 62. Transelectrica Annual Report 2017 (p. 129). 63. Cf., the licensing database. Available at: http://licitatii.furnizorenergie.ro/furnizori/ (in Romanian). 64. Cf., ANRE National Report 2017 (p. 10). 65. Available at: https://www.anre.ro/ro/energie-electrica/consumatori/lista-furnizori (in Romanian). 66. For general information about EU competition rules. Available at: https://europa.eu/youreurope/business/selling-in-eu/competition-between-businesses/competition-rules-eu/index_en.htm.

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Furthermore, there are eight distribution system operators (DSOs)67 nationally who provide electricity to 9.3 million users68 and whose distribution activities are entirely unbundled from supply, in line with legal requirements to liberalize the electricity market.69 Lifting the corporate veil over DSO ownership, distribution is largely within private hands70 with various joint-stock/public companies—national and foreign—owning significant shares in the eight DSOs.71 In terms of the transmission and distribution infrastructure of the national grid itself, it includes overhead electrical lines with rated voltages of 750 kV, 400 kV, and 110 kV, and substations with upper voltage of 750 kV, 400 kV, and 220 kV. The total length of the transmission network is approximately 8835 km, including 426 km of interconnection lines, the bulk of which was commissioned before 1980.72 In terms of interconnectivity, the current interconnection capacity of the national transmission system stands at approximately 7%.73 This places Romania’s electricity system among the least interconnected systems in the EU,74 despite its current 17 interconnectors with five countries.75 However, this figure was set to

67. Namely, Delgaz Grid, Distribu¸tie Energie Oltenia, e-Distributie Banat, e-Distributie Dobrogea, e-Distributie Muntenia, Societatea de Distribu¸tie a Energiei Electrice Muntenia Nord, Societatea de Distribu¸tie a Energiei Electrice Transilvania Nord, and Societatea de Distribu¸tie a Energiei Electrice Transilvania Sud. Cf., ANRE National Report 2017 (p. 10). 68. Based on 2017 figures. 5.1 million and 4.2 million, in urban and rural areas, respectively. Cf., ANRE National Report 2017 (p. 21). 69. DSOs with fewer than 100,000 customers are not required to unbundle their activities. ANRE Order no. 73/2014 stipulates DSO obligations in terms of independence and unbundling. Cf., ANRE National Report 2017 (pp. 10 12). 70. The exception being Delgaz Grid in which the Ministry of Energy holds a 13.5% share. Also, the nature of some shareholders suggests some state involvement. For instance, Fondul Proprietatea SA is a joint-stock company set up by the Romanian state principally to provide some degree of reparation concerning expropriations that took place during the bureaucratic command-economy years. Another entity, SAPE SA, a minority shareholder in three of the eight DSOs, was established under government order to facilitate the management of investments in the electricity distribution system (cf., http://www.sape-energie.ro/descrierea-societatii/ (in Romanian). Re ownership structure, cf., ANRE National Report 2017, (p. 11). 71. ANRE National Report 2017, (pp. 11 12). Shareholders include the Allianz Group (i.e., a German global financial services conglomerate), CEZ (i.e., a Czech energy conglomerate), E. ON, Enel Investment Holding B.V., and Energetica Electrica (i.e., a domestic electricity conglomerate). 72. Ibid, p. 16. 73. Ibid, pp. 5 & 55. Calculations based on 2017 values for net generation capacity vis-a`-vis net transfer capacity. 74. Along with Cyprus 0%, Poland 4%, Spain 6%, the UK 6%, Bulgaria 7%, Ireland 7%, Italy 8%, Germany 9%, and Portugal 9%—cf., with Luxembourg 109%, Lithuania 88%, Slovenia 84%, Estonia 63%, and Hungary 58%. Cf., European Commission Communication on strengthening Europe’s energy networks, COM(2017) 718 final, (p. 10). Available at: https://eur-lex. europa.eu/legal-content/en/TXT/?uri 5 CELEX%3A52017DC0718. 75. Namely, 4 with Bulgaria, 5 with Serbia, 2 with Hungary, 2 with Ukraine, and 5 with Moldova. Cf., NECP (p. 137).

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increase to 9% with the completion of the interconnection with Serbia in 2018,76 thus bringing it closer a step to the existing target of 10%, and to the 2030 target of 15%.77 The EU pursues greater electricity interconnectivity for Central and South Eastern Europe with other third states and Energy Community78 parties in relation to, among other things, electricity market, infrastructure, and renewable development.79 In relation to its prospective plans, Romania seeks to enhance the interconnection capacity by, among other things, establishing corridors for transmission networks and special legal regimes regarding land availability, authorisations, and other regulatory matters to facilitate deployment; finalizing the 400 kV power ring of the national transmission system; developing new interconnections between production and transmission points; pursuing regional coordination concerning cross-border infrastructural projects; developing bi-directional interconnection capacities; and by streamlining aspects of cross-border wholesale trading (e.g., network codes and entry/exit tariffs, 76. ANRE National Report 2017 (p. 54). 77. In relation to the 10% and 15% targets, cf., Outcome of the October 2014 European Council 2030 Framework for Climate and Energy. Available at: https://ec.europa.eu/clima/sites/clima/files/ strategies/2030/docs/2030_euco_conclusions_en.pdf. The specific target means that each Member State should have in place electricity transmission systems that allow a given ratio of electricity generated domestically to be transported across its borders to neighbouring systems. Available at: https://ec. europa.eu/energy/en/topics/infrastructure/projects-common-interest/electricity-interconnection-targets. For further information on EU targets, Available at: https://europa.eu/rapid/press-release_MEMO-154486_en.htm. Note that the Commission Expert Group on electricity interconnection targets in its 2017 report (pp. 35 40) recommends that a different scoring system be adopted given that the existing one is based on previous electricity market realities in which RES played a lesser role. Greater take-up of RES in electricity generation brings with it a greater need and potential for interconnectivity between neighbouring systems for the purposes of energy efficiency and security. Available at: https://ec.europa.eu/energy/en/topics/infrastructure/projects-common-interest/electricity-interconnection-targets/expert-group-electricity-interconnection-targets. 78. The Energy Community is an international treaty-based organization constituted under the Treaty establishing the Energy Community, signed in October 2005 in Athens, Greece, by the European Community (i.e., the EU’s predecessor in terms of legal personality/capacity to contract international agreements at the time of negotiations), on the one hand, and several neighboring countries—namely, Albania, Bulgaria, Bosnia & Herzegovina, Croatia, what at the time had been the former Yugoslav Republic of Macedonia, Montenegro, Romania, Serbia, and what had been at the time the United Nations Interim Administration Mission in Kosovo. Since, Bulgaria, Croatia, and Romania have become EU Members and thus subsumed behind that entity. The current list of parties to that treaty are the EU, Albania, Bosnia & Herzegovina, Kosovo, North Macedonia, Georgia, Moldova, Montenegro, Serbia, and Ukraine. Also, note that Armenia, Norway, and Turkey are observers. The Energy Community was set up as a means of furthering EU energy interests including regional energy and electricity integration. Available at: https://www.energy-community.org/aboutus/whoweare.html & https://www.energy-community. org/legal/treaty.html. For an extensive discussion on the systemic relationship between the Energy Community and the EU, cf., Leal-Arcas, R., & Filis, A., The Energy Community, the Energy Charter Treaty, and the Promotion of EU Energy Security, Queen Mary School of Law Studies Research Paper No., 203/2015. 79. Commission Expert Group on electricity interconnection targets 2017 report (p. 6).

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etc.,) as a means of facilitating greater electricity liquidity regionally.80 In fact, the European Commission has specifically recommended that Romania take further action to intensify regional cooperation aimed at, among other things, optimal regional interconnectivity.81 It is worth noting that there are also cooperation projects with Moldova, Turkey, and Ukraine aimed at the integration of their respective electricity systems with that of Romania and of the EU.82 Notably, across the region selected projects have been identified as projects of common interest (PCIs) to optimize interconnectivity, allow for effective commercial transactions, and facilitate greater optimization of RES.83 In fact, EU Regulation No. 347/ 2013 proposes measures aimed at, among other things, the integration and operation of the internal power market, energy security at the EU level, promotion and development of energy efficiency and energy from RES, and the promotion of interconnection between national and regional power grids.84 What is more, EU cohesion funds—chiefly the European Regional Development Fund (ERDF)—contribute to smart energy storage and transmission system projects, and Romania (collectively with Bulgaria, the Czech Republic, Greece, Lithuania, and Poland) benefits from a EUR 2 billion allocation for 2014 20, with a fourth directly benefiting PCIs.85

22.2.3 Policy and regulatory responsibility Energy policy—including in relation to the electricity sector—is multifaceted and as such engages a much wider range of policy matters than one might initially expect. This reality is reflected in the complexity surrounding policy responsibility and competence vis-a`-vis the EU, which, in relation to certain energy-related matters, enjoys exclusive competence (e.g., setting trade 80. Cf., NECP (p. 14). 81. Cf., Commission Recommendation of 18 June 2019 on the draft integrated National Energy and Climate Plan of Romania covering the period 2021 2030, Brussels, C(2019) 4423 final (Recommendation 6, p. 5). 82. Cf., ANRE National Report 2017 (pp. 52 55). 83. Ibid, pp. 55 72 for a list of projects and their status (as of August 2018). 84. 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 (recital 17 and elsewhere). Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/ PDF/?uri 5 CELEX:32013R0347&from 5 en. 85. Cf., European Commission Communication on strengthening Europe’s energy networks, COM (2017) 718 final, (pp. 2, 3, 8, 9, and 11). Also, cf., the third “Union list” of PCIs adopted by way of Commission Delegated Regulation ((EU) 2018/540 of 23 November 2017) (pp. 40 44) along with the aforementioned Commission Communication. Available at: https:// eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 uriserv:OJ.L_0.2018.090.01.0038.01. ENG&toc 5 OJ:L:2018:090:TOC for, among other things, a list of electricity infrastructure projects aimed at greater interconnectivity between, on the one hand, Romania, and Bulgaria and Serbia, on the other.

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tariffs for electricity imports from third states), while in relation to other matters, degrees ranging from shared to no competence.86 At the national level, the Romanian government is overall responsible for energy policy including over the electricity sector, with the Ministry of Energy bearing principal policy responsibility, and the Ministry of Environment also contributing to the extent of policy overlap. ANRE (discussed earlier) is the principal regulatory body, while the National Environmental Protection Agency may also be involved where energy, including electricity-related, operations impact the environment. Key national policy blueprints include the 2008 National Strategy for Sustainable Development—Horizons 2013 2020 2030,87 the 2014 2020 National Strategy for Research, Development, and Innovation, the 2010 National Renewable Energy Action Plan,88 the 2016 National Energy Strategy 2016 2030 with an Outlook to 2050 (NES 2016 2030),89 the 2018 National Energy Strategy 2019 2030 with an Outlook to 2050, and the National Strategy on Climate Change and Low Carbon Economic Growth 2016 2030. Aspects of the National Action Plan 2016 2020 on Climate Change also have implications for energy policy.90 Furthermore, a key policy blueprint is Romania’s Integrated National Energy and Climate Change Plan 2021 2030 (NECP),91 which all Member States are required to develop for the period in question. Incidentally, NECPs must be specific in their content in relation to how Member States seek to implement EU 86. For a fuller discussion on such matters, cf., Leal-Arcas, R., & Filis, A., 2013. Conceptualizing EU energy security through an EU constitutional law perspective, Fordham Int Law J 36, 1224 1300. It is worth noting that while the distribution of competences is a question concerning the constitutive instruments that establish and empower the EU, there is scope for EU Member States—on the basis of subsequent agreement and/or acquiescence—to allow greater leeway on an ad hoc basis to the collective and supranational bodies of the EU to formulate policy and/or act in other ways. In that sense, outside the strictly constitutional/normative context within the parameters of treaty law, action may also, and indeed does, take place within the context of diplomacy and politics to the extent that there is sufficient political will on the part of the EU28 to look beyond legal and technical formalities concerning vires. 87. Available at: http://strategia.cndd.ro/docs/sndd-final-en.pdf. 88. Available at: http://www.ebb-eu.org/legis/ActionPlanDirective2009_28/national_renewable_energy_action_plan_romania_en.pdf. 89. Cf., Romanian Ministry of Energy. Available at: http://energie.gov.ro/wp-content/uploads/2016/12/ Strategia-Energetica-a-Romaniei-2016-2030_FINAL_19-decembrie-2.pdf (in Romanian). For a summary and critical analysis of the NES 2016 2030, cf., an article by Central Europe Energy Partners. Available at: https://www.ceep.be/romanian-energy-strategy/. 90. In relation to the last two, cf., the Multilateral Assessment of Romania issued by the Romanian Ministry of Environment on 25 June 2019 (p. 9). Available at: https://unfccc.int/sites/ default/files/resource/Romania_MA2019_presentation.pdf. 91. Romanian Government, draft Integrated National Energy and Climate Change Plan (NECP), submitted to the European Commission on 31 December 2018. Available at: https://ec.europa. eu/energy/sites/ener/files/documents/romania_draftnecp_en.pdf.

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FIGURE 22.2 Commission assessment of key objectives as appear in Romania’s draft NECP. European Commission.

targets by 2030 including greenhouse gas emissions by 40% below 1990 levels, a RES share of at least 32% regarding their total energy consumption, and increased energy efficiency across their economy. Furthermore, NECPs are structured in a manner to address, and are assessed against, the following set of policy objectives: decarbonization; energy efficiency; energy security; the internal energy market; and research, innovation and competiveness. What is more, Member States are required to consult neighboring EU peers and the European Commission. Should the proposed NECP fall short of EU objectives, the European Commission may issue specific recommendations. In the event, following the submission of the Romanian NECP on December 31, 2018, the European Commission92 carried out a comprehensive review and recommended (cf., Fig. 22.2), among other things, that the Romanian government be more ambitious regarding its 2030 RES share target to at least 34% of total energy consumption, be more specific in its

92. Sources concerning the contents of Fig. 22.2, cf., European Commission, ENERGY STATISTICS, Energy datasheets: EU28 countries; SWD(2018)453; European Semester by Country (cf., https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic- governance-monitoring-prevention-correction/european-semester/europeansemester-your-country_en); COM/2017/718; Romanian draft NECP. Source concerning Fig. 22.2 per se, cf., the table as appears at p. 5 of European Commission, Commission Staff Working Document assessment of the draft National Energy and Climate Plan of Romania, Brussels 18 June 2019, SWD(2019) 273 final.

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various implementation policies and measures, simplify its licensing and permit procedures concerning RES self-generation, be more ambitious in relation to reducing its 2030 primary and final energy consumption levels, define prospective targets for greater wholesale and retail market integration and liquidity regionally, and specify its national research, innovation, and competitiveness objectives, along with other action to provide the requisite coherence and clarity for attracting investments.93

22.2.4 Other considerations As mentioned earlier, Romania enjoys a relative privileged position in being among the least energy-dependent EU Member States,94 and its natural resource wealth, along with increasing use of nuclear and RES in recent years, suggest that this may remain the case for decades to come. In fact, Romania’s plentiful and varied RES—principally in relation to biomass, geothermal, hydropower, solar, and wind potential—are distributed throughout its territory and are amenable to wide-scale exploitation once investmentrelated conditions (e.g., profitability vs infrastructure costs) are more favorable to investors.95 What is more, Romania is the largest producer of oil and gas in Central and Eastern Europe, and, as such, is placed and equipped well to become a key player in the European oil and gas market further to new discoveries in the Black Sea.96 That said, Romania remains among the most energy- and 93. Cf., Commission Recommendation of 18 June 2019 on the draft integrated National Energy and Climate Plan of Romania covering the period 2021 2030, Brussels, C(2019) 4423 final (pp. 4 6). 94. Romania is considered one of the least energy-imports dependent EU members particularly in relation to electricity for which it is a net exporter. Romania’s energy import dependence was 23% for 2008 2012 (cf., 29% in 2006) v. an EU28 average of 54%, and its energy mix is one of the most diversified in the EU. Cf., European Commission, European Economy, Occasional Papers 145, April 2013, Member States’ Energy Dependence: An Indicator-Based Assessment (p. 225). Available at: https://ec.europa.eu/economy_finance/publications/occasional_paper/2013/ pdf/ocp145_en.pdf & Occasional Papers 196, June 2014, Member States’ Energy Dependence: An Indicator-Based Assessment (p. 6). Available at: https://ec.europa.eu/economy_finance/publications/occasional_paper/2014/pdf/ocp196_en.pdf. 95. Cıˆrstea, S., ¸ et al., 2018. Current situation and future perspectives of the Romanian renewable energy, Energies 11, 3289 (pp. 2 & 5). 96. Note a recent USD 400 million offshore project likely to result in c.10 billion m3 of gas. The joint venture involves Black Sea Oil & Gas (BSOG) (NB., controlled by the Carlyle Group LP and the European Bank of Reconstruction and Development), Italian producer Gas Plus International B.V., and Petro Ventures Resources. Cf., “Black Sea Oil & Gas to go ahead with $400 million Romanian offshore project,” Reuters, 7 February 2019. Available at: https://www. reuters.com/article/us-romania-energy-gas/black-sea-oil-gas-to-go-ahead-with-400-million-romanian-offshore-project-idUSKCN1PW0M1, and “Black Sea Oil & Gas confirms potential of Romania’s offshore Dacian play,” Oil & Gas Journal, 3 August 2018. Available at: https://www. ogj.com/exploration-development/discoveries/article/17295777/black-sea-oil-gas-confirms-potential-of-romanias-offshore-dacian-play.

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carbon-intensive economies of the EU,97 and, consequently, among the five most vulnerable EU members despite its low energy dependence.98 What is more, Romania lags behind in terms of high-quality infrastructure—namely, it holds the second worst score in the EU as to perceptions concerning infrastructure quality—with underdeveloped basic transport infrastructure having a bottleneck effect for other types of infrastructure and policy objectives.99 Furthermore, confidence and trust on the part of the Romanian public in public authorities and businesses to protect and respect its consumer rights and interests, respectively, are low. For instance, Romania scores well below the EU average in many key areas of governance in terms of public perceptions concerning, among other things, the quality of public services, policymaking and implementation, the rule of law, government effectiveness and accountability, and credibility of government’s commitment to policies.100 Such indicators often lead to an apathetic/indifferent, if not cynical, public, that might be less likely to actively participate in smart grid-related and broader energy efficiency efforts. Tangible benefits must accrue to such a public for it to be motivated. As alluded to earlier, the implications of RES promotion for household electricity prices (namely, retail price hikes) could run in the opposite direction whereby citizens qua consumers remain cynical and insufficiently motivated to participate in any national drive aimed at the smartening of Romania’s grid. Lastly, two distinct yet interrelated issues—namely, energy poverty and the need to protect vulnerable consumers—often feature in policy-making surrounding electricity. More recently, the government has affirmed its commitment to protecting vulnerable consumers by maintaining, and, if necessary, extending, the class of beneficiaries who may not be disconnected— particularly during the cold season—and by extending smart metering by 2028 at the latest.101 To that end, the government states that among nonfinancial measures, it aims to develop a clear legal and political framework that approaches energy poverty as a “cumulation of factors of which the most important is income-related. . .[and in which] [t]he concept ‘vulnerable consumer’ [is] defined in an integrated way [that] include[s] all the factors that may cause vulnerability: commercial behavior, market design, structural 97. The CO2 intensity of Romania’s economy is more than twice the EU average, while its energy intensity is among the five highest in the EU, partially due to energy inefficiency, the high proportion of energy-intensive industries in the economy, and the size of the share of fossil fuels in energy consumption. Cf., European Commission, European Economy, Occasional Papers 223, June 2015, Macroeconomic imbalances Country Report—Romania 2015 (p. 27). 98. European Commission, European Economy, Occasional Papers 145, April 2013, Member States’ Energy Dependence: An Indicator-Based Assessment (pp. 230 233). 99. Cf., European Commission, European Economy, Occasional Papers 223, June 2015, Macroeconomic imbalances Country Report—Romania 2015 (p. 26). 100. Ibid, pp. 66 69. 101. Cf., NECP (p. 74).

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factors and access to energy, the consumer’s individual situation and sociodemographic factors.”102

22.3 How “Smart” is Romania’s grid? EU Member States, including Romania, are legally obligated to encourage the modernization of their transmission and distribution networks, including optimizing their electricity grids, aimed at the decarbonization, decentralization, interconnectedness, and greater efficiency of the national electricity system as a means of achieving optimally integrated and efficient national, regional, and EU-wide energy systems—systems upon which, in turn, the energy security and economic resilience of EU Member States rest. The European Commission’s Energy 2020 Communication103 contains a number of priorities including the integration of electricity systems, the fostering of technological and innovative developments, energy security and affordability, and the empowerment of consumers to such ends. The various aspects of Romania’s smart-grid policy and practice are explored separately below.

22.3.1 Smart grid investment and research and development Romania’s expenditure on research, development, and innovation (RDI) is considerably below the EU average, and the European Commission has described its performance as “stagnant” with low technological outputs. Developments such as those discussed in the foregoing may necessitate greater policy focus on the part of the government to enhance RDI capacities and the take-up of advanced technologies across Romania’s territory in line with the EU’s Catching Up Regions Initiative, given that currently Romania also performs considerably below the EU average in relation to digitalisation across various fields including the private, public, and third sectors.104 Furthermore, it is not just infrastructural adjustments that are necessary but also regulatory tweaking, particularly in relation to cyber-security, including privacy and data protection issues than may arise (discussed elsewhere). In relation to infrastructural adjustments, these may involve retrofitting existing systems or even their costly replacement, which, in turn, may require a substantial capital investment that is not always forthcoming through market means, should the levels of return be insufficiently profitable. In such cases, intervention may be necessary to stimulate favorable market conditions through financial and nonfinancial incentives. A case in 102. Cf., NECP (p. 104). 103. A strategy for competitive, sustainable and secure energy (COM (2010) 639 final). 104. Cf., European Commission, Commission Staff Working Document, Country Report Romania 2019 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances, SWD(2019) 1022 final (pp. 73 74).

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point has been the incentivization of RES electricity generation through the GCs scheme that resulted in the exponential expansion of RES electricity generation capacity (discussed earlier). At any rate, government policy has a role to play in developing regulatory and other conditions that foster the requisite certainty and predictability for the purposes of investors. In the case of Romania, certain regulatory and policy adjustments (cf., adjustments to the GC scheme which investors saw as moving the goal posts) have undermined investor confidence concerning RES investments.105 Currently, the level of investment to attain Romania’s National Energy Strategy objectives stands at approximately EUR 22 billion for the 2021 30 period, which would require all the assurances practicable and appropriate that the Romanian government may offer investors and market participants.106 In the case of Romania, while deep structural reforms of its energy sector—including electricity—have entirely changed the landscape by going from the entirely vertically integrated bureaucratic governance of energy toward total unbundled marketization and liberalization, its electricity infrastructure (discussed earlier) is of low and aging quality. Consequently, the state of such infrastructure is subpar vis-a`-vis one expected of a functional “smart” grid system. Lastly, Romania is among the countries in which EU funding seems to provide the bulk (over 60%) of smart-grid-related investments,107 which, again, may suggest to prospective investors that smart-grid development does not feature prominently within Romania’s policy agenda. As a consequence this could potentially discourage private investment should the state be seen as insufficiently invested in this field. What is more, uncertainty and the lack of specificity in policy, objectives, and measures, have been seen as potentially discouraging investments,108 and the European Commission has recommended that this be addressed.109 105. Discussed passim. Also, cf., Chioncel, C.P., et al., 2017. Overview of the wind energy market and renewable energy policy in Romania, International Conference on Applied Sciences (ICAS2016), IOP Conf Series: Mater Sci Eng 163, 012009 (pp. 1, 5, & 6). 106. Cf., NECP (p. 163) where it is stated that EUR 105 billion are needed for “energy demand,” 9 billion for the power grid, 12 billion for power plants, and 1 billion for steam boilers. 107. Cf., Gangale, F., et al., Smart grid projects outlook 2017: facts, figures and trends in Europe, EUR 28614 EN, doi:10.2760/701587, (p. 31). Available at: https://ec.europa.eu/jrc/en/ publication/eur-scientific-and-technical-research-reports/smart-grid-projects-outlook-2017-factsfigures-and-trends-europe. 108. Cf., European Commission, Commission Staff Working Document, Country Report Romania 2019 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances, SWD(2019) 1022 final, where it is stated that private investment particularly in energy could be affected negatively by uncertainty and risks caused by recent government decisions policies (pp. 9 & 19). 109. Cf., Commission Recommendation of 18 June 2019 on the draft integrated National Energy and Climate Plan of Romania covering the period 2021 2030, Brussels, C(2019) 4423 final (pp. 4 5).

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22.3.2 RES electricity generation and self-generation Romania’s progress in relation to increasing the share of RES in the total energy production and electricity generation is remarkable. The bulk of RES electricity is generated commercially across various plants throughout the country. However, self-generation on the part of consumers (prosumers in this regard) remains rather weak. This is at odds with the European Commission’s Clean Energy Package which, among other things, seeks to make households active participants in the electricity system and to decentralize electricity generation by, among other things, encouraging residential electricity generation, storage, and consumption real-time data sharing (e.g., smart metering). In terms of financial incentives, there is support (up to a maximum of 90% of purchase costs) available for photovoltaic (PV) solutions.110 Moreover, grid operators are required not only to connect RES electricity producers to their grids but to also prioritize the transmission of their output.111 This obligation includes the requirement to develop the grid should it be necessary to connect RES electricity producers to it. By 2018 there were 774 accredited producers: 67 concerning wind, 103 hydro of installed capacity of no more than 10 MW, 576 solar, and 28 concerning biomass and waste. In 2017 their collective installed electricity generation capacity stood at 4787 MW.112 Further support exists in relation to the GC scheme (briefly mentioned earlier) however this was discontinued by 2017 for new entrants, therefore, making new investments in RES—save for projects cofinanced by European Structural Funds—less likely for the 2017 20 period. The GC scheme had previously stimulated the necessary investments that resulted in an expansion of installed capacity by 30 MWh in 2012 alone. As demand for GCs far exceeded initial expectations, in 2013 shortly after launching the scheme, ANRE sought to amend it by reducing the number of certificates issued per MWh generated,113 citing price affordability issues. Access to the scheme was closed entirely for new entrants by 2017, and this rather rapid phase-out caused a significant drop in 110. Cf., Country profile on the Legal Sources on Renewable Energy (RES LEGAL) online resource. Available at: http://www.res-legal.eu/en/search-by-country/romania/tools-list/c/romania/s/res-e/t/promotion/sum/184/lpid/183/. 111. Cf., ANRE National Report 2017 (p. 33). Network access guaranteed to RES electricity generators. Access prioritized for RES generators contracted to sell at a regulated price (e.g., power plant capacity no more than 1 MW or for high efficiency biomass cogeneration, of no more than 2 MW per plant). 112. Cf., ANRE National Report 2017 (pp. 4 & 32 33). 113. Note that the number of CGs per unit of electricity generated depends on the resource and type of plant. For instance, the maximum of six GCs per 1 MWh had been offered for solar generation, 3 per MWh for new hydro plants while 1 per MWh for “other” hydro plants. Cf., International Energy Agency. Available at: https://www.iea.org/policiesandmeasures/pams/romania/name-33751-en.php.

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subsequent investments.114 What is more, there was some blowback in terms of investors filing suits against the state for compensation.115 That said, the scheme remains in effect for those licensed before 2017 for up to 2031. Note however that it is open to new participants to seek support through the National Rural Development Programme. Under the limited GC scheme, electricity producers and suppliers must present a certain number of GCs issued for power generated from RES. However, issues have marred the GC scheme and in April 2018 ANRE announced that a new RES support scheme was to be developed for 2021 onwards and that it was most likely to be based on a feed-in tariff (FiT) model.116 What is more, according to the latest update available online, while legislation enables the introduction of FiT for ,500 kW producers, the implementing policy has yet to be thrashed out, and as a consequence the FiT scheme has yet to come into effect.117 Residential prosumers had been overlooked when it came to the FiT scheme, which in practice only benefited large-scale RES electricity producers who feed power into the grid. This had been most incongruent to efforts to smarten the national grid that small-scale RES producers (approximately ,100 kW)—for example, a household with a PV roof installation—may not feed excess power generated into the grid and receive payment for it due to bureaucratic reasons (e.g., indecision on the part of the state concerning the applicable tax regime). Consequently, Romanian prosumers would feed into the grid any excess power generated without receiving any remuneration.118 The above led the government and parliament to contemplate solutions, and this resulted in the adoption of Law No. 184/2018 establishing the system for promoting the production of energy from renewable sources of energy. This law includes a number of measures aimed at prosumer support, including a support scheme is available to prosumers of an installed capacity of ,27 kW per household; crucially, the possibility to sell has been extended to such prosumers and their suppliers are obligated to purchase that excess power generated; prosumers are exempt from excise duty concerning the amount they produce and

114. Cf., Cıˆrstea, S., ¸ et al., 2018. Current situation and future perspectives of the Romanian renewable energy, Energies 11, 3289 (pp. 13 & 18). For a summary of RES development in Romania, and Gușilov, E., RES development strategy in Romania and Bulgaria, Policy Brief, June 2018, Romania Energy Center (pp. 4 5). 115. Cf., Gușilov, E., RES development strategy in Romania and Bulgaria, Policy Brief, June 2018, Romania Energy Center (p. 4), where it is stated that up to June 2018, twelve solar producers filed claims at the International Centre for Settlement of Investment Disputes against Romania due to changes in RES policy which affected their investments. 116. Ibid, p. 4. 117. Cf., RES Legal. Available at: http://www.res-legal.eu/search-by-country/romania/summary/ c/romania/s/res-e/sum/184/lpid/183/. 118. Cf., Gușilov, E., RES development strategy in Romania and Bulgaria, Policy Brief, June 2018, Romania Energy Center (p. 4).

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self-consume, and the amount they sell to suppliers; and prosumers are exempt from the obligation to purchase GCs. As a consequence of these measures, the government considers that by 2030, from the total installed power capacity for solar, 750 MW will be prosumer-owned capacity.119

22.3.3 Smart metering Romania is among the 16 Member States (alongside Austria, Denmark, Finland, France, Greece, Ireland, Italy, Luxemburg, Malta, the Netherlands, Poland, Romania, Spain, Sweden, and the United Kingdom) that are likely to proceed with the large-scale rollout of smart meters by 2020. Its cost benefit analysis has indicated positive outcomes.120 In fact, the government considers smart metering as a means of increasing energy efficiency121 and has gone as far as to state that smart metering “must be a national priority” and a fundamental step toward the digitalisation of the grid. It aims to entirely replace conventional metering with smart metering by 2029.122 The latest available figures indicate that smart metering has been extended to approximately 443,000 end users. This represents approximately 4.8% of the 9.24 million low-voltage consumers. The overall cost of smart metering to date has been approximately EUR 34.8 million (approximately RON 164.8 million) while the cost per unit is approximately EUR 78 (approximately RON 372).123

22.3.4 Zero- and low-emissions mobility In the EU, transport, for the most part, depends on oil (approximately 94% of energy needs) and produces a quarter of all carbon emissions, of which 70% pertains to road transport.124 In Romania transport generates approximately 35% of emissions.125 EU goals concerning the decarbonization of transport are predicated on the promotion of low-emissions mobility, including electric vehicles (EVs). While greater take-up of EVs may place strains on the electricity system, likely developments in demand response (Dr) and storage solutions could neutralize, if not outshine, any such effects. 119. NECP (p. 89). 120. Cf., European Commission report on Benchmarking smart metering deployment in the EU27 with a focus on electricity, COM (2014) 356 final, (p. 4). Available at: https://ses.jrc.ec. europa.eu/publications/reports/benchmarking-smart-metering-deployment-eu-27-focus-electricity. 121. Cf., NECP (p. 18). 122. Cf., NECP (p. 88). 123. Cf., ANRE National Report 2017 (p. 9). The smart metering implementation cost for 2017 stood at c. EUR 9.4 million (c. RON 44.8 million) (p. 76). 124. Cf., 2017 Report of the Commission Expert Group on electricity interconnection targets (p. 20). 125. Cf., Badea, G., et al., 2019. Design and simulation of Romanian solar energy charging station for electric vehicles, Energies, 12, 74 (p. 1).

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EV take-up in Romania is distinctly low with fewer than fifty vehicles sold in 2015.126 In fact it would appear that cumulatively, by 2017, Romania’s stock of plug-in electric vehicles was approximately 669, which represents a market share of ,0.1% concerning the total stock of passenger cars—cf., this to regional EU peers including Austria (14,854, approximately 0.3%), Bulgaria (118, ,0.1%), the Czech Republic (1721, ,0.1%), Germany (124,191, approximately 0.3%), Greece (341, ,0.1%), Hungary (567, ,0.1%), Poland (976, 0.1%), and Slovakia (568, 0.1%, respectively).127 However, more positively, Romania is among countries that apply cofunding for low-emissions vehicle purchases.128 In fact, EV buyers have benefited under the Romanian RABLA Clasic and Plus subsidy grant schemes to the tune of EUR 11,500 for individual EV purchases.129 What is more, EV buyers in Romania are exempt from registration tax and fees,130 and there are some emissions-based reductions concerning road tax,131 which goes some way to incentivise EV take-up. The situation is less sanguine in terms of charging points. Directive 2014/ 94/EU commits Member States to establishing sufficient charging points available to the public by December 31, 2020. In lieu of specific targets, a sensible rule-of-thumb offered is one point for every ten vehicles in circulation.132 The current number of publicly accessible charging points nationally

126. European Environment Agency, Electric Vehicles in Europe report (2016), (p. 47). Available at: https://www.eea.europa.eu/publications/electric-vehicles-in-europe. 127. Spo¨ttle, M., et al., 2018, Research for TRAN Committee—Charging infrastructure for electric road vehicles, European Parliament, Policy Department for Structural and Cohesion Policies, Brussels. Available at: http://www.europarl.europa.eu/thinktank/en/document.html? reference 5 IPOL_STU(2018)617470. Note that at the EU 28 level, the total stock of PEVs stood at c.669,716, representing 0.3% of the total car stock (p. 11). 128. European Environment Agency, Electric Vehicles in Europe report (2016) (p. 60). 129. Cf., Sc˘aeșteanu, R., “RABLA Plus: Cum ˆıți iei mașin˘a electric˘a nou˘a cu mai puțin de 11.000 euro,” Romaˆnia liber˘a, 24 May 2017. Available at: https://romanialibera.ro/stiinta-tehnologie/auto/rabla-plus-cum-iti-iei-masina-electrica-noua-cu-mai-putin-de-11-000-euro-451000 (in Romanian). For instance, in relation to the lowest priced EV model mentioned in that news article—namely, the Smart ForTwo coupe´ electric drive at EUR 22,078—a buyer benefiting from the RABLA subsidy would only have to contribute EUR 10,578. 130. Cansino, J.M., S´anchez-Braza, A., Sanz-D´ıaz, T., 2018. Policy Instruments to Promote Electro-Mobility in the EU28: A Comprehensive Review, Sustainability 10, 2507 (table 3, p. 6). 131. Spo¨ttle, M., et al., 2018. Research for TRAN Committee—Charging infrastructure for electric road vehicles, European Parliament, Policy Department for Structural and Cohesion Policies, Brussels (pp. 36, 44, & 115). 132. Directive 2014/94/UE of the European Parliament and the Council on the deployment of alternative fuels infrastructure. Available at: https://eur-lex.europa.eu/eli/dir/2014/94/oj. Cf., recital 23 for the ratio, and Articles 1 4 for the duty on Member States to ensure through their national policy frameworks that an appropriate number of charging points are made available to the public by 31 December 2020.

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appears to be approximately 140,133 while a 2018 study placed this at approximately 114—cf., this to Austria (4088), Bulgaria (94), the Czech Republic (684), Germany (10,878), Greece (38), Hungary (272), Poland (552), and Slovakia (443).134 This is woefully low. While, on its face, it exceeds the 10:1 ratio mentioned in the foregoing, this is misleading as the ratio is merely indicative than account for the necessary baseline number of charging points—in other words, the basic minimum infrastructure—that one could reasonably expect to be installed across the territory of a particular country simply to make EV use possible, particularly when one considers the limitations on EV range vis-a`-vis conventionally fueled vehicles. This is particularly disheartening given that the availability of charging points is, in fact, among the most influential factors behind EV purchase decisions.135 Moreover, the lack of proper coverage concerning fast-charging points along highways inhibits prospective EV buyer and existing EV owner/user confidence in relation to longer distances beyond the range of EVs that operate solely on stored electricity/batteries. This further disincentivises EV proliferation. While there are approximately 2550 fast-charging sites across the road networks of the EU 28 and Norway with about 5000 chargers—on average two chargers at every 60 km on EU motorways for either direction of travel—this is patchy, as coverage in Romania, as is the case for regional peers including Bulgaria, Greece, and Hungary, remains poor,136 although regional plans have been agreed that would also benefit Romania.137 As mentioned earlier, Romanian infrastructure is generally of low quality, particularly for transport (including, roads and rail), and electricity supply,138 133. Cf., The ChargeMap online resource. Available at: https://chargemap.com/map. Total figure based on calculations of data available by manipulating the map therein—note that they may be inaccurate. 134. Spo¨ttle, M., et al., 2018. Research for TRAN Committee—Charging infrastructure for electric road vehicles, European Parliament, Policy Department for Structural and Cohesion Policies, Brussels (p. 11). 135. In fact, a 2018 comprehensive review of measures aimed at the promotion of EVs concluded that the most important policy instruments are tax and infrastructure measures, in addition to financial incentives for buyers, and the support of research and development (R&D). cf., Cansino, J.M., S´anchez-Braza, A., Sanz-D´ıaz, T., 2018. Policy instruments to promote electromobility in the EU28: a comprehensive review, Sustainability 10, 2507 (pp. 21 22). That said, it may actually be the feasibility of home charging that is the most important factor in encouraging prospective buyers to consider purchasing EVs. In fact, up to 95% of EV charging takes place at home or work. Cf., Transport & Environment, Rollout of public EV charging infrastructure in the EU: Is the chicken and egg dilemma resolved? September 2018 (p. 5). Available at: https://www.transportenvironment.org/sites/te/files/publications/Charging%20Infrastructure% 20Report_September%202018_FINAL.pdf. 136. Cf., Transport & Environment, Rollout of public EV charging infrastructure in the EU: Is the chicken and egg dilemma resolved? September 2018 (pp. 7 8). 137. Ibid, p. 19. 138. European Commission, European Economy, Occasional Papers 223, June 2015, Macroeconomic imbalances Country Report—Romania 2015 (p. 26).

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let alone for charging point installations, and this has lasting implications for the proliferation of low- and zero-emissions mobility options unless the government purposely focuses on reversing this situation.

22.3.5 Storage As stated passim, Romania’s electricity infrastructure is of relatively low quality, however, there are plans to update it progressively in line with broader efforts aimed at national, regional, and EU energy efficiency. In that sense, current storage capacity remains underdeveloped. However, Romania intends to develop electricity storage capacity via hydroelectric pumping systems, and develop capacity and mechanisms to integrate intermittent RES generation into the national system and in electrical accumulator systems including the small storage capacity at the level of prosumers. Also, in line with energy mix diversification objectives, the government seeks to encourage storage and aggregated production between multiple producers and prosumers.139 What is more, plans include the development of battery energy storage systems in the national power system at a capacity of .400 MW, chiefly as a means of flattening the load curve and providing an additional exploitable reserve.140 A discrete project—namely, Intelligent Electricity Grid and Renewable Energy Systems—seems to be underway in Alba-Iulia concerning providing an integrated approach to high-capacity energy storage and RES electricity generation.141 Incidentally, it is worth highlighting the implications that EV proliferation may have for the electricity system including storage objectives, other than the positive decarbonization effects that low emissions make possible. For instance, EV batteries could be seen as a dispersed storage system to better utilize excess power produced by intermittent sources and, generally, to better manage demand peaks. EV users could be incentivised through dynamic tariff systems to charge their vehicles when it is most advantageous for the purposes of demand management and to thus lead to greater efficiencies all round including to users and consumers in relation to savings accruing to them.142 In that sense, EV proliferation could go in hand with, and further bolster, storage capacity development and Dr efforts.

22.3.6 Demand response Briefly put, Dr, within the context of greater energy efficiency, pertains to policies—typically through some tariff or program—aimed at incentivising 139. Cf., NECP (pp. 14 & 87) 140. Ibid, p. 71. 141. Ibid, p. 153. 142. Cf., Cansino, J.M., S´anchez-Braza, A., Sanz-D´ıaz, T., 2018. Policy instruments to promote electro-mobility in the EU28: a comprehensive review, Sustainability 10, 2507 (p. 22).

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changes in electricity consumption patterns in response to changes in the price of electricity over time or to incentivise payments aimed at inducing lower electricity use during high price periods or when grid reliability is unstable.143 Under the Energy Efficiency Directive (2012/27/EU)144 Member States are required not only to remove whatever disincentives to overall energy efficiency in generation, transmission, distribution, and supply of electricity may exist, or that may hamper participation in Dr, but to also ensure that network operators are incentivised to improve energy efficiency including Dr (cf., Art. 15.4). Further provisions require that Member States take particular regulatory and technical steps to facilitate Dr and Dr participants (cf., Art. 15.8). The requirements of Art 15 could be arranged in four themes—namely, Dr should be encouraged to participate within aspects of the electricity market in a way that supply does; TSOs and DSOs must treat Dr providers—including aggregators—in a nondiscriminatory manner and on the basis of their technical capabilities; national regulators should set clear technical rules and modalities for Dr providers’ market participation; and that specifications should enable aggregators.145 Turning to the situation in Romania, demand responsiveness is limited to such levels possible within the parameters of the existing—basic and aging—infrastructure. While legislation legally enables Dr, as is the case with other EU Member States including Hungary—Dr is not taking place due to a variety of technical, structural, and historical barriers including the fact that the Romanian electricity system has historically been supplydriven, with further supply being added to cover full demand, then involve Dr as a means of managing end user behavior. What is more, the generally limited nature of smart metering is also hampering Dr objectives as end users/consumers lack the immediate tools that facilitate more cost-savvy electricity use.146 That said, an important nontechnical barrier concerning Dr—namely, subsidized/below cost electricity pricing—has for the most part been removed, considering the total deregulation of electricity tariffs resulting in a 100% competitive and liberalized market (discussed earlier). As a consequence, end users are more likely to keep an eye on their electricity use and to thus avoid energy inefficiency. Lastly, the government lists demand responsiveness among its national objectives pertaining to the flexibility of the national energy system. In line with the Commission’s policy (mentioned above), this is to be achieved principally though the imposition of obligations of the TSO and DSOs to provide 143. Bertoldi, P, et al., Demand Response Status in Member States, EUR 27998 EN (p. 2). 144. Directive 2012/27/EU on energy efficiency, amending Directives 2009/125/EC AND 2010/ 30/EU and repealing Directives 2004/8/EC and 2006/32/EC, 25 October 2012. 145. Bertoldi, P, et al., Demand Response Status in Member States, (pp. iii-iv). 146. Ibid, pp. 96 101.

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dynamic pricing/tariffs to further incentivise end user orderly and “smarter” consumption.147

22.3.7 Additional “smart” solutions ANRE has developed online tools for retail customers to be able to compare electricity (and gas) offers through impartial platforms.148 This may be advantageous to consumers who become better equipped to shop around and make smarter, better informed, choices that, in turn, may have positive implications for energy use, Dr, and, overall, energy efficiency. In relation to “Smart Cities” objectives, some limited action is also contemplated—namely, plans by local authorities in Bucharest and ClujNapoca—chiefly involving RES heat and power generation projects using PV panels, thermal solar panels and/or biomass.149

22.3.8 Cyber-security, privacy, and data protection As becomes apparent with the foregoing, efforts to “smarten” electricity networks are multifaceted as they may involve the development and application of diverse technologies capable of optimizing electricity systems in a variety of ways, and in relation to their various aspects—for example, generation, transmission, distribution, storage, use, etc. Much that pertains to developing optimal energy networks—including smart grids—has to do with endowing them with dynamic processes that, among other things, allow the flow of relevant information—not just power—between all connected participants including power generators (including “prosumers”), TSOs, DSOs, traders, consumers, etc. For instance, systems could be fitted with artificial intelligence (AI) and Internet-of-Things (IoT) capabilities to feedback key information. Such data flows may promote, among other things, greater responsiveness across the system, which could result in greater efficiencies for all concerned. In the case of Romania, the government is taking some modest steps aimed to increasing the flexibility of its electricity system via, among other things, its digitalisation to facilitate intelligent grids and active consumers and prosumers. The government sees this central to increasing RES electricity generation and to transforming the energy sector overall to become “fit-for-RES.”150 To that end, it intends to digitalize the transmission, distribution, and consumption aspects of electricity, to introduce IoT and AI in 147. Cf., NECP (pp. 71 & 73). 148. For electricity, available at: http://www.anre.ro/ro/info-consumatori/comparator-de-tarife (and for gas, cf., http://www.anre.ro/ro/info-consumatori/comparator-oferte-tip-de-furnizare-agn). 149. NECP, p. 67. 150. Cf., NECP, p. 88.

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transmission and distribution management, and better integrate distributed production systems and prosumers into the grid, although it has not specified how and by when these are to be achieved.151 Such technological solutions may give rise to new challenges. While smarter grids featuring, among other things, greater interactivity, efficiencies, decentralization, and degrees of “democratization” (e.g., consumer and prosumer empowerment) may enhance energy security and lead to a less impregnable electricity system overall due to its decentralized nature—for example, less susceptible to terrorist shutdown and so on—on the other hand, the decentralized and digitalized nature of such systems may, in fact, make them more porous/vulnerable at various junctures. For instance, their information technology management infrastructure and processes could become vulnerable. Compromised data flows may not only result in data leaks and misuse but also to incapacitating systemic failure/shutdown. What is more, such smart systems are not only vulnerable to the set of physical and natural attacks or disasters as is also the case with conventional/basic infrastructure, but also to cyber-attacks targeting the smart aspects of more sophisticated electricity infrastructure. In that sense, governments must be fully cognizant of, and prepared for, such types of risk. The Romanian government is certainly aware of these risks, however, its action plan perhaps lacks the detail that such risks warrant. For instance, it lists the need to deal with these risks by merely stating that cyber-security of the grid control systems is/will be addressed by “re-enforcing protection barriers and international cooperation.”152 In relation to smart grid-related technologies involved in the electricity grid, other issues also arise. For instance, concerning smart meters, interoperability between terminals at either end of the distribution network—typically, between the end user and the distributor/supplier—allows for the exchange of data including those pertaining to user consumption. Such data gathering and processing are subject to national and EU data protection rules as they involve such data, which on their own strength or combined with other data, could lead to the identification of natural persons.153 As is the case with all EU Member States, the principal source of EUwide data regulation and protection in Romania is Regulation 2016/679,154 151. Cf., NECP, p. 15. 152. Cf., NECP, p. 15. 153. For a summary of data regulation in Romania, cf., the country profile for Romania at the DLA Piper online resource. Note that this essentially amounts to Law No. 190/2018 which implements EU rules (discussed below). Available at: https://www.dlapiperdataprotection.com/ index.html?t 5 law&c 5 RO. 154. Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation (GDPR)).

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which regulates the processing by an individual, a company, or an organization of personal data relating to individuals in the EU. At the EU level, under data protection rules, personal data may be collected and processed to the extent that there is consent on the part of the “data subject”—that is, the individual to whom the data pertain—or some other applicable ground therein, including to the extent that processing is necessary to execute a contract involving the data subject, ensure compliance with legal requirements, or to protect the vital and/or legitimate interests of third parties.155 What may constitute personal data remains an objective question that turns on whether the information relates to an identified or identifiable natural person.156 Under the current rules, it is possible to circumvent the requirement for consent or the other applicable grounds in so far as the data are truly anonymised as this would rule out the possibility of the identification of the data subject in question. Extra care should be taken to ensure that the data are entirely anonymised and not pseudoanonymised—that is, potentially attributable to a natural person by recourse to additional information.157 In relation to smart metering and other smart grid-related technologies, consumer/user consent to personal data gathering and processing could be sought from the outset accompanied by the necessary assurances that all data gathered will be processed in line with legislation—that is that processing will be for the purposes upon which consent is offered—for instance, in relation to smart metering, to facilitate real-time cost estimates, to analyze consumption patterns, to ensure supply efficiency, to plan electricity generation and supply, and so on. There may be some skepticism on the part of consumers particularly in Romania where, as mentioned earlier, confidence in government and business practices is rather low. That said, the Romanian government should not be dissuaded from seeking to dispel possible misperceptions at play. To that end, it may seek to raise awareness of the robust legislative framework in place for data handling and protection, and of the perceived benefits of smart metering particularly for the purposes of households to keep track of energy use and expenditure.

22.4 Conclusion In sum, Romania is particularly interesting given that, on the one hand, it enjoys relative energy independence and security vis-a`-vis its EU peers but also other neighboring countries, while, on the other, it remains one of the most energy-intensive and polluting EU Member States. At the 155. Cf., Article 6, GDPR. 156. Cf., Article 4y1, GDPR. 157. Cf., Recital 26, GDPR.

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same time, Romania’s performance in relation to increasing the share of RES in energy consumption and electricity production places it among the leaders at the regional and EU levels, particularly in terms of windgenerated power. What is more, while deep reforms have taken place within the context of its transitioning from a bureaucratic command economy towards a marketbased economy, infrastructural and other conditions have hampered Romania’s performance in relation to “smartening” its electricity grid. While a considerable part of the electricity sector is privatized and retail prices have been deregulated, thus leading to greater market liquidity at the crossborder level—a condition that could facilitate regional price convergence and, more generally, energy efficiency—electricity infrastructure remains basic and aging, with Romania lagging behind when it comes to selfgeneration, EV proliferation, storage, and Dr development. While crossborder infrastructural projects aimed at increasing the interconnectivity of the broader region are currently underway, for the most part they concern the infrastructure at junction points than at the national level. In that sense, there is a disparity between the level of attention and funding that the domestic aspects of the national grid system receives vis-a`-vis its cross-border interconnective aspects. Consequently, basic and ageing infrastructural factors cause the kind of bottlenecks for other developments concerning electricity system smartening efforts. However, there are also policy—other than infrastructural—issues that hamper smartening efforts. As discussed earlier, self-generation is rather low, and adjustments to RES support schemes have had implications for self-generation proliferation but also for investor confidence, however, recent re-tweaking (cf., prosumer support measures further to recent legislation, discussed earlier) may, however, rebalance this situation. Smart metering, for its part, remains limited, however, there are official plans for this to be universalised by 2029. While this is not ideal, given the implications this has for, among other things, the attainment of demand responsiveness objectives, this slow progress could be offset by Romania’s remarkable performance in terms of RES share of energy consumption and electricity generation, but also excused to some extent by the other, perhaps, more pressing social and economic exigencies at play (discussed passim). In terms of zero- and low-emissions mobility, again, infrastructural issues—namely, the puny amount of charging points—undermine EV proliferation and transport decarbonization objectives. Concerning storage, this remains considerably underdeveloped while demand responsiveness exists merely as a matter that is legally possible and largely in abstract. That said, retail price deregulation and regulatory encouragement of suppliers and other market operators to provide dynamic pricing to consumers, are important policy and market tools that lay the foundations

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for greater demand responsiveness, and, potentially, more efficient electricity use by and greater savings to consumers. Lastly, while increased RES shares in energy consumption and electricity generation, along with further fossil fuel discoveries, bolster Romania’s continued energy security, other issues—including inflation, energy poverty, child poverty, skilled labor shortages, and a dwindling population—158 remain unresolved and may thus quite justifiably take public policy and budgetary precedence when compared to smart grid-related efforts.

22.4.1 Recommendations The ever-increasing RES share in electricity generation necessitates greater interconnectivity and the development of storage capacity. Higher degrees of interconnectivity may well lead to greater price convergence, which often involve favorable outcomes for consumers. It may also lead to efficiencies by reducing loss or redundancy that may arise with greater shares of variable electricity generation (i.e., via RES). Greater interconnectivity relies not only on infrastructure but also on factors such as cross-border marketization/liquidity of electricity to facilitate wholesale trade between systems as a means of preventing electricity redundancy. This is where other technical factors—such as market structures—come into play that, in turn, rely on nontechnical factors, including national and regional policy. While Romania pursues regional integration of cross-border wholesale electricity trade and is involved in cross-border infrastructural projects that are set to benefit national, regional, and EU interconnectivity objectives, the government may want to look at other sections of the electricity wholesale market, than currently traded, that may be amenable to greater cross-border coordination and liquidity as a means of achieving greater cross-border price convergence and energy efficiency in the interests of market actors and ultimate consumers (industry and households) alike. While the Romanian government is involved in projects to increase the infrastructural interconnectivity of Romania’s electricity system with that of the region as a means of addressing national and regional energy efficiency and security goals, perhaps more could be done on the part of the EU to prioritize 158. Cf., Marica, I., “Romania’s population keeps shrinking in 2017 due to demographic decline and migration,” Romania Insider, 29 August 2018, https://www.romania-insider.com/romaniapopulation-down-2017-demographic-decline, and Costelian, I., “La Roumanie perd ses teˆtes,” Libe´ration, 19 January 2018. Available at: https://www.liberation.fr/planete/2018/01/19/la-roumanie-perd-ses-tetes_1623807 (in French). Also cf., United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision, Key Findings and Advance Tables, Working Paper No. ESA/P/WP/248, according to which, by 2050 Romania’s population is likely to decrease by at least 15% in relation to 2017 levels (at p. 13), and that currently 25% of the population is older than 59, while 49% is between the ages of 25 and 59 (at p. 20). Available at: https://population.un.org/wpp/Publications/Files/ WPP2017_KeyFindings.pdf.

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infrastructural spending aimed at its Energy Union159 and Energy Community objectives as a means of helping Romania reach parity with more interconnected and better performing parts of the broader EU and Energy Community electricity networks. While Romania is a large beneficiary of EU solidarity,160 it may be that more could justifiably be done on the part of the EU within the context of existing EU schemes to modernize Romania’s electricity system (but to also assist with the other social issues alluded to earlier). For instance, classifying certain projects as being of common interest and/or strategic to the EU could attract the necessary funding under existing schemes. In that respect, there seem to be more that the EU—than the Romanian government—could do to address interconnectivity and other smart grid-related issues. In terms of the promotion of low- to zero-emissions mobility (EVs), the government ought to consider substantially increasing the number of charging points, along with a range of financial and nonfinancial incentives—other than the current purchase subsidies, registration tax and fees waiver for EVs, and emissions-based road tax reductions—to encourage greater take-up. Particularly support for installing charging capacity near homes and within residential areas, given that home-charging feasibility seems to be a main driver in EV purchase decisions. What is more, information programmes aimed at raising public awareness as to decarbonization but also EV subsidies have a role to play. While the cost of increasing the total number of charging points may be unjustified vis-a`-vis the current size of the domestic EV fleet, considering how the number of charging points is among the main factors behind EV purchase decisions, and mindful of its decarbonization and other related objectives, the government should earnestly pursue this. There are examples from other EU peers where public-charging infrastructure was deployed without burdening the public purse through partnerships with private operators.161 The government could consider extending its subsidies program to facilitate home and workplace charging, as this appears to be a key practical issue that drives EV purchase decisions. Other than ensuring that there are sufficient charging points, the most 159. The Energy Union is a 2015 EU strategy concerning the bloc’s energy interests, including those pertaining to climate change mitigation and economic resilience. The goal is to for EU consumers— households and industry alike—to have access to “secure, sustainable, competitive and affordable energy.” This goal is predicated on five interrelated aspects, namely, energy security, solidarity, and trust; a fully integrated internal market; energy efficiency contributing to moderation of energy demand; the decarbonization of the economy; and research, innovation, and competitiveness. Cf., the following European Commission web pages. Available at: https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-1.html & https://ec.europa.eu/commission/priorities/energy-union-and-climate_en. 160. Up to EUR 30.8 billion was allocated to Romania for the 2014 2020 period. Cf., European Commission, Commission Staff Working Document, Country Report Romania 2019 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances, SWD (2019) 1022 final (p. 17). 161. Note the example of Flanders, Belgium, where 2,500 public charging stations are to be installed by Allego at their expense by 2020. Cf., Transport & Environment, Rollout of public EV charging infrastructure in the EU: Is the chicken and egg dilemma resolved? September 2018 (p. 13).

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successful EU members in terms of greater EV penetration—namely, France, Germany, the Netherlands, and the United Kingdom—have adopted a variety of policies including income and/or corporate tax reductions or credits, R&D project funding, and the distribution of EVs to public and private entities.162 What is more, the government could take note of a recent simulation study of a model concerning a self-powered (via solar means) EV charging station which indicated that, although the cost of the electricity generated through it would be 35.3% higher than that of conventionally generated electricity, attendant benefits included substantial reductions in emissions, excess power generated that could be fed into the electricity system, and a much smarter grid better equipped to address issues that arise with greater EV proliferation—namely, the implications of the latter for grid capacity and storage.163 In terms of RES electricity generation, while Romania’s performance in increasing the RES share in energy consumption and electricity generation is commendable, there seem to be technical, market, and regulatory factors—such as those mentioned in earlier parts of this chapter—to explain Romania’s failure to be included within the top 40 countries in the latest Renewable Energy Country Attractiveness Index (RECAI),164 and this may have implications for 162. Cf., Cansino, J. M., S´anchez-Braza, A., & Sanz-D´ıaz, T., 2018. Policy instruments to promote electro-mobility in the EU28: a comprehensive review, Sustainability 10, 2507 (pp. 9 18). 163. Cf., Badea, G., et al., 2019. Design and simulation of Romanian solar energy charging station for electric vehicles, Energies, 12, 12 13. In sum, a total surface area of just 45.65 m2 could reliably generate a total of 5,789 kWh/year solely from solar irradiance, of which 55.47% was expected to be used for EV charging purposes, while any excess, save for losses, could be fed into the electricity system. The total cost of the station stood at c. EUR 24,692. CO2 emissions vis-a`-vis conventionally produced electricity were c.67% lower, and these seem to largely be inherent to the equipment and their manufacturing process, than a by-product of generation. While the cost per unit of electricity generated was 35.3% higher than that conventionally generated nationally (viz., 0.17/kWh v. 0.11/kWh) this was 11.76% higher than the average cost at EU level, and the attendant benefits, when also taken into account, could more than justify the adoption and rollout of that model. 164. Namely, May 2019. The RECAI, developed by Ernst & Young, is considered an industrystandard for gauging RE investment and deployment opportunities. The RECAI methodology takes into account what Ernst & Young consider factors affecting RE investment including a particular country’s longitudinal energy needs, the policy context, technical and nontechnical factors and mechanisms, macro-stability prospects etc. While Romania is not listed, it is worth noting that EU peers including Belgium (53.3, 21st), Denmark (56.3, 12th), Finland (49.1, 39th), France (63.2, 3rd), Germany (61.9, 6th), Greece (51.1, 30th), Ireland (52.8, 23rd), Italy (54.1, 18th), the Netherlands (57.2, 10th), Portugal (52, 25th), Spain (54.3, 16th), Sweden (51, 32nd), and the United Kingdom (58.3, 8th) rank among the forty most attractive destinations for RE investment (NB., RECAI score and rank listed after each country). Cf., with China (68.7, 1st), the United States (66.7, 2nd), India (63, 4th), Australia (62.4, 5th), Japan (59.2, 7th), and Argentina (57.4, 9th), and with, perhaps less obvious, contenders including Morocco (56.2, 13th), Egypt (56.1, 14th), Vietnam (51.8, 26th), the Philippines (51.6, 27th), Pakistan (50.7, 34th), Thailand (50.5, 35th), Kenya (49.3, 37th), and Indonesia (49, 40th). Available at: https:// www.ey.com/uk/en/industries/power-utilities/ey-renewable-energy-country-attractiveness-index. According to extrapolations made elsewhere, Romania’s RECAI ranking appears average, despite considerable RES potential. Cf., Cıˆrstea, S., ¸ et al., 2018. Current situation and future perspectives of the Romanian renewable energy, Energies 11, 3289 (p. 5).

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much needed private investment in Romania’s RES infrastructure, and, by extension, efforts to smarten its grid. The government should work on identifying—particularly with outside organizations including relevant intergovernmental organizations and the creators of RECAI—the structural and other reasons behind Romania’s failure to attract investments, so that action may be better targeted. Policy declarations relating to the national strategy for RDI have been criticized as vague, therefore, the government could do more to provide the requisite clarity and specificity concerning its measures, objectives, and likely direction of its policy, for the purposes of attracting sorely needed investment.165 In terms of Dr, the government could consider bringing forward the current target date (namely, 2029) for smart meter proliferation given its positive implications for Dr objectives. As discussed earlier, Dr development— currently merely a legal possibility—is predicated on a variety of technical and nontechnical factors. Technological developments in storage and RES generation could, along with Dr, ensure that greater efficiencies in electricity are achieved through optimal use patterns and the prevention of electricity redundancy/waste.

165. Energy Policy Group, The Draft of the Romanian National Energy-Climate Plan 2021 2030, Policy Paper, Analysis, December 2018 (p. 17). Available at: https://www.enpg.ro/ wp-content/uploads/2018/12/NECP-Romania-EPG-Analysis.pdf. Also, cf., Commission Recommendation of 18 June 2019 on the draft integrated National Energy and Climate Plan of Romania covering the period 2021 2030, Brussels, C(2019) 4423 final (pp. 4 6) where the Commission makes specific recommendations in this regard.

Chapter 23

Energy decentralization and energy transition in Malta Victoria Nalule1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

23.1 Introduction Decentralization and decarbonization of the energy sector have been slow in Malta as the country, being a small island, has unique challenges that differ from other European Union (EU) countries, including a high population density,1 limited available land space, and an ever-increasing electricity demand.2 These challenges are influenced by the geographical features of the country.3 The small size of the electricity market in particular is a major constraint to decentralizing the energy sector and yet recent records show an increase in energy consumption.4 For instance, on July 9, 2019, the demand for electricity supply reached 510 MW, which is the highest level ever recorded by Enemalta plc.5 This is an increase of slightly less than 5% when compared to the highest ever rate registered before, that is, 488 MW in August 2017.6 We also note that the 1. The Maltese Islands have a land surface area of 316 km2 and a population density of 1260 persons per km2; one of the highest in the world. 2. Antoine, B., Goran, K., Neven, D., 2008. Energy scenarios for Malta. Int. J. Hydrog. Energy, 33(16), 4235 4246. 3. By geographical description, Malta is an archipelago of three islands and four islets right in the center of the Mediterranean Sea. 4. Although the electricity market is small, we note that during the summer, greater peak electricity demands are experienced basically due to increased air-conditioning loads and this causes an added load on the electricity distribution system that have resulted in complete power failure for few times. 5. Enemalta was established in 1977 and it is the leading energy services provider in the Maltese Islands, entrusted with the generation and distribution of electricity, and the development of the national electricity distribution network. For more information about Enemalta see, https://www. enemalta.com.mt/about-us/. 6. See, Enemalta, https://www.enemalta.com.mt/news/high-electricity-demand-registered/. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00004-9 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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demand for electricity supply was 15% higher than the demand registered in the same period during the past 2 years.7 With respect to greenhouse gas emissions, although there have been global and regional efforts to reduce these emissions, Malta is still lagging behind on its EU targets. At the EU level, in 2016, the region achieved a reduction in GHG emissions of 22.4% below 1990 levels. Approximated estimates for emissions in 2017 indicate an increase of emissions of 0.6% compared with 2016.8 At the national level, recent data shows that Malta has the second highest increase in carbon dioxide emissions from 2017 to 2018 mainly attributed to the transport sector.9 Indeed, Malta was one of the only eight countries to register an increase.10 The country registered an increase of 6.7%, second only to Latvia, which registered an increase of 8.5%.11 There is no doubt that the decarbonization of the energy sector has been a marked feature of the 21st century, not only in Europe, but also in other parts of the globe. Although Malta continues to register poor performance in tackling emissions in the EU, the country has nevertheless put massive efforts in decarbonizing its energy sector since joining the EU in 2004. In this regard, many of the EU Directives pertaining to energy and the environment have been transposed to national legislation. With respect to greenhouse gas emissions, we note that the main increases in emissions in Malta in recent years were evidenced in two particular fields—hydrofluorocarbons (HFCs) and transport— and this is due to the replacement of ozone depleting substances with Fgases in the use of refrigerators and air conditioners.12 In energy terms, Malta is fully dependent on oil imports to supply its energy needs. However, the island has potential for renewable energy sources (RES) as it enjoys an abundance of sunshine with a mean daily irradiance of 5 kWh/m2. Transitioning to a low-carbon economy in Malta, therefore, will not only require massive investments but it also requires attention to generation technology, transmission, and end-use efficiency, which will 7. See, Enemalta, https://www.enemalta.com.mt/news/high-electricity-demand-registered/. 8. European Environment Agency, 2018. “Trends and projections in Europe 2018: Tracking progress towards Europe’s climate and energy targets,” available at https://www.eea.europa.eu/ publications/trends-and-projections-in-europe-2018-climate-and-energy#tab-data-references. 9. As will be discussed in this chapter, the country has embraced electric vehicles as a way to decarbonize the transport sector. Albeit a recent report from the European Environment Agency indicated that Malta has the fourth worse air quality and a 12% increase of carbon dioxide in three years. See, https://www.eea.europa.eu/publications/trends-and-projections-in-europe-2018climate-and-energy#tab-data-references. 10. Carbon dioxide emissions are a major contributor to global warming and account for around 80% of all EU greenhouse gas emissions. 11. On average, carbon dioxide emissions in European countries decreased by 2.5% between 2017 and 2018. See, Times of Malta, https://timesofmalta.com/articles/view/malta-with-secondhighest-increase-in-co2-emissions-in-europe.709402. 12. European Commission: Energy Union Factsheet, Malta, 2017.

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greatly attribute to a sustainable environment.13 Moreover, this shift also will imply a structural shift in economic activity, wherein energy-related investment and jobs will in part migrate from traditional fossil fuel based activities toward services related to renewable energy.14 A clear strategy is also needed and, in this regard, Malta developed a Low Carbon Development Strategy and its working on sector-specific strategies.15 Despite these developments, it is imperative to note that in economic terms, Malta is below the EU average with respect to employment directly or indirectly related to renewable energy.16 For instance, in 2015, employment related to renewable energy in Malta was at about 0.23%, below the EU average of 0.54%.17 The turnover of the renewable energy industry in the same year was estimated at around EUR 0.035 billion, the largest part being attributed to photovoltaic (PV) (71.4%) followed by biofuels and solar thermal industries in equal parts (14.29%).18 The above efforts in transitioning to a low-carbon economy in Malta are not only targeting the decarbonization of the energy sector but also the need to address climate change. Just like other EU countries, Malta has also taken efforts to tackle and adapt to climate change and in this respect, the country adopted the Climate Action Act of 2015 and the 2012 Maltese National Adaption Strategy. Albeit the Climate Action Act requires the review and update of the strategy at least every 4 years and there is also a need to focus on sectoral action plans like those relating to natural ecosystems. After this introduction, this chapter examines Malta’s electricity sector in relation to the smartening of electricity systems. To that end, the chapter provides an exposition of Malta’s electricity sector, includes an exposition of the “smart grid”-related features of its network, and concludes with views for policy makers concerning legal, regulatory, and other issues.

23.2 Energy mix Unlike most EU countries, the energy needs in Malta are mostly met by imported fossil fuels, thus having an import dependency ratio of 97.3%. Albeit Malta is a significant player in the international trade in petroleum products. 13. Antoine, B., Goran, K., Neven, D., 2008. Energy scenarios for Malta. International J. Hydrog. Energy. 33(16) 4235 4246. 14. European Commission: Energy Union Factsheet, Malta, 2017. 15. The LCDS initiative was in accordance with the United Nations Framework Convention on Climate Change (UNFCCC) and EU legislation. The LCDS takes into account the particular circumstances of the country especially those aspects that link socio-economic development with climate action. Malta Low Carbon Development Strategy, 2017. It can be accessed at https:// meae.gov.mt/en/Public_Consultations/MSDEC/Documents/MSDEC%20LCDS%20Vision.PDF. 16. ibid. 17. European Commission: Energy Union Factsheet, Malta, 2017. 18. European Commission: Energy Union Factsheet, Malta, 2017.

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Notwithstanding the fact that 97% of the energy mix is dominated by petroleum, there has been an increase in renewable energy generation, which enabled a decrease of petroleum dominance from 99% to 97%. This reduction was not only made possible due to renewable energy deployment but also the commissioned electricity interconnector with Italy in early 2015, which enabled electricity imports from and through Italy of 1054 GWh in 2015.19 Additionally, the commissioning of the gas-fired plant in April 2017 made it possible to introduce natural gas into Malta’s energy mix for the first time.20 Although in the past RES were not represented in the energy mix, there have been some developments especially with respect to solar energy, which has been made possible due to the favorable weather condition as the Island enjoys an abundance of sunshine with a mean daily irradiance of 5 kWh/m2 . Malta has no known oil reserves and, as such, the country is dependent on imported fuels. Additionally, there is 0% of electricity generated from nuclear fuels and hydroelectric plants. Unlike other EU countries such as Poland, which are still heavily dependent on coal for electricity production, in Malta the use of coal for power generation was terminated in 1995.21 The energy challenges to be addressed in Malta are stipulated in the Energy Policy which, having been influenced by several EU energy and environmental policies, was launched in 2012. The policy recognizes the major global energy principles, including efficiency and affordability, security of supply, diversification, flexibility, and sustainability. Six key policy areas were identified to address these objectives: the need to increase energy efficiency, reduce reliance on imported fuels, ensure stability in energy supply, improve the country’s carbon footprint, move toward efficient and effective delivery of energy, and provide policy support to the energy sector.

23.3 Laws and institutions relevant in the decarbonization efforts in Malta In order to ensure an effective transition to a low-carbon economy, laws and regulations must be put in place. Indeed these laws are present at the international, regional, and national level. At the national or local level, the main law in the Maltese energy sector is Act XXXIV, which came into force on the August 14, 2014. This Energy Law covers and regulates different aspects of the energy sector, including crude oil and petroleum products; electricity and electrical accessories; kerosene control; natural gas distribution; and the use of biofuels. In an effort to restructure and bring 19. European Commission: Energy Union Factsheet, Malta, 2017. 20. European Commission: Energy Union Factsheet, Malta, 2017. 21. Malta Energy Efficiency and Renewable Energies Association (M.E.E.R.E.A): Energy profile for Malta, 2007.

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about competition in the energy sector, the Act brought about various changes, including among others: G

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The transfer of all the assets, rights, liabilities, and obligations of Enemalta Corporation to Enemalta plc; the regulation of the functions of the distribution system operators (DSO). This in effect necessitated the enactment of the Enemalta (Transfer of Assets, Rights, Liabilities and Obligations) Act. Removal of a monopolized electrical energy market and amendment of the Electricity Supply Regulations (S.L. 423.01).22 Act XXXIV also provided for the repeal of Chapter 272 of the laws of Malta (the Enemalta Act) and made provision for any matter that is ancillary to or connected thereto.

Besides Act XXXIV of 2014, other principle laws regulating the energy sector of Malta include The Petroleum (Production) Act (Chapter 156 of the laws of Malta), The Petroleum (Production) Regulations (Subsidiary legislation 156.01), Electricity Supply Regulations (S.L. 423.01), Enemalta (Transfer of Assets, Rights, Liabilities and Obligations) Act, and Electricity Market Regulations (S.L. 423.22). The laws stipulate the ways in which other people or companies can be involved in the energy sector. In this respect, Chapter 423 of the laws of Malta stipulates that no person is allowed to carry out any activity or operation relating to energy, such as production and distribution of electricity, without a permit. Governance systems are key in ensuring the effective implementation of the various laws related to the transitioning to a low-carbon economy. There are various institutions relevant to the energy sector in Malta including the Malta Resources Authority (MRA);23 The Regulator for Energy and Water Services (REWS);24 Automated Revenue Management Services (ARMS);25 the Ministry for Energy and Water Management; the Energy and Water Agency; and the Regulator for Energy and Water Resources.

22. Amendment of the Electricity Supply Regulations (S.L. 423.01) reflects the position that the distribution system operator does not necessarily mean Enemalta. This is a key achievement with respect to the introduction of competition in the electricity sector. 23. Malta Resources Authority (MRA) was established in 2000 and it is responsible for all natural resources including energy, water, and minerals. With respect to the energy sector, MRA is responsible for the organization of the electricity industry and licensing of companies providing electricity products. 24. REWS was established on July 31, 2015 with the main responsibility of regulating of the energy and water services in Malta. REWS was established by the House of Representatives through the Regulator for Energy and Water Services Act (Act XXV) of 2015. 25. ARSM in collaboration with Enemalta Corporation (EMC) and the Water Services Corporation (WSC) has been actively involved in the implementation of Smart metering technology in Malta.

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23.4 Electricity in Malta and energy competences 23.4.1 Electricity interconnections and distribution The Island is fully electrified though up until April 2015, Malta’s electric power system (EPS) was isolated with a heavy reliance on imported fossil fuels.26 Reliance on imported fuels undoubtedly has the effect of exposing Malta to volatile oil prices, which impedes the ability to reliably predict electricity generation costs.27 In this respect, supported by the European Energy Program for Recovery, an electricity interconnector, a high-voltage subsea cable with 200 MW transmission capacity, was commissioned between the two EU member states of Malta and Italy in early 2015.28 Although there are various advantages of interconnection, such as in the case of Malta, an increase of electricity interconnection level from 0% to over 24%,29 issues may arise whether the interconnection cable to Sicily threatens the privileges of the incumbent utility Enemalta.30 Nevertheless, the country ought to focus on the positive impact of the interconnection such as opening the Maltese electricity grid to the rest of Europe. Scholars have also observed that, without interconnecting isolated EPS, the islands (states) run the risk of not being able to satisfy the demand in situations when external fuel import is disrupted.31 Prima facie, it would therefore appear that the obvious positive impact of interconnection would be the reduction of electricity prices for the consumers; however, studies have shown that this is not necessarily the case as other factors are essential including the installed generation capacity, oil price, and market design.32 Albeit other developments such as the incorporation of natural gas in Malta’s energy mix and electricity generation would also play a big role.33 Consequently, there have been measures to increase gas-fired electricity generation in Malta. Thus in 2017, the European Commission approved under EU state aid rules, the Maltese plans to pay Electrogas Malta, for providing energy to the 26. The three inhabited islands were interconnected by a single electricity grid, with electricity generation coming from two fossil-fueled power stations having a total combined nominal installed capacity of 571 MW. 27. Ries, J., Gaudard, L., Romerio, F., 2016. Interconnecting an isolated electricity system to the European market: the case of Malta. Util. Policy, 40, 1 14. 28. The Malta Sicily interconnector is the submarine power cable, 95-km (59 mi) long, which connects the power grid of Malta with the Italian Transmission Network. It starts at Magħtab, Qalet Marku in Malta and it runs to Marina di Ragusa in Sicily, Italy. It is managed by Terna, which is part of the European grid. 29. European Commission: Energy Union Factsheet, Malta, 2017. 30. Grid-interconnection also has the ability of ensuring electricity trade thus lowering the cost of electricity to consumers by increasing use of the cheapest supply sources in the connected markets and enabling the least polluting generation sources to be utilized where it is economic to do so. 31. Ries, J., Gaudard, L., Romerio, F., 2016. Interconnecting an isolated electricity system to the European market: the case of Malta. Util. Policy, 40, 1 14. 32. Ibid. 33. Ibid.

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Maltese electricity company Enemalta. Also in place are plans to build the necessary infrastructure including a gas pipeline interconnection between Dilemmas (Malta) and Gela (Italy)—this is intended to connect Malta to the European Gas network.34 Moreover, there are visible efforts to include renewable energy sources in the electricity generation in Malta.35 With respect to electricity distribution, Enemalta is the main company involved in this sector. Electricity is distributed from the Delimara Power Station and the Maghtab Terminal Station of the Malta Italy Interconnector to four 132 kV distribution centers in Malta. This is done through 87 km of underground 132 kV cables with a supply frequency of 50 Hz.36 Additionally, distribution is achieved through a four-level network, comprising four different voltage levels, 132 kV, 33 kV, 11 kV, and 400/230 V.37

23.4.2 Political decentralization and energy competences The electricity sector in most EU member states have been characterized by reforms which had the effect of transitioning from state-driven monopolies to liberalized market places. Although all EU countries are bound to abide by the competition laws, Malta benefits from the derogations in directive 2009/72/EC because under EU legislation, Malta is considered as a small, isolated system.38 This therefore implies that Malta does not have to comply with DSO unbundling (Article 26), third-party access (Article 32), and market opening (Article 33).39 Albeit these exemptions maybe affected by the interconnection between Malta and Sicily.40 34. European Commission, 2013. Electricity interconnection Malta-Italy. http://ec.europa.eu/ energy/eepr/projects/files/electricity-interconnectors/mt-it_en.pdf. (accessed 06.10.14). 35. With respect to electricity from renewable energy, Enemalta as the network operator provides its customers with the necessary metering and connection equipment to use in their renewable energy generators (such as wind turbines or photovoltaic panels), to feed electricity to the grid. See, Enemalta at https://www.enemalta.com.mt/services/grid-connected-renewable-energy-systems/. 36. At these centers, voltage is stepped down to 33 kV so that electricity can be channeled to another 20 33 kV distribution centres. This part of the network includes 260 km of 33 kV underground cables and 13 km of 33 kV subsea cables. Each 33 kV distribution center feeds a number of 11 kV circuits, mostly in radial configuration, supplying over 1400 11 kV substations (secondary substations). See, Enemalta at https://www.enemalta.com.mt/services/grid-connectedrenewable-energy-systems/. 37. Enemalta, 2019, https://www.enemalta.com.mt/about-us/our-network/. 38. Malta Resources Authority, 2013. Malta’s Report to the European Commission on the Implementation of Directive 2009/72/EC, Directive 2009/73/EC and Directive 2005/58/EC. http:// www.ceer.eu/portal/page/portal/EER_HOME/EER_PUBLICATIONS/NATIONAL_REPORTS/ National %20Reporting%202013/NR_En/C13_NR_Malta-EN.pdf. (accessed 02.10.14) 39. Malta Resources Authority, 2013. Malta’s Report to the European Commission on the Implementation of Directive 2009/72/EC, Directive 2009/73/EC and Directive 2005/58/EC. http:// www.ceer.eu/portal/page/ portal/EER_HOME/EER_PUBLICATIONS/NATIONAL_REPORTS/ National% 20Reporting%202013/NR_En/C13_NR_Malta-EN.pdf. (accessed 02.10.14). 40. ibid.

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Whereas the establishment of electricity wholesale markets is a common feature in liberalizing the energy sector in the EU and, as such, these markets provide for different ways of selling generated electricity the day-ahead market,41 for a long time in Malta; however, such a trading platform was not in existence as electricity generation and its remuneration were centralized.42 The government has for a long time heavily subsidized Enemalta to ensure that it provides affordable electricity prices.43 Enemalta plc is a vertically integrated company, which is the designated distribution operator and remains the main producer of electricity in Malta. Dispatching and balancing are also carried out by Enemalta plc. Taking stock of the above therefore, we note that, unlike other EU countries, liberalization is limited in Malta. However, competition in the Malta energy sector was brought about by Act XXXIV of 2014. The Act opened competition in the distribution of energy and this is covered under Part Two of the Act which highlights the regulation of the DSOs in relation to matters such as the duties of a DSO in relation to the supply of electrical energy; the limitation of liability and the prices to be charged. The restructuring was intended to introduce competition and attract foreign investment. The major changes were made following the large investments made by a Chinese company Shanghai Electric Group Company Limited. Following the investment, Enemalta PLC was partly privatized through the acquisition of a minority shareholding by Shanghai Electric Power.44 The transaction abolished a fully monopolized energy market in Malta and ensured that private companies can collaborate with Enemalta in the renewable energy and energy servicing fields. Despite these positive developments, given the small size of Malta, which implies a small electricity market, the country has been granted large derogations from the requirements of the Electricity Directive on unbundling of DSOs. In this respect, Enemalta plc is the designated distribution operator and remains the main producer of electricity in Malta.

23.5 Renewable energy generation As illustrated in the previous sections, there is a heavy reliance on fossil fuels in Malta and, as such, diversification of the energy sector is one of the main objectives of the Maltese government. There have been some achievements in the diversification efforts as evidenced by an increase of renewables 41. DAM is a situation where electricity is traded one day prior to physical delivery. 42. Ries, J., Gaudard, L., Romerio, F., 2016. Interconnecting an isolated electricity system to the European market: the case of Malta. Util. Policy, 40, 1 14. 43. Ries, J., Gaudard, L., Romerio, F., 2016. Interconnecting an isolated electricity system to the European market: the case of Malta. Util. Policy, 40, 1 14. 44. Enemalta was established in 1977 and it is the leading energy services provider in the Maltese Islands, entrusted with the generation and distribution of electricity, and the development of the national electricity distribution network.

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in electricity generation from nearly 0% to 4% in the period 2010 15. Moreover, Malta was able to meet its 2013/2014 indicative trajectory on RES share in gross final energy consumption and is on track to reach its 10% renewable energy target for 2020. Although the country is on target to meet its 10% RES share by 2020, in 2016, Malta’s share of renewable energy was 6.0%, below the EU average of 17%, despite having seen an improvement when compared to previous years. Nevertheless, RES will continue to play an important role in Malta’s energy mix. In fact, electricity generation from small- and large-scale PV installations is expected to continue to increase steadily, reaching approximately 185 Mwp generating c. 278 Gwh in 2020, almost 11.5% of the gross final electricity consumption.45 There are several incentives for the promotion of RES electricity generation and, as such, electricity from RES is promoted through a combination of feed-in tariffs and investment grants. In the transport sector for instance, RES are encouraged by a substitution obligation on importers of fossil fuels, and this in effect made it possible for Malta to avoid about 5.2% of the fossil fuel in gross inland consumption and about 4.0% of GHG emissions at national level in 2015, compared to the EU average of 10.1% and 9.1% reduction, respectively. Besides the various incentives, RES especially solar is favored by the good weather conditions in Malta.46 There is also potential for wind energy although this is constrained by the limited availability of land and deep coastal waters around the Republic of Malta.47 In an effort to fully diversify the energy sector, in May 2017, Malta published its revised National Renewable Energy Action Plan (NREAP), incorporating new priorities, projects, and initiatives put forward for the energy sector. The country also has in place a draft Renewable Energy Policy, which focuses on the development of various RES including PV, wind energy conversion systems, and energy production from waste. Additionally, diversification is emphasized in the Maltese Energy and Climate Plan, which covers the 2021 30 period. The key issues to consider to achieve the objectives of the Plan include: G

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diversifying Malta’s dependence on the importation of oil through the achievement of a diversified energy mix; reducing the carbon footprint and greenhouse gas emissions of the country through improved efficiency in generation capacity; replacing heavy fuel oil with natural gas and gas oil, and renewable sources;

45. Ries, J., Gaudard, L., Romerio, F., 2016. Interconnecting an isolated electricity system to the European market: the case of Malta. Util. Policy, 40, 1 14. 46. Being in the center of the Mediterranean, Malta experiences adequate sunlight for around 80% of the year. Indeed, the country has the highest level of solar irradiation in the EU. 47. The Malta Resources Authority, http://www.mra.org.mt; European Environment Agency’s (EEA) Eionet/Central Data Repository).

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enhancing and strengthening the security of supply of the country whilst ensuring the availability of appropriate back-up capacity; stimulating investment in RES through the provision of appropriate incentives; and achieving a degree of interconnection for electricity supply, and overhauling the generation capacity of the country with a view to achieving higher efficiency gains whilst stimulating investment in natural gas infrastructures.

As discussed above, there is indeed potential for increased penetration of RES in Malta; however, massive investments are needed to diversify the energy mix.48

23.6 Smart grid and smart metering systems With respect to smart grids, Malta contracted IBM to install a 70 million pounds smart utility grid and also replace 250,000 analogue electricity and water meters with smart meters by 2012. On the other hand, smart meters for energy and water saw their way into Malta in the year of 2009 when IBM, a computing giant, in collaboration with Enemalta started an $89.9 million 5-year project to design and deliver smart electric and water meters to the people of Malta thus replacing the 250,000 analog electric meters. As in other parts of the world, the purpose for smart meters was, among others, to ensure that consumers monitor electricity usage close to real time and also to identify water leaks and electricity losses. By the end of 2014 Enemalta had installed 270,000 smart meters, although the project faced some setbacks in some areas that were closed premises and as such presented technical difficulties for installation. Additionally, there were some challenges relating to electricity theft and this was as a result of system tampering, where over 1000 smart meters system were tampered with thus recording less energy units than what was actually consumed.49 Tampering attempts were, however, short lived and were tackled by equipping the meters with sensors and alarms. Indeed, there is a need to ensure vigilance of all the concerned market players.50 The main market players in the smart grid and smart meters include Enemalta plc, Water Services Corporation, ARMS Ltd, MRA, Ministry for Energy and Health, and Sustainable Energy and Water Conservation Unit. 48. Gabdullin, Y., Azzopardi, B., 2018, June. Impacts of high penetration of photovoltaic integration in Malta. In 2018 IEEE 7th World Conference on Photovoltaic Energy Conversion (WCPEC) (A Joint Conference of 45th IEEE PVSC, 28th PVSEC & 34th EU PVSEC) (pp. 1398 1401). IEEE. 49. Transmission & Distribution World, 2014. Available at https://www.tdworld.com/node/ 30142. 50. ibid.

