Warsaw, December 1^st, 2016

PKEE’s position on the Clean Energy for All Europeans package

Polish Electricity Association (“PKEE”) appreciates recent efforts to establish the Energy Union, which shall facilitate secure, sustainable, competitive and affordable energy. Therefore, we would like to present our position on some of the Clean Energy for All Europeans package (so called: “Winter Package”) elements.

PKEE’s key messages on Renewables Directive

1.    Changing the perspective from national to EU-wide RES target for 2030 offers Europe an opportunity to find a more cost-effective way for developing the renewable sources. Furthermore, the RED II proposal should not go beyond the EU-wide agreement set forth by the European Council in October 2014. Therefore, we support the 27% EU-wide RES 2030 target.

The EU-level specified RES target after 2020 will lead to increased importance of coordination of national energy policies, which will be provided by the EU Governance legislation. It is very important to find a balance between the EU-wide approach and the necessity to preserve treaty-based Member States’ right to determine their energy mixes. Therefore, we cannot support the concept of the financing platform, which is  developed under the Energy Union Governance Regulation.

Member States should be supported by incentives and a choice of supplementing measures instead of being burdened with sanctions defined as financial contributions to the financing platform.

2.    The adequate RES approach, which is required to account the implementation of the EU-wide RES target requires technological neutrality. Therefore, we cannot agree upon the newly proposed RES accounting, which excludes the RES-biomass except in case of biomass used in high-efficiency cogeneration.

3.    Biomass is a RES source equal to other technologies. Conversion of coal-fired units to biomass and construction of dedicated biomass-fired units has been an important driver of low-carbon transition in several MS in Europe and should remain in place in the future to do so cost-effectively.

The proposed interlinkage between RES-biomass and cogeneration may hamper further RES development in certain Member States and the technological neutrality principle when determining the preferred RES-development technological choice.

4.    The pan-European perspective for RES development has the advantage of locating investments in most beneficial locations for a given technology. Therefore, further development of RES should be promoted along with the principle of technology neutrality. Investors need to know which RES technologies are the most competitive. These should be the technologies that make the most economic sense in a given Member State, e.g. PVs should be in general mostly located in the South of Europe, while wind farms should be located in the North. In Polish circumstances, it makes most economic sense to invest in biomass and wind farms, particularly off-shore, since the capacity for on-shore wind farm development is gradually running out.

5.    We need more flexibility approach to the transboundary participation requirements, which imposes the obligation to open to the certain extent (10% within the 2021-2025 period and 15% within the 2026-2030 period) the volume of the auctioned capacity for the transboundary participation. Taking into account the current state of the single energy market development, the transboundary participation should not be mandatory.

First of all, the interconnectors development may not facilitate the required transboundary capacity volume. Secondly, the cross-border participation will not improve the RES performance of the several Member States which needs to develop its own RES sources in a more dynamic way.

6.    We would like to welcome EC’s approach to gradually phase out certain RES privileges. Therefore, the priority dispatch shall be removed and other responsibilities for the electricity system balancing and grid development should be placed on RES-generators.

PKEE’s key messages on Energy Union Governance

1.   In our opinion, EU Governance regulatory framework should be introduced by means of the directive, instead of by regulation. Directive is the most appropriate and a more flexible harmonisation instrument, which reflects the different starting points among the Member States – this is highly visible in the sensitive area of the energy policy.

2.    Regional coordination and consultation with the EC during the adoption of Integrated National Energy and Climate Plans should not lead to further constraints of Member States’ competences in defining their own energy policies and future energy mixes. 

Sensitive area of energy policy planning should remain primarily the competence of Member States. Therefore, we urge to ensure that the nature of the future Member States consultations, particularly in the case of non-neighbouring MS, and the EC’s recommendations, should be non-binding.

3.    The scope of the climate long-term strategies should be determined in a reasonable perspective. Therefore, we acknowledge that the 50-year perspective is too far-reaching and may result in too broad assumptions which would have to be general in such a long-term perspective.

