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Joint declaration by a group of industry associations “2016, time to deliver… an ambitious power market reform”
The signatories of this declaration gather leading associations and industry groups with a clear stake in Europe’s energy policy. We share the conviction that only a flexible and dynamic energy system, making the best use of innovative and distributed supply and demand options, can ensure a cost-efficient and sustainable transition towards a decarbonised energy system.
We strongly believe that a market-driven environment is the best means to provide long-term investment signals while meeting all system needs and accommodating the growing share of renewable energy in the energy mix. The completion of the Internal Energy Market will improve system adequacy and efficiency, increase security of supply, support the competitiveness of European industry, and help deliver the energy and climate goals stemming from the COP 21 agreement and EU’s post 2020 objectives on emissions reductions, energy efficiency and renewables.
However, we see many constraints persisting in the energy sector that affect investment decisions, in particular: 1) depressed wholesale market prices due to overcapacity; 2) fading EU-coordination of energy policies with a tendency towards renationalisation; and 3) an antiquated set of market rules.
Market rules have been tailored to centralised production within national boundaries for too long. Not only have they failed to adapt to developments in energy technologies and evolution of demand patterns both at industry and end-consumer level, but some of them hamper the deployment of renewables, storage and demand-side flexibility. These new technologies can today provide valuable services including balancing energy offering significant flexibility to the system.
The energy system is now more complex to plan, control and balance. It needs enhanced flexibility that could be provided by a mix of options, but this would require significant changes in the relevant legislation. In this respect, we consider the upcoming legislative package on market design as a unique chance to provide the energy sector with a predictable investment framework, fairer market conditions, and ultimately seize new opportunities arising from decentralised energy production and demand side participation.
In particular, we deem essential that any ambitious reform of the energy market addresses the following issues:
1. Providing adequate price signals and further integration of short-term markets across borders
2. Ensuring a balanced approach to system adequacy that fully takes into account the contribution from renewable energy supply and demand sources
3. Implementing a level playing field for all flexibility providers to foster the pan-European trading ofelectricity and grid support services.
1. Providing adequate price signals and further integration of short-markets across borders
In a well-functioning electricity market, unhindered price-formation drives operational choices and investment decisions. Transparent and undistorted market prices must be in place in all time horizons, and allowed to move freely without caps. Wholesale electricity prices reflecting scarcity would signal the need for investments in new capacity. Therefore, price spikes should be treated as a positive sign of an efficient and cost-effective energy system where market participants are free to choose the level of hedging they prefer to contract, revealing the true value of flexibility and energy at all times.
Market rules also need to be adapted so as to enhance clean and flexible energy providers to trade power over broader geographical areas and as close as possible to the time of delivery. In this context, the opening and cross-border integration of intraday market is essential, especially for energy producers whose output is variable. A as long as separate procurement of balancing capacity and energy is guaranteed, another important aspect is the possibility to negotiate the duration of contracts, e.g. for balancing contracts. This is crucial, as certain flexibility technologies may require considerable capital investment and, therefore, contracts with a longer duration.
2. Ensuring a balanced approach to system adequacy that fully takes into account the contribution from different energy sources
The main challenge for security of electricity supply is not the availability of capacity as such, but the availability of flexibility that is needed to support the system and provide for a constant balance between supply and demand.
In order to identify potential, locally constrained adequacy issues, system adequacy assessments should be carried out according to a common methodology and metrics transparently defined in EU legislation1. Such analysis should be performed at regional level and consider the potential of all flexibility options, from the various energy supply and demand sources. This would ensure a rigorously needs-based approach to the introduction of Capacity Remuneration Mechanisms (CRMs) when the market cannot not deliver the adequate flexibility.
If CRMs are deemed necessary, they should be designed in a way that minimises any negative impacts on price formation on energy markets. They should avoid contributing to continued overcapacity situation by keeping redundant and polluting power plants online, and prioritise clean flexibility options as foreseen in the energy state aid guidelines.
3. Implementing a level playing field for all flexibility providers2 to foster the pan-European trading of electricity and grid support services
In addition to the modernisation and further opening of the balancing market, a proper market for ancillary or grid support services needs to be fostered to provide additional non-discriminatory revenue streams to flexibility providers, as well as overall operating cost savings for the energy system. As of today, a number of services and solutions from decentralised generation and demand-side response are technically feasible, but current market conditions do not properly value their commercial provision.