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23.7 Electric vehicles and storage Decarbonization efforts in Malta are also evidenced in the transport sector by the introduction of electric vehicles (EVs). Generally speaking, Malta’s final energy consumption in the transport sector increased by 5.3% from 2005 to 2015 and as such the transport sector in 2015 was by far the largest energy-consuming sector representing a 54.4% share in the total final energy consumption, which is well above the EU average (i.e., 33.1%).51 In fact, emissions of greenhouse gases from traffic have been increasing in Malta with a 95.7% CO2 emissions from road transport in 2015 above the 1990 levels.52 In an effort to reduce the emissions, the National Transport Strategy was adopted in 2016 with a 2050 horizon and an Operational Transport Master Plan to 2025. The Strategy includes measures such as the rationalization of the use of private cars. Following the establishment of the Malta National Electromobility Platform, EVs have been embraced in Malta as one of the ways of reducing emissions in the transport sector. The future of electromobility in Malta is highlighted in the National Electromobility Action Plan, which foresees the implementation of concrete projects, programs, and measures by which Malta will contribute to its international environmental obligations. One such obligation is that Malta is committed to put 5000 battery EVs on the road by 2020.53 The political backing and incentives have spurred the deployment of EV in recent years from 36 in 2013 to a total of 976 units (including all type of hybrid, plug-in hybrid, and range extender EVs) by the end of May 2017. Additionally, there have been developments in the charging infrastructure with 102 charging points being made available to the general public and there are ambitious plans by the Government to deploy a further 400 charging points on Maltese roads by 2020. In a recent study about the penetration of EVs in EU member states, scholars highlighted the low penetration of these vehicles despite various efforts in the region. It was also noted that the most important policy instruments to promote EVs are tax and infrastructure measures in addition to financial incentives.54 In this respect, the Maltese Government has committed to abolish entirely the registration tax on electric cars. Additionally, the government has put in place both car registration tax rates and car ownership tax rates which depend on CO2 emission performance.55

51. European Commission: Energy Union Factsheet, Malta, 2017. 52. European Commission: Energy Union Factsheet, Malta, 2017. 53. Electromobility Malta can be accessed at https://electromobilitycms.gov.mt/en/Pages/ Introduction.aspx. 54. Cansino, J., S´anchez-Braza, A., Sanz-D´ıaz, T., 2018. Policy instruments to promote electromobility in the EU 28: a comprehensive review. Sustainability, 10(7), p. 2507. 55. European Commission: Energy Union Factsheet, Malta, 2017.

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Besides the political backing, there have also been incentives to make EVs more acceptable in Malta. For instance, there are various transport initiatives aimed at promoting plug-in EVs, including the recent grant of a total of h2.5 million, which has been allocated to help drivers purchase cleaner modes of transport, such as hybrid plug-in and EVs.56 This is known as a scrappage scheme, where motorists who wish to scrap their old car in exchange for an electric car can have access to the grant.57 There have also been efforts by the Government to install a National Electric Car Charging Network which will provide battery EV users the possibility to charge their car using publicly accessible car charging points in specific and prominent parking spaces across Malta and Gozo which will be connected together through a network.58 Additionally, the annual road license fee is set at a standard 10 euros for all EVs, no matter how old and powerful the vehicle is.59 Despite all the various incentives, the penetration of EVs is still low in Malta. This is the case in most countries around the globe and it has been attributed to a number of different factors that dissuade potential buyers. Scholars have grouped these factors into internal, external and applied factors.60 In the first group, there is a higher initial investment, an extended recharging time, and a limited range.61 The latter group includes financial and nonfinancial incentives, public support for the construction of recharging infrastructure, and awareness-raising.62 Additionally, some scholars have argued that one of the most important factors in the decision to purchase an EV is the availability of charging stations coupled with public visibility/social norms.63 With respect to infrastructural development, Malta has seen an increase in charging points from 26 in

56. Malta Today, Electoromobility. It can be accessed at https://www.maltatoday.com.mt/news/ national/92570/watch_if_youre_buying_an_electric_car_these_grants_will_make_it_cheaper#. XRtSwq2ZNmA. 57. Malta Today, Electoromobility. It can be accessed at https://www.maltatoday.com.mt/news/ national/92570/watch_if_youre_buying_an_electric_car_these_grants_will_make_it_cheaper#. XRtSwq2ZNmA. 58. Government of Malta, 2019. Infrastructure and electromobility. It can be accessed at https:// mtip.gov.mt/en/Pages/Electromobility/Electromobility.aspx. 59. Transport Malta, 2019. Advantages of owning an electric vehicle. It can be accessed at https://electromobilitycms.gov.mt/en/Documents/EV%20Leaflet%20TM.pdf. 60. Coffman, M., Bernstein, P., Wee, S., 2017. Electric vehicles revisited: a review of factors that affect adoption. Transp. Rev., 37(1), 79 93. 61. Cansino, J., S´anchez-Braza, A., Sanz-D´ıaz, T., 2018. Policy instruments to promote electromobility in the EU28: a comprehensive review. Sustainability, 10(7), 2507. 62. Coffman, M., Bernstein, P., Wee, S., 2017. Electric vehicles revisited: a review of factors that affect adoption. Transp. t Rev., 37(1), pp. 79 93. 63. Sierzchula, W., Bakker, S., Maat, K., Van Wee, B., 2014. The influence of financial incentives and other socio-economic factors on electric vehicle adoption. Energy Policy, 68, pp. 183 194.

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2014 to 36 in 2016 and there are ambitious plans to increase the number of public charging points up to 500 by the year 2020.64 The island has indeed put massive efforts in EV infrastructural development and as such three solar ˙ charging stations have been installed at Ta’ Xbiex Marina, Cirkewwa and 65 Marsa (Deep Water Quay) car parks. Moreover, a network of medium-fast charging points has also been installed all over the island with the capability of charging an electric car battery from 0% to 100% in 3 4 h.66

23.8 Data protection With the introduction of smart technology in the energy sector, it becomes essential to ensure that the privacy of energy consumers be respected and this definitely necessitates data protection. As a member state of the EU, Malta’s data protection laws include the EU’s General Data Protection Regulation (2016/679) (GDPR). Chapter 586 of the Laws of Malta, the Data Protection Act (2018), along with its subsidiary legislation, came into force on May 28, 2018, repealing the previous Data Protection Act of 2001. Malta is also a party to the Convention for the Protection of Individuals regarding the Automatic Processing of Personal Data (ETS.108), which came into force in 2003. With respect to the relevant institutions, the office of the Information and Data Protection Commissioner, appointed according to Article 11 of the Data Protection Act (2018), is the supervisory authority responsible for overseeing the applicability and enforcement of data protection law in accordance with the requirements of the GDPR. The GDPR has been implemented through the Maltese Data Protection Act 2018 (Chapter 586 of the Laws of Malta) (the “DPA”) which took effect on May 28, 2018. The DPA establishes the Information and Data Protection Commissioner as the supervisory authority in Malta. With respect to smart grids and smart meters, the collection of personal data must comply with the rules outlines in the GDPR and as such personal data must be (1) processed fairly and lawfully; (2) collected for specific, explicit, and legitimate purposes and in the respect for smart grid purposes; (3) adequate, relevant, and not excessive; (4) accurate and, where necessary, up to date; (5) kept in an identifiable form for no longer than necessary; and (6) kept secure. It is also essential that the data subject gives his/her consent before data processing is carried out. The GDPR provisions relating to the appointment of a data protection officer also apply to Malta as the country has not implemented any laws derogating from this requirement. 64. Transport Malta, 2019. Advantages of owning an electric vehicle. Can be assessed at, https:// electromobilitycms.gov.mt/en/Documents/EV%20Leaflet%20TM.pdf. 65. ibid. 66. ibid.

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We note, however, that there are instances when a data protection officer should be appointed including if the controller and processors (1) are a public authority, (2) their core activities consist of regular and systematic monitoring of data subjects on a large scale, or (3) their core activities consist of processing sensitive personal data on a large scale (including processing information about criminal offenses). The data protection officer must be involved in all data protection issues and cannot be dismissed or penalized for performing their role. The data protection officer must report directly to the highest level of management. In Malta, the Information and Data Protection Commissioner assists controllers with compliance with the DPA by enhancing their internal structures, suggesting the appointment of Data Protection Officers and through continuous dialogue. Smart meter and grid customers are also entitled to privacy notices. Under the GDPR, the controller must provide data subjects with a privacy notice setting out how the individual’s personal data will be processed. In Malta, since Maltese and English are both official languages, providing the information in either of the two languages would be acceptable. In the event that the wrong information is collected by the smart meter companies, the data subject is entitled to have the inaccurate data corrected. Smart grid and smart meter companies are also obliged to take security measures to ensure the protection of personal data. In this respect, as controllers and processors, they must ensure, where appropriate: (1) the pseudonymization and encryption of personal data; (2) the ability to ensure the ongoing confidentiality, integrity, availability, and resilience of its information technology systems; (3) the ability to restore the availability and access to personal data in a timely manner in the event of a physical or technical incident; and (4) a process for regularly testing, assessing, and evaluating the effectiveness of technical and organizational measures for ensuring the security of the processing. Also, they must ensure that security rules are observed by third-party agents (processors). Enforcement of data protection rules is key and, in this regard, a form of penalty for noncompliance is introduced under the GDPR. Accordingly, it introduces an antitrust-type sanction regime with fines of up to 4% of annual worldwide turnover or h20 million, for higher tier breaches and up to 2% of annual worldwide turnover or h10 million, whichever is the greater for lower tier breaches.67 In Malta, there are also measures to ensure that data protection provisions are respected, in this respect, DPA stipulates that any person who (1) knowingly provides false information to

67. Lower tier breaches include among others the failure to notify a personal data breach and higher tier breaches on the other hand include among others failure to comply with the six general data quality principles or carrying out processing without satisfying a condition for processing personal data.

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the Information and Data Protection Commissioner in response to an exercise of his investigative powers or (2) does not comply with any lawful request pursuant to an investigation by the Commissioner shall be guilty of an offense and upon conviction, shall be liable to a fine of not less than h1250 and not more than h50,000 euros and/or to a term of imprisonment of 6 months. Additionally, the law also makes provision for compensation and, as such, data subjects have a right to compensation in respect of material and nonmaterial damage. Although not related to the enforcement of GDPR, Malta has a track record of enforcing the previous data protection law and in this respect, in the year of 2017, Information and Data Protection Commissioner appealed three Data Protection Tribunal decisions to the Court of Appeal. Additionally, the Information and Data Protection Commissioner received 71 complaints and 10 personal data breaches notifications. Several administrative fines were imposed, including h500 for unsolicited communications, h500 for incorrect processing of personal, h2000 for failure to implement appropriate technical and operational measures, h1000 for incorrect processing of personal data, and h2000 for accidental loss of personal data. Moreover, during the period of January 2018 to June 2018, 32 complaints and 20 data breaches were notified to the Information and Data Protection Commissioner.68

23.9 Demand response and energy efficiency 23.9.1 Energy efficiency Electricity demand has been on the increase in Malta and, as such, in July 2019, Enemalta plc recorded the highest ever demand for electricity supply, which reached 510 MW, as compared to the 488 MW in August 2017.69 This increase in demand has been associated with high temperatures during the same period. This increase in electricity demand definitely brings into play issues to do with energy efficiency, which generally aims at ensuring the use of less energy to provide the same service, and demand response, which is concerned with changes in electric usage by end-use customers. Taking stock of the above therefore, Malta’s targets with respect to energy efficiency are contained in the National Energy Efficiency Action Plan (NEEAP). NEEAP, in line with Directive 2012/27/EU was presented by the Agency to the European Commission in April 2017. It takes note of the

68. Additionally, five administrative fines were imposed for unauthorized disclosure to third parties in the following amounts: h2,500, h500, h1,500, h1,000 and h1,000. 69. Enemalta, 2019, https://www.enemalta.com.mt/news/high-electricity-demand-registered/.

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Electricity Decentralization in the European Union

various actions taken at national level and reviews the indicative 2020 national target notified to the EU Commission, and the actions necessary to achieve the obligatory cumulative end-use energy-saving target. The NEEAP 2017 adjusted Malta’s indicative target for 2020 as 822,903 toe in primary energy consumption. The Plan also projects a final energy consumption of 633,875 toe in 2020. In the past, Malta has been on record for achieving its energy efficiency targets. In this respect, the country achieved the target of 3% energy end-use savings for 2010 (established in the first NEEAP)—the target was 126 GWh and the achievement was 153 GWh. Various changes in different sectors have made it possible to improve energy efficiency including in the transport sector, domestic sector, and industrial sector. Some of the positive changes in the transport sector include not only the introduction of electric cars but also changes in the national car fleet composition brought about by changes in the vehicles registration system. Changes in the domestic sector include schemes to replace appliances, change lighting systems, and install solar water heaters.70 Additionally, other measures to increase energy efficiency as highlighted in the 2017 NEEAP have already been discussed in the previous sections, including smart meters, renewable energy deployment, upgrading of the national electricity distribution network, electricity tariffs designed to promote energy efficiency among consumers, financing schemes or instruments and fiscal incentives, and training and education including energy advisory programs, just to mention but a few. Consequently, these incentives and efforts to promote energy efficiency in Malta resulted in a decrease of primary energy intensity in Malta from 2005 to 2015 at a faster pace than for the EU as a whole, and it is now lower than EU average. Albeit there was an increase in the final energy consumption (3%) in 2015 which is the largest among EU Member States.71 Nevertheless, the recent growth in GDP and increase in population which were 1.2% and 7.4%, respectively, have led to an increase in energy consumption. The strong correlation between energy consumption and GDP cannot be ignored as evidenced in Malta where final energy consumption rose by 5.1%, whereas GDP at constant prices increased by 7.4%.72

70. Ing. Ch. Buttigieg, 2017. Energy efficiency policies in Malta. The Energy & Water Agency. It can be accessed at https://www.odyssee-mure.eu/events/workshops/malta/3-Energy-EfficiciencyPolicies-Malta.pdf. 71. Energy Efficiency Directive Implementation in Malta, Concerted Action Energy Efficiency Directive, 2014. 72. Ing. Ch. Buttigieg, 2017. Energy Efficiency Policies in Malt. The Energy & Water Agency. It can be accessed at https://www.odyssee-mure.eu/events/workshops/malta/3-EnergyEfficiciency-Policies-Malta.pdf.

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23.9.2 Demand response With a heavy reliance on imported fossil fuels, Malta’s main focus in the energy sector is not only to diversification but also ensure security of supply. As stated earlier, the electricity interconnection between Malta and Italy ended the Island’s electricity isolation as it enabled Malta to exchange electricity with the Italian power market thus achieving a diversified mix of energy resources.73 The Maltese electricity sector has been undergoing various infrastructural and operational changes and, as such, the technical capabilities and opportunities for demand response participation in the retail market are not yet clear to warrant a definition of technical modalities for participation.74 The tariff system is essential in influencing demand response, unlike other EU countries, Malta has a “Single Buyer Model” market and, as such, the production and distribution costs for the supply of electricity are covered by a single unbundled tariff.75 We also note that there no specific measures in the residential sector which are aimed at demand response, although the tariff system for the residential is based on a Progressive Tariff Model with a social component at the base, progressively increasing to emulate a Polluter Pays Principle.76 Additionally, there is an eco-reduction bonus for consumers whose consumption is below average.77 It is worth noting that Malta has no capacity market and no aggregators.78 Demand response in Malta is, therefore, constrained by the small electricity market and lack of adequate competition. Nevertheless, the milestone in smart meters will encourage consumers to consume electricity more efficiently.

73. Enemata Corporation is the only DSO as the country has no transmission systems and no transmission system operators. 74. Demand response status in EU Member States. Available at https://www.researchgate.net/ publication/305315798_Demand_response_status_in_EU_Member_States. 75. Additionally, the electricity market in Malta is constituted by a relatively high proportion of low consumption customers and a small portion of high consumption customers. Thereby dynamic pricing as a means of demand response will have to be distributed over a wide base of consumers to produce any meaningful contribution that might benefit both supplier and customers. Due to limited competition in the electricity sector, dynamic pricing for demand response measures offered by networks or retail tariffs such as time-of-use tariffs, critical peak pricing, real-time pricing, and peak time rebates are still absent in the Maltese electricity market. For a detailed discussion, see, Demand response status in EU Member States. Available at https:// www.researchgate.net/publication/305315798_Demand_response_status_in_EU_Member_States. 76. For large non-residential consumers there are a Night Tariff and a Maximum Demand Charge, two measures which promote Demand Side Management helping to limit the infrastructural investments and operational cost on the network. 77. Demand response status in EU Member States. Available at https://www.researchgate.net/ publication/305315798_Demand_response_status_in_EU_Member_States. 78. The role of aggregators basically depend upon the participation of consumers in Demand Response programs and since the market for Demand Response is not yet set up in Malta then the aggregators also don’t exist.

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23.10 Conclusion Unlike most EU member states, Malta being a small island faces unique challenges and opportunities in decarbonizing its energy sector. As discussed in the previous sections, the size and geography of the island presents opportunities for renewable energy deployment and, at the same time, it is a constraint to competition in the electricity sector due to the small electricity market. This has not only made it impossible to embrace demand response programs but also constrained diversification. That said, the electricity interconnector between Malta and Italy has opened the island to the European market. Moreover, the country has also embraced reforms aimed at diversifying the energy sector, including the deployment of RES, EVs, smart meters, and smart grids, all of which are aimed at tackling climate change challenges.

Chapter 24

Energy decentralization and energy transition in Slovakia Brian Burstein1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

24.1 Introduction The European Union has traditionally focused on achieving energy security by encouraging strong governance strategies.1 Given that the bloc’s index of fossil fuel production is not enough to cover the energy demand,2 it has always sought for energy partnerships to secure its supply needs. But in times of decarbonization and climate change awareness, energy security faces some additional conditions. In this regard, the role of lowcarbon energy sources becomes crucial. The ties between energy security and the need of fostering cleaner energy sources gave place to well-known European policies. With this spirit, the EU “third energy package” mandates member states to focus on decentralizing the electricity market and promoting a greener energy supply.3 More recently, the “clean energy for all Europeans package” was passed by the European Council. This last set of rules enshrines the crucial role of energy efficiency as a priority to the European Union.4 To this end, it facilitates the increasing role of consumers in the electricity market by way of integrating renewable sources into a more technological grid.5

1. Leal-Arcas, R., Filis, A. The energy community, the energy charter treaty, and the promotion of EU Energy security, Queen Mary School of Law Studies Research Paper No. 203/2015, 557. 2. Buschle, D., Westphal, K., 2019. A challenge to governance in the EU: decarbonization and energy security. EEJ 8, 53 56. 3. See ,https://ec.europa.eu/energy/en/topics/markets-and-consumers/market-legislation/thirdenergy-package.. 4. See ,https://ec.europa.eu/info/news/clean-energy-all-europeans-package-completed-good-consumers-good-growth-and-jobs-and-good-planet-2019-may-22_en.. 5. See ,https://ec.europa.eu/info/news/clean-energy-all-europeans-package-completed-good-consumers-good-growth-and-jobs-and-good-planet-2019-may-22_en.. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00024-4 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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This way, empowered consumers—transformed into “prosumers”6 would have an increasing part in the energy conversation. In this context, smart grids are being widely promoted and are expected to be progressively expanded across Europe. Focusing on the particular context of the Slovak Republic, this chapter explores its electricity market in light of the EU policies aimed at incorporating new technologies to the sector, such as smart grids. For this purpose, decentralization efforts become vital. To tackle this matter in the specific context of Slovakia, this chapter initially explores the current picture of its domestic energy market and the national reality concerning decentralization efforts and its suitability to achieve it. Subsequently, it assesses individually the current situation of new technologies, namely, smart grids, electric mobility, demand response, and electricity storage technologies. Further, it looks at data protection concerns in the development of new technologies. Finally, based on the circumstances of the Slovak reality, it outlines a set of recommendations to facilitate the implementation of new technologies in its energy sector.

24.2 Energy profile 24.2.1 Overview of the Slovakian energy market In today’s world, energy transition—especially in the EU—has had a remarkable influence on regional and national energy policies. Low-carbon sources are, ideally, widely preferred over fossil fuels. Following this pathway, the analysis of the demand and supply figures of the Slovak energy market helps to understand where its market stands today. From a demand perspective, total final consumption of energy (“TFC”) in Slovakia has decreased in the last decades. It dropped from 15,752 kiloton of oil equivalent (“ktoe”) in the 1990 to 10,252 ktoe in 2016.7 From these figures, the consumption of coal and oil products has substantially decreased in those 26 years: 80% and 40%, respectively.8 Its large industry sector captures almost half of the total energy consumption, substantially outweighing the indexes of households, transport, and commercial sectors.9 6. The European Parliament defined this term to refer to consumers who both produce and consume electricity. See European Parliament, Electricity Prosumers (Members Research Service, Briefing, 2016) ,http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/593518/EPRS_BRI (2016)593518_EN.pdf.. For a deep study on the concept of prosumers, see Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2017. “‘Prosumers: new actors in EU Energy Security.”’ 257 Queen Mary University of London School of Law Legal Studies Research Paper, 3. 7. International Energy Agency, Statistics data browser ,https://www.iea.org/statistics/? country 5 SLOVAKIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES.. 8. Ibid. 9. International Energy Agency, 2018. “Energy Policies of IEA Countries: Slovak Republic.” 104.

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The indicator of energy intensity10 in the Slovak Republic dropped in the last years but it is still placed above the European average standards.11 In terms of electricity final consumption, Slovak numbers evidence a stability between 1990 and 2018, ranging averagely around 29,000 gigawatt hour (“GWh”).12 The overall increase for the last 10 years was 5%.13 From the supply perspective, the recent picture of Slovakia’s total primary energy supply (“TPES”) evidences a valuable starting point for the analysis proposed in this chapter. As an accurate reflection of its energy balances—including the breakdown of national production and import indexes—the TPES helps to understand the main challenges in the Slovakian energy market. The large share of nuclear production in the Slovak energy mix is notable. However, Table 24.1 also evidences that Slovakia is extremely dependent (nearly 90% according to its own government) upon imported primary energy sources beyond these figures,14 especially crude oil and natural gas. From a more dynamic perspective throughout the last decades, although Slovakia has largely abandoned priority of oil production and hence lowered its production indexes, it still depends on high levels of oil imports. National oil production has dropped from 73 ktoe in 1990 to just 4 ktoe in 2018.15 Conversely, oil imports increased from 178 ktoe in 1990 to 1915 ktoe in 2018.16 Considering that shifting to a low-carbon energy economy has been identified as a priority for the Slovak government,17 coal experienced a more positive route. Its production decreased from

10. Understood as a calculation based on energy consumption and gross domestic product per capita. 11. International Energy Agency, 2018. “Energy Policies of IEA Countries: Slovak Republic.” 104. 12. International Energy Agency, Statistics data browser ,https://www.iea.org/statistics/? country 5 SLOVAKIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES. 13. International Energy Agency, 2018. “Energy Policies of IEA Countries: Slovak Republic.” 67. 14. Calculated as a result of official estimations of nuclear fuel (100%), natural gas (98%), oil (99%), and coal (68%). See Ministry of Economy of the Slovak Republic, October 2014. “Energy Policy of the Slovak Republic.” 23. ,https://www.mhsr.sk/uploads/files/47NgRIPQ. pdf.. 15. International Energy Agency, Statistics data browser ,https://www.iea.org/statistics/? country 5 SLOVAKIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES. 16. International Energy Agency, Statistics data browser ,https://www.iea.org/statistics/? country 5 SLOVAKIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES. 17. Ministry of Economy of the Slovak Republic, October 2014. “Energy Policy of the Slovak Republic.” 39. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf..

TABLE 24.1 Slovakia’s indexes of national production and import of primary energy sources. Coal

Crude

oil National production (ktoe)

446

224

Import (ktoe)

3019

5609

Other

oil products

1965

Natural gas

Nuclear

Renewable energy: hydro

Other

renewable energy sources

Biofuels and waste

117

3980

372

59

1383

4368

Source: From Data extracted from International Energy Agency, Statistics data browser ,https://www.iea.org/statistics/? country 5 SLOVAKIA&year 5 2016&category 5 Energy%20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES . A.

126

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1397 ktoe in 1990 to 366 ktoe in 2018.18 Its imports fell from 6210 ktoe to 3503 in the last three decades.19 Despite the overall increase of oil imports, the decrease of coal energy reliance has been balanced from a valuable increase from the side of renewables, essentially boosted by hydropower sources. Following the obligations set forth in EU Directive 2009/28/EC,20 Slovakia initially targeted for a total installed capacity of 125 megawatt (“MW”) of renewable-sourced electricity.21 More recently, it has set a new objective, divided in sectors and final use of renewable energy, as described in Table 24.2. The EU Directive 2018/2001 has recently increased the European target for the overall share in the region.22 Hence, national regulations are expected to adapt to this new updated renewable energy target scheme. In terms of electricity generation, its overall numbers remained stable since the 1990s.23 Nuclear energy retains an overwhelming share of 58.5%.24 Largely pushed by hydropower, renewable energy increased from 2515 GWh in 1990 to 3903 GWh in 2018.25 From the total production in the country, this represented nearly a 25% of renewables in the energy mix.26 With the increasing global pressure to shift away from fossil fuels, these numbers are expected to grow substantially. The Slovak government specifically acknowledges that renewables have a wider potential for its market, especially biomass.27

18. International Energy Agency, Statistics data browser ,https://www.iea.org/statistics/? country 5 SLOVAKIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES. 19. International Energy Agency, Statistics data browser ,https://www.iea.org/statistics/? country 5 SLOVAKIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES.. 20. 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 [2009] OJ L140/16. 21. Act No. 309/2009 on the promotion of renewable energy sources and high-efficiency cogeneration and on amendments to certain acts of 19 June 2009 (“Renewable Energy Act of 2009”), Section 3 (3, b). See ,https://pravne-predpisy/pravne-predpisy/SK/ZZ/2009/309/20150801.. 22. Directive 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources [2018] L328/82, Article 3. 23. International Energy Agency, Statistics data browser ,https://www.iea.org/statistics/? country 5 SLOVAKIA&year 5 2016&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES. 24. Ibid. 25. Ibid. 26. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic,” 121. 27. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 60. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf..

TABLE 24.2 Slovak renewable energy targets outlined by sector. Year

2005

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Heating (%)

6.1

7.6

8.0

8.5

9.2

10.2

10.9

11.7

12.5

13.3

14.1

14.6

Electricity (%)

16.7

19.1

19.3

20.2

21.0

21.5

23.0

23.3

23.3

23.7

23.9

24.0

Transport (%)

0.6

4.1

4.2

4.3

4.4

5.0

6.0

6.3

6.8

8.3

8.5

10.0

Total share of RES in gross final energy consumption (%)

6.7

9.5

8.2

8.2

8.9

8.9

10.0

10.0

11.4

11.4

13.2

14.0

Source: From International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic.” 125; Act No. 136/2011 of 2 January 2015 amending and supplementing the Renewable Energy Act of 2009 ,https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2011/136/20150102.. RES, Renewable energy sources.

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24.2.2 Electricity market The Slovak government recognizes that liberalization of prices in the energy sector is crucial for enhancing its quality and improving energy efficiency.28 This becomes crucial for the aim of developing smart grids, as decentralization of the electricity market is essential for this purpose. But in order to identify the right moves that should take place, the particularities of the Slovakian market in the areas of generation, transmission, distribution, and retail need to be understood. First, to conduct a business focused on generating electricity, a license is required. However, a decisive exception to this rule enables small businesses to produce their own energy: if the installed capacity of a given facility is below 1 MW, the license is not required.29 Boosted by renewable sources, this trend is where the Slovak potential to encourage small consumers to become prosumers lies on. The generation sector is largely dominated by Slovenske´ Elektr´arne (“SE”), which generated 69% of the total domestic electricity production30 from diversified sources.31 In addition, the segment is completed by 260 district heating and power plants and other several industrial cogeneration facilities.32 Second, the functions of the transmission system operator (“TSO”) are thoroughly regulated in the “Energy Act.”33 It is operated by state-owned Slovenska Elektrizacna Prenosova Sustava, a.s. (“SEPS”), which is the sole transmission operator in the country. As the only TSO, it is obliged to submit 10-year forecast development plans to anticipate the developments in the electricity market.34 Hence, the TSO plays a key role in anticipating and leading reforms in the transmission segment. Cross-border interconnectivity is very significant for the Slovak market. Following the EU purposes to integrate national markets, the neighboring interconnections have been very well regarded, as they double the European advised ratios.35 Projects to integrate the Hungarian, Czech, Romanian, and 28. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 11. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 29. Act No. 251/2012 Coll. of 31 July 2012 on Energy, Section 6 (4). 30. See ,https://www.seas.sk/key-information.. 31. SE operates 31 hydroelectric, 2 nuclear, 2 thermoelectric and 2 photovoltaic plants in Slovakia. See ,https://www.seas.sk/about-us.. 32. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic.” 69. 33. Act No. 251/2012 Coll. of 31 July 2012 on Energy. 34. Ibid, Section 28. 35. European Commission Expert Group, 2017. “Towards a sustainable and integrated Europe: Report of the Commission Expert Group on electricity interconnection targets.” 31.,https://ec. europa.eu/energy/sites/ener/files/documents/report_of_the_commission_expert_group_on_electricity_interconnection_targets.pdf..

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Slovakian energy markets have been quite successful and are expected to continue developing.36 For instance, Ukraine’s and Slovak’s operators of power grids have recently agreed to build a new interconnector to improve the capacity.37 Likewise, in the Hungarian-Slovak segment, new power lines are envisaged.38 Yet, the transmission electricity infrastructure map of Slovakia (as it stands today) shows both the rich interconnectivity with its neighboring countries and the distribution of domestic regional lines. Third, the distribution segment is more heavily regulated. Network tariffs are monitored by the Slovak government. The Regulatory Office for Network Industries (“RONI”) is in charge of regulating the whole network industries, including the electricity sector.39 Electricity prices for end-users ranged below 100 MW per year enjoy a regulated capped maximum price.40 As all other EU members, price regulation still covers network operations to protect end-users.41 Thus, coupled with the impact of the Renewable Energy Act of 2009, new decentralized installations have been largely favored to boost their development.42 The distribution system operation in Slovakia is divided into three regions. Each of these distribution system operators (“DSO”) is structured as a public private ownership.43 Moreover, other 157 smaller licensees operated local distribution systems.44 Slovakia seeks to unbundle ownerships of distribution system operation with other segments of the electricity sector.45 As to distribution losses in the network, Slovakian figures are fairly positive: the last available report showed that 0.98% of the total electricity transmitted was lost.46 36. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 81. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 37. See ,https://www.unian.info/economics/10288323-new-power-line-to-be-built-betweenukraine-and-slovakia.html.. 38. See ,http://www.mavir.hu/documents/10262/217288844/Hun_Slovak_press_release_0301. pdf/60c22a11-24eb-4269-b059-a8fd0cd850bd.. 39. Act 276/2001 of Coll. on regulation in network industries. 40. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic.” 46. 41. Ibid, 104. 42. Act No. 309/2009 Coll. on the Support of Renewable Energy Sources and High Efficiency Combined Heat and Power Generation and on Amendments to Certain Acts and Act No. 30/ 2013 amending and supplementing Act. 309/2009 (collectively, the “Renewable Energy Act of 2009”).See ,https://www.iea.org/policiesandmeasures/pams/slovakia/name-24496-en.php.; and ,https://www.iea.org/policiesandmeasures/pams/slovakia/name-44255-en.php.. 43. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic.” 72. 44. Ibid. 45. Act No. 251/2012 Coll. of 31 July 2012 on Energy, Section 32. 46. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic.” 69.

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Lastly, the wholesale trade is basically conducted under agreements linked to the Prague Power Exchange and the European Energy Exchange, identified as the most transparent price signals in the region.47 Another key player is the state-owned short-term electricity market operator, which carries out the day-ahead wholesale electricity activities.48

24.3 Decentralization efforts: where does Slovakia stand? Energy is a shared competence between the EU and its member states. In Slovakia, national competence lies with the Ministry of Economy, which is the body in charge of preparing and implementing the national energy policy.49 It is also worth revising how Slovakia turned from self-sufficient to energy import dependent. This fact is crucial to understand today’s national challenges. Slovakia was self-sufficient for electricity supply and even remained as an electricity exporter until 2006.50 Following the commitments made to enter the EU (consisting of shutting down certain nuclear facilities) Slovakia depended again on electricity imports.51 As a result, a liberalization phase started in 2006, when Italian company Enel a.s. purchased the majority of the former state-owned SE as part of the first privatization wave.52 Further, by means of the “Act on Regulation of Network Industries,”53 Slovakia implemented the EU “third energy package” in its domestic energy market. Ever since, the Slovak government has fully recognized that liberalization of prices in the energy sector is a decisive prerequisite for the expansion, quality enhancement, and increase of energy security and efficiency.54 Its worldwide nuclear power generation capacity ranks second, only behind France.55 So, in the current era of energy transition to low-carbon sources, nuclear energy is expected to have a new opportunity. By way of increasing the safety of the new power plants, the Slovak government seeks to increase the share of nuclear energy (as clean source of electricity) to place the country as an exporter again.56 But developing nuclear projects has 47. Ibid. 48. See ,https://www.okte.sk/en/short-term-market/. 49. Act 2012 on Energy, Section 88. 50. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of Republic.” 65. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 51. Ibid. 52. Ibid, 10. 53. Act No. 250/2012 Coll. on Regulation of Network Industries. 54. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of Republic.” 11. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 55. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak 81. 56. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of Republic.” 22. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf..

the Slovak

the Slovak Republic.” the Slovak

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become very complex due to the high nuclear safety standards required.57 Furthermore, restrictions on the new development of fossil fuel power plants are seriously under study of Slovak authorities.58 Thus efforts are focused on low-carbon sources, giving rise to a great momentum for the fostering of renewable energy. To this end, the Slovak Innovation and Energy Agency—subordinated to the Ministry of Economy— especially focuses on exploring alternative sources to increase energy efficiency.59 In this regard, the penetration of new technologies (e.g., smart meters, solar photovoltaic panels, electric cars, storage batteries, and other smart devices) offers an unprecedented opportunity for consumers to transform conventional energy practices. For the first time, consumers are empowered to have an active role in the electricity value chain: they become energy producers and administer that energy in a more efficient manner, that is, prosumers. Hence, decentralized power generation is gaining weight in electricity markets with the increasing role of prosumers. Given that decentralization in the electricity generation segment enables self-generation, there are various types of prosumers. Residential households, citizen-led energy cooperatives or housing communities represent small-scale prosumers.60 On a larger scale, commercial companies, the main business activity of which is not electricity production, and public institutions in general (usually functioning in large buildings) have great potential for self-generation.61 This revolutionary progress involves a shift away from the classical model of large, centralized and localized power generation stations feeding a concentrated transmission network. Decentralized systems help to improve demand-side consumption patterns, leading to achieve better efficiency in electrical energy systems.62 In fact, the development of locally generated electricity is acknowledged as an efficient mechanism to increase installed capacities in smaller segments and it is expected to grow substantially in the short term.63 Thus energy efficiency plays a decisive role in its national 57. Nuclear Regulatory Authority of the Slovak Republic, 2016. “Policy, principles and strategy for further development of nuclear safety,” 1. ,https://www.ujd.gov.sk/ujd/WebStore.nsf/ 7b21dbbfc64188dbc1257c3b0056bae5/056472daa94b227bc1257ed00046c861/$FILE/03_Policy, %20principles%20and%20strat%20for%20further%20devel%20of%20nuclear%20safety_ENG. pdf.; Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 68. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 58. Ministry of Economy of the Slovak Republic, October 2014. “Energy Policy of the Slovak Republic.” 69. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 59. ,http://www.siea.sk/odborne-o-energii/.. 60. European Parliament, “Electricity “Prosumers”” (2016) Members Research Service, 2. 61. European Parliament, “Electricity “Prosumers”” (2016) Members Research Service, 2. 62. Behrangrad, M., 2015. “A review of demand side management business models in the electricity market.” Renewable Sustainable Energy Rev. 47, 270 272. 63. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 71. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf..

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policy. In line with this ambition, Slovakia has passed abundant legislation on this subject.64 In this transition context, the Slovak government considers having achieved a suitable regulatory environment to create transparent competition and an ample market liberalization in the energy sector.65 Likewise, it acknowledges that liberalization is what will truly ensure competitiveness while safeguarding energy security maximizing the costs.66 Based on the success of the Renewable Energy Act of 2009 in fostering the creating of decentralized generation sources, the development of intelligent networks are under the spotlight in Slovakia.67 The implementation of these smart systems was already envisaged as one of the legal obligations of DSOs.68 This Slovak energy reality explains the need of embracing new technologies as part of its energy strategy for the upcoming years. Decentralized generation from renewables was confirmed as a priority for the Slovak authorities.69 So, public support for new technologies is decisive to drive suppliers and consumers toward that direction. In this line, initiatives as the decree on smart meters70 are highly celebrated. Overall, Slovakia offers a promising environment for the development of new technologies aimed at enhancing energy security and efficiency.

24.4 Smart metering systems Slovakia’s approach to smart metering systems can be tackled from three angles: the European, the Slovak international, and a strictly domestic approach. Firstly, the EU has consistently fostered the spread use of smart grids and intelligent metering systems as a paradigm shift to improve energy security

64. Most remarkably: (i) Act No. 476/2008 on Efficiency During Energy Utilisation and on the amendment of Act No. 555/2005 on energy efficiency of buildings, (ii) Act No. 182/2011 Coll. on Labelling Energy-Using Products, and (iii) Act No. 300/2012 on Energy Efficiency of Buildings. For an exhaustive description of all the Slovak legislation on energy efficiency, see Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic,” 103. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 65. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 12. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 66. Ibid, 35. 67. Ibid, 61 and 79. 68. Act No. 251/2012 Coll. of 31 July 2012 on Energy, Section 31 3(p). 69. Ministry of Economy of the Slovak Republic, 2018. “Proposal for an Integrated National Energy and Climate Plan.” 172. ,https://ec.europa.eu/energy/sites/ener/files/documents/slovakia_draftnecp_en.pdf.. 70. Decree of the Ministry of Agriculture of the Slovak Republic No. 358/2013 Coll. on the introduction of smart meters and distribution networks (15 November 2013).

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and efficiency.71 The implementation of such technologies is not easy. The EU targets for reaching a minimum of 80% of intelligent metering systems for consumers by 2020 “where rollout of smart meters is assessed positively.”72 Member states are required to prepare 10-year plans for the implementation of smart metering.73 As a complement, the EU issued specific guidelines to assist its member states in creating suitable pathways.74 Following this EU perspective, a national analysis on the potential of intelligent metering set forth in EU Directive 2009/72/EC was required. This evaluation consisted of an economic assessment of the long-term costs and benefits of implementing smart meters at a national level (“CBA”). The results placed Slovakia among the group of states for which the CBA proved to be “negative or inconclusive.”75 However, it was also found that in Slovakia smart metering would be economically justified for certain groups of consumers.76 Hence, Slovakia was placed among those member states not opting for large-scale rollout of smart grids,77 but instead focused on particular groupings of energy endusers. This way, Slovakia is not embarked on undertaking a large-scale reform to transform its network into a whole new smart grid. Conversely, it is focused on incentivizing the implementation of smart metering only where it is deemed cost-effective,78 with an emphasis on decentralized generation.79 Secondly, from a Slovak international perspective, a resounding project with the Czech Republic, known as “Again Connected Networks” is intended to strengthen their electricity markets by installing a cross-border smart grid.80 This is one of the first smart grid initiatives to be incorporated as a project of common interest in the EU.81 The project is expected to bring landmark improvement in regards to energy security and efficiency in both countries. 71. In this regard, and for a comprehensive study of the EU overview and legal setting of smart grids, see Leal-Arcas, R., Lasniewska, F., Proedrou, F., 2018. “Smart grids in the European Union: assessing energy security, regulation & social and ethical considerations.” Colum. J. Eur. L., 24, 291. 72. EU 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 (“EU Directive 2009/72/EC”), Annex I (2). 73. Ibid. 74. European Commission, “Recommendation of 9 March 2012 on preparations for the roll-out of smart metering systems” (2012/148/EU) (“EU Recommendation on Smart Metering”). 75. European Commission, 2014. “Report from the Commission: benchmarking smart metering deployment in the EU-27 with a focus on electricity.” 4. ,https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 COM:2014:356:FIN.. 76. Ibid. 77. Ibid, 10. 78. Ministry of Economy, 2018. “Proposal for an Integrated National Energy and Climate Plan.” 111. ,https://ec.europa.eu/energy/sites/ener/files/documents/slovakia_draftnecp_en.pdf.. 79. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 79. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 80. Ministry of Economy, 2018. “Proposal for an Integrated National Energy and Climate Plan.” 58. ,https://ec.europa.eu/energy/sites/ener/files/documents/slovakia_draftnecp_en.pdf.. 81. Ministry of Economy, 2018. “Proposal for an Integrated National Energy and Climate Plan.” 58. ,https://ec.europa.eu/energy/sites/ener/files/documents/slovakia_draftnecp_en.pdf..

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Thirdly, from a strictly domestic point of view—and following the EU Recommendation on Smart Metering—Slovakia regulated intelligent metering systems in its Energy Act. At that stage, with special regard to individual categories of final consumers, the Slovak government introduced an exploratory phase to evaluate the convenience and economic benefits of introducing smart systems.82 Further, the Ministry of Economy regulated the criteria and conditions for the deployment of smart measuring systems.83 Following the initial mandates of the Energy Act, it compels the DSOs in Slovakia to install intelligent measuring system to specific categories of consumers. A first group of consumers is determined by the nominal consumption rates: end-users consuming yearly at least 4 MW (and maximums of 30 MW).84 Regardless of the annual consumption, a second group is comprised by end-users who (1) have power-generating devices connected to the distribution system, (2) have a charging station connected at the supply point for electric vehicles (EVs), (3) have transfer points where they can produce energy, and (4) are selected by the DSO to monitor the power and quality parameters of their electricity supply.85 The main functionalities of smart metering systems in Slovakia include (1) two-way communication between the offtake point of the electricity enduser and the headquarters of the intelligent metering system; (2) monitoring of electricity consumption by customers via secure serial interface, Wi-Fi, or Bluetooth technologies; and (3) regular meter reading and remote reading.86 Slovak authorities calculate that the implementation of this decree will transform an estimated 53% of the electricity end-users at the low voltage level, that is, below 30 MW of annual consumption.87 SEPS, as the sole TSO, is in charge of implementing the intelligent systems. Complementing these programs, the Slovak Innovation and Energy Agency launched the program “Green to the households,” an initiative financed by the European Regional Development Fund. As a pilot project, it subsidizes solar photovoltaic panels for domestic households and enables them to connect to the grid.88

82. Act No. 251/2012 Coll. of 31 July 2012 on Energy, Section 42. 83. Decree of the Ministry of Economy No. 358/2013 Coll. on the introduction of smart meters and distribution networks (15 November 2013). 84. Ibid, Section 3 (1 4). 85. Ibid, Section 3 (5). 86. Ibid, Section 3 (8). 87. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 78. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 88. See ,https://bankwatch.org/blog/in-slovakia-a-shining-example-of-eu-funds-for-renewablesand-families..

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24.5 Electric mobility From a European perspective, electromobility has been identified as a crucial element of the shifting process to low-carbon transportation, which represents almost a 25% of the EU greenhouse emissions. 89 The initial step toward this direction was the strengthening of the coefficient to measure real driving emissions.90 The recently created worldwide harmonized light vehicles’ test cycle is envisaged to reflect vehicles’ emission in a more transparent and updated way.91 Following the implementation of EU policies, EVs are expected to grow progressively in the upcoming years. The EU has already defined the direction toward increasing the use of EVs. By means of the “Directive on Alternative Fuels Infrastructure,”92 member states are committed to deploy the necessary infrastructure to implement enough EVs’ recharging points.93 Subject to technical feasibility, these stations should be equipped with intelligent metering systems.94 Despite its value, this kind of measures had not been enough. More regulatory and policy efforts were deemed necessary to uptake the EV European market. Subsequently, the EU Parliament urged the Commission to adopt an “ambitious action plan” to boost the EV market.95 For this purpose, it outlined some general guiding recommendations: (1) to implement tax incentives for low-emission vehicles, (2) to create the necessary availability of charging stations, and (3) generally, to develop the necessary competitiveness of EVs in the EU market.96 As a result, the EU Commission took action by means of the “Europe on the Move” package, a set of measures, and a long-term plan focused on developing EV mobility in accordance with the

89. EU Commission, 2016. “A European strategy for low-emission mobility.” 1 ,https://eur-lex. europa.eu/resource.html?uri 5 cellar:e44d3c21-531e-11e6-89bd-01aa75ed71a1.0002.02/ DOC_1&format 5 PDF.. 90. EU Commission Regulation No. 2016/427 of 10 March 2016 amending Regulation (EC) No 692/2008 as regards emissions from light passenger and commercial vehicles (Euro 6). 91. EU Commission, 2016. “A European strategy for low-emission mobility.” 7 ,https://eur-lex. europa.eu/resource.html?uri 5 cellar:e44d3c21-531e-11e6-89bd-01aa75ed71a1.0002.02/ DOC_1&format 5 PDF.. EU Commission Regulation No. 2016/427 of 10 March 2016 amending Regulation (EC) No 692/2008 as regards emissions from light passenger and commercial vehicles (Euro 6), Appendix 3. 92. EU Directive 2014/94 of the European Parliament and of the Council of 22 October 2014 on the deployment of alternative fuels infrastructure. 93. Ibid, Article 3. 94. EU Directive 2014/94 of the European Parliament and of the Council of 22 October 2014 on the deployment of alternative fuels infrastructure, Article 4 (7). 95. European Parliament resolution No. 2016/2327 of 14 December 2017 on a European Strategy for Low-Emission Mobility, z42. 96. Ibid.

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EU Parliament guidelines.97 Most recently, the EU has increased the pressure in the car industry. By setting new CO2 emission target for new vehicles (which will enter into force in 2020), producers shall adapt to greener manufacture standards.98 Additionally, the EU facilitated financial incentives and support to foster the EV market. Most remarkably, by allocating funds from the “Connecting Europe Facility” and implementing other research and innovation projects seeking to develop technologies and reduce costs for EVs.99 Despite these efforts, current EVs’ overall average costs are approximately 40% higher than an equivalent fuel car.100 The evolution of the EV market would be crucial to the its car sector in the upcoming years. Slovakia ranks first worldwide in the number of vehicles manufactured per capita.101 Meanwhile, transport is the heaviest sector in terms of carbon emissions in the country.102 In addition, the growing burden to reduce greenhouse gas emissions has pressured the Slovak government to adopt more aggressive strategies in that regard.103 Some of these measures, presented in the “Strategic Transport Development Plan of the Slovak Republic up to 2030,” included (1) payment of tolls by cargo vehicles calculated upon their carbon emission performance, (2) stricter emission standard requirements for new cars, and (3) a support scheme aimed at increasing the share of transport biofuel sales.104 More recently, the Slovak government implemented direct subsidies for the purchase of new EVs, complemented by initial tax reductions.105 Yet, this has not been enough. Although the Slovak market offers a variety of EVs, only 0.3% of the registered vehicles in the second semester of 2017 97. European Parliamentary Research Service, 2019. “Electric road vehicles in the European Union: trends, impacts and policies.” 4.See ,http://www.europarl.europa.eu/RegData/etudes/ BRIE/2019/637895/EPRS_BRI(2019)637895_EN.pdf.. 98. EU Regulation No. 2019/631 of the European Parliament and of the Council of 17 April 2019 setting CO2 emission performance standards for new passenger cars and for new light commercial vehicles, and repealing Regulations (EC) No 443/2009 and (EU) No 510/2011, Article 4. 99. European Parliamentary Research Service, 2019. “Electric road vehicles in the European Union: trends, impacts and policies.” 4. ,http://www.europarl.europa.eu/RegData/etudes/BRIE/ 2019/637895/EPRS_BRI(2019)637895_EN.pdf.. 100. European Parliamentary Research Service, 2019. “Electric road vehicles in the European Union: trends, impacts and policies.” 8. ,http://www.europarl.europa.eu/RegData/etudes/BRIE/ 2019/637895/EPRS_BRI(2019)637895_EN.pdf.. 101. Daˇno, F., Ro´bert, R., 2018. “Electromobility in the European Union and in the Slovakia and its development opportunities.” Int. Multidiscip. Busi. Sci. 4(5), 74 76. 102. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic.” 97. 103. Ibid, 98. 104. Ministry of Transport, Construction and Regional Development of the Slovak Republic, 2016. “Strategic Transport Development Plan of the Slovak Republic up to 2030.” ,https:// www.opii.gov.sk/download/d/sk_transport_masterplan_(en_version).pdf.; International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic,” 98. 105. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic.” 98.

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were electric.106 The main explanation for the low sale rates of EVs is their high market price.107 In parallel, the amount of charging stations has shown a rapid developed, at least in Bratislava, showing an increase from 50 stations in 2014 to 335 in 2016.108 This is a convenient setting from EV use within the capital city. Still, it exposes serious limitations when planning it at a national level. Smaller cities alongside Slovakia do not have this infrastructure. Charging points outside major cities are scarce, while the actual distance range of EVs is around 200 km on a single charge.109 This current reality limits the potential use of EVs to metropolitan areas. In comparison with other European incentive policies, Slovakia does not offer sufficient benefits to foster EV in its domestic market. Apart from the direct subsidies and some specific tax exemptions, comparative examples show that integral policies can truly deploy the EV market. For instance, further purchase-related tax exemptions (e.g., import tax and registration tax) or varied local incentives (e.g., free parking, circulation benefits, toll exemptions, and free charging facilities).110 Overall, in order to reach the required targets for the renewable energy in transport, the Slovak government prioritizes other alternatives. It has been acknowledged that the policies adopted evidence a preference for secondgeneration biofuels over the advantages that EVs offer to the transport sector.111 The official policy documents equate the relevance of alternative biofuels (such as compressed natural gas or liquefied propane gas) with EVs.112 This evidences that further developments are needed in the Slovak market to deploy electric mobility at its highest potential. As has been already recognized by the government, EVs are strictly linked to decentralizing electricity generation.113 The role of batteries in the EV sector is expected to influence up to a 20% of the system capacity, enabling a two-way decentralized potential use (i.e. charging and discharging batteries).114 In this regard, EVs should not be understood as an isolated 106. Potk´anya, M., Lesn´ıkov´aa, P., 2019. “The amount of subsidy for the electric vehicle in Slovakia through a strategic cost calculation.” Transp. Res. Proc. 40, 1168 1170. 107. Daˇno, F., Ro´bert, R., 2018. “Electromobility in the European Union and in the Slovakia and its Development Opportunities” Int. J. Multidiscip. Busi. Sci. 4(5), 74 77. 108. International Energy Agency, 2018. “Energy Policies of IEA Countries: Slovak Republic.” 98. 109. Daˇno, F., Ro´bert, R., 2018. “Electromobility in the European Union and in the Slovakia and its development opportunities.” Int. J. Multidiscip. Busi. Sci. 4(5), 74 82. 110. European Environment Agency, 2016. Electric vehicles in Europe. 64 65. ,https://www. eea.europa.eu/publications/electric-vehicles-in-europe.. 111. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic.” 130. 112. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 33. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 113. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 92. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 114. Ibid.

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technology trend, but rather as a valuable tool to shift to greener transportation while fostering decentralization in the electricity sector.

24.6 Demand response Demand response is a tariff-based policy or program implemented to foster changes in electric consumption patterns by consumers, based on changes in the price of electricity over time.115 The cornerstone of demand response policies is the “EU Directive on Energy Efficiency.”116 By means of this instrument, member states were required to set up an energy efficiency obligation scheme,117 with special attention to facilitating an efficient use of energy for the domestic customer segment.118 Most remarkably, this directive commits states to “remove all those incentives in transmission and distribution that are detrimental to the overall efficiency” of all the sectors in the electricity sector.119 This directive was recently updated.120 In this line, since old systems are factually unfavorable in terms of energy efficiency, all technological improvements are called to being implemented in due course. EU Directive on Energy Efficiency was implemented in Slovakia by means of the “Energy Efficiency Act.”121 The main identifiable features to tackle demand response are (1) the obligation to undertake periodical energy audits to evaluate cost-effective electricity use for large consumers (mainly the industry segment);122 (2) the requirement for DSOs and TSOs to monitor, inform, and anticipate their annual operation with regards to their energy efficiency performance;123 and (3) owners of buildings of above 1000 m2 shall install central hot-water heating.124 Upon express request of the monitor operator, these large building consumers shall inform their electronic set of data on total energy consumption and energy efficiency improvement measures.125 Seemingly, Slovak’s implementation of the EU Directive on Energy Efficiency is mostly focused on the industrial sector and, to a smaller extent, 115. See ,http://publications.jrc.ec.europa.eu/repository/bitstream/JRC101191/ldna27998enn. pdf.. 116. EU Directive No. 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. 117. Ibid, Article 7. 118. Ibid, Article 12. 119. Ibid, Article 15. 120. EU Directive No. 2018/2002 of the European Parliament and of the Council of 11 December 2018 amending Directive 2012/27/EU on energy efficiency. 121. Act No 321/2014 Coll. of 21 October 2014 on Energy Efficiency. 122. Ibid, Section 2 (j). 123. Ibid, Section 16 (4). 124. Act No 321/2014 Coll. of 21 October 2014 on Energy Efficiency, Section 11 (1). 125. Ibid, Section 11 (2).

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to large consumers. Smaller end-users and households are not captured by this act. Hence, demand response behaviors are not fostered for this portion of the energy sector. In essence, Slovakia lacks a regulatory framework to tackle energy efficiency in the network tariff level.126 Slovakia’s point of view places the issue in a previous phase. It recognizes that achieving a level of adequate information throughout the grid is a fundamental prerequisite to successfully handling demand response.127 Here lies the importance of introducing of intelligent metering systems,128 which was regarded as a valuable initiative.129 Lastly, the RONI published a set of guidelines to foster a better management of consumption, in particular focused on lowering peak consumption when avoidable.130 Therefore Slovakia is moving to enhance its grid system prior to addressing directly demand response from its core. This strategy was recently confirmed, as it is envisaged that concrete national objectives on demand response will be determined in an upcoming update of the national energy plan.131

24.7 Electricity storage The EU legal framework of electricity storage in Europe is defined by means of the “third energy package.” It is not directly addressed in EU Directive 2009/72/EC, but nonetheless a specific regulation on electricity storage is foreseen.132 Accordingly, energy storage in Slovakia is giving its first steps. Similar to the EU, it still lacks a precise national regulation. At a larger scale, Slovak authorities have particularly regarded the relevance of underground storage for natural gas supply.133 However, they 126. Bertoldi, P., Zancanella, P., Boza-Kiss, B., 2016. Demand response status in member states (European Commission). 29 30 ,http://publications.jrc.ec.europa.eu/repository/bitstream/ JRC101191/ldna27998enn.pdf.. 127. Ministry of Economy of the Slovak Republic, 2014. “Energy Efficiency Action Plan 2014 2016 with an Outlook up to 2020.” 83 ,https://ec.europa.eu/energy/sites/ener/files/documents/NEEAP_EN_ENER-2014-01001-00-00-EN-TRA-00.pdf.. 128. Act No. 251/2012 Coll. of 31 July 2012 on Energy, Section 42. 129. Bertoldi, P., Zancanella, P., Boza-Kiss, B., 2016. Demand response status in member states (European Commission). 29 30 ,http://publications.jrc.ec.europa.eu/repository/bitstream/ JRC101191/ldna27998enn.pdf.. 130. Ministry of Economy of the Slovak Republic, 2014. “Energy Efficiency Action Plan 2014 2016 with an Outlook up to 2020.” 83 ,https://ec.europa.eu/energy/sites/ener/files/documents/NEEAP_EN_ENER-2014-01001-00-00-EN-TRA-00.pdf.. 131. Ministry of Economy of the Slovak Republic, 2018. “Proposal for an Integrated National Energy and Climate Plan.” 61. ,https://ec.europa.eu/energy/sites/ener/files/documents/slovakia_draftnecp_en.pdf.. 132. For a comprehensive study of the EU legal basis for electricity storage, see Leal-Arcas, R., Lasniewska, F., Proedrou, F., 2018. “Smart grids in the European Union: assessing energy security, regulation & social and ethical considerations” Colum. J. Eur. L.24, 291, Section III (C). 133. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic,” 55. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf..

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also recognize the importance of developing electricity storage to adequately integrate low-carbon energy into the Slovak system.134 In pursuit of energy efficiency, electricity storage has proven to be crucial to tackle the increasing need to balance generation and demand in real-time scales.135 Further, storage capacities would play a crucial role for the integration of locally produced energy in Slovakia.136 Short-term storage (lasting only some minutes long), daily storage, and longterm storage or even seasonal storage are already available.137 The current technological development is starting to offer a wider variety of storage possibilities. However, the main barrier is the high cost of developing this kind of technologies. Yet, battery energy storage is expected to progressively drop in the upcoming years.138 As soon as competitiveness is reached in a cost-benefit assessment, batteries are anticipated to play a crucial role in the near future of grid operation.139 The Slovak Renewable Energy Agency, an EU-supported organization which promotes energy efficiency and low-carbon sources, briefly addresses storage as part of its agenda. There are no concrete projects on research and development in this area.140 Neither the Slovak government allocates enough public funding to foster research on electricity storage. Over half of the grants available for scientific research and development in the field are allocated to the study of renewable energy per se, while only a minor portion is focused on energy efficiency and electricity storage.141 Still, the idea of coupling renewables with batteries and storage mechanisms is identified as a perfect match in this era of energy transition.142 This is especially visible in the case of hydropower sources. It currently accounts for nearly 20% of the electricity consumption in Slovakia.143 Coupled with 134. Ibid, 79. 135. International Renewable Energy Agency (IRENA), 2017. Electricity storage and renewables: costs and markets to 2030 (IRENA 2017). 28 ,https://www.irena.org/publications/2017/ Oct/Electricity-storage-and-renewables-costs-and-markets.. 136. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 79. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf.. 137. International Renewable Energy Agency (IRENA), 2017. Electricity storage and renewables: costs and markets to 2030 (IRENA 2017). 43 ,https://www.irena.org/publications/2017/ Oct/Electricity-storage-and-renewables-costs-and-markets.. 138. International Renewable Energy Agency (IRENA), 2017. Electricity storage and renewables: costs and markets to 2030 (IRENA 2017). 43 ,https://www.irena.org/publications/2017/ Oct/Electricity-storage-and-renewables-costs-and-markets.. 139. International Renewable Energy Agency (IRENA), 2017. Electricity storage and renewables: costs and markets to 2030 (IRENA 2017). 43 ,https://www.irena.org/publications/2017/ Oct/Electricity-storage-and-renewables-costs-and-markets.. 140. See ,https://skrea.sk/about-us/research-and-development/.. 141. International Energy Agency, 2018 review. “Energy policies of IEA countries: Slovak Republic.” 152. 142. See ,https://skrea.sk/energy-storage/.. 143. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 61. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf..

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pumped storage technologies, this popular source in Slovakia is regarded as the key to lower disruptions in the national transmission network.144 Hence, despite the lack of available tools at the time being, the purpose to aim for is clear in the context of the Slovak energy policy.

24.8 Data protection Intelligent meter systems and smart grids offer invaluable advantages. The flow of information enables real-time interaction in the network. Its potential to foster energy efficiency and facilitate decentralized generation sources is widely recognized. The rising of prosumers, two-way network responsiveness, and, ultimately, decentralization give rise to new issues. The increasing availability of information entails concerns regarding consumers’ data management and protection. The Internet-based design of intelligent systems facilitates instant communication but also opens the door both for fraudulent cyber activities and privacy issues. First, digitalization automatically turns the whole system potentially vulnerable to hackers who could influence or even take over the functioning of the electricity grid.145 Cyberattacks are at the spotlight as one of the main caveats when thinking about modernizing distribution networks.146 Consequently, if not addressed properly, overcoming the barrier of information asymmetry might entail serious negative externalities. Second, the increasing use of online databases (accessible to some of the agents involved in the electricity sector)147, software systems,148 and other forms of massive information raises concerns on consumers’ privacy. In particular, disproportionate availability of electricity-consuming information could reveal collateral sensible information: daily routine timetables, or extended absences from home. These levels of accessibility to domestic energy patterns could expose consumers to house break-ins or facilitate organized criminal activities. Furthermore, the issue of “eco-privacy” is becoming a more significant issue in smart grid data protection matters.149 144. International Energy Agency, 2018 review. “Energy policies of IEA countries: Slovak Republic.” 123. 145. Mann, R., 2013. “Smart incentives for the smart grid.” N. M. Law Rev. 43, 127, 149. 146. Massachusetts Institute of Technology Energy Initiative, The future of electric grid: an interdisciplinary MIT study (Massachusetts Institute of Technology 2011), 220. 147. Vandenbergh, M., Stern, P., 2017. “The role of individual and household behavior in decarbonization.” Environmental Law Institute 47, 940 959. 148. Science Applications International Corporation and U.S. Energy Information Association, 2011. “Smart grid around the world.” 44. ,https://www.eia.gov/analysis/studies/electricity/pdf/ intl_sg.pdf.. 149. It has been acknowledged that smart grids can potentially increase the tension between environmental goals and a need for “eco-privacy.” Law enforcers might be tempted to use data collected via intelligent metering systems to achieve environmental goals, operating an alleged public purpose at the expense of consumer privacy. See in this regard, Eisen, J., 2013. “Smart regulation and federalism for the smart grid.” Harv. Envtl. L. Rev. 37, 1 16.

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In this regard, allowing consumers to have access upon request to their own data becomes crucial.150 Regulators are facing the initial set of privacy and data management concerns. An adequate implementation of privacy rules has proven to be a priority, as exposed in the German and American congress and social debates concerning smart grids.151 Crucial issues are expected to be soon globally addressed to a greater extent. Matters as who manages electricity information, purposes, and limits of such a usage and, ultimately, who owns this data are questions that must be answered before moving forward with these technologies.152 Following the most recent EU General Data Protection Regulation,153 Slovakia amended its national data protection law.154 Although it does not contain any specific provision in connection with smart grids, it expressly allows for personal data to be lawfully collected and processed for statistical and scientific purposes.155 The evaluation of the convenience of implementing intelligent metering systems in Slovakia would allegedly fall within this category. However, regarded as having a technical nature, the use of this information shall comply with the “principle of data minimization” in order to protect, to the largest extent, the anonymity of the personal data handled.156 For the specific case of Slovakia, DSOs are expected to be fully responsible for ownership and managing matters concerning data collection from intelligent meter systems.157 However, logically, a certain degree of smart grid development is required to start thinking of data protection as a tangible issue. But, at any stage, relaxed approaches on data protection may increase reluctance to technological advances in the era of energy transition.158 Considering this, the Slovak government has reassured the importance of guaranteeing that only relevant data should be collected.159 Focusing

150. Klass, A., 2017. “Expanding the U.S. electric transmission and distribution grid to meet deep decarbonization goals.” Environmental Law Reporter 47, 749 760. 151. Mann, R., 2013. “Smart incentives for the smart grid,” N. M. Law Rev. 43, 127 149. 152. Eisen, J., 2014. “An open access distribution tariff: removing barriers to innovation on the smart grid.” UCLA Law Rev. 61, 1712 1728. 153. EU Regulation No. 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation). 154. Act No. 18/2018 Coll. on the Protection of Personal Data of 29 November 2017. 155. Ibid, Article 16 (K). 156. Ibid, Article 78 (8). 157. European Commission, “Report from the Commission: benchmarking smart metering deployment in the EU-27 with a focus on electricity,” 5. ,https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 COM:2014:356:FIN.. 158. Buschle, D., Westphal, K., 2019. “A challenge to governance in the EU: decarbonization and energy security.” Eur. Energy J. 8, 53 63. 159. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 34. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf..

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specifically on the energy sector, no concrete guidelines were included when considering the initial steps to deploy intelligent systems in the Slovak electricity segment.

24.9 Conclusions and recommendations The EU energy context is moving toward enhancing the energy security of the bloc. The EU “third energy package” has served as the cornerstone to boost efficiency programs and, in that pursuit, the new role of the prosumers. The next natural step is the definitive deployment of intelligent metering systems and other new technologies to improve efficiency in the electricity sector. Within this European context, Slovakia depends largely on its domestic production of nuclear energy and the import of primary energy sources to meet its primary demand. In such a position, the implementation of decentralized electricity generation becomes a priority. In terms of legal environment, Slovakia offers suitable conditions to continue developing new technologies in the energy sector. Its regulatory framework presents a valuable basis— although not developed enough—to drive this paradigm shift. As an advantageous feature, the installation of intelligent systems was elevated to a legal obligation to the DSOs. However, the downside is that the strategy targets only large consumers (above 4 MW of yearly consumption). This approach raises concerns as to the effectiveness to influence of the required behavioral shifts of smaller end-users. Yet, decentralized generation from renewable energy was recently affirmed as a firm priority in the Slovak energy policy. So, further regulations to enhance transparent competition and keep on liberalizing the electricity market in Slovakia are likely to be adopted. Considering the current Slovak picture in terms of the implementation of new technologies, the challenge lies on adapting the national capacities with the available innovations in the energy sector. From the capacities and barriers of its market, some recommendations can be outlined with regard to the introduction of particular new technologies addressed in this chapter.

24.9.1 Smart grids The large investment required is certainly a barrier for any country, and especially to Slovakia.160 As identified from an EU level, Slovakia’s smart metering rollout assessment concluded that it would only be economically justified for a specific segment of end-users. This entails an additional challenge to Slovak authorities, as they should carefully balance the incentives 160. Buschle, D., Westphal, K., 2019. “A challenge to governance in the EU: decarbonization and energy security,” 8 European Energy Journal 53, 61.

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and cost evaluation of implementing smart metering systems. The design of financing mechanisms should be carefully shaped in order to facilitate the implementation by the RONI without incurring in excessive financial hurdles.161 Certainly, the instability of electricity from renewable energy sources (RES) is precisely on what smart grids would have a greater potential.162 This should be carefully assessed by the Slovak authorities in order to understand the variety of benefits entailed in the deployment of decentralized generation from renewables. Moreover, as a result of the CBA carried at an EU level, it is relevant to identify that the Slovak’s approach is primarily to target exclusively larger scale of consumers (i.e. above 4 MW) to implement smart grids. Nonetheless, targeting this segment should not necessarily prevent minor end-users to embrace efficiency trends.163 Furthermore, certain administrative procedures in the last years have facilitated the process to integrate small household to simplify self-generation at a smaller scale.164 The convenience of implementing smart grids is therefore strictly conditioned to a comparative advantage in terms of costs of implementation. Hence, Slovak policy is designed to tackle energy efficiency from general perspective strategy and, from there, moving to influence energy patterns of individual consumers.165 To succeed, awareness campaigns to educate its population on the benefits of shifting to a more conscious and efficient way of consuming energy should advisedly couple its official efforts. Changing behaviors cannot be easily measured in terms of economic values, but successful attempts may surely help to reduce inefficiency in the electricity generation and consumption patterns at all scales. The renewable energy industry of Slovakia raises an additional challenge. Despite the large influence of hydropower sources, other forms of renewables are relatively scarce. For instance, the use of wind ranks in the lowest positions among IEA members.166 This complicates a more rapid impact of smart metering in its national energy market. By 2020 the Slovak government expects to have solar generation fully decentralized.167 This major advance should be 161. Jan´ıcˇ ek, F., Scep´anek, M., Bel´an, A., et. al., 2015. “Roadmap for smart metering in the Slovak Republic,” 26 Energy & Environment 35, 48. ˇ aly, V., et. al., 2018. “The role of smart grid in integrating the 162. Jan´ıcˇ ek, F., Perny´, M., S´ renewable energies in Slovakia,” 29 (2) Energy & Environment 300, 309. 163. Jan´ıcˇ ek, F., Scep´anek, M., Bel´an, A., et. al., 2015. “Roadmap for smart metering in the Slovak Republic.” Energy Environment 26, 35 50. 164. International Energy Agency, 2018. “Energy policies of IEA countries: Slovak Republic.” 78. 165. Jan´ıcˇ ek, F., Scep´anek, M., Bel´an, A., et. al., 2015. “Roadmap for smart metering in the Slovak Republic.” Energy Environment 26, 35 50. 166. International Energy Agency 2018 review. “Energy policies of IEA countries: Slovak Republic.” 167. Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 62. ,https://www.mhsr.sk/uploads/files/47NgRIPQ.pdf..

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complemented by an aggressive policy to increase and facilitate the individual use of other renewable sources with higher potential (e.g., solar panels).168

24.9.2 Electric vehicles Despite its huge potential in the car industry, EVs are being introduced relatively slowly to the Slovak market. The network of recharging stations is not competitive enough to allow users to travel around the country relying on the existing recharging infrastructure. Further improvements are required in order to provide the Slovak market with matching advantages to increase the share of EVs in its domestic market. Considering that transportation is the largest greenhouse gas emitter in Slovakia, this is a matter that it will soon raise the alarms of its authorities. In times of energy transition, the shift in the mobility segment should become a priority, especially in a country where the car industry globally ranks among the largest. With the increasing EU pressure to reduce polluting emissions, it is a matter of time until Slovakia decides to undertake a substantive change in its transport sector. Identical to the case of renewable energy generation, EVs offer an invaluable potential beyond its primary benefits. They are zero-carbon and have relatively low operating and maintenance costs.169 This should be accordingly recognized in national policies, which should primarily focus on embracing the snowball effect of supporting new technologies. Logically, incentives should focus on the current downsides of EVs, namely, the high purchase costs, the availability of an adequate network of charging stations, and the range of their batteries.170 But after market failures and comparative disadvantages are overcome, EVs have the capacity of outweighing traditional fuel vehicles. As to specific the design of policies, there are no magic formulas. Successful countries that managed to substantially reduce greenhouse gas emissions in the transport sector are those who have directly targeted the industry. Mainly, by passing especially tailored regulation aimed at increasing the use of EVs (e.g., Norway and Netherlands).171 Less direct policies 168. Taking advantage of the increasing installed capacity of solar panel generation and the legislative support that is slowly moving towards that direction, the Slovak government acknowledges the increasing potential of solar energy. See Ministry of Economy of the Slovak Republic, October 2014. “Energy policy of the Slovak Republic.” 62. ,https://www.mhsr.sk/uploads/files/ 47NgRIPQ.pdf.. 169. Potk´anya, M, Lesn´ıkov´aa, P., 2019. “The amount of subsidy for the electric vehicle in Slovakia through a strategic cost calculation.” Transp. Res. Proc. 40,1168 1169. 170. Ibid, 1169. 171. European Environment Agency, 2019. “Fiscal instruments favouring electric over conventional cars are greener.” 7. ,https://www.eea.europa.eu/publications/fiscal-instruments-favouring-electric-over..

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were clearly less successful at it.172 Of course, Slovakia’s economic reality differs substantially from those exemplary countries. Considering this, the challenge is greater. However, there are some unexplored tools that the Slovak authorities should consider. With this is mind, direct subsidies emerge as ideal incentive schemes. Yet, given Slovak’s context, it would be unrealistic to expect such a policy.173 Alternatively, apart from the limited actual subsidies and tax exemptions,174 there are other incentives that could complement these initial policies. Some successful examples include the exemption of registration taxes or fees (e.g., Latvia, Romania, and Ireland), or waiver of ownership taxes for the first years of an EV registration (e.g., Austria, Cyprus, Germany, Italy, and United Kingdom).175 Other forms of benefits include free parking, circulation benefits (such as exclusive lanes), toll exemptions, or free charging facilities.176 Considering that aggressive direct subsidies would be hardly implemented in Slovakia, the combination of incentives would be crucial to drive consumer’s election of an EV over other forms of fuel vehicles. Finally, education-focused campaigns could play a significant role considering the importance of the car industry in Slovakia. Supporting the educational initiatives of the Slovak Electric Vehicle Association177 could be a reasonable starting point. Further, combining the EV development with integration efforts of renewable energy generation178 would facilitate a more integral design of Slovakia’s energy policy.

24.9.3 Demand response Slovakia does not have a regulatory framework to specifically address demand response mechanisms. Its approach focuses on an earlier stage, as it recognizes that prior to addressing this kind of improvements, an ample information basis should be previously achieved by implementing smart metering systems. In essence, demand-side policies should be

172. Ibid. 173. Daˇno, F., Ro´bert, R., 2018. “Electromobility in the European Union and in the Slovakia and its development opportunities.” Int. J. Multidiscip. Busi. Sci. 4(5), 74 80. 174. Cansino, J., S´anchez-Braza, A., Sanz-D´ıaz, T., 2018. “Policy instruments to promote electro-mobility in the EU28: a comprehensive review.” Sustainability 10, 6. 175. Cansino, J., S´anchez-Braza, A., Sanz-D´ıaz, T., 2018. “Policy instruments to promote electro-mobility in the EU28: a comprehensive review.” Sustainability 10, 6. 176. European Environment Agency, 2016. Electric vehicles in Europe (European Environment Agency 2016). 64 65. ,https://www.eea.europa.eu/publications/electric-vehicles-in-europe.. 177. See ,https://www.seva.sk/projekty/.. 178. Daˇno, F., Ro´bert, R., 2018. “Electromobility in the European Union and in the Slovakia and its development opportunities.” Int. J. Multidiscip. Bus. Sci. 4(5), 74 78.

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adopted only when the supply segment has reached a sufficient level of modernization. However, in accordance with carrying a more integral policy design, demand response patterns can be influenced by imposing progressive obligations to the key agents of its national energy industry. In particular, the dominant position of SEPS as the sole TSO should be seized as a legitimate enforcer of measures to facilitate the responsiveness side. Likewise, following the spirit of the Slovak’s strategy, DSOs could also implement responsiveness programs especially targeted to larger consumers.

24.9.4 Storage Similar to the global trend, the decisive obstacle to develop storage technologies lies in its high costs. As a result, it is reasonable that Slovakia is expecting further developments on these technologies. Other priorities are certainly more urgent. However, the energy storage sector offers an opportunity for new hubs and markets to be created. In Slovakia, funding for research and development of storage mechanisms is scarce. Reality shows that without efficient networks, efforts to deploy renewable energy lose most of its distinctive features. In this regard, Slovakia might be missing to seize a valuable opportunity. Hydropower sources are crucial to the Slovak market. Its potential for the upcoming years is uncontested. The operational flexibility of these power plants offers a suitable environment to test storage mechanisms. In the long run, dependence on nuclear energy could be progressively diversified by increasing the share of renewables in the national energy mix. Similarly, the EV segment (as the natural hub to boost storage technologies) should be regarded as a perfect match to develop storage technologies.

24.9.5 Data protection The management of personal data appears to emerge as a consequence after a reasonable degree of operation via smart grids takes place. The Slovak government seems to opt for deferring the matter until a higher intelligent metering development occurs. However, for a significant deployment of these technologies to emerge, certain externalities of such a shift should be anticipated. Despite the well-known advantages smart metering, areas of concern (such as data protection) should advisedly be addressed while the technology is developing.179 This way, consumers would naturally embrace 179. Buschle, D., Westphal, K., 2019. “A challenge to governance in the EU: decarbonization and energy security.” Eur. Energy J. 8, 53 61.

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the introduction of new equipment to make their everyday lives easier and more efficient. Alongside the enhancement of technological capacities, it is advisable to maintain high standards of data protection. Wider data protection standards may facilitate the popularity of intelligent metering systems as a favorable tool to empower consumers in a safe and reliable way.

Chapter 25

Energy decentralization and energy transition in the Czech Republic Maria Eugenia Mattera1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

25.1 Introduction The energy sector plays a crucial role in terms of economics and geopolitics for any country. Hence, for the past three decades, the European Union (“EU”) has taken key steps toward, first, the liberalization and then, the integration, of the energy sectors of its member states1 toward a more competitive Energy Union.2 Being energy a shared competency between the EU and its member states,3 under the principle of subsidiarity, the EU has developed numerous and sophisticated policies toward the achievement of three essential policy goals of the Energy Union: (1) energy security, (2) sustainability, and (3) affordability,4 cornerstones of the Energy Trilemma.5 In fact, the Energy Union’s Strategy relies on five interrelated spheres of the energy 1. The integration is not limited to member states of the European Union but aims to create a panEuropean energy market by extending the EUs principles and regulations in the energy sector to third countries on the basis of the Energy Community Treaty. See Energy Community, “Who we are.” Available at: http://www.energy-community.org/aboutus/whoweare.html. (Accessed 4 October 2019). 2. To name a few, the Transparency Directive that compelled member states to inform their energy prices (Council Directive 1990/377/EEC), the Transit Directive that initially regulated access to the essential facilities, (Council Directive 1990/547/EEC), the first electricity directive (Directive 96/92/EC), the second electricity directive (Directive 2003/54/EC), the Third Energy Package (“TEP”) (Directive 2009/72/EC), and Clean Energy Package for all Europeans (Directive 944/2019/EC and Regulation (EU) 2019/943, among others). 3. Energy became a shared competence after the Treaty of Lisbon modified the Treaty of the Functioning of the European Union (“TFEU”), especially articles 4(2)(i) and 194 of the TFEU. 4. It must be noted, however, that member states are competent to regulate the exploitation of their national resources and to determine their energy mix, according to article 194 (2) of the TFEU. 5. Heffron, R., 2015. Energy Law: An Introduction, Springer, p. 3. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00019-0 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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sectors: (1) security, (2) market integration, (3) efficiency, (4) climate action, and (5) research, innovation, and competitiveness.6 This Strategy set forth in 2015 has been enhanced by the Clean Energy Package for all Europeans.7 All these spheres are intrinsically linked. On the one hand, energy markets integration, diversification of resources, decentralization, and the use of innovative technologies in more efficient ways, all contribute to energy security and affordability. On the other, efficiency measures and the emergency of low-carbon and innovative technologies are key tools toward the decarbonization of the energy sector. While energy policies pursue multiple targets through countless measures, this chapter focuses on a specific set of policies vis-a`-vis the EU Energy Union Strategy adopted and under consideration by one of its member states, the Czech Republic (“Czechia”),8 toward the decentralization, integration, and modernization or “smartening” of the electricity grid. The ultimate purpose is to critically assess to what extent Czechia’s regulatory framework is compliant with those EU targets and, if applicable, to suggest policy recommendations toward their accomplishment. To that end, as energy policy cannot simple be replicated from onemember state to another as it needs to be adapted to the specific characteristics of the sector, Section 25.2 presents an overview of the key aspects of Czechia’s electricity sector. Section 25.3 critically analyses the relevant policies in place and projected for the oncoming years in terms of regional cooperation, interconnection, consumer empowerment, decentralization, and the deployment of new technologies toward a more secure and “smarter grid.” Section 25.4 draws conclusions and suggests recommendations for policymakers in light of the main findings of the analysis conducted.

25.2 Overview of Czechia’s electricity market 25.2.1 Key figures of Czechia’s energy sector According to the data published by the International Energy Agency (“IEA”), Czechia has experienced a significant decrease in energy consumption

6. European Commission, “Energy Union and Climate: Making energy more secure, affordable and sustainable.” Available at: https://ec.europa.eu/commission/priorities/energy-union-and-climate_en#background. (Accessed 5 October 2019). 7. It consists of eight legislative acts: (1) Energy Performance of Buildings Directive 2018/844; (2) The recast Renewable Energy Directive (EU) 2018/2001; (3) The revised Energy Efficiency Directive (EU) 2018/2002; (4) Governance of the energy union and climate action (EU) Regulation 2018/1999; (5) Regulation on risk-preparedness in the electricity sector (EU) 2019/ 941; (6) Regulation establishing a European Union Agency for the Cooperation of Energy Regulators (EU) 2019/942; (7) Regulation on the internal market for electricity (EU) 2019/943 and (8) Directive on common rules for the internal market for electricity (EU) 2019/944. 8. The Czech Republic (“Czechia”) joined the European Union (“EU”) in 2004.

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between 1990 and 2017.9 In fact, the total final consumption (“TFC”)10 was of 32,979 kiloton of oil equivalent (“ktoe”) in 1990 and fell to 24,241 ktoe in 2017,11 despite an increase of 60% in the gross domestic product between 1990 and 2016 (from USD 144.55 billion in 2010 to USD 231.34 billion in 2016).12 This major drop in energy consumption is likely to obey to the implementation of efficiency measures in compliance with EU targets. Conversely, in the EU region, TFC has remained relatively stable between the same period, only evidencing declines after economic shocks.13 In terms of energy consumption by sector, the largest consuming sector is industry, although it has experienced a sharp decrease during the past three decades (from 15,915 ktoe in 1990 to 6703 in 2017). This presumably is the result of industrial restructuring toward less energy-intensive industries,14 and the evolution experienced from an industrial economy to a service-based one in 2000.15 Although Czechia ranks among the highest energy intensities countries in the EU (47% higher than the EU average),16 it has achieved a 9. International Energy Agency (“IEA”), Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), pp. 21 22. Available at: https://webstore. iea.org/energy-policies-of-iea-countries-czech-republic-2016-review. (Accessed 3 September 2019). 10. Total final consumption (“TFC”) is “the final consumption by end users, i.e., in the form of electricity, heat, gas, oil products, etc.” and excluding “fuels used in electricity and heat generation and other energy industries (transformations) such as refining.” IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development) p. 21. Available at: https://webstore.iea.org/energy-policies-of-iea-countries-czech-republic-2016review. (Accessed 3 September 2019). 11. IEA, Statistics data browser, Czech Republic. Available at: http://www.iea.org/statistics/. (Accessed 6 October 2019). 12. IEA, Statistics data browser, Czech Republic. Available at: http://www.iea.org/countries/ Czech%20Republic/. (Accessed 6 October 2019). 13. Yu, Z., et al., 2017. “Final Energy Consumption Trends and Drivers in Czech Republic and Latvia” Amfiteatru Economic 19, 868. Available at: http://www.researchgate.net/publication/ 318860017_Final_Energy_Consumption_Trends_and_Drivers_in_Czech_Republic_and_Latvia. (Accessed 6 October 2019). 14. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Cooperation and Development), p. 21. Available at: https://webstore.iea.org/energy-policies-of-iea-countries-czech-republic-2016-review. (Accessed 3 September 2019). In fact, savings came from improvements in efficiencies in the industrial sector. See Yu, Z., et al., 2017. “Final Energy Consumption Trends and Drivers in Czech Republic and Latvia” Amfiteatru Economic 19, 876. Available at: http:// www.researchgate.net/publication/318860017_Final_Energy_Consumption_Trends_and_Drivers_in_ Czech_Republic_and_Latvia. (Accessed 6 October 2019). 15. Yu, Z., et al., 2017. “Final Energy Consumption Trends and Drivers in Czech Republic and Latvia” Amfiteatru Economic 19, 873. Available at: http://www.researchgate.net/publication/ 318860017_Final_Energy_Consumption_Trends_and_Drivers_in_Czech_Republic_and_Latvia. (Accessed 6 October 2019). 16. “Measured as the ratio of total primary energy supply (“TPES”) per unit of real gross domestic product (“GDP”) adjusted for purchasing power parity (“PPP”).” IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 49. Available at: https://webstore.iea.org/energy-policies-of-iea-countriesczech-republic-2016-review. (Accessed 3 September 2019).

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major decrease in this indicator, even at a faster pace than the EU average.17 Seemingly, the reason for this major decline is the implementation of the State Energy Policy (“SEP”) and the National Energy Efficiency Action Plan (“NEEAP”) in 2014 that lines up for the adoption of efficiency measures and a decrease of Czechia’s energy intensity.18 While residential consumption remained relatively stable (from 7343 ktoe in 1990 to 7089 in 2017), energy consumption in the transport sector has grown from 7.9% to 24.2% in the same period.19 The latter evidences that a prudent step for Czechia would be the incorporation and promotion of efficiency measures in the sector and electric vehicles (“EVs”). As for energy sources, the sector has experienced a significant variation in the energy mix. Although hydrocarbons (oil products, coal, and natural gas) remain the prevailing source,20 there has been a positive decline in the use of coal (from 12,321 ktoe in 1990 to 2383 ktoe in 2017, in other words, almost a reduction of 80%) and a modest growth in the use of natural gas (from 4244 ktoe in 1990 to 5618 ktoe in 2017).21 Given the role natural gas is called to play as a transition fuel,22 it would be desirable that Czechia turns to a larger use of this fuel rather than coal. In fact, the country has important coal and lignite resources, whose depletion is forecasted by 205023 which shows the urgent need to diversify resources not only from an environmental perspective but also in terms of security of supply considerations. Similarly to the rest of the EU,24 Czechia heavily relies on oil imports to satisfy its energy needs. In fact, in 2015 most of the supplied crude oil came from the Russian Federation, followed by Azerbaijan, and then Kazakhstan

17. Enerdata, 2018. “Country Energy Report: Czech Republic,” p. 15. Available at: http://web.b. ebscohost.com.ezproxy.library.qmul.ac.uk/ehost/pdfviewer/pdfviewer?vid 5 0&sid 5 66b50f9e314c-4e9e-995b-09aa26c9e058%40pdc-v-sessmgr02. (Accessed 7 September 2019). 18. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 42. Available at: https://webstore.iea.org/energy-policies-ofiea-countries-czech-republic-2016-review. (Accessed 3 September 2019). 19. IEA, Statistics data browser, Czech Republic. Available at: http://www.iea.org/statistics/? country 5 CZE&isISO 5 true. (Accessed 6 October 2019). 20. Oil products have slightly increased from 8272 kiloton of oil equivalent (“ktoe”) in 1990 to 9051 ktoe in 2017. 21. IEA, Statistics data browser, Czech Republic. Available at: http://www.iea.org/statistics/? country 5 CZE&isISO 5 true. (Accessed 6 October 2019). 22. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 11. Available at: https://webstore.iea.org/energy-policies-ofiea-countries-czech-republic-2016-review. (Accessed 3 September 2019). 23. Ibid, p. 31. 24. Eurostat, “Energy Production and Imports”. Available at: https://ec.europa.eu/eurostat/statistics-explained/index.php/Energy_production_and_imports#The_EU_and_its_Member_States _are_all_net_importers_of_energy. (Accessed 4 September 2019).

