Tallin will pay “particular attention” to the European Commission’s proposal for a new electricity market design, a discussion Estonia sees as part of the wider digital brief as it takes the rotating Presidency of the Council of the European Union.
“It’s the closest to our hearts. Really, really close,” said an Estonian Presidency source who recently briefed journalists about Estonia’s plans in the energy sector at the EU’s helm.
Estonia placed digital policy at the heart of its programme as the small Baltic state picked up the six-month EU rotating presidency from Malta on 1 July.
“We have a digital dimension to almost every aspect of our presidency programme,” said Jüri Ratas, the Estonian Prime Minister, who outlined his priorities at the European Parliament in Strasbourg last week.
Free flow of data
And the European Commission’s electricity market design proposal is an area where Estonia believes digitalisation can make a big difference.
“We feel that if we get the electricity market design right, then this will be the best way to enable more deployment of renewable energies,” said the Estonian official who spoke to Brussels-based reporters on 28 June.
Functioning electricity markets are also “the best driver for energy efficiency,” the official added, citing smart meters, which allow consumers to monitor their energy consumption in real-time and switch on their devices when prices are lowest.
But although smart meters are now cheap and ready from a technical point of view, more needs to be done before consumers can truly become active participants in the electricity market, the official said.
The key here is data, and whether consumers will be willing to share consumption information with their energy provider.
“You need to get the data out of the smart meters. And you need to be able to use the data,” the Estonian official explained, linking the issue with upcoming European Commission proposals on the free flow of data, which are expected in the autumn.
Existing smart grid technology allows households to pool their consumption data and use it to obtain cheaper electricity prices, the Estonian official explained, referring to “aggregators” that can negotiate on behalf of consumers to get “a better deal from electricity companies.”
But that implies consumers sharing their private data with energy companies, in line with EU privacy rules. “Data protection is an obvious angle,” the official said in reference to the general data protection regulation and ongoing discussions on an EU ePrivacy bill.
Retail electricity markets
Another key sticking point in the electricity market design discussion is the “ideological” stance taken by member states on energy pricing.
On the retail side in particular, there is “a clear tension” between countries like France and Italy, which have regulated electricity tariffs for households and commercial consumers, and other countries like the UK and the Netherlands, which favour prices decided by market forces, the official said.
The European Commission has long tried phasing out regulated energy prices, saying they “do not reflect costs” and lead to under-investment in new supply capacity. Moreover, artificially low tariffs “impede real competition” and effectively block new suppliers from entering the market, the Commission argues.
Supporters of regulated tariffs, led by France and Hungary, have called for softening the transition to fully liberalised energy markets and have introduced social tariffs to protect vulnerable households from fuel poverty.
The European Commission accepts that derogations are acceptable in some cases, saying “social tariffs meeting certain requirements, and price regulation in emergency situations, will still be permitted”.
But Budapest in particular insists that retail electricity prices should continue being regulated at national rather than EU level. Competition should be maintained in the wholesale market but not among retail consumers, Hungary’s state secretary for energy said in March.
As it takes on the EU Presidency, Estonia believes it can resolve those tensions by taking an agnostic ideological stance.
“We don’t see it as a problem,” the Estonian official explained, saying that retail electricity prices are “a local issue” that do not create cross-border trade distortions and therefore have no impact on the single market.
“The goal is not to harmonise but to allow different ideologies to co-exist,” the official explained.
Tallin even believes it can lead by example. Estonia fully opened up its electricity market in 2013 and one third of consumers have now switched to the market-based price, paying lower prices than those who stayed on a fixed price contract, the official explained.
“There was panic at first but it all turned out fine,” he said.
“Don’t mess with your neighbour”
Discussion heats up, however, when looking at wholesale electricity markets, which do have a cross-border dimension.
EU countries have pressed ahead with national subsidy schemes to keep power plants on stand-by, despite warnings from Brussels that such “capacity mechanisms” distort the internal market. The European Commission wants capacity mechanisms opened to cross-border offers, in order to avoid overcapacity and contribute to building a genuine Energy Union.
“This is all about cross-border,” the Estonian official said, arguing for support mechanisms to be opened to cross-border access. “It makes perfect sense: If your neighbour can produce renewables or backup capacity more cheaply, then why not save money,” the official said, arguing for capacity analysis to be done at a regional level.
“We probably cannot harmonise the internal energy market – these ideological differences will remain,” the official admitted with a sense of realism. “But we should really see that neighbours cooperate and don’t mess with each other’s energy systems”.
“Don’t mess with your neighbour – that is the key test for any policy on the wholesale level,” the official insisted, saying that will be Estonia’s proposed approach to address the tensions between free-market enthusiasts and those in favour of state intervention.
Two meetings per week
Officials from the EU’s 28 member states will meet twice a week to try and hammer out an agreement on the 3,500 pages of directives and regulations that came out of the European Commission’s ‘Clean Energy’ package, tabled in November last year.
The Maltese EU Presidency cleared up part of the work with a “general orientation” agreement among EU countries on two texts – the Energy Efficiency Directive (EED) and the Energy Performance of Buildings Directive (EPBD). This agreement will need to be fleshed out with detail during so-called trialogue talks between the European Parliament, the Commission and the Council, represented by Estonia.
The aim, the Estonian official said, will be to reach an agreement on the whole package before the end of the Presidency, on 1 January.
“But this claim comes with serious disclaimers,” the official cautioned. “We don’t know where we will end up.”
A European Commission proposal for a new EU electricity market design was unveiled on 30 November as part of a Winter Package of Energy Union legislation that promises to put consumers in the driving seat.
The European Commission promised a “new deal for consumers” saying the new market design would do away with all forms of price regulation. Consumers will be exposed to price fluctuations, but also empowered to react to them, for example by moderating consumption during peak times and buying kilowatt-hours when demand, and prices, are low.
The goal is to create a market fit for a growing share of power from intermittent renewable sources, chiefly wind and solar.
One area that looks set for rapid growth on the back of these changes is battery storage, which could enable consumers to buy electricity when it is going cheap, and use it later when peak demand pushes prices up. Storage capacity may also come in the guise of electric vehicles connected to the grid.