The continued adaptation of balancing and ancillary services markets should foster liquidity and incorporate innovative and decentralised solutions. Prohibitive pre-qualification requirements and access conditions for independent aggregators, extended product-durations or minimum thresholds and symmetric bids are some of the aspects currently hampering an effective market. Moreover, contradictory regulatory signals, e.g. regarding network tariffs, the operation of industrial loads or co-generation should be addressed to ensure demand side flexibility further develops without impeding the achievement of robust energy efficiency targets.
1 Incl. a clear system adequacy target level for all control areas in the EU as many countries are lacking one
2 “A service provided by a network user to the energy system by changing its generation and/or consumption patterns in response to an external signal” (Task Force Smart Grids report, 2015)in
Preliminary estimates based on today’s publication of the Verified Emissions and Compliance Data for the year 2015 show that carbon emissions in the pulp and paper industry in 2015 fell by at least 1% compared to 2014. Compared to 2005, the year the EU Emission Trading Scheme came into force, absolute emissions fell by 27%.
With production levels remaining substantially the same in 2015, emission reductions were primarily driven by market consolidation, investments in bioenergy, and the push from international competition to improve efficiency in production processes. And with energy being the second main component in the cost structure, reducing energy-related costs, such as CO2 emissions, is a priority to secure an internationally-competitive position.
"We have been early-movers in low-carbon investments and have further plans to grow our business in Europe, building synergies with Circular Economy as well as the Bioeconomy”, says Jori Ringman, CEPI Acting Director General. “The EU ETS should support such efforts which are completely in line with its overarching scope of transforming the industries. Therefore the EU ETS should continue to improve the predictability of the regulatory framework, by promoting and rewarding investments in low-carbon technologies”, he added.
The European Paper Industry currently receives 1.4% of the total allocations for manufacturing sectors, while employing over 6% of the manufacturing industries’ workforce and being responsible for over 5% share of investments in Europe.
For more information, please contact Annie Xystouris at firstname.lastname@example.org, mobile: +32 486 243 642.
The non-paper jointly drafted by the French and British government on tiered free allocation arbitrarily determines which sector has a future in Europe and which sector has a future outside Europe.
Specifically, the proposal has three major critical points:
1. It is unjustified from both an economic and a fairness perspective
The proposal pretends to adequately ensure protection against the risk of carbon leakage. However, it reduces the share of free credits to the vast majority of industrial sectors, without providing any evidence of the impact of additional costs on their competitiveness. The proposal particularly lacks of any cost comparison between a given European and a non-European sector.
The proposal reduces the amount of free credits to certain sectors, as a supposedly fair gesture towards some others who would otherwise receive too little protection. Yet, some other sectors would unjustifiably be excluded from such a “solidarity clause”. This is far from being a fair approach.
2. It penalises competitive industries investing in low-carbon technologies
Protection against the risk of carbon leakage should provide the regulatory certainty for industries in transition towards a low-carbon economy.
However the tiered approach rewards the most carbon intensive and least profitable sectors. This is intrinsic in the formula used, which rewards high carbon intensity combined with low value added (GVA).
On the contrary, the formula punishes a sector investing in carbon emission reductions by giving a lower protection against the risk of carbon leakage as a direct consequence of these investments.
3. It hampers innovation
The ETS is expected to ultimately promote the substitution of high-carbon with low-carbon production. In this respect, solutions may come from within a given sector or as a cross-fertilisation of ideas coming from other sectors. One example is the potential coming from the bioeconomy or circular economy to provide solutions to decarbonise other sectors.
However, the proposed tiered approach provides different carbon cost exposure to different sectors, with the paradox that the most carbon intensive will bear the least carbon costs. As a consequence, the investment signal from the ETS will be totally jeopardised.
Sectors which successfully invest in decarbonising their processes are systematically at risk of being pushed outside the EU.
Alternatives to the tiered approach
Discussions on tiered free allocation are triggered by the need to avoid the application of the Cross-Sectoral Correction Factor (CSCF). The timing and magnitude of the CSCF are far from being certain, as it depends on a combination of factors (production levels, changes in the market, technological developments, innovation, development of international carbon markets, etc.).