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and, to a lesser extent, from Germany and Hungary.25 Most of the crude oil coming from Former Soviet Union countries is supplied from the Druzhba pipeline which faced reductions and even blockages over the past years.26 The country is also highly dependent on natural gas supplies, a third being imported from Russia.27 Natural gas production is low (less than 230 million m3 in 2017). Gas imports, which grew by 2.6%/year between 1994 and 2006, eroded until 2014 (20.8%/year, on average) but have been rising by 7%/year since then, reaching 8.9 bcm in 2017.28 Contrary to other EU countries, Czechia’s energy dependency rate has increased to approximately 38% in 2017, from 22% in 2000.29 An explanation for this is probably the aforementioned decline in the use of domestic coal and the consequent turn to imported oil and natural gas.30 Regarding renewable energy sources (“RES”), Directive 2009/28/EC sets forth a target for Czechia to meet 13% of the energy share in gross final consumption by 2020. Czechia has increased it to 13.5% in the National Renewable Energy Action Plan (“NREAP”) which has been already accomplished and exceeded by 1.23% in 2016.31 By 2030, the target is of 20.8%32 and interim targets are also set: 14.4% by 2022, then 16.35% by 2025, and 18.07% by 2027.33 Electricity final consumption shows a significant rise, from 57.87 TWh in 1990 to 74.09 TWh in 2018,34 accounting for 18.2% of the total energy consumption. As regards electricity consumption per capita, comparing the two 25. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 138. Available at: https://webstore.iea.org/energy-policiesof-iea-countries-czech-republic-2016-review. (Accessed 3 September 2019). 26. Enerdata, 2018. “Country Energy Report: Czech Republic,”p. 18. Available at: http://web.b. ebscohost.com.ezproxy.library.qmul.ac.uk/ehost/pdfviewer/pdfviewer?vid 5 0&sid 5 66b50f9e314c-4e9e-995b-09aa26c9e058%40pdc-v-sessmgr02. (Accessed 7 September 2019). 27. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 30. Available at: https://webstore.iea.org/energy-policies-ofiea-countries-czech-republic-2016-review. (Accessed 3 September 2019). 28. Enerdata, 2018. “Country Energy Report: Czech Republic,”p. 19. Available at: http://web.b. ebscohost.com.ezproxy.library.qmul.ac.uk/ehost/pdfviewer/pdfviewer?vid 5 0&sid 5 66b50f9e314c-4e9e-995b-09aa26c9e058%40pdc-v-sessmgr02. (Accessed 7 September 2019). 29. Eurostat, “Shedding Light on Energy in the EU. A Guided Tour of Energy Statistics”. Available at: https://ec.europa.eu/eurostat/cache/infographs/energy/. (Accessed 4 September 2019). 30. Government of the Czech Republic, “Draft National Energy and Climate Plan of the Czech Republic” (2018) Executive Summary. Available at: https://ec.europa.eu/energy/sites/ener/files/ documents/ec_courtesy_translation_cz_necp_0.pdf. (Accessed 5 October 2019). 31. IEA, Statistics data browser, Czech Republic. Available at: http://www.iea.org/statistics/? country 5 CZE&isISO 5 true. (Accessed 6 October 2019). 32. Government of the Czech Republic, 2018. “Draft National Energy and Climate Plan of the Czech Republic,”p. 12. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/ ec_courtesy_translation_cz_necp_0.pdf. (Accessed 5 October 2019). 33. Ibid, p. 23. 34. IEA, Statistics data browser, Czech Republic. Available at: http://www.iea.org/statistics/? country 5 CZE&isISO 5 true. (Accessed 6 October 2019).

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endpoint periods (1990 2018), there has been an increase of almost 25%35 which goes in line with the EU’s figures.36 With reference to electricity generation, there has been an enormous growth (around 40.7%) between 1990 and 2018 figures (from 62.559 to 87.997 TWh).37Among the different sources, the share of electricity generation from coal and nuclear stand out, representing 49.5% and 34%, respectively, in 2018. In fact, the predominant recourse to coal for electricity generation has no correlation with the substantive drop in coal’s share of TEPS which reflects that the country has still a long way toward the decarbonization of the electricity sector. However, the SEP aims to reduce the share of coal in the electricity mix to 21% 11% by 2040.38 Conversely, the proportion of nuclear in electricity generation has more than doubled from 12,585 GWh in 1990 to 29,921 GWh in 2018.39 In fact, Czechia is the ninth country with the largest share of nuclear energy in the electricity generation mix of the 16 IEA member countries with nuclear power generation.40 According to the SEP and the National Action Plan for the Development of Nuclear Energy (“NAPNE”), Czechia forecasts to rise the percentage of nuclear to 46% 58% by 2040 to meet its decarbonization targets and, simultaneously, ensure security of supply.41 The low indicators for energy efficiency are also due to the large share of nuclear generation, which is fairly balanced by the rise of RES.42 Finally, other sources of electricity generation are biofuels (5.4%), natural gas (4.3%), hydro (3%), solar photovoltaic (PV) (2.7%), wind (0.7%), waste (0.2%), oil (0.1%), and other sources (0.1%).43 It is worth highlighting that according to the NREAP, 14% of all electricity demand is to be met from 35. From 5.58 MW per capita to 6.97 MWh/capita. Ibid. 36. From 5.16 MWh/capita to 6.06 MWh/capita. Ibid. 37. Ibid. 38. Ministry of Industry and Trade, 2014, “State Energy Policy of the Czech Republic,” p. 46. Available at: http://www.mpo.cz/assets/en/energy/state-energy-policy/2017/11/State-EnergyPolicy-_2015__EN.pdf. (Accessed 3 September 2019). 39. IEA, Statistics data browser, Czech Republic. Available at: http://www.iea.org/statistics/? country 5 CZE&isISO 5 true. (Accessed 8 October 2019). 40. IEA, 2019. “Nuclear Power in a Clean Energy System.” Available at: https://webstore.iea. org/download/direct/2779?fileName 5 Nuclear_Power_in_a_Clean_Energy_System.pdf. (Accessed 8 October 2019). 41. Ministry of Industry and Trade, 2015. Ministry of Finance of the Czech Republic, “National Action Plan for the Development of the Nuclear Energy Sector in the Czech Republic.” Available at: https://www.mpo.cz/assets/en/energy/electricity/nuclear-energy/2017/10/NationalAction-Plan-for-the-Development-of-the-Nuclear-_2015_.pdf. (Accessed 6 October 2019). 42. Yu, Z., et al., 2017. “Final Energy Consumption Trends and Drivers in Czech Republic and Latvia” Amfiteatru Economic 19, 873. Available at: http://www.researchgate.net/publication/ 318860017_Final_Energy_Consumption_Trends_and_Drivers_in_Czech_Republic_and_Latvia. (Accessed 6 October 2019). 43. This data corresponds to 2018 figures. IEA, Statistics data browser, Czech Republic. Available at: https://www.iea.org/statistics/?country 5 CZE&isISO 5 true. (Accessed 6 October 2019).

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RES by 2020.44 However, sudden and retroactive policy changes, as those for solar PV in 2014, could negatively impact investment, undermining the achievement of this target.45 What is more, the regulator indicated that as a result of a rise in the national gross consumption, the share of RES in electricity generation has dropped to 12.7% in 2018.46

25.2.2 Key aspects of the electricity sector Czechia operates a liberalized energy market. As most of EU countries, until ˇ 1990s, the sector was controlled by the state-owned company, CEZ, a.s. 47 ˇ (“CEZ”) and was liberalized at the end of 1990s to join the EU.48 To that end, the Energy Act49 divided the electricity sector into four segments: (1) generation, (2) transmission, (3) distribution, and (4) trading, and it has been amended in 2011 to comply with the Third Energy Package (“TEP”).50 These activities are licensed by the Energy Regulatory Office (“ERO”); the first three for a maximum period of 25 years whereas the latter for 5 years.51 44. IEA, Policies and Measures Databases. Available at: http://www.iea.org/policiesandmeasures/pams/czechrepublic/name-39468-en.php?s 5 dHlwZT1jYyZzdGF0dXM9T2s, &return 5 PG5hdiBpZD0iYnJlYWRjcnVtYiI-PGEgaHJlZj0iLyISG9tZTwvYT4gJnJhcXVvOyA8YSBocmVmPSIvcG9saWNpZXNhbmRtZWFzdXJlcy8iPlBvbGljaWVzIGFuZCBNZWFzdXJlczwvYT4gJnJhcXVvOyA8YSBocmVmPSIvcG9saWNpZXNhbmRtZWFzdXJlcy9jbGltYXRlY2hhbmdlLyI-Q2xpbWF0ZSBDaGFuZ2U8L2E-PC9uYXY-. (Accessed 6 October 2019). 45. IEA, “IEA urges the Czech Republic to set conditions to boost energy investments,” December 2016. Available at: http://www.iea.org/newsroom/news/2016/december/iea-urges-the-czech-republicto-set-conditions-to-boost-energy-investments.html. And EU Commission, “Czech Republic.” Available at: https://ec.europa.eu/energy/sites/ener/files/documents/2014_countryreports_czechrepublic. pdf. (Both accessed 6 October 2019). 46. Energy Regulatory Office, 2018. “National Report of the Energy Regulatory Office on the Electricity and Gas Industries in the Czech Republic for 2018,” p. 45. Available at: http://www. eru.cz/documents/10540/488714/NR_ERU_2018/e15bbe19-1bc3-4e13-ab46-7dfafd1a74d3. (Accessed 12 October 2019). 47. As of 31 December 2018, the Czech State held the majority stake (70%) of the Company. Cez Group, “Cez Group Introduction.” Available at: http://www.cez.cz/en/cez-group/cez-group. html. (Accessed 12 October 2019). 48. Krˇska, S., 2014. “Current Situation on the Czech Electricity Market: With an Emphasis on the Fourth Regulatory Period of the Czech Energy Regulatory Office” (Charles University in Prague), p. 24. Available at: https://is.cuni.cz/webapps/zzp/detail/133785/?lang 5 en. (Accessed 8 September 2019). 49. Act No 458/2000 as amended. The Energy Act will be amended to comply with the new EU Electricity Directive. 50. A brief description can be found in https://ec.europa.eu/energy/en/topics/markets-and-consumers/market-legislation/third-energy-package. The TEP has played a major role in terms of market liberalization and integration by means of including stricter unbundling provisions, enhancing the national regulatory authorities” powers, creating EU bodies (Agency for the Cooperation of Energy Regulators “ACER" and European Network of Transmission System Operators for Electricity “ENTSO-e”) toward the creation of an Energy Union and including relevant provisions for new cross-border infrastructure. 51. Title I, Section 4, Energy Act.

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ˇ CEZ and its subsidiaries control a large part of generation (around three quarters of generating capacity),52 distribution, and trading.53 While this market concentration might have a negative impact on competition,54 electricity prices in Czechia are lower than the EU’s average (for both households and industry) and the SEP aims to continue such trend to ensure social sustainability and preserve the competitiveness of the economy.55 Notwithstanding, the SEP anticipates that electricity prices are likely to increase due to (1) the pass-through of RES costs (at least until 2030), (2) the renovation and enhancement of the transmission system, and (3) the implementation of a regulated component for the deployment of smart grids.56 In fact, electricity prices have been increasing significantly: at the beginning of 2018, the price of the annual base load product for 2019 was around h37 MWh, whereas at the end of the year, it was traded for approximately h55/MWh.57 ˇ CEPS, a.s. is the sole state-owned transmission system operator (“TSO”), certified under the full ownership unbundling model and responsible for the balancing of electricity supply, operation, maintenance, and expansion of the electricity grid. Furthermore, it allocates available transmission capacity on interconnectors and collaborates with other TSOs in the EU toward the integration of the electricity markets.58 Finally, there ˇ are eight regional distribution companies; five are controlled by CEZ, two 59 by E.ON, and one by EnBW. Regarding supply, as of 2018, there were

52. “Cez Group Introduction.” Available at: http://www.cez.cz/en/cez-group/cez-group.html. (Accessed 12 October 2019). 53. Ibid. 54. According to IEA, “there is no evidence of abuse of the dominant position as access to interconnector capacity and imports from other national markets sustain a high level of competition.” However, the Agency considers that the company might have a favorable position when securing long-term contracts and while participating in the balancing markets. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 92. Available at: https://webstore.iea.org/energy-policies-of-iea-countriesczech-republic-2016-review. (Accessed 3 September 2019). 55. Ministry of Industry and Trade, 2014. “State Energy Policy of the Czech Republic,” p. 61. Available at: http://www.mpo.cz/assets/en/energy/state-energy-policy/2017/11/State-EnergyPolicy-_2015__EN.pdf. (Accessed 3 September 2019). 56. Ibid, p. 137. 57. Energy Regulatory Office, 2018. “National Report of the Energy Regulatory Office on the Electricity and Gas Industries in the Czech Republic for 2018,” p. 8. Available at: http://www. eru.cz/documents/10540/488714/NR_ERU_2018/e15bbe19-1bc3-4e13-ab46-7dfafd1a74d3. (Accessed 12 October 2019). 58. CEPS, “CEPS- About Us.” Available at: http://www.ceps.cz/en/about-us. (Accessed 8 September 2019). 59. Enerdata, 2018. “Country Energy Report: Czech Republic,” p. 13. Available at: http://web.b. ebscohost.com.ezproxy.library.qmul.ac.uk/ehost/pdfviewer/pdfviewer?vid 5 0&sid 5 66b50f9e314c-4e9e-995b-09aa26c9e058%40pdc-v-sessmgr02. (Accessed 7 September 2019).

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ˇ 400 licensed suppliers:60 CEZ Prodej s.r.o. serving 40% of the market, E. ON Energie a.s. 20%, and Praˇzsk´a energetika a.s. 11%.61 Czechia has two electricity markets: the wholesale and retail. Under the first one and in compliance with EU Law, Czechia has implemented the REMIT Regulation62 to prevent and eventually penalize market abuse. Electricity trades take place on the European Energy Exchange (“EEX”) platform, through bilateral contracts (“over-the-counter”), and the spot market organized by OTE, a.s. Following an agreement between EEX and Power Exchange Europe (“PXE”), contracts listed at PXE were migrated to the EEX T7 platform.63 Regarding the retail market, prices are not regulated but market-based64 being Czechia among the 10 more competitive retail markets in the EU.65 As explained above, energy competences in the EU vary from exclusive (i.e., definition of the electricity mix, setting trade tariffs) to shared competence.66 The Ministry of Industry and Trade (“MIT”) of Czechia is competent national authority for the energy industry67 and works together with the Ministry of the Environment (“MOE”) that funds and implements numerous energy efficiency programs. The regulatory body is ERO, entrusted with the main functions to regulate natural monopolies by means of approving distribution and transmission tariffs and protect consumers. The key national energy policy is the SEP68 that defines the sectorial targets for the next 25 years. Together with the Climate Policy are the basis for the Draft National Energy and Climate Plan (“NECP”) submitted before the EU Commission under the Regulation on the Governance of the Energy 60. Energy Regulatory Office, 2018. “National Report of the Energy Regulatory Office on the Electricity and Gas Industries in the Czech Republic for 2018,” p. 19. Available at: http://www. eru.cz/documents/10540/488714/NR_ERU_2018/e15bbe19-1bc3-4e13-ab46-7dfafd1a74d3. (Accessed 12 October 2019). 61. Jan´ıcek, L., Kotlaba, R., “CMS Guide to Electricity: Czech Republic,” p. 7. Available at: https://www.lexology.com/library/detail.aspx?g 5 8ebec451-9210-4681-89ba-1f5a42efa7b8. (Accessed 9 September 2019). 62. Regulation (EU) No 1227/2011 of the European Parliament and of the Council on wholesale energy market integrity and transparency. 63. Energy Regulatory Office, 2018. “National Report of the Energy Regulatory Office on the Electricity and Gas Industries in the Czech Republic for 2018,” p. 18. Available at: http://www. eru.cz/documents/10540/488714/NR_ERU_2018/e15bbe19-1bc3-4e13-ab46-7dfafd1a74d3. (Accessed 12 October 2019). 64. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 88. Available at: https://webstore.iea.org/energy-policies-ofiea-countries-czech-republic-2016-review. (Accessed 3 September 2019). 65. Ibid, p. 89. 66. For a fuller discussion on such matters, see Leal-Arcas, R., Filis, A., 2013. “Conceptualizing EU Energy Security through an EU Constitutional Law Perspective,” Fordham Int Law J 36, 1224 1300. 67. Section 16 of the Energy Act. 68. Approved by the Government of the Czech Republic’s Resolution 362 on 18 May 2015.

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Union and Climate Action.69 The SEP relies on different national plans to achieve the policy goals in the energy sector: the NAPNE for nuclear; NREAP for the promotion of RES; NEEAP to promote energy efficiency;70 National Action Plan for Clean Mobility (“NAPCM”) to foster the deployment of alternative fuels infrastructure; the National Emission Reduction Programme; the National Action Plan for Smart Grids (“NAP SG”); and the Action Plan for Biomass.

25.3 Toward a decentralized and smart electricity sector The rise of technology innovations and public awareness about the need to tackle climate change are, without a doubt, reshaping electricity markets as we know them. However, technology innovations alone are not enough. Policies and innovative regulation need to follow to win the climate race. The EU Commission has put the stress in its Energy 2020 Communication71 on five key areas for the creation of a competitive, sustainable and secure energy sector: (1) efficiency, (2) integration of a pan-European energy market, (3) consumer’s empowerment, (4) foster technology and innovation, with Europe taking the lead, and (5) expansion of the EU energy market. Decentralization is one of the cornerstones of this new paradigm.72 This implies moving away from centralized generation units toward smaller decentralized RES generation units,73 to create an integrated Energy Union. But, this change of paradigm requires changing the rules of the game, namely, allowing greater flexibility and empowering consumers (now “prosumers”) to take an active role in this transition.74 Therefore Czechia as a 69. Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action. At the time of writing, the final NECP has not been submitted by Czechia. 70. There are four efficiency plans. First (NEEAP-I), Second (NEEAP-II), Third (NEEAP-III), and Fourth National Energy Efficiency Action Plan (NEEAP-IV). See IEA, “National Energy Efficiency Action Plan (NEEAP)”. Available at: http://www.iea.org/policiesandmeasures/pams/ czechrepublic/name-24210-en.php?s 5 dHlwZT1jYyZzdGF0dXM9T2s, &return 5 PG5hdiBpZD0iYnJlYWRjcnVtYiI-PGEgaHJlZj0iLyISG9tZTwvYT4gJnJhcXVvOyA8YSBocmVmPSIvcG9saWNpZXNhbmRtZWFzdXJlcy8iPlBvbGljaWVzIGFuZCBNZWFzdXJlczwvYT4gJnJhcXVvOyA8YSBocmVmPSIvcG9saWNpZXNhbmRtZWFzdXJlcy9jbGltYXRlY2hhbmdlLyI-Q2xpbWF0ZSBDaGFuZ2U8L2E-PC9uYXY. (Accessed 1 December 2019). 71. A strategy for competitive, sustainable and secure energy (COM (2010) 639 final). 72. See Leal-Arcas, R., et al., 2019. “Energy Decentralization in the European Union,” 32, p. 3. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3333694. (Accessed 13 October 2019). 73. COM (2015) 339 final. 74. The term aims to capture the idea of self-generating energy providers. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2017. “Prosumers: New Actors in EU Energy Security,” (2018) Netherlands Yearbook of International Law, vol. 48, p. 139. Available at: https://papers.ssrn. com/sol3/papers.cfm?abstract_id 5 3010714##. (Accessed 13 October 2019).

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member state, is bound to promote RES deployment, foster a more active role for consumers and, at the same time, enable technology innovations toward a more secure, affordable, and smarter grid.

25.3.1 Interconnection As mentioned before, the Energy Union Strategy relies on different policies to achieve sustainable security of supply.75 To that end, the EU focuses on strengthening cross-border interconnection both at the community level and with third parties (be means of the Energy Community Treaty).76 Interconnectors are basically transmission lines that link and connect national transmission systems and are regarded as “one of the most essential components of an effective Trans-European electricity network.”77 The rationale is that an integrated energy market will allow a higher and better penetration of intermittent RES by connecting regions of abundance to regions of scarcity, which in turn will reduce energy dependency and the construction of new power plants and contribute to decarbonizing the electricity sector.78 By the same token, in case of blackouts, member states can rely on their neighbors to import electricity, enhancing energy security. Finally, interconnectors play a relevant role in terms of consumer empowerment as it allows a greater variety of choice which, in turn, may result in a reduction of household bills.79 Presumably under the prism of all these benefits, the EU has set an interconnection target of 10% to be met by 202080 and increased it to 15% by 2030.81 75. EU Commission, “Electricity Interconnection targets.” Available at: https://ec.europa.eu/ energy/en/topics/infrastructure/projects-common-interest/electricity-interconnection-targets#content-heading-1. (Accessed 13 October 2019). 76. At the time of writing, the EU, Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Georgia, Moldova, Montenegro, Serbia, and Ukraine are parties of the Energy Community Treaty. 77. Talus, K., Wa¨lde, T., 2006. “Electricity Interconnectors: A Serious Challenge for EC Competition Law” 1 355, pp. 357 358. Available at: https://journals.sagepub.com/doi/abs/ 10.1177/178359170600100302. (Accessed 22 October 2019). 78. The Expert Work appointed by the Commission highlighted that the methodology should be adapted to reflect the high level of renewable energy resources (“RES”) in the electricity mix. Under this revised methodology, the interconnection level of Czechia is above 60%. European Commission, 2017. “Towards a Sustainable and Integrated Europe—Report of the Commission Expert Group on Electricity Interconnection Targets,” p. 12. Available at: https://ec.europa.eu/ energy/sites/ener/files/documents/report_of_the_commission_expert_group_on_electricity_interconnection_targets.pdf. (Accessed 8 September 2019). 79. EU Commission, Connecting power markets to deliver security of supply, market integration and the large-scale uptake of renewables, February 2015. Available at: https://europa.eu/rapid/ press-release_MEMO-15-4486_en.htm. (Accessed 22 October 2019). 80. COM/2015/082 final. 81. European Parliament resolution of 13 September 2016 on Towards a New Energy Market Design (2015/2322(INI)). The interconnection target is calculated against the installed capacity of the country. The appointed Expert Work suggested to review the methodology.

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To incentivize these cross-border infrastructure projects, the interested parties can access funding from Connecting Europe Facility Instrument (which has a budget of 5.35 billion EUR between 2014 and 2020)82 and benefit from a special regulatory treatment in terms of third-party access and unbundling83 provided that the project in question acquires the status of projects of common interest (“PCI”). In the case of Czechia, the country has largely exceeded the interconnection target. Indeed, the country has a robust electricity system and benefits from a highly interconnected transmission grid (almost 30%).84 The Czech electricity network has cross-border interconnections on the national borders with Germany, Poland, Austria, and Slovakia, constituting cross-border interconnections with five transmission systems.85 The allocation of transmission capacities is done by means of coordinated calculation within the Central Eastern Europe (“CEE”) that encompasses Slovenia and Hungary as well as neighboring countries.86 For the interconnection to operate successfully, networks codes, guidelines, and the methodology developed by the European Network of Transmission System Operators for Electricity (“ENTSO-e”) were implemented to harmonize the procedures.87 Czechia’s wholesale electricity market is coupled with Slovakia, Hungary, and Romania since 2014 by integrating the day-ahead electricity market.88 The main benefits of market coupling are more efficient trading and allocation of cross-border capacity,

82. European Commission, CEF Energy. Available at: https://ec.europa.eu/inea/en/connectingeurope-facility/cef-energy. (Accessed 22 October 2019). 83. Article 63 Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity. This special regulatory treatment, however, can raise several challenges from competition law perspective. See Talus, K., Wa¨lde, T., 2006. “Electricity Interconnectors: A Serious Challenge for EC Competition Law,” p. 1. Available at: https://journals.sagepub.com/doi/abs/10.1177/178359170600100302. (Accessed 22 October 2019). 84. European Commission, 2017. “Towards a Sustainable and Integrated Europe—Report of the Commission Expert Group on Electricity Interconnection Targets,” p. 31. Available at: https:// ec.europa.eu/energy/sites/ener/files/documents/report_of_the_commission_expert_group_on_electricity_interconnection_targets.pdf. (Accessed 8 September 2019) and Government of the Czech Republic, 2018. “Draft National Energy and Climate Plan of the Czech Republic,” p. 106. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/ec_courtesy_translation_cz_necp_0.pdf. (Accessed 5 October 2019). 85. Energy Regulatory Office, 2018. “National Report of the Energy Regulatory Office on the Electricity and Gas Industries in the Czech Republic for 2018,” p. 14. Available at: http://www. eru.cz/documents/10540/488714/NR_ERU_2018/e15bbe19-1bc3-4e13-ab46-7dfafd1a74d3. (Accessed 12 October 2019). 86. Ibid. 87. Ibid. 88. European Commission, 2017. “Energy Union Factsheet Czech Republic,” p. 5. Available at: https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-czech-republic_en.pdf. (Accessed 12 October 2019).

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enhancing the security of supply, and reducing price volatility.89 Indeed, market coupling allows the free movement of electricity, increasing electricity imports when local prices are higher, and exporting when lower. Regarding intra-day trading, in 2018 the implementation of a platform was concluded which allows market participants to trade their intra-day position without the need for explicit allocation of transmission capacity. According to the Czech Government, it enhances transparency and favors the continuous trading environment.90 Czechia is part of the Visegrad Group (“VG”), together with Hungary, Poland, and Slovakia, which aims to enhance the regional integration, including the energy sector. In 2018 a project was launched to interconnect the V4 with Romania, Germany, Austria, and Poland into a multiregional Coupling Project to simplify trade.91 Czechia’s highly interconnected network goes in line with the EU objectives of market liberalization and integration. While Czechia is a relevant electricity exporter (25 30 TWh),92 major interconnection issues have to be addressed to allow this ongoing export.93 Indeed, to prevent blackouts, strengthen interconnectivity with Germany, facilitate price harmonization,94 and have a more robust internal transmission system that will allow a higher penetration of RES (mainly wind from Germany and solar from Italy),95 five lines qualified as PCI are projected to be built from 2017 up to 2026, known

89. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 87. Available at: https://webstore.iea.org/energy-policies-ofiea-countries-czech-republic-2016-review. (Accessed 3 September 2019). 90. Government of the Czech Republic, 2018. “Draft National Energy and Climate Plan of the Czech Republic,” p. 246. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/ ec_courtesy_translation_cz_necp_0.pdf. (Accessed 5 October 2019). 91. Energy Regulatory Office, 2018. “National Report of the Energy Regulatory Office on the Electricity and Gas Industries in the Czech Republic for 2018,” p. 7. Available at: http://www. eru.cz/documents/10540/488714/NR_ERU_2018/e15bbe19-1bc3-4e13-ab46-7dfafd1a74d3. (Accessed 12 October 2019). 92. Enerdata, 2018. “Country Energy Report: Czech Republic,” p. 18. Available at: http://web.b. ebscohost.com.ezproxy.library.qmul.ac.uk/ehost/pdfviewer/pdfviewer?vid 5 0&sid 5 66b50f9e314c-4e9e-995b-09aa26c9e058%40pdc-v-sessmgr02. (Accessed 7 September 2019). 93. The Czech transmission system almost suffered a blackout in 2011 due to a considerable rise in the generation of electricity from wind power in northern Germany and the lack of sufficient intra-German transmission capacities. See Luk´asˇ Jan´ıcek and Radim Kotlaba, “CMS Guide to Electricity: Czech Republic,” p. 6. Available at: https://www.lexology.com/library/detail.aspx? g 5 8ebec451-9210-4681-89ba-1f5a42efa7b8. (Accessed 9 September 2019). 94. The price difference between Czechia and Germany exceeds the threshold of 2 h/MWh in at least one of the three TYNDP2018 2030 Scenarios. See ENTSO-e, “Project 200—CZ Northwest-South corridor.” Available at: https://tyndp.entsoe.eu/tyndp2018/projects/projects/200. (Accessed 22 October 2019). 95. New Europe, “EU to help modernise Czech Republic’s electricity system,” September 2019. Available at: https://www.neweurope.eu/article/eu-to-help-modernise-czech-republics-electricitysystem/. (Accessed 12 October 2019).

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FIGURE 25.1 Forecast of electricity grid expansion in Czechia. Draft National Energy and Climate Plan.

as the “Czech North South Corridor.”96 This represents an investment of h46 million to be jointly financed with the European Regional Development Fund.97 Fig. 25.1 illustrates the new lines, substations, and power plants expected to be built by 2026.98 Fig. 25.1 shows the Czech’s TSO projected upgrades of the transmission grid by 2026 to enhance the reliability of the network to satisfy the expected demand as mandated in the Energy Act.

25.3.2 Consumer’s empowerment The EU envisions consumers at the core of the energy transition. As a result, consumers are leaving their passive consumption role to start generating electricity, not only for self-consumption but also to sell the surplus to the grid.99 This process has been described as “energy democratization” as citizens can reduce 96. European Commission, 2017. “Energy Union Factsheet Czech Republic,” p. 6. Available at: https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-czech-republic_en.pdf. (Accessed 12 October 2019). 97. New Europe, “EU to help modernise Czech Republic’s electricity system,” September 2019. Available at: https://www.neweurope.eu/article/eu-to-help-modernise-czech-republics-electricitysystem/. (Accessed 13 October 2019). 98. Government of the Czech Republic, 2018. “Draft National Energy and Climate Plan of the Czech Republic,” p. 208. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/ ec_courtesy_translation_cz_necp_0.pdf. (Accessed 5 October 2019). 99. Parag, Y., Benjamin, K., 2016. “Electricity market design for the prosumer era” Nat Energy 1, 16032.

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their dependency on energy companies to satisfy their needs.100 To that end, the revised Renewable Energy Directive101 expressly mandates member states to implement legal frameworks to empower consumers and remove regulatory and administrative burdens to ease the deployment of consumer-owned RES. This Directive categorizes three types of consumers: (1) “renewables self-consumer,” which are both households and industries that generate electricity for their own consumption and can store or sell that electricity only if, in the case of the latter, such storage or sell is not their main business; (2) “jointly acting renewables self-consumers,” which is the case when there are at least two jointly acting renewables self-consumers located in the same building; and (3) “renewable energy community” to allow groups of citizens, public authorities, and organizations to join under new business models and ownership structures of energy infrastructure.102 This amended Directive has to be transposed into national law by June 2021.103 At the time of writing, the Czech legal framework does not explicitly support consumer ownership of RES nor has it implemented a special legal framework to foster the emergence of prosumers.104 Therefore the transposition of the revised Renewable Energy Directive will be a unique opportunity to apply the best practices and avoid policy errors taken by other member states to foster decentralization (i.e., Spain’s “sun tax” that was ultimately removed after a harsh public criticism).105 Despite of lacking an all-encompassing regime for prosumers, the Czech legal regime provides several incentives for the deployment of distributed generation. First, the Energy Act and its regulatory Decree106 introduced in 2016 the possibility for consumers to self-generate electricity and eventually sell the surplus. However, the main drawback is that, under the current regime, the sell can only be done if there is a contract with the distribution

100. Leal-Arcas, R., et al., 2019. “Energy Decentralization in the European Union” 32, 15. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3333694. (Accessed 13 October 2019). 101. Directive (EU) 2018/2001 of the European Parliament and the Council of 11 December 2018 on the promotion of the use of energy from renewable sources, which comprehends the Clean Energy Package. 102. Interreg Europe, “A Policy Brief from the Policy Learning Platform on Low-carbon economy,” August 2018. Available at: https://www.interregeurope.eu/fileadmin/user_upload/plp_uploads/policy_briefs/2018-08-30_Policy_brief_Renewable_Energy_Communities_PB_TO4_final. pdf. (Accessed 28 October 2019). 103. Article 36 of the Revised Renewable Energy Directive. ˇ r´ık, M., Matousek, R., 2019. “Consumer (Co-)Ownership in Renewables in 104. Maly´, V., Safaˇ the Czech Republic” in Lowitzsch, J. (ed.), Energy transition: financing consumer co-ownership in renewables, Palgrave Macmillan, pp. 205 206. 105. Jason, D., Spain Abolishes the “Tax on the Sun,” October 2019. Available at: https://www. greentechmedia.com/articles/read/spain-abolishes-the-tax-on-the-sun. (Accessed 23 October 2019). 106. Decree No. 408/2015 Coll. on electricity market rules.

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company that stipulates the price for the electricity fed to the grid107 which, in practice, is rarely executed.108 Therefore prosumers’ incentive is strictly reduced to self-consumption, leaving aside the potential benefit to sell the surplus to the grid when prices are high. Second, in terms of permitting, small generation facilities of a nameplate capacity of up to 10 kW connected to the distribution system and destined for self-consumption are exempted from licensing and only require a registration and permit issued by the distribution system operator (DSO). If the facility is not connected to the grid, the micro installation only needs to register.109 This simplified procedure seems to go in the right direction toward the reduction of administrative burdens as indicated by the revised Renewable Energy Directive. Third, given that feedin tariffs were phased out,110 a support scheme representing half of the costs for small solar PV and water heaters was brought in 2015.111 This “New Green Savings Programme” is executed by the MOI, administered by the State Environmental Fund and will be available until 2021.112 The Integrated Regional Operational Program (“IROP”) also supports PV systems installations for residential users, although Prague is excluded. The subsidy represents between 30% and 40% of the total cost.113 Another scheme financed by the European Regional Development Fund is the operational Programme “Entrepreneurship and Innovation for Competitiveness 2014 2020 (OP PIK),” which gives grants for the construction or modernization

107. European Commission, 2017. “Study on “Residential Prosumers in the European Energy Union,” p. 40. Available at: https://ec.europa.eu/commission/sites/beta-political/files/study-residential-prosumers-energy-union_en.pdf. (Accessed 23 October 2019). 108. Ibid. 109. Lowitzsch, J., 2019. “Financing Renewables While Implementing Energy Efficiency Measures through Consumer Stock Ownership Plans (CSOPs)—The H2020 Project SCORE,” IOP Conf Series: Earth Environ Sci 290, 012051, 209. Available at: https://iopscience.iop.org/ article/10.1088/1755-1315/290/1/012051. (Accessed 28 October 2019). 110. Act No. 310/2013 Coll. that amended Act No. 165/2012 on promoted energy sources, phasing-out the feed-in tariff scheme and green bonus. 111. Enerdata, 2018. “Country Energy Report: Czech Republic,” p. 9. Available at: http://web.b. ebscohost.com.ezproxy.library.qmul.ac.uk/ehost/pdfviewer/pdfviewer?vid 5 0&sid 5 66b50f9e314c-4e9e-995b-09aa26c9e058%40pdc-v-sessmgr02. (Accessed 7 September 2019). 112. European Commission, 2017. “Study on “Residential Prosumers in the European Energy Union,” p. 46. Available at: https://ec.europa.eu/commission/sites/beta-political/files/study-residential-prosumers-energy-union_en.pdf. (Accessed 23 October 2019). It has been highlighted that the implementation of this program allowed a new increased in the total installed capacity of solar PV after the phase-out of feed-in tariffs. See Bellini, E., 2017. “Czech Solar Market Shows First Signs of Revival in Residential Segment,” PV Magazine. Available at: http://www. pv-magazine.com/2017/03/15/czech-solar-market-shows-first-signs-of-revival-in-residential-segment/. (Accessed 25 October 2019). 113. Lowitzsch, J., 2019. “Financing Renewables While Implementing Energy Efficiency Measures through Consumer Stock Ownership Plans (CSOPs)—The H2020 Project SCORE,” IOP Conf Series: Earth Environ Sci 290, 012051, 6. Available at: https://iopscience.iop.org/article/10.1088/1755-1315/290/1/012051. (Accessed 28 October 2019).

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of small hydro, biomass, and biogas intended for distribution.114 Finally, prosumers are exempted from the access to the grid fee, given that a characteristic of these facilities is the zero reserved capacity115 and renewable resources have priority in terms of connection to the grid.116 Although these incentives are on the right track to pave the way for RES decentralization, it would be advisable that a unique regime is implemented to reduce legal uncertainty and the potential discriminatory treatment of having more than one regime in place. Additionally, it is advisable that incentives also include the capital, Prague, where the majority of the population is located. Strengthening consumer’s rights is another feature of this empowerment. Following the TEP, Czechia amended the Energy Act to enhance consumers’ rights, allowing to choose the electricity supplier, enabling switching, and entitling consumers with the right to require certain information on the aggregate mix of the supplier’s fuels. Although there was a relevant decrease in switching rates below the EU average between 2011 and 2015,117 according to the regulator,118 in 2018 switching has been significant, enhancing competition among electricity traders. As a matter of fact, and despite such alleged switching rate drop, in 2014 Czechia ranked ninth in terms of competitiveness of the retail market.119 However, the IEA has pointed out that the timing involved in switching supplier is significantly lengthier (i.e., a 90-day notice period required) than that required by the EU regulation.120 But, overall, the level of satisfaction of Czech consumers is similar to the average EU satisfaction level.121

114. Ibid, p. 215. 115. European Commission, 2017. “Study on “Residential Prosumers in the European Energy Union,” p. 49. Available at: https://ec.europa.eu/commission/sites/beta-political/files/study-residential-prosumers-energy-union_en.pdf. (Accessed 23 October 2019). 116. Valach, B., “Connection to the Grid” January 2019. Available at: http://www.res-legal.eu/ search-by-country/czech-republic/single/s/res-e/t/gridaccess/aid/connection-to-the-grid-4/lastp/ 119/. (Accessed 25 October 2019). 117. European Commission, 2017. “Energy Union Factsheet Czech Republic,” p. 6. Available at: https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-czech-republic_en.pdf. (Accessed 12 October 2019). 118. Energy Regulatory Office, 2018. “National Report of the Energy Regulatory Office on the Electricity and Gas Industries in the Czech Republic for 2018,” p. 8. Available at: http://www. eru.cz/documents/10540/488714/NR_ERU_2018/e15bbe19-1bc3-4e13-ab46-7dfafd1a74d3. (Accessed 12 October 2019). 119. IPA, 2015. “Ranking the Competitiveness of Retail Electricity and Gas Markets: A Proposed Methodology,” ACER, p. 62 http://www.acer.europa.eu/en/electricity/market%20monitoring/documents_public/ipa%20final%20report.pdf. (Accessed 25 October 2019). 120. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 92. Available at: https://webstore.iea.org/energy-policies-ofiea-countries-czech-republic-2016-review. (Accessed 3 September 2019). There is no public evidence that such timeframe has been reduced up to date. 121. European Commission, 2017. “Energy Union Factsheet Czech Republic,” p. 7. Available at: https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-czech-republic_en.pdf. (Accessed 12 October 2019).

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Finally, the NAP SG instructed a working group in 2015 to identify vulnerable consumers and households affected by energy poverty to elaborate plans and preventive measures to combat it.122 Considering the two types of energy poverty, unavailability of resources or unavailability of funding, the latter is more likely to affect Czech’s consumers.123

25.3.3 Smartening of the electricity grid The smart grid has been described as the marriage of modern information technology and the electric system.124 The IEA defines the smart grid as “an electricity network that uses digital and other advanced technologies to monitor and manage the transport of electricity from all generation sources to meet the varying electricity demands of end users.”125 The benefits of smart systems are various. First, they allow a better and more efficient management of the grid, contributing, on the one hand, to emissions reduction and, on the other, to the safety and security of the system. Furthermore, smart grids favor a better management and integration of RES, especially with the emergency of storage assets that enable the latter use of surplus low-carbon generation. Therefore RES generation is used more efficiently, reducing at the same time the need to build new centralized generation power plants. Consequently, the system experiences a decrease in costs, enhancing energy access and the competitiveness of the system as a whole.126 Notwithstanding this, it is not all a bed of roses. A prerequisite for its well-functioning is the existence of a functional market. What is more, smart grids involve high upfront costs and require especial consideration for cyber security issues and necessitates engaged consumers.127 For example, the 122. Government of the Czech Republic, 2018. “Draft National Energy and Climate Plan of the Czech Republic,” p. 54. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/ ec_courtesy_translation_cz_necp_0.pdf. (Accessed 5 October 2019). 123. Kar´asek, J., Pojar, J., 2018. “Programme to Reduce Energy Poverty in the Czech Republic,” Energy Policy 115, 131. Available at: https://linkinghub.elsevier.com/retrieve/pii/ S0301421517308650. (Accessed 1 November 2019). 124. Fox-Penner, P.S., 2010. Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities, Island Press, p. 34. 125. IEA, 2011. “Technology Roadmap - Smart Grids,” p. 6. Available at: https://www.iea.org/ reports/technology-roadmap-smart-grids. (Accessed 29 October 2019). 126. For a detailed analysis of smart grids, see Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 11. Available at: https://papers.ssrn.com/sol3/ papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 127. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 28. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019).

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Czech NAP SG estimates that the costs involved to implement smart grids rise up to CZK 155 billion by 2040.128 From another perspective, a well-developed smart grid will be dependent upon many factors and the correct deployment of its different components (i.e., smart meters, storage, decentralized RES, EVs, demand response [“Dr”] mechanisms). As highlighted above, the existence of a fully liberalized market, as is the case for Czechia, seems a precondition to benefit from variations in electricity pricing. The introduction of smart meters seems key to that end to adequately measure and provide pricing information. On the other extreme, storage technologies will presumably be fully exploited if combined with (1) EV, (2) an electricity mix with a relevant (usually more than 30%) RES installed capacity, (3) smart meters, and (4) Dr mechanisms. Thus the correct implementation of smart grids will undoubtedly be conditional upon the adequate implementation of all of its components. The EU Commission seems well aware of the advantages of smart grids and has been fostering its deployment for more than a decade.129 As a matter of fact, it is expected that the implementation of smart grids might have similar repercussions on the EU as that of shale gas in the United States as regards enhancing energy security and affordability.130 The following subsections describe the main targets at the EU level for the different components of smart grids and assesses Czechia’s position toward the achievement of those targets.

25.3.3.1 Smart meters Smart meters are considered an essential component of smart grids.131 The new EU Electricity Directive includes a definition of “smart metering system” as an “electronic system that is capable of measuring electricity fed into the grid or electricity consumed from the grid, providing more information than a conventional meter, and that is capable of transmitting and receiving data for information, monitoring, and control purposes, using a form of electronic communication.”132 The definition clearly evidences that 128. MIT, 2015. “National Action Plan for Smart Grids (NAP SG).” Available at: http://www. smart-grid.org.tw/userfiles/vip1/(MIT)prezentace_mp_nap_seminar_taiwan_20150904_EN.pdf. (Accessed 29 October 2019). 129. For a detailed analyses of the EU legal framework for smart grids, see Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 130. European Parliament, 2015. “Smart electricity grids and meters in the EU Member States.” Available at: http://www.europarl.europa.eu/RegData/etudes/BRIE/2015/568318/EPRS_BRI% 282015%29568318_EN.pdf. (Accessed 29 October 2019). 131. Smart Cities Symposium Prague and others, 2016. Smart Cities Symposium Prague (SCSP): Prague, May 26 27 2016. Available at: http://ieeexplore.ieee.org/servlet/opac? punumber 5 7495593. (Accessed 29 October 2019). 132. Article 2, (23), Directive EU 944/2018 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/ 27/EU.

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the essential feature of smart meters is access to information, which enables consumers to adapt their consumption patterns toward a more affordable and efficient use of electricity. By the same token, this favors a better management and flexibility of the grid, reducing the need to resort to new peak plants. On the negative side, this access to information may give rise to data protection and cyber-security concerns While the TEP and the new EU Electricity Directive mandate member states to roll out intelligent metering devices, this can be contingent on a positive costs and benefits analysis (“CBA”) on the long term. If the result were positive, a target of rolling out at least 80% smart meters by 2020 has been set133 and the EU established guidelines for member states on “common minimum functionalities for smart meters.”134 As smart meters’ deployment is governed by the principle of subsidiarity, member states have discretion to design the policies to comply with the targets agreed at the community level.135 In case of negative results, member states should revise this CBA at least every 4 years in response to technological innovations.136 In the case of Czechia, the 2015 NAP SG supports a progressive introduction of smart grids, starting the first phase between 2020 and 2024 and it is expected to be completed by 2029.137 However, following the EU Directives, the Czech Government conducted the CBA and the result of both the initial and revised in 2018 was negative.138 The reason for this was attributed to the ripple control systems in place which clashes with these intelligent devices.139 Therefore the Government has decided not to

133. Report from the Commission, Benchmarking smart metering deployment in the EU-27 with a focus on electricity, COM/2014/0356 final. 134. European Commission, “Recommendation of 9 March 2012 on preparations for the roll-out of smart metering systems” (2012/148/EU). 135. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 13. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 136. Article 19, s 5, Directive 944/2018. 137. IEA, Energy Policies of IEA Countries: Czech Republic 2016 (Organisation for Economic Co-operation and Development), p. 28. Available at: https://webstore.iea.org/energy-policies-ofiea-countries-czech-republic-2016-review. (Accessed 3 September 2019). 138. European Commission, 2017. “Energy Union Factsheet Czech Republic,” p. 7. Available at: https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-czech-republic_en.pdf. (Accessed 12 October 2019); Tractebel, 2019. “Benchmarking Smart Metering Deployment in the EU-28—Revised Final Report,” European Commission DG Energy, p. 29. Available at: http://www.vert.lt/SiteAssets/teises-aktai/EU28%20Smart%20Metering% 20Benchmark%20Revised%20Final%20Report.pdf. (Accessed 29 October 2019). 139. ICCS-NTUA, 2015. “Study on Cost Benefit Analysis of Smart Metering Systems in EU Member States.” Available at: https://ec.europa.eu/energy/sites/ener/files/documents/AF%20Mercados%20NTUA %20CBA%20Final%20Report%20June%2015.pdf. (Accessed 10 September 2019).

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introduce smart meters universally for the time being140 and is undertaking several pilot projects to test the functioning of the system. In that regard, CEZ introduced a pilot project in Vrchlab´ı at the distribution level to assess the performance of smart meters to handle electricity fluctuations.141 At the international level, the EU has supported by means of a PCI an interconnection project between the distribution systems of Czechia and Slovakia, known as “ACON (Again Connected Networks),” to enhance the functionality and smarten the grids.142 The new Electricity Directive provides that, where the CBA has been negative, consumers are still enabled to request an intelligent meter, bearing the associated costs. Despite the fact that consumers in Czechia are entitled to request these intelligent devices, the deployment of smart meters is very low. Indeed, the country has been categorized as level three of four in terms of commitment and deployment of smart meters.

25.3.3.2 Storage Electricity storage (generically referred to as energy storage) is considered a “game changer”143 of the electricity systems due to the countless advantages it can provide in terms of efficiency, decarbonization, reliability, and affordability.144 The essential feature of these disruptive technologies is their ability to “transform electrical energy into another form of energy that can be stored and then used to regenerate electricity when needed,”145 altering the traditional need to continuously balance demand and supply.146 As a result, electricity generated from RES can be stored, contributing to the decarbonization of the system.147 In addition, the management of the grid is enhanced, 140. Ministry of Industry and Trade, 2017. “Update of the National Energy Efficiency Action Plan of the Czech Republic,” p. 38. Available at: http://www.mpo.cz/assets/en/energy/energyefficiency/strategic-documents/2017/11/NEEAP-CZ-2017_en.pdf. (Accessed 3 September 2019). 141. Jan´ıcek, L., Kotlaba, R., “CMS Guide to Electricity: Czech Republic,” p. 7. Available at: https://www.lexology.com/library/detail.aspx?g 5 8ebec451-9210-4681-89ba-1f5a42efa7b8. (Accessed 9 September 2019). 142. ACON Smart Grids, Project No. 10.4 of the Union list of PCI. Available at: http://www. acon-smartgrids.cz/upload/Brozura_Acon_EU_web.pdf. (Accessed 27 October 2019). 143. Di Castelnuovo, M., Vazquez, M., 2018. “Policy and Regulation for Energy Storage Systems,” Universit´a Bocconi, 106, 3. 144. European Commission, 2013. “DG ENER Working Paper—The Future Role and Challenges of Energy Storage,” p. 1. Available at: https://ec.europa.eu/energy/sites/ener/files/ energy_storage.pdf. (Accessed 15 July 2019). 145. Meyer, A.H., 2014. “Federal Regulatory Barriers to Grid-Deployed Energy Storage,” Columbia J Environ Law 39, 479, 481. 146. Van der Veen, R.A.C., Hakvoort, R.A., 2016. “The Electricity Balancing Market: Exploring the Design Challenge,” Utilities Policy 43, 186. Available at: https://linkinghub.elsevier.com/ retrieve/pii/S0957178716303125. (Accessed 14 July 2019). 147. European Commission, 2013. “DG ENER Working Paper—The Future Role and Challenges of Energy Storage,” p. 1. Available at: https://ec.europa.eu/energy/sites/ener/files/ energy_storage.pdf. (Accessed 15 July 2019).

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by reducing congestion and, at the same time, reducing the need to create new power plants148 and expand the transmission capacity149 which involves high upfront costs and may involve serious environmental, planning, and social concerns. The Clean Energy Package, by means of the new Electricity Directive and Regulation 943/2019,150 expressly mandates member states to foster electricity storage, remove barriers for its deployment, and level the playing field for its participation in the capacity markets. The Regulation is applicable from 1 January 2020. Therefore Czechia is bound to implement measures to encourage the development of storage technologies. The current electricity storage capacity installed in Czechia is mainly pumped hydro (Stechovice of 45 MW, Dalesice of 480 MW, and Dlouhe Strane of 650 MW), all controlled by CEZ Group.151 The regulatory treatment for this technology is that of generators, as is the case for most jurisdictions for pumped hydro. Czechia, as many other member states, has not implemented a regulatory framework for energy storage. As a matter of fact, the absence of a definition and categorization of storage has been identified as a key obstacle for its deployment.152 Indeed, IEA highlighted the need to clarify storage’s role in the system by means of defining ownership structures and ownership eligibility.153 The EU has already taken a position in that regard and, in principle,154 forbids transmission and DSOs from owning storage assets. The rationale of this prohibition is to avoid affecting the basic principles of the liberalized electricity systems and the grid operator’s obligations not to discriminate among market participants, avoid cross-subsidization so as not to distort competition.

148. Meyer, A.H., 2014. “Federal Regulatory Barriers to Grid-Deployed Energy Storage,” Columbia J Environ Law 39, 479, 482. 149. Akhil, A., et al., 2015. “DOE/EPRI - Electricity Storage Handbook,” Sandia National Laboratories, p. 16. Available at: http://www.sandia.gov/ess-ssl/publications/SAND2015-1002. pdf. (Accessed 16 July 2019). 150. Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity. 151. Jan´ıcek, L., Kotlaba, R., “CMS Guide to Energy Storage: Czech Republic,” p. 7. Available at http://www.lexology.com/library/detail.aspx?g 5 01c4a84d-1b58-4fbc-8aab-eff7c37293bf. (Accessed 31 October 2019). 152. Crossley, P., “Defining the Greatest Legal and Policy Obstacle to Energy Storage,” 2013. Renew Energy Law Policy Rev 4, 269 and European Commission, “Energy Storage—the Role of Electricity,” p. 17. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/ swd2017_61_document_travail_service_part1_v6.pdf. (Accessed 31 October 2019). 153. IEA, 2014. “Technology Roadmap: Energy Storage,” p. 50. Available at: https://webstore. iea.org/technology-roadmap-energy-storage. (Accessed 31 October 2019). 154. Exceptions to this general rule are given when a lack of a “reasonable” market-based solution is demonstrated.

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The Czech Government does not have at the time of writing a specific policy to enable large-scale storage technologies and has anticipated that market-driven solutions will be preferred to avoid competition distortion, although conditions may be created by means of research, development, and innovation.155 As a matter of fact, the NAP SG considers energy storage a costly solution for the development of smart grids. Thus, until technology prices drop, it seems unlikely for large-scale storage to widely develop in Czechia.156 Notwithstanding, in light of the new Electricity Directive and Regulation 943/2019, Czechia is bound to immediately adapt its legal framework to remove regulatory barriers for storage deployment. The creation of a specific Association for Energy Storage and Batteries (“AKU-BAT CZ”) will presumably be positive to that end, as has been the case in the United States with the Energy Storage Association. Contrarily, at the residential level, subsidies are granted since 2017 for households to foster solar PV combined with electricity storage systems (mainly batteries and thermal technologies).157 To access the incentive, for each kilowatt of PV installed, a minimum of 5 kW of storage capacity should be included.158 Furthermore, in the residential sector, Tesla installed in 2015 lithium-ion batteries and is executing other pilot projects.159 In addition, Solar Global has also recently launched the first large battery power storage with a capacity of around 160 ˇ 1.2 MWh. Similar projects are being planned by E.ON and CEZ.

25.3.3.3 Demand response Dr161 is changing consumers’ behavior in the use of electricity in response to prices or incentive payments to discourage consumption when prices are 155. Government of the Czech Republic, 2018. “Draft National Energy and Climate Plan of the Czech Republic,” p. 58. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/ ec_courtesy_translation_cz_necp_0.pdf. (Accessed 5 October 2019). 156. Jan´ıcek, L., Kotlaba, R., “CMS Guide to Energy Storage: Czech Republic,” p. 7. Available at http://www.lexology.com/library/detail.aspx?g 5 01c4a84d-1b58-4fbc-8aab-eff7c37293bf. (Accessed 9 September 2019). 157. Ibid. 158. Bellini, E., “Czech Republic Provides Incentives for Solar-plus-Storage”. Available at: http://www.pv-magazine.com/2017/05/04/czech-republic-provides-incentives-for-solar-plus-storage/. (Accessed 31 October 2019). 159. Jan´ıcek, L., Kotlaba, R., “CMS Guide to Energy Storage: Czech Republic,” p. 7. Available at http://www.lexology.com/library/detail.aspx?g 5 01c4a84d-1b58-4fbc-8aab-eff7c37293bf. (Accessed 9 September 2019). 160. Denkov´a, A., “Smart electricity: what smart grids are and what they do,” 15 December 2017. Available at: https://euractiv.cz/section/all/linksdossier/chytra-elektrina-co-jsou-to-inteligentni-site-a-k-cemu-slouzi/. (Accessed 24 November 2019). 161. The new Electricity Directive defines demand response as “the change of electricity load by final customers from their normal or current consumption patterns in response to market signals, including in response to time-variable electricity prices or incentive payments, or in response to the acceptance of the final customer’s bid to sell demand reduction or increase at a price in an organized market as defined in point (4) of Article 2 of Commission Implementing Regulation (EU) No 1348/2014 (17), whether alone or through aggregation.”

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high and/or the reliability of the system may be jeopardized.162 There are two nonexclusive163 types of Dr programs: (1) implicit schemes, meaning that consumers’ behavior responds to market price fluctuations and/or dynamic network costs and, thus, aggregators are not necessarily required, and (2) explicit schemes, where direct payments are made to consumers to change their consumption profile upon request when there are grid constraints, variations in electricity pricing or to balance supply and demand.164 Under explicit schemes, consumers can act individually or by means of an aggregator who then trades the aggregated Dr in the different available markets.165 Among the many benefits of Dr, the reduction of the need to build new peaking generation,166 reduction of infrastructure upgrades, achieving a better management of RES, enhancement of the reliability and stability of the system, and reducing bills stand out.167 Dr mechanisms are regarded as key for the well-functioning of electricity markets168 and can play a relevant role to optimize smart technologies by means of avoiding increases in electricity prices for ineffective load balancing.169 At the EU level, the Energy Efficiency Directive170 mandates member states not merely to remove components of transmission and distribution tariffs adverse to efficiency or Dr in all the activities of the electricity value 162. Aghaei, J., Alizadeh, M.-I., 2013. “Demand Response in Smart Electricity Grids Equipped with Renewable Energy Sources: A Review,” Renew Sustain Energy Rev 18, 65. Available at: https://linkinghub.elsevier.com/retrieve/pii/S1364032112005205. (Accessed 3 November 2019). 163. Bertoldi, P., et al., 2016. Demand Response Status in EU Member States. Publications Office, p. 3. Available at: http://dx.publications.europa.eu/10.2790/962868. (Accessed 3 November 2019). 164. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 38. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 165. Ibid. 166. A decrease in demand can be equivalent to a generation increase in the balancing process. Kommission, E. (ed.), 2006. European Technology Platform Smart Grids: Vision and Strategy for Europe’s Electricity Networks of the Future, Office for Official Publications of the European Communities, p. 7. 167. Bertoldi, P., et al., 2016. Demand Response Status in EU Member States, Publications Office, p. 1. Available at: http://dx.publications.europa.eu/10.2790/962868. (Accessed 3 November 2019). 168. Gyamfi, S., Krumdieck, S., Urmee, T., 2013. “Residential Peak Electricity Demand Response—Highlights of Some Behavioural Issues,” Renew Sustain Energy Rev 25, 72. Available at: https://linkinghub.elsevier.com/retrieve/pii/S1364032113002578. (Accessed 3 November 2019). 169. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 25. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 170. Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency.

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chain (namely, generation, transmission, distribution, and supply) but also to encourage network operators to improve efficiency and allow consumer participation.171 The transposition of this Directive has been criticized as some member states, including Czechia, created a limit to legally allowing Dr, but failed to introduce the regulatory conditions to ensure and incentivize its participation in a nondiscriminatory manner with other technologies. Certainly, Czechia has been categorized as a member state not “seriously engage with Demand Response reforms.”172 Since 1960, Czechia has been using the ripple control system as a Dr measure and to reduce investment in the distribution system.173 This is a unidirectional communication system, where customers allow the DSO control of certain electric heating appliances to manage load. Currently, this mechanism is used in almost half of residential electricity consumption and onethird of small enterprises.174 As explained above, although this regime has been positive toward efficient consumption measures, it is currently outdated and is one of the main reasons for the negative CBA for smart meters. As modern technologies bring about more flexible and efficient solutions for consumers, Czechia needs to review this mechanism to smarten its electricity system.175 Incentives are in place for the DSO to reduce overall losses in the distribution network. In fact, the operator is entitled to supplementary earning when distribution losses are diminished as a percentage of the difference between the costs of losses and income obtained from the use of the network.176 This incentive goes in line with the EU requirements set forth in the Energy Efficiency Directive. One step further to the Energy Efficiency Directive, the new Electricity Directive mandates member states to allow and foster the participation of aggregators in a nondiscriminatory manner. The regulatory frameworks for aggregation need to comply with, at least, the minimum criteria set forth 171. Article 15.4 and 15.8 of the Energy Efficiency Directive. 172. Bertoldi, P., et al., 2016. Demand Response Status in EU Member States, Publications Office, p. iv. Available at: http://dx.publications.europa.eu/10.2790/962868. (Accessed 3 November 2019). 173. Ministry of Industry and Trade, 2017. “Update of the National Energy Efficiency Action Plan of the Czech Republic,” p. 72. Available at: http://www.mpo.cz/assets/en/energy/energyefficiency/strategic-documents/2017/11/NEEAP-CZ-2017_en.pdf. (Accessed 3 September 2019). 174. Bertoldi, P., et al., 2016. Demand Response Status in EU Member States, Publications Office, p. 25. Available at: http://dx.publications.europa.eu/10.2790/962868. (Accessed 3 November 2019). 175. Denkov´a, A., “Smart electricity: what smart grids are and what they do,” 15 December 2017. Available at: https://euractiv.cz/section/all/linksdossier/chytra-elektrina-co-jsou-to-inteligentni-site-a-k-cemu-slouzi/. (Accessed 24 November 2019). 176. Ministry of Industry and Trade, 2017. “Update of the National Energy Efficiency Action Plan of the Czech Republic,” p. 70. Available at: http://www.mpo.cz/assets/en/energy/energyefficiency/strategic-documents/2017/11/NEEAP-CZ-2017_en.pdf. (Accessed 3 September 2019).

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therein.177 The Czech Government has anticipated that the transposition of the Directive will foster the development of Dr,178 although an implementation period of 18 months is expected.179 This transposition will be key to adequately regulate and incentivize Dr mechanisms, and the Czech regulators should carefully assess the path taken by other jurisdictions, namely the United Kingdom, to properly integrate aggregators in the different markets.

25.3.3.4 Electric vehicles Given that transportation, and especially transport by road (70%), represents approximately a quarter of the EU greenhouse gas (GHG) emissions,180 the EU Commission has acknowledged the need to shift to low-emission mobility, especially by fostering EVs. To that end, by means of a White Paper, the EU adopted a set of initiatives to diminish oil imports to Europe and significantly cut down transport emissions by 60% by 2050. The targets imply reducing the use of conventional-fueled cars by 50% by 2030 and phasing them out completely by 2050.181 These goals are complemented by (1) the Directive on the deployment of alternative fuels infrastructure182 to ensure EVs have access to sufficient charging points by 31 December 2020 and suggesting that, ideally, every 10 cars in circulation there should be one charging point available183 and (2) introducing changes to the vehicle emissions tests, to regain consumers trust on EVs.184 To 177. Article 17 of the new Electricity Directive. 178. Government of the Czech Republic, 2018. “Draft National Energy and Climate Plan of the Czech Republic,” p. 115. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/ ec_courtesy_translation_cz_necp_0.pdf. (Accessed 5 October 2019). 179. Ibid, p. 52. 180. EU Transport depends mainly on oil (94%). European Commission, “A European Strategy for Low-Emission Mobility,” p. 2. Available at: https://eur-lex.europa.eu/resource.html? uri 5 cellar:e44d3c21-531e-11e6-89bd-01aa75ed71a1.0002.02/DOC_1&format 5 PDF. (Accessed 6 November 2019). 181. EU Commission, White Paper, Roadmap to a Single European Transport Area—Towards a competitive and resource efficient transport system, COM/2011/0144 final. Available at: https:// eur-lex.europa.eu/legal-content/EN/ALL/?uri 5 CELEX:52011DC0144. (Accessed 6 November 2019) and EU Transport depends mainly on oil (94%). European Commission, “A European Strategy for Low-Emission Mobility,” p. 2. Available at: https://eur-lex.europa.eu/resource.html? uri 5 cellar:e44d3c21-531e-11e6-89bd-01aa75ed71a1.0002.02/DOC_1&format 5 PDF. (Accessed 6 November 2019). 182. Directive 2014/94/EU of the European Parliament and of the Council of 22 October 2014 on the deployment of alternative fuels infrastructure. 183. Recital 23, Directive 2014/94/EU of the European Parliament and the Council on the deployment of alternative fuels infrastructure. Available at: https://eur-lex.europa.eu/eli/dir/2014/ 94/oj. (Accessed 6 November 2019). 184. European Commission, “A European Strategy for Low-Emission Mobility,” p. 6. Available at: https://eur-lex.europa.eu/resource.html?uri 5 cellar:e44d3c21-531e-11e6-89bd-01aa75ed71a1.0002.02/ DOC_1&format 5 PDF. (Accessed 6 November 2019). Furthermore, the EU Commission sets mandatory targets for CO2 emissions for new vehicles and vans. See European Environment Agency, 2016. Electric Vehicles in Europe, p. 59. Available at http://bookshop.europa.eu/uri?target 5 EUB:NOTICE: THAL16019:EN:HTML. (Accessed 10 November 2019).

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boost the EVs’ market in Europe, the Commission185 suggested potential measures to be implemented by member states. These can range from tax incentives, reduced electricity pricing, toll exemptions, access to restricted areas or city centers, and/or preferential treatment in terms of parking.186 EVs are called to play a key role in the energy transition not only for their lower threshold of emissions but, most importantly, for their storage capacity. As battery costs drop, EVs can act as reserve capacity, what is known as Vehicle-to-Grid system. In other words, it can perform as a power plant when needed, thus, enhancing the management and reliability of the electricity system187 and contributing to a greater extent to the decarbonization of the transport sector. Two main factors evidence that the deployment of EVs in Czechia is key not only toward the reduction of GHG emissions but also given the special features of its industry. On the one hand, given the role the car manufacturing industry plays in Czechia, representing more than 20% of the total manufacturing industry and employing around 150,000 people, the country is ideally positioned to lead the transition toward low-carbon e-mobility.188 On the other, Czechia’s transport sector represented 24.2% of the TFC in 2017, evidencing the urgent need to adopt measures toward the decarbonization of the sector to accomplish the EU targets and comply with the commitments under the Paris Agreement on Climate Change. In fact, Czechia has adopted several measures to that end. These mainly rely on two nonbinding documents, namely the Memorandum on the Future of Automotive Industry in the Czech Republic189 and the NAPCM. First, in the public sector, purchase benefits in the form of subsidies up to CZK 250,000 (h 10,000)190 are granted to municipalities, regions, and local government agencies when purchasing cars with alternative technologies that

185. The EU Parliament called on the Commission to adopt an ambitious action plan to foster electric vehicles. See Resolution No. 2016/2327 of 14 December 2017 on a European Strategy for Low-Emission Mobility. 186. European Environment Agency, Electric Vehicles in Europe, p. 63. Available at: http:// bookshop.europa.eu/uri?target 5 EUB:NOTICE:THAL16019:EN:HTML. (Accessed 10 November 2019). 187. Leal-Arcas, R., Lesniewska, F., Proedrou, F., “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law, p. 24. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 188. Schwartzkopff, J., Schulz, S., Goritz, A., “Climate & Energy Snapshot: Czech Republic The Political Economy of the Low-Carbon Transition,” p. 9. Available at: http://www.e3g.org/ docs/Climate_energy_snapshot_CZ_updated.pdf. (Accessed 21 November 2019). 189. Signed between the MIT and AutoSAP President on 11 October 2017. 190. CMS, “CMS Expert Guide to Electric Vehicles: Czech Republic” (August 2018). Available at: https://cms.law/en/int/expert-guides/cms-expert-guide-to-electric-vehicles/czech-republicw/en/ int/expert-guides/cms-expert-guide-to-electric-vehicles/czech-republic. (Accessed 12 November 2019).

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contribute to the reduction of GHG emissions.191 Second, EVs’ owners can resort to discounts in the price of electricity when the charging is done when prices are low, as a way to promote “smart charging.”192 The period of this low tariff is determined by the distributor and must last a minimum of 8 hours.193 Third, EVs or hybrid vehicles are exempted from road tax. However, this fails to act as a proper incentive as the tax is low.194 Fourth, these measures have been complemented by the introduction of free charging at public stations,195 dedicated parking spaces and beneficial parking fees and subsidies for the installation of charging points up to CZK 130 million (h 5.2 million).196 As a matter of fact, the past 5 years have evidenced a major increase of electric charging points, raising up to 435 units.197 Finally, Czechia has also implemented pilot projects for the deployment of electric buses and the combination of storage capacity with EVs charged from RES.198

25.3.3.5 Privacy, data protection, and cyber-security issues The deployment of smart grids brings about far-reaching benefits to the electricity systems. The bilateral flow of information allows utilities to control and predict energy usage toward a more efficient use of electricity. Additionally, it favors a better integration of low-carbon technologies and decentralized resources contributing to decarbonization. But their deployment also possesses major regulatory challenges that policy necessarily must 191. European Environment Agency, 2016. Electric Vehicles in Europe, p. 63. Available at http://bookshop.europa.eu/uri?target 5 EUB:NOTICE:THAL16019:EN:HTML. (Accessed 10 November 2019). 192. Ibid, p. 61. 193. Ministry of Industry and Trade, 2017. “Update of the National Energy Efficiency Action Plan of the Czech Republic,” p. 71. Available at: http://www.mpo.cz/assets/en/energy/energyefficiency/strategic-documents/2017/11/NEEAP-CZ-2017_en.pdf. (Accessed 3 September 2019). 194. CMS, “CMS Expert Guide to Electric Vehicles: Czech Republic” (August 2018). Available at: https://cms.law/en/int/expert-guides/cms-expert-guide-to-electric-vehicles/czech-republicw/en/ int/expert-guides/cms-expert-guide-to-electric-vehicles/czech-republic. (Accessed 12 November 2019). 195. European Environment Agency, 2016. Electric Vehicles in Europe, p. 63. Available at http://bookshop.europa.eu/uri?target 5 EUB:NOTICE:THAL16019:EN:HTML. (Accessed 10 November 2019). 196. CMS, “CMS Expert Guide to Electric Vehicles: Czech Republic” (August 2018). Available at: https://cms.law/en/int/expert-guides/cms-expert-guide-to-electric-vehicles/czech-republicw/en/ int/expert-guides/cms-expert-guide-to-electric-vehicles/czech-republic. (Accessed 12 November 2019). 197. European Commission, 2017. “Energy Union Factsheet Czech Republic,” p. 13. Available at: https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-czech-republic_en.pdf. (Accessed 12 October 2019). 198. Denkov´a, A., “Smart electricity: what smart grids are and what they do,” 15 December 2017. Available at: https://euractiv.cz/section/all/linksdossier/chytra-elektrina-co-jsou-to-inteligentni-site-a-k-cemu-slouzi/. (Accessed 24 November 2019).

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address for its viable development. As it has been stated, “failure to address these problems will hinder the modernization of the existing power system.”199 Certainly, the main risks identified with smart grids are data privacy and protection as well as cyber-security issues.200 Regarding the first two fundamental rights, they can be differentiated as follows: while “privacy limits the use of power as a tool of opacity, personal data protection channels the legitimate use of power, imposing a certain level of transparency and accountability.”201 As explained earlier, the key feature of smart meters is its enhanced access to information. As these smart devices can read consumers’ use of electricity,202 they enable the recipients of such information to make decisions accordingly and even control consumers’ behavior,203 putting at stake those fundamental rights. On the cyber-security perspective, the digitalization of the energy infrastructure makes it vulnerable to cyber-attacks to access essential information or take control over key infrastructure, such as power plants, the network, or control centers threatening the country’s security.204 Hackers may simply take control of key infrastructure interrupting the electricity supply, not only for residential consumers but also to industries and companies. The European Commission recognized the risks involved in smart technologies deployment and the necessity to adequately address them from a regulatory perspective to build up consumer’s trust on smart grids.205 199. Liu, J., et al., 2012. “Cyber Security and Privacy Issues in Smart Grids” IEEE Communications Surveys & Tutorials 14, 981. Available at: http://ieeexplore.ieee.org/document/ 6129371/. (Accessed 24 November 2019). 200. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 35. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 201. Kloza, D., van Dijk, N., De Hert, P., 2015. “Assessing the European Approach to Privacy and Data Protection in Smart Grids. Lessons for Emerging Technologies,” Smart Grid Security, Elsevier, p. 20. Available at: https://linkinghub.elsevier.com/retrieve/pii/B978012802122400002X. (Accessed 23 November 2019). 202. Studies show that the level of access to information is such as to determine which TV show or film was watched on a certain TV. See Kloza, D., van Dijk, N., De Hert, P., 2015. “Assessing the European Approach to Privacy and Data Protection in Smart Grids. Lessons for Emerging Technologies,” Smart Grid Security, Elsevier. Available at: https://linkinghub.elsevier.com/ retrieve/pii/B978012802122400002X. (Accessed 23 November 2019). 203. Kloza, D., van Dijk, N., De Hert, P., 2015. “Assessing the European Approach to Privacy and Data Protection in Smart Grids. Lessons for Emerging Technologies,” Smart Grid Security, Elsevier. Available at: https://linkinghub.elsevier.com/retrieve/pii/B978012802122400002X. (Accessed 23 November 2019). 204. Denkov´a, A., “Smart electricity: what smart grids are and what they do,” 15 December 2017. Available at: https://euractiv.cz/section/all/linksdossier/chytra-elektrina-co-jsou-to-inteligentni-site-a-k-cemu-slouzi/. (Accessed 24 November 2019). 205. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 11. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019).

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Therefore adequately addressing issues like data access, reasonable use, and ownership must be a prerequisite for smart-grid deployment.206 To that end, among the many measures adopted at the EU level, the Smart Grids Task Force (“SGTF”) was created in 2009 by the European Commission whose main function is issuing regulatory recommendations for privacy, data protection, and cyber-security concerns.207 This is complemented by the impact assessment template which is a guide on data protection and privacy for data controllers and investors in smart grids.208 Finally, the recast of the Regulation on the Internal Market for Electricity fosters the adoption of technical rules for cyber security aspects of cross-border electricity flows. To implement the General Data Protection Regulation (“GDPR”) which is the main data protection regulation at the EU level, Czechia passed the Personal Data Processing Act209 that repeals the first act on data protection.210 Contrarily to other jurisdictions where data protection is competence of national regulatory authorities or utilities, the enforcement authority responsible for data protection is the Czech Office for Personal Data Protection. Regarding cyber-security, while the Czech Government seems aware of this risk, the NECP is confined to including the development of protection against cyber-attacks among the different priority areas for research and innovation211 but fails to propose a robust regime to that end. In fact, European Commission subtly criticized the NECP for not addressing with enough depth measures on cyber-security and critical infrastructure “in view of their increasing importance in energy supply systems of the future.”212

206. Eisen, J., 2014. “An Open Access Distribution Tariff: Removing Barriers to Innovation on the Smart Grid” UCLA Law Review 61, 1712, 1728. 207. The SGTF is composed of stakeholder representatives from industry, regulators, consumer groups, and the European Commission. European Commission, Smart Grid Task Force. Available at: https://ec.europa.eu/energy/en/topics/markets-and-consumers/smart-grids-andmeters/smart-grids-task-force#content-heading-2. (Accessed 24 November 2019). 208. European Commission, Smart Grids and Smart Meters. Available at: https://ec.europa.eu/ energy/en/topics/markets-and-consumers/smart-grids-and-meters/overview#content-heading-1. (Accessed 26 November 2019). 209. Act. No. 110/2019 Coll that entered into force on 24 April 2019. See Linklaters, Data Protected—Czech Republic, September 2019. Available at: https://www.linklaters.com/en/ insights/data-protected/data-protected-czech-republic. (Accessed 23 November 2019). 210. Act No. 101/2000 Coll. 211. Government of the Czech Republic, 2018. “Draft National Energy and Climate Plan of the Czech Republic,” p. 58. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/ ec_courtesy_translation_cz_necp_0.pdf. (Accessed 5 October 2019). 212. European Commission, “Commission Recommendation on the Draft Integrated National Energy and Climate Plan of Czechia Covering the Period 2021 2030” (2019) C(2019) 4403 final 9. Available at: https://ec.europa.eu/energy/sites/ener/files/documents/cz_swd_en.pdf. (Accessed 2 October 2019).

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25.4 Conclusions and recommendations Czechia’s electricity sector is highly competitive and enjoys a relatively low energy dependence (compared to the average of EU countries), and its high level of grid interconnection contributes to energy security. However, in terms of smartening and decentralization, there is still room for policy improvement. To start with, the current policy in place mainly fosters centralized generation by means of new and repowered power plants rather than promoting decentralization and flexibility measures to truly transform the electricity sector.213 Second, although Czechia has implemented efficiency measures and is moving toward a greater diversification in the electricity mix, it still remains one of the most energy- and carbonintensive economies in the EU.214 While the target to increase the share of nuclear generation is aligned with the decarbonization of the electricity sector, it should be complemented with additional measures to improve efficiency and widely promote RES deployment. As mentioned before, sudden regulatory changes do not provide the right signals for investment and proof of this is that, after those policy amendments in 2015, RES deployment stagnated.215 The implementation of a robust scheme for RES that adequately balances the overall cost to the system and, at the same time, is attractive enough for investors to repay the financial costs of these capital intensive facilities seems key to that end. As a matter of fact, Czechia could follow the current trend to move from feed-in tariffs to auctions, as is the case in France and Italy for certain technologies. This scheme can reduce financial costs as the regulatory risk is substantially diminished. In addition, IRENA highlights that their key advantage is their “effectiveness as mechanisms of price discovery,”216 allowing only the construction of the most efficient facilities. Finally, an auction mechanism presents the major advantage for the Government to retain control of the budget support,217 to avoid incurring in costly systems that need to be phased-out, as happened in Czechia.

213. Schwartzkopff, J., Schulz, S., Goritz, A., “Climate & Energy Snapshot: Czech Republic— The Political Economy of the Low-Carbon Transition,” p. 9. Available at: http://www.e3g.org/ docs/Climate_energy_snapshot_CZ_updated.pdf. (Accessed 21 November 2019). 214. European Commission, 2017. “Energy Union Factsheet Czech Republic,” p. 12. Available at: https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-czech-republic_en.pdf. (Accessed 12 October 2019). 215. Ibid, p. 16. 216. IRENA and CEM, 2015. “Renewable Energy Auctions: a Guide to Design,” p. 14. Available at: http://www.irena.org/publications/2015/Jun/Renewable-Energy-Auctions-A-Guideto-Design. (Accessed 21 November 2019). 217. Aklin, M., Urpelainen, J., 2018. Renewables: The Politics of a Global Energy Transition, The MIT Press, p. 230.

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But, most importantly, the Czech Government needs to seriously commit to the deployment of RES. As studies show,218 the deployment of RES in Czechia obeys more to an imposition at the community level rather than a truly internalized conception about the many benefits of low-carbon technologies. The society as a whole has a hostile attitude toward RES because its deployment contributed to a rise in electricity prices.219 Indeed, the Country has a reputation for blocking climate ambition at the EU level.220 If Czechia expects to fulfill the EU targets in terms of decarbonization of the electricity systems and benefit from the implementation of smart grids, a radical change of mind-set of the Czech society and political actors, including the regulator, is paramount. From another perspective, the security of supply is mainly focus on the deployment of nuclear power, disregarding the crucial fact that fuel is imported from Russia;221 it is far more costly and involves major environmental and security concerns than RES. Therefore there is a perceived independence that is not such. The right path to follow may be the diversification of resources. In the same vein, the potential of wind power has been underestimated by the Czech Government222 and should be exploited in the near future. The implementation of an exhaustive legal regime for prosumers seems key to foster their emergence and, thus, comply with the EU targets. The current legal regime, which requires consumers to execute agreements with distribution utilities as a prerequisite to sell the surplus to the grid, does not provide the right incentives to fully allow their rise,223 but only to selfgenerate.224 The Czech Government should take the transposition of the 218. Tanil, G., Jurek, P., 2019. “Policies on Renewable Energy at the European and National Level of Governance: Assessing Policy Adaptation in the Czech Republic” Energy Reports, Elsevier. Available at: https://linkinghub.elsevier.com/retrieve/pii/S2352484719304883. (Accessed 24 October 2019). 219. Ibid. 220. Schwartzkopff, J., Schulz, S., Goritz, A., “Climate & Energy Snapshot: Czech Republic— The Political Economy of the Low-Carbon Transition,” p. 9. Available at: http://www.e3g.org/ docs/Climate_energy_snapshot_CZ_updated.pdf. (Accessed 21 November 2019). 221. Ibid. 222. Szemz˝om, H., et al., “The Energy Transition in Central and Eastern Europe: The Business Case for Higher Ambition,” The Prince of Wales’s Corporate Leaders Group, p. 14. Available at: http://www.corporateleadersgroup.com/reports-evidence-and-insights/publications/publications-pdfs/cee-energy-transition-report.pdf. (Accessed 21 October 2019). 223. It has stated that there are “close to none application fees for prosumers in terms of acquiring an authorization to operate a PV array.” Lettner, G., et al., 2018. “Existing and Future PV Prosumer Concepts,” Fundacion Tecnalia Research & Innovation, pp. 63 64. Available at: http://www.pvp4grid.eu/wp-content/uploads/2018/12/D2.1_Existing-future-prosumerconcepts_PVP4G-1.pdf. (Accessed 22 October 2019). 224. While net-metering allows consumers to sell the surplus to the grid, self-consumption does not imply such transfer. See Leal-Arcas, R., et al., 2019. “Energy Decentralization in the European Union” 32, 10. Available at: https://papers.ssrn.com/sol3/papers.cfm? abstract_id 5 3333694. (Accessed 13 October 2019).

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Renewable Energy Directive as a regulatory opportunity to design a robust scheme to incentivize RES ownership by consumers, especially considering that, the EU Commission estimates225 that the potential number of residential solar PV prosumers in Czechia is of 1.32 million. Indeed, a possible alternative would be to entitle prosumers with the right to sell the electricity under at a reasonable rate (i.e., the spot price at which electricity is sold at that same time) and complement the scheme with incentives for DSOs to effectively execute these agreements. Furthermore, fostering the emergence of prosumers, or at least self-consumption, would have a role to play to combat energy poverty.226 Although the country’s indicators for energy poverty are below EU average,227 the introduction of smart grids can tackle this problem from the root as consumers will not be bound on the volatility of electricity prices.228 The EU’s position in terms of smart meter deployment seems reasonable: a positive CBA should be a prerequisite for its rollout. Indeed, smart technologies should be widely implemented only when they are cost-effective. Otherwise, the alleged benefits for consumers and the system as a whole would paradoxically turn against them, increasing the costs involved. As it could be argued that the cost of smart meters deployment will eventually decrease (as a matter of fact, the costs were almost reduced by a half considering the 2013 and 2018 CBA),229 the Czech Government should closely and continuously monitor its implementation, even in a shorter period than the maximum required by the EU. In the meantime, the Czech Government should critically evaluate and assess the best practices for smart meter deployment to immediately put them into practice when there is evidence of its economic viability. Furthermore, as consumer’s reluctance to change behavior has been described as one of the major obstacles for smart meter

225. European Commission, 2017. “Study on “Residential Prosumers in the European Energy Union,” p. 70. Available at: https://ec.europa.eu/commission/sites/beta-political/files/study-residential-prosumers-energy-union_en.pdf. (Accessed 23 October 2019). 226. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 22. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 227. EU Energy Poverty Observatory, Czech Republic. Available at: http://www.energypoverty. eu/sites/default/files/downloads/observatory-documents/19-06/member_state_report_-_czech_republic.pdf. (Accessed 1 November 2019). 228. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 22. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 229. From h766 to h 350.33. See Tractebel, 2019. “Benchmarking Smart Metering Deployment in the EU-28—Revised Final Report,” European Commission DG Energy, p. 40. Available at: http://www.vert.lt/SiteAssets/teises-aktai/EU28%20Smart%20Metering%20Benchmark% 20Revised%20Final%20Report.pdf. (Accessed 29 October 2019).

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deployment,230 the Government should tackle this barrier by means of public awareness campaigns and educating consumers about the many benefits of rolling out smart meters. In fact, consumer’s engagement and trust has been characterized as preconditions for the success of smart grids.231 As mentioned above, smart meters are called to play a major role especially if complemented with other smart technologies such as storage and Dr. Therefore, to fully exploit the benefits of smart grids, it is advisable that the Czech Government takes a broader view on smart meters and its relevance to smart grid deployment. While the main nonlegal hurdle for energy storage is technology’s cost,232 these are declining at a major pace and this trend is expected to continue in the oncoming years233 making storage viable in the near future. Stakeholders identify legal uncertainty as the major impediment for storage deployment.234 As storage technologies do not strictly fit in any of the traditional segments of the electricity industry (namely generation, distribution, and transmission), regulatory challenges arise from its categorization and revenue mechanisms.235 The EU seems to have taken a position in that regard and, contrarily to the US Federal Energy Regulatory Commission (“FERC”), has categorized storage as a generation asset. The introduction of a legal definition at the community level goes one step further to reduce this obstacle and by setting forth general parameters for its deployment, namely in terms of ownership restrictions and mandating member states to reduce pricing barriers to level the playing field for energy storage. But, if storage is to become a reality in the Czech system, the regulatory framework needs to be adapted. To that end, the successful experience in California shows that introducing targets can be a wise policy tool to foster storage deployment.236 230. Regional Centre for Energy Policy Research, 2014. “Smart Grid in the Danube Region Countries: An Assessment Report,” p. 42 https://rekk.hu/analysis-details/27/smart_grid_in_the_danube_region_countries. (Accessed 30 October 2019). 231. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 27. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019). 232. Bhatnagar, D., et al., 2013. “Market and Policy Barriers to Energy Storage Deployment: A Study for the Energy Storage Systems Programs,” Sandia National Laboratories, 7606, 34. Available at: https://www.sandia.gov/ess-ssl/publications/SAND2013-7606.pdf. (Accessed 7 September 2019). 233. IRENA, 2017. “Electricity Storage and Renewables: Costs and Markets to 2030.” Available at: https://www.irena.org/publications/2017/Oct/Electricity-storage-and-renewables-costs-andmarkets. (Accessed 14 July 2019). 234. Deal, M., et al., 2010. “Electric Energy Storage: An Assessment of Potential Barriers and Opportunities,” California Public Utilities Commission, p. 14. Available at: https://jointventure. org/images/stories/pdf/cpuc.storagewhitepaper7910.pdf. (Accessed 15 September 2019). 235. Meeus, L., Glachant, J.-M. (eds.), 2018. Electricity Network Regulation in the EU: The Challenges Ahead for Transmission and Distribution, Edward Elgar Publishing, p. 117. 236. Assembly Bills 2514 and 2868 included procurement targets for utilities.

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Furthermore, stakeholders237 have identified that pricing is a major obstacle for energy storage deployment as the existing pricing mechanisms fail to fully value the countless benefits storage can provide to the system as a whole. Therefore several measures could be adopted by Czechia, even without introducing subsidies, so that storage technologies are market-driven, as the Government targeted in the NECP. To begin with, being the Czech electricity system a liberalized one, one of the conditions for storage technologies’ deployment is ensured. Second, as the financial viability of storage requires access to different value streams (i.e., capacity markets, ancillary services, the social cost of not resorting to fossil fuels, among others), the creation of several submarkets could be key to that end.238 Third, market rules need to be redesigned to avoid a discriminatory treatment in favor of existing technologies as provided by the new Electricity Directive. Indeed, market rules should signal and remunerate accordingly the ramp response, location, and duration of the service of the different participating assets.239 Finally, administrative costs for planning and permitting should be reduced, access to the grid should be easily granted, and network costs need to reasonable. For example, in the case of the United Kingdom, double charging was identified by the relevant stakeholders and the regulator as one of the key hurdles for storage deployment.240 Czechia’s Dr mechanism is basically ripple control. While it has proved to be useful for the past decades, it is now outdated in light of the emergency of new technologies.241 Indeed, this mechanism has been identified as a major barrier for both the deployment of smart meters and Dr schemes which the Country needs to foster under EU regulation. Another major disadvantage of the ripple control is that the decision-making relies on the DSOs rather than consumers, hindering their empowerment as required by EU regulation.242 As there is a clear interdependency between smart-metering and Dr, the negative CBA will presumably impact on the deployment and 237. EUROBAT, 2016. “Battery Energy Storage in the EU: Barriers, Opportunities, Services and Benefits.” Available at http://www.eurobat.org/images/news/publications/eurobat_batteryenergystorage_web.pdf. (Accessed 7 December 2019). 238. Winfield, M., Shokrzadeh, S., Jones, A., 2018. “Energy Policy Regime Change and Advanced Energy Storage: A Comparative Analysis,” Energy Policy 115, 579. Available at: https://linkinghub.elsevier.com/retrieve/pii/S0301421518300375. (Accessed 18 July 2019). 239. Meyer, A.H., 2014. “Federal Regulatory Barriers to Grid-Deployed Energy Storage,” Columbia J Environ Law 39, 479, 541. 240. Ofgem and BEIS, “A Smart, Flexible Energy System: A Call for Evidence” (November 2016), p. 30. Available at: http://www.gov.uk/government/consultations/call-for-evidence-asmart-flexible-energy-system. (Accessed 18 July 2019). 241. Bertoldi, P., et al., 2016. Demand Response Status in EU Member States, Publications Office, p. 92. Available at: http://dx.publications.europa.eu/10.2790/962868. (Accessed 3 November 2019). 242. Ibid, p. 126.

