Energy discussions at the home of EU energy regulation
Just back from Slovenia, I thought I would share a few reflections on discussions in Ljubljana this week, as the AEEC (Associated European Energy Consultants) convened for its Autumn conference to debate aspects of the European energy sector.
Shakespeare Martineau is the UK member firm of this pan-European association of energy lawyers, and AEEC meetings are always lively events. The theme this time around was the emerging role of the distribution network operators in the energy system of the future.
This being Ljubljana, the home of ACER (the Agency for the Cooperation of Energy Regulators), we naturally had a key note speech from ACER, and the big takeaway for me – at least from a UK perspective – was that we’ll be missed after Brexit. Clearly, the working relationship between ACER and Ofgem is a good one, and Ofgem have been a strong and influential voice amongst national regulators.
As had been said often, since ACER is a construct of the “3rd package” of EU energy laws, it is difficult to see how, post Brexit, the UK can retain any sort of formal representation in the ACER institutions, namely its Administration Board, Board of Regulators and Board of Appeal. However, there is clearly a willingness within ACER to have the UK – through Ofgem – retain influence through its various working groups. Assuming, of course, the politicians don’t get in the way, which in the current political climate clearly cannot be taken for granted.
And that ongoing influence will be important when it comes to distribution networks. ACER’s principal focus to date has been on Europe’s TSOs (transmission system operators) and the wholesale energy markets, driven by the priorities and objectives in the 3rd package. Perhaps conveniently for the UK, the ENTSO-e and ENTSO-g associations comprising the European TSOs are not creatures of statute in the same way as ACER. which makes ongoing participation by the GB TSO National Grid slightly easier to accommodate.
But with ACER’s attention increasingly turning to distribution and the retail markets -areas where ENTSO-e and ENTSO-g have a narrower remit – the UK will need to work hard to retain a place at the tables that matter within ACER, if it is going to have any meaningful say in the design of the regulatory frameworks which are beginning to evolve, and to which the UK may find itself permanently aligned as part of a post Brexit common energy rule book.
Important here is the role of GEODE, the trade association for distribution companies across Europe, and in Ljubljana the President of GEODE spoke of the emerging distribution agenda in terms of the “three Ds”; decarbonisation, decentralization and digitisation. This agenda will frame the future role of distribution companies as market facilitators, working in ever closer cooperation with TSOs, and with flexibility at the heart of planning and operations.
Of these “D”s, perhaps digitisation is the one to watch, as that is what will drive customer behavior. Look no further than electric vehicle charging infrastructure. The EU Commission is anxious for the distribution network owners (DNOs) to facilitate innovation and market entry, by ensuring non-discriminatory access to grid connections for charging station operators, whilst stipulating that charging arrangements do not inhibit ad hoc charging (for example by limiting access only to those who register in advance), and by allowing the introduction of a second supplier for home charging infrastructure.
A key question here is whether customer behavior will ultimately prefer charging infrastructure which drives a use case which replicates how we currently fill our cars with petrol, ie, fast charging points at filling stations, or whether a use case modelled on how we charge our phones will prevail, involving home or work based day or night time charging. These scenarios might be supplemented by complementary charging models, based on staff-only charging laid on for staff, or charging infrastructure offered free to shoppers to entice them into retail environments. Clearly, it is still early days, and this debate inevitably has profound impacts for both distribution, transmission and system operation.
But it is not just electric vehicles which could be a game changer here. Technology is evolving rapidly, and “sector convergence” was a topic for discussion at the conference, a good example being power to gas technology. It is now possible to conceive of power to gas conversion at the point of entry of an offshore wind farm to the onshore grid, say, to facilitate the injection of gas into the local grid and its shipping via pipelines many miles to a gas fired power station, avoiding the need to build new electricity transmission infrastructure.
The regulatory regime will need to adapt appropriately to these active and flexible networks of the future, but it must not be so prescriptive as to stifle innovation. And that includes the regulation of grid fees, another topic which was explored at the conference. Notably, the 3rd Package is not very prescriptive in this area, establishing instead a framework which allows a broad scope for the design and formulation of grid fees. That may change as the focus of EU policymakers turn from transmission to distribution.
Just a few topics that were under discussion at a provocative and well attended AEEC conference in Ljubljana. Lawyers and regulatory experts have an important role to play at a time of transition, and when it comes to energy there is no doubt at all we are in one. And organizations like AEEC – which provide a platform for lawyers and other experts from across the continent to get together to debate opportunities and challenges and explore potential solutions to shared problems – can play a part in helping ensure that regulators and policy makers make smarter decisions for the benefit of everyone.