Rather than picking one scenario and fixing the rules for the next 15 years accordingly, the EU should:
1. Define a regulatory framework that stimulates and rewards investments in low-carbon technologies, as a way to reduce the demand for free credits;
2. Support programmes to accelerate the market-readiness of breakthrough technologies for industrial installations;
3. Secure a sufficient amount of free credits to allow for low-carbon economic growth in energy intensive industries exposed to international competition;
4. Set rules to predictably assess potential shortages in the supply of free credits and, when the case, explore all possible options to preserve industrial competitiveness.
For more information, please contact Nicola Rega at email@example.com mobile: +32(0)485403412.
This consultation was launched to collect views and suggestions from different stakeholders and citizens in view of the review of Directive 2012/27/EU on energy efficiency (Energy Efficiency Directive or EED), foreseen for the second half of 2016. The full consultation replies can be found here.
Here are some highlights:
In reviewing the EU energy efficiency target for 2030, the Commission should have in mind that energy efficiency has to be achieved by voluntary initiatives, rather than by mandatory requirements. An EU-wide binding energy saving target until 2030 would limit the scope for economic room to manoeuvre. A rigid objective as a binding cap on energy consumption would impede growth. Therefore, it is of vital importance that the Commission designs the target in such a way that recognises early measures and focuses on lowering the energy intensity, not the energy use as such. The European framework has to create ideal long-term conditions to realize energy efficiency measures covering all sectors. This is particularly important for the non-ETS sectors, where incentives to improve energy efficiency are often insufficient. Effective incentives are needed, especially for research and development as well as for the cost-efficient implementation of investments in energy efficiency measures.
In view of achieving the new EU energy efficiency target for 2030, we believe that energy efficiency work must be done locally and as close to the energy consuming unit as possible. The role of the EU should therefore only be limited to setting targets, creating the overall regulatory framework, monitor the process in terms of energy efficiency improvements and give non-binding advice to those countries that are not able to reach the given goals. But details on how to implement energy efficiency policies need to be formulated at national or even industry level.
The EU should also promote and finance research and innovation in the field of energy and process technology to enable breakthrough technologies.
Regarding the most appropriate financing mechanisms to significantly increase energy efficiency investments in view of the 2030 target, it is important to find a high efficient way of financing. To make sure that the highest possible potential is tapped with the available amount of money, it is important to prefer energy investment funding for measures with high returns on investment. One way would be to support investment in form of cheap call money from a revolving fund for efficiency measures that would otherwise not take place without support. Ensuring that the invested money always returns to the fund (e.g. oney is paid back to the fund in the same rate as the energy savings pay back), allows multiple use of the available budget and therefore enables highest efficiency.
Interest-free loans to finance investments are also a way to achieve energy efficiency measures.
Tax decrease/benefit could also be envisaged if companies are participating in energy efficiency programs and achieving results.
Income from auctioning of emission rights should also be used to finance energy efficiency measures.
CEPI's response to EU Commission's Preparation of a new Renewable Energy Directive for the period after 2020
In its Energy Union Framework Strategy, the Commission announced a new renewable energy package for the period after 2020, to include a new renewable energy directive (REDII) for the period 2020-2030 and an updated EU bioenergy sustainability policy. This consultation covered the REDII aspects. You can find the fully completed consultation here.
Here are some highlights:
CEPI believes that the RED has been successful in deploying large volumes of renewable energy sources. However, the costs directly and indirectly associated to such deployment in most Member States have been quite significant. The energy
prices gap with competing economies has widened, with policy-induced costs being particularly relevant in electricity prices. This has a negative impact on industrial competitiveness, as acknowledged by the 2014 Commission Guidelines on State aid for environmental protection and energy 2014-2020. Weather dependent renewable energy, solar and wind, is remarkable and growing challenge to secure availability of electricity.
The RED has also led to measures promoting the demand for bioenergy, not sufficiently taking into account the availability of wood for the wood processing industry, which is producing substitutes to fossil fuel based and more carbon intensive products. This negative impact on the competitiveness of the wood processing industry is hampering the uptake of the bio-economy and
its climate change mitigation potential. Support to bio-energy should rather focus on stimulating the supply of wood.
Member States have a responsibility to ensure that additional demand for bioenergy is met by supply of raw materials, taking into account local biomass availability. Therefore demand-side measures should be balanced with supply-side measures to mobilise existing additional potential of wood that can otherwise not be used for wood and fibre based products. Reference could be made to the biomass mobilisation brochure jointly developed by DG AGRI, Forest-Europe and the UNECE-FAO.