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participation of Dr. Therefore public campaigns should be limited not only to promoting voluntary rollout of smart meters but also to incentivize consumer’s participation in Dr schemes. Finally, for an adequate and successful implementation of Dr, the Czech Government should consider the recommendations and best practices suggested by the EU, such as adjusting technical modalities to match consumer’s capabilities and market requirements, set public and transparent methodologies for payment criteria, and introduce market structures that fully value and reward the flexibility provided by Dr.243 In 2015 CO2 emissions from road transport were by 175% above the 1990 levels and slightly reduced compared with 2005. While there has been a slight decrease of emissions between 2005 and 2016, it has been lower than EU average244 evidencing that the introduction of EVs in Czechia is essential toward the accomplishment of the commitments made under the Paris Agreement. To enhance its deployment and considering that EVs remain more costly than combustion-driven vehicles, additional measures could be taken by the Czech Government. First, financial support could be expanded to private parties rather than just limiting them to governmental agencies. In addition, the charging infrastructure should be further developed, and the introduction of a specific legal framework could be a key tool to that end. Finally, as is the case for smart meter rollout, the Czech Government should implement education-focused campaigns to increase public awareness of the benefits of EVs’ deployment. As for data protection and privacy, Czechia has implemented and broadened the scope of the EU regulation by means of the Personal Data Processing Act. However, given the specific challenges faced by smart grids, it would be advisable to include specific provisions, within the general or a special regime, for data protection and privacy in the ambit of smart technologies that follow the SGTF recommendations. By the same token and even when there is no clear consensus regarding who should be responsible for data protection regulation in smart meters deployment,245 given the particularities of the electricity system and smart technologies, a close and active collaboration between both regulatory authorities (ERO and the Office for Personal Data Protection) seems paramount to ensure the adequate protection of consumers’ right to privacy and data protection. A lack of a coordinated action may jeopardize those fundamental rights and, thus, contribute to 243. Ibid, p. 6. 244. European Commission, 2017. “Energy Union Factsheet Czech Republic,” p. 13. Available at: https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-czech-republic_en.pdf. (Accessed 12 October 2019). 245. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Smart Grids in the European Union: Assessing Energy Security, Regulation & Social and Ethical Considerations,” Columbia J Euro Law 24, 35. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id 5 3062957. (Accessed 28 October 2019).

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consumer’s distrust on these technologies. Especially in countries like Czechia where the deployment of smart meters is voluntary, ensuring the protection of these essential rights seems to be a prerequisite for the smartening of the grid. Conversely, neglecting consumer’s concerns can act as a major barrier for its deployment.246 Finally, in terms of cyber-security in the energy infrastructure, its mere inclusion as a priority area for research and development fails to reflect the relevance of this risk which is enhanced by the high level of interconnection of Czechia. Therefore, following the EU Commission’s recommendations on the NECP, the Czech Government should develop a robust framework to build up the security of the electricity system. The guidelines set forth in the EU Commission’s Recommendation on cyber-security in the energy sector is key to that aim, namely adopting a sectoral regulatory approach and implementing international standards and adequate specific technical standards to ensure timely communications.247 To prevent cascading effects from interconnected networks, relevant cyber-security preparedness measures should be adopted to minimize the negative effects of cyber-attacks in other interconnected systems.

246. Proof of this is the Dutch case. See Kloza, D., van Dijk, N., De Hert, P., 2015. “Assessing the European Approach to Privacy and Data Protection in Smart Grids. Lessons for Emerging Technologies,” Smart Grid Security, Elsevier, p. 15. Available at: https://linkinghub.elsevier. com/retrieve/pii/B978012802122400002X. (Accessed 23 November 2019). 247. European Commission, “Recommendation of 3 April 2019 on cyber-security in the energy sector” (C(2019) 2400 final).

Chapter 26

Energy decentralization and energy transition in Latvia Danai Papadea1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

26.1 Introduction Pursuant to its commitments under the landmark Paris Agreement on Climate Change, the European Union (EU) has proved itself to be a leader in the fight against climate change.1 This can be supported by the facts that EU was the first major economy to establish a framework legally binding for its Member States in order to fulfill those commitments, and is currently progressing toward the goal of achieving climate neutrality by 2050, through reducing its carbon emissions.2 Preparing for that long-term goal, it has to present a strategy to achieve it by 2020.3 One of the ways to promote electricity derived from low-carbon, renewable energy that has been deemed worth examining is the development of smart electricity grids or “smart grids,” which have been described as a network “that can cost efficiently integrate the behavior and actions of all users connected to it—generators, consumers, and those that do both.”4 They have been acknowledged to be able to safely integrate not only renewable energy in a country’s energy mix but also electric vehicles (EVs) and distributed generators in its network; they are deemed more reliable and capable of

1. Oberthu¨r, S. 2016. “The Paris Agreement: rebooting climate cooperation - perspectives on EU implementation of the Paris Outcome.” Carbon Clim. Law Rev. 10(1), 34 45. 2. European Commission Press Release, 18 June 2019. Energy Union: Commission calls on Member States to step up ambition in plans to implement Paris agreement.” Brussels. https://ec. europa.eu/commission/presscorner/detail/en/IP_19_2993. 3. European Commission, 11 September 2019, The European Union continues to lead the global fight against climate change. Brussels. https://europa.eu/rapid/press-release_IP-19-5534_en.htm 4. European Commission, 12 April 2011. Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Smart Grids: from innovation to deployment, COM (2011) 202 final. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00030-X Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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preventing or restoring power outages thanks to their self-healing via automatic grid reconfiguration.5 Furthermore, the promotion of smart grids has the potential to provide, amongst others, energy security in the markets it is implemented in, and it constitutes a unique opportunity for citizen empowerment through decentralization, conversely with the traditional centralized structure of energy networks.6 This chapter explores Latvia’s electricity sector, the relevant European Union policy, the relationship developed between them, and the feasibility of smart grids’ and other new tools and technologies’ popularization in the context of the Latvian electricity market. Latvia has been an EU Member State since May 1, 2004.7

26.2 Energy, electricity, and smart grids in Latvia: developments and concerns 26.2.1 Latvia’s electricity market 26.2.1.1 Key figures and statistics on energy and electricity in Latvia According to data provided by the International Energy Agency, energy consumption in Latvia saw a general drop between 1990 and 2017.8 Examining each energy source separately, one can observe that all energy sources’ consumption decreased independently, with the optimistic exception of biofuels and waste, the consumption of which evolved significantly, from 616 kiloton of oil equivalent (ktoe) in 1990 up to 1 007 ktoe in 2017. Oil products have had almost at all times the highest consumption, evolving from 2066 ktoe in 1990 to 1428 ktoe in 2017; even when they reached their lowest consumption levels, with 1095 ktoe in 1999. Their consumption was surpassed only briefly by heat, with 1935 ktoe in 1991 versus oil products’ 1897 ktoe; however, since then heat witnessed a sharp drop, with only 605 ktoe consumed

5. Giordano, V., Meletiou, A., Felix Covrig, C., Mengolini, A., Ardelean, M., Fulli, G., S´anchez Jime´nez, M., Filiou, C. European Commission, Joint Research Centre JRC Scientific and Policy Reports, Report EUR 25815 EN “Smart Grid projects in Europe: Lessons learned and current developments - 2012 update,” 2013 https://ses.jrc.ec.europa.eu/sites/ses.jrc.ec.europa.eu/ files/documents/ld-na-25815-en-n_final_online_version_april_15_smart_grid_projects_in_europe__lessons_learned_and_current_developments_-2012_update.pdf, p. 3 6. Ibid, and Leal-Arcas, R., Lesniewska, F., Proedrou, F., (2018) “Prosumers as new energy actors,” in: Mpholo, M., Steuerwald, D., Kukeera, T. (Eds.) Africa-EU Renewable Energy Research and Innovation Symposium 2018 (RERIS 2018), available at https://link.springer.com/ chapter/10.1007/978 3 319 93438 9_12 7. Latvia - Overview https://europa.eu/european-union/about-eu/countries/member-countries/ latvia_en#overview 8. Total final consumption (TFC) by source, Latvia 1990 2017 in IEA’s World Energy Balances 2019 https://www.iea.org/statistics/?country 5 LATVIA&year 5 2017&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES

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in 2017. Electricity and natural gas consumption have remained relatively steady yet declining, with 715 and 698 ktoe, respectively, in 1990, evolving into 558 and 328 ktoe, respectively, in 2017. Last in consumption is coal, dropping from 312 ktoe in 1990 to only 37 ktoe in 2017. Regarding renewables, there has been a remarkable progress in their inclusion in the Latvian energy mix, as per Sustainable Development Goal 7. While they were a mere 17.57% of the country’s energy consumption in 1990, they progressed to become more than double in 2016, with the renewables’ share being 38.48%.9 This is a very impressive positive development, especially considering that this percentage surpasses country’s current obligations on renewable energy consumption as a member of the EU. Specifically, Directive 2018/2001 sets a target for the EU Member States to collectively achieve a minimum of 32% of renewable energy consumption by 2032 and tailor their national policies accordingly in order to achieve it.10 Examining electricity final consumption in Latvia from 1990 to 2018, one can observe that, similarly, it dropped from 9.05 terawatt hours (TWh) consumed in 1990 to 7.63 TWh consumed in 2018, demonstrating its lowest point in 1996 with 4.90 TWh consumed, but progressively rising after that.11 As for the electricity consumption per sector, from 1990 to 2017 commercial and public services’ consumption has seen a notable increase, from 163 ktoe in 1990 to 238 ktoe in 2017, becoming the sector with the most electricity consumption, with a considerable difference from those that follow it. Those are industry and residential consumption, with 152 and 142 ktoe in 2017, respectively, while the least electricity-consuming sectors of the country are agriculture and forestry, consuming combined 16 ktoe in 2017, transport with 9 ktoe, and fishing with 1 ktoe.12 Interestingly, electricity consumption per capita has risen, from 3.40 MWh per capita in 1990 to 3.96 MWh per capita in 2018. It reached its lowest point, similarly to the data analyzed above, in 1994, when it reached 1.97 MWh/capita, but has steadily increased from that point onward.13 As far as Latvia’s energy production is concerned, it has demonstrated a relatively steady increase from 1.16 Million tons of oil equivalent (Mtoe) in 9. Renewable share in final energy consumption (SDG 7.2), Latvia 1990 2016 https://www.iea. org/statistics/?country 5 LATVIA&year 5 2017&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES 10. Directive 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources [2018] L328/82, Article 3 11. Electricity final consumption, Latvia 1990 2018 in IEA’s World Energy Balances 2019 https://www.iea.org/statistics/?country 5 LATVIA&year 5 2017&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES 12. Electricity final consumption by sector, Latvia 1990 2017 in IEA’s World Energy Balances 2019 https://www.iea.org/statistics/?country 5 LATVIA&year 5 2017&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES 13. Electricity consumption per capita, Latvia 1990 2018 in IEA’s World Energy Balances 2019 https://www.iea.org/statistics/?country 5 LATVIA&year 5 2017&category 5 Energy% 20consumption&indicator 5 TFCbySource&mode 5 chart&dataTable 5 BALANCES

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1990 to almost double that amount, 2.45 Mtoe in 2016.14 On the other hand, the country’s net energy imports have significantly declined, from 7.47 Mtoe in 1990 to 2.22 Mtoe in 2016, having reached their lowest point shortly before that, with 1.9 Mtoe in 2014.15 This results in a national total primary energy supply (TPES) that has been reduced from 7.89 Mtoe in 1990 to 4.25 Mtoe in 2016—the TPES has generally been fluctuating between 4.00 and 4.50 Mtoe (half of the 1990 amount) for the past decade.16 An important element that can help understanding those figures is the fact that Latvia’s population, according to the United Nations’ statistics, has become the one with the highest decreasing speed worldwide, with a decrease percentage reaching 18.2% from 2000 (2.38 million) to 2018 (1.95 million). This “loss” of one-fifth of the country’s population is partly due to its rapidly aging population and partly to migration in search of better economic prospects within the European Union.17 Latvia’s electricity generation has been through several low points and subsequent recoveries in the past three decades, leading it to eventually have in 2018 a slightly higher amount of electricity generation that the one it had in 1990 (6724 GWh and 6648 GWh, respectively).18 It is interesting to observe how the generation by source has evolved: coal, which held a slim percentage in the 1990s, never exceeding 3.1%, has almost completely vanished from the mix today (0.1%), and oil, which used to be the country’s third electricity generation source until 2004, providing up to 20.6% of Latvia’s electricity generation in 1996, does not exist in the mix anymore. Wind and biofuels began to take their place in the mix in 1996 and 2001, respectively, starting to gain a noticeable percentage only after 2011, with 1.8% and 14%, respectively. However, those amounts are far from comparable with the two largest sources of electricity for the country: hydropower and natural gas. From 1990 to 2018, hydropower has been dominating Latvia’s electricity mix (67.6% and 36.2%, respectively), with its peak percentage being an impressive 74.5% in 1998. As natural gas has become a strong contender for the first electricity generation source position, progressing from 26.1% in 1990 to 47.9% in 2018, hydropower’s dominance has been toppled by it in 2011, 2014, 2015, and 2018.19 14. Key stats for Latvia, 1990 2016 Energy production https://www.iea.org/countries/Latvia/ 15. Key stats for Latvia, 1990 2016 Net energy imports https://www.iea.org/countries/Latvia/ 16. Key stats for Latvia, 1990 2016 Total primary energy supply https://www.iea.org/countries/Latvia/ 17. Sander, G.F., 2018. “Latvia, a disappearing nation,” https://www.politico.eu/article/latvia-adisappearing-nation-migration-population-decline/ 18. Author’s calculations based on Electricity generation by source, Latvia 1990 2018 in IEA’s Electricity Information 2019-Documentation https://www.iea.org/statistics/?country 5 LVA &isISO 5 true 19. Electricity generation by source, Latvia 1990 2018 in IEA’s Electricity Information 2019 Documentation https://www.iea.org/statistics/?country 5 LVA&isISO 5 true

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26.2.1.2 Characteristics and structure of Latvia’s electricity market Despite being a former member of the Soviet Union and therefore an excommunist country, Latvia has made significant steps toward the opening of its market after the Union’s dissolvement in 1991. Thanks to the reforms that followed the change of its regime, Latvia along with its Baltic neighbor Estonia are considered the “stars” of the transition from socialism to the market economy, as they succeeded in reaching fast the levels of development of Central European countries.20 In 2007 Latvia began its progress toward a free electricity market to all electricity users,21 pursuant to its obligations as an EU Member State, and more specifically to the Directive 2003/54/EC of the European Parliament and of Council of 26 June 2003. The opening of the market initially was limited to legal persons and eventually was completed in 2015, encompassing household consumers.22 The legal framework within which the Latvian electricity market operates is provided by the Latvian Electricity Market Law, passed by Saeima (the Latvian Parliament) in 2005 and subsequently amended to meet new developments, such as the aforementioned opening of the market, in 2008, 2011, 2013, 2014, 2015, and 2016.23 As the Latvian Electricity Market Law states in Section 2, its purposes are: 1. to establish prerequisites for the operation of an efficiently functioning electricity market; 2. to ensure that, taking into account the requirements of laws and regulations, all energy customers are provided with electricity in a safe and qualitative manner, in the most efficient possible way for justified prices; 3. to ensure all customers with the right to choose an electricity trader freely; 4. to promote the production of electricity by using renewable energy resources; and 5. to promote energy independence ensuring different suppliers of energy resources necessary for production of electricity.24

20. Cato Institute, Policy Analysis No. 795, by Oleh Havrylyshyn, Xiaofan Meng, and Marian L. Tupy “25 Years of Reforms in Ex-Communist Countries: Fast and Extensive Reforms Led to Higher Growth and More Political Freedom,” 12 July 2016, available at https://www.cato.org/ publications/policy-analysis/25-years-reforms-ex-communist-countries-fast-extensive-reforms-led 21. History, Augstsprieguma t¯ıkls AS, http://www.ast.lv/en/history 22. Bride, D., Zvaigzne, A., 2016. “Electricity market development in Latvia.” Latgale National Economy Research - Journal of Social Sciences No 1(8), 5,6. 23. Latvian Electricity Market Law (2005), Law of the Republic of Latvia, as amended in 2008, 2011, 2013, 2014, 2015 and 2016, available in English at https://likumi.lv/ta/en/en/id/108834-electricity-market-law, most recent amendment available in English at https://likumi.lv/ta/id/287270 24. Latvian Electricity Market Law (2005), Law of the Republic of Latvia, Section 2, as amended in 2008 and 2016

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As for the scope of the Law’s application, it regulates the production, transmission, distribution, and trade of electricity as a free circulation commodity within Latvia and describes the duties of the electricity market participants and the electricity system participants within the national market. Furthermore, the Latvian Electricity Market Law defines the duties of the competent Latvian Ministry of Economics and the Public Utilities Commission (PUC or “the Regulator,” which the Ministry oversees) regarding the monitoring and regulation of the electricity market and sets incentives for the increase of energy production from renewable sources.25 Pursuant to the Latvian Law On Regulators of Public Utilities,26 the Regulator is the authority responsible for licensing the provision of public utilities, and subsequently for supervising to which extent the public utilities comply with the conditions of their license, determined quality and environmental protection requirements, technical specifications, standards, as well as contract provisions.27 Another important authority in the Latvian electricity market is Augstsprieguma T¯ıkls AS or AST, an independent electricity transmission system operator. AST originally was part of Latvenergo, the state-owned public utility company. After Latvenergo’s legal unbundling in 2005 and eventually becoming an independent company in 2012,28 AST’s shares are wholly owned by the Latvian Ministry of Finance.29 As per the Electricity Market Law, AST is obliged to “facilitate the operation of the internal electricity market and cross-border trade, including the support of electricity exchanges development.”30 It is also obliged to annually submit a report to the Ministry of Economics and the Regulator, assessing whether the transmission system supply and consumption and the safety and provision of State electricity supply conform with the national production capacities.31 While the aforementioned state-owned Latvenergo used to be a historical monopoly, after the liberalization of the electricity market, new electricity producers have also claimed a place in it. In part because of the public 25. Latvian Electricity Market Law (2005), Law of the Republic of Latvia, Section 3, as amended in 2013 26. Latvian Law On Regulators of Public Utilities (2000), Law of the Republic of Latvia, as amended in 2001, 2004, 2005, 2006, 2007, 2008, 2009, 2011, 2013, 2014, available in English at http://www. vvc.gov.lv/export/sites/default/docs/LRTA/Likumi/On_Regulators_of_Public_Utilities.pdf 27. Sabiedrisko pakalpojumu regul¯esˇanas komisija (Public Utilities Commission), “Mission, Objective and Functions,” https://www.sprk.gov.lv/en/content/mission-objective-and-functions 28. European Commission, 2014 Country Reports Latvia, p. 134, available at https://ec. europa.eu/energy/sites/ener/files/documents/2014_countryreports_latvia.pdf 29. History, Augstsprieguma t¯ıkls AS, http://www.ast.lv/en/history 30. Organisation of the Electricity Market, Augstsprieguma t¯ıkls AS, http://www.ast.lv/en/content/organisation-electricity-market, and Latvian Electricity Market Law (2005) Section 13 1 as amended in 2011 31. Latvian Electricity Market Law (2005), Law of the Republic of Latvia, Section 15, as amended in 2008

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distrust stemming from the fact that the electricity market’s liberalization happened later than it had been initially announced, Latvenergo still holds a strong position in the market despite the competition.32 This can be visible by the fact that Latvenergo is the parent company and only shareholder of Sadales t¯ıkls AS,33 the country’s main distribution system operator,34 that is, the national electricity network’s maintainer and developer.35 As can be observed from the above, the state holds a strong presence in the way the Latvian electricity market operates. This delay in progressing toward decentralization can be explained by the fact that initially, in the process of bringing the European Union’s third energy package in force in 2009,36 EU granted a derogation specifically for Latvia.37 The country was considered an emergent gas market and was therefore excused to progress more gradually toward unbundling, the “heart” of the package. However, the Latvian government does recognize the value of decentralized energy production, as it has been included in the National Energy and Climate Plan of Latvia (covering years 2021 to 2030, created under the country’s obligations as an EU member state38) as one of the necessary steps to achieve energy security and independence.39 As it is clarified in the document, Latvia embraces the decentralization and microgeneration and their inclusion in the network, as long as there is careful monitoring of their supply network, sufficient planning and analysis of their operation and development, and ensured efficient balancing of the network capacities.40 As far as the national electricity market’s cross-border interconnectivity is concerned, Latvia’s market at the wholesale level is integrated directly with the markets of Estonia and Lithuania (the Baltic States) as well as with

32. Bride, D., Zvaigzne, A., “Electricity market development in Latvia” (2016) Latgale National Economy Research - Journal of Social Sciences No 1(8), 9 33. Sadales t¯ıkls AS, “About Company Foundation,” available at https://www.sadalestikls.lv/ en/about-us-2/who-we-are/sadales-tikls/ 34. European Commission, 2014 Country Reports Latvia, p. 134, available at https://ec. europa.eu/energy/sites/ener/files/documents/2014_countryreports_latvia.pdf 35. Sadales t¯ıkls AS, “About Company Foundation,” available at https://www.sadalestikls.lv/ en/about-us-2/who-we-are/sadales-tikls/ 36. European Commission, “Third energy package,” available at https://ec.europa.eu/energy/en/ topics/markets-and-consumers/market-legislation/third-energy-package#content-heading-5 37. European Commission, 2014 Country Reports Latvia, p. 134, available at https://ec. europa.eu/energy/sites/ener/files/documents/2014_countryreports_latvia.pdf 38. Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, PE/55/2018/REV/1, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 uriserv:OJ.L_0.2018.328.01.0001.01. ENG&toc 5 OJ:L:2018:328:FULL, Article 3 39. National Energy and Climate Plan of Latvia 2021 2030, Riga, 2018 (for submitting to the European Commission for evaluation, courtesy translation in English provided by the Translation Services of the European Commission), p. 138 (Annex 1) 40. Ibid, p. 144

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those of Finland, Denmark, Norway, and Sweden (the Scandinavian or Nordic countries) as of 2013.41 The Latvian electricity market is also integrated in the EU internal electricity market, since the approval of the Baltic Energy Market Interconnection Plan (BEMIP) in 2009.42 BEMIP is an initiative between the European Commission, Denmark, Germany, Estonia, Latvia, Lithuania, Poland, Finland, and Sweden (and Norway as an observer), aiming to synchronize the Baltics’ grid with the continental European network by 2025.43 An initial Memorandum of Understanding was signed between the initiative’s members in 2009, and a new one followed in 2015, in order to further BEMIP’s scope to “security of supply, energy efficiency, renewable energy, and the integration of the Baltic States’ electricity network into the continental European network, including their synchronous operation.”44 This development is directly connected with EU’s interest in ending the “Baltic energy isolation” through projects of common interest, as communicated in the European Commission’s European Energy Security Strategy from May 2014.45 At the moment, the Baltic states have succeeded in having impressively high levels of interconnection, but there is still a lot of potential untapped in terms of their integration and synchronization with continental Europe.46

26.2.1.3 Energy security As was mentioned above, Latvia, along with the other Baltic states, Estonia and Lithuania, have been set to integrate into the European energy grid by the target date 2025. This development, apart from promoting interconnectivity within the European Union, also brings a significant shift in where Latvia’s energy dependence relies, as it has been until now engaged in a quite different arrangement. Historically, Latvia’s electricity system, along with those of Belarus and Latvia’s fellow Baltics, Lithuania and Estonia, has been for decades and still is, heavily interconnected with the Russian energy grid, a situation that was 41. Organisation of the electricity market, Augstsprieguma t¯ıkls AS, available at http://www.ast. lv/en/content/organisation-electricity-market and Flex4RES Flexible Nordic Energy Systems, “Framework Conditions for Flexibility in the Electricity Sector in the Nordic and Baltic Countries,” December 2016, p. 53 42. Augstsprieguma t¯ıkls AS, “Organisation of the electricity market,” available at http://www. ast.lv/en/content/organisation-electricity-market 43. European Commission, “Baltic energy market interconnection plan,” available at https://ec. europa.eu/energy/en/topics/infrastructure/high-level-groups/baltic-energy-market-interconnectionplan#content-heading-1 (Published 31 July 2014, last update 17 October 2019) 44. Ibid 45. European Commission, 2014. “European Energy Security Strategy,” Brussels, available at https://www.eesc.europa.eu/resources/docs/european-energy-security-strategy.pdf 46. European Commission, July 31, 2014. “Baltic energy market interconnection plan,” available at https://ec.europa.eu/energy/en/topics/infrastructure/high-level-groups/baltic-energy-marketinterconnection-plan#content-heading-1 (last update 17 October 2019)

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not altered after 1991 in spite of the Union’s dissolution.47 Although being a close neighbor to a country with such a prolific energy sector as Russia seemingly is advantageous, this is not necessarily the case if certain other elements are taken into account. Geopolitically speaking, the instability in the Eurasia region has awoken concerns on Russia’s ability to be a force of stabilization, with the events of the “Five Day War” in August 2008 as the most recent example.48 Additionally, the management of Gazprom, the powerful Russian stateowned energy group, has proven to be intrinsically linked with the Russian government, a fact that does little to bring confidence in terms of maintaining a healthy market economy devoid of favoritism.49 One can therefore see that Latvia’s transition toward the European grid is clearly in its best interest in terms of connecting it with the market of a more politically stable and reliable force as the EU and promotes its energy security by reducing its dependence on Russia.50 It is worth noting that while this shift from one electricity grid to another has not been completed, there has been a number of cyberattack threats toward the Baltic grid, originating from hackers based in Russia, which if successful could endanger the entire region’s energy supply. In order to counter them and minimize the countries’ vulnerability against potential hacking attempts, cybersecurity has become a high priority for the Baltic States’ authorities, resulting in them signing in October 2019 an agreement with the United States involving the Baltic energy grid’s protection from cyberattacks through strategic and technical support.51

26.2.2 How smart is Latvia’s electricity system? 26.2.2.1 Examination of whether Latvian policy and legislation promotes decentralization Self-generation An important factor that can indicate to what extent Latvia’s electricity system is “smart” and conducive to decentralization is the role of energy prosumers in it. Prosumers are defined as “self-generating energy providers, 47. European Commission, 2014 Country Reports Latvia, p. 137, available at https://ec. europa.eu/energy/sites/ener/files/documents/2014_countryreports_latvia.pdf 48. Leal-Arcas, R., Rıos, J.A., Grasso, C., 2015. “The European Union and its energy security challenges,” J. World Energy Law Bus., 29 31, Electronic copy available at: http://ssrn.com/ abstract 5 2616263 49. Ibid, p. 33 34. 50. Augstsprieguma t¯ıkls AS, “Synchronisation with Europe Main benefits,” available at http://www.ast.lv/en/projects/synchronisation-europe 51. Euractiv, 7 October 2019. “US to help secure Baltic energy grid against cyber-attacks,” available at https://www.euractiv.com/section/energy/news/us-to-help-secure-baltic-energy-gridagainst-cyber-attacks/

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whether households or energy communities. Individuals contribute to the energy supply in their vicinity via their own installed renewable energy capacity, more often than not solar roofing, wind energy, or combined heat and power.”52 While there is no official definition of the term “prosumer” (a term derived from the words “produce” and “consume”) from the European Union bodies, they are alternatively described in relevant documents as “active energy consumers,” holding the potential to revolutionize the way electricity systems have been traditionally functioning until today.53 Residential electricity generation in Latvia is not addressed, until today at least, by a particular piece of legislation, as so far, as in the other Nordics and Baltics, prosumers are a marginal phenomenon.54 What has been preferred is to address prosumers within the national framework, specifically within the Latvian Energy Law and its Electricity Market Law.55 In the Latvian Energy Law, prosumers are addressed under the term “autonomous producer,” which is defined as “a merchant, an energy supply merchant, or a natural person which produces electricity or thermal energy for the purpose of consuming it for personal needs or local heating supply needs.”56 According to the Latvian Electricity Tax Law, passed after the country’s entrance in the EU, in compliance with the relevant Directives on energy products’ taxation, the autonomous producers that “generate and consume electricity for their own needs” fall out of the law’s scope of application, provided that their electricity generation is smaller than two (2) megawatts (MW).57 As far as the prosumers’ compensation is concerned, the current policy followed by Latvia mandates that when energy is transferred from a household to the power grid, this amount is subsequently deducted by the household’s invoice for the next billable month. It is a policy based on the use of

52. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Prosumers as new energy actors,” in: Mpholo, M., Steuerwald, D., Kukeera, T. (eds) Africa-EU Renewable Energy Research and Innovation Symposium 2018 (RERIS 2018), available at https://link.springer.com/chapter/ 10.1007/978-3-319-93438-9_12 53. Sajn, N. for EPRS - European Parliamentary Research Service, October 2016. European Parliament, Electricity “Prosumers,” Members Research Service Briefing. available at http:// www.europarl.europa.eu/RegData/etudes/BRIE/2016/593518/EPRS_BRI(2016)593518_EN.pdf, p. 1 54. Flex4RES Flexible Nordic Energy Systems, December 2016. “Framework conditions for flexibility in the electricity sector in the Nordic and Baltic Countries.” p. 6 55. European Commission, Study on “Residential Prosumers in the European Energy Union,” JUST/2015/CONS/FW/C006/0127, Framework Contract EAHC/2013/CP/04, 2 May 2017, p. 34. 56. Chapter I Section 1 Term 32 Latvian Energy Law (1998), Law of the Republic of Latvia, as amended in 2000, 2001, 2005, 2008, 2009, 2010, 2011, 2012, 2014, available in English at http://www.vvc.gov.lv/export/sites/default/docs/LRTA/Likumi/Energy_Law.doc. 57. Latvian Electricity Market Law (2006), Law of the Republic of Latvia, Section 2, (3)0.1, available in English at https://vvc.gov.lv/image/catalog/dokumenti/Electricity_Tax_Law.doc

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the net settlement system, which is in turn based on a metering system permitting net accounting of the electricity transferred and used.58 Investment and research and development A popular practice to encourage the development of renewable energy projects has been the application of feed-in tariffs (FiT). A national economic policy on FiT involves usually appealing terms such as long-term agreements with renewable energy producers and guaranteed pricing, tied to the renewable energy production’s cost, in order to attract investments in this form of energy and therefore the diversification of the energy mix.59 Currently, FiT is a dominant practice in all Baltic countries except Latvia, as the FiT that had been in effect there since 2007 is on hold because of concerns on corruption and lack of transparency.60 The hold is due to last at least until January 2020, when there will be a judgment on the relevant State Aid case, meaning the government until then is hesitant to provide its support in new RES projects.61 In spite of that temporarily inconvenient setback, for the decade to come, Latvia is certainly open to investments on a national and international level in order to promote low-carbon energy, placing much emphasis in the relevant technological research and development (R&D), which is definitely a positive sign for the future of smart tools and technologies in the country. In a recent meeting in October 2019, the environment ministers of Latvia, Estonia, and Lithuania signed a joint Baltic States Climate Declaration, where they affirmed their countries’ common vision regarding tackling climate change. Apart from committing once again to cross-border cooperation to achieve climate neutrality, they addressed the EU to request adequate funding from its budget in its following multiyear financial plan.62 For the next decade, the European Union has already been set to provide Latvia with financial aid that will support the implementation of its energy and climate plan, through a variety of programs and funds, such as the Multiannual Financial Framework for 2021 2027, InvestEU, Horizon Europe, the Connecting Europe Facility, the European Regional Development Fund (ERDF), the Cohesion Fund (CF), and the LIFE Program for the Environment and Climate Action.63 Some of them, such as Horizon, are particularly focused in promoting 58. European Commission, Study on “Residential Prosumers in the European Energy Union,” JUST/2015/CONS/FW/C006/0127, Framework Contract EAHC/2013/CP/04, 2 May 2017, p. 39. 59. Investopedia, “Feed-In Tariff (FIT),” reviewed by Will Kenton, available at https://www. investopedia.com/terms/f/feed-in-tariff.asp (last updated 17 September 2019) 60. Flex4RES Flexible Nordic Energy Systems, December 2016. “Framework conditions for flexibility in the electricity sector in the Nordic and Baltic Countries.” p. 53 61. Ibid, p. 54 62. Baltic News Network, “Baltic environment ministers sign joint climate declaration,” 31 October 2019, available at https://bnn-news.com/baltic-environment-ministers-sign-joint-climatedeclaration-206882 63. National Energy and Climate Plan of Latvia 2021 2030, Riga, 2018, p. 67 74

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research and innovation, an essential part of the development of smart technologies.64 Research and innovation in smart energy is also recognized as a priority area in the Research and Innovation Strategy of Latvia for Smart Specialisation (RIS3).65 According to the first RIS monitoring report in 2017, while some relevant structural reforms have taken place in Latvia, such as the development of appropriate conditions to introduce contributions from the EU and national sources directed to science and innovation, eventually investments in the key area of R&D had failed to increase, and the national contributions were not amassed as per the plan.66 Apart from funding issues, R&D in Latvia is also impaired because of the lack of commercialization opportunities, as well as the lack of cooperation, in an international and a national level, between science, technological and educational institutions, state and industry.67 In order to tackle the above, in the Latvian National Energy and Climate Plan for 2021 2030, there are provisions for augmenting the R&D investments and promoting innovation, such as the introduction of R&D tax credit and the establishment of a cross-sector to connect business and research.68 Smart meters Smart meters are an important technological tool that facilitates energy consumers to monitor in real time the amount of energy they are consuming. This function impacts positively their electricity bills and allows them a certain degree of flexibility, in contrast with traditional electricity metering.69 They are sophisticated tools, that, apart from providing accurate information to their users, they also aid them to control their energy usage and can empower to become active players in the energy market through the use of their smart grids.70 As requested by the European Directive 2009/72/EC, until 2020, where this tool has been made available and assessed positively, at least 80% of consumers should be equipped with smart meters.71 As for Latvia’s approach on the matter, the national transmission system operator has planned to install smart meters for all its customers by 2022.72 64. Ibid, p. 69 65. Ibid, p. 40 41 66. Ibid, p. 118 119 67. Ibid, p. 122 123 68. Ibid, p. 139, 141 141 69. Flex4RES Flexible Nordic Energy Systems, December 2016. “Framework conditions for flexibility in the electricity sector in the Nordic and Baltic Countries.” p. 13 70. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Prosumers as new energy actors,” in: Mpholo, M., Steuerwald, D., Kukeera, T. (Eds) Africa-EU Renewable Energy Research and Innovation Symposium 2018 (RERIS 2018), available at https://link.springer.com/chapter/ 10.1007/978-3-319-93438-9_12 71. 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, Annex I (2), available at https://eur-lex.europa.eu/legal-content/EN/ALL/?uri 5 celex%3A32009L0072 72. National Energy and Climate Plan of Latvia 2021 2030, Riga, 2018, p. 32

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There has been steady progress toward that direction, with approximately 110,000 m being replaced yearly, resulting in half a million smart meters installed by September 2018.73 According to the National Plan for 2021 2030, it is planned to promote their use even further, by raising consumer awareness on the benefits of their use.74 Electric vehicles EVs have been recognized by the European Union as a promising alternative to conventional, fossil fuel consuming vehicles that can support the progress toward sustainable, decarbonized transport in Europe.75 This is visible from a series of official EU legal acts, such as the 2014 Directive on the deployment of alternative fuels infrastructure,76 the 2016 Regulation on emissions from light passenger and commercial vehicles77, the 2016 European Parliament Resolution on a European strategy for low-emission mobility,78 and the 2019 Regulation on CO2 emission performance standards for new vehicles,79 that altogether create a roadmap toward a future where all transport will produce minimum or zero carbon emissions. In view of the above, one of the objectives of the Latvian National Energy and Climate Plan for the next decade is to endorse alternative fuels and minimize the negative environmental impact caused by transport, through the promotion of this type of vehicles. This is a target covering two of the key five dimensions of the Energy Union: energy efficiency and decarbonization, along with the subdimension of renewable energy.80 The main policy steps considered necessary in order to accomplish that include the simplification of the administrative procedure needed in order to establish 73. Ibid, p. 59 74. Ibid, p. 142 75. European Environment Agency, “Electric vehicles in Europe,” EEA Report No 20/2016, Copenhagen, 2016/ Luxembourg: Publications Office of the European Union, 2016, doi: 10.2800/100230, p. 9 76. EU Directive 2014/94 of the European Parliament and of the Council of 22 October 2014 on the deployment of alternative fuels infrastructure, available at https://eur-lex.europa.eu/legal-content/en/TXT/?uri 5 CELEX%3A32014L0094 77. EU Commission Regulation No. 2016/427 of 10 March 2016 amending Regulation (EC) No 692/2008 as regards emissions from light passenger and commercial vehicles (Euro 6), available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 CELEX%3A32016R0427 78. European Parliament resolution No. 2016/2327 of 14 December 2017 on a European Strategy for Low-Emission Mobility, available at http://www.europarl.europa.eu/doceo/document/TA-8-2017-0503_EN.html 79. Regulation (EU) 2019/631 of the European Parliament and of the Council of 17 April 2019 setting CO2 emission performance standards for new passenger cars and for new light commercial vehicles, and repealing Regulations (EC) No 443/2009 and (EU) No 510/2011, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 CELEX%3A32019R0631 80. Ibid, p. 154 and European Commission, “Building the energy union,” 8 March 2017, available at https://ec.europa.eu/energy/en/topics/energy-strategy-and-energy-union/building-energy-union

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nonpublic EV charging points, the promotion of EV purchase, and the improvement of the relevant regulatory framework on EVs and their charging infrastructure, and they are included in the country’s Alternative Fuels Development Plan 2017 2020 (“AFDP 2020”).81 Those steps appear appropriate, considering the primary reason reported to be discouraging Latvians from purchasing EVs is their forbiddingly high price, which renders them a somewhat luxurious item for the average Latvian household, despite its benefits—one must remember that Latvia’s GDP per capita is quite lower of its fellow Member States.82 Although the benefits offered currently to EV owners are not negligible, including tax exemptions and use of public transport lanes, the price reduction to make them accessible to the wider public is critical.83 Demand response Demand response is defined as the intentional modification of normal consumption patterns by end-use customers in response to incentives from grid operators, designed to lower electricity use at times of high wholesale market prices or when system reliability is threatened. It requires consumers to either actively respond to the operator’s signals or alternatively, to employ automated solutions to enter into contracts with service providers.84 By their active involvement in demand response, those consumers can differentiate from their traditionally passive role and become prosumers.85 In the EU legislative framework, the 2012 Energy Efficiency Directive (part of EU’s Clean Energy Package) recognizes the importance of demand response in its preambles, as it promotes energy savings and optimal use of networks and therefore stresses the need to improve the conditions necessary for it to take place and consumers’ access to it.86 For this to be achieved, certain EU member states’ obligations have been mapped out. In the Energy Efficiency Directive, member states are called to remove incentives related 81. National Energy and Climate Plan of Latvia 2021 2030, p. 154 155 and Latvian Alternative Fuels Development Plan 2017 2020, 25 April 2017, available in Latvian at http:// polsis.mk.gov.lv/documents/5893 82. National Energy and Climate Plan of Latvia 2021 2030, p. 88 83. Ibid, p. 88 89 84. European Commission, “Demand response - empowering the European consumer,” SETIS Magazine, Smart Grids, March 2014, available at https://setis.ec.europa.eu/publications/setismagazine/smart-grids/demand-response-empowering-european-consumer 85. Leal-Arcas, R., Lesniewska, F., Proedrou, F., 2018. “Prosumers as new energy actors,” in: Mpholo, M., Steuerwald, D., Kukeera, T. (Eds). Africa-EU Renewable Energy Research and Innovation Symposium 2018 (RERIS 2018), available at https://link.springer.com/chapter/ 10.1007/978-3-319-93438-9_12 86. EU Directive No. 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, available at https://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri 5 OJ:L:2012:315:0001:0056:EN:PDF, preambles (44), (45)

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to transmission and distribution tariffs that could hold behind either overall energy efficiency or “participation of demand response, in balancing markets and ancillary services procurement.”87 Additionally, in the EU Regulation on the Governance of the Energy Union, regarding national climate and energy plans, those should include national objectives and measures to ensure, amongst others, the nondiscriminatory participation of demand response, including via aggregation, in all energy markets.88 No specific measures for the promotion of demand response are currently mentioned in the Latvian NEEAP (National Energy Efficiency Action Plan).89 However, Latvia does recognize how important the development of such services is and has explicitly stated in its National Energy and Climate Plan that creating an appropriate legal framework for that is a priority.90 This is an objective echoing the conclusions drawn from a 2017 working group between the Baltic and Finnish transmission system operators, Litgrid AB, Elering AS, and AS Augstsprieguma t¯ıkls, aiming for a harmonized Baltic region approach toward demand response, realized through a common framework;91 hopefully those plans will not exist solely in theoretical discussions anymore and will soon become part of Latvia’s practice. Electricity storage In the European Union legal framework, the definition of electricity storage went through a considerable amount of negotiation before being included in it in a definitive way, resulting in complications such as hesitation on behalf of transmission and distribution companies to invest in storage.92 Eventually, in the recent addition to EU’s Clean Energy Package, the 2019 Directive on common rules for the internal market for electricity, energy storage in the electricity system was defined as “deferring the final use of electricity to a 87. EU Directive No. 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, Article 15, paragraph 4 88. Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, PE/55/2018/REV/1, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 uriserv:OJ.L_0.2018.328.01.0001.01. ENG&toc 5 OJ:L:2018:328:FULL, Annex I, 2.4.3.ii and 3.4.3.iii 89. Bertoldi, P., Zancanella, P., Boza-Kiss, B., 2016. European Commission, Joint Research Centre - JRC Science for Policy Report, “Demand Response status in EU Member States.” p. 27. DOI:10.2790/962868. 90. National Energy and Climate Plan of Latvia 2021 2030, p. 60 91. Augstsprieguma t¯ıkls AS, Baltic Electricity Transmission System Operators’ Public Consultation on “Demand Response through Aggregation a Harmonized Approach in the Baltic Region,” 10 November 2017, available at http://www.ast.lv/en/events/baltic-electricitytransmission-system-operators-public-consultation-demand-response-through 92. European Parliament, October 2015. Directorate General for Internal Policies, Policy Department A: Economic and Scientific Policy, “Energy Storage: which market designs and regulatory incentives are needed?.” available at http://www.europarl.europa.eu/RegData/etudes/ STUD/2015/563469/IPOL_STU(2015)563469_EN.pdf IP/A/ITRE/2014 05, p. 46

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moment later than when it was generated, or the conversion of electrical energy into a form of energy which can be stored, the storing of such energy, and the subsequent reconversion of such energy into electrical energy or use as another energy carrier.”93 As mentioned before, EU Member States are required to prepare national climate and energy plans, as per the EU Regulation on the Governance of the Energy Union.94 Those plans have to include the country’s national objectives and measures to ensure, amongst others, the nondiscriminatory participation of energy storage, including via aggregation, in all energy markets.95 Latvia currently does not have a developed framework concerning electricity storage and generally has not seen much development on that technological field.96 Similarly to the case of EVs discussed above, this is understandable as decentralized energy storage’s cost is still deemed prohibitively expensive,97 especially considering the financial situation in Latvia in comparison to other EU member states. As per the national climate and energy plan, Latvia is optimistic that if all goes as planned, beginning from 2020, investments from EU funding sources such as the Innovation Fund and the Modernisation Fund will result in it developing appropriately its energy storage projects.98 Concerning the EU-mandated elimination of discriminations, the plan states that no specific prohibitions for the introduction and use of renewable energy technologies are in force, but those technologies are always subject to restrictions on their location and possible environmental, biodiversity, societal, or territorial conditions.99

93. Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU, PE/10/ 2019/REV/1, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 CELEX% 3A32019L0944, Article 2(59) 94. Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, PE/55/2018/REV/1, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 uriserv:OJ.L_0.2018.328.01.0001.01. ENG&toc 5 OJ:L:2018:328:FULL, Article 3 95. Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, PE/55/2018/REV/1, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri 5 uriserv:OJ.L_0.2018.328.01.0001.01. ENG&toc 5 OJ:L:2018:328:FULL, Annex I, 2.4.3.ii and 3.4.3.iii 96. Flex4RES Flexible Nordic Energy Systems, December 2016. “Framework conditions for flexibility in the electricity sector in the Nordic and Baltic Countries.” p. 6 97. European Parliament, Electricity Prosumers, Members Research Service Briefing, Nikolina Sajn for EPRS - European Parliamentary Research Service, October 2016, available at http:// www.europarl.europa.eu/RegData/etudes/BRIE/2016/593518/EPRS_BRI(2016)593518_EN.pdf, p. 4 98. National Energy and Climate Plan of Latvia 2021 2030, Riga, 2018, p. 73 74 99. Ibid, p. 36, 59

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26.2.2.2 Data protection and cybersecurity concerns Naturally, as technology and intelligent devices such as those described above gain more ground in citizens’ everyday life, there can be a degree of concern about the alarming possibility of the government and other public or private entities being given too much power because of them. This power consists in their facilitated access to smart electricity consumers and their information, an exposure that renders consumers vulnerable against the state and anyone else in possession of their data, as they often contain pieces of information that consumers would prefer that remains strictly in the sphere of their private lives and knowledge. Additionally, the automation and digitalization of all services exposes providers and consumers alike to another danger, that of cyberattacks. The proliferation of the “Internet of Things” smart devices has opened many possible routes through which the function of a grid can be compromised: EVs, smart meters, thermostats, and home appliances all could potentially be vulnerable parts in a targeted smart grid.100 As described before, especially Latvia has been no stranger to hacking attempts, which, despite the efforts to be kept at a minimum, still cannot be excluded as a possibility. As far as fears on the protection of data are concerned, the recent EU legislation should be of help in tackling the matter adequately. In May 2018 the Regulation of the European Parliament and the Council known as General Data Protection Regulation or, in its abbreviated form, GDPR, entered into application, in a landmark moment for the Union, initiating “a new era” in the field of data protection of natural persons.101 In summation, the GDPR’s main provisions regulate the processing of personal data in compliance with six quality principles: they have to be “(1) processed fairly and lawfully; (2) collected for specific, explicit, and legitimate purposes and not processed in a manner incompatible with those purposes; (3) adequate, relevant, and not excessive; (4) accurate and, where necessary, up to date; (5) kept in an identifiable form for no longer than necessary; and (6) kept secure.”102 Additionally, at least one of the following conditions concerning the data processing has to be met: “(1) carried out with the data subject’s consent; (2) necessary for the performance of a contract with the data subject; (3) necessary for compliance with a legal obligation; (4) necessary in order to protect the vital interests of the data subject; (5) necessary for the public interest or in the exercise 100. Yilmaz, Y., Uludag, S., 2017. “Mitigating IoT-based cyberattacks on the smart grid,” 16th IEEE International Conference on Machine Learning and Applications, DOI 10.1109/ ICMLA.2017.0 109, 517 522, 517 101. European Commission, “A new era for data protection in the EU - What changes after May 2018,” available at https://ec.europa.eu/commission/sites/beta-political/files/data-protection-factsheet-changes_en.pdf 102. Linklaters, “Data Protected Latvia,” contributed by Ellex Klavins law firm, available at https://www.linklaters.com/en/insights/data-protected/data-protected-latvia#security (last updated August 2018)

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of official authority; or (6) necessary for the controller’s or recipient’s legitimate interests, except where overridden by the interests of the data subject.”103 Regulations, as per European Union law, are automatically binding from the very day they enter into force for all EU member states, who do not need to transpose them as they are already considered part of their legislation.104 It is then in each government’s discretion to decide whether it should promote the updating of national legislation to render it compliant to the Regulation’s content and avoid possible contradictions between its laws, which is what the Latvian government opted for. In fact, in July 2018, Latvia became the first Baltic country to adopt legislation on a national level regarding the GDPR, by entering into force its national Law on Personal Data Processing105 in lieu its Law on the Protection of Personal Data of Natural Persons (the “DPA”) of 2000.106 The authority responsible to supervise the new law’s enforcement is the Data State Inspectorate of Latvia (DSI), which represents the country as its national supervisory authority in the European Data Protection Board, EU working groups, and other international forums.107 It is interesting to note that, while the aforementioned DPA Law was in force, there had been approximately 600 inspections related to the Law’s violation in the course of 16 years. It was found that there had indeed been a violation in less than a quarter of the cases inspected, and eventually a fine was imposed in a tenth of the cases inspected, usually ranging in amounts disproportionately low to the fining capacity of the DSI (up to h14,000 for a single case).108 Today, after the GDPR and the Latvian Law on Personal Data Processing have entered into force, while the amount of complaints reached a “record number,” the DSI has not imposed many penalties or fined heavily, generally imposing fines up to h2000109 with the recent exception of a h7,000

103. Ibid 104. European Commission, “Applying EU law - EU law and its application,” available at https://ec.europa.eu/info/law/law-making-process/applying-eu-law_en#eu-law and “Types of EU law Types of EU legal acts,” available at https://ec.europa.eu/info/law/law-making-process/ types-eu-law_en 105. Eurocloud, 31 July 2018. “Latvia has adopted the Law on personal data processing.”, available at https://eurocloud.org/news/article/latvia-has-adopted-the-law-on-personal-data-processing/ 106. Linklaters, “Data Protected Latvia,” contributed by Ellex Klavins law firm, available at https://www.linklaters.com/en/insights/data-protected/data-protected -latvia#security (last updated August 2018) 107. Ibid and Data Inspectorate of the Republic of Latvia, “International Cooperation,” available at https://www.dvi.gov.lv/en/personal-data-protection-2/international-cooperation/ (last update 26 June 2017) 108. Linklaters, “Data Protected Latvia,” contributed by Ellex Klavins law firm, available at https://www.linklaters.com/en/insights/data-protected/data-protected -latvia#security (last updated August 2018) 109. Law Business Research, “Latvia - The GDPR one year on,” by Anna Vladimirova Krjukova, 25 June 2019, available at https://www.lexology.com/library/detail.aspx? g 5 b22dc949-5d51-4e66-a03f-b6b88edc239f

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fine in August 2019.110 The authority has justified its approach by the particularly large number of the complaints which should be examined appropriately, combined with its decision to mainly consult in order to guarantee the GDPR is properly implemented in the first year after its application.111 In view of the above, Latvia does have the appropriate legislative tools to address possible cases of data protection violations because of the use of smart electricity technologies. However, the enforcement part does not seem to be as developed yet, and considering the technological advancements taking place every day, and subsequently the potential risks they could pose, it is something Latvian authorities should definitely progress on. Concerning the possibility of the smart grids being exploited by hackers, cybersecurity in energy infrastructure has been recognized as an important subject by the European Union, mirrored in the creation of a Smart Grids Task Force in 2017, which in June 2019 submitted an energy-specific report on cybersecurity.112 The report proposed a Network Code on Cybersecurity to complement the 2019 EU Cybersecurity Act113 and concluded in suggesting a holistic approach in mitigating threats of that nature, demanding the collaboration of public and private actors, and the building of trust between EU member states, with each other and their international allies.114 Furthermore, in October 2019, a briefing of the European Parliamentary Research Service on cybersecurity of critical energy infrastructure was presented before the European Parliament, also stressing the urgency of developing and applying “strong socio-cyber-physical security measures and policies, notably in the electricity sector.”115 110. European Data Protection Board, “Data State Inspectorate of Latvia imposes a financial penalty of 7000 euros against online retailer,” 3 September 2019, available at https://edpb. europa.eu/news/national-news/2019/data-state-inspectorate-latvia-imposes-financial-penalty7000-euros-against_en 111. Law Business Research, “Latvia - The GDPR one year on,” by Anna Vladimirova Krjukova, 25 June 2019, available at https://www.lexology.com/library/detail.aspx? g 5 b22dc949 5d51 4e66-a03f-b6b88edc239f 112. Smart Grid Task Force Expert Group 2, “Recommendations to the European Commission for the Implementation of Sector-Specific Rules for Cybersecurity Aspects of Cross-Border Electricity Flows, on Common Minimum Requirements, Planning, Monitoring, Reporting and Crisis Management,” Final Report, June 2019, available at https://ec.europa.eu/energy/sites/ener/ files/sgtf_eg2_report_final_report_2019.pdf, p. 5 113. (at the moment of the Report’s publishing still proposed, today in force) Regulation (EU) 2019/881 of the European Parliament and of the Council of 17 April 2019 on ENISA (the European Union Agency for Cybersecurity) and on information and communications technology cybersecurity certification and repealing Regulation (EU) No 526/2013 (Cybersecurity Act), available at https://eur-lex.europa.eu/eli/reg/2019/881/oj 114. Smart Grid Task Force Expert Group 2, Final Report, June 2019, p. 100 115. EPRS - European Parliamentary Research Service, European Parliament Briefing authored by Gregor Erbach and Jack O’Shea, “Cybersecurity of critical energy infrastructure,” October 2019, available at http://www.europarl.europa.eu/RegData/etudes/BRIE/2019/642274/EPRS_BRI (2019)642274_EN.pdf, p. 7

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As for Latvia’s approach on the matter, the Latvian national climate and energy plan does acknowledge the danger of cyberattacks and states that in the context of energy security, at today’s digital age one has to be vigilant of cybersecurity issues when developing energy projects.116 However, apart from those rather brief statements, no concrete strategy to prevent or at least minimize the risk of cyberattacks is announced in the plan.

26.3 Conclusion and recommendations From the above, it can be observed that Latvia is progressing slowly yet steadily toward a smarter and more decentralized electricity system, following the directions of the EU’s Clean Energy Package Regulations and Directives. The objectives presented in the Latvian National Energy and Climate Plan for 2021 2030 demonstrate the country’s willingness to progress even further in all five dimensions of the energy union. While the EU member states’ national plans have not yet taken their definitive form, as revised versions of the plans are due to be presented by the end of 2019117 and be assessed in their final form in June 2020,118 the Latvian plan has been mentioned as a positive example by the European Commission for its detailed estimations about its non-emissions trading system targets and its investment needs.119 As optimistic as this indication is, there are, however, certain aspects that could potentially be ameliorated to achieve the best results possible. For example, as data privacy and cybersecurity in energy and electricity infrastructure already are and will continue to be pressing issues, affecting the lives of millions of citizens, it is imperative that the Latvian policy and legislation develop in a timely manner to counter those issues effectively. In this way, not only will the national energy security be protected, but also the confidence of the consumers toward the employment of new tools will be strengthened. 116. National Energy and Climate Plan of Latvia 2021 2030, p. 56 117. European Commission, Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions, “The European Green Deal,” Brussels, 11 December 2019, COM (2019) 640 final, p. 6, available at https://ec.europa.eu/info/sites/info/files/european-green-dealcommunication_en.pdf 118. European Commission, Annex to the Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions, “The European Green Deal,” Roadmap Key Actions, Brussels, 11 December 2019, COM(2019) 640 final, p. 2, available at https://ec.europa. eu/info/sites/info/files/european-green-deal-communication-annex-roadmap_en.pdf 119. European Commission, Annex to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, “United in delivering the Energy Union and Climate Action - Setting the foundations for a successful clean energy transition,” Brussels 18 June 2019, COM/2019/285 final, available at https:// eur-lex.europa.eu/legal-content/EN/TXT/?qid 5 1565713062913&uri 5 CELEX:52019DC0285

Chapter 27

Energy decentralization and energy transition in Portugal Filipa Santos1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

27.1 Introduction The European Union (EU) has been the most active region in the world in evolving energy policy and implementing climate change and environmental standards. 1This has led to the successful reduction of pollution while growing the economy and fostering global technological leadership.2 However, EU member states still import a high level of fossil fuels such as oil and gas to produce electricity in their domestic energy systems, and Portugal is no exception. The high imports and usage of fossil fuels pose a threat to the EU’s decarbonization path and are contrary to a sustainable development. The decentralization and diversification of energy sources have been a priority in the EU’s agenda, not only for environmental reasons but also due to the still oligopolistic nature of the production, consumption and trade of oil and gas, and the unreliability of their supply due to geopolitical instability in oil-rich countries, the volatility of oil prices, and nationalism of resources, amongst other reasons.3 To continue with fossil fuel production and imports 1. Averchenkova, A., et al., 2016. “Climate policy in China, the European Union and the United States: main drivers and prospects for the future in depth country analyses,” Policy Paper, Centre for Climate Change Economics and Policy Grantham Research Institute on Climate Change and the Environment in collaboration with Bruegel and scholars at the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs, pp.-1 96, at p. 36 2. Klaassen, G. et al., 2015. “EU climate policy explained.” In: Delbeke, J., Vis, P. (Ed.), first ed. Routledge Publishing, Chapter 1, at p. 4. Available: ,https://ec.europa.eu/clima/sites/clima/ files/eu_climate_policy_explained_en.pdf.. 3. Leal-Arcas, R. et al., “Energy decentralization in the EU,” Queen Mary University of London, School of Law Legal Studies Research Paper No. 307/2019, pp. 1 54, at p. 2. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00006-2 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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for the generation of electricity is not a sustainable option for the EU and the world, as it no longer meets energy demands and is irreversibly changing our natural environment. The role of clean energy sources in the energy mix of a country is more crucial than ever and fostering innovation can aid energy security concerns to be met, while at the same time help safeguard sustainable growth and the protection of the environment. The EU’s “Third Energy Package” has promoted a greener energy policy by making member states focus on the decentralization of their domestic electricity markets.4 More recently, the introduction of the “clean energy for all Europeans” package has reinforced the EU’s position on the crucial role that clean energy and energy efficiency have within its internal energy market, increasing the role that consumers have in the electricity market and integrating renewable energy sources into a more technological grid.5 Smart grids are expected to increase substantially across Europe and the decentralization shift from the large centralized power stations to smaller and more distributed local grids will better utilize electricity produced from renewable energy sources and create innovative new technologies to support the low-carbon transition. As a member state of the EU, Portugal must follow the decentralization agenda while increasing its use of renewable energy sources and establish better interconnection of electricity between its neighboring member states. In this context, this chapter explores Portugal’s electricity market considering policies introduced by the EU, which aim to incorporate new technologies such as storage solutions and the creation of smart grids. The chapter looks at how the decentralized priority is being achieved in the country. It begins by exploring the current domestic energy market, the current achievements in decentralization, and obstacles that have become apparent. It assesses new technologies and projects introduced to incentivize or further develop such technologies, namely, smart metering systems, electric mobility, demand response (DR), and electricity storage technologies. The chapter also looks at data protection concerns, the interconnection between Portugal and Spain’s electricity markets and the possibility of a place in the market for the new clean energy sources. Finally, based on the analysis of Portugal’s electricity market, the chapter concludes the domestic reality and outlines a set of recommendations to facilitate the introduction of new technologies in the energy sector and how to further implement decentralization of the electricity market.

4. See European Union Commission, 21 May 2019. “Third energy package.”. Available: ,https://ec.europa.eu/energy/en/topics/markets-and-consumers/market-legislation/third-energypackage.. 5. European Commission, “Clean energy for all Europeans package completed: good for consumers, good for growth and jobs, and good for the planet,” (News, 27/5/19), Brussels. Available: ,https://ec.europa.eu/info/news/clean-energy-all-europeans-package-completed-good-consumers-good-growth-and-jobs-and-good-planet-2019-may-22_en..

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27.2 Energy profile 27.2.1 Overview of Portugal’s energy market Compared to the EU-28 countries, Portugal had the seventh highest energy dependence in 2015.6 The country relies on energy imports of oil and gas from various other countries in order to meet its energy needs, with the biggest share of imports from Angola.7 Portugal has decreased its energy dependence from 83% to 79% of fossil fuel imports due to the increase of renewable energy production, but the dependency on imports for energy supply remains excessively high. In 2017 the country imported 3072 Gigawatt-hour (GWh) in a total of h168 million, which was more than in 2016, where electricity imports were totaled h88 million.8

27.2.1.1 Energy production The energy produced in Portugal is enough to meet the needs of the population, but the country imports electricity from Spain, for commercial reasons. On the other hand, Portugal also exports its electricity production surplus to Spain. According to Redes Energe´ticas Nacionais (REN)9, in the beginning of 2018, renewable energy provided for 61% of energy consumption needs (31% from wind power, 24% from hydroelectric power, 5% from biomass, and 1.1% from photovoltaic energy), while the remaining 39% of energy needs were met by nonrenewable energy production (22% from natural gas and 17% coal).10 Portugal is one of the leading countries in Europe promoting the production of energy from renewable sources due to its strategic efforts to replace fossil fuels. In the period between 2005 and 2015, the amount of renewable energy produced increased 50.64% from 3392 to 5110 kilotons of oil equivalent (ktoe), as seen in Fig. 27.1.11 Portugal produced 5.6 million tons of oil 6. Miguel, C.V., Mendes, A., Madeira, L.M., 2018. “An overview of the Portuguese energy sector and perspectives for power-to-gas Implementation.” MDPI Energ. Rev., 11, 3259, 1 20. 7. Miguel, C.V., Mendes, A., Madeira, L.M., 2018. “An overview of the Portuguese energy sector and perspectives for power-to-gas Implementation.” MDPI Energ. Rev., 11, 3259, 1 20. 8. Pacheco, M.C., Mendes, J.M., “Electricity regulation in Portugal: overview.” Thomson Reuters: Practical Law, Resource ID 6 564-1565, pp. 1 23. 9. REN operates two major businesses: (1) the transmission of very high-voltage electricity in the National Electricity System and (2) the transport of high-pressure natural gas and overall technical management of the National Natural Gas System, guaranteeing the reception, storage and regasification of LNG and underground storage of natural gas. 10. See ,https://www.ren.pt/en-GB/media/comunicados/detalhe/renewable_production_supplied_ over_60__of_electricity_consumption_in_portugal_during_the_first_quarter_of_2018.. 11. Taken from Direc¸a˜o Geral de Energia e Geologia (DGEG): “Renov´aveis-Estat´ısticas R´apidas.” Available at: ,http://www.dgeg.gov.pt..

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FIGURE 27.1 Evolution of renewable energy production between 2005 and 2015. From International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal,” pp. 7 155, p. 16. International Energy Agency.

equivalent (Mtoe) energy in 2014 from a multitude of resources such as from biofuels and waste (52.2%), hydropower (23.9%), wind power (18.5%), geothermal (3.1%), and solar power (2.3%), as per information stated by the International Energy Agency in its 2016 report.12 Since Portugal has no indigenous oil reserves and no fossil fuel production (including coal, natural gas, and oil), it has a high dependency rate on imports to produce energy. From 2004 to 2014 energy production in Portugal rose 44.4%.13 Energy production by renewables is steadily increasing; however, its production is volatile due to the intermittent nature of the sources, leaving Portugal with the conundrum on how the investment and development the urgently needed storage solutions.

27.2.1.2 Energy consumption The country’s total final consumption (TFC) was 16.2 Mtoe in 2013 as per the most recent available data.14 The largest consuming sectors are industry (36.7%) and transport (33.3%).15 The residential sector’s TFC represented 16.3%, while the commercial and other service sectors represented 13.7% TFC.16 From 2003 to 3013 the industry sector has cut its consumption by 26.7%, while transport demand declined by 16.2%, and the residential and commercial sectors decreased 15.3% and 3.5%, respectively.17 12. International Energy Agency 2016 Review. pp. 7 155, p. 16. 13. International Energy Agency 2016 Review. pp. 7 155, p. 16. 14. International Energy Agency 2016 Review. pp. 7 155, p. 18.. 15. International Energy Agency 2016 Review. pp. 7 155, p. 18. 16. International Energy Agency 2016 Review. pp. 7 155, p. 18. 17. International Energy Agency 2016 Review. pp. 7 155, p. 18.

(IEA), 2016. “Energy policies of IEA countries: Portugal.” (IEA), 2016. “Energy policies of IEA countries: Portugal.” (IEA), 2016. “Energy policies of IEA countries: Portugal.” (IEA), 2016. “Energy policies of IEA countries: Portugal.” (IEA), 2016. “Energy policies of IEA countries: Portugal.” (IEA), 2016. “Energy policies of IEA countries: Portugal.”

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The TFC increased only slightly to 16.11 Mtoe in 2016.18 In 2015 the transport sector was the most energy-intensive sector representing a 41.2% share of the country’s final consumption.19 The industry sector’s final energy consumption was at 27.8%, the residential sector was at 15.8%, and on the service sector the consumption shared 12.2%.20 The share of final energy consumption by Portugal in the transport sector was above the EU average which stands at 33.1%, while the residential sector was below the EU average of 25.4%.21 Between 2005 and 2015 the energy consumption by the transport sector saw a decrease of 0.8%.22 It is likely that the demand will keep decreasing due to energy efficiency initiatives and the increase of renewable energy capacity and generation.

27.2.1.3 Energy supply Portugal’s total primary energy supply (TPES) was 21.1 Mtoe in 2014, which is 18.3% lower than in 2003.23 Government projections anticipate an increase in demand in the coming years and predicted that in 2020 the TPES was going to be 13.5% higher than in 2014.24 The main supply comes from fossil fuels, accounting for 74.3% of TPES in 2014 (oil (45.1%), natural gas (16.4%), and coal (12.7%)).25 Renewables accounted for 25.4% in 2014; however in recent years, renewable supply has been increasing. For example, due to the increase in wind generation, the share of renewables in TPES from 2004 to 2014 has increased from 0.1% to 4.9%.26 The most recent statistics by PORTADA show that renewable energy amounted to 4794 tons of oil (toe) in the TPES, an increase from the

18. PORTADA (Portuguese database), “Final energy consumption: total and by type of consumer sector,” (visited 26/09/2019), available at:,https://www.pordata.pt/en/Europe/ Final 1 energy 1 consumption 1 total 1 and 1 by 1 type 1 of 1 consumer 1 sector-1397.. 19. European Commission, 2017 “Energy Union factsheet Portugal.” Commission Staff Working Document SWD (2017) 408 final, Brussels, p. 10. Available at: ,https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-portugal_en.pdf.. 20. European Commission, 2017. “Energy Union factsheet Portugal.” Commission Staff Working Document SWD (2017) 408 final, Brussels, p. 10. 21. European Commission, 2017. “Energy Union factsheet Portugal.” Commission Staff Working Document SWD (2017) 408 final, Brussels, p. 10. 22. European Commission, 2017. “Energy Union factsheet Portugal.” Commission Staff Working Document SWD (2017) 408 final, Brussels, p. 11. 23. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 17. 24. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 17. 25. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 17. 26. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 17.

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4141 toe in 2003; however, a decline from 2016 where the TPES amounted to 5568 toe.27 The decrease of renewable energy in the TPES was mainly due to the volatility of hydropower production and its reliability. In 2017 the Iberian Peninsula suffered from a drought28 which significantly affected the production of electricity by hydropower energy sources. The drop is explained, as hydropower sources between the years 2014 and 2016 provided for 29% of the country’s power demand.29 Since there is a lot of potential for greater renewable energy development in Portugal, there should be more incentives for projects to take place, and there should be more subsidies in place to help the consumer install solar PV’s in their homes; however, there should also be more development of storage projects, such as research and development into the best batteries to store electricity from renewable sources.

27.2.1.4 Electricity generation Within this, electricity generation in 2014 was 52 Terawatt-hour (TWh), 3% higher than in 2013 and 16.1% higher than in 2004.30 These figures are volatile due to the variable generation by hydropower.31 In relation to electricity consumption, in 2013 it amounted to 46.3 TWh, which was 5.6% higher than in 2003.32 The energy produced in Portugal is enough to meet consumption needs, but energy is traded between Portugal and Spain. In 2014 the new import of electricity from Spain was 0.9 TWh, 2% of domestic demand.33 These imports are volatile due to the nature of hydropower generation, as it can be seen in 2008 these were as high as 9.4 TWh; however, in 2014 they were as low as 0.9 TWh.34 The indicator of energy intensity35 of the country has decreased from 152.2 toe per million of GDP in 1995 to 86.4 toe per million of GDP in

27. See ,https://www.pordata.pt/en/Portugal/Primary 1 energy 1 consumption 1 total 1 and 1 by 1 type 1 of 1 energy 1 source-1130-9142.. 28. See ,https://www.hydropower.org/sites/default/files/publications-docs/2019_hydropower_status_report.pdf 29. https://www.icis.com/explore/resources/news/2018/02/23/10196550/icis-power-perspectivethe-iberian-peninsula-droughts-%200xe2-0x80-hydro-at-risk-gas-fired-power-on/.. 30. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 82. 31. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 81. 32. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 83. 33. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 83. 34. Figures 6.3 in International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 84. 35. Expressed ratio between gross inland energy consumption and GDP.

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2016; however, Portugal is still below EU-28 average standards.36 In 2010 energy consumption in Portugal peaked at 50.5 TWh before declining in the following years, and 2013 it amounted to 46.3 TWh.37 The largest consuming sectors are the commercial and public services sector, which includes fisheries and agriculture, with 35.8% of electricity consumption.38 The demand for commercial services has increased by 6.5% since 2003. The second largest consuming sector is industry accounting for 34.6% of electricity consumption, followed by the residential sector with 26.6%.39 The demand for industrial services has decreased by 0.8% in 2013, compared to 2003.40 On the other hand, the consumption from the residential sector has increased 4.1% since 2003, but the demand has decreased 15.2% from 2010 to 2013.41 Electricity consumption in the transport sector amounts to only 0.8%, as it uses mostly fossil fuels, and therefore the demand was less unstable than the other sectors.42

27.2.2 Electricity market 27.2.2.1 Key characteristics The Portuguese electricity market is on the way to be fully liberalized and privatized. This process was aided by the introduction of EU directives such as Directive 2009/72/EC43 and by measures under the financial assistance plan and conditions imposed by the Troika44 from 2011 to 2014. As an EU member state, Portugal has undergone many policy changes and updates in order to liberalize and centralize its electricity market. 36. EU-28 average was 147.2 toe per million GDP in 1995, and is currently 74.2 toe per million GDP as per: ,https://www.pordata.pt/en/Europe/Energy 1 intensity 1 of 1 the 1 economy 1 (toe 1 per 1 million 1 of 1 GDP)-3271.. 37. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 84. 38. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 84. 39. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 84. 40. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 84. 41. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 84. 42. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 84. 43. 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. 44. The Troika is the representative of the EU in its foreign relations concerning its common foreign and security policy, specifically in relation to the International Monetary Fund (IMF), the European Central Bank (ECB), and the European Commission; Eurofound, “Troika,” (31 August 2017, Eurwork), European Observatory of Working Life, available: ,https://www.eurofound. europa.eu/observatories/eurwork/industrial-relations-dictionary/troika.

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In 1995 the EU’s released a White Paper introducing new energy policy goals, including the overall competitiveness of the electricity market, security of supply, and environmental protection.45 The policy changes meant that the liberalization of the internal market for electricity and natural gas became a priority for all EU member states. Subsequently, to meet the liberalization objectives, the EU adopted the first electricity directive 96/92/EC46 and gas directive 98/30/CE47, introducing competition rules and giving consumers a free choice of energy suppliers. Directives 2003/54/EC48 and 2003/55/EC49, respectively, replaced the previous two directives, adopting common rules for the internal electricity and natural gas markets. These directives, especially directive 96/92/EC, gave benefits in terms of efficiency gains, higher standards of service, price reductions, and improved competitiveness. However, this was not adequate in avoiding risks of market dominance and predatory behavior.50 In Portugal, the opening of the electricity generation market transpired in 1981; however, the liberalization of large industrial consumers only happened in the mid-1990s.51 Eligibility for small consumers was extended after the market fully opened in 2004; however, this was only done for household consumers in 2006.52 The EU Commission in 2004 considered that Portugal was at its early stages of its competitiveness development in the electricity market.53 However, Portuguese legislation was ahead of time, due to the extension of eligibility to small electricity consumers established by DecreeLaw 192/2004 of 17 August 2004. Decree-Laws 182/95 to 187/95 amended by Decree-Laws 56/97 and 198/ 2000 established the basis of the Portuguese electricity sector. Additionally, Decree-laws 184/2003 and 185/2003 revised the National Electricity System (NES), adapting the Portuguese system to the Iberic Market (MIBEL).

45. See ,https://europa.eu/rapid/press-release_IP-95 1418_en.htm.. 46. Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity. 47. Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas. 48. Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC. 49. Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC. 50. Directive 2003/54/EC; Commission of the European Communities, 2005. “Annual Report on the Implementation of the Gas and Electricity Internal Market.” Brussels, COM(2004) 863 final. 51. Ferreira, P., Arau´jo, M., 2006. “An overview of the Portuguese electricity market.” Paper from the Department of Production and Systems, University of Minho, pp. 1 19. 52. Ferreira, P., Arau´jo, M., 2006. “An overview of the Portuguese electricity market.” Paper from the Department of Production and Systems, University of Minho, pp. 1 19. 53. European Commission, 2004. “Towards a competitive and regulated European electricity and gas market.” MEMO.

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FIGURE 27.2 Portuguese National Electricity System in 2004. From ERSE. Table found in Ferreira, P., Arau´jo, M., 2006. “An overview of the Portuguese electricity market.” Paper from the Department of Production and Systems, University of Minho, pp. 1 19, p. 5.

The country’s electricity model is based on two subsystems: the public electricity system (PES) and the independent electricity system (IES),54 as illustrated in Fig. 27.2. The PES must supply electricity to all mainland territory as a public service system. This system comprises the production activities, the national transportation grids, and the distribution activities. Producers within this system are bonded to the National Transmission Company (NTC) with an exclusivity long-term contract and must exclusively provide the PES. A concession to operate the transmission network is awarded exclusively to the NTC as a public service system. In Portugal, the NTC is REN that is responsible for the electricity transmission. The medium-voltage (MV) and high-voltage (HV)55 distributors may only acquire electricity out of the PES with an 8% limit of their energy and power requirements and are bound to the NTC. Regulated suppliers must supply to all the PES clients, and

54. Ferreira, P., Arau´jo, M., 2006. “An overview of the Portuguese electricity market.” Paper from the Department of Production and Systems, University of Minho, pp. 1 19; See also: ,http://www.erse.pt/pt/electricidade/actividadesdosector/distribuicao/Documents/ Report_DistributedGeneration.pdf.. 55. Entidade Reguladora dos Servic¸os Energe´ticos (ERSE) (Energy Regulator), September 2005. “Annual report to the European Commission.” Lisboa, Portugal.

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as per Decree-Law 185/2003, the appointed regulated supplier (and last resource supplier) is Energias De Portugal (EDP) Distribuic¸a˜o. The IES is formed by the nonbinding electricity system (NBES) and the special regime producers (SRP). The NBES is set up as a nonregulated market system with free access to the production and distribution activities apart from low-voltage (LV) distribution. The nonbinding producers, distributors, suppliers, and clients all form part of this system. For the nonbinding producers and the clients to access the PES transmission and distribution grids, a regulated tariff is charged for the services. There can be involvement by external agents such as companies which were legally established in other EU countries that are entitled to trade electricity. Agents and suppliers can perform cross-border commercial transactions using the existing EU transmission grid interconnections. As per EU Directive 2003/54/EC, all member states must assure that all consumers can freely purchase electricity from the supplier of their choice since 2007.56 According to Portuguese law, all consumers located in continental Portugal have access to the NBES and can choose their suppliers and negotiate the terms of their relationship.57 As per the Regulatory Entity for Energy Services (ERSE), the ability to switch suppliers was possible for small consumers from September 2006, after the implementation of the necessary technology for managing the switching procedure in an effective manner.58 The small hydropower generation, the cogeneration, and the production from other less developed renewable energy sources all form part of the SRP regime. The public electric grid has an obligation to buy the electricity produced by the SRP during the license period at prices based on the avoided costs to the PES and on the environmental benefits of each of the energy sources used in production.59 ERSE must regulate the PES and the correlation between PES and NBES. Other competences of ERSE include the setting of regulated tariffs such as the price for electricity for final LV consumers, adjusting the rates for the services of the NTG and binding distribution companies and creating codes for commercial dealings and grid access, amongst other competences. The generation, distribution, and supply activities are unbundled in Portugal, and transmission experienced procedures of unbundling of ownership.60 There are four categories within the electricity system such as the generation of electricity; the transmission of electricity though very high voltage and HV grids; the distribution of electricity through HV, MV, and 56. Amongst other obligations, Member States must ensure the implementation of a system of third-party access to the transmission and distribution systems for all eligible customers. 57. Decree-Law 192/2004 of August 17, 2004 on consumers’ eligibility of low voltage energy. 58. ERSE, December 2005. “Comunicado- Consumidores dome´sticos podem mudar de fornecedor de electricidade a partir de Setembro de 2006,” Lisboa (In Portuguese). 59. ERSE, December 2005. “Comunicado- Consumidores dome´sticos podem mudar de fornecedor de electricidade a partir de Setembro de 2006.” Lisboa (In Portuguese). 60. Unbundling refers to legal and accountability separation.

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LV grids; and the supply of electricity to consumers.61 These different activities are mostly unbundled as will be outlined below. However, some are subjected to regulation, such as the transmission, distribution, the supplier of last resort, and the logistic operations for switching supplier, and the administration of organized markets.62 Generation and supply activities are liberalized and therefore not regulated. These activities can be established by any company through the proper procedures such as licensing, registration, or prior communication to the start of the activities.63 There are two categories which define the generation of electricity: the ordinary and the special regimes.64 The ordinary regime can include for example, thermoelectric power plants, while the special regime covers electricity generation from renewable sources, cogeneration, small production, and production by any other “special” regimes, such as selfconsumption. The transmission activities are done through exclusive public concession awarded by REN, as these were denationalized in 2011.65 REN has an exclusive concession contract for all mainland Portugal territory. The transmissions provider by law has an obligation to connect all entities into its network on a nondiscriminatory basis if it is economically and technically feasible to do so, and if the applicant meets the connection conditions.66 The right of access to the transmission network is given by written agreement vis-a`-vis the use of the network. The operator can receive compensation for the use of its facilities as set out in the Tariff Regulation that was passed and is monitored by ERSE. Under the public concession regime, the operators obtain the exclusive right to perform distribution activities in different parts of the country. There must be an agreement drafted for the use of the distribution grids and the payment of the regulated tariffs as established by ERSE in the Tariffs Regulation must be executed prior to access to the distribution grid is assumed. The terms and conditions of the agreement must be approved by the regulator (ERSE). Within this, there are two regimes for the supply of electricity, namely: the free market supply to eligible consumers and the supply of last resort.

61. ERSE, July 2018. “Annual report on the electricity and natural gas markets in 2017: Portugal.” pp. 3 134. 62. ERSE, July 2018. “Annual report on the electricity and natural gas markets in 2017: Portugal.” pp. 3 134. 63. Ferreira, P., Arau´jo, M., 2006. “An overview of the Portuguese electricity market.” Paper from the Department of Production and Systems, University of Minho, pp. 1 19. 64. Pacheco, M.C., Mendes, J.M., “Electricity regulation in Portugal: overview.” Thomson Reuters: Practical Law, Resource ID 6 564-1565, pp. 1 23. 65. The privatisation process was established in Decree-Law 228/2006 of 22 November 2006. 66. Such as unbundling requirements under the Third Energy Package; See: ,https://www.ceer. eu/documents/104400/3731907/C15-LTF-43-04_TSO-Unbundling_Status_Review-28-Apr-2016. pdf/a6a22f89-3202-4f8b-f9ed-adf705185c33..

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The free market supply to eligible consumers represents to the consumers who have been entitled to such supply since September 4, 2006. Such supply is provided by the free vendors using negotiated conditions between the parties, excluding certain conditions that are compulsory and regulations set by ERSE. The supplier of last resort represents the supply licenses that must guarantee the universal supply to specific consumers under regulated tariffs established annually by ERSE. This supplier must purchase all special regime production at regulated fixed prices for each generation technology, whether under feed-in tariffs or other subsidiary schemes. This does not mean that the SERs cannot sell their electricity to other suppliers. The generation activities in a free market regime are connected to a wholesale market, where producers can sell the generated electricity and consumers seek to buy it. The trading of electricity is a retail market in Portugal, where trading agents will compete to supply electricity to end customers. A recent trend in Portugal has been the exponential increase in renewable energy generation. This is such that in March 2018, the generation of electricity by renewable energy sources was superior to the effective consumption in the mainland.67 Another trend is that there has been an increase in applications for production licenses.68 Portugal has also been promoting the use of electric vehicles and charging points for such vehicles which will be explored in more detail. All these activities will be discussed in the following section to determine to which extent it is aiding the country fulfilling the intended liberalization and decentralization of the electricity market.

27.2.2.2 Transmission and distribution The national transmission grid provides electricity transmission activities under a concession agreement, awarded exclusively to REN by virtue of Article 69 of Decree-Law No. 29/2006 of 15 February. REN is responsible for all transmission activities such as the planning, implementation, and operation of the national transmission grids, related infrastructure, any relevant interconnections, and facilities which are necessary to operate the grid. To ensure the efficient and homogenous operation of the system and a continuous and secure supply of electricity, REN must coordinate the national electricity system’s infrastructure. For the operation of the national distribution grid, an exclusive concession also needs to be granted. EDP’s subsidiary, EDP Distribuic¸a˜o exclusively holds the concession as per Article 70 of Decree-Law 29/2006 of 67. Report by the Portuguese Renewable Energy Association and the Sustainable Earth System Association said citing data from power grid operator REN: ,https://www.weforum.org/agenda/ 2018/04/last-month-portugal-produced-almost-104-of-its-electricity-from-renewables.. 68. Pacheco, M.C., Mendes, J.M., “Electricity regulation in Portugal: overview.” Thomson Reuters: Practical Law, Resource ID 6 564-1565, pp. 1 23.

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5 February, as a result of a conversion of the license held by EDP Distribuic¸a˜o under the previous electricity framework. The terms of the concession are laid out in Decree-Law 172/2006 of 23 August. However, in the Autonomous Region of Madeira (RAM), the concession for electricity distribution is held by Electricidade da Madeira (EDM), and in the Autonomous Region of Azores by Electricidade dos Ac¸ores (EDA). The electricity distribution network is approximately 99% owned by EDP Distribuic¸a˜o in Portugal’s mainland. The network consists of HV (60 Kilovolts (kV)), MV (30, 15, and 10 kV), and LV overhead and underground power lines. Additionally, it has substations, transformation posts, and other equipment needed for exploitation. Public lighting amenities can also form part of the distribution system. There is a Quality of Service Regulation69, with competences including responsibility and obligation of quality of service for the different agents and entities operating the electricity sector. ERSE has the responsibility to assure the fulfilment of this regulation as per Decree-Law No. 215-B/2015 of 8 October 2015.

27.2.3 Place in the market for different energy sources Historically, Portugal has a high dependency in imported energy as it does not produce oil, natural gas, or coal. Recently however, an increase in renewable energy generation has led to the decline in dependency. In 2017 wind and hydropower generation were the main drivers in growing energy production in Portugal, with 21.6% wind energy production and 13.3% hydropower energy production.70 Portugal’s solar power production is expected to increase in the future, especially with new incentives and projects emerging in the national and regional levels. Due to a lack of precipitation in 2017, the national production decreased, and due to the low representation of renewable sources, there was an increase in the annual price of electricity in the wholesale market from h39.4/MWh in 2016 to h50.40/MWh in 2017.71 Nevertheless, the country was still able to run for 122 nonconsecutive hours on 100% renewable generated electricity sources72, proving that running on renewable energy is achievable. The increase in renewable capacity was done especially between 2004 and 2011, with the installation of several 69. ERSE Regulation No. 455/2013, published 29 November 2013. 70. Pacheco, M.C., Mendes, J., 2019. “Energy 2020: chapter: Portugal.” Global Legal Insights. In: Thomson, P., Derrick, J. (Eds.) Seventh ed., pp. 173 181. Available at: ,https://www.acc. com/sites/default/files/resources/20190314/1492599_1.pdf.. 71. According to Associac¸a˜o Portuguesa de Energias Renov´aveis (APREN), Available at: ,https://www.apren.pt/contents/publicationsreportcarditems/09-boletim-energias-renovaveissetembro.pdf . . 72. See ,https://www.sciencealert.com/portugal-just-ran-for-4-straight-days-entirely-on-renewable-energy..

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wind farms. New power plants have been commissioned in 2017, including the Foz Tua hydroelectric plant (263 MW), the Pico Alto geothermal power plant (4.5 MW), and large-scale photovoltaic solar power plants (14 MW), many other small-scale PV plants that count for self-consumption, and other small projects.73 Other renewable technologies have not seen this increase in capacity, and technologies such as biomass and wind power stagnated in 2017.74 There has been a proliferation in new renewable energy projects, with many power plants being licensed, and some already are in the construction stage. The Portuguese Government predicts that by 2021, the current installed capacity of renewable energy sources will increase from a total of 572 1600 MW, counting with the 30 power plants currently being built.75 Power purchase agreements are being negotiated with energy traders and suppliers, pursuant to which generator is responsible for enabling the disposal of the electricity for a buyer, which in turn will resell it on organized markets or by bilateral agreements. This method gives generators a price per MWh agreed with the buyers. This represents a change in policy from the previous remuneration method for renewable projects through feed-in tariffs set by law and regulation.76 It may provide for an effective solution, as the feed-in tariffs have not increased capacity as predicted. In order for the promotion of renewable energy to be fruitful, there is a need to solve the intermittency and storage conundrum, which is one of the reasons Portugal is witnessing a “lithium rush,” with growing utilization of the mineral for the production of batteries used in electric vehicles and electricity storage.77 The country has also been encouraging the development and investment in electromobility, as discussed in Section 27.6. Portugal has regions which form part of the EU outermost regions78, with a high potential for renewable energy sources to be used instead of fossil fuels, due to the regions having ideal weather conditions such as all-year round sunlight. Included in these small islands is the island of Porto Santo in RAM. This island is a perfect candidate to become a self-sufficient community based on renewable energy

73. Pacheco, M.C., Mendes, J., 2019. “Energy 2020: chapter: Portugal.” Global Legal Insights. In: Thomson, P., Derrick, J. (Eds.) Seventh ed., pp. 173 181. 74. Pacheco, M.C., Mendes, J., 2019. “Energy 2020: chapter: Portugal.” Global Legal Insights. In: Thomson, P., Derrick, J. (Eds.) Seventh ed., pp. 173 181. 75. See: ,http://ieefa.org/portugal-to-triple-solar-capacity-by-2021/. 76. Pacheco, M.C., Mendes, J., 2019. “Energy 2020: chapter: Portugal.” Global Legal Insights. In: Thomson, P., Derrick, J. (Eds.) Seventh ed., pp. 173 181. 77. See ,https://phys.org/news/2018 09-booming-electric-car-sales-lithium.html. 78. Small Islands (with the exception of French Guiana) which have a vast supply of renewable energy sources that are better than in continental Europe but are still heavily dependent on oil imports; as per Eduardo Maldonado, “Final Report: Energy in the EU Outermost Regions (Renewable Energy, Energy Efficiency),” pp. 1 21, at p. 2.

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sources, and it could be a leader in the low-carbon transition.79 The problem is that isolation of the island can make it difficult to obtain energy sources if renewables fail to operate in case of a shortage. This makes it crucial to have guarantees of system stability and penetration of storage solutions. The Portuguese government saw the potential of Porto Santo Island and has started a pilot project to develop storage capacity in order to use more effective stability providers, such as better batteries80, and has plans to increase the renewable capacity of the island.81 Porto Santo plans to be 100% renewable by 2030 and its favorable weather conditions are an advantage in achieving this objective.82 However, the island lacks the necessary infrastructure needed to fully capitalize on intermittent energy sources, and more investment and initiative is needed to achieve the objectives. For example, instead of investing in the current infrastructure used to produce energy in the island from gas and oil, the investment should be going to replace the wind turbines that were removed.