Evidence shows that so far EC proposals on electricity market required the substantial revision even more frequently than every decade. Therefore, the climate long-term strategies, which shall be published in 2020 with the perspective to the 2070 (!) are highly unrealistic instruments with little chance to deal with real climate action challenges.

4.    The list of the key indicators is crucial to measure the Member States’ commitment to the Energy Union. The key indicators would cover all five Energy Union dimensions. However, the recently proposed key indicators scheme is not well-balanced in the crucial area of the security of supply.

The currently discussed solutions in the EU Governance framework are overwhelmed by the decarbonisation issues. In our opinion, climate change should be addressed as part of a holistic approach, which reflects also the security of supply and the proper innovation funding.

The inclusion of the import dependency factor, which should reflect the indigenous fuels share (both renewable and conventional) in the energy mix is a good step in the right direction.

5.    The indispensable elements of the EU governance reporting obligations should be primarily based on:

• energy poverty indicator, defined by share of energy spending in disposable household income;
• energy bill index, which should reveal, as EURELECTRIC suggests[1], among other energy price components also the policy support costs and taxes;
• RES development dynamics, which should reflect the RES share improvement in installed capacity, which shows the commitment to the realisation of the EU energy policy goals compared to the baseline point;
• GHG reduction dynamics, which should reflect the reductions trajectory according to the EU and international obligations;
• research and development expenditure as % of GDP instead of the total public and private outlays calculated in absolute numbers;
• level of electricity interconnectivity only if supplemented by methodology which would reflect the serious distortions caused by unresolved loop flows problem.

6.      We cannot support the concept of the financing platform, which is developed in the EU Governance Regulation – funded from resources of underperforming Member States. According to the EC’s expectations, that fund shall be financed by the Member States, which are not going to achieve the EU-wide RES target or are not in line with the 2020 target. The specific rules concerning the fund would be defined in the delegated act.

7.      First of all, the financial contributions are not the most preferable instrument of ensuring compliance in the post-2020 regulatory framework. It is indispensable to consider that the starting points in 2021 would differ among Member States and the achievement of the common UE-wide RES 2030 target would require some form of harmonisation of the RES share in the energy mix. Otherwise, the achievement of the 2030 RES target would not meet the cost-effectiveness and technological neutrality principles.

8.   In terms of interconnectivity targets drafted in the EU Governance Regulation, it should be underlined, that the proposed ambitious 15% target should at the same time reflect the already existing technical and operational limitations in grids. Therefore in constructing the electricity interconnectivity key indicator the uncontrolled loop flows issue should be addressed respectively.

PKEE’s key messages on Electricity Regulation

1.    The elimination of the national-only approach to the energy market shall be conducted gradually with respect to the technological development (smart grids, energy storage) and with regard to the current state of the single energy market development.

2.    Capacity Market pre-conditions should be based on the technological neutrality principle. Therefore, we cannot support the emissions performance standard at the 550 kg/MWh level. This requirement, even with the applicable to the existing plants transitional 5-years period, would eliminate the vast majority of the Polish generation utilities form the future Capacity Market mechanism. It would lead to the increase the share of the gas-based units and results in increasing the import dependency not only for the Polish Power System but for the entire European Union as well. Moreover, nearly 28 GWe would be excluded from the future Capacity mechanism, this gap cannot be covered by the energy import (the available interconnector’s capacity is estimated to reach 3 GWe). Therefore, interconnectors cannot be perceived as a reliable alternative for the effective use of domestic capacity.

3.    In our opinion, the European adequacy assessment, may be a useful tool to estimate the transboundary risk of a scarcity situation. However, the introduction of the European resource adequacy assessment should not be made in a premature way, which does not reflect the complex situation of the various Member States and does not fully respond to mutual scarcity situations and the risk of non-delivery.