27.3 The liberalization of the Portuguese electricity market The liberalization of the electricity market in Portugal followed a process like most EU member states. The process started with the entrance of independent power producers with long-term contracts. Following this, a more active wholesale market was established and the retail market opened to competition at the last stage.83 Different legislation has been introduced in Portugal to aid the process. As an illustration, 1981 Decree-Law 20/81 mentioned for the first time the possibility of electricity auto-production, for entities producing from renewable energy or using technology that promoted reduction in primary energy consumption. Decree-Law 149/86 of 1986 built on the principle onto power plants that exclusively produced electricity. There were delays however, which lead to the introduction of Decree-Law 189/88 to establish a more rapid liberalization procedure and created conditions allowing for the economic viability for small power plants.84 Decree-Law 189/88 replaced the previous laws and instituted the guidelines for independent power 79. Maldonado, E., “Final report: energy in the EU outermost regions (Renewable Energy, Energy Efficiency),” pp. 1 21, at p. 2. 80. Maldonado, E., “Final report: energy in the EU outermost regions (Renewable Energy, Energy Efficiency),” pp. 1 21, at p. 2. 81. Pact of Islands, March 2012. “Sustainable Energy Action Plan: Porto Santo Island.” Available at: ,http://aream.pt/files/2016/05/ISEAP_Porto_Santo_EN.pdf.. 82. See ,https://phys.org/news/2018 09-booming-electric-car-sales-lithium.html. 83. Al-Sunaidy, A., Green, R.J., 2006. “Electricity deregulation in OECD countries.” Energy 31 (6 7), 769 787. 84. Since its publication, Decree-Law 189/88 suffered some changes published in subsequent text laws.

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production, which allowed and incentivized the production of electricity from renewable energy sources and cogeneration. The PES was introduced by Decree-Law 99/91 along with the license system which opened competition fully in the electricity generation sector. Following this, Decree-Laws 182/95 to 187/95 reviewed Decree-Law 99/91 setting the bases of the PES and the IES in 1995.85 The process was followed by the progressive opening of the retail market between 199586 and 2004.87 The Portuguese wholesale market is jointly established with the Spanish one. The Portuguese and Spanish governments signed an agreement to develop the Iberian power market (MIBEL) in 2004, approved by the Resolution of the Assembly of Republic 33-A/2004. Decree-Laws 184/2003 and 185/2003 established the dispositions for the supply, importation, and exportation activities in the free Iberian market, where electricity is traded by bilateral contracts or on organized markets and the Power Purchase Agreement will be terminated. Any termination of these agreements implies economical compensations to the involved parties. In Decree-Law 240/2004, values for maximum compensation for the PES power plants were established.88 The electricity market liberalization process in Portugal, as depicted in Fig. 27.3, was meant to make the electricity market competitive and result in more favorable tariffs for consumers. In 2012 the Portuguese government announced the elimination of regulated tariffs89, which was meant to resolve the electricity tariff deficit and the elimination of regulated for domestic consumers finalizing the liberalization process of the electricity market in the country. Under the terms of Government Ordinance No. 39/2017 of 26 January 2017, consumers who still have regulated tariffs have a transitional period until December 31, 2020 to choose an electricity market supplier. Government Ordinance No. 144/2017 of 24 April 2017 states that consumers who still have these regulated tariffs have a transitional period until December 31, 2020 to choose a natural gas market supplier. It is free to switch supplier in Portugal, a process which is propelled by the supplier which the consumer has chosen for the supply of electricity and it requires no changes of meter. ERSE provides lists of companies that operate in the electricity market and offers a price comparison simulator to help consumers be better informed before switching supplier.90

85. Since its publication, Decree-Law 182/95 suffered some changes published in subsequent Decrees-Law. 86. Decree-Law 182/95 of 27 July 1995. 87. Decree-Law 192/2004 of 17 August 2004. 88. The European Commission has examined the state aid given to EDP in relation to the compensation. See: ,https://ec.europa.eu/competition/state_aid/cases/249957/249957_1520737_47_2.pdf.. 89. European Commission, 2018. “Country reports: Portugal,” (2014). Available at: ,https://ec. europa.eu/energy/sites/ener/files/documents/2014_countryreports_portugal.pdf.. 90. Price simulations by ERSE, available at: ,https://simulador.precos.erse.pt/.

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FIGURE 27.3 The process of liberalization of the Portuguese electricity market. From Ferreira P., Arau´jo, M., 2006. “An overview of the Portuguese electricity market.” Paper from the Department of Production and Systems, University of Minho, pp. 1 19, p. 5.

27.4 Regulatory framework 27.4.1 Regulators As already mentioned, the generation and supply of electricity and natural gas in Portugal are free activities, which are not regulated. On the other hand, the operation, transmission and distribution, liquid natural gas (LNG) terminals and storage facilities, as well as maintenance and exploration activities are regulated, with access tariffs which are set administratively by the national regulatory authority, ERSE.91 ERSE is responsible for the regulation, supervision, and sanctioning of the energy sector. Law No. 9/2013 of 28 January 2013 created the Energy Sector Sanctioning Regime and reinforced ERSE’s sanctioning competencies and functions. Decree-Law No. 84/ 2013 of 25 June revised ERSE’s by-laws and completed the implementation of Directives 2009/72/EC and 2009/73/EC. Another regulator worth mentioning is the Directorate General of Energy and Geology (DGEG), which develops and implements state policies and guidelines concerning the energy sector and the exploitation of natural resources. The DGEG competencies include granting the licensing and other clerical permissions which are energy related such as exploration and production licenses for oil and gas developments, or power-generating licenses. In this respect, ERSE is the independent national regulatory authority and the DGEG represents the state on energy matters, with licensing competencies. The main legal framework for the electricity sector can be found in Decree-Laws No. 29/2006 and No. 172/2006, both created on the February 15, 2006. The governing laws for the natural gas sector can be found in Decree-Laws No. 30/2006 of 15 February 2006, and No. 140/2006 of 26 91. ERSE’s by-laws were enacted by Decree-Law No.97/2002 of April 12, 2002, amended by Decree-Law No.212/2012 of September 2012.

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July. The regulations put forward by ERSE, such as the Commercial Relations Regulations, the Tariff Regulations, the Quality of Service Regulation, and the Infrastructure Operation Regulation92, are also sources of law within the scope of the energy sector. The DGEG also has put forward regulations, namely, the Transmission Network Regulation and the Distribution Network Regulation.93 Government policies have been set up in the National Plan of Action for Energy Efficiency 2013 2016 (PNAEE 2016)94 and in the National Plan of Action for Renewable Energies 2013 2020 (PNAER 2020).95 The purposes of these two policies were to aid the improvement of strategic energy creation and use by finding ways to achieve international goals and obligations Portugal has committed to96 in relation to energy efficiency and the increase in use of renewable energy sources, without harming economic development and ensuring fair and reasonable energy prices for the consumer. Considering that the country’s scarcity and dependence on imports of fossil fuel resources and the economic situation in the previous decade, these Plans of Action aim to reduce the energy dependence of the country by increasing the generation of energy by renewable sources and by promoting energy efficiency and assuring an increased sustainable future.

27.4.2 Regulated activities The transmission and distribution of electricity are subject to administrative authorizations, in most cases given by DGEG.97 The operation and exploration of the national transmission and distribution networks are given under concession agreements entered with the government, which grant the exclusive right to explore the networks within an agreed region with the concessionaires for 50 years for transmission and 35 years for distribution activities. As well as the national distribution network (generally HV and 92. Available at: ,http://www.erse.pt/pt.. 93. See ,http://www.dgeg.gov.pt/?cn 5 7165726772697295AAAAAAAA.. 94. Information available in English at: ,https://www.iea.org/policiesandmeasures/pams/portugal/ name-43751-en.php?s 5 dHlwZT1lZSZzdGF0dXM9T2s,&return 5 PG5hdiBpZD0iYnJlYWRjcnVt YiI-PGEgaHJlZj0iLyI-SG9tZTwvYT4gJnJhcXVvOyA8YSBocmVmPSIvcG9saWNpZXNhbmRt ZWFzdXJlcy8iPlBvbGljaWVzIGFuZCBNZWFzdXJlczwvYT4gJnJhcXVvOyA8YSBocmVmPSIvcG9saWNpZXNhbmRtZWFzdXJlcy9lbmVyZ3llZmZpY2llbmN5LyI-RW5lcmd5IEVmZmljaWVu Y3k8L2E-PC9uYXY-.. 95. Information in English available at: ,https://rea.apambiente.pt/content/renewable-energy? language 5 en.. 96. EU 20/20/20 measures which commits Portugal to achieve an overall reduction of primary energy consumption of 25% and to have 31% of its gross energy consumption fuelled by renewable energy sources. 97. Leita˜o, M., Teles, G., da Silva, S. & Associates, 26 March 2019. “Electricity regulation in Portugal.”. Available at: ,https://www.lexology.com/library/detail.aspx?g 5 cfec2d65 061546cc-a86e-76334f4f01ce..

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MV), there are municipal distribution networks, mainly low-voltage grids. The right of exploration of the municipal grids is granted by concession agreements given by the corresponding municipalities for a period of 20 years. The exploration and production, transmission, distribution, and operation of LNG terminals and LNG storage facilities are regulated subject to administrative authorization. The operation of LNG transmission and distribution networks and of LNG storage facilities are granted by means of concession which last 40 years within a certain area. Additionally, there are local natural gas distribution networks, without physical connection to the national distribution network. A license for 20 years is obtained for the operation from the Minister of the Economy and Employment (MEE) and delivered to the DGEG’s office. Regarding the right for oil exploration, development and production is granted by the MEE also through a concession agreement. No discovery of oil which would be economically viable to explore and produce has ever been found in Portugal to date. However, the law was established in a way that makes it an attractive and simple endeavor for upstream activities.98 For example, there is no legal obligation for production sharing and the concessionaire is exempt from paying royalties and free to sell the oil, except in the event of a war or national emergency. The concessionaire is free to dispose of any natural gas found and does not have to pay any production tax. These concession agreements are granted by means of a public procurement process. The generation of electricity is a free activity, subjected to the granting of a generation license. The licensing entity can vary, depending on the technology used or the location of the generation plant. Prior the industrial exploration, the generation entity must obtain an exploration license, which is granted after technical inspections take place to ensure the safety conditions of the operating plant.

27.5 Smart metering systems Smart metering systems are crucial in the energy sector as they will allow collection of detailed data on the energy use of small consumers. Portugal has undertaken various studies comprehensive field trial of the smart metering technology. The information obtained from the studies should be utilized to support the rollout of advanced metering technologies to smart meter systems and commercial enterprises with a view to supporting their efforts to 98. For more information see: Pacheco, M.C., Ferreira, B.C., “Oil and gas regulation in Portugal: overview.” Thomson Reuters: Practical Law, Resource ID W-017 8901. Available at: ,https://uk.practicallaw.thomsonreuters.com/w-017 8901? transitionType 5 Default&contextData 5 %28sc.Default%29..

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manage energy demand. Infrastructure and regulatory incentives are not heavily present in the country for this type of technology, but there is evidence that it is emerging. There are a few examples where some pilot projects are taking place in the country to test and roll out smart metering systems. For example, a project called SmartGalp (2010 12)99 was a technical study in the smart metering sector aiming to demonstrate and quantify the bundling that the real-time consumption monitoring and new interactions with residential consumers could have on energy efficiency, consumption reduction, greenhouse gas (GHG) emissions, and in cost reductions for the end-consumer. Other projects have been implemented such as Your Home, Your Energy (PPEC) (2014 15)100, which was a nationwide initiated focusing on the promotion of energy efficiency in the residential sector, with the aim to contribute toward an effective reduction on energy consumption. This projected provided access of information regarding energy efficiency measures, tailored to individual consumers depending on their energy spending. The information for the tailored plans was provided through measures such as smart metering data.101 According to the International Energy Agency’s 2016 report, EDP Distribuic¸a˜o is developing second generation of smart meters to 100,000 customers throughout Portugal, aiming to develop a supply chain and improve the integration of existing processes.102 However, Portugal still has no legal framework for wide-scale smart meter development103, which can provide a challenge to the development of the technology, as regulatory uncertainty generally stagnates progress.

27.6 Electric mobility Portugal is committed to improving mobility by introducing more electric vehicles and improving charging infrastructure. There has been an expansion of the national public grid of charging stations and installations of charging infrastructures at home and in the workplace, with some regions such as in 99. Information available at: ,https://www.galp.com/corp/Portals/0/Recursos/Investidores/ SharedResources/Relatorios/EN/2010RA/RelatorioSustentabilidade2010EN.pdf.. 100. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 138. 101. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 138. 102. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 58. 103. Council of European Energy Regulators (CEER), 21 November 2017. “Retail markets monitoring report,” Ref: C17-MMR-83 02. pp. 1 54. Available at: ,https://www.ceer.eu/documents/104400/6122966/Retail 1 Market 1 Monitoring 1 Report/56216063-66c8-0469-7aa09f321b196f9f.

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the RAM where a project called Sustainable Porto Santo/Smart Fossil Free Island is experimenting on electric mobility and vehicle-to-grid (V2G) technology, which will be detailed in Section 27.8. There are free charging points for volunteers of a Renault electric vehicle project to use for 18 months in the island.104 The project is a cooperation between the car company Renault and Empresa de Electricidade da Madeira (EEM)105, costing h9 million in the first phase to install 40 charging points for 14 Renault Zoe cars and six Kangoo electric vans. This pilot scheme is serving as a “testing ground” for the future of electric mobility and electric storage, as it can be seen by the expected use of this technology in other countries in Europe after being experimented in Porto Santo.106 The pilot scheme will help advance electric vehicle solutions technologically and economically and show how decentralized grids can be an effective and achievable solution to reduce infrastructure costs and encourage the consumption of renewable energy. Portugal wants to increase competition in electric vehicles and reduce the price difference of electric and plug-in hybrid vehicles compared to conventional vehicles. It is achieving this through to the introduction of the Green Taxation Reform107, by introducing government incentives by subsidizing schemes to help the public to acquire an electric vehicle and sponsoring the acquisition of electric vehicles in the public administration. The Portuguese government as an attempt to drive independence on conventional resources for the production of energy and due to the environmental impacts of the use of fossil fuels, has invested in various newly founded energy models for mobility to reduce air pollution and increase the quality of life. This has led to the creation of the Electric Mobility Network, an integrated networking which links 1300 charging stations in Portugal, managed by MOBI.E, enabling electric vehicles to recharge their batteries by using a charging card.108 This network introduced a sustainable mobility prototype, integrating electric vehicles into the market and promoting electricity creation and use from renewable energy sources, fusing such into the operation and progress of cities, and amplifying the benefits of doing so.109 104. See: ,https://www.madeira-web.com/en/news/porto-santo-smart-fossil-free-island.html.. 105. The only Distribution System Operator/Transmission System Operator in Madeira, responsible for the activities related to production, transport, distribution and commercialisation of electricity. 106. See: ,https://www.greencarcongress.com/2019/03/groupe-renault-launching-large-scalev2g-trials-with-fleet-of-15-zoe-evs.html.. 107. The Portuguese government created the Commission for the Green Tax Reform in 2014, following the guidelines of the European Union in the sense that fiscal policy should contribute to public budget consolidation and sustainable growth. 108. See ,https://www.eltis.org/discover/case-studies/mobie-portuguese-programme-electricmobility. 109. More details at ,http://www.mobie.pt/en/mobilidade-electrica..

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Additionally, in March 2011, a project was initiated for the extensive implementation of the Electric Smart Grid led by EDP Distribuic¸a˜o SA.110 The first stage was the implementation of the project, where 30,000 electric power meters (otherwise called “energy boxes”) were installed in the city of E´vora. The project promoted electric mobility, as well as microgeneration and energy efficiency. This is an innovative project, as consumers have new services, new charging systems, and more beneficial rate plans, which allows greater freedom of choice and increases competitiveness. Consumers can also adjust the services to match their consumption needs and enjoy a speedy, transparent, and convenient new services system.111 Lastly, there are financial incentives for consumers to acquire electric vehicles. The government approved incentives totaling h2,659,000 in 2018 through the Environmental Ministry in context of the Environmental Fund created in 2016.112 Other tax incentives include exemptions from tax being paid on the acquisition of the vehicle and reduction in circulation tax. In addition, businesses benefit from a reduction in value-added tax. Finally, under Decree-Law no. 140/2010 of 29 December, the Portuguese Government promoted the obligation on public and government entities to acquire electric vehicles.

27.7 Demand response The implementation and execution of DR programs is becoming more important worldwide in energy markets. In an analysis throughout Europe of DR systems, the Smart Energy Demand Coalition113 emphasized that the only DR services promulgated in Portugal were interruptibility contracts.114 These contracts are only available to consumers with a contracted power above 4 MW, such as large industrial customers, with varying availability and use payments.115 These seem to be viewed as an add-on solution for emergencies, rather than the choice when emergencies happen, as system operators have failed to activate the contracts in the many years that they have been available. The exclusion of small-scale consumers, such as 110. See ,https://www.edpdistribuicao.pt/en/evora-inovcity.. 111. More information on this project can be found at ,http://www.inovcity.pt/en/Pages/homepage.aspx.. 112. Order no. 1607/2018 in line with Ministry Order no. 468/2010 of 7 July. 113. See ,https://www.smarten.eu/wp-content/uploads/2017/04/SEDC-Explicit-Demand-Response-inEurope-Mapping-the-Markets-2017.pdf. 114. Interruptibility contracts are demand management tools to provide rapid and efficient response to electricity needs activated in response to power reductions. 115. Smart Energy Demand Coalition (SEDC),2017. “Explicit demand response in Europe: mapping the markets 2017.” Brussels. Available: ,https://www.smarten.eu/wp-content/uploads/ 2017/04/SEDC-Explicit-Demand-Response-in-Europe-Mapping-the-Markets-2017.pdf..

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residential and small commercial customers may be said to hinder progress in developing DR programs in the country. Additionally, Ministerial Order No. 41/2017 introduced a new method of remuneration for energy generators that provide security services in times of need and set up a scheme for Capacity Payments.116 The participation of the scheme happens when the market players that provide power capacity in critical periods use electricity generation units or through DR programs.117 But there is a limit to the participation of DR programs, as the Ministerial Order imposes a high minimum aggregation threshold of 10 MW. Even though there are some obstacles and a lack of regulatory incentives, new DR program opportunities have started to arise in the country due to the promotion and introduction of renewable energy sources. The increase on renewable energy is apparent by the surge in wind power from 168 GWh in 2000 to 11,608 GWh in 2015, reaching a total share of 24.7% of the power supplied.118 The first attempt by Portugal to test DR systems was by incorporating pumped hydropower storage in the balancing market, which is shared with Spain. As the country has a high level of renewable energy generation and this type of energy is intermittent and unpredictable, the supply of such reinforces the need to enable and promote DR systems. Portugal has an active customer participation in the retail electricity market, as seen by the 21% of households switching rate for their electricity supplier in 2016, and it is the highest in Europe.119 Some trial projects related to DR programs started to complement the introduction of renewable energy, but also to build on automated DR technologies. Some of the DR pilot projects will be outlined to demonstrate the position that the country currently stands.

27.7.1 Control of heating, ventilation, and air-conditioning (HVAC) systems in public buildings A demonstration project started between the Portuguese National Laboratory for Energy and Geology (LNEG) and the New Energy and Industrial Technology Development Organization (NEDO) to improve computerized DR technology and balance out supply and demand at the Lisbon City Hall

116. Redes Ele´tricas Nacionais (REN), 2017. “Capacity payments.” Available: ,http://www. mercado.ren.pt/EN/Electr/ActivitiesServices/CapacityPayments/Pages/default.aspx.. 117. Di´ario da Repu´blica (2017). ECONOMIA - Portaria n. o41/2017 de 27 de janeiro - Di´ario % da Repu´blica, 1.a se´rie—N. o 20 27 January 2017. % % 118. Council of European Energy Regulators (CEER), 21 November 2017. “Retail markets monitoring report.” Ref: C17-MMR-83 02. pp. 1 54. 119. Council of European Energy Regulators (CEER), 21 November 2017. “Retail markets monitoring report.” Ref: C17-MMR-83 02. pp. 1 54.

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and other urban amenities in the capital. The project’s development had a 3year time period between 2016 and 2019.120 The involved parties were the innovation department from EDP Inovac¸a˜o, together with an IT consulting and outsourcing solution company called Everis, a provider of engineering solutions for the protection, control, and management of electricity grids called Efacec Energia and a Japanese air-conditioning supplier, Daikin Industries.121 This project’s purpose was to remotely control the varying cooling capacity in air conditioners that have a cold air storage operation, and enabling the altering of the output based on renewable supply and demand. This includes a module that forecasts day-ahead weather conditions and usage patterns, and the controls of the system will then remotely and automatically adjust electricity consumption based on the data collected. This forecasts day-ahead weather conditions and patterns, which enables the automatic adjustment of electricity consumptions based on the data. The information collected will also go to a virtual power plant which will be used by a group of energy retailers to bid on the amount of electricity supply from renewable energy sources.122 Another project called NetEffiCity123 implemented the first consumer-toconsumer electricity sharing system in Portugal.124 The parties involved in the project are a technology company with expertise on energy savings and efficiency, VPS—Virtual Power Solutions, together with a research group within the Institute of Engineering at the Polytechnic of Porto, the GECAD—Research Group on Intelligent Engineering and Computing for Advanced Innovation and Development, and a Portuguese energy supplier, Simples Energia.125

120. New Energy and Industrial Technology Development Organization (NEDO), 22 November 2016. “NEDO launches a demonstration project on automated demand response technology in Portugal-aiming for the stabilization of power supply and demand associated with the mass introduction of renewable energy.”. Available: ,https://www.nedo.go.jp/english/news/AA5en_100135. html.. 121. New Energy and Industrial Technology Development Organization (NEDO), 22 November 2016. “NEDO launches a demonstration project on automated demand response technology in Portugal-aiming for the stabilization of power supply and demand associated with the mass introduction of renewable energy.”. 122. Efacec Power Solutions, 15 December 2016. “Automated demand response technology in Portugal,”. Available: ,https://www.efacec.pt/en/automated-demand-response-technology-in-portugal/.; See also Daikin, 22 November 2016. “Daikin selected for automated demand response project in Portugal.” Available: ,https://www.daikin.com/press/2016/161122/press_20161122.pdf.. 123. Virtual Power Networks Efficient Management - Project no. 18015, Call no. 31/SI/2015, SI I&DT 124. Klein, L., et al., 2017. “Community S: an energy sharing approach towards energy systems.” In: Proc. 3rd International Conference on Energy and Environment - Bringing Together Engineering and Economics, pp. 697 703. 125. Klein, L., et al., 2017. “Community S: an energy sharing approach towards energy systems.” In: Proc. 3rd International Conference on Energy and Environment - Bringing Together Engineering and Economics, pp. 697 703.

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The project was at its trial until the mid-2018 in three Portuguese municipalities (Alfaˆndega da Fe´, Penela, and Vila Real). The main objective was to show that peer-to-peer energy sharing was feasible as a business model; however, the project also intends to develop an automated DR program for remote and automated control of HVAC systems for the participating public structures. It has proposed to use automatic DR models which optimize the attainment of electricity in the energy market, taking into consideration the supply from newly developed renewable sources such as photovoltaic cells and flexibility from participant public buildings.126 The financing of this project was done through the Portugal 2020 program under COMPETE 2020 and by the EU under the European Regional Development Fund.127

27.7.2 Control of HVAC loads in banks An Energy Performance Contract was agreed between VPS and a Spanish bank that operates in Portugal. VPS installed an Active Energy Management System called Kisense across 100 bank branches in the country.128 There are constraints due to the deregulation on DR; however, Kisense can perform DR programs in allocated buildings, providing flexibility in services as part of the energy contracts, and promote microgrids in liberalized energy markets.129 One example is that the platform provides optimized aggregated energy management, load shedding, and load shifting of HVAC systems. Due to this platform, the average annual energy cost reduction in 2017 was of 17% by the correspondent bank branches. Systems like these can monetar-

126. Klein, L., et al., 2017. “Community S: an energy sharing approach towards energy systems.” In: Proc. 3rd International Conference on Energy and Environment - Bringing Together Engineering and Economics, pp. 697 703. 127. Portugal 2020 program under the Operational Program for Competitiveness and Internationalisation. Available: ,https://ec.europa.eu/regional_policy/en/atlas/programmes/20142020/portugal/2014pt16m3op001.. 128. Klein, L., et al., “Cost-benefit comparison of a time-of-use tariff and real-time pricing of electricity associated with automated HVAC load management strategies in bank across Mainland Portugal.” In: Proc. 2017 International Conference on Renewable Energies and Power Quality (ICREPQ), available:,http://www.icrepq.com/icrepq17/450-17-klein.pdf.; See also Klein, L., 2017. “Effectiveness of the introduction of load shifting and Real-Time Pricing on the reduction of bank agencies’ HVAC annual energy bills across Portugal.” In: Proc. 3rd Energy for Sustainability International Conference (EfS2017) - Designing Cities and Communities for the Future. 129. Klein, L., et al., “Cost-benefit comparison of a time-of-use tariff and real-time pricing of electricity associated with automated HVAC load management strategies in bank across Mainland Portugal.” In: Proc. 2017 International Conference on Renewable Energies and Power Quality (ICREPQ).

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ize on flexibility of peak demand and minimize unnecessary electricity usage.130 DR systems can reduce the price of electricity.

27.7.3 Control of industrial loads The Galp Energy Manager was a project in Portugal associated with DR, which aimed to improve DR systems and energy efficiency in more than 150 small- and medium-sized sectors in Portugal. The development was coordinated by VPS in partnership with Galp Energia.131 The participating industries identified at least one flexible load to be managed by Kisense, allowing VPS to implement the promotion of load shifting and shedding on loads of small and medium proportions (between 10 and 200 KW) and created on the assessment of energy tariffs and peak hours of supply and demand. This was done automatically through automated DR programs or manually through remote assistance by an energy manager from VPS.132

27.7.4 EDP Distribuic¸a˜o pilots EDP Distribuic¸a˜o is the main Portuguese Distribution System Operator (DSO) with a large share of the energy market under its control.133 The DSO is managing a demonstration project called InovGrid, a project which implemented a large-scale smart grid in the city of E´vora.134 The city was the first in the region to have smart metering infrastructure, with around 35,000 smart meters and 340 distribution transformer controllers. Regarding DR, there are 3500 facilities fitted with demand-side management system. This DR model is consequential as it also monitors electric vehicle charging stations, distributed generation units, and primary distribution units in the assessment. This ensures consumers can organize demand-side management based on consumption, electricity generation, electricity rates, generation, responsive

130. Klein, L., et al., “Cost-benefit comparison of a time-of-use tariff and real-time pricing of electricity associated with automated HVAC load management strategies in bank across Mainland Portugal.” In: Proc. 2017 International Conference on Renewable Energies and Power Quality (ICREPQ). 131. Annala, S., et al., “Comparison of opportunities and challenges in demand response pilots in Finland and Portugal.” In: 15th International Conference on the European Energy Market, Conference Paper DOI:10.1109/EEM.2018.8469894 (2018). 132. Annala, S., et al., “Comparison of opportunities and challenges in demand response pilots in Finland and Portugal.” In: 15th International Conference on the European Energy Market, Conference Paper DOI:10.1109/EEM.2018.8469894 (2018). 133. Energias de Portugal (EDP), 2017. 97% of the energy market is controlled by the DSO. “Inovgrid”. Available: ,https://www.edp.com/en/inovgrid-0.. 134. Energias de Portugal (EDP), “Inovgrid” (2017); See also Grid Innovation, “InovGrid Project - EDP Distribuic¸a˜o,” (2017). Available: ,http://www.gridinnovation-online.eu/articles/ library/inovgrid-project -edp-distribuicao-portugal.kl..

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loads, and distribution.135 This model has also promoted the use of electric vehicles and renewable energy. The regulation constraints in Portugal have impeded the development of DR systems, and presently, interruptibility contracts and capacity payments are the only legislated DR systems, which present limitations. However, the country is seeing the beginning of incorporation of pumped hydropower storage, and there are demonstration projects associated with DR systems that can incentivize discussions and the start of regulation in this area. ERSE should review the energy market in Portugal with the aim to open the market to DR, ancillary systems and balancing markets.

27.8 Electric storage Portugal’s renewable energy production is increasing, and it is estimated to reach a surplus in the range of 800 1200 GWh by 2020.136 As renewable energy become more and more relevant, it is crucial to develop efficient storage solutions that are economically viable to enable the use of such energy in the periods of low demand.137 A storage potential of power-to-gas (PtG) technologies of at least 500 GWh has been foreseen in Portugal.138 There have been studies made to analyze the PtG storage potential in Portugal, such as the work by Heymann and Bessa139 estimated that the cost of PtG products in the country. Carneiro et al. also foresaw the opportunity of extensive storage in geological formation in the mainland of Portugal.140 In Portugal there are different storage options such as run-of-the-river and pumped hydro storage type hydropower plants. Pumped hydro storage plants collect substantial amounts of water that can be used in the months with the lowest levels of precipitation, while run-of-the-river have a small storage capacity and the turbines that generate the electricity operate depend-

135. Energias de Portugal (EDP), “Inovgrid” (2017). 136. Mateus, C.B., Estanqueiro, A., 13 15 November 2012. “Regulation of the wind power production: contribution of the electric vehicles and other energy storage systems.” In: Proceedings of the 11th International Workshop on Large-Scale Integration of Wind Power into Power Systems as Well as on Transmission Networks for Offshore Power Plants, Lisboa, Portugal. 137. Zakeri, B., Syri, S., 2015. “Electrical energy storage systems: a comparative life cycle cost analysis.” Renew. Sustain. Energy Rev. 42, 569 596. 138. Heymann, F., Bessa, R.B., 29 June 2 July 2015. “Power-to-gas potential assessment of Portugal under special consideration of LCOE.” In: Proc. 2015 IEEE PowerTech Eindhoven, Eindhoven, The Netherlands, pp. 1 5. 139. Heymann, F., Bessa, R.B., 29 June 2 July 2015. “Power-to-gas potential assessment of Portugal under special consideration of LCOE.” In: Proc. 2015 IEEE PowerTech Eindhoven, Eindhoven, The Netherlands, pp. 1 5. 140. Carneiro, J.F., Matos, C.R., van Gessel, S., 2019. “Opportunities for large-scale energy storage in geological formations in mainland Portugal.” Renew. Sustain. Energy Rev., 99, 201 211.

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ing on the flow of the river. The pumped hydropower storage plants are the conventional method for the storage of electricity, which were modified to include a system for pumping water from a lower elevation to a higher elevation reservoir. Portugal has a capacity of 2.44 GW of pumped hydro storage installed.141 In 2015 a global production of 1.16 terawatt-hour (TWh) through pumped hydro storage was reported by Redes Energe´ticas Nacionais (REN, Lisboa, Portugal). However, there is no further information on values of power production by this means.142 According to the IEA, the daily renewable energy output by Portugal regularly exceeds the nation’s energy demands and the excesses are used either in pumped hydropower storage plants or exported.143 The excesses of electricity consumed by pumped hydropower storage plants almost tripled in 2015, compared to 2010, with an efficiency of 78%.144 Nevertheless, these plants require a big amount of investment and have been linked to detrimental environmental impacts that can create divisive factors.145 To date, pumped hydropower storage plants have been the primary choice in the country to store any surpluses of renewable energy, but decentralized grids can increase the country’s storage capacity and help the energy transition, as investment costs, geography, and environmental impacts can limit the extension of pumped hydro plants. For this reason, there have been suggestions to use PtG technologies, specifically power-to-methane (PtM). The renewable energy surpluses can be chemically stored as methane, inserted into the natural gas grid or can be stored in reservoirs, such as in salt caverns or even in LNG tanks after being compressed.146 In Portugal, these PtM developments have the advantage of a high capacity of wind power having been installed within the proximity of gas infrastructure, which makes the country very suitable for the implemen-

141. REN, 2016. “Technical data.” Available: ,http://www.centrodeinformacao.ren.pt/PT/ InformacaoTecnica/DadosTecnicos/REN%20Dados%20T%C3%A9cnicos%202016.pdf.. 142. REN, 2016. “Technical data.” 143. International Energy Agency (IEA), 2016. “Energy policies of IEA countries: Portugal.” 2016 Review, pp. 7 155, p. 16. 144. Heymann, F., Bessa, R.B., 29 June 2 July 2015. “Power-to-gas potential assessment of Portugal under special consideration of LCOE.” In: Proc. 2015 IEEE PowerTech Eindhoven, Eindhoven, The Netherlands, pp. 1 5. 145. Rehman, S., Al-Hadhrami, L.M., Alam, M.M., 2015. “Pumped hydro energy storage system: a technological review.” Renew. Sustain. Energy Rev. 44, pp. 586 598; 146. Miguel, C.V., Mendes, A., Madeira, L.M., 2018. “An overview of the Portuguese energy sector and perspectives for power-to-gas implementation.” LEPABE—Laboratory for Process Engineering, Environment, Biotechnology and Energy, Faculty of Engineering, University of Porto, pp. 1 20, at p. 12.

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tation of PtM technologies147, insofar as satisfactory carbon dioxide (CO2) sources are available in close proximity.148 Finally, the Sustainable Porto Santo/Smart Fossil Free Island project also focuses on finding storage solutions. The project aims to not only promote electric mobility but also create temporary storage through the electric vehicles, as the surplus of renewable energy production is stored in V2G technology to meet the islands peak demands.149 Renault will install second-life electric vehicle’s batteries to create electric storage to enable the increase of renewable energy capacity in the island. As per the car company, the island is a “worldfirst smart island uses electric vehicles, second-life batteries, smart charging and V2G to boost the island’s energy independence and stimulate the production of renewable energy (. . .).”150 This project may be the pilot needed to help progress V2G technologies in the sense that it will determine whether these are feasible and efficient in meeting the wanted results.

27.9 Data protection Recent technological developments such as the introduction of smart metering and smart grid systems may bring complications on further management and development of the energy sector by energy companies when considering data protection rights of consumers. Smart grids and meters are essential for the future of the energy sector to effectively and efficiently manage energy use and supply, with companies being able to respond to local changes of usage due to data information gathered. The EU Smart Grids Task Force has recognized the need for customers to accept the use of smart grids, which requires them to be given control over their energy consumption data.151 Consumers must feel confident that the new technology does not jeopardize the privacy of their personal data, and that such data is kept secure and their privacy respected. The Task Force established an expert group to make regulatory recommendations on privacy, cybersecurity, and data protection in the smart grid environment to deal with issues related to energy. Possible risks of handling data, security, and data protection were considered, as well 147. Almost 60% of that capacity located less than 5 km to existing or future potential natural gas storage facilities. 148. Heymann, F., Bessa, R.B., 29 June 2 July 2015. “Power-to-gas potential assessment of Portugal under special consideration of LCOE.” In: Proc. 2015 IEEE PowerTech Eindhoven, Eindhoven, The Netherlands, pp. 1 5. 149. See ,https://www.greentechmedia.com/articles/read/renault-helps-an-island-ditch-fossilfuels-with-v2g-technology#gs.lycT1Kk.. 150. See ,https://www.automotiveworld.com/news-releases/groupe-renault-eem-create-firstsmart-island-porto-santo/.. 151. See ,https://ec.europa.eu/energy/en/topics/markets-and-consumers/smart-grids-and-meters/ smart-grids-task-force..

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as identifying ownership of data and access rights and responsible parties were identified. A list of recommendations with 10 minimum functioning requirements was presented in the Commission Recommendation152 and included in the General Data Protection Regulation (GDPR)153 to ensure cybersecurity in smart metering systems.154 Article 23 of the GDPR expressly references smart meters, as the EU realized the data protection and security risks associated, as well as the new potential of the new technology. For continuing innovation and investment to go into smart meters, consumers must be confident in its utility and network operation, and that consumer data will be protected against any breaches of privacy. Portugal as a member state of the EU must ensure that it follows these principles. The regulatory framework in Portugal for the protection of private identifiable information (PII) results from the direct application of the GDPR. The previous Portuguese Data Protection Act155 (DPA) was introduced in 1998 and revoked when the new DPA entered into force. There is relevant national legislation on PII, such as in Article 35 of the Portuguese Constitution, which sets the main principles and guarantees that rule data protection, such as the right to access any computerized data relating, to require its correction and update and to be informed of the use for which the data is intended.156 Recently, the new DPA was passed in Law 58/2019 of 8 August 2019, which implemented legislation for the execution of the GDPR more than 15 months after the EU regulation became effective. The legislation applies to the processing of all personal data carried out in Portugal, notwithstanding the public or private nature of the controller or processor, and includes tasks of public interest. This includes the energy sector, and even though it may be in the public interest to monitor data from smart meters to predict energy needs, the collector and processor must respect the consumers’ data protection rights and have consent for the processing of the data, otherwise the collection and processing of the data will be a serious offense. Penalties can 152. European Commission, 7 November 2011. “Best available techniques reference document for the cyber-security and privacy of the 10 minimum functional requirements of the Smart Metering Systems.” Smart-Grid Task Force Stakeholder Forum. Available: ,https://ec.europa. eu/energy/sites/ener/files/documents/bat_wp4_bref_smart-metering_systems_final_deliverable. pdf.. 153. EU Regulation 2016/679 of the European Parliament and of the Council of 27 April 2016, on the protection of natural persons with regards to processing of personal data and on the free movement of such data. Available: ,https://eur-lex.europa.eu/eli/reg/2016/679/oj.. 154. European Commission, Recommendation of 9 March 2012 on preparations for the roll-out of smart metering systems. Available:,https://op.europa.eu/en/publication-detail/-/publication/ a5daa8c6-8f11-4e5e-9634-3f224af571a6/language-en.. 155. Law No. 67/98 of 26 October 1998. 156. Constituic¸a˜o da Repu´blica Portuguesa (Portuguese Constitution), VII Revisa˜o Constitucional (Revised), Art.35. Available:,https://www.parlamento.pt/Legislacao/Paginas/ ConstituicaoRepublicaPortuguesa.aspx..

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vary between h5000 and h20,000,000, or 4%, whichever is greater, on companies and a maximum penalty of h500,000 for a natural person. Other serious offenses that energy companies need to avoid include the charging of unreasonable fees to provide information under Article 12 of the GDPR, and refusal to provide information collected on an individual. Any data used for other reasons rather than the one it was collected for will have the perpetrator punished for up to a year imprisonment.157 The law further specifies that “anyone who, due to professional confidentiality legal obligations, without legal grounds and without proper consent, discloses in whole or in part personal data” can also face up to 1 year in prison and double that for data protection officers or those seeking illegal personal gain.158

27.10 Portugal’s electricity interconnections within the European Union The synchronous grid of Continental Europe is the largest interconnection grid in the world, which connects the electricity transmission from 24 countries and supplies over 400 million customers, mostly in the EU.159 The TSO’s operating grid formed the Union for the Coordination of Transmission of Electricity (UCTE), now part of the European Network of Transmission System Operators of Electricity (ENTSO-E).160 Increasing renewable energy capacity is one of the main pillars within the EU, and Portugal has been performing brilliantly on that front, for example in March 2018, the average of the month’s renewable output reached 103.6% from renewables.161 It was calculated by APREN and sustainability NGO ZERO that the successes from the renewable output of March 2018 resulted in 1.8 million less tons of CO2 emissions and savings of h20 million due to not needing to buy ETS allowances. According to them, the wholesale price of electricity would also fall from h43.94 to h39.75 per MWh.162 However, the country remains isolated in terms of energy as it only shares a land border with Spain. The Portuguese and Spanish electricity markets are completely interconnected; however, Portugal’s location may create challenges. The EU’s Energy Union has plans to have an internal electricity 157. Full transcript available at: ,https://dre.pt/web/guest/pesquisa/-/search/123815982/details/ maximized.. 158. Article 46 of Law 58/2019 of 8 August 2019 159. See map for context at: ,https://www.entsoe.eu/data/map/.. 160. More information available: ,https://docstore.entsoe.eu/news-events/former-associations/ ucte/Pages/default.aspx.. 161. Morgan, S., 4 April 2018. “Portugal breaks 100% renewables mark but remains isolated.” Euractiv. Available: ,https://www.euractiv.com/section/energy/news/portugal-breaks-100renewables-mark-but-remains-isolated/.. 162. Morgan, S., 4 April 2018. “Portugal breaks 100% renewables mark but remains isolated.” Euractiv.

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market to allow the surpluses of energy to be shared from a member state to another depending on demand. This is essential as we move more and more toward renewable energy sources, as storage solutions are still being developed. As per EU standards, member states must reach a 10% interconnection target by 2020, but both Portugal and Spain are behind that goal. The Iberian Peninsula has reached a 6% interconnection rate163 and continues to attempt to overcome its isolation from other member states by using third-party interconnectors.164 Energy is already shared between Portugal and Spain, as such that the surplus from the generation of electricity from renewable energy sources improved Portugal’s exporter balance. Electricity is traded between Portugal and Spain in common electricity market called the Iberian Market for Electricity (MIBEL). Within the MIBEL there are two organized markets: the spot market (day ahead and intraday), operated by the Spanish branch of MIBEL (OMIE) and abides by Spanish legislation, and the forwards and derivatives market, operated by the Portuguese branch of MIBEL (OMIP) and which abides by Portuguese legislation.165 The OMIE works as a sole market for Portugal and Spain if the commercially available interconnection capacity between both countries is enough to perform the supply and demand of electricity orders. The two markets can be separated if there is not enough capacity available, upon which specified prices for the separate markets are created under a market splitting mechanism. The generators in the special regime with feed-in tariffs can sell their electricity to the supplier of last resort, which they then sell it in the market through open auctions. Since 2016 the exports of electricity to Spain have totaled h700 million by the beginning of 2018. In 2017 the country exported 5753 GWh worth h299 million, an increase from h260 million in 2016.166 Portugal, Spain, and France have agreed to better interconnection between the three countries and have signed the Lisbon Declaration on energy interconnections.167 This reiterated the support of projects between the two countries and the EU increased the monetary support to h865 million for the construction of interconnections.168 Additionally, the Madrid 163. European Commission, 27 July 2018. “Integration of the Iberian Peninsula into the internal energy market.” Memo, Brussels. Available: ,https://ec.europa.eu/commission/presscorner/ detail/en/MEMO_18_4622.. 164. See ,https://europa.eu/rapid/press-release_IP-18-4621_en.htm.. 165. For more information visit: http://www.erse.pt/eng/electricity/MIBEL/Paginas/default.aspx 166. Pacheco, M.C., Mendes, J.M., “Electricity regulation in Portugal: overview.” Thomson Reuters: Practical Law, Resource ID 6 564-1565, pp. 1 23. 167. European Commission, “Lisbon Declaration.” Available: ,https://ec.europa.eu/info/sites/ info/files/lisbon_declaration_energyinterconnections_final.pdf.. 168. See ,https://www.pv-magazine.com/2018/07/30/eu-commits-e578-million-for-iberian-euenergy-market-integration/..

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Declaration signed in 2015 will help the Iberian Peninsula to connect to the Internal Energy Market by removing obstacles to interconnection. These incentives will help the completion of ongoing projects and will drive increases in the rate of interconnection in the region, which will make it possible to reach EU targets.

27.11 Conclusions and recommendations In conclusion, the chapter illustrated the current position of the Portuguese electricity market, especially the decentralized efforts and inclusion of new technological advances in the energy sector. Notably, the country has a high energy dependence on imports of fossil fuels from countries such as Angola, even though it produces a high amount of energy from renewable sources due to the increase of renewable energy capacity in recent years. Portugal should take advantage of its favorable geographical position and weather conditions to create more energy from renewable sources to stop the high levels of dependence on fossil fuel imports to produce energy. It is evident that it is possible to successfully create decentralized energy grids from the renewable capacity Portugal has and steadily decrease imports and increase renewable usage until it reaches 100% of production and generation, something which has already been achieved in the most favorable months in the country. The issue associated with increasing renewable capacity and the cessation of energy production with fossil fuels is the intermittent nature of renewable sources and the need to store any surpluses of energy. To this end, there has been an increasing interest in lithium batteries. However, these are not seen as the most efficient option to store power. There is a storage potential of PtG technologies of at least 500 GWh and incentives in legislation can be created to attract investment in new storage facilities. If legislation is clear and precise on the importance and governmental stance of renewable energy sources, then investors will know the direction of the country in this respect and have more confidence in investing in new storage technologies. The government has shown vast support for renewable energy in the last decade, as can be seen by the increase in capacity and various projects aimed to incentivize the use of renewables and alternative storage. Portugal uses hydropower pump storage to store the surplus of energy produced by renewable energy, and as this has been environmentally unsafe, more research and development is needed for new technologies to emerge. Studies have identified that the development of storage solutions from PtG, especially PtM can be beneficial for the country as an efficient storage solution. Additionally, Portugal is at an advantageous position in terms of lithium availability, which can be used in the production of batteries, giving the country an opportunity to develop the technology and evolving this market. Furthermore, using increasing amounts of renewable energy may

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in turn provide with an effective solution for reducing GHG emissions not only from the energy sector but also from the transport sector. In 2018 61% of energy consumption needs were met by renewable energy; however, the transport sector is almost entirely powered by fossil fuels due to more conventional vehicles being more dominant in the market, which explains why electricity consumption in the transport sector only amounts to 0.8%. However, the country has seen many initiatives and projects to promote the use of electric vehicles, and most importantly there has been a scale-up of new installations of charging infrastructure that incentivizes people to get electric vehicles, as if the infrastructure is there to charge the vehicles, the public feel more confident in the technology. Examples can be seen in the Electric Smart Grid project in Evora and the Sustainable Porto Santo/Smart Fossil Free Island project. These projects are of great significance as they are testing the feasibility of electric mobility and storage in the country, using the surplus of energy produced by renewable sources and improving infrastructure to ease the transition. Portugal is going in the right direction on electric mobility and storage and should continue to incentivize change in the transport sector in terms of infrastructure, pilot programs, and subsidies where needed. Successful decentralized electricity markets have many requirements, including the focus on clear responsibilities, the strengthening of subnational capacities, and the coordination of mechanisms. However, other conditions can apply such as developing territorial specific policies and allowing for asymmetric decarbonization—with differentiated responsibilities given to different regions or cities, and especially in metropolitan areas. Adopting experimental policy practices can aid the country to adapt to decentralized systems more proactively and have a multilevel governance reform, rather than a more drastic major reform of the electricity market. While this would be slower, it would enable a “learn by doing” approach, which can result in reforms of policies or parts of policies that do not achieve the objectives of needed. Portugal has seen a large scale-up of renewable energy generation and policies that incentivize its increasing use and generation, as well as regional and private developments that are forming partnerships that will drive rapid change in the country. For the transition toward renewable energy to happen as urgently as needed and as smooth as possible, regional systems must be coordinated and reorganized to run similarly to benefit from decentralization. Portugal is heading in the right direction in its decentralization efforts; however, in some areas, it needs to make regulation more encouraging for the successful development and application of new technologies, more urgently in enabling DR programs and smart metering systems. In DR programs, the only legislated area is that of interruptibility contracts, which suppliers are not very keen to use.

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There are a few pilot programs taking place that may signal a change in direction on the importance the country is giving to this technology. In relation to the interconnection with the Spanish electricity market, Portugal is still below the target implemented by the EU. However, there are projects being financed by the EU to improve the interconnectivity issue which are predicted to resolve it. This may not be resolved in time for the 2020 deadline; nevertheless, it could meet the 2030 target of 15% interconnection. The country should increase its efforts in energy efficiency to avoid losses of during transference to the shared grid, which can aid increased interconnectivity within the Iberian Peninsula. In light of this, the remaining will focus on specific recommendations for the continuing development of the technologies that aid decentralization efforts. As this chapter noted, there is no regulatory framework available in Portugal for the development of smart metering systems, which is why the government needs to introduce policies and incentives to accelerate the benefits this technology can have. The rollout of smart meters is of global importance and it started in 2009. Siemens is one of the suppliers of the new smart meters to EDP Distribuic¸a˜o, which is installed at the client’s homes in a phased strategy. It is expected that by 2020, 80% of customers’ homeinstalled meters will be smart, gradually replacing the analog meters. It is important to ensure that all homes will be equipped with the new technology, as most Portuguese households still have the analog meters. The change of technology will be important in order to raise awareness in households on the density of energy used daily which can also change attitudes toward how energy is used by the general public. This may also influence the way energy is created as customers choose to switch suppliers based on their usage of energy for generation of electricity. There needs to be a variety of service providers that are willing to provide the services related to the vast introduction of this technology; however, it is unlikely that more players will join if there are no clear regulatory and policy incentives by the government and other public authorities. Smart meters may also pose a privacy issue as personal data is being collected for the purposes of keeping records of energy supply and demand to help meet the required needs. The direct applicability of the GDPR can help protect the consumers where their data privacy is at stake in this circumstance and some would say that adding national regulation may create confusion and regulatory uncertainly. However, it should be noted that adding national stringency to this area may be beneficial as this technology is at its infancy and the public should be further protected against any privacy breaches that may occur. As seen by current projects in the country such as in Evora and Porto Santo Island, the country is heavily invested in promoting electric mobility. These projects are good pilots to demonstrate how electric mobility could help in other regions of Portugal, testing the feasibility, efficiency, and reliability of this technology. It may help identify any problems within the

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technological difficulties the vehicles may have, as well as how well the infrastructure setup, such as whether the locations of charging points are easy to get to and easy to use, and even economic considerations, such as whether it is feasible and competitive for end-consumers to use electric vehicles instead of conventional ones. As these projects are having positive results in their objectives, more infrastructure should be introduced around the country to incentivize the use of electric vehicles, such as more charging points. If the infrastructure is there and electricity increasingly becomes more affordable, coming from renewable resources rather than by imported fossil fuels, it would make sense for the public to see the benefits and switch to this environmentfriendly technology, especially considering the financial assistance the Portuguese government provides on their acquisition and related tax exemptions. The experiences from these projects can help create parallel projects in the public transports sector, where not many pilot projects have incorporated electricity created by renewable energy. This not only would improve air quality and comply with GHG emission reduction targets imposed by the EU and other international treaties, but it would help reduce the high TFC and TPES that the transport sector uses. Regarding DR program in Portugal, they are in their infancy. However, there are a few pilot projects currently being tested. DR is important for establishing peak demand trends, helping estimate the supply and demand needs of a country and making tariffs more dynamic. In Portugal, impeding deregulation constraints are hindering the progress of DR systems, with only interruptibility contracts and capacity payments being the only legislated way to implement DR programs. Both these options have limited participation and a surge of demonstration projects seems to be the way the country is trying to develop this technology. Once there has been a sufficient rollout of smart metering systems in households and businesses, then the DR sector can really take off as DR policies work better if the supply sector has reached the needed level of development and modernization. Furthermore, DR can be influenced by the introduction of obligations and responsibilities to the involved entities in the energy sector. For example, responsiveness projects can be introduced which can target large consumers and create patterns of supply and demand needed. As EDP is the main TSO in the country, there could be an introduction of a guideline by the TSO to the remaining TSO’s in the autonomous regions, which could create legitimate enforcement measures to facilitate responsiveness. As for storage, finding storage solutions is a global challenge at the present time and the delays and costs to its development may significantly hinder the low-carbon transition. Increasing renewable energy capacity and usage will only provide effective and efficient results if the surpluses of energy produced can be stored at low-demand times to be used at high-demand times. This is especially important in Portugal as the daily renewable

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electricity output exceeds national demand, and the surpluses of such electricity are exported or stored in pumped hydropower plants. The storage sector provides for an opportunity for Portugal to develop a new market and possibly be an exported of such technology (or components of such) as the country benefits from large lithium reserves. Presently, the storage options in the country consist of pumped hydropower storage from power stations and dams, which have thrived in the past few years, but due to their environmental footprint and the amount of investment capital needed, they may no longer be the viable solution. There have been studies on the possibility of PtG implementation in electricity storage. Decentralized units would contribute for the increase of the country’s storage capacity, and to this end PtG will be an effective solution as there is an increase of use of natural gas, offering the possibility to integrate the electricity and natural gas grids. The way it would work is that the renewable energy would be stored chemically as methane, which could be used at the site they were stored or injected into the natural gas grid or stored in reservoirs such as LNG tanks (after compressed). This would benefit the wind capacity already installed in Portugal, as 60% of such infrastructure is located within a 5-km radius of existing or future gas infrastructure.

Chapter 28

Energy decentralization and energy transition in the United Kingdom Gemma Kate Fearnley1 and Rafael Leal-Arcas2 1

WiseGRID Project, Queen Mary University of London, London, United Kingdom, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

28.1 Overview This section enumerates the energy strategy, policy framework, and regulatory architecture underpinning the United Kingdom’s (UK) smart grid transition. It will analyze the progress that the UK has made against its own strategic objectives in light of the WiseGRID1 project’s principal aim to contribute to the energy sector with new technologies and solutions for the improvement of the smartness, stability, and security of the European energy grid. This section will also evaluate the UK’s responses to the challenges that have arisen during its transition process, in the hope of stimulating further discussion on this most important topic. The UK has set a series of targets for renewable energy. By 2020 the UK wants to derive 15% of its energy consumption from renewable energy sources. It has set individual targets for electricity (30%), heat (12%) and transport (10%).2 It has also set itself an ambitious energy savings target, attempting to reduce its final energy consumption by 18% compared to 2007 levels.3 Finally, the UK has committed to reduce its greenhouse gas emissions by 80% by 2050, compared to 1990 levels.4 The UK has made great strides toward weaning itself off its traditional, coal-based energy industries. The nuclear industry remains a central plank of 1. WiseGRID is a research project (number 731205) funded by the EU’s Horizon 2020 research and innovation program. Professor Dr Rafael Leal-Arcas is one of the principal investigators. http://www.wisegrid.eu. 2. Department of Energy and Climate Change, 2010. “National Renewable Energy Action Plan for the United Kingdom: Article 4 of the Renewable Energy Directive 2009/28/EC.” London, 5. 3. Department of Energy and Climate Change, 2014. “UK National Energy Efficiency Action Plan.” London, 5. 4. Climate Change Act 2008. Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00009-8 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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the UK’s energy strategy and is set to play a key role in the provision of clean, reliable energy to meet future demand. A number of nuclear projects are currently in the development pipeline. Renewable energy also plays an important role, particularly in Scotland. Controversially, however, the UK is a proponent of hydraulic fracking: the drilling for shale gas. The recommencement of operations in 2018 is at odds with its efforts to reduce carbon output. The UK considers itself a leader in the green transition, and it has made solid progress toward many of its targets. In 2017 the UK saw renewable energy’s share of electricity generation jump to 29.3%.5 With the UK now comfortably producing one quarter of its electricity from renewables, the overall target of 15% consumption from renewables seems increasingly achievable. Primary energy consumption fell by 15% and final energy consumption by 11% in 2015, compared to 2007.6 By 2017 UK emissions were 43% below 1990 levels.7 Its progress notwithstanding, there is widespread acknowledgment that efforts must accelerate if the UK has to reach its targets. There are particular concerns about a downward trend in green investment: the withdrawal of governmental support at a time of considerable market uncertainty appears to have compounded investor uncertainty.8 A hostile planning environment for onshore wind developments has also troubled proponents of the technology.9 Obstacles to the full integration of storage and demand response technologies also remain in place. With regard to smart metering technologies, the UK has been at the forefront of the smart meter transition. However, its smart metering program has also not been without its challenges. There are a number of novel aspects about the UK’s approach to the rollout, but the one that has caused perhaps the most issues for the UK has been the decision to place the rollout in the hands of the utility suppliers.

5. Department for Business, Energy and Industrial Strategy, 2018. “Digest of United Kingdom Energy Statistics (DUKES) 2018.” BEIS, 11. 6. UK Government, 28 April 2017. “UK National Energy Efficiency Action Plan and Annual Report.” London, 1. 7. Committee on Climate Change, “How the UK is progressing,” [Online]. Available: https:// www.theccc.org.uk/tackling-climate-change/reducing-carbon-emissions/how-the-uk-is-progressing/. 8. Gabbatiss, J., 19 May 2018. “A ’hostile environment’ for renewables: why has UK clean energy investment plummeted?.” The Independent. [Online]. Available: https://www.independent.co.uk/environment/uk-renewable-energy-investment-targets-wind-solar-power-onshorea8358511.html. 9. Gabbatiss, J., 6 May 2018. “Environmental impact of policies that led to collapse of onshore wind was not considered by government.” The Independent. [Online]. Available: https://www. independent.co.uk/news/uk/politics/wind-power-onshore-policies-environmental-impact-government-collapse-a8334786.html.

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Thus the policy framework for the low-carbon transition is a mixed bag. While ostensibly in favor of the low-carbon transition, the implementation of policy continues to be informed by the incumbent market players. The consequential lack of clarity has allowed a climate of confusion to set in, with apparent knock-on effects for investment. Accordingly, while the strategic goals are clear, the implementation leaves plenty to be desired.

28.2 Energy profile 28.2.1 Energy mix 28.2.1.1 United Kingdom’s targets Decarbonization plays a key part in the UK’s energy strategy by virtue of a series of European and international commitments. With regard to the UK’s renewable energy targets, 15% of the UK’s energy consumption will be derived from renewable energy sources by 2020.10 Subtargets for electricity (30%), heat (12%), and transport (10%) have also been set.11 The UK’s progress is monitored and reported on every 2 years, by reference to its targets and the detailed roadmap set out in its National Renewable Energy Action Plan. The UK has also committed to making ambitious energy savings, with a target to reduce its final energy consumption by 18% relative to 2007 levels.12 Finally, under the Climate Change Act 2008 the UK has committed to reduce its greenhouse gas emissions by 80% by 2050, compared to 1990 levels. 28.2.1.2 United Kingdom’s energy mix The UK has powered its economy mainly through fossil fuels ever since the Industrial Revolution. Indeed, in 2017, up to 80% of the UK’s primary energy consumption was derived from fossil fuels, with oil and natural gas featuring as the most in demand energy sources.13 However, the share of fossil fuels has declined in recent years, driven by a significant decline in coal production. Overall primary energy production in the UK increased by 1.2% in 2016 compared to the preceding year.14 This upswing was primarily due 10. Department of Energy and Climate Change, 2010. “National Renewable Energy Action Plan for the United Kingdom: Article 4 of the Renewable Energy Directive 2009/28/EC.” London, 5. 11. Ibid. 12. Department of Energy and Climate Change, 2014. “UK National Energy Efficiency Action Plan.” London, 5. 13. Timperley, J., 30 July 2018. “Six charts show mixed progress for UK renewables.” Carbon Brief: Clear on Climate. [Online]. Available: https://www.carbonbrief.org/six-charts-showmixed-progress-for-uk-renewables. 14. Department for Business, Energy and Industrial Strategy, 2017. “UK energy in brief 2017.” London, 6.

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to the new fields starting production in the UK Continental Shelf (UKCS)—more projects have been recently announced.15 These initiatives resulted in a rise in the production of primary oil and natural gas (of 42% and 32% of total production, respectively).16 A reduction in coal production was also brought about by the closure of the last large deep mines in 2015, coupled with the substantial decrease in demand from electricity generators.17 Indeed, coal accounted for only 2% of total production in 2016—a record low.18 The shift from coal to gas is the most striking development in the UK’s fuel mix over the past half century. Primary electricity sources (nuclear, and wind and solar) and bioenergy and waste accounted for 16% and 9% of total production in 2016, respectively.19 The Department for Business, Energy and Industrial Strategy (BEIS) publishes on a quarterly basis statistical reports on energy trends: as of September 2018, BEIS reports that natural gas and petroleum remained the most important sources of indigenous energy production.20 However, the share of coal was negligible; indeed, in the most recent quarter (at the time writing), the outputs of nuclear; wind, solar, and hydro; and bioenergy and waste were considerably higher. With regard to electricity generation, approximately 42% of electricity was generated from gas in Q2 2018; coal’s share continued to decline, falling to 1.6%.21 Meanwhile, generation from low-carbon (nuclear and renewable) sources provided more than half of generation (53.4%).22 The renewable generation share was 31.7%. Efforts to improve the UK’s renewable energy position have been bolstered by, among other things, the ongoing work at the Drax power plant facility. Previously a coal-fired generation facility, efforts are underway to secure a coal-free future for the plant. Following the conversion of four of its coal units, Drax now has four biomass generating units: the remaining two coal units will soon be replaced with gas-fired power generating units.23 15. Oil and Gas UK, 11 April 2018. “BP development of two new fields demonstrates remaining potential of UKCS.” [Online]. Available: https://oilandgasuk.co.uk/bp-development-of-two-newfields-demonstrates-remaining-potential-of-ukcs/. 16. Department for Business, Energy and Industrial Strategy, 2017. “UK energy in brief 2017.” London, 6. 17. Ibid. 18. Ibid. 19. Ibid. 20. Department for Business, Energy and Industrial Strategy, National Statistics, 2018. “Energy trends: September 2018.” London, 5. 21. Ibid 48. 22. Ibid. 23. Drax, 20 August 2018. “Drax closer to coal free future with fourth biomass unit conversion.” [Online]. Available: https://www.drax.com/press_release/drax-closer-coal-free-future-fourth-biomass-unit-conversion/.

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However, efforts to reduce carbon output will almost certainly be hampered not just by the development of the UKCS but also by the recommencement of the UK’s hydraulic fracking program.24 Nuclear power continues to play an important role in the UK’s low-carbon transition strategy. Around 15 nuclear reactors generate approximately 21% of the UK’s energy.25 While half of this capacity is due to retire by 2025, the Government has worked hard to create a favorable policy for nuclear energy, with a number of new projects now in the pipeline. The most prominent among these may be the EDF-led Hinkley Point C project. Hinkley Point C will provide 3.2 GW of secure, base-load, low-carbon electricity for at least 60 years.26 EDF is also developing the Sizewell C project.27 In addition to its nuclear strategy, the UK is increasing its renewable electricity generation capabilities: in Q2 2018 renewables accounted for 31.7% of electricity generation—a record high.28 Since 2012 the UK has halved carbon emissions in the electricity generation sector; it now boasts the fourth cleanest power system in Europe.29 Notwithstanding the foregoing, the UK’s reliance on gas hinders its ability to meet its emission targets and provides an incentive to maintain high levels of carbon output. This remains an area where considerable progress could and should be made, particularly in light of the UK’s change of fortune with respect to its security of supply. Given the historically significant supplies of indigenous fossil fuels resources, the UK has historically occupied a position as a net exporter of energy. However this changed in the course of the early 2000s, with the UK became a net importer of energy. In Q2 2018 it was reported by BEIS that the UK remains a net importer of energy, with 34.1% of its energy supplied by imports. In 2017 the UK’s net import dependency was 35.8%; a decline from 2016.30 In terms of the UK’s “greening” of the electricity mix, it would be remiss not to emphasize the important leadership role of Scotland in the low-carbon

24. Department for Business, Energy and Industrial Strategy, 11 October 2018. “Guidance on fracking: developing shale gas in the UK”. [Online]. Available: https://www.gov.uk/government/ publications/about-shale-gas-and-hydraulic-fracturing-fracking/developing-shale-oil-and-gas-inthe-uk. 25. World Nuclear Association, November 2018. “Nuclear power in the United Kingdom”. [Online]. Available: http://www.world-nuclear.org/information-library/country-profiles/countriest-z/united-kingdom.aspx. 26. Ibid. 27. Ibid. 28. Department for Business, Energy and Industrial Strategy, National Statistics, 2018. “Energy trends: September 2018.” London, 48. 29. BBC, 28 December 2017. “UK enjoyed ’greenest year for electricity ever’ in 2017.” BBC. [Online]. Available: http://www.bbc.co.uk/news/uk-42495883. 30. Department for Business, Energy and Industrial Strategy, National Statistics, 2018. “Energy trends: September 2018.” London, 14.

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transition. Renewables were the single largest source of electricity generated in Scotland in 2015, commanding 42% of generation.31 For comparison purposes, nuclear comprised 35% and fossil fuels 22% of electricity generated.32 Scotland is also a net exporter of electricity, exporting almost 30% of total generation in 2015.33 However, it is notable that Scotland is a devolved region of the UK. While energy policy remains centralized in the Westminster Government, Scotland has power of planning rules, for example. A discussion on energy in the UK should note further that Scotland as a region has been agitating for independence in recent years: the last referendum, which resulted in a “remain” vote, was held in 2014. The Scottish Government is currently focusing its efforts on getting a “good deal” for Scotland out of Brexit, but in the event that a “good deal” cannot be struck, it is possible that another referendum will be held.34 Although a hypothetical scenario, it is important to note that the composition of the UK’s energy mix would likely look very different in Scotland’s absence. The rest of the UK’s progress has lagged significantly behind that of Scotland’s: accordingly, Scotland helps to inflate the overall figures for the UK. In the event that Scotland was to become independent, the rest of the UK would no longer be able to take Scotland’s energy statistics into account when reporting on and monitoring the UK’s progress. It is important that the UK Government take this into consideration when formulating its energy strategy. In particular, the UK Government must ensure that each of the southern regions are harnessing to the fullest extent the low-carbon resources available to them, in order to match if not exceed the progress being made north of the border.

28.2.1.3 United Kingdom’s progression against its targets The reports on the UK’s progress against its targets have been mixed: at times, the UK has appeared to lag significantly behind its European neighbors.35 At others, it would seem to be on course to hit—and potentially surpass—its targets.36 The UK’s NREAP, published in 2010, acknowledged that efforts to integrate renewable energy resources into the fuel mix will need to 31. Scottish Government, 22 December 2016. “Energy-electricity generation.” [Online]. Available: https://www2.gov.scot/Topics/Statistics/Browse/Business/TrendElectricity. 32. Ibid. 33. Ibid. 34. MacNab, S., 27 November 2018. “Nicola Sturgeon: I won’t call a second Scottish independence vote this year.” The Scotsman. [Online]. Available: https://www.scotsman.com/news/politics/general-election/nicola-sturgeon-i-won-t-call-a-second-scottish-independence-vote-this-year1-4835640. 35. Martin, A., 1 February 2018. “The UK still has some way to go to hit its 2020 renewable energy target.” Alphr, [Online]. Available: https://www.alphr.com/energy/1008375/uk-renewable-energy-progress-2020. 36. Solar Daily, 1 June 2018. “UK set to smash renewable energy targets for 2020.” [Online]. Available: http://www.solardaily.com/reports/UK_set_to_smash_renewable_energy_targets_for_2020_999.html.

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accelerate if the UK is to meet its 2020 targets.37 In 2017 the UK saw renewable energy’s share of electricity generation jump to 29.3%.38 With the UK now comfortably producing one quarter of its electricity from renewables, the overall target of 15% consumption from renewables seems increasingly achievable. Electricity generation from coal amounted to a mere 1.6% in Q2 2018, while natural gas remained dominant with a share of 42% (compared to 2% and 41.3% in Q2 2017, respectively).39 The share of renewables grew from 30.6% in Q2 2017 to 31.7% in Q2 2018. These figures are indicative of a shift away from fossil fuels for electricity generation purposes. With regard to the UK’s energy savings target, energy consumption is on a general downward trend.40 Indeed, primary energy consumption fell by 15% and final energy consumption by 11% in 2015, compared to 2007. However, the UK still needs to achieve an 18% reduction in final energy consumption by 2020 (a 20% reduction in primary energy consumption). By 2017 UK greenhouse gas emissions were 43% below 1990 levels.41 The UK managed to meet its first carbon budget (2008 12) and is, according to the Committee on Climate Change, likely to outperform its second (2013 17) and third (2018 22) budgets. However, it may struggle to meet its fourth budget, covering 2023 27. The role of Scotland in the UK’s achievement of its targets should be highlighted. Scotland exceeded its 2020 target to reduce greenhouse gas emissions by 42% 6 years early.42 Meanwhile, 2017 was a record year for Scotland, with 68.1% of electricity derived from renewable sources.43 But while Scotland’s runaway success helps to bolster the UK’s overall figures, it does mean that the UK is heavily dependent on Scotland for renewable energy resources. In the event that Scotland were to become an independent nation in the future, then the UK’s low-carbon status would take a serious hit.

37. Department of Energy and Climate Change, 2010. “National Renewable Energy Action Plan for the United Kingdom: Article 4 of the Renewable Energy Directive 2009/28/EC.” London, 5. 38. Department for Business, Energy and Industrial Strategy, 2018. “Digest of United Kingdom Energy Statistics (DUKES) 2018.” BEIS, 11. 39. Department for Business, Energy and Industrial Strategy, National Statistics, 2018. “Energy trends: September 2018.” London, 48. 40. UK Government, 28 April 2017. “UK National Energy Efficiency Action Plan and Annual Report.” London, 1. 41. Committee on Climate Change, “How the UK is progressing.” [Online]. Available: https://www. theccc.org.uk/tackling-climate-change/reducing-carbon-emissions/how-the-uk-is-progressing/. 42. BBC, 14 June 2016. “Scotland exceeds emissions targets - six years early.” [Online]. Available: https://www.bbc.co.uk/news/uk-scotland-scotland-politics-36519506. 43. BBC, 29 March 2018. “’Record’ year for renewable electricity generation.” [Online]. Available: https://www.bbc.co.uk/news/uk-scotland-scotland-business-43586438.

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28.2.2 Market and market players 28.2.2.1 Market The electricity and gas markets in the UK are fully privatized, both at wholesale and retail levels. The electricity market in the UK is geographically divided into two separate networks. On the one hand, England, Scotland, and Wales form the Great Britain (GB) system. On the other hand, Northern Ireland and the Republic of Ireland constitute the Integrated Single Electricity Market (I-SEM). The GB market is regulated by the Gas and Electricity Markets Authority (GEMA), which operates through the Office of Gas and Electricity Markets (Ofgem). Meanwhile, the I-SEM is regulated jointly by Northern Ireland’s Utility Regulator (UREGNI), and the Irish regulator, Commission of Regulation of Utilities (CRU). The decision-making body responsible for the governance of the SEM is the SEM Committee, which comprises the CRU, Utility Regulator, and an independent member. The GB market is operated by National Grid in its guise as the Electricity System Operator. Meanwhile, the SEM is operated by the SEM Operator, or SEM-O. 28.2.2.2 Market players Great Britain The GB market is largely decentralized and privatized. Only the regulator, Ofgem, is a governmental body. The transmission system is divided into three regions, owned and operated by the same three entities: National Grid Electricity Transmission (NGET) in England and Wales and Scottish Power Transmission and Scottish Hydro Electric Transmission in Scotland. The GB transmission system as a whole is operated by the System Operator, National Grid. Ownership of the transmission network has been certified by the Commission as fully unbundled, with the Scottish TSOs certified under Article 9(9) of Directive 2009/72/EC.44 The GB market will be undergoing an important change during the period until 2030, when the GB distribution network operators (DNOs) transition into distribution system operators (DSOs).45 This far-reaching change will see the operator adopt a more active role in the management of electricity generation and consumption. It should also enable customers to play a more active role as both producers and consumers. Presently, ownership and operation of the distribution network is divided up between a number of DNOs. 44. European Commission, 2014. “Single market progress report: United Kingdom.” Brussels. 45. Energy Networks Association, “Open networks project: overview,” [Online]. Available: http://www.energynetworks.org/electricity/futures/open-networks-project/open-networks-projectoverview/.

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The retail electricity market is fully open to competition, with a range of domestic and nondomestic suppliers active in the market. In June 2018 there were 73 active domestic suppliers.46 However, the retail market is presently dominated by six large, vertically integrated suppliers known as the “Big 6”.47 An important aspect of the GB retail market is the ownership of the big utility suppliers by international companies. EDF Energy is wholly owned by the French state-owned EDF; Npower is presently a subsidiary of the German company, Innogy SE (itself a subsidiary of RWE); E. ON UK is part of the E. ON group, headquartered in Germany; and Scottish Power is a subsidiary of the Spanish giant, Iberdrola. SSE and British Gas remain British-owned companies, although British Gas is a subsidiary of the UK-owned and -based Centrica. Notably, both E. ON and RWE underwent drastic corporate restructurings in 2016, in response to Germany’s so-called “Energiewende.” RWE hived off its renewable energy, network, and retail businesses into Innogy SE, with the-then Npower becoming a subsidiary of the latter, and renamed as Npower Limited. RWE Generation UK plc acquired the coal, natural gas, and oil-fired plants formerly operated by Npower. Meanwhile, E. ON created a new subsidiary, Uniper, to keep its fossil fuel assets; E. ON retained the renewables, distribution, and retail businesses. It has now been reported that Npower will be acquired from Innogy SE by E. ON UK, as part of a planned asset swap between RWE and E. ON.48 Table 28.1 outlines the different market players in the GB market. Northern Ireland Northern Ireland is part of the I-SEM with Ireland, so different arrangements apply. The Northern Ireland transmission system is owned by Northern Ireland Electricity Networks (NIE Networks), a private entity, and operated by SONI. SONI is owned by the Irish TSO, EirGrid, which is an Irish state-owned entity. NIE Networks is also the owner and operator of the distribution system. Notably, NIE Networks is owned by the Irish state-owned utility company, the Electricity Supply Board (ESB), which acquired NIE Networks from Viridian in December 2010. Article 9(9) of Directive 2009/72/EC has been applied to Northern Ireland. The Northern Irish retail market is open to competition but has far fewer players. The incumbent, Power NI, dominates in the domestic sector.49 Note that Viridian Group plc is a hugely dominant player in the Northern Ireland retail 46. Ofgem, “Number of active domestic suppliers by fuel type (GB),” [Online]. Available: https://www.ofgem.gov.uk/data-portal/number-active-domestic-suppliers-fuel-type-gb. 47. Ofgem, 2016. “Retail energy markets in 2016.” Ofgem. 48. Vaughan, A., 28 December 2018. “Job fears for Npower staff, with ownership transferring to E.ON.” [Online]. Available: https://www.theguardian.com/business/2018/dec/28/job-fears-fornpower-staff-with-ownership-transferring-to-eon. 49. UREGNI, 2018. “Retail Market Monitoring: Quarterly Transparency Report, Quarter 3. July to September 2018.” 3.

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TABLE 28.1 The different market players in the Great Britain market. Regulatory Authority

Ofgem

Generators

Fossil fuel, Renewable, Nuclear, Aggregators.

Transmission Asset Owner

England and Wales: National Grid Electricity Transmission plc (NGET). Scotland: Scottish Power Transmission Limited (Scottish Power) and Scottish Hydro Electric Transmission plc (Scottish Hydro)—note that Scottish Hydro now trades as Scottish & Southern Electricity Networks.

Transmission System Operator

The GB system as a whole is operated by a single System Operator, National Grid. Three regional Transmission Operators operate within their own distinct transmission areas: England and Wales: NGET Southern Scotland: Scottish Power Northern Scotland and the Scottish Isles: Scottish Hydro/SSE.

Distribution Network Operator (groups and individual operators)

Electricity North West Limited. Northern Powergrid owns DNOs Northern Powergrid (Northeast) Limited and Northern Powergrid (Yorkshire) plc. Scottish and Southern Energy owns DNOs Scottish Hydro Electric Power Distribution plc and Southern Electric Power Distribution plc. Scottish Power Energy Networks owns DNOs SP Distribution Ltd and SP Manweb plc. UK Power Networks owns London Power Networks plc, South Eastern Power Networks plc, and Eastern Power Networks plc. Western Power Distribution owns Western Power Distribution (East Midlands) plc, Western Power Distribution (West Midlands) plc, Western Power Distribution (South West) plc, and Western Power Distribution (South Wales) plc.

System Operator

National Grid.

Suppliers

The UK market is dominated by the “Big Six” largest suppliers: British Gas, EDF Energy, E. ON, Npower, Scottish Power, and SSE (holding as of Q3 2017 81% of electricity, and 80% gas supply). Note that the “Big Six” will be consolidated to the “Big Five” if the proposed asset swap between RWE and E. ON goes ahead. As of June 2018 (Q2), some 73 active domestic suppliers were in operation.

Consumers

Industry, Commercial, SMEs, Residential.

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market: it owns both Power NI and Energia, the supply businesses which it retained following the acquisition of NIE Networks by ESB in 2010. Accordingly, Viridian has influence in both the domestic and commercial retail markets. Table 28.2 outlines the different market players in the I-SEM.

28.2.2.3 Customer profile and consumption trends Great Britain In terms of overall energy consumption in the GB market, transport continues to hoard the lion’s share of consumption. In 2017 transport accounted TABLE 28.2 The Integrated Single Electricity Market between Northern Ireland and the Republic of Ireland. Republic of Ireland

Northern Ireland

Regulatory Authority

CRU

UREGNI

Generators

Fossil fuels, Renewable, Demand-Side units, Aggregators

Transmission Asset Owner

ESB

Northern Ireland Electricity (NIE) Networks Limited

Transmission System Operator

EirGrid

SONI

Distribution Asset Owner

ESB

NIE Networks Limited

Distribution System Operator

ESB Networks Limited

NIE Networks Limited

Market Operator

SEM-O

SEM-O

Suppliers

BEenergy, Bord Gais Energy, Electric Ireland, Energia, Go Power, Just Energy, Naturgy, Panda power, Pinergy, Prepay Power, SSE Airtricity, Vayua

Electric Ireland, SSE Airtricity, Click Energy, Budget Energy, Energia, Go Power/LLC Power, Power NI, Vayu, 3 T Powerb

Consumers

Industry, Commercial, SMEs, Residential

a

CRU, “List of energy suppliers.” [Online]. Available: https://www.cru.ie/home/customer-care/ energy/communication/. b UREGNI, 2018. “Retail Market Monitoring: Quarterly Transparency Report, Quarter 3, July to September 2018.” 5.

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for 40% of final energy consumption.50 The domestic sector followed, representing 28%. The industry and the services sectors made up the rest with shares of 17% and 15%, respectively. The GB electricity market can be divided into two segments: domestic and nondomestic. The nondomestic segment includes small businesses, up to large industrial and commercial users. As of March 2016 nondomestic users accounted for 64% of total electricity consumption, and 39% of gas.51 With regard to electricity consumption, there is a general pattern of declining consumption: total consumption decreased by 1% in Q2 2018 compared to Q2 2017.52

28.2.2.4 Northern Ireland The Northern Ireland electricity market can be similarly divided into domestic and nondomestic customers. In 2016 and of the total customers in the electricity market in Northern Ireland, 91.7% were in the domestic sector and 8.3% were business customers.53 But while the domestic sector accounted for 36.5% of consumption, the nondomestic sector accounted for the lion’s share of consumption, at 63.5%.54 In the period 2015 16, domestic electricity consumption in Northern Ireland was around 2925 GWh.55 Nondomestic consumption was around 4705 GWh.56 A slight downward trend in annual electricity consumption in Northern Ireland over the period 2010 17 has been observed, with total consumption in 2017 some 7.7% lower than 2010 levels.57 28.2.3 Transmission system 28.2.3.1 Great Britain The GB system transmits high-voltage electricity through a transmission grid that stretches across GB. It consists of overhead lines ranging from 400 to 275 kV and below.58 50. Department for Business, Energy and Industrial Strategy, 2018. “Energy consumption in the UK: July 2018.” BEIS, London, 8. 51. Ofgem, 2016. “Retail energy markets in 2016.” 12. 52. Department for Business, Energy and Industrial Strategy, National Statistics, 2018. “Energy trends: September 2018.” London, 3. 53. UREGNI, 2017. “Retail market monitoring: annual transparency report for calendar year 2016.” 2017 Available: https://www.uregni.gov.uk/files/uregni/media-files/2016-06-02_Transparency_Report_ 2016_Q1_Final_Updated_0.pdf, p. 6. 54. Ibid. 55. Department for the Economy, 2018. “Energy in Northern Ireland 2018.” Department for the Economy, Northern Ireland Statistics and Research Agency, 36. 56. Ibid. 57. Ibid 29. 58. The Telegraph, “Map of The UK’s electricity supply system network grid.” British Business Energy, [Online]. Available: https://britishbusinessenergy.co.uk/electricity-supply-system/.

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Three entities are entitled to develop, operate, and maintain the highvoltage network within their corresponding onshore transmission areas: NGET plc for England and Wales, Scottish Power Transmission Limited for Southern Scotland, and Scottish Hydro Electric Transmission plc for Northern Scotland and the Scottish island groups.59 The GB system as a whole is operated by a single System Operator, National Grid. The UK’s transmission network is bolstered by four interconnectors: England France with “IFA” (2 GW), England Netherlands with “BritNed” (1 GW), Northern Ireland Scotland with “Moyle” (500 MW), and Wales Ireland with “East West” (500 MW).60 The UK has one of the lowest electricity interconnection rates among EU Members, with an interconnection rate of 6% in 2014.61 Several measures will have to be put in place if the UK is to reach the target of 10% interconnection level by 2020 set by the European Commission.62 In England and Wales, generation facilities with a capacity equal or superior to 100 MW may be connected to the transmission system; smaller plants are directly connected to the lower voltage distribution network.63 In Scotland, smaller generation facilities may be directly connected to the transmission grid.64

28.2.3.2 Northern Ireland Northern Ireland’s transmission network consists of a series of 400, 275, and 110 kV lines.65 In Northern Ireland, the TSO is the System Operator for Northern Ireland Limited, or SONI. SONI is a subsidiary of EirGrid, which is the TSO in the Republic of Ireland. The electricity market operates as a single wholesale market across the whole of the island of Ireland: accordingly, the Northern Irish grid is physically connected to the Irish grid via two interconnectors. A single 275 kV double-circuit interconnector cable connects Northern Ireland with Ireland between Tandragee (Northern Ireland) and Louth (Ireland) substations. Meanwhile, two lower capacity 110 kV cables connect at Letterkenny in Co. Donegal and Corraclassy in Co. Cavan.66 These interconnections facilitate 59. Ofgem, “The GB electricity transmission network.” [Online]. Available: https://www.ofgem. gov.uk/electricity/transmission-networks/gb-electricity-transmission-network. 60. Ofgem, “Electricity interconnectors.” [Online]. Available: https://www.ofgem.gov.uk/electricity/transmission-networks/electricity-interconnectors. 61. Communication from the Commission to the European Parliament and the Council. Achieving the 10% electricity interconnection target, COM(2015) 82 final (25 February 2015), 5. 62. Ibid. 63. Norman K., and Massie, K., November 2017. “Electricity regulation.” White & Case LLP. [Online]. Available: https://www.whitecase.com/sites/whitecase/files/files/download/publications/ getting-deal-through-electricity-regulation-2018-united-kingdom.pdf, p. 3. 64. Ibid. 65. EirGrid Group, 2017. “Innovative partnerships for a brighter tomorrow: annual report 2017.” 66. EirGrid Group, September 2016. “Transmission system map.” [Online]. Available: http:// www.eirgridgroup.com/site-files/library/EirGrid/EirGrid-Group-Transmission-SystemGeographic-Map-Sept-2016.pdf.

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FIGURE 28.1 Transmission network in United Kingdom.71

the functioning of the I-SEM. Two interconnectors connect the I-SEM with the GB market. The Moyle Interconnector links Northern Ireland to Scotland.67 The I-SEM is also connected to GB via the East West Interconnector, which connects Dublin, Ireland, to Wales.68 In Northern Ireland, small-scale generation (less than 5 MW) connects exclusively to the distribution network.69 Larger generators may connect to either distribution or transmission, but the largest generators of 110 kV or above must apply to the TSO for connection to the transmission network.70 The application procedure varies depending upon various factors, including size. Fig. 28.1 maps out the UK’s transmission system, by operator.

67. SONI, “Interconnection,” [Online]. Available: http://www.soni.ltd.uk/customer-and-industry/ interconnection/. 68. Ibid. 69. NIE Networks Connections, 2018. “Distribution generation application and offer process statement.” 1. 70. Ibid. 71. Selectra, “GB electricity transmission and distribution network about.” [Online]. Available: https://selectra.co.uk/distribution/electricity/transmission-vs-distribution.

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FIGURE 28.2 Distribution network in United Kingdom.72

28.2.4 Distribution system The distribution network for the UK is managed by a far wider variety of operators than the transmission network. For the distribution network, the GB system is divided into eight regions. Northern Ireland is a separate region. Fig. 28.2 offers a visualization of the current arrangements. Note that the Republic of Ireland is included in Fig. 28.2 but should be ignored for the purposes of this section.

28.3 Governance system 28.3.1 Energy strategy 28.3.1.1 Great Britain Britain’s energy strategy is informed by the Climate Change Act 2008, pursuant to which the UK committed to reduce GHG emissions by 80% by 2050, compared to 1990 levels. A pathway for the achievement of this target was established by the Clean Growth Strategy (CGS), published in October 2017.73 The key policies and proposals evident in the CGS are as follows: 72. Ibid. 73. HM Government, 2017. “The clean growth strategy: leading the way to a low carbon future.”

794 G G G G G G G G

Electricity Decentralization in the European Union

Accelerating Clean Growth, Improving Business and Industry Efficiency, Improving the Energy Efficiency of Homes, Accelerating the Shift to Low Carbon Transport, Delivering Clean, Smart, Flexible Power, Enhancing the Benefits and Value of Natural Resources, Leading in the Public Sector, and Government Leadership.

Public and private investment plays a prominent role in the CGS. The Government has allocated d2.5 billion of investment to low-carbon innovation for the period 2015 21, with the majority of funding targeted at the transport sector (33%). The concept of cross-collaboration with business, civil society and the public pervades the CGS. Thus it is made clear that the focus of the CGS is on creating a supportive, enabling environment for investment. On the regulatory side of the energy strategy, Ofgem has published its own blueprint, setting out a pathway for regulation in the coming years.74 It focuses on regulatory arrangements in the following areas: G G G G G

rolling out smart meters and supporting the energy transition, balancing supply and demand, ensuring network capacity, strengthening system coordination and the institutional framework, and supporting innovation.

28.3.1.2 Northern Ireland Energy policy is fully devolved to Ireland. The NI Executive published its Strategic Energy Framework (SEF) for the period 2010 to 2020 in September 2010.75 The SEF provides a clear signal of the Executive’s priorities for the energy sector. Its central aim is to create a more secure and sustainable energy system for Northern Ireland, built around competitive markets, a secure, efficient and sustainable energy supply, and robust infrastructure. The NI Executive published its Report on the draft Programme for Government (PfG), containing 14 strategic outcomes to set a clear agenda for the NI Executive, in December 2016.76 The draft PfG Framework includes a number of references to energy, with a specific ambition for a secure, sustainable, and cost-efficient energy supply.77 But with the collapse 74. Ofgem, 2017. “Our strategy for regulating the future energy system.” 75. Department for Enterprise, Trade and Investment, 2010. “Energy: a strategic framework for Northern Ireland, September 2010.” 76. Northern Ireland Assembly, 2016. “Report on the Executive’s Draft Programme for Government 2016 21.” 77. Northern Ireland Executive, 2016. “Draft Programme for Government Framework 2016 21.”

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of the NI Executive in January 2017, Northern Ireland has been thrown into flux. Clearly, a new PfG will be necessary once power sharing is reinstated. But given the continued political impasse, it is unclear what progress will be made over the coming months. Naturally, this will have serious implications for Northern Ireland’s energy strategy, and progress thereon. A new PfG will inevitably be influenced by the outcomes of the UK’s Brexit negotiations. Presently, the UK is working hard to ensure that the I-SEM continues to function unimpeded post-Brexit, but this would likely result in Northern Ireland agreeing to certain rules relating to wholesale markets while GB withdraws from them. This will pose further problems from a power sharing perspective, as the DUP (the Unionist party) continues to resist suggestions that Northern Ireland may need in some respects to have different arrangements from GB.

28.3.2 Integration of governance and energy strategy In the UK, and particularly so within GB, a promarket mentality dominates energy discourse: while energy governance and strategy is still politicized to the extent that it remains dictated by the Government and the governmental regulator, energy policy exists within a “promarket” framework. The UK’s tendency toward energy marketization was apparent in the merger of the Department of Energy and Climate Change with the Department for Business, Innovation and Skills to form the Department for Business, Energy and Industrial Strategy. Northern Ireland, meanwhile, has a separate Department for Energy, with the ISEM regulated by a state departmental body, and operated and managed by state-owned companies. In GB, notably, the market is regulated by a governmental agency, but is otherwise privatized. Energy security and climate change mitigation measures play pivotal roles in the UK-wide energy governance sphere, as they do in the UK-wide strategic framework for a low-carbon future. But there do appear to be inconsistencies. The CGS promotes investment and innovation as key to the achievement of its low carbon targets, but it is unclear the extent to which this message of an enabling investment environment has reached, and persuaded, private investors. Green energy investment in wind, solar and other renewable energy sources actually halved in the course of recent years, with a 56% decline reported in 2017.78 Mixed messages regarding the funding available for green energy projects will tend to dissuade investment, and recent cuts to subsidies79 at the same time as the commencement of the 78. Vaughan, A., 16 January 2018. “UK green energy investment halves after policy changes.” The Guardian. [Online]. Available: https://www.theguardian.com/business/2018/jan/16/uk-greenenergy-investment-plunges-after-policy-changes. 79. Tapper, J., 23 June 2018. “Green energy feels the heat as subsidies go to fossil fuels.” The Guardian. [Online]. Available: https://www.theguardian.com/environment/2018/jun/23/greenenergy-subsidies-community-projects-fossil-fuels.

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Electricity Decentralization in the European Union

UK’s fracking program80 will not assist the UK in establishing the sort of coherent, predictable investment climate that tends to attract private investment. Moreover, at the same time as the cuts to solar PV subsidies, fossil fuel generators were receiving around d3 billion through Capacity Market (CM) Auctions in 2017.81 The GB CM has now been suspended, following a ruling of the European Court and pending a full investigation by the Commission.82 It is important however not to misidentify correlation as causation: the downturn in private investment could feasibly stem, at least in part, from the increased business circumspection stemming from the Brexit negotiations. The aforementioned cuts to subsidies for solar panels, and a “hostile planning approach” to new wind turbine applications have also been blamed for a decline in domestic generation.83 Notwithstanding the foregoing, however, some industry analysts now believe that onshore wind and solar could be viable without subsidies by 2020, due to falling costs and advances in battery technology.84 While there may be a number of “lost years” until the point where these technologies are again considered viable without subsidies, it is possible that subsequent years will see these technologies reestablish themselves on the market. In summary, while the UK’s central energy strategy calls for a transition to a low-carbon energy market, the Government’s tendency to appeal to the incumbent market interests means that the implementation of its strategy can appear to be biased toward those interests, at the possible expense of the low-carbon transition. This being said, the UK can boast significant progress in growing its economy while reducing its emissions: since 1990 its emissions have been cut by over 40%85, while the economy has grown by two-thirds.86 In Q2 2018 almost 54% of the UK’s electricity came from

80. Vaughan, A., 17 May 2018. “Fast-track fracking plan by the government prompts criticism.” The Guardian. [Online]. Available: https://www.theguardian.com/business/2018/may/17/fasttrack-fracking-plan-by-uk-government-prompts-criticism. 81. MacDonald, P., 28 September 2018. “Subsidies to UK coal continue despite phase-out pledge.” Sandbag: Smarter Climate Policy. [Online]. Available: https://sandbag.org.uk/2017/09/ 28/7807/. 82. Tempus Energy Ltd and Tempus Energy Technology Ltd v European Commission supported by United Kingdom of Great Britain and Northern Ireland (Case T-793/14), 2018. 83. Tapper, J., 23 June 2018.“Green energy feels the heat as subsidies go to fossil fuels.” The Guardian. [Online]. Available: https://www.theguardian.com/environment/2018/jun/23/greenenergy-subsidies-community-projects-fossil-fuels. 84. Vaughan, A., 20 March 2018. “Subsidy-free renewable energy projects set to soar in UK, analysts say.” The Guardian. [Online]. Available: https://www.theguardian.com/business/2018/ mar/20/uk-subsidy-free-renewable-energy-projects-set-soar-aurora-energy-research-analysts. 85. National Statistics, 30 March 2017. “Provisional UK greenhouse gas emissions national statistics 2016.” [Online]. Available: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/604327/2016_Provisional_emissions_statistics_one_page_summary.pdf. 86. HM Government, 2017. “The Clean Growth Strategy: leading the way to a low carbon future.” 5.

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low-carbon sources.87 Based on these figures alone, the focus of UK energy strategy and governance, on encouraging investment and innovation in an enabling market environment, appears to be capable of delivering results. However, if these results are to be fully realized, it will be important for the UK’s low-carbon policy strategy to be implemented in a coherent and consistent manner. If the UK wishes to continue to lead in green growth, then it must continue to attract investment during, and after, Brexit. As previously noted, it may be that the investment downturn which has been observed in the past couple of years has been a response to the uncertainty surrounding the Brexit negotiations. But if this is so, then the UK may need to rethink its strategy: the clearer and more coherent the strategy in times of uncertainty, the more confident business will be in investing. The future energy strategy of the UK as a whole will therefore need to be informed to a large extent by the outcomes of the Brexit process; the energy governance structure will also need to respond to whatever new paradigm emerges. Notably, the CGS does not make mention of Brexit. This is unavoidable, as the Brexit vote was not until 2016. But this does mean that the CGS will need updating in the very near future. One area that requires clarification is exactly how close the ties between the UK and the EU will be after Brexit: whether it will still be part of the EU Internal Energy Market (IEM), or whether it will withdraw. The Political Declaration accompanying the UK-EU Withdrawal Agreement fell short of seeking continuing participation in the IEM but did include at Clauses 66 and 67 a high level commitment to cooperate on the supply of energy so as to ensure security of supply and trade over interconnectors. This being said, it is likely that continued access to the IEM will play a part in the UK’s strategy, not least because of the benefits of coordinated energy trading. However, if full membership was politically unsatisfactory, then this would complicate matters for Northern Ireland. Northern Ireland, of course, participates in the I-SEM with Ireland. To the extent this must continue after Brexit, then certain EU laws would have to continue to apply to Northern Ireland to allow for the continuation of the I-SEM. It appears to be the UK’s wish that the I-SEM continues after Brexit88; for that to happen unimpeded, Northern Ireland will have to remain part of the IEM. However, if the UK made the decision to withdraw from the IEM then observers may then witness a decoupling of the NI and GB markets. It remains to be seen how politically satisfactory such a situation would be. 87. Department for Business, Energy and Industrial Strategy, National Statistics, 2018. “Energy trends: September 2018.” London, 3. 88. House of Commons-Business, Energy and Industrial Strategy Committee, 2017. “Leaving the EU: negotiation priorities for energy and climate change policy-Fifth Report of Session 2016 17.” 19.

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The UK’s departure from the EU could also have serious implications for future climate policy. Notably, Clause 78 of the Political Declaration states: “The future relationship should reaffirm the Parties’ commitments to international agreements to tackle climate change, including those which implement the United Nations Framework Conventions on Climate Change, such as the Paris Agreement.” The UK has bid to hold the 2020 COP UNFCCC conference which suggests that it will strive to maintain its position as a world leader on climate change and honor its Paris commitments. Nevertheless, it is possible that the UK could backslide on the EU’s renewables and energy efficiency targets after Brexit. If it were retreat from the EU’s targets then the implications would likely be realized only in respect of the targets for 2030 and 2050, as the vast majority of the projects needed to hit the 2020 renewables targets will already have been approved. However, it is important to note that the UK has imposed on itself even more stringent requirements for carbon emissions pursuant to its Climate Change Act 2008 (with a target to reduce GHG emissions by at least 80% of 1990 levels by 2050). The UK has met its first two budgets and is on track to meet the third; however, the CCC cautions that more action is required to meet subsequent budgets.89 Nevertheless, the UK has been one of the EU’s worst offenders with regard to the flouting of environmental laws90; while a post-Brexit “green watchdog” has been mooted, under current plans it will not have any powers relating to climate change.91 Quite who will hold the UK Government to account on climate change matters following its EU departure is, therefore, unknown. Accordingly, it is conceivable that a considerable amount of rethinking will be required with respect to the UK’s energy strategy in the coming months and years. But, it will only be possible to know exactly how much rethinking or redesign will actually be necessary once the dust has settled on the Brexit arrangements. It may be that GB chooses to withdraw from the IEM. If GB were to withdraw but Northern Ireland to remain, then Northern Ireland and GB would likely become decoupled. In the event however that both Northern Ireland and GB stay within the IEM (as seems probable, given the efficiency costs of a GB exit), their energy policies would remain influenced by European IEM developments. With regard to Northern Ireland, while energy policy is now fully devolved to the NI Executive, the complex interconnected nature of energy policy, markets, systems, and infrastructure means that the UK Government 89. Committee on Climate Change, “Ten years of the Climate Change Act,” [Online]. Available: https://www.theccc.org.uk/our-impact/ten-years-of-the-climate-change-act/. 90. Rankin, J, 26 November 2018. “Activists demand UK environment watchdog in Brexit trade deal.,” The Guardian [Online]. Available: https://www.theguardian.com/politics/2018/nov/26/ post-brexit-trade-deal-must-guarantee-uk-environment-watchdog-green-groups. 91. Tapper, J., 2 September 2018. “UK’s green watchdog will be powerless over climate change post-Brexit,” Observer. [Online]. Available: https://www.theguardian.com/environment/2018/sep/ 02/green-watchdog-powerless-climate-change-post-brexit.

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has always played an important role, directly and indirectly, in shaping Northern Ireland policy. Helpfully, the UK Government recognizes the influence it has over Northern Ireland’s energy strategy. A report by the House of Commons Northern Ireland Affairs Committee, published in April 2017, provided a number of examples regarding the UK’s influence.92 One example cited was the UK’s Renewable Obligation (RO) scheme, introduced in 2002. The RO scheme was withdrawn in 2011. It was replaced with the Contracts for Difference (CfD) scheme, in which the subsidy varies according to the wholesale price. Northern Ireland was compelled to withdraw its own Renewables Obligation scheme in response, to avoid the cost of subsidies increasing considerably. Another example is the Carbon Price Floor, introduced in 2013. The Carbon Price Floor scheme introduced the obligation for industries to provide a top-up, payable if the market price for carbon fell below a certain level. The intention of the scheme was to stimulate investment in low-carbon infrastructure but, when in March 2014 the UK Government announced a cap at d18 per ton for the period from 2016/17 to 2019/20, Northern Ireland was compelled to seek an exemption to avoid SEM distortions. Despite achieving this exemption, the Carbon Price Floor nevertheless had an indirect effect on Northern Ireland’s electricity market, through reduced imports at the Moyle Interconnector. Given the UK’s heady influence over Northern Ireland energy strategy, it will be important for the NI Executive and HM Government in Westminster to continue to liaise closely in the coming months as Brexit negotiations continue. The regulators will also need to play an important role, so collaboration between Ofgem and UREGNI should be championed. Much will of course depend on the outcome of the current negotiations, but it is feasible that Northern Ireland will seek to gain more independence from the UK on energy policy and related matters in the coming years, particularly if the UK’s exit from the EU puts an intolerable strain on the functioning of the ISEM.

28.4 Regulatory framework and energy security 28.4.1 Regulatory framework 28.4.1.1 Legislation pertaining to the electricity market The legal framework governing the electricity markets in England, Scotland, and Wales arises from a string of regulations including, but not limited to, the Electricity Act 1989 (as amended and supplemented); the Utilities Act 2000; the Energy Acts 2004, 2008, 2010, 2011, 2013, and 2016; the Climate 92. House of Commons, Northern Ireland Affairs Committee, 2017, “Electricity sector in Ireland: Third Report of Session 2016 2017.”

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Change Act 2008; the Competition Act 1998; the Enterprise and Regulatory Reform Act 2013; and the Infrastructure Act 2015. Notably, the Energy Act 2013, which amended the Electricity Act 1989, introduced the Electricity Market Reform, or EMR. The EMR instigated two key changes: the CfD scheme and the CM. Both will be discussed further in what follows. In addition, the EMR also launched the emissions performance standard (EPS) and the Carbon Price Floor. The key provisions of the Energy Act 2016, which amended the Electricity Act 1989, provide inter alia for the closure of the RO scheme for onshore wind generators. The CfD scheme replaces the RO scheme. The key legislation in respect of the regulatory architecture of Northern Ireland’s electricity sector includes the Electricity (Northern Ireland) Order 1992; the Energy (Northern Ireland) Order 2003; and the Electricity (Single Wholesale Market) (Northern Ireland) Order 2007.

28.4.1.2 Regulatory framework and the smart grid Integration of renewable energy sources The Electricity Act 1989 (as amended and supplemented) sets out a licensing regime which is regulated by the GEMA. A license is mandatory for the following activities: generation, participation in transmission, distribution, supply, participation in the operation of an electricity interconnector, and the provision of smart metering services.93 Applicants for licenses need to submit a written application and pay the relevant fee to the regulator, Ofgem. Certain actors, such as small-scale generators, distributors, and suppliers, may be exempted from holding a license insofar as they meet particular requirements.94 Licenses are subject to different types of conditions: standard conditions (generally applicable to all licensees), amended standard conditions, and special conditions (specific to the licensee at issue). In addition to these requirements, licensees must observe relevant industry codes and standards, which are usually outlined in the standard conditions of their individual license.95 The main planning acts which relate to England are the Town and Country Planning Act 1990, the Planning and Compulsory Purchase Act 2004, the Planning Act 2008 and the Localism Act 2011. The Wales framework is broadly similar to that of England, with the 1990 Act, 2004 Act, 2008 Act, and 2011 Act supplemented by the Planning (Wales) Act 2015. Pursuant to the Electricity Act 1989, the construction or extension of an onshore generation facility (with the exception of wind generation facilities) 93. Section 6, paragraph (1) Electricity Act 1989. 94. Section 5 Electricity Act 1989. 95. Norman, K., Massie, K., November 2017. “Electricity regulation.” White & Case LLP. [Online]. Available: https://www.whitecase.com/sites/whitecase/files/files/download/publications/ getting-deal-through-electricity-regulation-2018-united-kingdom.pdf, p. 2.

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located in England and Wales, with a capacity exceeding 50 MW, required, up to 2018, the consent from the Secretary of State for Business, Energy and Industrial Strategy under Section 36 of the 1989 Act.96 Onshore generation facilities are usually classified as “Nationally Significant Infrastructure Projects” (NSIP) under the Planning Act 200897, and NSIPs need to be sanctioned by the Secretary of State for Business, Energy and Industrial Strategy through a development consent order (DCO). However, the Energy Act 2016, coupled with the Infrastructure Planning (Onshore Wind Generating Stations) Order 2016, withdrew onshore wind farms featuring a capacity surpassing 50 MW from the NSIP regime; these are now subject to local authority planning consent. The Onshore Wind Generating Stations (Exemption) (England and Wales) Order 2016 (S.I. 2016/21) as amended by the Onshore Wind Generating Stations (Exemption) (England and Wales) (Amendment) Order 2016 (S.I. 2016/450) also removed the requirement for a Section 36 consent for onshore wind generation. With regard to the construction of nonwind onshore generation facilities in England with a capacity under 50 MW, these may require approval from the relevant local planning authority in accordance with the Town and Country Planning Act 1990.98 In Wales, most parts of the planning system are devolved. Onshore generation facilities with a capacity ranging from 10 to 50 MW are treated as “Developments of National Significance” (DNS) and are decided by Welsh Ministers.99 From 2019 (pursuant to the Wales Act 2017), further consenting powers, over energy generating stations with a capacity of up to and including 350 MW onshore and in Welsh waters, were expected to be devolved to Wales. In Scotland, development consent functions are fully devolved (Town And County Planning (Scotland) Act 1997, as amended by the Planning etc. (Scotland) Act 2006). In Scotland, applications are considered by the Scottish Ministers where they are for electricity generating facilities in excess of 50 MW, or for overhead power lines and associated infrastructure, as well as large gas and oil pipelines.100 Applications cover new projects as well as modifications to existing infrastructure. Below these limits, applications are made to local authorities. Notably, applications for marine energy are made to Marine Scotland.101 96. Section 36 Electricity Act 1989. 97. Section 14, paragraph 1 Planning Act 2008. 98. Norman, K., Massie, K., November 2017. “Electricity regulation.” White & Case LLP. [Online]. Available: https://www.whitecase.com/sites/whitecase/files/files/download/publications/ getting-deal-through-electricity-regulation-2018-united-kingdom.pdf, p. 2. 99. Section 19 Planning (Wales) Act 2015. 100. Scottish Government, “Energy consents: the Scottish government’s role in determining applications for energy infrastructure.” [Online]. Available: https://www2.gov.scot/Topics/ Business-Industry/Energy/Infrastructure/Energy-Consents. 101. Ibid.

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In Northern Ireland, as in Scotland, development consent functions are fully devolved. In April 2015 a two-tier planning system came into force under the Planning Act (Northern Ireland) 2011. Each council is now the Local Planning Authority for its district council area. The Department of Environment (now the Department for Infrastructure) retains authority for regionally significant applications. With regard to wind generation in particular, local authorities have the authority to determine planning applications for onshore wind generation facilities of all capacities. In England, Wales, and Scotland small-scale domestic turbines may be considered “permitted developments” and thus not need planning permission; however, this is subject to strict conditions. In both Scotland102 and Wales103, building-mounted developments require planning permission. In England, the rules have been relaxed: building-mounted developments may be permitted provided they comply with specific criteria.104 In Northern Ireland, wind turbines and wind farms always require planning permission.105 Thus the UK has a clear regulatory framework for planning applications for renewable energy developments. Yet, planning applications for new onshore wind developments have plummeted by 94% since the introduction of new policies in 2015.106 These policies sought to bring the planning application closer to local communities, allowing local authorities the final say on locations for onshore wind development. This occurred alongside a transfer of powers from the BEIS to the Ministry of Housing, Communities and Local Government. Unfortunately, no cost-benefit analysis was undertaken, and the result has been a striking decline in applications. Around the same time, the Government withdrew its support schemes for solar; private investment has since declined significantly on solar technologies. With regard to connection arrangements, in both England and Wales, generation facilities with a capacity equal or superior to 100 MW may be connected to the transmission network; smaller facilities are directly connected to the distribution network.107 In Scotland, smaller generation 102. The Town and Country Planning (General Permitted Development) (Domestic Microgeneration) (Scotland) Amendment Order 2010. 103. “Welsh Government.” [Online]. Available: https://beta.gov.wales/planning-permissionwind-turbines. 104. The Town and Country Planning (General Permitted Development) (Amendment) (England) Order 2011. 105. Planning Service, “Renewable energy: wind farms,” [Online]. Available: https://www.planningni.gov.uk/index/advice/advice_apply/advice_renewable_energy/renewable_wind_farms.htm. 106. Gabbatiss, J., 19 May 2018. “A ’hostile environment’ for renewables: why has UK clean energy investment plummeted?.” The Independent. [Online]. Available: https://www.independent.co.uk/environment/uk-renewable-energy-investment-targets-wind-solar-power-onshorea8358511.html. 107. Norman, K., Massie, K., November 2017. “Electricity regulation.” White & Case LLP. [Online]. Available: https://www.whitecase.com/sites/whitecase/files/files/download/publications/ getting-deal-through-electricity-regulation-2018-united-kingdom.pdf, 3.

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facilities may also be directly connected to the transmission grid.108 Meanwhile, in Northern Ireland, small-scale generation (less than 5 MW) connects exclusively to the distribution network.109 Larger generators may connect to either distribution or transmission, but the largest generators of 110 kV or above must apply to the TSO for connection to the transmission network.110 The application procedure varies depending upon various factors, including size. Incentive schemes (feed-in tariffs and others) The RO scheme came into effect in 2002 in England, Wales and Scotland (2005 in Northern Ireland). It required all UK electricity suppliers to generate an increasing proportion of electricity from renewable energy sources.111 The RO closed to all new generating capacity on March 31, 2017. However, the closure did not affect capacity with an accreditation date on or before the closure date.112 The Energy Act 2013 instigated the EMR. The EMR was characterized by two notable developments in the wholesale electricity market. Firstly, it introduced the CfD scheme to promote low-carbon electricity generation and encourage investment in electricity from renewables. CfDs are long-term, private law, bilateral contracts between a generator and a Low Carbon Contracts Company (LCCC).113 Under a CfD, the generator is paid the difference between the “strike price”—a price for electricity reflecting the cost of investing in a specific clean technology—and the “reference price”—the average price for electricity in the market—by the LCCC. Therefore CfDs safeguard electricity generators from price volatility in wholesale markets.114 This system is funded through a fee on electricity suppliers. Should the reference price be above the strike price, then it is the generator that offsets the difference to the LCCC. Such payments are eventually returned to electricity

108. Ibid. 109. NIE Networks Connections, 2018. “Distribution generation application and offer process statement.” NIE Networks, 1. 110. Ibid. 111. Ofgem, “About the RO,” [Online]. Available: https://www.ofgem.gov.uk/environmentalprogrammes/ro/about-ro. 112. Ofgem, “RO Closure,” [Online]. Available: https://www.ofgem.gov.uk/environmental-programmes/ro/about-ro/ro-closure. 113. Norman, K., Massie, K., November 2017. “Electricity regulation.” White & Case LLP. [Online]. Available: https://www.whitecase.com/sites/whitecase/files/files/download/publications/ getting-deal-through-electricity-regulation-2018-united-kingdom.pdf, p. 1. 114. Department for Business, Energy & Industrial Strategy, “Electricity Market Reform: Contracts for Difference,” Department for Business, Energy & Industrial Strategy, [Online]. Available: https://www.gov.uk/government/collections/electricity-market-reform-contracts-fordifference.

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suppliers.115 The CfD scheme replaced the old RO scheme. Note that no decision has yet been taken by the Northern Ireland Executive regarding Ireland’s participation in a UK-wide CfD scheme.116 While CfDs are a useful mechanism to incentivize investment in renewables (the second CfD round saw 16 contracts being signed in connection with 10 projects; these will provide over 3 GW of new renewable generation capacity from 2021/22117), BEIS has been criticized for effectively “locking out” mature renewable technologies such as solar and onshore wind (other than wind turbine projects on “remote islands,” which are now accepted following a relaxation of the rules118) from the scheme.119 The third CfD allocation round opens in May 2019, but only less established renewable technologies such as offshore wind, geothermal, and wave and tidal stream will be eligible.120 The Committee on Climate Change and the National Infrastructure Commission have been among the organizations calling for a rethink, and the BEIS has now indicated that “further refinements” may follow.121 The EMR also introduced the GB CM. This policy seeks to ensure the continuous supply of electricity by offering payment to those generators that are able to generate power during intervals of system stress.122 The mechanism also rewards demand-side response providers for lowering demand at times of peak demand. The Electricity Capacity Regulations 2014 and the Capacity Market Rules articulate the basic legal framework of the CM.123 The CM is covered in further detail in Section 28.6. Note that Northern

115. Norman, K., Massie, K., November 2017. “Electricity regulation.” White & Case LLP. [Online]. Available: https://www.whitecase.com/sites/whitecase/files/files/download/publications/ getting-deal-through-electricity-regulation-2018-united-kingdom.pdf, p. 1. 116. Department for Business, Energy and Industrial Strategy, 2017. “Contracts for Difference and Capacity Market Scheme Update 2017.” BEIS, 10. 117. Ibid 4. 118. Shrestha, P., 11 June 2018. “Remote island wind projects able to compete in renewable auction.” Energy Live News. [Online]. Available: https://www.energylivenews.com/2018/06/11/ remote-island-wind-projects-able-to-compete-in-renewable-auction/. 119. Stoker, L., 24 May 2018. “Let solar back into CfDs, Energy UK urges government.” Solar Power Portal. [Online]. Available: https://www.solarpowerportal.co.uk/news/ let_solar_back_into_cfds_energy_uk_urges_government. 120. “Contracts for Difference (CfD) Allocation Round 3 Resource Portal: Frequently Asked Questions,” [Online]. Available: https://www.cfdallocationround.uk/faqs. 121. HM Government, 2018. “Delivering clean growth: progress against meeting our carbon budgets - The Government Response to the Committee on Climate Change.” London. 122. Norman, K., Massie, K., November 2017. “Electricity regulation.” White & Case LLP. [Online]. Available: https://www.whitecase.com/sites/whitecase/files/files/download/publications/ getting-deal-through-electricity-regulation-2018-united-kingdom.pdf, p. 1. 123. Ofgem, “Capacity market (CM) rules.” [Online]. Available: https://www.ofgem.gov.uk/ electricity/wholesale-market/market-efficiency-review-and-reform/electricity-market-reform/ capacity-market-cm-rules.

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Ireland’s CM is different from that of GB’s: Northern Ireland’s CM is operated by the SEM-O as part of the I-SEM with the Republic of Ireland. In addition to CfDs, the UK has mobilized supplementary policies to spur electricity generation arising from alternative energy sources, such as RES or combined heat and power. One such example is the Feed-In Tariff (FIT) scheme, established in 2010.124 Licensed power suppliers participating in the FIT scheme are required to make payments on generation and export from eligible installations. Payments under the FIT scheme are made by energy suppliers on a quarterly basis for the electricity generated and exported by eligible installations. The current FIT scheme notwithstanding, some analysts suggest that solar PV and onshore wind may soon become subsidy-free.125 The FIT scheme does not apply to Northern Ireland. Notably, the FIT scheme will come to an end in April 2019.126 The export tariff, which offers a guaranteed price for all unused solar electricity, will also end; a replacement is expected but in the interim period households will in effect be giving away surplus power.127 This decision forms part of a “double whammy” for solar households: following Ofgem’s announcements of the results of its Access and Forward-Looking Charging review and the launch of its Significant Code Review128, it has become apparent that there will be considerable changes to existing access arrangements. Critics of the proposals have argued that these undermine low-carbon efforts by not putting decarbonization at the center of the review. There are now fears that the review may result in higher bills for households generating solar energy from panels.129 From April 2013 the Carbon Price Floor has applied as tax to fossil fuels used for energy generation.130 Renewable electricity is exempt from paying this tax. Northern Ireland secured an exemption from the Carbon Price Floor,

124. Ofgem, “Feed-in tariffs (FIT).” [Online]. Available: https://www.ofgem.gov.uk/environmental-programmes/fit. 125. Vaughan, A., 20 March 2018. “Subsidy-free renewable energy projects set to soar in UK, analysts say.” The Guardian. [Online]. Available: https://www.theguardian.com/business/2018/ mar/20/uk-subsidy-free-renewable-energy-projects-set-soar-aurora-energy-research-analysts. 126. Ofgem, “About the FIT scheme” [Online]. Available: https://www.ofgem.gov.uk/environmental-programmes/fit/about-fit-scheme. 127. Vaughan, A., “Solar households expected to give away power to energy firms.” [Online]. Available: https://www.theguardian.com/business/2018/dec/18/solar-power-energy-firms-government. 128. Ofgem, “Electricity network access and forward-looking charging review - significant code review launch and wider decision.” [Online]. Available: https://www.ofgem.gov.uk/publicationsand-updates/electricity-network-access-and-forward-looking-charging-review-significant-codereview-launch-and-wider-decision. 129. Vaughan, A., “Energy shakeup could cut bills by d45 a year,” [Online]. Available: https:// www.theguardian.com/money/2018/dec/18/energy-bills-ofgem-national-grid. 130. House of Commons Library, “Carbon Price Floor (CPF) and the price support mechanism.” [Online]. Available: https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN05927.

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following concerns about the scheme’s incompatibility with the-then SEM (now I-SEM). Heating and Cooling The Renewable Heat Incentive (RHI) is the main instrument for funding renewable heat sources in the UK.131 The RHI supports eligible installations with a fixed amount per kWth produced. The scheme consists of two parts: Domestic and Nondomestic RHI. While the Nondomestic RHI applies to installations in commercial, public, or industrial premises, the Domestic RHI is open to homeowners, private landlords, social landlords, and self-builders. The Government has recently reaffirmed its commitment to the scheme, with further reforms likely.132 Northern Ireland had a similar RHI scheme, administered by the Department for the Economy, but this scheme was suspended in February 2016 to new applicants. Consultations into the future of the Nondomestic NI-RHI are ongoing133, as is an inquiry into the operation and financial implications of the (suspended) NI Nondomestic RHI scheme.134 Under the Green Deal scheme135 home and business owners could obtain a loan for certain energy efficiency measures specified in the Green Deal (Qualifying Energy Improvements) Order 2012 and pay off the loan through their energy bill. The Green Deal applied to England, Wales, and Scotland. Originally closed in 2015 when the Government withdrew its funding, Green Deal loans reopened in 2017 for new applications. It is now backed by private investors. A review of the Green Deal framework is ongoing.136 Grants are also available in Northern Ireland via the Northern Ireland Sustainable Energy Programme.137 A further series of energy efficiency and heating grants are available via affordable heating schemes, in England and the devolved regions. 131. Ofgem, “Factsheet: the renewable heat incentive domestic or non-domestic?,” [Online]. Available: https://www.ofgem.gov.uk/sites/default/files/docs/drhi_factsheet_therhidomornondom_v2_0_mar_2016_web.pdf. 132. Department for Business, Energy and Industrial Strategy, 2016. “The renewable heat incentive: a reformed scheme.” BEIS. 133. Department for the Economy, “The future of the Northern Ireland Non-Domestic Renewable Heat Incentive Scheme,” [Online]. Available: https://www.economy-ni.gov.uk/consultations/future-northern-ireland-non-domestic-renewable-heat-incentive-scheme. 134. Department of Finance, 27 January 2017. “Renewable heat incentive inquiry: terms of reference.” [Online]. Available: https://www.rhiinquiry.org/sites/rhiinquiry.org/files/media-files/rhiinquiry-terms-of-reference.pdf. 135. “Green deal: energy saving for your home,” [Online]. Available: https://www.gov.uk/greendeal-energy-saving-measures. 136. Department for Business, Energy and Industrial Strategy, “Reform of the green deal framework: call for evidence,” [Online]. Available: https://www.gov.uk/government/consultations/callfor-evidence-on-the-reform-of-the-green-deal-framework. 137. UREGNI, 4 June 2018. “Update on Northern Ireland Sustainable Energy Programme.” [Online]. Available: https://www.uregni.gov.uk/news-centre/update-northern-ireland-sustainableenergy-programme-0.

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An Enhanced Capital Allowance scheme encourages businesses to invest in energy-efficient plant and machinery.138 Businesses can set up to 100% of the cost of assets against taxable profits in the financial year the purchase was made. The scheme also applies in Northern Ireland. Transport The Renewable Transport Fuel Obligation (RTFO) scheme established a quota system for biofuels.139 This has applied since 2007. Under the RTFO, fuel suppliers for transport and nonroad-mobile machinery are obliged to satisfy a specified quota amount of biofuels in the total supplied fuel. A certification system provides for proof of compliance. The maximum grant now available for cars in the UK is d3500.140 The plug-in car grant was cut in early November 2018 by d1000, while incentives of d2500 to buy new hybrid cars were abolished.141 In GB, there is presently a Carbon Price Floor, capped at d18 per ton of CO2 until 2021142; companies also pay for carbon credits through the EU Emissions Trading Scheme. If, post-Brexit, the UK falls out of the ETS then there may be an incentive to apply an additional Carbon Tax to that applied under the ETS scheme.143

28.4.1.3 Reflections on the regulatory framework The UK’s regulatory framework is complex, made more so by the different devolution arrangements among the various regions of the UK. Undoubtedly, the UK’s ad hoc and somewhat haphazard approach to devolution will continue to pose a challenge to the design and implementation of a coherent national regulatory framework; the central Westminster government must therefore continue to keep the channels of communication open with its regional counterparts and ensure close coordination with all. Another important consideration for the UK in the short-medium term will be the outcome of the ongoing Brexit negotiations. The domestic 138. Department for Business, Energy and Industrial Strategy, “Energy Technology List (ETL).” [Online]. Available: https://www.gov.uk/guidance/energy-technology-list. 139. Department for Transport, “Renewable Transport Fuel Obligation.” [Online]. Available: https://www.gov.uk/guidance/renewable-transport-fuels-obligation. 140. Department for Transport, “Low-emission vehicles eligible for a plug-in grant.” [Online]. Available: https://www.gov.uk/plug-in-car-van-grants. 141. Topham, G., 12 October 2018. “Scrapping UK grants for hybrid cars ’astounding’, says industry.” The Guardian. [Online]. Available: https://www.theguardian.com/environment/2018/ oct/12/scrapping-uk-grants-for-hybrid-cars-astounding-says-industry. 142. HM Revenue and Customs, “Carbon price floor: reform,” [Online]. Available: https://www. gov.uk/government/publications/carbon-price-floor-reform. 143. Partington, R., 10 October 2018. “Darling and Howard back call for post-Brexit carbon tax.” The Guardian. [Online]. Available: https://www.theguardian.com/business/2018/oct/10/darling-and-howard-back-call-for-post-brexit-carbon-tax.

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regulatory architecture of the UK will, in the aftermath of Brexit, be framed by the terms of the UK’s withdrawal from the EU. The question as to whether the UK will retain access to the IEM seems largely contingent upon it remaining a member of the European Economic Area (EEA). Should the UK remain in the EEA, it would preserve access to the IEM whilst having to comply with relevant EU acts. Conversely, should the terms of the Brexit deal preclude entry to the IEM, this will possibly distort the UK’s electricity trade and increase operator and consumer costs.144 The manner in which the regulatory framework will need to adapt to respond to the practicalities of Brexit will only become clearer in the aftermath of the March 29, 2019. Thus the UK’s regulatory framework is not entirely coherent. The decline in private investment and reduction in renewable energy developments should be a major concern, as it indicates that the lack of coherency in the regulatory framework is beginning to impact on green investment. While the Clean Growth Strategy sets out a clear pathway to the achievement of its low-carbon transition, it is increasingly apparent that strategy alone will not be adequate to meet the country’s targets. In response to the growing criticism, the Government commissioned a review of its electricity market policies. The “Cost of Energy” Review145 was published in October 2017 and recommended a series of changes in response to the Review’s central findings: the cost of energy is higher than necessary to meet the Government’s policy objectives and to be consistent with the Climate Change Act 2008 and the regulatory framework and market design is “not fit for the purposes of the low carbon market.” The recommendations include replacing current incentives (FITs and CfDs) for low carbon generation with a single carbon price, and a unified capacity auction; the replacement of the current specific licensing scheme with a “general” license covering distribution, supply, and generation; and the creation of a National System Operator and Regional System Operator to oversee the maintenance, development, and operation of the grid network. The Government has launched a call for evidence on these proposals, but the results are pending.

28.4.2 Energy security dimension The UK’s energy dependency was estimated at 45.5% while the EU average was 53.4%, as of 2014.146 Among the 5 EU Member States that consume the largest amounts of energy (i.e., France, Germany, Italy, Spain, 144. Houses of Parliament. Parliamentary Office of Science and Technology, 2018. “Overseas Electricity Interconnection.” Houses of Parliament. Parliamentary Office of Science and Technology, London. 145. Helm, D., 2017. “Cost of energy review.” 146. Eurostat, 4 February 2016. “The EU was dependent on energy imports for slightly over half of its consumption in 2014.” [Online]. Available: http://ec.europa.eu/eurostat/documents/ 2995521/7150363/8-04022016-AP-EN.pdf/c92466d9-903e-417c-ad76-4c35678113fd.

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and the UK), the UK was the one displaying the lowest reliance on energy imports.147 Since the early 2000s the UK has undergone the transition of becoming a net energy importer after many years of being a net energy exporter. This pattern has become more acute in recent times as the UK increasingly resorts to importing energy supplies from abroad to meet its energy needs.148 The GB system has an overall interconnection capacity of 4 GW. The GB system shares cross-border electricity infrastructures with North-West Europe and the SEM. More concretely, interconnectors with North-West Europe represent 3 GW of its overall transfer capacity (2 GW with France through “IFA”; and 1 GW with the Netherlands through “BritNed”), whereas interconnectors with the SEM account for the remaining 1 GW (500 MW with Northern Ireland at Scotland through “Moyle”; and another 500 MW with the Republic of Ireland at Wales through “East West”). Ofgem expects a further 7.7 GW interconnection capacity to be achieved by 2022. To that end, the manufacture of new cross-border links with Norway (“NSN” and “NorthConnect”), Denmark (“Viking”), Germany (“NeuConnect”), Belgium (“NEMO”), France (“GridLink,” “ElecLink,” “Aquind,” “IFA2,” and “FAB Link), and the Republic of Ireland (“Greenlink” and “Greenwire”) is high on the agenda.149 In addition to the Moyle Interconnector, which attaches the Northern Ireland grid to the GB grid at Scotland, three interconnectors attach Northern Ireland to Ireland (and thus reinforce the links between GB and Ireland). A double-circuit 275 kV line runs from Tandragee in Northern Ireland to Louth in Ireland.150 Two standby 110 kV interconnectors connect at Strabane in Co. Tyrone and Enniskillenin Co. Fermanagh. A new “North South” 400 kV overhead line is underway.151 As of 2017 the UK imported 4.2% of its electricity requirements (36.8% of its gas requirements).152 NGET foresees that the importance of interconnection with neighboring countries for grid balancing will rise as intermittent renewable energy sources play an increasingly crucial role in

147. Ibid. 148. Office for National Statistics, 15 August 2016. “UK energy: how much, what type and where from?.” [Online]. Available: https://visual.ons.gov.uk/uk-energy-how-much-what-typeand-where-from/. 149. Mann, J., 12 May 2018. “Brexit and electricity interconnectors.” European Policy Research Group. [Online]. Available: https://www.eprg.group.cam.ac.uk/wp-content/uploads/2018/05/J.Mann.pdf. 150. Department for the Economy, “Cross-border interconnection.” [Online]. Available: https:// www.economy-ni.gov.uk/articles/cross-border-interconnection. 151. SONI, “North South Interconnector.” [Online]. Available: http://www.soni.ltd.uk/__uuid/ 2845daef-b91b-4a2e-9421-4ce38622052e/. 152. Hinson, S., Priestly, S., 2018. “Brexit: Energy and Climate Change (Briefing Paper Number CBP 8394, 9 November 2018).” House of Commons Library, 11.

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meeting demand.153 In light of the closure of ageing nuclear plants in GB and the governmental decision to refrain from using coal power by 2025, increased access to power generation from abroad could counterbalance the waning output of these different domestic sources of electricity. The same, of course, can be said of Northern Ireland. BEIS predicts that net electricity imports have the potential to become the second largest source of electricity (behind renewables) for GB by 2025.154 Interesting questions regarding the UK’s security of supply would arise in the post-Brexit context. At present, the UK as a whole is part of the IEM. But the GB market and the whole-of-Ireland I-SEM function as two distinct, constituent markets. If the UK were to stay fully integrated with the IEM after Brexit, it would need to comply with the EU’s energy market rules, as well as other relevant legislation. It would also likely need to accede to the jurisdiction of the Court of Justice of the European Union (CJEU), as far as this extended to jurisdiction over the IEM. In the event this proves to be politically unpalatable, then the UK may exit from the IEM. The UK’s exit from the IEM would impact on the trade of energy through the interconnectors, with its energy market decoupled from the EU IEM. Such a scenario may result in tariff barriers to the cross-border supply of energy between the UK and those participating in the IEM, although the EU does not generally apply tariffs to imported energy from non-EU countries.155 However, tariffs may apply to products otherwise used in the construction and maintenance of the grid. Moreover, the UK’s ongoing interconnection projects would likely face new obstacles, with implications for the security of its energy supply. The UK is also concerned about the impact of Brexit on the whole-ofIreland I-SEM. BEIS has recommended that the I-SEM be ring-fenced156, and a number of options have been put forward to develop new IEM partnership models, with the maintenance of the I-SEM at their heart.157 In the event

153. National Grid, 2016. “System Operability Framework 2016.” London. Available: https:// www.nationalgrideso.com/sites/eso/files/documents/8589937942-SOF%202016%20-%20Launch %20Event%20Slides%20-%20Key%20Messages%20and%20Insights.pdf. 154. Department for Business, Energy and Industrial Strategy, 2018. “Updated Energy and Emissions Projections 2017.” London, 35. 155. Directorate General for Internal Policies, Policy Department for Economic and Scientific Policy, European Parliament, 2017. “The impact of Brexit on the EU energy system: study for the ITRE Committee.” 12. 156. House of Commons-Business, Energy and Industrial Strategy Committee, 2017. “Leaving the EU: negotiation priorities for energy and climate change policy-Fifth Report of Session 2016 17.” House of Commons, 19. 157. Froggatt, A., Wright, G., Lockwood, M., 2017. “Staying Connected: Key Elements for UKEU27 Energy Cooperation After Brexit.” Chatham House: The Royal Institute of International Affairs, 50.

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that the I-SEM cannot be maintained, contingency plans are being put in place to establish a separate Northern Ireland market.158 Given however that the whole-ofIreland I-SEM will be fully integrated with EU markets prior to Brexit, and in light of the potential efficiency losses for the GB market should it exit the IEM, it seems that the risk of a whole-of-UK exit from the IEM is relatively distant. Indeed, it is probable that the UK’s preference will be to stay in the IEM and reinforce its energy security ties with its European neighbors.

28.5 Smart metering systems The Smart Meter Implementation Programme (SMIP) establishes the legal framework for the installation of smart meters, both for gas and electricity, in every household in GB by 2020. It is expected that, by 2020, approximately 53 million smart meters would be fitted in more than 30 million properties (whether households or businesses) scattered across England, Scotland, and Wales.159 Over 11 million smart meters have already been installed.160 According to Smart Energy GB, a not-for-profit organization, the SMIP represented “the biggest national infrastructure project in our lifetimes”.161 The Data Communications Company (DCC) is the entity charged with the control of the smart metering communication system in the UK. However, a wide variety of actors has been crucial in the promotion of smart metering systems over the last decade. Smart GB, BEIS, Ofgem, as well as the energy suppliers SSE and British Gas rank among the most enthusiastic supporters of, and active participants in, this “smart” transition.162 After several delays, the SMIP was officially launched in November 2016. At the time of writing, over 11 million smart meters have been deployed. The UK is therefore not on course to achieve its 2020 target. Why this is so is, according to some, down to the UK’s decision to entrust the rollout, not the DSOs, but to energy suppliers. The EU view on smart grid development has been based around an unbundled utility, with the freedom to act as a “neutral market facilitator”.163 The UK has departed from this approach by 158. Department for Business, Energy and Industrial Strategy, 12 October 2018. “Trading electricity if there’s no Brexit deal.” [Online]. Available: https://www.gov.uk/government/publications/trading-electricity-if-theres-no-brexit-deal/trading-electricity-if-theres-no-brexit-deal. 159. Smart Energy GB, “Smart meters explained.” [Online]. Available: https://www.smartenergygb.org/en/about-smart-meters. 160. Ibid. 161. Ibid. 162. Sovacool, K., Kivimaa, P., Hielscher, S., Jenkins, K., “Vulnerability and resistance in the United Kingdom’s smart meter transition.” Energy Policy 109, 767 781. Available: https://cris. brighton.ac.uk/ws/portalfiles/portal/484547/Sovacool-et-al-Smart-Meter-071317.pdf. 163. Agency for the Cooperation of Energy Regulators, 2014. “Energy Regulation: A Bridge to 2025 Conclusions Paper-19 September 2014, Recommendation of the Agency on the Regulatory Response to the Future Challenges Emerging from the Developments in the Internal Energy Market.” ACER, Ljubljana, Solvenia, 21.

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handing control of the rollout to the suppliers, with DSO and regulator both having a marginal role. Given its promarket mentality, this decision is unsurprising; but it has proven to be a fundamental mistake. By removing smart meters from the regulated asset base, the UK raised the capital costs, with customers funding the difference.164 Moreover, with such a variety of energy suppliers participating in the UK’s market, the rollout has become fragmented. The handing over of control to the suppliers was also flawed insofar as the Government failed to acknowledge that suppliers were driven by profit considerations, not grid optimization; accordingly their incentives actually undermine the neutrality principle that ought to underpin the network. Thus the regulatory incentives and other regulatory mechanisms crucial for the encouragement of an efficient rollout of the program were not present in the UK. A novel aspect of the smart meter program in the UK, which stems from the supplier-led rollout, is the fact that UK smart meters always include an in-home display, together with a data hub.165 A further distinguishing characteristic of the UK is that it pushes separate electricity and gas smart meters, increasing the resource burden associated with the rollout.166 By linking other services to the smart meter program, it was much easier for suppliers to keep the customer locked in. Thus, despite the promarket ideology underpinning the rollout, it could be argued that the UK’s program in fact facilitated anticompetitive behaviors amongst the incumbent, and most dominant, energy suppliers.167 The SMIP epitomizes the problems which arise when policy aims exceed technological capabilities.168 Market research demonstrates that installation failures continue to be a usual occurrence in the SMIP. A survey conducted by “Utility Week” in 2017 established that more than 10% of residential properties have required, or will need, multiple attempts to install their smart meters correctly.169 Reasons for incomplete deployments include absent customers during installations, installations taking longer than anticipated, smart meters being either inaccessible or a substantial distance apart, and the challenges presented by multiple occupancy properties. As a consequence, it is

164. Helm, D., 2017. “Not so smart what has gone wrong with the smart meter programme and how to fix it.” Energy Futures Network Paper 23. Available at: http://www.dieterhelm.co.uk/ energy/energy/not-so-smart-what-has-gone-wrong-with-the-smart-meter-programme-and-how-tofix-it/. 165. Sovacool, K., Kivimaa, P., Hielscher, S., Jenkins, K., “Vulnerability and resistance in the United Kingdom’s smart meter transition.” Energy Policy 109, 767 781. 166. Ibid. 167. Helm, D., 2017. “Not so smart what has gone wrong with the smart meter programme and how to fix it.” Energy Futures Network Paper 23. 168. Sovacool, K., Kivimaa, P., Hielscher, S., Jenkins, K., “Vulnerability and resistance in the United Kingdom’s smart meter transition.” Energy Policy 109, 767 781. 169. Ibid.

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thought that the costs of the SMIP may increase on BEIS estimates by up to d1 billion.170 If these estimates prove to be correct, the total costs of the SMIP would soar to d12 billion.171 In light of these difficulties, the Smart Meters Bill was introduced in the Parliament in October 2017. Broadly speaking, the Smart Meters Bill has a twofold purpose. Firstly, the bill seeks to prolong by 5 years the government’s prerogative to make changes to smart meter regulation (extended until November 1, 2023). Secondly, the bill undertakes to establish a special administration regime for a smart meter communication licensee. This special administration regime is aimed at guaranteeing the continuity of smart meter services in the improbable event of the DCC’s insolvency.172 The rollout in the UK has been ambitious, but the implementation of the SMIP has not achieved the expected results. Technical challenges have led to a retreat from its initial targets. Meanwhile, the decision to put the rollout in the hands of the incumbent energy suppliers made the mistake of obeying the logic of the existing system. As a result, the SMIP has not adequately engaged with the customer: it boasts of empowerment, without communicating how this empowerment results in gains to the customer. The lack of engagement has resulted in resistance and apathy toward smart meters; unfortunately, tackling this social dimension has not been at the forefront of the SMIP.173 Vulnerability (poverty and age), concerns about cyber security and privacy, and the possible health effects of the technology have all been identified as translating into resistance toward the SMIP.174 Accordingly, understanding what it is that consumers want, and tailoring the program to meet this, should be a core focus of the SMIP over the coming months and years. Given the persistent apathy and even resistance toward the rollout, it is important that control of the SMIP be given to distribution: this has worked elsewhere, such as in Ireland. As the focus of distribution is on the optimization of the network, it is in a far better position than the incumbent market suppliers to implement a rollout that places customers at its heart. The legislative hurdles to this would be significant, but if there was a consensus on putting the distributors in charge then in short order it would be possible to put the necessary contractual arrangements in place. Once in the hands of the distributors, the program could be made a condition of supply: this would 170. The Big Deal, 2 February 2017. “Smart meter rollout could cost d1 billion more than predicted.” [Online]. Available: https://blog.thebigdeal.com/total-cost-smart-meter-rollout-massive12-billion/. 171. Ibid. 172. Department for Business, Energy and Industrial Strategy, 2017. “Smart meters bill. Overview and questions & answers.” London. 173. Sovacool, K., Kivimaa, P., Hielscher, S., Jenkins, K., “Vulnerability and resistance in the United Kingdom’s smart meter transition.” Energy Policy 109, 767 781. 174. Ibid.

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remove the social hurdles currently experienced by the SMIP. In addition to rethinking the governance of the program, Ofgem and BEIS should consider carefully how to design smart meters in a way that respond to the social dimension of the rollout. In particular, the regulator and Government should seek to understand the reasons behind the rejection rate for smart meters and should consult on how best to encourage behavioral change and reductions in energy consumption through the SMIP. Note that in Northern Ireland, the Department for the Economy has no intention of installing smart meters at present.175 Presumably, any program would be informed by those in both GB and Ireland.

28.6 Demand response 28.6.1 Great Britain Harnessing grid flexibility is seen as a central pillar of the transition to a smarter, more efficient, and more stable electricity grid. Nonsynchronous energy sources will put the existing grid under increasing pressure, unless these can be harnessed through a more flexible, responsive network. Innovative demand-side response (DSR) technologies can help to balance nonsynchronous generation with demand and can therefore provide essential services to the grid. Accordingly, DSR technologies play a key role in GB’s energy strategy. The market framework for DSR technologies is underpinned by a series of publications. Among them is a 2017 Report to the Committee on Climate Change, which included the “Roadmap for Flexibility Services to 2030”.176 BEIS subsequently published its response to its own consultation on a Smart Flexible Energy System. This paper was titled “Upgrading Our Energy System: A Smart Systems and Flexibility Plan” and was published in partnership with Ofgem.177 A progress update was published in the late 2018, with grid flexibility continuing to be seen as a central plank of the lowcarbon transition.178 The significance of the 2017 Plan is underscored by both the Clean Growth Strategy of October 2017179 and the Industrial 175. NIE Networks, “Meter replacement programme.” [Online]. Available: https://www.nienetworks.co.uk/meterupdate. 176. Po¨yry, Imperial College London, 2017. “Roadmap for Flexibility Services to 2030: A Report to the Committee on Climate Change, May 2017.” Po¨yry Management Consulting (UK) Ltd. Available: https://www.theccc.org.uk/wp-content/uploads/2017/06/Roadmap-for-flexibilityservices-to-2030-Poyry-and-Imperial-College-London.pdf. 177. HM Government, Ofgem, 2017. “Upgrading our energy system: smart systems and flexibility plan, July 2017.” 178. HM Government, Ofgem, 2018. “Upgrading our energy system: smart systems and flexibility plan - progress update, October 2018.” 179. HM Government, 2017. “The clean growth strategy: leading the way to a low carbon future.”

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Strategy of November 2017180, within which it features prominently. The Government’s commitment to the 2017 Plan is demonstrated by its decision to back the framework with d265 million of public funds: these funds will be directed toward incentivizing storage innovations, as well as accelerating demand response technologies.181 In 2018 Utility Week, in association with CGI, published the results of its research into DSR with a paper entitled “Embracing Flexibility: Transforming the Power System by 2030”.182 It identified that the most significant barriers to demand-side flexibility remain the lack of a commercial or market framework (identified by 7.1/10), closely followed by the inability to stack value (at 6.9/10). Customer-side barriers (identified by 46.9%) are also seen as a significant barrier to demand-side flexibility projects, only just behind the economic barriers (50%). These customer-side barriers are predominated by low levels of customer awareness (identified by 86.7%), which are slowing down the adoption of flexible, low-carbon technologies and the realization of the benefits. In light of this, Utility Week has identified that the following refinements need to be made to GB’s demand response framework: raising consumers’ awareness of the benefits arising from low carbon and connected home tech; identifying the technical challenges for projects, including those relating to electric vehicles (EVs); and delivering a robust market framework. These findings are supported by the “Demand Side Response: Aligning Risk and Reward 2018 Report” produced by The Energyst in partnership with National Grid, among others.183

28.6.1.1 Demand response market players Currently, DSR providers can deliver services by either reducing their demand or taking advantage of onsite generation. Large industrial and commercial customers, small-to-medium enterprises, or aggregators can participate.184 The integration of independent aggregators into the market is seen as crucial step in the delivery of system flexibility; Ofgem has been a leader in driving the necessary changes to market infrastructure.185 180. HM Government, 2017. “Industrial strategy: building a Britain fit for the future.” Department for Business, Energy and Industrial Strategy. 181. Department for Business, Energy & Industrial Strategy, 29 November 2018. “Funding for innovative smart energy systems.” [Online]. Available: https://www.gov.uk/guidance/fundingfor-innovative-smart-energy-systems. 182. Utility Week, in association with CGI, 2018. “Embracing flexibility: transforming the power system by 2030.” 183. The Energyst, 2018. “Demand side response: aligning risk and reward, 2018 report.” 184. National Grid ESO, “Demand side response (DSR),” [Online]. Available: https://www. nationalgrideso.com/balancing-services/demand-side-response-dsr. 185. Ofgem, “Independent aggregators and access to the energy market Ofgem’s view,” [Online]. Available: https://www.ofgem.gov.uk/publications-and-updates/independent-aggregators-and-access-energy-market-ofgem-s-view.

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Residential DSR is crucial for achieving electricity system flexibility. However, the DSR market remains closed to the domestic prosumer. Time of Use tariffs could help to drive changes to domestic consumer behavior, opening up the residential market to demand response schemes. Eliminating constraints to uptake and response should be a key UK strategy moving forward, whether that be through financial incentive schemes, or information-only schemes which rely on information campaigns and technologies to encourage behavioral pattern changes. UK Power Networks’ ToU tariff trial appears to have demonstrated that domestic consumers would be willing participants in the market; deploying such tariffs on a wider scale could therefore help to engage the residential market in demand response technologies.186

28.6.1.2 Balancing services National Grid offers a number of DSR schemes.187 Only some of the available schemes are outlined in the following sections, for brevity. Balancing mechanism The Balancing Mechanism helps National Grid to balance supply and demand in close to real time, in each half hourly trading period of every day.188 During this time National Grid can instruct parties to increase or decrease their generation or consumption. All wholesale market participants will register with the Balancing Mechanism. National Grid is looking into the reform options of the Balancing Mechanism, with a view to extending access and removing barriers to entry to the mechanism. Reserve services/frequency response Short Term Operating Reserve is a reserve service for the provision of extra power or reduction in demand in terms of grid stress.189 It is a contracted balancing service, whereby the service provider delivers a contracted level of power on request. A minimum capacity threshold of 3 MW of generation or demand reduction applies. Sites below 3 MW may participate via an Aggregator. Other reserve schemes include Fast Reserve and Demand Turn Up.190 186. UK Power Networks, 2014. “Residential demand side response for outage management and as an alternative to network reinforcement.” 187. National Grid ESO, “Balancing services.” [Online]. Available: https://www.nationalgrideso. com/balancing-services. 188. National Grid, 2018. “Wider access to the balancing mechanism roadmap.” 189. National Grid ESO, “Short term operating reserve (STOR).” [Online]. Available: https:// www.nationalgrideso.com/balancing-services/reserve-services/short-term-operating-reserve-stor? overview. 190. National Grid ESO, “Reserve services.” [Online]. Available: https://www.nationalgrideso. com/balancing-services/reserve-services.

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Firm Frequency Response (FFR) provides either a dynamic or nondynamic response to changes in frequency.191 There are three response speeds: within 10 seconds of an event, sustained for 20 seconds; within 30 seconds of event, sustained for further 30 minutes; and within 10 seconds of an event, sustained indefinitely. A minimum capacity threshold of 1 MW response energy applies. FFR was one of the most valuable services on a d/MWh basis; however, the margins have been eroded. Capacity market The CM was established as part of the reform package introduced under the Energy Act 2013. The CM is a policy that seeks to guarantee the uninterrupted supply of electricity. Generators that are capable of producing electricity during intervals of system stress are rewarded through this scheme. By the same token, the CM remunerates demand-side response providers for lowering demand at times of peak demand.192 The Electricity Capacity Regulations 2014 and the Capacity Market Rules determine the content of capacity agreements, the obligations of (and possible penalties against) the holder of a capacity agreement, and the technical operation of the CM.193 The CM is delivered and implemented by National Grid. Auctions are organized either one (T-1 Auctions) or four (T-4 Auctions) years ahead of the year in which capacity must be supplied. The third main CM auction was successfully concluded in the 2016 T-4 Auction (for delivery in 2020/21). Around 70 GW of capacity entered the process, with 75% of capacity (52.4 GW) securing capacity agreements at a total forecast cost of d1.18 billion (in 2016 prices).194 A supplementary auction followed in February 2017, with 54.4 GW of capacity secured.195 Preceding full entry into the CM in 2018/19, DSR was offered targeted support by way of two Transitional Arrangements Auctions, the second of which secured 312 MW of capacity.196 DSR providers may now deliver their services via the CM. However, despite its claim of technology neutrality, there are considerable barriers to 191. National Grid ESO, “Firm frequency response (FFR).” [Online]. Available: https://www. nationalgrideso.com/balancing-services/frequency-response-services/firm-frequency-response-ffr? overview. 192. Norman, K., Massie, K., November 2017. “Electricity regulation.” White & Case LLP. [Online]. Available: https://www.whitecase.com/sites/whitecase/files/files/download/publications/ getting-deal-through-electricity-regulation-2018-united-kingdom.pdf, p. 1. 193. Ofgem, “Capacity market (CM) rules.” Ofgem, [Online]. Available: https://www.ofgem. gov.uk/electricity/wholesale-market/market-efficiency-review-and-reform/electricity-marketreform/capacity-market-cm-rules. 194. Department for Business, Energy and Industrial Strategy, 2017. “Contracts for difference and capacity market scheme update 2017.” BEIS, 4. 195. Ibid. 196. Ibid.

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DSR’s effective participation in the CM. In order to participate in the CM, DSR must have a (proven or unproven) capacity of not less than 2 MW, according to the Capacity Market Rules. Moreover, the capacity agreements vary significantly in length: but while electricity generators can bid for contracts between 3 and 15 years, all other capacity providers including DSR can only acquire a 1-year contract. DSR must also provide a capital bond (a “bid bond” when bidding for 1-year contracts. This burden is not imposed on incumbent power stations, so places DSR at a considerable disadvantage when competing on the CM. DSR providers are also troubled by the Government’s decision to reduce T-1 Auction volume, out of concerns that the smaller volume may mean that DSR providers can easily be outbid by a larger power station.197 Another worrying development has been the recent suggestion, by the utility Scottish Power, that DSR which uses behind-themeter batteries be subject to the same deratings as standalone batteries treated as generating assets. This proposal has been described as “misguided” by DSR experts, not least because it fails to recognize the flexibility inherent in turndown DSR, and its different characteristics and capabilities.198 Notably, the CM in the UK has been temporarily suspended following the recent European Court decision that the Commission failed to adequately investigate the plan for the CM prior to formally approving it.199 In particular, the Court concluded that the Commission did not analyze whether the difference in treatment between DSR and generators was appropriate. It is likely that some form of market redesign will be now necessary. Given the barriers that DSR faces when participating in the market, it is clear that there is scope to intelligently update the model. Removing the capital bond and extending the length of contracts available are two examples of possible improvements. The Government is aware of the need to refine the market, but at present it continues to be driven by logic of the incumbent, large generation facilities. Until this underlying bias is removed, the CM will likely continue to fall short with regard to DSR. Finally, and aside from the DSR issues, there have been long-standing calls to open up the CM to renewables: the Government has now identified this as a high priority strategic goal.200 Renewables have to date been largely precluded from bidding in the auction, as they are almost entirely supported 197. House of Commons, Energy and Climate Change Committee, 2016. “The energy revolution and future challenges for UK Energy and Climate Change Policy, Third Report of Session 2016 17.” House of Commons, 17. 198. Coyne, B., 23 March 2018. “Should Ofgem consider derating DSR plus battery storage? Aggregators weigh in.” The Energyst. [Online]. Available: https://theenergyst.com/ofgem-rightconsider-derating-capacity-market-dsr-aggregators-weigh/. 199. Tempus Energy Ltd and Tempus Energy Technology Ltd v European Commission supported by United Kingdom of Great Britain and Northern Ireland (Case T-793/14), 2018. 200. HM Government, 2018. “Delivering clean growth: progress against meeting our carbon budgets - the government response to the Committee on Climate Change.” London, 21.

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by subsidies. However, with solar and onshore wind likely to be viable without subsidies in the near future, it is possible that a raft of new projects could soon be eligible to enter the CM. The Government is examining how renewables could be integrated in the future and is currently consulting with stakeholders on a possible redesign of the CM mechanism.

28.6.2 Northern Ireland DSR is managed through the whole-of-island I-SEM; accordingly, it is a joint undertaking regulated by the CRU and UREGNI, with the TSOs and DSOs also engaged in the establishment of a viable market framework.

28.6.2.1 Demand response market players Consumers can participate in demand-side response through tariff-based schemes, including Economy 7 (Northern Ireland). In addition to individual demand-side participation, medium-to-large users can participate in a demand-side unit (DSU) or Aggregated Generating Unit.201 A DSU consists of one or more individual demand sites, which can reduce their demand as requested by the TSO (SONI in Northern Ireland, EirGrid in Ireland). A DSU can contract with other DSUs and aggregate these to form a single, aggregated unit. As with the UK, the domestic prosumer is currently precluded from entry into the demand-side market. However, the I-SEM is working toward the integration of domestic customers into future demand response services. The DSOs are investing in the grid to ensure that projected capacity, in particular that arising from the smart meter rollout, is realized.202 28.6.2.2 Capacity market A single CM operates across the whole of the island of Ireland. Generators are encouraged to participate in the Irish CM through a mechanism called the Capacity Remuneration Mechanism.203 These payments are made available through a competitive auction process under the I-SEM. The capacity auction market is now fully functional, although teething issues have been identified. DSUs are able to participate in the capacity auction market as generators. However, it has been revealed that DSUs with a limited duration for demand reduction (of less than or equal to 6 hours) will now receive the same derating factors applied to energy storage, despite the 201. EirGrid Group, “Demand side management (DSM),” [Online]. Available: http://www.eirgridgroup.com/customer-and-industry/becoming-a-customer/demand-side-management/. 202. ESB Networks, “Flexibility on our networks.” [Online]. Available: https://www.esbnetworks.ie/who-we-are/innovation/our-innovation-strategy/flexibility-on-our-networks. 203. UREGNI, “Capacity remuneration mechanism.” [Online]. Available: https://www.uregni. gov.uk/capacity-remuneration-mechanism-0.

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fact that demand response and storage are completely different technologies.204 This change will apply from capacity year 2019/20. Critics argue that this will discourage demand-side response providers from participating within I-SEM and the Irish CM by reducing the available revenues. The CRM has received State Aid clearance from the European Commission. However, the changes relating to DSUs may leave the CRM open to the accusation that demand-side response technologies are being hampered from participating effectively alongside generation. This is particularly pertinent given the recent ruling of the General Court of the European Union, which has resulted in the temporary suspension of the UK market.205

28.6.3 Reflections on demand response There are still formidable barriers to DSR in the UK and Northern Ireland, with revenue and policy uncertainty posing significant obstacles to prospective participants. Improving business knowledge and understanding about the various DSR schemes will be key. To this end, National Grid’s “System Needs and Product Strategy (SNAPS)” publication, which sought feedback on how to simplify current balancing schemes, was a welcome development in the UK space. Since then, National Grid has produced three roadmaps: “Product Roadmap for Frequency Response and Reserve,” “Product Roadmap for Restoration,” and “Product Roadmap for Reactive Power” with a series of deliverables which set out to encourage more widespread participation in the balancing services market. However, the complexities of the market mean that a straightforward, independent industry guide to DSR is well overdue. Collaboration by National Grid with the market incumbents (suppliers, aggregators) on such a project could therefore be most advantageous.

28.7 Data protection The Data Protection Act 1998 articulates the basic legal framework in the UK. Despite the UK’s decision to withdraw from the EU, Regulation (EU) 679/2016, also known as General Data Protection Regulation (GDPR), will still be applicable to the UK while it remains a part of the EU. Meanwhile, companies doing business with the EU post-Brexit will need to comply with the GDPR due to its extraterritorial reach. The Data Protection Act 2018 complements the GDPR and is now fully in force.206 204. Pratt, D., 8 June 2018, “Demand response facing de-rating in Irish capacity market.” Current. [Online]. Available: https://www.current-news.co.uk/news/demand-response-facing-derating-in-irish-capacity-market. 205. Tempus Energy Ltd and Tempus Energy Technology Ltd v European Commission supported by United Kingdom of Great Britain and Northern Ireland (Case T-793/14), 2018. 206. Data Protection Act 2018 (c.12), 2018.

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The national data protection authority is the Information Commissioner’s Officer (ICO). The ICO promotes transparency in public entities and safeguards data privacy for citizens. To this end, it provides guidance to both citizens and organizations and enforces compliance with relevant regulations. Where consumption data comes with information that could be used to determine the identity of, and limited information about, a consumer, that consumption data is treated as personal data.207 Accordingly, the access of parties to information of this nature is subjected to compliance with the applicable legislative instruments. More concretely, those wishing to access this electricity data must observe the provisions of the Data Protection Act 1998—in respect of the treatment of personal data—as well the Privacy and Electronic Communications Regulations 2003—with regard to the privacy of consumers using communication network or services. Further, the electricity distribution license delineates in its Condition 10A (SLC10A) the terms and requirements under which DSOs can obtain, access, and use consumption data provided by smart metering systems. Pursuant to 10A.2, licensees must not, subject to certain conditions, obtain consumption data relating to a period of less than 1 month. There are also restrictions on the use of data. DSOs must submit “data privacy plans” to the national regulator, Ofgem: in these plans, the network operators clarify the manner in which the consumption data will be anonymized, to ensure that the processed data cannot be used to identify a particular household.208 In 2012 the government conducted research into the public’s attitude toward data and privacy in relation to smart metering. The result was the Smart Metering Data Access and Privacy: Public Attitudes Research document, published in December 2012.209 A particular concern was the perceived intrusiveness of frequent meter readings, and some respondents were suspicious about the level of detail collected. Reservations about data protection persisted. Certain security risks were also identified: in particular, the fact that more detailed data could be used, theoretically, to identify a consumer’s absence from their home. The Data Access Privacy Framework (DAPF) for smart meters regulates the use of customer’s energy consumption data stemming from smart meters. This Framework determines the access by market participants to energy consumption data. The precise granularity of the data that can be accessed is

207. Ofgem, 2018. “Access to half-hourly electricity data for settlement purposes, consultation 10 July 2018.” 13 14. 208. Ofgem, “Smart meters: distribution network operators’ privacy plans.” [Online]. Available: https://www.ofgem.gov.uk/electricity/retail-market/metering/transition-smart-meters/smartmeters-distribution-network-operators-privacy-plans. 209. Department of Energy and Climate Change, 2012. “Smart metering: data access and privacy-public attitudes research.” Navigator.

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dependent on whether the consumer has decided to opt in or out of the program. The DAPF issues the following basic instructions to energy suppliers: G

G

G

By default, energy suppliers can access monthly and daily consumption data in the interest of billing and accounting. Provided the supplier has the customer’s consent, or the customer has not opted out, energy suppliers can access consumption data more detailed than monthly, but not more detailed than daily. If the customer decides to opt in, energy suppliers can access more detailed data, down to half-hourly data.210

Energy network operators can only access data relating to periods of less than 1 month if they have obtained the consumer’s consent to do so or have implemented Ofgem-approved procedures relating to the anonymization of that data. No restrictions are imposed on the network operator or supplier regarding access to other (nonconsumption) data, provided that access complies with existing data legislation.211 Rules apply to third party access to consumption data. The existing framework has been supplemented by the Smart Meter Act 2018 (which extends to England, Wales, and Scotland only). The SMA 2018 has granted to Ofgem additional powers to implement market-wide Half-Hourly (HH) Settlement Data for domestic and smaller nondomestic customers. As part of its review into the settlement arrangements for HH data, Ofgem is considering three options: an “Opt-In” program, where access is subject to existing rules; an “OptOut” program, where there is a legal obligation on the responsible settlement party to process HH data unless the consumer opts out; or a “Mandatory” option.212 Two additional enhanced privacy options are also being considered: anonymization of data postsettlement and a “hidden identity” option which would entail the “pseudonymization” of data through the use of a unique identifier which obscures the consumer’s “real-world” identity. Ofgem is currently consulting on the issue, although responses have now closed.213 Privacy concerns continue to be one of the major hurdles to the public uptake of smart metering technology: assuaging these concerns is therefore one of the main challenges for those supporting the rollout. The UK’s regulatory framework has been bolstered by the GDPR, but the data management model that will emerge post-Brexit remains an unknown. While it is likely that the UK’s post-Brexit data management model will take its lead from the provisions of the GDPR, not least because the unraveling of the data privacy

210. Department for Business, Energy and Industrial Strategy, 2018. “Smart metering implementation programme: review of the data access and privacy framework, November 2018.” 8. 211. Ibid 9 10. 212. Banks, J., McGlinchey, K., 2018. “Access to half-hourly electricity data for settlement purposes: a data protection impact assessment.” 5. 213. Ofgem, 2018. “Access to half-hourly electricity data for settlement purposes, consultation 10 July 2018.” 13 14.

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framework would be of huge, and vocal, public interest, the UK’s promarket tendencies loom large on the agenda. To date, it has placed the responsibility for the smart metering rollout securely in the hands of the suppliers. It must therefore ensure that whatever data management model it ends up with establishes an appropriate balance between these commercial interests and the public’s data privacy concerns.

28.8 Electric vehicles and energy storage 28.8.1 Electric vehicles Pursuant to the Climate Change Act 2008, the UK has set itself the objective to cut greenhouse gas emissions by 80% by 2050, with EVs forming a key part of the UK’s strategy.214 The UK Government has taken a number of steps with respect to the promotion of EVs, including the establishment of the Office for Low Emissions Vehicles215; it has also promoted the discontinuation of petrol and diesel cars in the UK from 2040 onward.216 EVs feature prominently in BEIS’s Industrial Strategy. The Government has established a d30 million fund to promote vehicles-to-grid (V2G) technologies, with the aim of delivering a design and development model which illustrates how the electricity system could, at peak hours, benefit from the power stored in EVs.217 Infrastructure is viewed as one of the main obstacles to the uptake of EVs. The Automated and Electric Vehicles Act 2018 endeavors to address this gap by giving the Government new powers to require charging points be built at all motorway service stations and “large fuel retailers.” The Act builds on the Alternative Fuels Infrastructure Regulations 2017, including powers to create a uniform method of accessing charging points and establish reliability standards. Notably, the Part of the Act dealing with charging infrastructure applies to the whole of the UK. The powers under the 2018 Act have been matched by the creation of the new Charging Infrastructure Investment Fund, in July 2018.218 The CIIF is a 214. Houses of Parliament. Parliament Office of Science & Technology, 2010. “Electric vehicles: Postnote Number 365, October 2010.” London. 215. Office for Low Emission Vehicles, “Office for Low Emission Vehicles,” [Online]. Available: https://www.gov.uk/government/organisations/office-for-low-emission-vehicles. 216. Energy UK, 2017. “The electric vehicle revolution: a report from energy UK, Summer 2017.” London, 4. 217. Department for Transport, Office for Low Emission Vehicles, Innovate UK, Department for Business, Energy and Industrial Strategy, and Jesse Norman MP, 12 February 2018. “d30 million investment in revolutionary V2G technologies.” [Online]. Available: https://www.gov.uk/government/news/30-million-investment-in-revolutionary-v2g-technologies. 218. HM Treasury, and Infrastructure and Projects Authority, 23 July 2018. “Charging infrastructure investment fund.” [Online]. Available: https://www.gov.uk/government/publications/ charging-infrastructure-investment-fund.

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d400 million fund, of which d200 million is Government funding and the private sector will put forward the remaining d200 million. The Government will also support infrastructure development by way of grant schemes. The Electric Vehicle Homecharge Scheme219 is continuing and the Workplace Charging Scheme grant has been increased from a maximum of d300 to a maximum of d500 per socket.220 A second round of funding for local authorities to roll out low-emission taxi charge point infrastructure is also planned, with d6 million available.221 As noted in Section 28.4, the maximum grant now available for UK purchasers of EVs is d3500.222 The plug-in car grant was cut in early November 2018 by d1000, while the grant worth d2500 to buy new hybrid cars was abolished altogether.223 The decision to cut the available incentives has been described as “astounding”.224 While it is positive that some incentives remain in place, the decision does risk undermining progress on the lowemission and EV sectors. Taxation is an area which has not garnered much focus from the Government to date. The 2018 National Infrastructure Assessment recognizes that there may be a need for the Government to consider a road pricing scheme, particular as revenue from fuel duty/vehicle excise duty decreases.225 In addition to protecting tax revenue, an adequate pricing scheme would also help to finance road infrastructure development. However, despite the 2018 NIA’s recommendation, the Government has not moved any moves to bring this to the forefront of its EV policy. Finally, the Electric Vehicle Energy Taskforce (EVET) has been launched to help to bring energy and transport sectors together to plan for EV uptake and to ensure that the electricity system can meet future demand.226 The creation of

219. Office for Low Emission Vehicles, 24 May 2018. “Customer guidance: Electric Vehicle Homecharge Scheme version 2.2.” [Online]. Available: https://www.gov.uk/government/publications/electric-vehicle-homecharge-scheme-guidance-for-customers-version-22. 220. Office for Low Emission Vehicles, 3 November 2016. “Workplace Charging Scheme Guidance for Applicants, Installers and Manufacturers.” [Online]. Available: https://www.gov. uk/government/publications/workplace-charging-scheme-guidance-for-applicants-installers-andmanufacturers. 221. Office for Low Emission Vehicles, 9 July 2018. “Ultra Low Emission Taxi Infrastructure Scheme: round 2.” [Online]. Available: https://www.gov.uk/government/publications/ultra-lowemission-taxi-infrastructure-scheme-round-2. 222. Department for Transport, “Low-emission vehicles eligible for a plug-in grant.” [Online]. Available: https://www.gov.uk/plug-in-car-van-grants. 223. Topham, G., 12 October 2018. “Scrapping UK grants for hybrid cars ’astounding’, says industry.” The Guardian. 224. Ibid. 225. National Infrastructure Commission, 2018. “National Infrastructure Assessment, July 2018.” 226. Low Carbon Vehicle Partnership, “Electric vehicle energy taskforce,” [Online]. Available: https://www.lowcvp.org.uk/evet.htm.

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the EVET signals the collaborative approach which underlies the UK’s efforts to drive progress in the low-emission transport sector. With regard to the most critical players, the National Infrastructure Committee envisages a key role for Ofgem in terms of regulating EVs. EVs also feature strongly in each of National Grid’s latest Future Energy Scenarios. National Grid now predicts that there could be as many as 11 million EVs by 2030 and 36 million by 2050.227 However, National Grid anticipates that smart charging technologies, consumer behavior changes (charging at off-peak times), and V2G technology should mean that the increase in peak electricity demand could be as little as 8 GW in 2040.228 Making this a reality will require close collaboration with all key stakeholders, including industry and research and development; the establishment of the EVET indicates that the UK is on the right track.

28.8.2 Energy storage BloombergNEF (BNEF) forecasts that the global energy market is set to double six times by 2030, with the UK projected to play a key role in global growth.229 Aurora Energy Research has found that storage must play a key part in the UK’s energy strategy, with 13 GW of additional distributed and flexible generation assets needed by 2030 to balance the UK’s electricity grid as more renewable projects come online.230 Battery storage is thought to be likely to grow fifty times compared to 2017 levels by the end of 2022.231 Opportunities for storage assets will be driven forward by falling technology costs, as will the emergence of new revenue streams through the balancing, ancillary services, and CMs. Storage technologies feature prominently in the UK’s nationwide energy strategy. Storage was a key consideration in the National Grid’s “System Needs and Product Strategy” (SNAPS), published on June 13, 2017.232 Meanwhile, Ofgem has published a response to its “A Smart, Flexible Energy System: Call for Evidence” consultation. This response includes the “Smart Systems and Flexibility Plan” which sets out the proposed approach for integrating flexible and smart technologies into the evolving UK energy 227. National Grid, 2018. “Future energy scenarios: system operator, July 2018.” 3. 228. Ibid. 229. Holder, M., 22 November 2017. “BNEF: global energy storage market to double six times by 2030.” BusinessGreen. [Online]. Available: https://www.businessgreen.com/bg/news/ 3021679/bnef-global-energy-storage-market-to-double-six-times-by-2030. 230. BusinessGreen, 12 October 2018. “Aurora: smart grids and storage present d6bn opportunity.” [Online]. Available: https://www.businessgreen.com/bg/news/3064397/smart-grids-andstorage-present-gbp6bn-opportunity-through-to-2030. 231. Colthorpe, A., 14 February 2018. “UK battery storage to enjoy “explosive growth” to 2022.” Energy Storage News [Online]. Available: https://www.energy-storage.news/news/uk-battery-storage-to-enjoy-explosive-growth-to-2022. 232. National Grid, 2017. “System needs and products strategy, June 2017.”

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system.233 It clarifies, among other matters, how Ofgem and the Government propose to address the commercial and regulatory barriers that may be hampering the further deployment of energy storage. Ofgem has therefore proposed a series of actions, including but not limited to creating a level playing field with regard to grid charges and network connection rules, securing access to existing markets and new revenue streams, creating an adequate market definition of “storage,” and clarifying the implications of colocated storage for accredited RO and FIT installations. The strategic focus on storage appears to be paying off. Battery storage and demand-side response won in excess of 500 MW of contracts in the T-1 CM auction in February 2018.234 The auction cleared at d6/kW per year. Meanwhile, GE has announced that its largest grid-scale battery storage system project (41 MW) to date will be located in the UK.235 A giant 50 MW battery storage facility is also planned: the facility will utilize technology provided by SMA Sunbelt Energy, a fully owned subsidiary of German energy storage specialist SMA Solar Technology AG.236 Flexible services provider Battery Energy Storage Solutions has also just raised more than US $100 million in investment to target UK projects totaling 100 MW.237 In the residential market, Nissan announced in January 2018 that it will be providing a system of solar panels and batteries to UK homes, stating that customers could save up to 66% on energy bills through their service.238 Further, UK-based energy storage and smart home firm Moixa has recently launched a new 4.8 kWh battery storage device for domestic use, with an output of 1000 W.239

233. HM Government, Ofgem, 2017. “Upgrading our energy system: smart systems and flexibility plan, July 2017.” 234. Bird & Bird, “UK: recent regulatory and market updates on energy storage.” [Online]. Available: https://www.twobirds.com/en/news/articles/2018/uk/energy-storage-recent-regulatoryand-market-updates-in-the-uk. 235. General Electric (GE), 5 February 2018. “GE and Arenko to build one of the world’s largest energy storage facilities in the UK.” [Online]. Available: https://www.genewsroom.com/ press-releases/ge-and-arenko-build-one-world%E2%80%99s-largest-energy-storage-facilities-uk284222. 236. Ross, K., “Largest battery storage project in UK is unveiled.” Power Engineering International. [Online]. Available: https://www.powerengineeringint.com/articles/2018/07/largest-battery-storage-project-in-uk-is-unveiled.html. 237. Colthorpe, A., 15 January 2018. “London’s BESS targets 100 MW with “landmark” US $40 m Santander investment.” Energy Storage News. [Online]. Available: https://www.energystorage.news/news/londons-bess-targets-100mw-with-landmark-us40m-santander-investment. 238. Nissan, 18 January 2018. “Nissan launches Nissan Energy Solar: the ultimate all-in-one energy solution for UK homes.” [Online]. Available: https://uk.nissannews.com/en-GB/releases/ release-426215639. 239. Andrews, A., 10 October 2018. “Moixa launches its biggest domestic battery at 4.8kWh.” New Power. [Online]. Available: https://www.newpower.info/2018/10/moixa-launches-its-biggest-domestic-battery-at-4-8kwh/.

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Thus the energy storage market has demonstrated its potential for significant growth in the coming years. The commitment of the regulator and TSO, together with infrastructural and regulatory developments showing both private and public commitment to increasing the role of storage on the UK electricity grid, has reinforced the role of storage in the UK’s transition strategy. Nevertheless, there are gaps in the framework. These include those identified by Ofgem, and it is heartening that the regulator is leading the charge in creating a more robust, friendly market framework. An area that requires particular attention in the UK, as elsewhere, is the lack of a regulatory definition for the concept of energy storage. Section 2, paragraph 2, point (d) (i) of The Electricity (Class Exemptions from the Requirement of a Licence) Order 2001 which confirms that the operator of “equipment” which “is generating or is capable of generating electricity” will be regarded as generating electricity has led to the situation where storage is treated as a generation asset. The categorization as generation asset means that the current definition fails to acknowledge the particularities of storage technologies. It also means that storage operators currently need to hold a generation license to operate unless an exemption applies (e.g., a “small generator” exemption). Additionally, other licensed operators such as DSOs and TSOs are restricted from operating electricity storage. A separate asset class for storage would provide greater flexibility on who can own, operate, and use storage, and the Government appears open to the idea.240 Ofgem also appears to be of the view that storage should be defined as a distinct form of generation, as well as that new licensing arrangements should be introduced: these and other developments are awaited eagerly.241 The results of a consultation relating to the regulatory regime for storage are eagerly awaited.242 Under the prevailing legal framework, the energy storage operator also faces the risk of double charging. The Climate Change Levy (General) Regulations 2001 established a UK-wide levy on supplies of “taxable commodities,” which include the supply of electricity (but also gas, LPG, and solid fuels) to business and public sector users. The main rates are paid by energy suppliers, with costs passed on to the consumer. In this context, the energy storage operator may end up paying double charges. The energy storage operator is legally classified as both an electricity consumer and generator. This leads to double charging, with storage facilities charged once for the energy consumed (when charging) and then again for the energy they 240. House of Commons, Energy and Climate Change Committee, 2016. “The energy revolution and future challenges for UK Energy and Climate Change Policy, Third Report of Session 2016 17.” House of Commons, 11. 241. Burgess, A., 31 July 2017. “Re-thinking the energy system.” [Online]. Available: https:// www.ofgem.gov.uk/news-blog/our-blog/re-thinking-energy-system. 242. Ofgem, “Clarifying the regulatory framework for electricity storage: licensing.” [Online]. Available: https://www.ofgem.gov.uk/publications-and-updates/clarifying-regulatory-frameworkelectricity-storage-licensing.

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supply. The end-user is then charged for consuming the energy supplied by the storage facility. Appropriate use-of-system charges should therefore be put in place, with charges based on the actual power consumed. The lack of clarity around the current system poses a considerable regulatory barrier and adds to the perceived risks for investors.243 In light of the double charging issue, Ofgem has consulted on amendments to energy storage licenses: a decision on this is pending.244 Given that battery storage is still an emerging technology, the regulator must also consider carefully how to maximize its revenue streams. Revenue channels may include a mixture of frequency response, CM payments, TRIAD revenue and power supply payments. The challenge for the regulator will be to facilitate the construction of projects that can take advantage of multiple streams and demonstrate their bankability. A key issue in terms of the bankability of projects over the next few years is likely to be the extent to which storage applications can be readily combined with renewable energy generators accredited under the RO and FIT schemes. Ofgem has recently released draft guidance seeking to clarify its existing guidance on these requirements.245 Removing the regulatory barriers to the CM, such as the restrictions on contract duration and projects receiving subsidies, should also be considered.246 In light of the above it is clear that there are still marked barriers to storage. It is encouraging however to see the regulator taking the lead in seeking feedback on the current state of affairs. Indeed, Ofgem issued in July 2018 another new consultation on reforming access and forward-looking charging arrangements in light of the emergence of, among other technologies, storage.247 The consultation focused on how best to maximize the benefits of grid flexibility; notably, it seeks input from all relevant stakeholders (from

243. House of Commons, Energy and Climate Change Committee, 2016. “The energy revolution and future challenges for UK Energy and Climate Change Policy, Third Report of Session 2016 17.” House of Commons, 10 11. 244. Ofgem, “Clarifying the regulatory framework for electricity storage: licensing.” [Online]. Available: https://www.ofgem.gov.uk/publications-and-updates/clarifying-regulatory-frameworkelectricity-storage-licensing. 245. Ofgem, 14 December 2017. “Guidance for generators: co-location of electricity storage facilities with renewable generation supported under the renewables obligation or feed-in tariff schemes.”. [Online]. Available: https://www.ofgem.gov.uk/publications-and-updates/guidancegenerators-co-location-electricity-storage-facilities-renewable-generation-supported-under-renewables-obligation-or-feed-tariff-schemes. 246. House of Commons, Energy and Climate Change Committee, 2016. “The energy revolution and future challenges for UK Energy and Climate Change Policy, Third Report of Session 2016 17.” House of Commons, 17. 247. Ofgem, 23 July 2018. “Getting more out of our electricity networks through reforming access and forward-looking charging arrangements.” [Online]. Available: https://www.ofgem. gov.uk/publications-and-updates/getting-more-out-our-electricity-networks-through-reformingaccess-and-forward-looking-charging-arrangements.