Moreover, consistency in methodology between the European, regional and national adequacy assessment should be guaranteed and regulatory uncertainty for market participants, related to the possibility of stopping the capacity mechanism every year depending on the outcome of the assessment, reduced. Therefore, we appeal for the adequate transition period, which may be necessary in some MSs to facilitate new regional challenges in a cost-effective way. 

4.    Transboundary interconnections cannot be perceived as the only solution in shortage situations. There is no legal framework which would directly address the simultaneous scarcity situation. Those currently available as a result of intergovernmental agreements do not guarantee delivery of electricity in the scarcity situation. Therefore, rules addressing simultaneous scarcity situations should be included in the forthcoming legislative proposal. 

PKEE’s key messages on Electricity Directive

1.    Due to the recent developments in the European energy sector, the Energy Market Directive (2009/72/EC) needs to be revised in order to facilitate the energy transition. However, this transition should respect cost-effectiveness, technology neutrality and must reflect the technical barriers which are limiting the regulatory framework possible today.

2.    We should establish a common approach to self-reliance which would ensure security of supply by providing the EU-wide preferential treatment in function of the share of the indigenous fuels (both renewables and conventional) in the national fuel mix.

3.    We also strongly recommend quantifying the security of supply targets for the EU in order to achieve the necessary objectives, e.g. through setting a minimum level of reliance on domestic energy sources.

We already have a precedent of this approach focusing on advantages of domestic fuels in the Article 15(4) of 2009/72/EC Directive which provides that: “A Member State may, for reasons of security of supply, direct that priority be given to the dispatch of generating installations using indigenous primary energy fuel sources, to an extent not exceeding, in any calendar year, 15% of the overall primary energy necessary to produce the electricity consumed in the Member State concerned”.

Therefore, this provision should be revised by establishing the new share of the overall primary energy necessary to produce the electricity, instead of being repealed.

4.    Currently, the actual market design does not generate proper signals for generators (investments) and consumers (savings) and does not allow for estimation of the value of generation and transmission assets. The increasing electricity generation from unstable renewables and the low wholesale market prices, along with the need to finance new generation capacities ensuring security of supply, result in the necessity to provide predictable returns for investors. Moreover, regulated prices on the retail market and the price limitations on the wholesale market result in the limited profitability of new investments today.

5.    The long-term contracts in case of market failure will offer the necessary incentives to investors in new power plants. Therefore, the Electricity Directive should provide the opportunities which may be presented by long-term contracts, which shall be consistent also with the future post-2020 state aid framework.  

6.    The Polish TSO has itself recognised the need to develop countermeasures to eliminate the risks resulting from the increase in unscheduled flows from German power system to the Polish system and the need to improve the planning and management of the Polish National Power System in order to reduce the risk resulting from generation of energy from renewable sources, primarily wind energy. Volatility of electricity production from the RES increases the risk of power imbalances and overloading of critical elements of the grid. In the Polish circumstances it is of primary importance to ensure the modernisation of the obsolete domestic grids and to prepare them for the increasing share of the instable RES in the national energy mix.

7.    As refers to the newly proposed regulatory framework for DSO it should be stressed that the limitations to own, develop, operate or manage recharging points and energy storage facilities by DSO are not justified and should be repealed from the Electricity Directive. As unbundling regime, NRA’s oversight and TPA rules are applied for these activities, it gives sufficient guaranty for transparent operation of DSO in the area of energy storage and recharging points development.

8.    Last but not least, the EU legislation should impose the obligation to reveal all components of the energy bill to the consumers. Transparent bills should reflect the costs associated with taxes, levies, and the climate and energy policy charges (including RES subsidies and other duties and levies).

PKEE’s key messages on Energy Efficiency Directive

1.    Due to today published changes to the Directive  on energy efficiency (2012/27/UE), called EED Directive, PKEE supports proposed changes and positively regards 2030 30% binding targets on energy efficiency.