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consumers as well as electricity market players. The decision on this consultation was published in December 2018, and a Significant Code Review has now been launched.248

28.9 Conclusion The UK has made considerable progress toward meeting its 2020 targets. In 2017 the UK saw renewable energy’s share of electricity generation jump to 29%249: with the UK now comfortably producing one quarter of its electricity from renewables, the overall target of 15% consumption from renewables seems increasingly achievable. With regard to its energy saving target of 18% by 2020, primary energy consumption fell by 15% and final energy consumption by 11% in 2015, compared to 2007.250 Meanwhile, the UK’s greenhouse gas emissions were 43% below 1990 levels in 2017251; it has met both its first and second carbon budgets and is on track to meet its third. However, efforts must be accelerated if the UK is to meet its subsequent carbon budgets. The UK’s energy mix has transformed in recent years, with coal generation now comprising a negligible amount of its energy requirements. In 2016 coal accounted for only 2% of total production—a record low.252 Meanwhile, low-carbon energy sources (both nuclear and renewable) are featuring more prominently: primary electricity sources (nuclear, and wind and solar) and bioenergy and waste accounted for 16% and 9% of total production in 2016, respectively.253 Nevertheless, fossil fuels in the form of oil and gas continue to be an important source of the UK’s energy supply: in 2016 oil accounted for 42% and natural gas 32% of total production. Yet, while nuclear is often classified as a clean energy source, there are problems associated with decommissioning and safety. Moreover, the new projects have proven to be costly and will have a long development period. Crucially therefore, renewable energy sources contributed to 29% of electricity 248. Ofgem, “Electricity network access and forward-looking charging review - significant code review launch and wider decision,” [Online]. Available: https://www.ofgem.gov.uk/publicationsand-updates/electricity-network-access-and-forward-looking-charging-review-significant-codereview-launch-and-wider-decision. 249. Department for Business, Energy and Industrial Strategy, 2018. “Digest of United Kingdom Energy Statistics (DUKES) 2018.” BEIS, 11. 250. UK Government, 2017. “28 April 2017: UK National Energy Efficiency Action Plan and Annual Report.” London, 1. 251. Committee on Climate Change, “How the UK is progressing.” [Online]. Available: https:// www.theccc.org.uk/tackling-climate-change/reducing-carbon-emissions/how-the-uk-is-progressing/. 252. Department for Business, Energy and Industrial Strategy, 2017. “UK energy in brief 2017.” London, 6. 253. Ibid.

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generation in 2017.254 In 2017 renewables’ share of the overall primary energy mix actually overtook nuclear’s share, at 11.3%.255 While the UK has considerable natural resources of its own, it is now a net importer of energy: in 2017 the UK’s net import dependency was 35.8%.256 Securing its energy supply will be crucial in the Brexit aftermath and will undoubtedly be one of the primary considerations when making the decision to remain, or leave, the internal energy market. At present, Scotland is a key driver of the UK’s energy transition: thus, if the UK wishes to jointly wean itself off fossil fuels but rely on indigenous resources, it will find itself increasingly reliant on Scotland. For the time being, this arrangement may be satisfactory. But if Scotland were to become independent, as continues to be threatened, then the UK may have to rethink its energy security strategy. The UK has a clear strategy for the transition to a low-carbon economy; this is backed by a comprehensive regulatory framework for the integration of nonsynchronous generation. But observers are troubled by the downward trend in green investment. The withdrawal of governmental support schemes for solar at a time of considerable market uncertainty appears to have compounded investor uncertainty.257 Meanwhile, regulatory changes in 2015 appear to have created an unfriendly planning environment for onshore wind development.258 Moreover, regulatory hurdles to the treatment of storage and demand response also remain in place. The overall picture of the UK’s energy policy is therefore one of imprecision and inconsistency; its ostensibly clear strategy is not matched by a coherent regulatory framework. With regard to digitalization, the UK has been one of the countries at the forefront of the smart meter transition. Yet the program has not been without its challenges. There are a number of novel aspects about the UK’s approach to the rollout, but the one that has caused perhaps the most issues for the UK has been the decision to place the rollout in the hands of the utility suppliers. Resistance to smart meters also remains entrenched in the residential market. There have been calls for the regulator to try to understand better why the

254. Department for Business, Energy and Industrial Strategy, 2018. “Digest of United Kingdom Energy Statistics (DUKES) 2018.” BEIS, 11. 255. Timperley, J., 30 July 2018. “Six charts show mixed progress for UK renewables.” Carbon Brief: Clear on Climate. [Online]. Available: https://www.carbonbrief.org/six-charts-showmixed-progress-for-uk-renewables. 256. Department for Business, Energy and Industrial Strategy, National Statistics, 2018. “Energy trends: September 2018.” London, 14. 257. Gabbatiss, J., 19 May 2018. “A ’hostile environment’ for renewables: why has UK clean energy investment plummeted?.” The Independent. [Online]. Available: https://www.independent.co.uk/environment/uk-renewable-energy-investment-targets-wind-solar-power-onshorea8358511.html. 258. Gabbatiss, J., 6 May 2018. “Environmental impact of policies that led to collapse of onshore wind was not considered by government.” The Independent.

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acceptance rate of smart meters is so low.259 More work on this should be done in order to facilitate the smart grid transition. The UK has therefore made progress toward establishing a smarter, more secure, and more responsive electricity grid. Decarbonization is central to its energy strategy, with renewable energy sources now taking an increasing share of both energy production and electricity generation. Meanwhile, the UK’s commitment to decentralization and digitalization underpins the moderate successes of its smart meter program. Yet the UK has made its missteps. In particular, the UK has found itself paying too much heed to the logic of the incumbent fossil fuel industry. To give but a handful of examples, the UK has cut solar subsidies at the same time as it has restarted its hydraulic fracking program. It also promotes nuclear, even as the risks of decommissioning and safety give rise to questions about nuclear’s clean credentials. The UK also sustains barriers to storage and DSR technologies with respect to the CM, allowing fossil fuels to dominate the subsidies. Finally, it has put the smart metering program in the grip of the utility incumbents, exposing the program to the dictates of profit maximization rather than grid optimization. Unfortunately, these lapses have resulted in a policy and regulatory framework that is not entirely coherent. Moving forward, the UK must take care to consult with all stakeholders in terms of planning its future grid strategy. Ofgem continues to do good work in this respect; only a small number of its publications have been referenced in this paper, but they nonetheless give a flavor for its striking activism. In broad terms, the smart grid transition hinges on the decarbonization, digitalization, and democratization of the grid. Accordingly, the UK must consider how best to reorientate its position so that renewable energy forms the central plank of its strategy in the years to come. Promoting green investment, and righting the downward trend in investment witnessed in recent years, should therefore be a priority. The smart grid transition also represents an unprecedented opportunity to democratize the grid. However, the promised democratization of the grid will require the domestic consumer to be engaged in the transition. Thus it will be important, with respect to the smart metering program, for the social dimension of the rollout to be fully taken into account. The levels of apathy and discontentment outlined in Section 28.5 will pose a significant hurdle to the transition to locally based networks. In particular, therefore, the smart grid transition must focus on how to best integrate the consumer into the smart grid as an active party; to do this, it will be necessary to break with the logic of the existing market framework, and to view the consumer as a market player in their own right.

259. Sovacool, K., Kivimaa, P., Hielscher, S., Jenkins, K., “Vulnerability and resistance in the United Kingdom’s smart meter transition.” Energy Policy 109, 767 781.

Chapter 29

Innovative finance for sustainable energy George Thanos1, Michalis Kanakakis1 and Rafael Leal-Arcas2 1

Athens University of Economics and Business, Athens, Greece, 2Alfaisal University, College of Law & International Relations, Riyadh, Kingdom of Saudi Arabia

29.1 Introduction and methodology In this chapter, we introduce a set of archetype business models (BMs) aiming to illustrate the roles of the multiple actors in the decentralized smart grid and identify the composite services that may be realized from their interactions. In this context, each BM focuses on the commercial exploitation of a set of tools that each involved actor manages and investigates the added value to be provided by the joint utilization of the functionalities. The objectives are economically oriented, in the sense that they target to maximize the potential profits for the participating actors. The BMs are characterized as “archetype,” because they aim to account for the entire set of services in which each tool may play a role. The archetype BMs can be used and tailored by adopters of Smart Grid solutions (tools, applications, and services) in order to better exploit the added value from their offerings and reinforce their market impact. In our methodology, the archetype BMs are presented graphically using value networks and business modeling canvas that describe the assets/products/tools (using as an example/use case the EU WiseGRID project,1 as discussed in Section 29.2.2) to be utilized for achieving the objectives and the anticipated economic gains for each core participating actor. As it will become apparent next, the Smart Grid tools are designed to meet this target by achieving the optimal utilization of the existing generation resources,

1. WiseGRID is a research project (number 731205) funded by the EU’s Horizon 2020 research and innovation program. Professor Dr Rafael Leal-Arcas is one of the principal investigators. http://www.wisegrid.eu Electricity Decentralization in the European Union. DOI: https://doi.org/10.1016/B978-0-443-15920-6.00023-2 Copyright © 2023 Rafael Leal-Arcas and Elsevier Inc. Published by Elsevier Inc. All rights reserved.

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suggesting the least costly consumption schedules and contributing to the smooth integration of innovative technologies and mechanisms (electric vehicles (EVs), batteries, and demand response (DR)) in the smart grid. Moreover, a crucial part of our methodology is the generation of a generic value network for Smart Grids that is used as a basis for the analysis of the separate archetype BMs. This generic value network is presented in Section 29.2.1 and can be used from the energy community stakeholders as a template for BMs in the Smart Grid environment. Such generic networks are currently missing from the existing literature. The analysis attributes great importance in defining the gains provided by each individual tool for each specific actor who participates in the value network. This process firstly requires determining their ownership, that is, which actor bears their development and operational cost (or pays the relevant license to a third party) and receives the revenues from their management. In most of the cases, each involved actor manages a single tool. This approach is followed in order to demonstrate the highest possible granularity of the value networks and investigate if such conditions allow for lucrative BMs to appear. We mention beforehand that this approach may be extended to capture hybrid cases, when one actor undertakes multiple roles and consequently bears the cost and gains the profits related with the management of more than one tools. Focus is given to the commercial exploitation tools, the sophistication of which provides the optimal local consumption and production schedules at the prosumers’ premises. According to the basic BM, these tools are managed by an energy service company (ESCO) which elaborates the necessary data and provides the optimal suggestions to the prosumers. The ESCO receives as payment a portion of the prosumer’s savings due to the decreased electricity bill or a part of their compensation (provided by other actors, e.g., the virtual power plant (VPP) operator) for their participation in the considered services (e.g., an explicit DR event). This form of revenues is aligned with the report of the European Commission2, which suggests the “Energy Performance Contacting” (EPC) as the financial model between the ESCOs and the prosumers. Essentially, the EPC model implies that “remuneration of the ESCO is directly tied to the energy savings achieved,” thus it transfers the risk of the investment to the ESCO and encourages the market competitions between such companies. In the following sections, we describe the potential risks that may arise from this form of revenues which make the engagement of the ESCO questionable and propose further candidate revenue schemes aiming to prevent a possible market failure. A similar rationale is also followed for the actor(s) who should bear the capex cost of the innovative technology (such as the charging stations), since this factor may be beneficial for multiple participants in the value network. 2. E. S. HUB, “The European Commission’s science and knowledge service” Available from: https://ec.europa.eu/jrc/en/energy-efficiency/eed-support/energy-service-companies.

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For all the BMs, our analysis provides preliminary insights for the state of the grid in the absence of these tools and the innovative technology, and consequently the actors’ increased costs or the limited revenues due to the lack of their sophistication and the advanced capabilities that they respectively provide. This process is a prerequisite for identifying the “business as usual case,” which is commonly considered the comparison benchmark for identifying the source of the added value and quantifying the potential benefits for the actors. Finally, the following sections document the technical, regulatory, and behavioral barriers that may prevent the realization of such BMs and question the lucrative exploitation of the involved tools in the market and sketch the roadmap for the mitigation of this risk. Finally, it is mentioned that the complex environment of the smart grid with multiple interacting actors allows to potentially design additional and more complicated scenarios than those described. Some of these possible alternatives are documented in the following sections, along with the basic scenario that is considered. We emphasize that our novel methodology is suitable for capturing such extensions and the value network graphs may be appropriately modified to depict the flows of money and information that correspond to each case. After this introduction, Section 29.2 provides an analysis of decentralized energy by examining the various archetype BMs and barriers. Section 3 then analyzes the example of the United Kingdom as a case study. Section 4 concludes.

29.2 Decentralized energy: archetype business models and barriers 29.2.1 A generic value network for smart grids Fig. 29.1 presents a generic value network for Smart Grids. It depicts 10 key business roles and their interactions in terms of power, information, and money flows. This generic value network does not aim to represent all the business roles and all the possible interactions between the various stakeholders, as this is not possible due to the composite and rapidly evolving nature of the Smart Grids. However, it represents a vast number of scenarios and the most important players. Its purpose is to serve as a guideline/template for creating and analyzing various business cases and scenarios toward a decentralized Smart Grid. In its current form, the generic value network includes the following “core” business roles: 1. Power Production is responsible for the power generation, using either fossil fuels or renewable energy sources (RES). This role may include multiple actors independently of their size, that is, from large power plants to small residential prosumers.

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FIGURE 29.1 The archetype value network for smart grids.

2. The Power Transmission grid is operated by the Transmission System Operators (TSOs) and provides high-voltage transmission from the generation units and interconnection services between the distribution grids. The TSO is responsible for the maintenance of the transmission system and must also take the necessary actions (capacity development) to guarantee its ability to satisfy the evolving demand. 3. The Power Distribution grid is operated by the Distribution System Operators (DSOs). It is connected with the transmission grid and provides low (or medium) Voltage power to end-users. The DSO is responsible for operating the transmission system and planning the necessary capacity expansion which is adequate to satisfy the future demand. His role is also crucial for the incorporation of distributed generators in the smart grid. 4. The Wholesale Market Operation combines the information of the production cost and demand forecasting, to compute the wholesale prices and propagate them to the generators, the retailers, and the aggregators. 5. The Power Retailers perform the final sale of power to end-users. These agents try to forecast in accuracy the future demand and reserve the adequate amount in the wholesale market, which resell to their customers. 6. The Balance Services, provided by the Balancing Responsible Party (BRP), who operates as an intermediator between the Wholesale Market and the Retailers. This agent is responsible to guarantee that the quantity reserved by the retailers is actually consumed.

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7. The Aggregators offer intermediate services between the end-users and the other participants in the Smart Grid. They are responsible to design and provide the sophistication for the orchestration of multiple appliances, such that their collective consumption scheduling results in benefits for their owners and a remarkable positive effect for the grid. The appliances may belong to multiple individual users with personal interests or to a single entity (for instance, a fleet of EVs). 8. The Energy Efficiency and Management Services role may be undertaken by the relevant companies or organizations, such as the EV Fleet manager, the Battery Operator, the ESCos, and RESCOs. These agents operate as intermediators between the aggregator and the end-users and offer the necessary equipment (e.g., Electric Vehicle Supply Equipment (EVSE), smart meter, and BMs) and automated operations (e.g., ERP), which allow a consumption schedule to be realized (e.g., automated DR event). 9. Power Consumption refers to all electrical appliances that consume power for their real-time operation. As it becomes apparent below, we choose to distinguish between power consumption and energy storage, because the latter term refers to appliances (batteries) which consume power for supplying energy for other devices or inserting it to the grid. 10. The Energy Storage refers to the means which capture/store the produced electricity for some future use. We choose to assign a separate role for energy storage even though it could be also represented as a combination of consumption and production. This is because batteries do not literary produce new power but may inject the previously consumed power in the grid, targeting, for example, to smooth out the negative impact of peak loads. The actors may undertake a single business role, or they may undertake a combination of multiple such activities in the market. For instance, an enduser is a consumer when relying on the grid for the operation of its appliances but is also a provider when offering electricity to the grid for the harmonization of the demand. In this latter case, this agent is considered as a prosumer, a term that may refer to multiple business scenarios. More specifically: G

G

G

G

A prosumer may be a consumer who does not produce new power but participates in a DR event and accepts to curtail her demand during peak hours. A prosumer may also generate power from a small-scale PV infrastructure (residential) and inject it (feed in) in the grid. A prosumer may own storage means (e.g., EV company or residential end-user with batteries) and utilize them either for self-consumption or for supplying devices of another agent. Any combination of the above cases.

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Additionally, it should be noted that further actors may arise by the combination of the basic roles. For example, a retailer may decide to build its own generation plant, aiming to reduce its dependency on the fluctuating prices in the wholesale market and the consequent risks. In this scenario the resulting role is referred as a pretailer. Additionally, a retailer may decide to undertake aggregation services, aiming to take advantage of the existing customer basis. The graph does not include a role for the regulator, because this agent does not offer a distinct contribution to the composition of a service but is responsible for the supervision of the whole system (to guarantee the “level playing field,” i.e., that all actors are imposed the same set of rules and have access to equal volume of information). The impact of this role may be implicitly included in a Business Model Canvas3, by means of the entrance barriers due to the regulatory framework in the considered market. In the analysis of the archetype BMs in the next section, we use this business modeling canvas approach to illustrate the main components of the BMs.

29.2.2 The EU paradigm—EU project WiseGRID In order to apply our methodology for business modeling analysis and generate a number of archetype BMs for decentralized energy and Smart Grids, we exploited as a paradigm the EU research and innovation project WiseGRID4. WiseGRID running from January 11, 2016 to April 30, 2020 is one of the largest, in terms of funding (with a total cost more than 17 million Euros), projects cofunded by the European Commission’s Horizon 2020 work program5. The WiseGRID project provides a set of solutions, technologies, and BMs which increase the smartness, stability, and security of an open, consumer-centric European energy grid and provide cleaner and more affordable energy for European citizens, through an enhanced use of storage technologies and electro-mobility and a highly increased share of Renewable Energy Resources. It aims to deliver the tools and BMs that will facilitate the creation of an open market and enable all energy stakeholders to play an active role toward a democratic energy transition. By communicating with the partners participating in the project and with key energy stakeholders in the EU region as part of the project’s dissemination activities, we were able to extract the necessary information in order to create a number of archetype BMs using the methodology described in the previous subsections, a subset of which we are presenting in this chapter. Furthermore, as part of project activities these models are currently under implementation (as part of project’s pilots) and evaluation. 3. https://en.wikipedia.org/wiki/Business_Model_Canvas. 4. https://www.wisegrid.eu/ 5. https://ec.europa.eu/programmes/horizon2020/en

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Smart Grid products and services are the key elements in the BMs, which create value for all the involved players. Following are the example products that are developed in WiseGRID, as depicted in Fig. 29.2: G

G

G

G

WG Cockpit: It is the WiseGRID technological solution targeting DSOs and micro grid operators, allowing them to control, manage, and monitor their own grid, improving flexibility, stability, and security of their network. The main purpose of the WG Cockpit is to enable grid operators to manage the fundamental changes that distribution grids are facing nowadays, some remarkable ones of those being the transition toward a grid with high penetration of distributed renewable energy resources and the presence of additional significant loads coming from EVs among others. Energy STorage as a Service/Virtual Power Plants (STaaS/VPP): It is the WiseGRID technological solution targeting VPP Operators who act as load aggregators. This tool will make operational a service by which consumers/prosumers can easily offer to the market their unused storage capacity. Additionally, a complementary embedded service allows consumers/prosumers to easily aggregate their spare energy generation and offer it to the market in the form of a VPP. WiseEVP: WiseGRID technological solution addressed to electromobility actors in order to optimize the activities related with smart charging and discharging of the EVs, including V2G (Vehicle-to-Grid) and V2B (Vehicle-to-Building), targeting to utilize their inherent flexibility and storage capabilities. FAST Vehicle-to-Grid (V2G): V2G, the fast EV charging station, will make possible to use EV as dynamic distributed storage devices, feeding electricity stored in their batteries back into the system when needed (fast Verticals / Market segments Smart Grid & ICT management and Renewable Energy Services Energy-aware DemandResponse tools (DR planning and dispatch) Tools for smart energy management for businesses and industries Tools for smart energy management for home consumers and prosumers Electrificaon of transportaon (smart management of charging and storage) Electrificaon of transportaon (charging staons) Storage-as-a-Service Smart Grid & ICT management and Renewable Energy Services

WG Tools WG COCKPIT WISECOOP WISECORP WISEHOME WISEEVP WGFASTV2G WGSTAAS/VPP WG RESCO

FIGURE 29.2 WiseGRID tools for Smart Grids and relevant market segments.

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V2G supply). This can help reduce electricity system costs by providing a cost-effective means of providing regulation services, and peak-shaving capacity. WiseCOOP: It is the WiseGRID technological solution mainly targeting to energy retailers, for achieving a balanced portfolio. The tool supports retailers in managing DR campaigns, by elaborating the energy consuming loads of their existing customers and computing the dynamic price to be applied in the case of a DR event. WiseCORP: Technological solution targeting businesses, industries, ESCOs, and public facility (consumers and prosumers), with the objective of providing them the necessary mechanisms to become smarter energy players. By means of energy usage monitoring and analysis, proper information can be given to facility managers helping them to reduce energy costs and environmental impact. WiseHOME application: The purpose of this application is to inform home residents of their energy consumption in order to raise their awareness regarding the impact of their consumption on several aspects, such as cost, emissions, and intra-cooperative collaboration and stimulate their active participation in DR campaigns.

These tools belong to certain market segments being just examples for the purposes of our analysis. They can easily be substituted by similar in terms of functionalities found in the market today.

29.2.3 Analysis of archetype business models for a decentralized smart grid This section presents a selection of archetype BMs that correspond to the different areas to be addressed in Section 3. They are presented and analyzed using the methodology discussed in Section 29.1, that is, a value network analysis and business modeling canvas.

29.2.3.1 Electric vehicles: exploiting the integration of electric vehicles in the grid This section analyzes the business cases originating from the electrification of the transportation sector, that is, the integration of the EVs and their charging infrastructure in the smart grid. The business cases consider an EVSE Operator, managing a charging station and an EV fleet manager who owns many EVs and aims to charge them economically, meaning that the latter actor undertakes the role of the prosumer. The EV fleet manager also owns and operates an EV management platform like the WiseGRID WiseEVP tool which we will use as an example here that takes into consideration the charging constraints of each individual EV (such as the required

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charging level at a specific time instant) and computes their collective flexibility capabilities. The EV fleet manager may use the consumption flexibility to provide DR services to the DSO. The DSO may request such services aiming to control the power flow at the specific regulation area where the EVSE is located. Multiple reasons may trigger such an event, including the avoidance of RES production curtailment (DR for consumption increase) or the smooth-out of the grid congestion (DR for consumption decrease). More specifically, the DR requests may refer only to the G2V process where the consumed energy is used to cover the needs of the EVs. For instance, part of the DSO’s grid may be congested and consequently the DSO will initiate a DR request, aiming to maintain the RES production within a specific area closely to the RES. Otherwise, the DSO should prevent the RES from injecting power in its grid and consequently should pay the relevant compensation to the generators for the curtailment. Alternatively, we may consider the case when the distributed RES connected with the grid of the DSO produces more than the demand and thus the DSO must pay to the TSO the regulated transmission tariffs. Aiming to avoid the potential costs, the DSO initiates a DR request, targeting to increase the local consumption within the regulation area. The DSO requires the consumption of a specific volume of energy during a specific time period and provides an amount for each consumed unit. It is reasonable to consider that the total offered amount of money must be less than the potential costs of the DSO. Additional services are possible, including also the V2G process. For instance, the DSO may require a bidirectional DR event, that is, not only the consumption of a volume of energy but also its injection back to the grid at some specific future period (the alternative fuels directive encourages the EU Member States to develop systems which enable EVs to feed power back into the grid6). Apart from the DR services, the DSO may request the provision of ancillary services which may be supported by the EVs’ batteries, such as the voltage regulation and frequency control. Aiming to offer such services that increase their revenues or decrease their costs, the EVSE provider and the prosumers (in our case the EV fleet manager) may participate in the value network as members of a VPP. The VPP operator bids aggregated bundles of services from EVSE providers (potentially along with services from other providers) in the relevant balancing and ancillary service markets and offers them part of his revenues (paid by the DSO) for their contribution in realizing the requested services. Then, the EVSE may propagate to the EV fleet manager lower charging prices during the DR event period and the EV fleet manager may reschedule the charging pattern of the EVs (by means of the EV management platform), 6. Directive 2014/94/EU of the European Parliament and of the Council of 22 October 2014 on the deployment of alternative fuels infrastructure.

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achieving to reduce his operational costs. Alternatively, the BM may consider bilateral agreements between the DSO and the EVSE Operator, skipping the intermediary role of the VPP Operator. This is feasible because the DSO has knowledge about the location of the EVSE infrastructure and may directly request a service from the suitable actor who is located at the regulated area of interest. For simplicity reasons and without loss of generality, in what follows, we consider the latter scenario. All the extra functionalities that the EVSE provides to the smart grid respect the preferences of the EV user, meaning his constraints (e.g., charge required to be completed within a certain time frame) will be prioritized in the charging sessions’ scheduling process. Concerning the actor who bears the purchase, installation, and maintenance cost of the EVSE infrastructure, the BM assumes a liberalized competitive market and consequently considers that the EVSE Operator undertakes this investment. For the sake of completeness, we mention that, according to the strategy in some Member States, the DSO may lead this investment with the aim of stimulating the penetration of EVs in the market, while its incurred cost is included in the policy of the regulated assets. Once the market develops, the DSO may sell this infrastructure to market parties (e.g., via auctions), aiming to cover the remaining cost and open the way to competition. An extended scenario could also consider owners of a single EV who charge them at a public charging station (operated by the EVSE provider) and aim to achieve benefits by participating in the aforementioned services. In this case, the contractual agreement between the EV Fleet manager (who provides the sophistication of the WiseEVP tool) and the owner of the EV must be mutually beneficial. For instance, if the vehicle is planned to be charged during a DR event (requiring increase of consumption, as described above), then the EV fleet manager should receive a payment by its owner for advising this less costly schedule, while the latter actor is still favored by the lower prices. In the case that the EV participates in the provision of ancillary service (e.g., the frequency control), then the EV fleet manager should keep a portion of the compensation that corresponds to this specific EV, according to its contribution. The added value of an EV at the unitary level, for example, a domestic prosumer owning a single EV who charges it with his private EVSE, may be incorporated in issues of storage, which investigate the relevant benefits from the batteries’ integration and storage in the grid. Indeed, the EV may be considered as a battery with intermittent availability, a parameter that may be formulated as a constraint in the relevant local-level optimization objectives. Finally, we mention that the sophistication of an EV management tool like the example WiseEVP may be also utilized in the case when the retailer or the DSO propagates dynamic prices to the EVSE Operator. An illustrative example is the case of Spain, where a new discriminatory tariff has been proposed for promoting the charging of EVs at times of lower demand and

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lower prices7. In this context, the functionalities of the tool should define the least costly charging schedule subject to the above constraints. EV usage has continued growing in the past years, according to Electric Vehicle Initiative Global EV Outlook 20178. EU takes the lead in relative numbers of EV per capita, whereas The People’s Republic of China has the greatest absolute stock of EVs. The report states that the electric car stock will range—with good chance—between 9 million and 20 million by 2020 and between 40 million and 70 million by 2025. These numbers are on par with the targets of the Paris Agreement on climate change. Nevertheless, there are still regulatory and financial obstacles that hinder the higher penetration of EVs compared to their conventional counterparts. For instance, in Norway and the Netherlands, where EV sales are very high, regulatory incentives have played a large role in promoting consumer interest9,10. These incentives include tax exemptions on EV purchases, one-off grants, and the imposition of taxes on fossil fuels. In Belgium, Greece, Hungary, Latvia, and the Netherlands for instance, there is a full registration tax exemption on EV Purchases, while Denmark and Finland provide a partial exemption11. Other financial schemes employed by governments are fixed grants, as employed in France and Portugal for the replacing of an end-of-life vehicle with a new EV. Another barrier is the development and installation of the necessary infrastructure (particularly of the charging points) because the new fast charging technology is not only expensive to install but also requires high-voltage input and therefore the associated consumption fee is high. Governments have also taken various actions toward this direction7. For instance, France has set up a special fund for the construction of charging infrastructure, which led to the construction of 5,000 charging points in 2015, while in Sweden those individuals who installed charging points in their homes obtained a tax reduction for the associated labor cost. Table 29.1 shows a generic BM for integrating EVs in the network and Fig. 29.3 shows the generic value network for integrating EVs in the network.

7. Council of European Energy Regulators (CEER), 2014. “CEER status review on European regulatory approaches enabling smart grids solutions (“smart regulation”),” CEER, C13-EQS57 04, Brussels. 8. International Energy Agency, 2017. “World Energy Outlook 2017”. Available from: https:// www.iea.org/weo/. 9. Hockenos, P., 2017. “With Norway in lead, Europe set for surge in electric vehicles,” Yale Environment 360. Available from: http://e360.yale.edu/features/with-norway-in-the-lead-europeset-for-breakout-on-electric-vehicles. 10. The International Council on Clean Transportation (ICCT), 2015. “European Vehicle Market Statistics,” ICCT. Available from: http://www.theicct.org/european-vehicle-market-statistics-2015-2016. 11. European Environment Agency (EEA), 2016. “Electric Vehicles in Europe,” EEA, Copenhagen.

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TABLE 29.1 Generic business model for integrating electric vehicles (EVs) in the network in canvas form. Actors involved

G G G

Roles involved

G

G

G

Prosumer: EV Fleet Manager. EVSE Operator. DSO. Power consumption (role performed by EV Fleet manager by means of the EVs that manages). EE & EM Services (role performed by EVSE Operator providing the EVSE). Power distribution (role performed by DSO through WG Cockpit).

Value proposition

EV Fleet Manager G His charging preferences will be met. G Will provide flexibility to the system only when he wants to. G Will reduce his operational cost by utilizing the inherent flexibility capabilities and the storage equipment of the EVs. EVSE Operator G Will be able to offer more competitive prices to its customers (EV fleet manager). G Will be able to cover sooner the investment on EVSE infrastructure. DSO G Will have additional tools (participation in the flexibility market) to operate the distribution network. G Will improve his quality of supply indexes.

Revenue streams

EV Fleet Manager G Will decrease its charging cost by utilizing the EVs’ flexibility and shifting their consumption during the DR events. G Will receive revenues from the participation in V2G services, allowing, for example, the injection of energy from the EVs’ batteries in the grid. EVSE Operator G Will increase its clientele and thus have increased revenues for using the EVSE. G May receive a portion of the compensation provided by the DSO for the provision of ancillary service. DSO G If the quality of supply indexes improves, the DSO will avoid punishments and investment costs for the grid maintenance and capacity expansion.

Cost streams

EV Fleet Operator G Economic investment in software (like WiseEVP) and communication channels and technologies with the other participation tools. (Continued )

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TABLE 29.1 (Continued) EVSE Operator G Economic investment in the EVSE infrastructure. DSO G Economic investment for the development and operation of the software (WG Cockpit tool) and communication channels and technologies with the WiseEVP (via the IOP), to send service requests. Barriers

EV Fleet manager G Limited idle time of the EVs during the day to allow dynamic charging or V2G, because the batteries of the vehicles take long to be fully charged. G Idle time of the vehicles is mostly at night, thus not much opportunities appear to answer grid requests. G Rapid aging of batteries if too many recharge cycles are applied, leading to faster replacement costs. EVSE Operator G The high investment cost of EVSE may cause less than the necessary infrastructure in the market and may lead to suboptimal utilization of the inherent storage capacity. G The charging infrastructure requires high-voltage input and therefore it is associated with high consumption fees. DSO G The high purchase price of EVs and their limited autonomy cause their low penetration in the market.

FIGURE 29.3 Generic value network for integrating EVs in the network. EVs, Electric vehicles.

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29.2.3.2 Demand response: supply demand balancing by means of implicit demand response events The following identified archetype BM investigates the added value provided by an energy aware DR tool (such as the WiseCOOP tool) to the retailer, for meeting its obligation of a balanced portfolio by means of implicit DR events. Recall that the implicit DR refers to the propagation of dynamic prices by the retailer to its clients aiming to incentivize them to reform their consumption pattern. Thus the BM investigates also the added value provided by the tools that manage at the local level the consumption and production of the prosumers, in terms of mitigating the risk of high electricity bills due to their exposure in dynamic pricing schemes. According to the basic investigated scenario, the retailer handles by its own the balancing responsibility, meaning that it undertakes also the role of the BRP. Focusing on the functionalities of the WiseCOOP tool (to be mentioned below), we consider that the retailer/BRP does not manage generation units and consequently has not the option of production rescheduling. Thus a balanced position consists of the equalization of its clients’ consumption with the volume of energy purchased (reserved) in the wholesale market. In what follows, we consider the case when the retailer’s forecast about the demand of its clients and consequently the volume of energy purchased in the day ahead wholesale market does not match the actual consumption. In the case of a negative imbalance, that is, when the reserved energy is not adequate to cover the actual demand, the retailer/BRP may purchase further energy in the intraday market, but such a choice may be particularly costly. In the opposite case, the retailer/BRP must pay an imbalance penalty to the TSO for its inaccurate estimation12. The scenario assumes that the retailers’ customers have already signed contracts that expose them to dynamic pricing schemes (in what follows, we describe the potential benefits from accepting such an exposure). The retailer’s tool may gather all the necessary data from each individual prosumer (by means of the communication between the relevant tools) that let this agent to know how they adapt their consumption with respect to the prices, environmental conditions, and social events. The retailer elaborates this knowledge and computes their response with respect to these parameters. Utilizing this information and the energy management tool, the retailer is aware of the appropriate level of the prices, which should cause the desired collective modification in the demand profile of its clients (load shifting/shedding) and will result in a balanced energy portfolio. The calculation may either refer to personalized prices for each individual client or to common prices for all the members of its clientele. The dynamic prices are propagated both to residential prosumers and tertiary buildings via the energy management tools. Concerning the operation of

12. K. L. E. Institute, “The current electricity market design in Europe,.” Available from: https:// set.kuleuven.be/ei/images/EI_factsheet8_eng.pdf/

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these, the basic business scenario considers that it is performed by an ESCO, which receives revenue streams as a portion of the prosumer’s bill savings. The BM considers prosumers who have installed batteries and may store energy from the grid during periods of low prices and consume it when the electricity is more expensive. Additionally, the prosumers have installed RES and may compare their revenues from the injection of their production in the grid, with the savings from a reduced electricity bill if they choose to self-consume/store. In this context, the main business role of the ESCO is to provide, by means of the tools that manages, the optimal scheduling of the assets at local level such that the revenues of the prosumers are maximized (or their billing cost is minimized), taking always into consideration their price sensitivity and their convenience constraints or preference. Thus the tools must present the optimal schedules of the assets in a user-friendly way, which will allow the prosumers to easily adopt the proposed schedules and understand their potential revenues. Apart from the economic incentives, the response of the domestic prosumers to dynamic prices may be stimulated by social and ethical parameters, such as the feeling of working together toward a common purpose and the impact of comparisons and competition with other peers of the communities (e.g., neighbors). Such functionalities should also be provided by the tools managed by the ESCO, aiming to stimulate the efficient response of the occupants to the dynamic prices, since its revenues strongly depend on their consumption rescheduling (being a portion of the electricity bill savings). From the retailer’s/BRP’s perspective, this BM exploits the added value offered by tools for DR planning like the WiseCOOP tool stemming from better demand-side management, in terms of reducing or eliminating the cost that is related with an imbalanced portfolio. From the prosumer’s perspective, it exploits the added value provided from energy management tools at consumer (e.g., home) level. The added value may be quantified by means of comparison between prosumers who follow the optimal schedules provided by the tools’ functionality, with those that maintain their flat-fee consumption pattern despite the propagation of dynamic prices by the retailer. Additionally, it may be quantified by estimating the gains for those prosumers to accept favorable contracts offered by the retailer. For instance, a candidate contract between the retailer and a prosumer may combine dynamic pricing scheme in the form of critical peak pricing during the peak periods, and flat rates for the rest of the time. Then, the prosumer may accept such a contract if the level of the flat prices is lower than those in a contract that does not include any dynamic scheme. The optimal consumption-suggestions of the tools should guarantee that such a choice will result in lowering electricity bill for the prosumer. We clarify that this type of DR event is characterized as implicit, because the retailer does not require a specific volume of consumption curtailment but provides economic incentives for consumption shifting/shedding via dynamic pricing, while the prosumers voluntarily respond to such signals. But, this voluntary nature of implicit DR makes the intervention of an ESCO questionable and

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is one of the main barriers for the development of such BMs. Indeed, the prosumers may not always accept to appropriately shift their consumption according to ESCO’s suggestions. As a direct result the anticipated savings in the retailer’s bill will not (or partially) be realized and the ESCO will lose its source of revenues. Aiming to overcome this risk, the BM proposes alternative forms of revenue streams for the ESCO. For instance, it could require a flat-fee from the prosumers for providing its optimal suggestions, along with the portion of their bill savings. Additionally, the ESCO should strategically choose the suitable subset of prosumers to offer its services, based on an analysis for their price sensitivity which reflects its potential revenues. But still, the revenues of the ESCO may not justify its business role, especially for domestic prosumers whose payback from their participation in the implicit DR events is not expected to be noteworthy. To this end, the BM suggests alternative options for the commercial exploitation of tools which schedule the local assets, such as the WiseHOME and the WiseCORP. For example, in the context of the current scenario these tools may be provided free-of-charge (or at the price that equals their development cost) by the retailer to its clients, aiming to help them participate more efficiently in the implicit DR events, while protecting them from their exposure to the dynamic pricing schemes. In this case, the retailer’s objective is not to achieve direct revenues from selling the tools but aims to utilize them for meeting a balanced portfolio, while keeping its clientele satisfied from the offered service and preventing them from switching to any of its competitors. We emphasize that such services are of importance in a liberalized market, since the consumers have the right to change their supplier without any extra charges. Concerning the regulatory barriers, the CEER’s study revealed that 71% of the European countries that were sampled use only static time-of-use tariffs, a pricing scheme which clearly does not provide the field for the implicit demand-side response to be realized. Despite this fact, Time-of-Use pricing schemes appear in countries such as Greece, where there are differential tariffs for peak and off-peak consumption for residential consumers13. However, not all European States apply “price signals” to induce customers to change their consumption patterns. From a technical perspective, DR programs should be made as easy as possible for consumers to participate. In addition to concentrating on the rewards side of the equation, attention should be devoted also to the cost side; consumers will have to invest as little time and effort as possible, so that they might engage in DR even if the financial rewards are not very high in absolute terms. In this context, automatization of responses appears to be crucial: consumers will not have to do anything, because adjustments in their consumption patterns will be automatic. Finally, it is now well known, especially thanks to the studies from the discipline of economics, that the efforts of policymakers to empower consumers are often frustrated by the fact that consumers do not react to efforts to 13. Hellenic Public Power Company SA (PPC), 2013. “Residential night tariff,” PPC. Available from: https://www.dei.gr/en/oikiakoi-pelates/timologia/oikiako-timologio-me-xronoxrewsi-oikiako-nuxterino.

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alter their consumption patterns. Ironically, perhaps this is because they do not see the financial gain as sufficient to reward altering their consumption. In light of this difficulty, the involved tools must provide additional information apart from the economic savings to be achieved such as the environmental benefits from the reduction of the CO2 emissions when shifting the consumption during period of high RES generation. Such types of incentives have been observed to stimulate the user’s participation in DR events and are considered as a major drive for their active engagement14. Table 29.2 provides a generic BM for DR in canvas form and Fig. 29.4 depicts a generic value network for DR.

TABLE 29.2 Generic business model for demand response in canvas form. Actors involved

G G G

Roles involved

G

G

G

Value proposition for involved actors

Prosumer. Retailer. ESCO/(EE&EM). Power Consumption & Production, Energy Storage: (role performed by domestic and tertiary prosumers). EE&EM Services (role performed by the ESCO which manages the functionalities of the WiseHOME and WiseCORP tools). Power Retailing (role performed by the retailer).

Prosumer G A prosumer, who participates in the implicit DR events, may negotiate favorable contracts with the retailer (as described above). G Prosumers who have installed RES and generate electricity can utilize self-balancing to generate added value through the difference in the prices of buying, generating, and selling electricity. G Prosumers who have installed batteries in their households/ premises may adapt their electricity consumption profiles according to the dynamic prices with a lower inconvenience cost and utilize to higher extent renewable energy sources. G Will be able to follow more accurately the optimal schedules by means of their visualization, while they remain within their comfort zone. Retailer G Implicit DR enables retailers to adjust their portfolio demand profile so that it better matches the profile of energy purchased from the wholesale energy markets, therefore reducing chances of imbalance (the value proposition considered in this BM). (Continued )

14. Smart Energy Demand Coalition, 2015. “Mapping demand response in Europe today,” Brussels.

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TABLE 29.2 (Continued) G

G

Retailers can employ dynamic pricing tariffs, such as time-of-use, critical-peak-pricing and real-time-pricing, to better represent market prices, expose consumers to the real electricity cost, and raise their awareness (out of scope). Retailers can use load flexibility, through dynamic prices, to reduce peak demand and benefit from stability in the network.

ESCO G

G

Energy Service Companies can benefit from the dynamic supply/demand interplay by offering suitable services to prosumers and retailers, such as forecasting information and prediction models, remote maintenance and support, and onor offsite energy management. Energy cost management or tariff comparison can be offered by ESCOs to facility managers and/or residential consumers, opening up new lines of business.

Revenue streams

Prosumer G Reduced electricity bill by means of load shifting/shedding and the use of batteries. G Better utilization of RES by comparing the consumption prices (retailer) with the potential revenues from grid injection, to make the optimal decision: either self-consume or sell. Retailer G Reduced cost or penalties due to its portfolio imbalance (main source). G Dynamic tariff schemes and related enhanced information services can increase the supplier market share, via consumer engagement and improved brand image. ESCO G Revenues for providing the sophistication of the energy management tool’s functionalities. Their revenues are a portion of the electricity bill reduction combined if necessary, with a flat-fee.

Cost streams

Prosumer G Part of their saving are given to the ESCO for providing the optimal consumption and RES generation schedules. Retailer G Economic investment for the development and operation of the software for the DR planning tool and communication channels and technologies with the energy management tools. ESCO G Economic investment for the development and operation of the software for the energy management tools and communication channels and technologies with the DR planning tool. G Potential charges paid to prosumers and/or aggregators for not providing suitable services and/or accurate information. (Continued )

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TABLE 29.2 (Continued) Barriers

Prosumer G The insufficient economic benefits from their participation on implicit DR programs. The lack of information about the further benefits achieved by the DR programs, such as the environmental ones, that would strongly stimulate the active participation of the environmentally sensitive individuals. G The lack of automation equipment that would make their engagement in DR programs more convenient. Retailer G The absence of dynamic pricing schemes in the member states, and the lack of incentives as described for the prosumers that reduce the portion of the retailer’s clientele who would accept to be exposed in such programs. ESCO G The reaction of the prosumers to the dynamic prices and the adoption of the ESCO’s suggestions are volunteer, thus the revenues of this actor (as a portion of the electricity bill savings) become questionable.

FIGURE 29.4 Generic value network for demand response.

29.2.3.3 Storage: prosumer-driven energy storage integration This section analyzes business cases and potential BMs driven by the integration of energy storage systems at the prosumers’ premises, in either

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domestic or tertiary buildings and focusing on the added value of the potential services that may arise from their utilization. The analysis clusters the services according to the level of their implementation, a parameter which also determines the involved actors. On the local level, the batteries are used to optimize the revenues of a single prosumer, while on the aggregation level the VPP Operator (aggregator) pools the storage capabilities of multiple individual prosumers, targeting to offer more demanding (in terms of storage capacity) services to further actors of the smart grid, such as the DSO. More specifically, on the prosumer level the integration of batteries can result in consumption patterns which are less dependent on the variable energy prices. For instance, the prosumer may be exposed to dynamic prices propagated by the retailer (either time-of-use or real-time schemes). Then, the storage unit operation may be scheduled according to the prices’ fluctuations; charged when energy prices are low and discharged when energy prices are high. In this manner, the prosumer may achieve a reduced retailer’s bill, while limiting the impact of consumption shifting on his convenience preference. An extended scenario (still on local level) may consider a prosumer who has also installed RES on his rooftop. In this case, the prosumer may decide the most profitable strategy, in terms or revenue maximization: either store the self-production to meet his own future needs or inject it in the grid and receive the relevant payment. The monitoring and configuration of the storage units at prosumer level will be mainly supported by the ESCO which owns and operates tools for energy management (like the WiseHOME and WiseCORP tools), for the residential and tertiary buildings, respectively. According to the basic BM, these companies receive a portion of the prosumers’ savings or profits, as a revenue for the provided services. The individual prosumers may achieve additional benefits from the installed storage systems, by their collective participation in a VPP. The VPP Operator bids in the ancillary and balancing markets for services requested by the DSO, which contribute to the smooth operation of the grid. Such services may be frequency control, reactive power and voltage control, backup service, and peak shaving for grid congestion management. The VPP Operator aims to expand its portfolio with prosumers owning batteries, because such members may participate more actively in DR events and more importantly are necessary for provisioning a subset of the aforementioned services. To this end, the VPP Operator must invest in the communication, metering, and control infrastructure needed for the data collection from the batteries and use such data as input for developing sophisticated algorithms for their scheduling in the market participation. Furthermore, the VPP Operator collects by means of energy management tools, data from the markets related with the requests for the services provisioning. Then the VPP Operator combines these types of data, aiming to decide the most profitable utilization of its assets. More specifically, when the VPP Operator receives simultaneous requests for multiple services, the algorithms of the software/tool that manages the storage-as-a-service (like the WG STaaS/VPP tool) determine which batteries (prosumers) should participate in each one. This decision is

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based both on the batteries’ characteristics, such as their availability and cost functions with respect to their aging and losses and on the forecast of the local production and consumption such that the prosumers’ convenience preferences are not violated. On the aggregation level, the VPP Operator allocates the monetary amount paid by the DSO to its customers according to their contribution in the service realization, while keeping a reasonable portion for its own services. Additionally, the VPP Operator may gain revenues by requiring a participation fee from his members. In this scenario also, the ESCO suggests the optimal consumption patterns at the local level, which satisfy the request of the VPP Operator, and receives a portion of the offered compensation for its services. For all the preceding services, the BM may capture two alternatives with respect to the batteries’ ownership. The former assumes that the prosumer pays and owns the batteries, that is, the batteries are considered as a capex cost for this actor. In this case, the BM will compute the added revenues that the prosumer attains by the batteries due to the more economic coverage of his own needs and his more active participation in ancillary services (compared to a consumer who does not own batteries). The added revenues should exceed the initial investment (the cost of purchasing and installing the batteries) within a reasonable time interval in order of years and provide income to the prosumers thereafter, till the end of their life cycle. The second case considers an additional actor in the value chain, namely, “Storage Unit Operator” (SUO), who bears the capex cost of the batteries and installs them at the prosumers’ premises, aiming to offer storage services. This actor may allocate only a portion of the batteries’ capacity for meeting the prosumer’s needs and his revenue-maximization strategies at the local level, while the rest may be assigned for providing services that are requested by the VPP Operator. For its former contribution, this actor may receive revenues in the same form as for the ESCOs which manage the energy management tools, that is, it exploits a portion of the added value created for the prosumers due to the batteries’ presence. We mention that in this case, the contractual agreement between the two parties must explicitly specify the portion of the capacity which is associated with the local needs. Since its revenue streams are identical with those of the ESCO, in what follows, we assume for simplicity reasons that the ESCO undertakes also the role of the “SUO.” This BM may be extended to investigate the added value gained by the prosumers from the integration of EVs, due to their inherent storage capabilities. The main difference with a conventionally battery may be its capacity limitations but also its availability when any of the services discussed above needs to utilize its battery, with the latter parameter strongly depending on the prosumer’s lifestyle pattern. Moreover, the EV mainly consumes electricity targeting to cover its own transportation needs and secondarily to supply other devices. Thus it is expected to significantly increase the consumption of the households. Consequently, in this case the role of the ESCO is even more crucial in terms of providing the optimal consumption schedules according to the

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varying prices within the planning horizon, while also meeting the other objectives at the local (V2H) and aggregation (V2G) levels as described above. Concerning the regulatory barriers for the implementation of the aforementioned BMs, this section mainly focuses on those related with the installation of the storage units and briefly mentioned those which refer to the operation of the VPP operator. More specifically, the regulation of storage assets faces many conceptual and practical challenges since there is no consensus on the definition of storage assets, particularly, whether they should be treated as generation assets or consumption units. This lack of clarity stems from the fact that, while storage assets can generate electricity in the literal sense of “generation,” the amount of electricity generated is typical not enough to provide a net positive flow to the electricity system15. On the other hand, they cannot be properly classified as consumption units because they do not actually consume the energy that they take up. Could they also be classified as part of a transmission or distribution network, given that they can be a bridge asset between generators and final consumers? The answers to these questions are fundamental to the development of an appropriate regulatory regime as they impact on inter alia ownership, pricing, and the imposition taxes and levies. For instance, in Spain, under the Electricity Sector Law 24/2013, battery owners are not allowed to reduce the maximum power they have under contract with their supplier. While it may be argued that this is intended to maintain grid integrity, when coupled with the high self-consumption tax, the regulatory regime for self-consumption and storage appears to be ill-considered. In some cases, the regulatory framework not only promotes but rather hinders the development of storage. For example, in some countries taxation is not favorable to storage, as typified by the “Grid Fee System.” Ordinarily, grid fees are paid by the final consumers of power, as a fee for the transportation of electricity through the grid network. In the case of storage, operators of storage assets are first charged for charging the storage asset and then also for discharging it, because of the notional double flow of electricity. In real terms, the storage asset is neither a producer nor consumer therefore the strict application of the traditional grid fee model should not extend to storage assets. Often, this double taxation is higher than power prices, resulting in a very strong disincentivization of electricity storage16. Finally, concerning the operation of the VPP aggregator, there are generally no standardized contractual arrangements governing the roles and responsibilities of this distinct actor. Furthermore, it is often impossible in practice, or even not allowed by the law, to aggregate consumers’ flexibility. Even though in some countries DR is a commercially viable product, a remaining key 15. Gissey, G.C., Dodds, P.E., Radcliffe, J., 2016. “Regulatory barriers to energy storage deployment: the UK perspective,” RESTLESS Project, London. 16. Deign, J., 16 October 2015. “Spain’s new self-consumption law makes batteries impractical for homeowners,” GreenTech Media. [Online]. Available from: https://www.greentechmedia. com/articles/read/spanish-self-consumption-law-allows-batteries-at-a-cost. (accessed 31.07.17).

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obstacle is the requirement for aggregators to get the prior agreement of the customer’s supplier/BRP in order to be able to contract with the customer17. Table 29.3 is a generic BM description for prosumer-driven energy storage integration in canvas form, whereas Fig. 29.5 offers a generic value network for prosumer-driven energy storage integration.

TABLE 29.3 Generic business model description for prosumer-driven energy storage integration in canvas form. Roles involved

G

G

G

G G

Value proposition

Power consumption and production (role performed by domestic/ tertiary consumer with installed RES units). Energy Storage (role performed by prosumer with batteries or by the ESCO acting also as “Storage Unit Operator”). EE&EM Services (role performed by the ESCO which operates the functionalities of the energy management tools). Power distribution (role performed by the DSO). Aggregator services (role performed by the VPP Operator).

Prosumer G Will be able to increase its self-consumption. G Will be less dependent on the fluctuations of the retail prices and thus will reduce his electricity bill. G Will be able to meet its energy demand at all times. G Will be able to monitor its own production and consumption. G Will be able to provide services to the VPP Operator (aggregator) and thus generate additional income. ESCO G Will be able to offer new and better services to its clients, by the more efficient utilization of their flexibility and self-production. G Acting also as SUO, will be able to provide multiple services (even at the same time) and thus generate additional income streams. G Will increase its customers and its penetration in the market. DSO G Will be able to use storage units for grid services. G Will be able to react fast on situations occurring in the grid through low response times of storage units. G Will be able to locally solve grid congestions. G Will profit from grid investment deferral when storage units are deployed in a larger scale. VPP Operator G Will be able to provide services and flexibility to the market and thus generate additional income. G Will be able to monitor and control decentralized storage units. (Continued )

17. Smart Energy Demand Coalition, 2015. “Mapping demand response in Europe today,” Brussels.

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TABLE 29.3 (Continued) Revenue streams

Prosumer (consumer with batteries and RES) G Reduction of the energy bill through time-of-use management and enhanced self-consumption. G Additional revenues from its more active participation in DR events, and other services that require the batteries installation. ESCO G Receive a portion of the prosumers’ revenues for providing the energy management service (optimal batteries scheduling at the local level). G Acting also as SUO, receives a portion of the prosumers’ revenues for providing the storage capabilities and gains additional income from the VPP Operator for its contribution in DR events and ancillary services. DSO G Lower cost and thus higher profit through grid investment deferral when storage units are deployed or pooled in a larger scale. VPP Operator G Payment received by the DSO (or other actors) for providing ancillary services and flexibility to the relevant markets. G Receives participation fee from the prosumers who aim to become members of the VPP.

Cost streams

Prosumer (consumer with batteries and RES) G The investment cost for buying and installing the batteries. G A portion of the achieved added value (revenues for participating in DR events and offering ancillary services, or decreased electricity bill of the retailer) is given to the ESCO for its services provision. G Participation fee to the VPP Operator. ESCO G Initial economic investment on software and communication channels and technologies with a storage-as-a-service management tool like the WG STaaS/VPP. G Acting also as SUO, bears the capex cost of the storage equipment and the relevant monitoring and control devices. DSO G Initial economic investment on software and communication channels and technologies with a storage-as-a-service management tool like the WG STaaS/VPP. VPP Operator G Initial economic investment on software for developing the storage-as-a-service management tool, and for communication channels and technologies with the energy management tools such as WiseHOME and WiseCORP. G Participation fee to the ancillary and balancing markets. (Continued )

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TABLE 29.3 (Continued) Barriers

Prosumer G The regulatory framework may not allow the potential savings to appear and consequently hinder the development of storage (e.g., the Spain case, where the battery owners are not allowed to reduce the maximum power under contract with their retailer). G Regulatory provisions may render business model nonprofitable, e.g., by maintaining network charges on storage (charged for the double flow of electricity). ESCO G Acceptance of dynamic prices is rather low around the EU. Consumer’s reluctance to join such programs is prevalent. Such conditions do not bring about the potential savings in the electricity bill, therefore the engagement of the ESCO becomes questionable. G Uncertainty about inherent demand flexibility available in various building typologies and housed activities/operations. VPP Operator G Not clear regulatory definition of the role, rights, obligations, and function of aggregator in all European countries. G Not an extended scaling up of advanced smart meters enabling fast response to DR requests. DSO G All the barriers reported for the other participating actors affects also the potential of the DSO to request DR and ancillary services that may be realized from the aggregation of small loads (households).

FIGURE 29.5 Generic value network for prosumers driven energy storage integration.

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29.2.3.4 Archetype business model for exploiting prosumers flexibility—the role of a virtual power plant The archetype BM in this section investigates the added value to be gained by the participating actors in an explicit DR event. Central role in the BM has the VPP which represents a basic component of an interactive and dynamic distribution network, as a system that integrates many resources, such as RES, energy storage systems, and flexible/controllable loads of domestic and tertiary prosumers. According to the basic business scenario, at the local level (for each individual household or tertiary building), these resources are scheduled by the responsible ESCO that manages energy management tools at the home and building level such as WiseGRID’s WiseHOME, and WiseCORP tools, respectively, aiming to optimally meet the needs of the occupants. At the aggregation level, the production capacity and consumption flexibility of these heterogeneous resources can be pooled, and the energy surplus can be utilized to offer additional services. In that sense, the VPP operator acts as an aggregator and represents an intermediary between the prosumers and the energy markets, while its business role consists in identifying the most profitable utilization of the VPP resources. More specifically, the VPP Operator can participate in the day-ahead and intraday wholesale market for selling the energy surplus and in the balancing markets for offering consumption flexibility and DR services to other actors of the grid, for example, the DSO. Aiming to maximize the revenues of its participants while satisfying their convenience constraints, the VPP Operator firstly selects (by means of the WiseCORP and WiseHOME tools) the forecasts of the local RES production and combines it with the forecasted demand of its members aiming to compute their surplus. Then, the VPP Operator compares the potential revenues from the two markets and decides the most profitable schedule for its assets: either sell the consumption surplus or store it to cover future local needs and additionally the member that will participate in the DR events. The VPP Operator’s tool (such as the WG STaaS/VPP) sends the optimal strategies to each individual prosumer, using the communication channels with the relevant tools. In the case of a DR event, the VPP Operator explicitly requests from a subset of its members their consumption shifting/shedding of a specific volume of power within a specific time duration. For instance, the DSO may request the self-consumption (or storage) of the RES production to avoid a curtailment, or a consumption shifting that would relief its grid from congestion. Depending on the contracts with its members, the VPP Operator may offer a payment for the consumption rescheduling or may apply direct load control. In the former case, the VPP Operator firstly chooses the most appropriate prosumers to participate in the DR event, according to their potential in satisfying the DR requirements and the level of compensation that they request. The DR signal along with the payment level is sent to the WiseCORP tool, which computes the optimal

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rescheduling of the local devices, such that the relevant request is met. In the case of direct load control the VPP Operator computes and sends the optimal schedules for the devices in the tertiary building, while the role of the WiseCORP tool is limited to their implementation. In both schemes, the participation of the prosumers in the DR is quantified by comparing their actual consumption during the event with their individual baselines (consumption under normal conditions, in the absence of DR request), which are derived by elaborating historical data. The VPP Operator manages the compensations for its members according their involvement and contribution to DR campaigns and the energy surplus provided. Concerning his revenue stream, the VPP Operator may require a participation fee from each individual member and keep a portion of their profits from their participation in the wholesale markets and the DR events. Concluding, the aim of this BM is to investigate the added value gained by the prosumers from their participation in the VPP, due to the more efficient utilization of their production and consumption-shifting capabilities both at local and aggregation level, according to the advices of the VPP Operator. As mentioned above, the additional potential revenues will be gained by purchasing their production surplus in the wholesale market (e.g., compared with the regulated feedin tariffs or premiums for the participation of small-scale producers below 10 kW in the markets) and by participating in DR events. Furthermore, the BM investigates the added value that will be provided by the WG STaaS/VPP tool to the VPP Operator. The potential additional revenues are expected to be realized mainly due to the optimization functionalities of the tool, which allow the agent to decide the optimal assignment of the requested services to its assets and consequently increase the set of services that may be offered (e.g., increase the magnitude of demand shifting that the VPP Operator can offer in the balancing market). Additionally, the optimal advices to the prosumers are expected to extend its clientele (more prosumers willing to become members of the VPP) and thus its revenues. In this context, the crucial importance of the VPP Operator’s tool for his viable business activity becomes apparent. More specifically, its sophistication must result in the real-time optimal assignment of the VPP assets among the alternatives that arise in the wholesale market (energy selling or DR participation). In this way, the VPP Operator will be able to offer competitive bids to the DSO and achieve increased gains for its members, a fact that results in an extended portfolio and higher market share. The role of the ESCO in these scenarios is aligned with those in the other BMs, that is, to reschedule the consumption of the devices at the local level, such that the consumption pattern communicated by the VPP Operator is met. For clarity reasons, it is mentioned that this archetype BM assumes that the prosumers own the RES. Nevertheless, the BM and the relevant value network may be appropriately modified to include also the case when a RESCO owns and operates the RES, when this parameter is clarified in the pilot sites. In this case, the relevant contracts must be carefully designed to resolve conflicting interests between the involved parties. Such issues may arise in the case of a

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contract between a consumer and the RESCO (renting his/her rooftop), which specifies the portion of generation that may be consumed locally on hourly basis. Then, if the VPP Operator requires from the consumer an explicit DR lasting for a shorter interval (e.g., half an hour), the prosumer may require from the RESCO to consume all the agreed portion of the local generation during the event, aiming to avoid the inconvenience cost while earning the compensation by the VPP Operator. This action may be against the interests of the RESCO if at the same time the wholesale price is high, because it misses the opportunity to maximize the profits from its generation. Concerning the barriers that may prevent such BMs to be realized, we distinguish between the technical and the legislative perspective. In the former case, many European countries lack a standardized framework for the measurement of the baseline consumption, which as mentioned above is considered as a comparison benchmark for the quantification of the load shifting/shedding during the DR event. This may have as a consequence the inaccurate estimation of the consumer’s contribution and inadequate payment for offering their flexibility which clearly results in weak incentives for their participations. Furthermore, the business activity of the aggregator strongly depends on the installation of certain infrastructures for the real-time communication of data and the automation of the consumption rescheduling. The key reference here is to install smart meters, which in most of the European member states are not yet deployed. Considering the legislative perspective, in many Member States aggregated DR is either illegal or its development is seriously hindered due to regulatory barriers. Indeed, load aggregators do not exist in every EU Member State. The analogous consideration applies to regulatory frameworks governing their operation. For example, in Italy, the notion of load aggregator is not formally recognized and no regulatory framework currently exists. Poland does not seem to be taking the required steps to foster the development of incentive-based (explicit) DR. Other European countries still present important regulatory barriers, notably program participation requirements not yet tailored for both generation and demand-side resources. For example, Austria requires consumers to install a secured and dedicated telephone line in order to participate in the balancing market. Norway requires TSO signals to be delivered over the phone, thus making the minimum bid size high. As a result, the participation of consumers other than large industrial consumers is hindered. Similarly, technical and organizational rules do not consider some of the requirements for the provision of balancing services in sufficient detail, such as the negative impact of complex and lengthy approval procedures, and their associated costs, on market entry and participation. Great Britain is deemed to have competitive energy markets and open balancing markets, though uncertainties for DR have been cast by the emerging capacity market. Great Britain was the first EU Member State to open to the demand side many of its electricity markets. Currently, all balancing markets allow the participation of DR in general and aggregated load in

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particular. However, according to the SEDC, measurement, baseline, bidding, and other procedural and operational requirements are not appropriate. Thus, even though the markets are formally open, in practice, results in terms of demand-side participation have been worsening over time. Furthermore, the capacity remuneration mechanism introduced in 2014 is said not to place demand-side resources on a “level playing field” with generation resources. Indeed, only 1 demand-side aggregator out of around 15 operating in the market managed to secure a contract in the first capacity market auction. In Spain, even though some smart grid pilot projects are currently being developed, incentive-base (explicit) DR is currently modest. Even though there is one interruptible load program that allows incentive-based (explicit) DR, the scheme is only open to large consumers and has not been used for several years. Importantly, load aggregation is illegal18. Finally, even though load aggregators exist in some countries, such as France and Belgium, at the moment their activities are focused on the highand medium-voltage levels of the transmission grid meaning that they only deal with the TSOs. Clearly their business interaction must be extended also with the DSOs, aiming to contribute to the proper operation of the grid at the low-voltage level (distribution). Table 29.4 provides a generic BM description for exploiting prosumers’ flexibility and Fig. 29.6 offers a generic value network for prosumer-driven energy storage integration.

TABLE 29.4 Generic business model description for exploiting prosumers’ flexibility. Actors involved

G G G G

Roles involved

G

G

G

G

Prosumer. ESCO. VPP operator. DSO. Power Consumption/Production and Energy Storage: (role performed by either domestic or tertiary consumer with batteries and RES installed). Aggregator Services (role performed by the VPP Operator managing the WG STaaS/VPP tool). EE & EM Services (role performed by the ESCO, managing the energy management tools such as WiseGRID’s WiseHOME and WiseCORP). Power Distribution (role performed by the DSO, managing the WG Cockpit tool for sending the DR requests). (Continued )

18. Smart Energy Demand Coalition, 2015. “Mapping demand response in Europe today,” Brussels.

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TABLE 29.4 (Continued) Value proposition

Prosumer G Will be able to schedule its consumption, production, and storage capabilities more efficiently. G Will be able to sell its production surplus to the wholesale market. G Will receive additional revenues from its flexibility capabilities and its participation in explicit DR events. G Will have the opportunity to give its contribution for the environment protection, when participating in explicit DR events for the RES curtailment avoidance. ESCO G Will decide the optimal schedules of the devices at the local level and thus increase its revenues (as a portion of the prosumer’s profits). VPP operator G Will provide a combination of services, thus utilizing more efficiently the assets of its members. G Will provide optimal schedules and thus increase its clientele. G Will manage better its internal resources in order to decide more efficiently if it is more profitable to store or sell the energy surplus. G Will be able to provide explicit DR services, thus increasing its earning. DSO G Will be able to receive in an easier way support for balancing the grid by means of the DR services provided by VPP operators.

Revenue streams

Prosumer G Payments from the aggregator for its contribution in the explicit DR events. VPP operator G Revenues for operating as an intermediary between the prosumers and the energy markets (receives a portions of the prosumers’ profits). G Revenues for providing DR services to the DSO. G Receives flat-fee from the prosumers for their participation in the VPP. EE&EM G Revenues for providing the sophistication of the energy management tools’ functionalities. Their revenues may be either a portion of the compensation provided to prosumers for their participation in explicit DR events, or a fixed fee paid by the prosumers (or their combination). DSO G Decreased operational costs by avoiding the grid congestion and RES curtailment. (Continued )

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863

TABLE 29.4 (Continued) Cost streams

Prosumer G Part of its revenues will be given to the ESCO for the optimal schedule of the local devices. G Payment to the VPP Operator for becoming a member of the VPP. VPP Operator G Economic investment for the development and operation of the software (such as the WG STaaS/VPP tools) and communication channels and technologies with the WiseHOME/WiseCORP and WG Cockpit tools, aiming to receive and send flexibility requests and compute the optimal schedules at aggregation level. G Payments to VPP participants for their involvement in the DR services realization and for their power production. G Payments to the market’s operator for market participation (not appearing in the value network). ESCO G Economic investment for the development and operation of the software tools for energy management and communication channels and technologies with the WG STaaS/VPP, aiming to receive flexibility requests and compute the optimal schedules at local level. DSO G Economic investment for the development and operation of the software (like the WG Cockpit tool), and communication channels and technologies with the WG STaaS/VPP, aiming to send flexibility requests. G Payment to the VPP Operator for provisioning the DR services.

Barriers

Prosumer G The lack of a standardized framework for the measurement of the baseline consumption and the inadequate installed equipment (smart meters) prevent the revenues from their contribution in DR events to be realized and hinder their active participation in such programs. VPP Operator G The same barriers as mentioned above for the prosumer. G The regulatory barriers in many member states, where the aggregation of small loads is illegal, or do not guarantee a level playing field for the competitive participation of the aggregators in the balancing markets.

864

Electricity Decentralization in the European Union

FIGURE 29.6 Generic value network for prosumer-driven energy storage integration.

Index Note: Page numbers followed by “f” and “t” refer to figures and tables, respectively.

A AAUs. See Assigned Amount Unit (AAUs) Accelerated Capital Allowance scheme, 313 314 ACER. See Agency for Cooperation of Energy Regulators (ACER) ACON. See Again Connected Networks (ACON) Act on Implementation of General Data Protection Regulation (AIGDPR), 402 Adaptation, 560 561 Adaptive grid, 120 Additional smart solutions, 628 ADEME. See Agence de l’Environnement et de la Maıˆtrise de l’Energie) (ADEME) Administrative functions, market participants with, 340 Advanced metering infrastructure (AMI), 10 11, 130 Affordability, 683 684 Again Connected Networks (ACON), 702 703 Agence de l’Environnement et de la Maıˆtrise de l’Energie) (ADEME), 250 Agency for Cooperation of Energy Regulators (ACER), 44 45, 153 Agency for Sustainable Energy Development (ASED), 186, 188 189 Aggregated Generating Unit (AGU), 322 Aggregators, 46 47, 175 Agricultural customers, 140 141 Agricultural sector, 179 180, 407 AGU. See Aggregated Generating Unit (AGU) AI. See Artificial intelligence (AI) AIGDPR. See Act on Implementation of General Data Protection Regulation (AIGDPR) AKU-BAT CZ. See Creation of specific Association for Energy Storage and Batteries (AKU-BAT CZ)

ALEGrO, 128 Alternative Energy Vehicle Plan (VEA), 157 Alternative Fuels Development Plan, 733 734 Amendment and supplement Act, 187 AMI. See Advanced metering infrastructure (AMI) Ancillary services market (MSD), 168 ANRE. See Autoritatea Național˘a de Reglementare Iˆn Domeniul Energiei (ANRE) Archetype business models analysis of archetype business models for decentralized smart grid, 840 863 demand response, 846 850 electric vehicles, 840 845 storage, 851 857 for exploiting prosumers flexibility, 858 863 Archetype value network for smart grids, 836f ARMS. See Automated Revenue Management Services (ARMS) Artificial intelligence (AI), 628 ASED. See Agency for Sustainable Energy Development (ASED) Assigned Amount Unit (AAUs), 356 Athens Urban Transport Organisation, 139 Austrian Data Protection Act, 416 Austrian DSOs, 411 Austrian energy efficiency index, 407 Austrian energy market, 407 408 Austrian Power Grid, 410 Austrian smart meters, 411 Authorities, 444 445 Automated Revenue Management Services (ARMS), 641 Autonomous regions, 116 Autoritatea Național˘a de Reglementare Iˆn Domeniul Energiei (ANRE), 608 609 Availability, Accessibility, Affordability, and Acceptability (four As), 408 Avelin-Avelgem, 129

865

866

Index

B Balance of systems (BOS), 20 Balance responsible party (BRP), 126 127, 503 Balancing equation, 587 Balancing mechanism, 816 Balancing Responsible Parties (BRPs), 13, 836 Balancing services, 816 819 balancing mechanism, 816 capacity market, 817 819 reserve services/frequency response, 816 817 Baltic and Finnish transmission system operators, 735 Baltic energy isolation, 728 Baltic Energy Market Interconnection Plan (BEMIP), 590, 728 Baltic Sea, 211 Balticconnector project, 338 339 Banking Law Act, 238 Baseline consumption, 860 BATs. See Best available techniques (BATs) Battery, 142, 709, 842 energy storage, 673 operator, 837 storage, 828 Battery electric vehicles (BEVs), 287, 314, 510 511, 592 BCF. See Billion cubic feet (BCF) BEH. See Bulgarian Energy Holding (BEH) BEIS. See Business, Energy and Industrial Strategy (BEIS) Belgium electricity network, 128 129 electricity transmission system operator, 114 115 energy decentralization and transition in demand response, 126 127 electric vehicles, 124 126 interconnection, 128 129 smart grids and meters, 119 124 storage, 127 BEMIP. See Baltic Energy Market Interconnection Plan (BEMIP) Best available techniques (BATs), 353 Better Energy Homes Scheme, 313 BEVs. See Battery electric vehicles (BEVs) Big data, 44 Bilateral agreements, 841 842 Bilateral market mechanisms, 610 Billion cubic feet (BCF), 215 216

Bioenergy, 272, 781 782 Biofuels, 158, 221 222, 272, 603 604, 670 power plants, 578 Biofuels Obligation rate, 327 Biofuels Obligation Scheme, 314, 327 Biogas, 337, 698 699 Biomass, 79, 368, 617, 698 699 generating units, 782 783 production, 576 577 Biscay Bay project, 164 BMs. See Business models (BMs) BMW (company), 57 “Bonus-malus” system, 260 BOS. See Balance of systems (BOS) Bottom-up approach, 1 3 Brabo, 128 Brestanica Thermal Power Plant (TEB), 363 Brexit process, 797 BRP. See Balance responsible party (BRP) BRPs. See Balancing Responsible Parties (BRPs) Bulgargaz EAD, 185 Bulgaria energy decentralization and transition in data protection, 198 202 demand response, 197 198 electric vehicles and storage, 202 206 electricity market, 189 196 energy profile, 182 185 governance system, 186 189 government approach to smart grids, 189 greenhouse gas emissions and targets, 179 180 main market participants, 184 185 renewable energy, 181 182 smart grid status, 182 smart metering systems, 196 197 market, 205 Bulgarian economy, 182 183 Bulgarian electricity interconnections, 195 market, 197 Bulgarian Energy Holding (BEH), 184 185 Bulgarian Energy Sector Act, 189 190 Bulgarian power market, 184 185 Bulgartansgaz EAD, 185 Bureaucratic command, 606 Business, Energy and Industrial Strategy (BEIS), 782 Business Finland, 274 Business modeling analysis, 838 Business models (BMs), 696 697, 833

Index

C California Consumer Protection Act, 591 Capacity auction market, 324 Capacity Market (CM), 795 796 Balancing services, 819 820 Northern Ireland, 817 819 Capacity Market Act, 222 Capacity Payment Mechanism, 323 324 Capacity remuneration mechanism (CRM), 299, 819 Capacity Reserve Act, 281 Car manufacturing industry, 709 Carbon dioxide (CO2), 179 180, 265, 768 769 emissions, 583 584, 638, 668 669, 733 Carbon emissions, 550 551, 669, 721, 783, 798 Carbon footprint, 640, 645 Carbon Price Floor scheme, 798 799, 805 806 Carbon tax, 29 30 Carbon-dominant energy system, 76 CBA. See Cost benefit analysis (CBA) CCAC. See Climate Change Advisory Council (CCAC) CCTW. See Clean Coal Technology Centre (CCTW) CDS. See Closed distribution systems (CDS) CEE. See Central Eastern Europe (CEE) CEER. See Council of European Energy Regulators (CEER) CEF. See Connecting Europe Facility (CEF) Central East South Europe Gas Connectivity (CESEC), 194 Central Eastern Europe (CEE), 694 Central European system, 162 Centre for economic development, transport and environment, 275 CERA. See Cyprus Energy Regulation Authority (CERA) CESEC. See Central East South Europe Gas Connectivity (CESEC) CF. See Cohesion Fund (CF) CfD. See Contracts for Difference (CfD) CGDD. See General Commission for Sustainable Development (CGDD) CGEDD. See General Council for the Environment and Sustainable Development (CGEDD) CGS. See Clean Growth Strategy (CGS) Chaira PHPP, 204 CHP. See Combined heat and power (CHP)

867

CHP mode. See Cogeneration of heat and power mode (CHP mode) CIM. See Common Information Model (CIM) Circular economy, 65 smart grids within, 81 90 concepts and principles, 87 90 and EU, 82 84 EU waste regulation, 84 86 Clean Coal Technology Centre (CCTW), 215 Clean Energy Package, 704 Clean energy projects, 550 551 Clean Growth Strategy (CGS), 793 794 Cleaner energy sources, 655 Climate, 179 Climate Act, 481 Climate Action Act, 639 Climate Action and Low Carbon Development Act, 304 305 Climate change, 1 3, 116, 241 243, 304, 311, 575, 639, 655, 692, 721, 785 Climate Change Act 2008, 274, 799 800 Climate Change Advisory Council (CCAC), 305 Climate Change Policy, 287 Climate Policy Council, 481, 483 484 Close smart grid loop, concepts and principles to, 87 90 Closed distribution systems (CDS), 364 “Closed loop” economy, 82 83 CM. See Capacity Market (CM) CNG. See Compressed natural gas (CNG) CNIL. See Commission Nationale de l’Informatique et des Liberte´s (CNIL) CNMC. See National Commission of Markets and Competition (CNMC) CNPD. See Commission Nationale pour la Protection des Donne´es (CNPD) Coal, 211, 782 consumption in Germany, 216f energy reliance, 659 fired plants, 21 22 industry, 209 210 resources, 212 215, 686 sector, 209 210 Cogeneration of heat and power mode (CHP mode), 336 Cohesion Fund (CF), 731 732 Cohesive energy strategy, 115 Collaborative economy, 66 68, 73 delivering social benefits in, 71 73 EU and, 68 69 platform for, 70 71

868

Index

Combined heat and power (CHP), 171 172, 272, 373, 472 “Command-and-control” approach, 76 77 Commission assessment of key objectives in Romania’s draft NECP, 616f Commission de Re´gulation de l’Energie (CRE), 250 251 Commission Directors General including energy, 103 Commission for Personal Data Protection (PDPC), 199 Commission Nationale de l’Informatique et des Liberte´s (CNIL), 258 259 Commission Nationale pour la Protection des Donne´es (CNPD), 431 432 Commission of Regulation of Utilities (CRU), 299, 786 Committee on Industry, Research and Energy (ITRE), 456 Common Information Model (CIM), 379 Communication, 667, 846 Compatibility, 100 101 Competition forces, 15 Competitive market segment, 527 Complementary Technical Instruction (ITC), 158 Composite services, 833 Compressed natural gas (CNG), 327 328 Computer Security Incident Response Team Network (CSIRT), 106 Computerized authentication systems, 177 Connecting Europe Facility (CEF), 24, 163 Consumers, 15, 46, 54, 550, 756, 819 consumer-centric standards, 137 empowerment, 696 700 privacy, 166 protection, 113, 200 201, 563 564 rights, 699 safeguarding, 460 Consumption, 440, 473 477 data, 155 flexibility, 858 Contracts for Difference (CfD), 798 799 Contracts for premium (CP), 193 Conventional grid, 16 Corrib gas, 297 Cost benefit analysis (CBA), 123, 255, 536 537, 702 Council of European Energy Regulators (CEER), 33 34, 42 43, 59 60, 153, 535 Council of ministers, 186

CP. See Contracts for premium (CP) CRE. See Commission de Re´gulation de l’Energie (CRE) Creation of specific Association for Energy Storage and Batteries (AKU-BAT CZ), 705 CREG, 114 Creos, 129 CRM. See Capacity remuneration mechanism (CRM) Croatia energy decentralization and transition in data protection, 402 demand response, 401 402 electricity market, 395 400 energy profile, 391 394 governance system, 394 395 smart metering systems, 400 401 vehicles and storage, 402 405 energy mix in, 391 393 Croatian coast, 391 Croatian Electricity Market Act, 396 Croatian gas sector market, 392 393 Cross-collaborative approach, 303 CRU. See Commission of Regulation of Utilities (CRU) Crude oil, 221 CSIRT. See Computer Security Incident Response Team Network (CSIRT) CT. See Current transformers (CT) Current transformers (CT), 135 136 Cyber attacks, protection from, 564 567 Cyber physical systems, 564 565 Cyber Security Act, 201 202 Cybersecurity, 148, 201 202, 559, 619 620, 628 630, 729, 739 concerns, 737 740 issues, 710 712 and privacy issues, 91 96 for smart grids, 285 Cypriot consumer protection, 563 564 information system, 566 Cyprus, 551 data protection, 559 567 consumer protection, 563 564 current legal framework, 559 560 effects of smart metering on current legal framework, 561 563 protection from cyberattacks, 564 567 third-party control, 560 561 demand response, 558 559

Index electric vehicles and storage, 567 570 electric vehicles, 567 568 storage, 568 570 electricity market, 550 556 electricity interconnections, 556 energy security dimension, 554 555 key players, 551 legal and regulatory framework, 551 552 liberalization of market and status of unbundling in country, 553 554 energy decentralization and transition in, 549 550 smart grid, 550 smart metering systems, 556 558 Cyprus Energy Regulation Authority (CERA), 552 Czech Republic Czechia’s electricity market, 684 692 Czechia’s energy sector, 684 689 key aspects of electricity sector, 689 692 decentralized and smart electricity sector, 692 712 consumer’s empowerment, 696 700 interconnection, 693 696 smartening of electricity grid, 700 712 energy decentralization and transition in, 683 684 Czechia’s energy sector, 684 689

D DAM. See Day-Ahead Market (DAM) Danish data protection and smart meters, 458 460 Danish DPA, 459 Danish Energy Agency (DEA), 435 436 Danish Energy Board of Appeal, 444 Danish Energy Regulatory Authority (DERA), 444 Danish Ministry of Energy, Utilities and Climate Change, 444 Danish Promotion of Renewable Energy Act (“PREA”), 445 Danish Transmission System Operator (TSO), 444 445 Danish Utility Regulator (DUR), 444 DAPF. See Data Access Privacy Framework (DAPF) Data Access Privacy Framework (DAPF), 821 822

869

Data anonymization, 102 104 Data Communications Company (DCC), 811 Data concerns, 414 415 Data controllers, 165, 177, 200, 325 Data Hub, 507 508 Data leakage, 562 Data management, 675 Data minimization, 100 101, 675 Data privacy and security, 41 42 regulation in European Member, 43t Data processor, 200, 325, 560 561 Data protection, 96 104, 113, 148, 592, 675 676 energy decentralization and transition in Austria, 416 418 Belgium, 129 131 Bulgaria, 198 202 Croatia, 402 Cyprus, 559 567 Czech Republic, 710 712 Denmark, 458 461 Estonia, 351 355 Finland, 285 286 France, 258 259 Greece, 145 148 Hungary, 543 545 Italy, 177 178 Latvia, 737 740 Luxembourg, 431 432 Malta, 649 651 Poland, 237 238 Portugal, 769 771 Republic of Ireland, 325 326 Romania, 628 630 Slovakia, 674 676 Slovenia, 384 Spain, 164 166 Sweden, 506 510 United Kingdom, 820 823 ombudsman, 275 in smart grids, 590 592 Data Protection Act (DPA), 770 Data Protection Act 1998, 820 Data Protection Act of 2001, 649 Data Protection Acts 1988, 2003, 2018, 325 Data Protection Authority (DPA), 146, 458 459 Data Protection Impact Assessment (DPIA), 103 104, 131, 352, 591 Data Protection Law, 164 165 Data quality, retention, and accuracy, 101 Data retention, 147

870

Index

Data security, 148 Data State Inspectorate of Latvia (DSI), 738 Data transmission, 561 DataHub, 286, 453 454 Day-Ahead Market (DAM), 168, 609 DCC. See Data Communications Company (DCC) DCCAE, 308 funding for energy research projects, 308 pilot microgeneration scheme, 308 DCO. See Development consent order (DCO) DEA. See Danish Energy Agency (DEA) Decarbonization, 295, 588, 637, 684, 703 704, 733 734, 781, 805 laws and institutions relevant in decarbonization efforts in Malta, 640 641 Decentralization, 575, 599, 637, 684, 692 693, 721 722, 741 742 efforts, 663 665 process, 115 116 Decentralized energy, 835 863 analysis of archetype business models for decentralized smart grid, 840 863 archetype business model for exploiting prosumers flexibility, 858 863 demand response, 846 850 electric vehicles, 840 845 storage, 851 857 EU paradigm—EU project WiseGRID, 838 840 generic value network for smart grids, 835 838 Decentralized resources, 710 711 Decentralized smart grid, 833 834 analysis of archetype business models for, 840 863 Decentralized systems, 664 665 Decentralizing electricity generation, 116 117 Decision-support systems, 79 Delivering Secure, Sustainable Electricity System (DS3), 306 DEM. See Drava Electric Power Plant Maribor (DEM) Demand flexibility, 283 Demand in renewable energy, predictions for, 336 337 Demand response (DR), 31 32, 155 156, 358, 418 419, 585 586, 623, 742, 833 834 control of HVAC loads in banks, 765 766

systems in public buildings, 763 765 control of industrial loads, 766 current status in Europe, 49 52, 50f EDP distribuic¸a˜o pilots, 766 767 energy decentralization and transition in Austria, 418 420 Belgium, 126 127 Bulgaria, 197 198 Croatia, 401 402 Cyprus, 558 559 Czech Republic, 705 708 Denmark, 456 458 Estonia, 358 359 Finland, 283 285 France, 256 258 Greece, 140 141 Hungary, 538 539 Italy, 174 175 Latvia, 734 735 Lithuania, 585 588 Luxembourg, 430 Malta, 653 Poland, 238 240 Portugal, 762 767 Republic of Ireland, 322 325 Romania, 626 628 Slovakia, 671 672 Slovenia, 382 384 Spain, 160 161 Sweden, 502 506 United Kingdom, 814 820 and energy efficiency, 651 653 EU legal basis, 47 49 Great Britain, 814 819 balancing services, 816 819 demand response market players, 815 816 management, 27 market players Great Britain, 815 816 Northern Ireland, 819 Northern Ireland, 819 820 capacity market, 819 820 demand response market players, 819 promotion of, 114 reflections on demand response, 820 smart grid regulation, 45 55 sustainable energy, 846 850 technologies, 780 tools, 137 toward regulatory policy recommendations, 53 55

Index Demand Side Unity (DSU), 322 Demand-side management (DSM), 47, 379 380 Demand-side resources (DSRs), 238 239, 814 Demand-side unit (DSU), 819 Democratic energy transition, 838 839 Democratic system, 549 Demonstration project, 766 767 Denmark data protection, 458 461 demand response, 456 458 electric vehicles, 462 465 electricity market, 447 453 energy decentralization and transition in, 435 energy policy, 435 437 governance system, 443 447 smart metering systems, 453 456 storage, 465 467 DERA. See Danish Energy Regulatory Authority (DERA) DERs. See Distributed energy resources (DERs) Development consent order (DCO), 800 801 Developments of National Significance (DNS), 801 DGEC. See Directorate General for Energy and Climate (DGEC) DGEG. See Directorate General of Energy and Geology (DGEG) DGITM. See Directorate General for Infrastructure, Transport and Sea (DGITM) DHA. See District Heating Act (DHA) Diachronic energy consumption, 600 601 Different market players in Great Britain market, 788t Digital communication, 590 Digital economy, 66 67, 72 Digital ICT, 94 Digital service providers, 106 Digital systems security, 105 107 Digital technology, 19 smart grids, and law, 90 107 cybersecurity and privacy issues, 91 96 international and EU law, 96 107 Digitalization, 549, 556, 599, 711 to promote smart grids, 458 Dingle project, 308 Direct grants, 158 159 Direct load control, 415

871

Directorate General for Energy and Climate (DGEC), 249 250 Directorate General for Infrastructure, Transport and Sea (DGITM), 249 250 Directorate General of Energy and Geology (DGEG), 757 Directorate-general for energy, 394 395 Disruptive innovation, 66 68 Distributed electricity production, 492 498 Distributed energy resources (DERs), 169 Distributed generation, 20 Distribution, 689, 752 753 electricity interconnections and, 642 643 network, 854 services, 343 in United Kingdom, 793f system, 302, 552, 667, 787, 793 Distribution system operators (DSO), 10 11, 43 44, 141, 149, 170, 184 185, 231, 245 246, 268, 294, 306 308, 365, 370 371, 409 410, 427, 445, 472 473, 532 533, 553 554, 583 584, 612, 641, 662, 697 698, 766 767, 786 polish DSOs involved in smart grid project, 232t role of, 324 District heating, 476 477 District Heating Act (DHA), 340 341 District System Operators, 190 191 Diversification, 645 646 DNS. See Developments of National Significance (DNS) Domestic coal, 686 687 Domestic electricity production, 661 Domestic energy systems, 741 Domestic gas, 408 Domestic source, 579 DPA. Data Protection Act155 (DPA);. See Data Protection Authority (DPA) DPIA. See Data Protection Impact Assessment (DPIA) DR. See Demand response (DR) Draft National Energy and Climate Plan (NECP), 691 692 Drava Electric Power Plant Maribor (DEM), 363 DS3. See Delivering Secure, Sustainable Electricity System (DS3) DSI. See Data State Inspectorate of Latvia (DSI) DSM. See Demand-side management (DSM)

872

Index

DSO. See Distribution system operators (DSO); District System Operators (DSO) DSRs. See Demand-side resources (DSRs) DSU. See Demand Side Unity (DSU); Demand-side unit (DSU) DUR. See Danish Utility Regulator (DUR) Durability, 87 90 Dynamic distribution network, 858 Dynamic movers, 244 245 Dynamic price contracts, 15 Dynamic tariff systems, 626

E E-Buses. See Electric buses (E-Buses) E-Control, 409 E-Control. See Energie-Control (E-Control) E-mobility in public transport, 139 EAC. See Electricity Authority of Cyprus (EAC) EAP. See Environmental Action Programme (EAP) ECHR. See European Convention on Human Rights (ECHR) Eco-design Directive, 89 Economic events, 602 Economic growth, 602 603 Economic theory, 243 244 Economy Ministry, 380 ECP-1. See Enduring Connection Policy Stage 1 (ECP-1) EDA. See Electricidade dos Ac¸ores (EDA) EDF. See E´lectricite´ de France (EDF) EDM. See Electricidade da Madeira (EDM) EDP. See Energias De Portugal (EDP) EEA. See European Economic Area (EEA) EEE. See Electrical and electronic equipment (EEE) EEFA. See Energy and Energy Efficiency Act (EEFA) EEM. See Empresa de Electricidade da Madeira (EEM) EEX. See European Energy Exchange (EEX) EEZ. See Exclusive Economic Zone (EEZ) Efficient Vehicle Incentive Program (PIVE), 156 Effort Sharing Decision (ESD), 180 EG2. See Expert group 2 (EG2) EIC. See Environmental Investment Centre (EIC) EIMV. See Milan Vidmar Electric Power Research Institute (EIMV)

EirGrid, 301, 305 306, 317, 329 330 grid 25/your grid, your tomorrow/DS3 programme, 305 306 power off and save, 306 smart wires collaboration, 306 storage projects, 306 Electric agency, 387 Electric buses (E-Buses), 236 237, 236f Electric cars, 648, 664 Electric heating, 707 Electric mobility, 668 671, 760 762 Electric Mobility Network, 761 Electric power, 370 Electric power system (EPS), 641 Electric storage, 761, 767 769 Electric system, 700 transformation, 36 39 Electric Vehicle Supply Equipment (EVSE), 837 Electric vehicles (EV), 4, 124 126, 138, 156, 171 172, 202 204, 209 210, 260 261, 283, 286 289, 294, 326 329, 385 388, 402 405, 418, 592, 647, 686, 721 722, 761, 815, 833 834 charging points in Slovenia, 386t in Croatia compared to Europe and Slovenia, 404t Croatia’s new passenger vehicles using alternative fuels, 403t electricity storage and, 55 64 EV sales in EU, 61f incentives for Evs. across Europe, 62f energy decentralization and transition in Austria, 420 421 Bulgaria, 202 206 Croatia, 402 405 Cyprus, 567 568 Czech Republic, 708 710 Denmark, 462 465 Estonia, 355 358 Finland, 286 290 France, 260 261 Greece, 138 140 Italy, 173 174 Latvia, 733 734 Lithuania, 592 595 Luxembourg, 432 433 Malta, 647 649 Poland, 233 237 Portugal, 752 Republic of Ireland, 326 330

Index Romania, 623 Slovakia, 667 Slovenia, 385 389 Spain, 156 160 Sweden, 510 515 United Kingdom, 823 825 and energy storage, 823 829 EU-wide measure to promote, 595 hours spent in road congestion annually in Croatia, 403t hours spent in road congestion annually in Slovenia, 385t Hungary electricity system, 540 542 information hub, 309 promotion of, 114 Slovenia’s new passenger vehicles using alternative fuels, 386t and storage, 567 570, 592 596 electric vehicle support schemes, 593 595 EU-wide measure to promote electric vehicles nationally, 595 sustainable energy, 840 845 Electric Vehicles Systems Programme, 63 Electrical accumulator systems, 626 Electrical and electronic equipment (EEE), 83 Electrical energy, 437 440, 589, 644 balance, 334 335 market, 641 systems, 664 665 Electrical grid, 120 Electrical power, 182 183 Electrical sector, 576 Electrical Vehicle Platform (EVP), 159 160 Electricidade da Madeira (EDM), 752 753 Electricidade dos Ac¸ores (EDA), 752 753 E´lectricite´ de France (EDF), 243 245 Electricite´ Re´seau Distribution France (ERDF), 251 Electricite´de France, 251 Electricity, 106 107, 114, 158, 173 174, 181, 194, 210, 219, 297 298, 311, 319, 333, 346, 362 363, 383, 391 392, 409, 413, 472 473, 600 606, 746, 779, 837 demand for, 120 prices from March, 363t production, consumption, and import dependency, 362t transmission and distribution, 472 473 Electricity across borders, 27 Electricity Act 1989, 800

873

Electricity Authority of Cyprus (EAC), 551 Electricity consumers, 322 Electricity consumption, 522 523, 667 Electricity decentralization, 169 Electricity distribution, 529, 643, 753 Electricity final consumption, 687 688 Electricity from Renewable Energy Sources (RES-E), 23 Electricity from renewable sources, 312 Electricity fuel mix, 321 322 Electricity generation, 21 22, 168, 304, 397, 523, 603 604, 644, 659, 688, 746 747 in Finland, 270f sector, 268 269 segment, 664 Electricity generators, 817 818 Electricity grids, 113, 224, 550, 563, 684, 690 691 sin Poland, 223t smartening of, 700 712 demand response, 705 708 electric vehicles, 708 710 privacy, data protection, and cybersecurity issues, 710 712 smart meters, 701 703 storage, 703 705 Electricity industry, 9, 279 Electricity interconnections, 556 and distribution, 642 643 Electricity isolation, 653 Electricity Law, 552 Electricity Market Act (EMA), 279 280, 336, 395, 397 Electricity markets, 12, 20 21, 114 115, 117, 122, 127, 145, 153, 174 175, 182 183, 189 196, 277, 339, 408, 706 707 in Brussels-Capital region, 115 energy decentralization and transition in Austria, 409 411 distribution system operators, 410 ownership, 411 supply, 410 411 transmission system operators, 410 energy decentralization and transition in Croatia, 395 400 energy security dimension, 396 400 regulatory framework, 395 396 renewable energy, 400 energy decentralization and transition in Denmark, 447 453

874

Index

Electricity markets (Continued) energy security dimension, 451 453 incentives, 451 regulated and nonregulated activities, 448 regulatory framework, 447 451 status of unbundling, 448 449 tariffs, 449 451 energy decentralization and transition in Finland, 277 282 Energy Market Act, 277 278 energy security dimension, 280 282 regulatory framework, 277 280 subsidies and incentives, 278 279 unbundling, 279 280 energy decentralization and transition in France, 253 255 energy security dimension, 254 255 regulatory framework, 253 254 energy decentralization and transition in Poland, 220 224 2011 Geological and Mining Law, 221 2016 Act on Energy Efficiency, 221 Energy Act of 10 April 1997, 220 Energy policy 2030 and 2050, 220 energy security dimension, 222 224 Polish Act on Renewable Energy Sources 2016, 221 regulatory framework, 220 222 relevant laws, 221 222 Tax Acts, 221 energy decentralization and transition in Slovenia, 374 380 energy security dimension, 376 380 regulatory framework, 374 376 energy decentralization and transition in Cyprus, 549 Lithuania, 588 Luxembourg, 428 429 Malta, 637 Portugal, 747 753 Romania, 608 609 Slovakia, 661 663 Sweden, 486 501 energy security dimension, 194 196 in Ireland, 310 key characteristics, 747 752 legislation pertaining to, 310 311, 799 800 Climate Change and Low Carbon Development Act 2015, 311 Electricity Regulation Act 1999, 310 Electricity Regulation Act 2007, 310

Energy Act 2016, 311 liberalization of market and status of unbundling in country, 191 194 liberalization process, 756 in Poland, 222 regulatory framework for, 149 154, 167 170, 189 191 rules, 167 transmission and distribution, 752 753 Electricity meters, 348, 351 Electricity networks, 8, 120 121, 575 in Finland, 282 Electricity Power Research Institute (EPRI), 294 international smart grid demonstration initiative project, 307 Electricity production, 120, 179 180, 212f Electricity Regulation Act (1999), 310 Electricity Regulation Act (2007), 310 Electricity regulation in Croatia, 397 Electricity sector, 220, 606 607, 614 615 breakup of vertically integrated, 607f key aspects of, 689 692 planned structural reforms in, 343 Electricity Sector Law, 149 150, 157 Electricity storage, 161, 289, 329 330, 405, 626, 703 704, 735 736 energy decentralization and transition in republic of Ireland, 326 330 systems, 127, 705 Electricity storage and electric vehicles, 55 64 current status in Europe, 58 63 EU legal basis, 58 toward regulatory policy recommendations, 63 64 Electricity supply, 524, 637 638 Electricity Supply Act (ESA), 443 Electricity Supply Board (ESB), 787 dingle project, 308 EPRI international smart grid demonstration initiative, 307 EvolvDSO, 307 FINESCE/FIWARE FP7 research project, 306 307 innovation strategy, 306 Networks, 306 308, 324 Plan Grid EV, 307 RealValue, 307 Smart Energy Services, 324 smart energy services, 308 winter peak, 307

Index Electricity system, 149, 159 160, 162, 181 182, 576, 599 600, 621, 639, 726, 729 730, 750 751, 839 840 Electricity System Operator EAD (ESO EAD), 191 192 Electricity trade, 487 488 Electrification, 592 593 Electroenergien Systemen Operator, 185 Electromobility, 647, 668, 754 755, 838 Electromobility Act, 234 ElectroMobility Poland (EMP), 234 Electronic communication, 562, 701 702 Electronic meters, 170 Electronic system, 701 702 EMA. See Electricity Market Act (EMA) Emerging smart grid, 120 Emissions performance standard (EPS), 800 Emissions Trading System (ETS), 23 24, 266, 293 294 EMP. See ElectroMobility Poland (EMP) Empresa de Electricidade da Madeira (EEM), 761 Enduring Connection Policy Stage 1 (ECP-1), 311 ENERG LIVING LAB, 240 Energetika Ljubljana (JPEL), 363 Energias De Portugal (EDP), 749 750 distribuic¸a˜o pilots, 766 767 Energie-Control (E-Control), 408 409 Energijos Skirstymo Operatorius (ESO), 583 584 Energinet. dk, 444 445, 449 Energy, 1 3, 19, 113, 198, 392, 408, 600 606, 663, 771, 846 Energy Act, 187, 371, 375, 395, 697 698 Energy Act 2013, 803 804 Energy Act 2016, 311 Energy Act of 10 April 1997, 220 Energy Activities Regulations Act, 395 Energy aid, 278 279 Energy and electricity in Latvia, statistics on, 722 724 Energy and Energy Efficiency Act (EEFA), 187 Energy and Water Regulatory Commission (EWRC), 186 188 Energy authority, 274 Energy boxes, 762 Energy Code, 253 Energy Commission, 483 Energy communities, 14 15, 397 members, 16 17

875

Energy companies, 112 Energy competences electricity in Malta and, 642 644 political decentralization and, 643 644 Energy consumption, 138, 522, 556, 578, 584, 600 601, 637, 644 645, 685 686, 744 745, 779, 840 Energy conversation, 655 656 Energy decentralization, 113 114 and democratization, 179 in Denmark, 435 data protection, 458 461 decentralization of energy policy, 442 443 demand response, 456 458 electric vehicles, 462 465 electricity market, 447 453 energy profile, 435 443 governance system, 443 447 large financial commitments, 441 need for deregulation to foster modernization and funding of energy system, 441 442 proliferation of renewable energy sources, 442 smart metering systems, 453 456 storage, 465 467 in Hungary, 521 electricity market, 522 532 electricity system, 532 545 in Luxembourg data protection, 431 432 demand response, 430 electric vehicles, 432 433 electricity market, 428 429 energy profile, 425 427 energy security, 426 427 future, 426 governance system, 427 428 renewable energy, 426 smart metering systems, 429 430 storage, 433 progress on energy decentralization, 114 118 Slovenia, 361 389 data protection, 384 demand response, 382 384 electric vehicles and storage, 385 389 electricity market, 374 380 energy mix in Slovenia, 361 371 energy profile, 361 governance system, 371 373

876

Index

Energy decentralization (Continued) smart metering systems, 380 382 in Sweden, 469 471 data protection, 506 510 demand response, 502 506 electric vehicles, 510 515 electricity market, 486 501 energy profile, 471 480 governance system, 481 486 regulatory framework, 488 489 smart grid, 479 480 smart metering systems, 501 502 storage, 515 517 and transition in Austria data protection, 416 418 demand response, 418 420 electric vehicles, 420 421 electricity market, 409 411 energy profile, 407 409 governance system, 409 smart metering systems, 411 415 storage, 422 and transition in Belgium demand response, 126 127 electric vehicles, 124 126 interconnection, 128 129 smart grids and meters, 119 124 storage, 127 and transition in Bulgaria data protection, 198 202 demand response, 197 198 electric vehicles and storage, 202 206 electricity market, 189 196 energy profile, 182 185 governance system, 186 189 government approach to smart grids, 189 greenhouse gas emissions and targets, 179 180 main market participants, 184 185 renewable energy, 181 182 smart grid status, 182 smart metering systems, 196 197 and transition in Croatia data protection, 402 demand response, 401 402 electricity market, 395 400 energy profile, 391 394 governance system, 394 395 smart metering systems, 400 401 vehicles and storage, 402 405 and transition in Cyprus Cyprus electricity market, 550 556

data protection, 559 567 demand response, 558 559 electric vehicles and storage, 567 570 smart grid, 550 smart metering systems, 556 558 and transition in Czech Republic Czechia’s electricity market, 684 692 toward decentralized and smart electricity sector, 692 712 and transition in Estonia data protection, 351 355 demand response, 358 359 electric vehicles, 355 358 energy profile, 333 339 energy regulatory framework, 343 348 governance system, 339 343 interconnection, 345 346 organisation of Estonian energy market, 346 348 smart homes/smart meters, 348 351 and transition in Finland current status of smart energy systems, 267 268 data protection, 285 286 demand response, 283 285 electric vehicles and storage, 286 290 electricity market, 277 282 energy profile, 268 272 governance system, 272 277 greenhouse gas emissions and renewable energy sources, 265 267 smart metering systems, 282 283 and transition in France current status of smart energy systems, 244 245 data protection, 258 259 demand response, 256 258 electric vehicles and storage, 260 261 electricity market, 253 255 energy profile, 245 249 governance system, 249 252 greenhouse gas emissions and renewable energy sources, 241 244 smart metering systems, 255 256 and transition in Greece concerns about data protection, 145 148 demand response, 140 141 electric vehicles, 138 140 interconnection, 143 145 smart grids and meters, 135 138 storage, 141 143 and transition in Italy

Index concerns about data protection, 177 178 demand response, 174 175 electric vehicles, 173 174 interconnection, 176 regulatory framework for electricity market, 167 170 smart grids and meters, 170 173 storage, 175 176 and transition in Latvia, 721 740 and transition in Lithuania achieving energy democratization, 582 583 cross-border relations and power grid synchronization, 588 590 data protection in smart grids, 590 592 demand response, 585 588 electric vehicles and storage, 592 596 Lithuania, population in major decline, 573 575 Lithuanian electrical grid, 575 582 smart metering systems, 583 585 and transition in Malta data protection, 649 651 demand response and energy efficiency, 651 653 electric vehicles and storage, 647 649 electricity in Malta and energy competences, 642 644 energy mix, 639 640 laws and institutions relevant in decarbonisation efforts in Malta, 640 641 renewable energy generation, 644 646 smart grid and smart metering systems, 646 and transition in Poland data protection, 237 238 demand response and energy efficiency, 238 240 electric vehicles and storage, 233 237 electricity market, 220 224 energy profile, 210 218 energy resources in Poland, 212 216 energy transition and greenhouse gas emissions, 216 218 governance system, 218 220 renewable energy sources’ generation, 224 230 smart grid and smart metering systems, 230 233 and transition in Portugal data protection, 769 771

877

demand response, 762 767 electric mobility, 760 762 electric storage, 767 769 energy profile, 743 755 liberalization of Portuguese electricity market, 755 756 Portugal’s electricity interconnections within European Union, 771 773 regulatory framework, 757 759 smart metering systems, 759 760 and transition in Republic of Ireland data protection, 325 326 demand response, 322 325 electric vehicles and electricity storage, 326 330 energy profile, 295 302 governance system, 303 310 regulatory framework and energy security dimension, 310 319 smart metering scheme, 319 322 and transition in Romania Romania’s electricity market, 600 619 Romania’s grid, 619 630 and transition in Slovakia data protection, 674 676 decentralization efforts, 663 665 demand response, 671 672 electric mobility, 668 671 electricity storage, 672 674 energy profile, 656 663 smart metering systems, 665 667 and transition in Spain concerns about data protection, 164 166 demand response, 160 161 electric vehicles, 156 160 interconnection, 162 164 regulatory framework for electricity market, 149 154 smart grids and meters, 154 156 storage, 161 162 and transition in United Kingdom data protection, 820 823 demand response, 814 820 electric vehicles and energy storage, 823 829 energy profile, 781 793 governance system, 793 799 regulatory framework and energy security, 799 811 smart metering systems, 811 814 Energy Decree, 115

878

Index

Energy democratization, 119 120, 576, 578, 696 697 Energy efficiency, 20, 116, 122, 155, 172, 249, 255, 272 273, 304, 339, 341 342, 388, 392, 407, 486, 585 586, 733 734, 760 applied code of, 137 138 demand response and, 651 653 energy decentralization and transition in Cyprus, 556 Malta, 651 652 Poland, 238 240 Portugal, 742 Romania, 627 Slovakia, 655 656 and management services, 837 Energy Efficiency Act 2016, 221 Energy Efficiency Agency, 188 189, 205 Energy Efficiency Directive, 283 284 Energy fields in Finland, 276f Energy generation, 26, 549 Energy generators, 763 Energy governance, 1 3, 7, 115, 186, 576 578, 795 Energy grid, 779 Energy in general in Estonia, 334 Energy in Latvia, 722 740 Latvia’s electricity market, 722 729 characteristics and structure of Latvia’s electricity market, 725 728 energy security, 728 729 statistics on energy and electricity in Latvia, 722 724 Latvia’s electricity system, 729 740 data protection and cyber security concerns, 737 740 examination of whether Latvian policy and legislation promotes decentralization, 729 736 Energy intensity, 281 Energy island, 149 150, 345 346 Energy isolation, 590 Energy landscape, 13 Energy Law Act, 218 219 Energy management tool, 846 Energy market, 71, 182 183, 268 269 Energy Market Act, 268 269, 277 278 Energy Market Inspectorate, 484 Energy mix, 209 210, 230, 295 298, 333, 601, 639 640, 781 785 in Croatia, 391 393 natural gas, 392 393

Ireland’s energy mix, 296 298 Ireland’s progress against targets, 298 Ireland’s targets, 295 296 in Slovenia, 361 371 distribution system operator, 370 371 electricity, 362 363 natural gas, 364 370 transmission system operator, 370 United Kingdom’s energy mix, 781 784 United Kingdom’s progression against its targets, 784 785 United Kingdom’s targets, 781 Energy networks, 121, 550 operators, 822 Energy package, 576 Energy Performance Contacting (EPC), 834 Energy policy, 11 12, 122, 196, 304, 599 Energy Policy 2030 and 2050, 220 Energy politics, 30 31 Energy portfolio, 846 Energy poverty, 25, 72 73, 189, 201, 558 Energy production, 602 604, 743 744 Energy profile, 656 663, 743 755, 781 793 Austria, 407 409 Bulgaria, 182 185 energy mix, production, and reliance on imports, 182 184 Croatia, 391 394 energy mix in Croatia, 391 393 transmission system operator, 393 394 electricity market, 747 753 key characteristics, 747 752 transmission and distribution, 752 753 electricity market, 661 663 energy decentralization and transition in Estonia, 333 339 energy dependency, 334 335 gas production, 337 interconnection lines with Estonia’s neighbors, 337 339 predictions for demand in renewable energy, 336 337 renewable energy production, 335 336 energy decentralization and transition in republic of Ireland, 295 302 distribution system, 302 energy mix, 295 298 market and market players, 299 301 transmission system, 301 302 energy mix, 781 785 United Kingdom’s energy mix, 781 784

Index United Kingdom’s progression against its targets, 784 785 United Kingdom’s targets, 781 Finland, 268 272 consumption of energy, 270 271 electricity generation in Finland, 270f energy strategy and European Union targets, 272 market participants, 268 269 renewable energy in gross final energy consumption in Finland, 271f sources of energy, 269 270 France, 245 249 contractual cross-border exchanges of France, 247f energy strategy, 248 249 market participants, 245 246 production and consumption of energy, 246 248 market and market players, 786 790 customer profile and consumption trends, 789 790 market, 786 market players, 786 789 Northern Ireland, 790 place in market for different energy sources, 753 755 Poland, 210 218 demand for primary energy by source, 213f electricity production, 212f employment, 214t forecast of demand for final energy by sectors, 213t installed capacity in polish energy system, 212f power supply, 214t primary energy consumption, 214t Portugal’s energy market, 743 747 electricity generation, 746 747 energy consumption, 744 745 energy production, 743 744 energy supply, 745 746 Slovakian energy market, 656 660 Slovenia, 361 transmission system, 790 792 great Britain, 790 791 Northern Ireland, 791 792 Energy Regulatory Authority, 220 Energy regulatory commission, 250 251 Energy Regulatory Office (ERO), 222, 689 Energy research projects, funding for, 308

879

Energy resources, 216 coal resources, 212 215 natural gas, 215 216 oil and gas resources, 215 in Poland, 212 216 Energy savings target, 785 Energy sector, 22, 209 210, 217 218, 224 225, 293, 556, 637, 661, 683 684, 742, 779 general planning in, 342 security of supply, 342 relevant institutions in, 339 340 government, 339 legislative power, 339 market participants with administrative functions, 340 regulators and agencies, 339 340 Energy Sector Sanctioning Regime, 757 Energy security, 3, 23, 113, 121, 144, 162 163, 167, 194, 281, 408, 683 684, 701, 721 722, 729 considerations, 350 351 dimension, 194 196, 222 224, 254 255, 280 282, 316 319, 376 380, 396 400, 498 501, 554 555, 808 811 electricity grids in Poland, 223t project partners, 378f, 399f energy decentralization and transition in Latvia, 728 729 energy decentralization and transition in Cyprus, 556 Luxembourg, 426 427 Romania, 599 Slovakia, 655 United Kingdom, 795 796 energy security dimension, 316 319 regulatory framework, 310 316, 799 808 legislation pertaining to electricity market, 310 311, 799 800 reflections on regulatory framework, 315 316, 807 808 regulatory framework and smart grid, 311 315, 800 807 regulatory framework and, 799 811 smart grid deployment and impact on, 5 33 geopolitical context, 5 7 institutional context, 7 8 setting scene, 5 8 smart grids and, 17 32 advantages, 24 26

880

Index

Energy security (Continued) affordability and competitiveness gains in prosumer markets, 28 32 risks and challenges ahead, 26 28 strengthening supply security, 24 28 sustainability prospects, 18 24 Energy Service Companies (ESCOs), 44, 834 Energy sources, 392, 722 723, 741 742 place in market for different, 753 755 Energy storage, 55 56, 141 142, 205, 237, 316, 825 829, 837 electric vehicles and, 823 829 management, 588 systems, 851 852 Energy STorage as a Service (STaaS), 839 Energy storage technologies (EST), 466 Energy strategy, 293, 309, 665, 793 795 great Britain, 793 794 integration of governance and, 795 799 integration of governance and, 305 309 DCCAE, 308 EirGrid, 305 306 ESB Networks, 306 308 SEAI, 309 Ireland, 303 305 Northern Ireland, 794 795 Energy Supplies Complaints Board, 444 Energy supply, 550, 582, 729 730, 745 746, 794 795 Energy system, 184, 549, 619 Energy Tax Act, 489 Energy trading and cross-border relations, 452 453 Energy transition, 216 217, 838 coal consumption in Germany, 216f conceptualizing, 111 118 and greenhouse gas emissions, 216 218 Energy Transition for Green Growth Act, 248, 251 252 Energy transmission infrastructure, 222 223 EnerNOC, 324 Engineering solutions, 764 England are Town and Country Planning Act 1990, 800 801 ENISA. See European Union Agency for Network and Information Security (ENISA) Ensures consumers, 766 767 ENTSO-E, 499 500 ENTSO-E. See European Network of Transmission System Operators of Electricity (ENTSO-E)

Environmental Action Programme (EAP), 74 75 Environmental Investment Centre (EIC), 341 342 Environmental Objectives Council, 485 Environmental pollution tax, 577 Environmental Project Management Agency (EPMA), 576 577 Environmental protection, 726, 748 Environmental tax, 568 EPC. See Energy Performance Contacting (EPC) EPMA. See Environmental Project Management Agency (EPMA) EPR. See Extended producer responsibility (EPR) EPRI. See Electricity Power Research Institute (EPRI) EPS. See Electric power system (EPS); Emissions performance standard (EPS) ERDF. See Electricite´ Re´seau Distribution France (ERDF); European Regional Development Fund (ERDF) ERGEG. See European Regulators Group for Electricity and Gas (ERGEG) ERO. See Energy Regulatory Office (ERO) ERSE. See Regulatory Entity for Energy Services (ERSE) ESA. See Electricity Supply Act (ESA) ESB. See Electricity Supply Board (ESB) ESCOs. See Energy Service Companies (ESCOs) ESD. See Effort Sharing Decision (ESD) ESO. See Electroenergien Systemen Operator (ESO); Energijos Skirstymo Operatorius (ESO) ESO EAD. See Electricity System Operator EAD (ESO EAD) Essential service operators, 106 EST. See Energy storage technologies (EST) EstLink projects, 337 338 Estonia data protection, 351 355 data protection regime, 352 demand response, 358 359 electric vehicles, 355 358 energy profile, 333 339 energy regulatory framework, 343 348 interconnection, 345 346 organisation of Estonian energy market, 346 348 EstLink projects, 337 338

Index Estonia Latvia and Estonia Russia electricity landlines, 338 Estonia Russia and Estonia Latvia gas pipelines, 338 339 Balticconnector project, 338 339 governance system, 339 343 interconnection lines with Estonia’s neighbours, 337 339 legislative portfolio related to smart metering systems, 349 smart homes/smart meters, 348 351 Estonia Latvia electricity landlines, 338 Estonia Latvia gas pipelines, 338 339 Estonian Competition Authority, 339 340 Estonian electricity and gas, 347 system, 348 Estonian energy market, organisation of, 346 348 operation market, 347 348 Estonian energy policy, 340 Estonian Renewable Energy Association, 335 Estonia Russia electricity landlines, 338 Estonia Russia gas pipelines, 338 339 ETS. See Emissions Trading System (ETS) EU. See European Union (EU) Europe’s energy systems, 28 European Commission, 14 15, 27 28, 30, 44, 121, 155, 181 182, 352 353 interplay between Estonian policies and policies issued by, 350 351 Smart Grid Task Force, 131 European Convention on Human Rights (ECHR), 97 European Economic Area (EEA), 807 808 European energy consumers, 35 European Energy Exchange (EEX), 691 European Environment Agency, 60 61, 79 80, 265 European Member, data privacy and security regulation in, 43t European Member States, smart grid implementation plans in, 37t European Network of Transmission System Operators of Electricity (ENTSO-E), 48, 162 163, 694 695, 771 European oil and gas companies, 112 European Regional Development Fund (ERDF), 614, 731 732 European Regulators Group for Electricity and Gas (ERGEG), 33 34, 42, 136 137, 535

881

European Research Project MERGE8, 139 European Union (EU), 3 4, 111, 121, 167, 188, 209 210, 241, 265 266, 294, 334, 368, 391, 407, 425, 559 560, 599, 637, 683 684, 741 circular economy concept and EU, 82 84 and collaborative economy, 68 69 contributing to EU collaborative economy, 65 73 collaborative economy, 66 68 current status in Europe demand response, 49 52 electricity storage and electric vehicles, 58 63 smart metering issues, 36 43 energy governance, 7 8 energy market, 34 35 energy policy, 8, 18 energy strategy and, 272 energy targets promote energy efficiency, 82 EU waste regulation, 84 86 EU-wide measure to promote electric vehicles nationally, 595 international and EU law, 96 107 digital systems security, 105 107 privacy and data protection, 96 104 legal basis demand response, 47 49 electricity storage and electric vehicles, 58 smart metering issues, 34 36 multivalent instrument, 8 10 operation of prosumer markets, 10 17 power system model, 398f progress on energy decentralization, 114 118 review, 419 420 lessons learned, 420 recommendations, 420 smart grids deployment and impact on energy security, 5 33 and energy security, 17 32 regulation, 33 64 European Union Agency for Network and Information Security (ENISA), 592 EV. See Electric vehicles (EV) Evolution of renewable energy production, 744f

882

Index

EvolvDSO project, 307 EVP. See Electrical Vehicle Platform (EVP) EVSE. See Electric Vehicle Supply Equipment (EVSE) EWRC. See Energy and Water Regulatory Commission (EWRC) Examination of Latvian policy and legislation promotes decentralization, 729 736 demand response, 734 735 electric vehicles, 733 734 electricity storage, 735 736 investment and research and development, 731 732 self-generation, 729 731 smart meters, 732 733 Excise Duty Act, 341 Exclusive Economic Zone (EEZ), 550 551, 579 Expert group 2 (EG2), 103 104 Explicit demand response, 503 504 Exploration, 757, 759 Extended producer responsibility (EPR), 85

F Fair processing, 102 FCR-D. See Frequency containment reserve for disturbances (FCR-D) FDW. See Framework Directive on Waste (FDW) Federal Act, 127 Federal Electricity Management and Organisation Act, 409 Feed-In Tariff (FIT), 189 190, 622, 731, 805 schemes, 312 313 system, 539 540 FFR. See Firm Frequency Response (FFR) Financial obstacles, 843 Financial rewards, 848 FINESCE/FIWARE FP7 research project, 306 307 Fingrid Oyj, 275 Finland electricity generation in, 270f electricity market, 280 281 energy decentralization and transition in current status of smart energy systems, 267 268 data protection, 285 286 demand response, 283 285 electric vehicles and storage, 286 290

electricity market, 277 282 energy profile, 268 272 governance system, 272 277 greenhouse gas emissions and renewable energy sources, 265 267 smart metering systems, 282 283 renewable energy in gross final energy consumption in, 271f transmission system operator, 275 Finnish competition and consumer authority, 275 Finnish Funding Agency, 287 288 Finnish Trade Promotion Organization, 274 Firm Frequency Response (FFR), 817 First-generation meters (1G meters), 36 39 First-generation renewable energy policy, 181 182 FIT. See Feed-In Tariff (FIT) Flex4Frid project, 383 384 FLEXe-demo project, 290 Flexibility, 702 Fluctuations, 852 Ford (company), 57 Fossil fuels, 3, 28 29, 181 182, 265, 271, 296, 317, 579, 638 639, 741, 781, 835 production, 655 resources, 297 Framework Directive on Waste (FDW), 84 France energy decentralization and transition in current status of smart energy systems, 244 245 data protection, 258 259 demand response, 256 258 electric vehicles and storage, 260 261 electricity market, 253 255 energy profile, 245 249 governance system, 249 252 greenhouse gas emissions and renewable energy sources, 241 244 smart metering systems, 255 256 renewable energy sector, 246 French Distribution Grid Operator, 251 French environment & energy management agency, 250 French Transmission System Operator, 251 Frequency containment reserve for disturbances (FCR-D), 283 284 Frequency response, 816 817 Fuel mix, 317

Index

G Galp Energy Manager, 766 Gas, 346, 351, 427 consumption, 348 349 fuel balance, 335 gas-fired electricity generation, 642 643 gas-fired plant, 639 640 gas-fired power generating units, 782 783 market, 339 production, 337 resources, 215 vehicles, 4 Gas and Electricity Markets Authority (GEMA), 786 “Gate” system, 311 GB. See Great Britain (GB) GCs. See Green certificates (GCs) GDP. See Gross Domestic Product (GDP) GDPR. See General Data Protection Regulation (GDPR) GEMA. See Gas and Electricity Markets Authority (GEMA) General Commission for Sustainable Development (CGDD), 249 250 General Council for the Environment and Sustainable Development (CGEDD), 249 250 General Data Protection Regulation (GDPR), 198, 285, 325, 349, 458 459, 506, 591, 649, 712, 737, 769 770, 820 General packet radio services (GPRS), 135 136 Generation entity, 759 Generation technology, 638 639, 752 Generic business model for demand response in canvas form, 849t description for exploiting prosumers’ flexibility, 861t for integrating electric vehicles, 844t Generic value network, 833 834 for demand response, 851f for integrating Evs. in network, 845f for smart grids, 835 838 Geological and Mining Law 2011, 221 Germany’s Energiewende, 22 GHG emissions. See Greenhouse gas emissions (GHG emissions) Gigawatt-hour (GWh), 657, 743 Gilets Jaunes. See Yellow Vests (Gilets Jaunes) Global Cyber Security Capacity Centre, 565 566

883

Global economy, 607 608 Global energy market, 5, 111 Governance and energy strategy, integration of, 795 799 Governance systems, 641, 793 799 energy decentralization and transition in Austria, 409 energy decentralization and transition in Bulgaria, 186 189 agency for sustainable energy development, 188 189 council of ministers, 186 EWRC, 187 188 Ministry of Economy and Energy, 187 nuclear regulator agency, 188 relevant institutions, 186 189 energy decentralization and transition in Croatia, 394 395 central government, 394 395 relevant institutions, 394 395 energy decentralization and transition in Estonia, 339 343 general planning in energy sector, 342 levies and tolls, 341 planned structural reforms in electricity sector, 343 proposals to save energy, 341 342 relevant institutions in energy sector, 339 340 tariff structures, 340 341 tariff structures and setting prices for energy products, 340 341 transmission and distribution network services, 343 energy decentralization and transition in Finland, 272 277 business Finland, 274 centre for economic development, transport and environment, 275 data protection ombudsman, 275 energy authority, 274 Fingrid Oyj, 275 Finnish competition and consumer authority, 275 Ministry of Agriculture and Forestry, 274 Ministry of Economic Affairs and Employment, 273 Ministry of Environment, 274 Ministry of Finance, 274 relevant institutions, 273 275 research and projects on smart grids, 275 277

884

Index

Governance systems (Continued) energy decentralization and transition in France, 249 252 association for renewable energy, 250 Electricite´de France, 251 energy regulatory commission, 250 251 French Distribution Grid Operator, 251 French environment & energy management agency, 250 French transmission system operator, 251 Ministry of Ecological and Solidarity Transition, 249 250 relevant institutions, 249 251 research and projects on smart grids, 251 252 energy decentralization and transition in Poland, 218 220 energy decentralization and transition in republic Ireland, 303 310 energy strategy, 303 305 integration of governance and energy strategy, 305 309 reflections on, 309 310 energy decentralization and transition in Slovenia, 371 373 deficit in wind power plants, 373 estimation of additional electricity, 373t projects submitted to public tender, compiled by electricity generation technology, 372t energy strategy, 793 795 great Britain, 793 794 Northern Ireland, 794 795 integration of governance and energy strategy, 795 799 Government funding schemes, administration of, 309 GPRS. See General packet radio services (GPRS) Gradual process, 564 Great Britain (GB), 786 customer profile and consumption trends, 789 790 demand response, 814 819 energy strategy, 793 794 market players, 786 787 transmission system, 790 791 Greece energy decentralization and transition in concerns about data protection, 145 148 demand response, 140 141 electric vehicles, 138 140

interconnection, 143 145 smart grids and meters, 135 138 storage, 141 143 independent power networks, 144 145 institutional energy, 26 interconnected system, 117 118 natural gas market, 118 Greece’s Fundamental Energy Markets law, 140 Greek data protection laws, 146 Greek Regulatory Authority of Energy (RAE), 139 140, 142 143 Green certificates (GCs), 169, 489 492, 609 system works, 490 492 Green Deal scheme, 806 Green economy, 568 569 Green energy investment, 795 796 Green Taxation Reform, 761 Greener energy supply, 655 656 Greenhouse gas emissions (GHG emissions), 3, 120, 124 125, 172, 179 180, 209 210, 217 218, 241 244, 293, 470, 592 593, 615 616, 638, 645, 668 669, 708 709, 760, 779 energy transition and, 216 218 in Poland broken down by sectors, 218t and renewable energy sources, 265 267 Grid development projects, 581 Grid Fee System, 60, 854 Grid fees structure, 64 Grid interconnectors, 337 Grid operator, 117, 580 581 Grid stability, 231 Grid-scale battery storage system project, 826 “Gridmotion” project, 257 Gross Domestic Product (GDP), 602 603 Gross energy consumption, 583 Gross final consumption, 687 GVH. See Hungarian Competition Authority (GVH) GWh. See Gigawatt-hour (GWh)

H H&EVs. See Hybrid and Electric Vehicles (H&EVs) Half-Hourly (HH), 822 HDPA. See Hellenic Data Protection Authority (HDPA) HEA. See Hungarian Energy and Public Utility Regulatory Authority (HEA)

Index Heating and cooling schemes, 313 314, 806 807 Heating sector, 339 HEDNO. See Hellenic Electricity Distribution Network Operator (HEDNO) Hellenic Data Protection Authority (HDPA), 146 Hellenic Electricity Distribution Network Operator (HEDNO), 135 136, 145 Hellenic Electricity Market Operator (LAGIE), 118, 146 147 HEMS. See Home energy management systems (HEMS) HEP. See Hrvatska Elektroprivreda (HEP) HEP dd. See Hrvatska Elektroprivreda dd (HEP dd) HESS. See Spodnji sava Hydro Power Plants (HESS) Heterogeneous resources, 858 HFCs. See Hydrofluorocarbons (HFCs) HH. See Half-Hourly (HH) High Efficient Cogeneration Act, 400 High voltage direct current (HVDC), 337 338 High-voltage (HV), 749 750 Home energy management systems (HEMS), 171 172 Hostile planning environment, 780 Households, 600 601 Hrvatska Elektroprivreda (HEP), 391 392 Hrvatska Elektroprivreda dd (HEP dd), 396 Hungarian Central Statistical Office, 529 530 Hungarian Competition Authority (GVH), 530 Hungarian Energy and Public Utility Regulatory Authority (HEA), 530 Hungarian Power Exchange Company Ltd. (HUPX), 529 Hungary electricity market, 522 532 geopolitical considerations, 531 532 key characteristics and structure, 525 529 key figures concerning energy and electricity, 522 525 policy responsibility and regulation, 529 531 electricity system, 532 545 data privacy and protection considerations, 543 545 demand-side policies/demand response, 538 539 electric vehicles, 540 542

885

investments and funding, 533 535 self-generation, 539 540 smart grids, 535 536 smart metering, 536 538 storage, 542 543 energy decentralization and transition in, 521 HUPX. See Hungarian Power Exchange Company Ltd. (HUPX) HV. See High-voltage (HV) HVAC loads in banks, control of, 765 766 HVAC systems in public buildings, control of, 763 765 HVDC. See High voltage direct current (HVDC) Hybrid and Electric Vehicles (H&EVs), 157, 592 Hybrid energy policy, 11 12 Hybrid vehicles, 709 710 Hydraulic fracking, 779 780 Hydrocarbons, 601, 686 Hydroelectric plants, 640 Hydroelectric power, 225 226, 408, 743 plants, 143 Hydrofluorocarbons (HFCs), 638 Hydrogen, 158 Hydropower, 79, 226, 272, 617 plants, 368, 578 production, 745 746 sources, 659

I I-SEM. See Integrated Single Electricity Market (I-SEM) Iberian Market for Electricity (MIBEL), 772 ICE. See Internal combustion engine (ICE) IChPW. See Institute of Chemical Processing of Coal (IChPW) ICO. See Information Commissioner’s officer (ICO) ICT systems. See Information and Communications Technologies systems (ICT systems) ICV. See Internal combustion engine vehicles (ICV) IDM. See Intra-Day Market (IDM) IDPA. See Italian Data Protection Authority (IDPA) IEA. See International Energy Agency (IEA) IEM. See Including electricity Market (IEM) IES. See Independent electricity system (IES)

886

Index

IIEA. See Institute of International and European Affairs (IIEA) IIS. See Integrated Information System (IIS) ILR. See Institut Luxembourgeois de Re´gulation (ILR) Implicit demand response, 504 506 Incentive schemes, 803 806 Including electricity Market (IEM), 607 608 Independent electricity system (IES), 749 Independent Power Transmission Operator (IPTO), 140 Independent systems operators, 407 408 Independent transmission operator (ITO), 191 192, 245 246, 407 408, 527 528 Industrial loads, control of, 766 Industrial processes, 600 601 Industrial Revolution, 781 Information, 759 760 Information and Communications Technologies systems (ICT systems), 18 Information Commissioner’s officer (ICO), 820 Information security, 508 510 Information Security Agency, 105 Information technology systems, 650, 700 Innovation, 577 578, 683 684, 796 797 Innovative technology, 835 Institut Luxembourgeois de Re´gulation (ILR), 427 Institute of Chemical Processing of Coal (IChPW), 215 Institute of International and European Affairs (IIEA), 302 Integrated Information System (IIS), 178 Integrated Single Electricity Market (I-SEM), 294 295, 786 between Northern Ireland and Republic of Ireland, 789t Integration of governance and energy strategy, 795 799 Integration of renewable energy sources, 800 803 Intelligent meter systems, 674 Intelligent metering systems, 255, 665 666 Intelligent software, 120 Interaction, 861 Interconnection, 693 696 projects, 810 Intergovernmental Panel on Climate Change (IPCC), 242 Internal combustion engine (ICE), 512

Internal combustion engine vehicles (ICV), 592 International economic law, 1 3, 119 120 International Energy Agency (IEA), 8 9, 120, 230, 248, 275, 309, 408, 511, 684 685 SEAI and, 309 International Energy Security, 186 International environmental obligations, 647 International Renewable Energy Agency (IRENA), 541 International Smart Grid Action Network (ISGAN), 309 Internet, 120 Internet-of-Things (IoT), 92, 564 565, 628 “Interruptible Load” scheme, 322 Interstate cooperation, 446 447 Intra-Day Market (IDM), 609 Intra-Nordic power system, 280 281 Investment and research and development, 731 732 IoT. See Internet-of-Things (IoT) IPCC. See Intergovernmental Panel on Climate Change (IPCC) IPEX. See Italian Power Exchange (IPEX) IPTO. See Independent Power Transmission Operator (IPTO) Ireland energy grid, 304 energy industry, 296 energy mix, 296 298 energy security, 317 fuel mix, 318 governance system, 309 National Policy Position on climate change, 304 pilot micro-generation scheme, 330 progress against targets, 298 regulatory framework, 313 targets, 295 296 transmission system, 299 IRENA. See International Renewable Energy Agency (IRENA) Irish electricity market, 300 Irish grid, 301 Irish National Smart Metering Programme, 319 320 Irish-Scottish Links on Energy Study (ISLES), 305 IROP. See Regional Operational Program (IROP)

Index ISGAN. See International Smart Grid Action Network (ISGAN) ISLES. See Irish-Scottish Links on Energy Study (ISLES) Isolated system, 553 554 Italian Code, 177 Italian Data Protection Authority (IDPA), 177 Italian Personal Data Protection Code, 177 Italian Power Exchange (IPEX), 168 Italy Data Protection Code, 177 energy decentralization and transition in concerns about data protection, 177 178 demand response, 174 175 electric vehicles, 173 174 interconnection, 176 regulatory framework for electricity market, 167 170 smart grids and meters, 170 173 storage, 175 176 EV market, 173 ITC. See Complementary Technical Instruction (ITC) ITO. See Independent transmission operator (ITO) ITRE. See Committee on Industry, Research and Energy (ITRE)

J JPEL. See Energetika Ljubljana (JPEL)

K KLIEN. See Klima-und Energiefonds (KLIEN) Klima-und Energiefonds (KLIEN), 40 41 KOM. See KOM Central Smart Metering Ltd., (KOM) KOM Central Smart Metering Ltd., (KOM), 536 KPSHP. See Kruonis Pumped Storage Hydroelectric Plant (KPSHP) Kruonis Pumped Storage Hydroelectric Plant (KPSHP), 596

L L’Electricite´ en Re´seau, 251 Land use, land-use change, and forestry (LULUCF), 179 180, 243, 265 267 Landis 1 Gyr projects, 412

887

Latvia data protection and cybersecurity concerns, 737 740 electricity generation, 724 electricity market, 722 729 characteristics and structure of Latvia’s electricity market, 725 728 energy security, 728 729 statistics on energy and electricity in Latvia, 722 724 electricity system, 728 740 demand response, 734 735 electric vehicles, 733 734 electricity storage, 735 736 examination of Latvian policy and legislation promotes decentralization, 729 736 investment and research and development, 731 732 self-generation, 729 731 smart meters, 732 733 energy decentralization and transition in energy, electricity, and smart grids in Latvia, 722 740 Latvia’s electricity market, 722 729 smart is Latvia’s electricity system, 729 740 Latvian Electricity Market Law, 725 726 Latvian policy and legislation promotes decentralization, examination of, 729 736 Law on Electricity (LoE), 577 Law on Energy from Renewable Sources (LERS), 577 Lawful processing, 99 100 Laws and institutions relevant in decarbonisation efforts in Malta, 640 641 LCCC. See Low Carbon Contracts Company (LCCC) LCUC. See Limburg Catholic University College (LCUC) Legal system in Spain, 152 Legislation, 443 444, 730 electric vehicles and storage, 234 235 examination of Latvian policy and legislation promotes decentralization, 729 736 pertaining to electricity market, 799 800 LEMENE smart grid project, 277 LERS. See Law on Energy from Renewable Sources (LERS)

888

Index

Liberalization, 549 550, 608 609, 644, 661, 683 684 of market and status of unbundling in country, 553 554 of Portuguese electricity market, 755 756 Life cycle assessment, 81 Lignite resources, 686 Limburg Catholic University College (LCUC), 125 Liquefied natural gas (LNG), 5 6, 111 112, 215 216 Liquefied propane gas, 670 Liquid Bio-components, 221 222 Liquid fuels, 335, 339, 357 Liquid gas, 337 Liquid natural gas (LNG), 757 LitGrid, 580 582, 589f Lithuania energy decentralization and transition in achieving energy democratization, 582 583 cross-border relations and power grid synchronization, 588 590 data protection in smart grids, 590 592 demand response, 585 588 electric vehicles, 592 595 electric vehicles and storage, 592 596 energy governance and smart grid optimization, 576 578 LitGrid—transmission system operator, 580 582 Lithuania, population in major decline, 573 575 Lithuanian electrical grid, 575 582 proactive consumer participation, 578 579 setting scene, 575 576 smart metering systems, 583 585 storage, 595 596 support schemes, 579 population in major decline, 573 575 Lithuanian electrical grid, 575 582 energy governance and smart grid optimization, 576 578 LitGrid—transmission system operator, 580 582 proactive consumer participation, 578 579 setting scene, 575 576 support schemes, 579, 580t LNG. See Liquefied natural gas (LNG); Liquid natural gas (LNG) Load system manager, 157

Load-shedding amounts, 27 Local energy communities, 19 Local energy consumers, 70 Local Tax and Fees Act, 203 Localism Act 2011, 800 801 LoE. See Law on Electricity (LoE) Loi informatique et liberte´s, 258 259 Loi relative a`la transition e´nerge´tique pour la croissance verte) (LTECV), 248 Low Carbon Contracts Company (LCCC), 803 804 Low Carbon Development Act (2015), 311 Low voltage (LV), 750 Low-carbon economy, 81, 181 Low-carbon transition, 26 27, 120 121 Low-carbon transition pathways and smart grids, 73 90 conceptualizing issues, 73 80 smart grids within circular economy, 81 90 Low-emission mobility, 58 Low-emission vehicles, 260 Low-voltage consumers (LV consumers), 170 Low-voltage customer (LV customer), 135 Low-voltage network (LV network), 140 141, 556 LTECV. See Loi relative a`la transition e´nerge´tique pour la croissance verte) (LTECV) LULUCF. See Land use, land-use change, and forestry (LULUCF) Luxembourg, 425 energy decentralization and transition in data protection, 431 432 demand response, 430 electric vehicles, 432 433 electricity market, 428 429 energy profile, 425 427 energy security, 426 427 future, 426 governance system, 427 428 renewable energy, 426 smart metering systems, 429 430 storage, 433 LV. See Low voltage (LV)

M Malta energy decentralization and transition in data protection, 649 651 demand response, 653

Index demand response and energy efficiency, 651 653 electric vehicles and storage, 647 649 electricity in Malta and energy competences, 642 644 electricity interconnections and distribution, 642 643 energy efficiency, 651 652 energy mix, 639 640 laws and institutions relevant in decarbonisation efforts in Malta, 640 641 political decentralization and energy competences, 643 644 renewable energy generation, 644 646 smart grid and smart metering systems, 646 Malta Resources Authority (MRA), 641 Market, 786 integration, 683 684 liberalization of market and status of unbundling in country, 553 554 and market players, 299 301, 786 790 customer profile, 300 301 market players, 299 300 single electricity market, 299 market-based model, 588 participants, 245 246 with administrative functions, 340 players, 786 789 Great Britain, 786 787 Northern Ireland, 787 789 regulator, 347 Marketization, 607 608, 620 MAVIR Zrt, 527 528 MCIT. See Ministry of Energy, Commerce, Industry and Tourism (MCIT) Measurement, 860 861 Medium-voltage customer (MV customer), 135, 749 750 MEE. See Minister of the Economy and Employment (MEE); Ministry of Environment and Energy (MEE) Megawatts (MW), 659, 730 Mercedes (company), 57 MESR. See Ministry of Higher Education and Research (MESR) Meter Act, 233 Metering system, 244 245 Methane, 768 769 MIBEL. See Iberian Market for Electricity (MIBEL)

889

Micro-CHP, 171 172 Micro-LNG grids, 20 21 Microgeneration, 727 Microgrids, 16, 116 117, 168, 765 766 Microproducers, 489 Migration, 602 603 Milan Vidmar Electric Power Research Institute (EIMV), 381 Million tons of oil equivalent energy (Mtoe energy), 743 744 Mineralo¨lsteuer (Mo¨ST), 421 Minister of the Economy and Employment (MEE), 759 Ministe´re de la Transition e´cologique et solidaire, 249 250 Ministry of Agriculture and Forestry, 274 Ministry of Ecological and Solidarity Transition, 249 250 Ministry of Economic Affairs and Employment, 273 Ministry of Energy, Commerce, Industry and Tourism (MCIT), 551 Ministry of Environment, 274 Ministry of Environment and Energy (MEE), 483 Ministry of Finance, 274 Ministry of Higher Education and Research (MESR), 250 Ministry of Industry and Trade (MIT), 691 Ministry of the Environment (MOE), 691 MIT. See Ministry of Industry and Trade (MIT) Mitigation, 835 Modernization, 619, 684 MOE. See Ministry of the Environment (MOE) Monbat AD, 205 Mo¨ST. See Mineralo¨lsteuer (Mo¨ST) MOTIVA OY training programme, 277 MOVELE program, 156 MRA. See Malta Resources Authority (MRA) Mtoe energy. See Million tons of oil equivalent energy (Mtoe energy) Multidepartmental approach, 303 Municipal distribution networks, 758 759 Municipalities, 486 MV customer. See Medium-voltage customer (MV customer) MVM Zrt, 525 526 MW. See Megawatts (MW)

890

Index

N NAP SG. See National Action Plan for Smart Grids (NAP SG) NAPCM. See National Action Plan for Clean Mobility (NAPCM) Naperville Smart Meter Awareness (NSMA), 259 NAPNE. See National Action Plan for Development of Nuclear Energy (NAPNE) National Action Plan for Clean Mobility (NAPCM), 691 692 National Action Plan for Development of Nuclear Energy (NAPNE), 688 National Action Plan for Smart Grids (NAP SG), 691 692 National and regional transmission, 445 National Climate Change Act, 267 National climate plans, 210 National Commission of Markets and Competition (CNMC), 153 National consumer protection laws, 563 564 National data protection authority, 130 National Electric Vehicle Sweden (NEVS), 515 National Electricity Company (NEK), 191 192 National Electricity Company EAD, 204 National electricity distribution network, 652 National electricity production, 129 National Electricity System (NES), 748 National energy, 575, 656, 663 National Energy and Climate Change Plan (NECP), 615 616 National Energy Efficiency Action Plan (NEEAP), 651 652, 685 686, 735 National Energy Independence Strategy, 578 579 National energy policy, 187 National Energy Strategy (NES), 615 National Grid, 612, 816 National Grid Electricity Transmission (NGET), 786, 788t National gross consumption, 688 National Institute of Economic Research (NIER), 495 National Law on Personal Data Processing, 738 National legislation, 638 National Mitigation Plan (NMP), 304 305 National oil production, 657 659

National power system, 626 National regulatory authority (NRA), 36, 153, 170 National Renewable Energy Action Plan (NREAP), 142, 645 646, 687, 781 National Research, Development and Innovation Office, 529 530 National support schemes for renewable energy in Spain, 30 National System Operator, 808 National transmission, 758 759 grids, 752 system, 613 614, 693, 732 733 National Transmission Company (NTC), 749 750 Nationally Significant Infrastructure Projects (NSIP), 800 801 Natsionalna Elektricheska Kompania EAD (NEK EAD), 185 Natural disasters, 566 Natural gas, 215 216, 221, 296, 316, 337, 342, 364 370, 392 393, 413, 550, 645, 686, 724, 744, 781 consumption, 722 723 delivered, distributed, and consumed quantities of, 365t distribution, 640 641 market, 118 natural gas sources, 364t number of consumers according to consumption type, 367t prices dynamics from March, 369t prices including all taxes and levies, 368t, 393t supply, 672 673 transmission system, 366t Natural Gas Act (NGA), 339 Natural monopolies, 691 NBES. See Nonbinding electricity system (NBES) NECP. See National Energy and Climate Change Plan (NECP) NEDO. See New Energy and Industrial Technology Development Organization (NEDO) NEEAP. See National Energy Efficiency Action Plan (NEEAP) Negotiation, 735 736 NEK. See National Electricity Company (NEK); Nuclear Power Plant Kˇrsko (NEK); Nuklearna Elektrarna Krˇsko (NEK)

Index NEK EAD. See Natsionalna Elektricheska Kompania EAD (NEK EAD) Nemo, 128 NES. See National Electricity System (NES); National Energy Strategy (NES) Net electricity production, 606 Net load, 16 Net metering, 150, 164 “Net pool” model, 552 Network and Information Systems (NIS), 105 Network security, 384 385 Network stability, 410 NEVS. See National Electric Vehicle Sweden (NEVS) New economic system, 574 575 New Energy and Industrial Technology Development Organization (NEDO), 375, 763 764 New Green Savings Programme, 697 698 NGA. See Natural Gas Act (NGA) NGET. See National Grid Electricity Transmission (NGET) NIE Networks. See Northern Ireland Electricity Networks (NIE Networks) NIER. See National Institute of Economic Research (NIER) NIIES. See Noninterconnected island electrical systems (NIIES) NIIMC. See Non-Interconnected Islands Management Code (NIIMC) NIS. See Network and Information Systems (NIS) NMP. See National Mitigation Plan (NMP) Non-ETS, 293 294 Non-Interconnected Islands Management Code (NIIMC), 145 Nonbinding electricity system (NBES), 750 Noninterconnected island electrical systems (NIIES), 142 Nonsynchronous energy generation sources, 316 Nord Pool, 487 Nordic model, 451 Nordic TSOs, 499 500 Normverbrauchsabgabe (NoVA), 421 North-South Interconnector, 301 Northern Ireland, 790 Northern Ireland Electricity Networks (NIE Networks), 787 Northern Ireland’s Utility Regulator (UREGNI), 786 NoVA. See Normverbrauchsabgabe (NoVA) NPP. See Nuclear power plant (NPP)

891

NRA. See National regulatory authority (NRA); Nuclear Regulator Agency (NRA) NREAP. See National Renewable Energy Action Plan (NREAP) NSIP. See Nationally Significant Infrastructure Projects (NSIP) NSMA. See Naperville Smart Meter Awareness (NSMA) NTC. See National Transmission Company (NTC) Nuclear energy, 251 252, 269 270, 659 Nuclear fuels, 640 Nuclear industry, 779 780 Nuclear Phase-Out Act, 477 478 Nuclear power, 246, 272, 589, 604, 783 generation, 663 664 plant, 582 Nuclear power plant (NPP), 361 Nuclear Power Plant Kˇrsko (NEK), 363 Nuclear projects, 779 780 Nuclear Regulator Agency (NRA), 186, 188 Nuclear safety, 663 664 Nuklearna Elektrarna Krˇsko (NEK), 361

O Office of Gas and Electricity Markets (Ofgem), 786 Ofgem. See Office of Gas and Electricity Markets (Ofgem) OGP Gaz-System SA, 219 Oil, 427 equivalent, 656, 684 685 gas, 316 products, 183 184 resources, 215 Oligopolistic nature, 741 742 OMIE. See Operated by Spanish branch of MIBEL (OMIE) One size-fits-all approach, 26 OPCOM. See Societatea Comercial˘a Operatorul Pie¸tei de Energie Electric˘a (OPCOM) Operated by Spanish branch of MIBEL (OMIE), 772 Optimization, 859 Organic transition, 595

P Pan-European project, 113 Paraffinic fuels, 158 PCI. See Project of Common Interest (PCI)

892

Index

PDPA. See Personal Data Protection Act (PDPA) PDPC. See Commission for Personal Data Protection (PDPC) Peer-to-peer energy, 765 Penetration, 842 Personal data, 102 103, 146 147, 177, 200, 325 326, 416 controller, 238 Personal Data Act, 285 Personal Data Processing Act, 712 Personal Data Protection Act (PDPA), 199, 237 238, 352 PES. See Public electricity system (PES) Petrol emissions, 22 Petroleum, 554, 639 640, 782 products, 183 184, 221 PETs. See Privacy enhancing technologies (PETs) PfG. See Programme for Government (PfG) PGE. See Polska Grupa Energetyczna (PGE) PHEVs. See Plug-in hybrid electric vehicles (PHEVs) Photovoltaics (PV), 135, 169, 639 cells, 765 energy, 743 panels, 493 power plant, 596 solutions, 621 PII. See Private identifiable information (PII) Pilot microgeneration scheme, 308 PIVE. See Efficient Vehicle Incentive Program (PIVE) Plan Grid EV project, 307 Planetary boundaries, 79 Planned obsolescence dates, 87 Planning Act 2008, 800 801 Planning and Compulsory Purchase Act 2004, 800 801 Planning and Development Act (2000), 312 Plug-in hybrid electric vehicles (PHEVs), 287, 314, 462, 510 511 Poland electricity grids in, 223t energy decentralization and transition in data protection, 237 238 demand response and energy efficiency, 238 240 electric vehicles and storage, 233 237 electricity market, 220 224 energy profile, 210 218 energy resources in Poland, 212 216

energy transition and greenhouse gas emissions, 216 218 governance system, 218 220 renewable energy sources’ generation, 224 230 smart grid and smart metering systems, 230 233 energy mix, 210 energy system, 224 225 gas industry, 215 216 Policy and regulatory responsibility, 614 617 Policy-makers, 64 Polish Act on Renewable Energy Sources 2016, 221 Polish Alternative Fuels Association, 233 Polish Capacity Market Act, 239 Polish Data Protection Act, 238 Polish energy mix, 210 211 Polish energy system, installed capacity in, 212f Political decentralization and energy competences, 218 220, 643 644 Polska Grupa Energetyczna (PGE), 236 237 Polskie Sieci Elektroenergetyczne (PSE), 222 223 Portugal electricity interconnections within European Union, 771 773 energy decentralization and transition in control of HVAC loads in banks, 765 766 control of HVAC systems in public buildings, 763 765 control of industrial loads, 766 data protection, 769 771 demand response, 762 767 EDP distribuic¸a˜o pilots, 766 767 electric mobility, 760 762 electric storage, 767 769 electricity market, 743 744 energy profile, 743 755 liberalization of Portuguese electricity market, 755 756 place in market for different energy sources, 753 755 Portugal’s energy market, 743 747 regulated activities, 758 759 regulators, 757 758 regulatory framework, 757 759 smart metering systems, 759 760 energy market, 743 747 electricity generation, 746 747

Index energy consumption, 744 745 energy production, 743 744 energy supply, 745 746 Portugal’s total primary energy supply (TPES), 745 Portuguese electricity market, liberalization of, 755 756 Portuguese National Laboratory for Energy and Geology (LNEG), 763 764 Portuguese system to Iberic Market (MIBEL), 748 Power consumption, 837 Power distribution grid, 836 Power Exchange Europe (PXE), 691 Power exchange operator, 346 Power generation, 640 projects, 628 Power grid, 730 731 cross-border relations and power grid synchronization, 588 590 Power off and save programme, 306 Power plants, 120 Power production, 835 Power Purchase Agreements (PPAs), 193, 270, 525 526 Power supply, 828 Power synchronization, 588 Power systems, 567 Power transmission grid, 836 Power-generating devices, 667 Power-to-gas (PtG), 767 Power-to-methane (PtM), 768 769 PPAs. See Power Purchase Agreements (PPAs) PPC. See Public Power Corporation (PPC) Pricing process, 113 Privacy, 96 104 Privacy enhancing technologies (PETs), 353 Private identifiable information (PII), 770 Probabilistic demand curve, 16 Programme for Government (PfG), 794 795 Project of Common Interest (PCI), 128 129, 144, 163, 194 195, 338 339, 366 367, 614, 694 Prosumer markets advent of, 31 affordability and competitiveness gains in, 28 32 advantages, 28 29 risks and challenges ahead, 29 32 operation of, 10 17 Prosumers, 31, 119 120, 153, 230, 415, 729 730

893

Prosumers flexibility, archetype business model for exploiting, 858 863 Prosumership demand response systems, 113 Protection from cyber attacks, 564 567 Protection market, 168 PSE. See Polskie Sieci Elektroenergetyczne (PSE) Pseudonymization, 102 104 PSO. See Public service obligation (PSO) PSPP. See Pumped Storage Power Plants (PSPP) PtG. See Power-to-gas (PtG) PtM. See Power-to-methane (PtM) Public bodies, 313 Public electricity system (PES), 749 Public Gas Corporation of Greece (DEPA), 118 Public Power Corporation (PPC), 117 Public service obligation (PSO), 445 Public service obligation and smart metering, 445 446 Public Utilities Commission (PUC), 726 PUC. See Public Utilities Commission (PUC) Pump hydro storage units, 175 Pumped hydro storage plants, 767 768 Pumped Storage Power Plants (PSPP), 225 226 PV. See Photovoltaics (PV); Solar photovoltaic (PV) PXE. See Power Exchange Europe (PXE)

Q Quantification, 860 Quota system, 254, 807

R R&D projects. See Research and development projects (R&D projects) RAE. See Greek Regulatory Authority of Energy (RAE) RAM. See Region of Madeira (RAM) RDI. See Research, development, and innovation (RDI) RE. See Renewable energy (RE) RE-FIT. See Renewable energy feed-in-tariff scheme (RE-FIT) Real-time energy consumption data, 155 156 Realization, 852 853 RealValue project, 294, 307 Reasonable energy, 758

894

Index

Redes Energe´ticas Nacionais (REN), 743, 768 Reduction, 686 687, 760, 785 Reform, 432 433 Region of Madeira (RAM), 752 753 Regional development, 574 575 Regional Operational Program (IROP), 697 698 Regional System Operator, 808 Registry for Electrical Energy SelfConsumption, 151 Regulator for Energy and Water Services (REWS), 641 Regulators, 757 758 Regulatory Authority for Electricity, Gas and Water (AEEGSI), 167 Regulatory Authority for Energy, 145 Regulatory barriers, 705 Regulatory Entity for Energy Services (ERSE), 750 Regulatory Office for Network Industries (RONI), 662 Reliable electricity storage technologies, 29 Reliable energy, 779 780 Remote control electrical space and water hearing, 415 Remote monitoring, 550 REN. See Redes Energe´ticas Nacionais (REN) Renewable electricity, 294, 297 298, 783 Renewable energy (RE), 3, 8, 20, 82, 116, 123 124, 142, 149, 169, 181 182, 279, 293, 298, 334, 339, 392, 400, 402 403, 408, 437 440, 550, 575, 638 639, 673, 728, 779. See also Sustainable energy association for, 250 capacity, 82 consumption, 723 developments, 802 generation, 644 646, 752 in grid, 452 in gross final energy consumption in Finland, 271f production, 335 336 resources, 838 and smart energy grids, 84 86 in Spain, 30 systems, 373, 626 targets, 23 24 technologies, 736 Renewable Energy Act of 2009, 662, 665 Renewable energy feed-in-tariff scheme (REFIT), 312

Renewable energy sources (RES), 9, 135, 181 182, 209 210, 241 244, 293 294, 297 298, 312, 362, 436 437, 601, 640, 687, 742, 835 generation, 224 230 changes in electricity production from RES, 229f electricity production, 229f pumped storage power plants’ hydroelectric and pumped storage power plants, 227t structure capacity installed in RES, 225f greenhouse gas emissions and, 265 267 integration of, 311 312, 800 803 plants, 576 577 structure capacity installed in, 225f Renewable Energy Sources 2016 Polish Act on, 221 Renewable Energy Sources Act, 189 190, 400 Renewable Energy Support Scheme, 312, 317 318 Renewable Heat Incentive (RHI), 806 Renewable sources, 24 25, 312, 576 577, 661 of energy, 368 Renewable Transport Fuel Obligation (RTFO), 807 Renovation, 690 Renumeration method, 754 Reparability, 89 90 Representative agents, 15 Republic of Cyprus (RoC), 554 Republic of Ireland energy decentralization and transition in data protection, 325 326 demand response, 322 325 electric vehicles and electricity storage, 326 330 energy profile, 295 302 governance system, 303 310 regulatory framework and energy security dimension, 310 319 smart metering scheme, 319 322 RES. See Renewable energy sources (RES) RES-E. See Electricity from Renewable Energy Sources (RES-E) Res-e Regions project, 369 Research, development, and innovation (RDI), 534, 619 Research and development projects (R&D projects), 176, 251 252, 533 535, 731

Index Research and innovation (RI), 535, 669 Research and Innovation Strategy of Latvia for Smart Specialisation (RIS3), 731 732 Re´seaude Transport d’Electricite´ (RTE), 245 246, 251 Reserve capacity, 29 Reserve services, 816 817 Residential electricity generation, 730 Responsive technologies, 120 Retail markets, 118, 168, 300, 429 Reversible hydraulic reservoirs, 161 REWS. See Regulator for Energy and Water Services (REWS) RHI. See Renewable Heat Incentive (RHI) RI. See Research and innovation (RI) Ripple control systems, 702 703 Ritiro dedicato policy, 169 170 Road Traffic Act, 203 Road transport, 647 Robust consumer protection, 563 RoC. See Republic of Cyprus (RoC) Rollout, 432 Romania energy decentralization and transition in additional smart solutions, 628 considerations, 617 619 cyber-security, privacy, and data protection, 628 630 demand response, 626 628 energy and electricity, 600 606 key characteristics and structure of, 606 614 policy and regulatory responsibility, 614 617 RES electricity generation and selfgeneration, 621 623 Romania’s electricity market, 600 619 Romania’s grid, 619 630 smart grid investment and research and development, 619 620 smart metering, 623 storage, 626 zero-and low-emissions mobility, 623 626 RONI. See Regulatory Office for Network Industries (RONI) RTE. See Re´seaude Transport d’Electricite´ (RTE) RTFO. See Renewable Transport Fuel Obligation (RTFO)

895

S Safeguarded market, 168 Santa Llogaia—Baixa`s power line, 163 Sava Electric Power Plant Ljubljana (SEL), 363 Scottish Hydro Electric Transmission, 786 Scottish Power Transmission, 786 SDAC. See Single Day-Ahead Coupling power markets (SDAC) SE. See Slovenske´ Elektr´arne (SE) SEAI, 309 administration of government funding schemes, 309 electric vehicle information hub, 309 SEAI and IEA, 309 smart grid road map, 309 310 tools and calculators, 309 SEAS-NVE, 466 SEDC. See Smart Energy Demand Coalition (SEDC) SEF. See Strategic Energy Framework (SEF) SEL. See Sava Electric Power Plant Ljubljana (SEL) Self-consumer, 20 21 Self-consumption, 20, 150 151, 164 customers availing of, 151 generation with, 151 supply with, 151 Self-generated electricity, 63 64 Self-generation, 539 540, 729 731 SEM. See Single electricity market (SEM) SENG. See Sǒca Hydro Power Plant (SENG) Sensitivity, 847 848 Sensors, 16, 19, 646 SEP. See State Energy Policy (SEP) SEPS. See Slovenska Elektrizacna Prenosova Sustava (SEPS) SER. See Syndicat des e´nergies renouvelables (SER) SETS. See Smart Electric Thermal Storage Systems (SETS) SGTF. See Smart Grids Task Force (SGTF) Sharing economy, 67 69 Sharing/collaborative model, 67 Shifting process, 668 Short-Term Active Response (STAR), 322 SIDC. See Single Intra-Day Coupling power markets (SIDC) “Sincro. Grid” project, 377 379, 399 “Single buyer” model, 191 192 Single Day-Ahead Coupling power markets (SDAC), 610

896

Index

Single electricity market (SEM), 299, 310 Single Intra-Day Coupling power markets (SIDC), 610 SIPS. See Supply Points Information System (SIPS) Slovak renewable energy targets outlined by sector, 660t Slovakia energy decentralization and transition in data protection, 674 676 decentralization efforts, 663 665 demand response, 671 672 electric mobility, 668 671 electricity market, 661 663 electricity storage, 672 674 energy profile, 656 663 Slovakian energy market, 656 660 smart metering systems, 665 667 indexes of national production and import of primary energy sources, 658t Slovakian energy market, 656 660 Slovenia, energy decentralization and transition in, 361 389 data protection, 384 demand response, 382 384 electric vehicles and storage, 385 389 electricity market, 374 380 energy mix in Slovenia, 361 371 energy profile, 361 governance system, 371 373 smart metering systems, 380 382 Slovenian Data Protection Act, 384 Slovenian Energy Agency, 374, 383 Slovenska Elektrizacna Prenosova Sustava (SEPS), 661 Slovenske´ Elektr´arne (SE), 661 Smart Charging Ltd., 542 Smart Community Demonstration Project, 375 376 Smart Electric Thermal Storage Systems (SETS), 307 Smart electricity consumer’s empowerment, 696 700 consumers, 737 grids, 721 722 interconnection, 693 696 smartening of electricity grid, 700 712 demand response, 705 708 electric vehicles, 708 710 privacy, data protection, and cybersecurity issues, 710 712 smart meters, 701 703

storage, 703 705 systems, 268, 276 277 toward decentralized and smart electricity sector, 692 712 Smart Energy Demand Coalition (SEDC), 49 50, 587 Smart energy grids, renewable energy and, 84 86 Smart Energy Services, 308 Smart energy systems, 25, 392 current status of, 244 245, 267 268 Smart Flexible Energy System, 814 815 Smart Grid Working Group, 289 Smart grids, 9 10, 19, 23, 114, 179, 200, 285 286, 293, 303, 351 353, 361, 374, 416 418, 422, 434, 550, 592, 649 650 within circular economy, 81 90 data protection in, 590 592 deployment, 26 development, 675 676 energy decentralization and transition in Poland, 230 233 polish DSOs involved in smart grid project, 232t energy decentralization and transition in Belgium, 119 124 Czech Republic, 701 Greece, 135 138 Hungary, 535 536 Italy, 170 173 Malta, 646 Portugal, 769 Slovakia, 655 Spain, 154 156 Sweden, 479 480 United Kingdom, 800 807 in European Union, 3 5 affordability and competitiveness gains in prosumer markets, 28 32 contributing to EU collaborative economy, 65 73 delivering social benefits in collaborative economy, 71 73 demand response, 45 55 digital technology, smart grids, and law, 90 107 electricity storage and electric vehicles, 55 64 low-carbon transition pathways and smart grids, 73 90 multivalent instrument, 8 10

Index operation of prosumer markets, 10 17 platform for collaborative economy, 70 71 smart grid deployment and impact on energy security, 5 33 smart grid regulation, 33 64 smart grids and energy security, 17 32 smart metering, 33 45 social, environmental, and ethical issues of smart grids, 64 107 strengthening supply security, 24 28 sustainability prospects, 18 24 generic value network for, 835 838 government approach to, 189 heating and cooling, 806 807 implementation plans in European Member States, 37t incentive schemes, 803 806 integration of renewable energy sources, 800 803 investment and research and development, 619 620 in Latvia, 722 740 characteristics and structure of Latvia’s electricity market, 725 728 data protection and cyber security concerns, 737 740 energy security, 728 729 examination of whether Latvian policy and legislation promotes decentralization, 729 736 Latvia’s electricity market, 722 729 Latvia’s electricity system, 729 740 statistics on energy and electricity in Latvia, 722 724 optimization, 576 578 package, 399 pilot projects, 52 privacy, 417 418 progress on, 138 regulatory framework and, 311 315 feed-in tariff schemes, 312 313 heating and cooling schemes, 313 314 integration of renewable energy sources, 311 312 public bodies, 313 transportation schemes, 314 315 research and projects on, 251 252, 275 277 energy fields in Finland, 276f LEMENE smart grid project, 277 MOTIVA OY training programme, 277

897

smart grid working group, 276 277 road map, 309 310 sector, 244 245 security, 416 417 smart meters, demand response, and, 325 solutions, 833 status, 182 technology, 44 45, 549, 579 transition, 311, 321 322, 779 transport, 807 Smart Grids Task Force (SGTF), 103, 711 712 Smart homes, energy decentralization and transition in Estonia, 348 351 Smart Meter Implementation Programme (SMIP), 811 Smart metering, 414, 536 538, 623 and billing, 155 156 communication system, 811 effects of smart metering on current legal framework, 561 563 effects on current legal framework, 200 issues, 33 45 current status in Europe, 36 43 EU legal basis, 34 36 toward regulatory policy recommendations, 43 45 scheme energy decentralization and transition in republic of Ireland, 319 322 Irish National Smart Metering Programme, 319 320 smart metering regulatory framework, 320 322 systems, 196 197, 230 233, 286, 429 430, 453 456, 550, 556 558, 583 585, 646, 665 667, 701 702, 759 760, 811 814 applicability, 413 414 data concerns, 414 415 direct load control, 415 energy decentralization and transition in Austria, 411 415 energy decentralization and transition in Croatia, 400 401 energy decentralization and transition in Finland, 282 283 energy decentralization and transition in France, 255 256 energy decentralization and transition in Slovenia, 380 382 Landis 1 Gyr projects, 412

898

Index

Smart metering (Continued) other projects, 413 pricing, 414 prosumers, 415 technology, 137, 585 Smart Metering Programme, 319 321, 780 Smart meters, 16, 19, 32, 39 40, 114, 154 156, 166, 196 197, 244 245, 268, 283, 295, 300, 325 326, 351 352, 354 355, 380, 400 401, 411, 429 430, 584 concerns, 461 demand response, and smart grid, 325 energy decentralization and transition in Estonia, 348 351 energy security considerations, 350 351 Estonia’s legislative portfolio related to smart metering systems, 349 energy decentralization and transition in Belgium, 119 124 Cyprus, 556 Czech Republic, 701 703 Greece, 135 138 Italy, 170 173 Latvia, 732 733 Lithuania, 578 579 Malta, 649 Portugal, 760 Romania, 623 Slovakia, 664 Spain, 154 156 penetration, 454 456 process, 562 rollouts, 413 system, 122, 646 technology, 413 Smart Meters Bill, 813 Smart Pay-as-you-Go, 320 Smart systems, 700 Smart technology, 554, 649 Smart vehicle, 549 550 Smart wires collaboration programme, 306 SmartEnergy effective management, 240 Smartening of electricity grid, 700 712 SMIP. See Smart Meter Implementation Programme (SMIP) SNAPS. See System needs and product strategy (SNAPS) Sǒca Hydro Power Plant (SENG), 363 Social-ecological systems, 80 Societatea Comercial˘a Operatorul Pie¸tei de Energie Electric˘a (OPCOM), 609

Socio-economic systems, 81 82 Software systems, 674 675 Solar, 492 496 Solar energy, 16, 26 27, 120 121, 578, 640 Solar Energy Association of Sweden, 495 Solar panels, 796 Solar photovoltaic (PV), 688 panels, 664, 667 Solar power production, 753 Solar sources, 24 25 Solar thermal, 639 Solid fossil fuels, 604 605 Solid fuels, 183 184 ˇ Sǒstanj Thermal Power Plant (TES), 363 Soviet system, 574 575 Spain energy decentralization and transition in concerns about data protection, 164 166 demand response, 160 161 electric vehicles, 156 160 interconnection, 162 164 regulatory framework for electricity market, 149 154 smart grids and meters, 154 156 storage, 161 162 Spanish Data Protection Agency, 164 165 Spatial Development Act, 203 Spatial distribution, 573 574 Special regime producers (SRP), 750 Spodnji sava Hydro Power Plants (HESS), 363 SRP. See Special regime producers (SRP) STAR. See Short-Term Active Response (STAR) State Energy Policy (SEP), 685 686 State Energy Regulatory Commission, 187 State Property Tax Act, 488 489 Stockholm Royal Seaport, 480 Storage, 204 206, 261, 289 290, 388 389, 405, 626 capacity, 175 electric vehicles and, 567 570, 592 596 energy decentralization and transition in Poland, 233 237 E-Buses, 236 237 energy storage, 237 legislation, 234 235 energy decentralization and transition in Austria, 422 Belgium, 127 Bulgaria, 202 206 Croatia, 402 405

Index Cyprus, 568 570 Czech Republic, 703 705 Denmark, 465 467 Finland, 286 290 France, 260 261 Greece, 141 143 Hungary, 542 543 Italy, 175 176 Lithuania, 595 596 Luxembourg, 433 Malta, 647 649 Slovenia, 385 389 Spain, 161 162 Sweden, 515 517 projects, 306, 329 solutions, 623 sustainable energy, 851 857 systems, 354, 595 596 technologies, 701 Storage Unit Operator (SUO), 853 StoRE project, 466 Strategic Energy Framework (SEF), 794 Subsidies and incentives, 113 “Sun tax”, 152 SUO. See Storage Unit Operator (SUO) Supply Points Information System (SIPS), 166 Surplus energy, 578 579 Sustainability, 77 78, 683 684 advantages, 18 20 prospects, 18 24 risks and challenges, 20 24 Sustainable Development Goals, 78 Sustainable Economy Law, 157 Sustainable energy, 3, 646, 794. See also Wind energy decentralized energy, 835 863 methodology, 833 835 Sustainable environment, 638 639 Sustainable security, 693 Sweden energy decentralization and transition in, 469 471 data protection, 506 510 demand response, 502 506 electric vehicles, 510 515 electricity market, 486 501 energy profile, 471 480 governance system, 481 486 smart grid, 479 480 smart metering systems, 501 502 storage, 515 517 Swedish Energy Agency, 484

899

Swedish Energy Markets Inspectorate, 484 Swedish Environmental Protection Agency, 485 Swedish Radiation Safety Authority, 485 Swedish Smart Grid Forum, 484 SweGRIDS, 479 Synchronization project, 581 Syndicat des e´nergies renouvelables (SER), 250 Synthetic fuels, 158 System Average Interruption Duration Index, 231 System Average Interruption Frequency Index, 231 System needs and product strategy (SNAPS), 820, 825 826

T Target model, 140 Tariff Regulation, 751 Tax Acts, 221 Tax regulation mechanisms, 488 489 Taxation, 824 Taxe ge´ne´rale sur les activite´s polluantes (TGAP), 254 Taxes Consolidation Act (TCA), 313 314 TCA. See Taxes Consolidation Act (TCA) TCF. See Trillion cubic feet (TCF) TCPs. See Technology Collaboration Programmes (TCPs) TEB. See Brestanica Thermal Power Plant (TEB) Technological neutrality, 312 Technological solutions, 629 Technology Collaboration Programmes (TCPs), 309 Telemetering meters, 135 Telephone line, 860 TEN-E. See Trans-European energy networks (TEN-E) TEN-T programme. See Trans-European Transport Network programme (TENT programme) TEP. See Third Energy Package (TEP) Terawatt-hour (TWh), 723, 746, 768 Territory borders, continental part of, 241 ˇ TES. See Sǒstanj Thermal Power Plant (TES) TEU. See Treaty on European Union (TEU) TFC. See Total final consumption (TFC) TFEU. See Treaty on Functioning of European Union (TFEU)

900

Index

TGAP. See Taxe ge´ne´rale sur les activite´s polluantes (TGAP) Thermal capacity tax scheme, 477 478 Thermoelectric power plants, 751 Thermostats, 737 Third Energy Package (TEP), 689 Third-party control, 560 561 Time of Use (ToU), 319 Top-down approach, 1 3 Top-down energy policy, 11 12 Total electricity consumption, 143 Total electricity production in France, 246 Total final consumption (TFC), 656, 684 685, 744 Total hydro pump storage capacity in Spain, 161 Total primary energy requirement (TPER), 296 Total primary energy supply (TPES), 657, 723 724 ToU. See Time of Use (ToU) Tourism Act, 200 201 TPER. See Total primary energy requirement (TPER) TPES. See Portugal’s total primary energy supply (TPES); Total primary energy supply (TPES) Trading, 689 Traditional energy industry, 294 Traditional energy systems, 92 93 Traditional grid fee model, 60 Trans-European energy networks (TEN-E), 144, 338 339 Trans-European Transport Network programme (TEN-T programme), 542 Transelectrica, 611 Transition process, 779 Transitional justice approach, 76 Transmission, 552, 671, 689, 752 753 Transmission grid, 19, 397, 581 Transmission network services, 343 in United Kingdom, 792f Transmission system, 301 302, 690, 790 792, 836 great Britain, 790 791 Northern Ireland, 791 792 Transmission system operator (TSO), 10 11, 59 60, 140, 174 175, 184 185, 245 246, 279, 294, 305 306, 336, 364, 370, 393 394, 407 408, 410, 523 524, 580 582, 609, 661, 690 691

balancing services, 323 capacity auction market, 323 324 demand response/demand-side management schemes, 322 powersave, 322 STAR, 322 demand side unities, 322 323 role of, 322 324 Transport, 807 Transport sector, 233, 385, 407 Transportation, 708 709 schemes, 314 315 sector, 9 TRC. See Turkish Republic of Cyprus (TRC) Treaty on European Union (TEU), 76 77 Treaty on Functioning of European Union (TFEU), 64 65 Trillion cubic feet (TCF), 215 216 TSO. See Danish Transmission System Operator (TSO); Transmission system operator (TSO) Turkish Republic of Cyprus (TRC), 554 TWh. See Terawatt-hour (TWh)

U UCTE. See Union for the Coordination of Transmission of Electricity (UCTE) UK Continental Shelf (UKCS), 781 782 UK’s Renewable Obligation (RO), 798 799 UKCS. See UK Continental Shelf (UKCS) “Ultra low emission” vehicles, 203 UMIX. See Utility Market Information Exchange (UMIX) UN. See United Nations (UN) UNFCCC. See United Nations Framework Convention on Climate Change (UNFCCC) Union for the Coordination of Transmission of Electricity (UCTE), 144, 771 United Kingdom energy decentralization and transition in data protection, 820 823 demand response, 814 820 distribution system, 793 electric vehicles, 823 825 electric vehicles and energy storage, 823 829 energy mix, 781 785 energy profile, 781 793 energy security dimension, 808 811 energy storage, 825 829

Index energy strategy, 793 795 governance system, 793 799 great Britain, 814 819 integration of governance and energy strategy, 795 799 market and market players, 786 790 Northern Ireland, 819 820 reflections on demand response, 820 regulatory framework, 799 808 regulatory framework and energy security, 799 811 smart metering systems, 811 814 transmission system, 790 792 energy mix, 781 784 progression against targets, 784 785 targets, 781 United Nations (UN), 73 74 United Nations Framework Convention on Climate Change (UNFCCC), 210, 241 242 Universal service segment, 527 Utility Market Information Exchange (UMIX), 131 Utilization, 833 834

V V2B. See Vehicle-to-Building (V2B) V2G technologies. See Vehicles-to-grid technologies (V2G technologies) ¨ sterreich (VCO) VCO. See Verkehrsclub O VEA. See Alternative Energy Vehicle Plan (VEA) Vehicle emissions tests, 708 709 Vehicle registration tax (VRT), 314 Vehicle-to-Building (V2B), 839 Vehicles registration system, 652 Vehicles-to-grid technologies (V2G technologies), 56, 159 160, 173 174, 288, 567, 709, 760 761, 823, 839 ¨ sterreich (VCO), 420 421 Verkehrsclub O VG. See Visegrad Group (VG) Virtual power plants (VPPs), 10 11, 56, 834 Virtual Power Solutions (VPS), 764 Visegrad Group (VG), 695 Volkswagen (company), 57 Voltage power, 836

901

Voltage regulation, 841 Voluntary agreements, 197 VPPs. See Virtual power plants (VPPs) VPS. See Virtual Power Solutions (VPS) VREG, 123 Vrije Universiteit Brussel (VUB), 125 VRT. See Vehicle registration tax (VRT) VUB. See Vrije Universiteit Brussel (VUB) Vulnerability, 813

W Waste Electrical and Electronic Equipment Directive (WEEE), 84 Water, 368 Water conservation unit, 646 Water grid, 550 Water Supply and Sewerage Services Act, 187 WEEE. See Waste Electrical and Electronic Equipment Directive (WEEE) WG. See WiseGRID (WG) WG FastV2G application, 139 Whole system, 838 Wholesale markets, 429 Wind energy, 16, 79, 226 conversion systems, 645 646 plants, 408 409 production, 753 Wind generation, 297 298 Wind power, 497 498. See also Hydropower plants, 578 deficit in, 373 Wind sources, 24 25 Winter peak project, 307 WiseCOOP, 118 Wise EVP application, 139 WiseGRID (WG), 113, 159 160, 164, 293, 838 840, 839f WiseHOME application, 138

Y Yellow Vests (Gilets Jaunes), 243 244

Z Zero-and low-emissions mobility, 623 626