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COMMISSION STAFF WORKING DOCUMENT Evaluation Report covering the Evaluation of the EU's regulatory framework for electricity market design and consumer protection in the fields of electricity and gas Evaluation of the EU rules on measures to safeguard security of electricity supply and infrastructure investment (Directive 2005/89) Accompanying the document Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) Proposal for a Regulation of the European Parliament and of the Council on the electricity market (recast) Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast) Proposal for a Regulation of the European Parliament and of the Council on risk preparedness in the electricity sector

SWD/2016/0412 final - 2016/0379 (COD)

Brussels, 30.11.2016

SWD(2016) 412 final

COMMISSION STAFF WORKING DOCUMENT

Evaluation Report
covering the
Evaluation of the EU's regulatory framework for electricity market design and consumer protection in the fields of electricity and gas

Evaluation of the EU rules on measures to safeguard security of electricity supply and infrastructure investment (Directive 2005/89)

Accompanying the document

Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast)

Proposal for a Regulation of the European Parliament and of the Council on the electricity market (recast)

Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast)

Proposal for a Regulation of the European Parliament and of the Council on risk preparedness in the electricity sector

{COM(2016) 861 final}
{SWD(2016) 410 final}
{SWD(2016) 411 final}
{SWD(2016) 413 final}


Table of Contents

1.    Executive Summary    

1.1.    Background and purpose of the evaluation    

1.2.    Key findings    

2.    Introduction    

2.1.    Scope of the evaluation    

2.2.    Purpose of the evaluation    

3.    Background to the evaluated initiatives    

3.1.    Objectives of the Initiatives    

3.1.1.    Objectives of the Third Electricity Package    

3.1.2.    Objectives of the Security of Electricity Supply Directive    

3.2.    Description of the initiatives    

3.2.1.    Third Electricity Package    

3.2.2.    Security of Electricity Supply Directive    

4.    Evaluation logic    

5.    Evaluation Method    

6.    Implementation of the initiatives and state of play    

7.    Answers to the evaluation questions    

7.1.    Effectiveness    

7.1.1.    Market integration, competition and investments    

7.1.2.    Consumer empowerment and protection    

7.1.3.    Security of Electricity Supply Directive    

7.2.    Efficiency    

7.3.    Relevance    

7.3.1.    The 2009 market design is not fully adapted to new market realities    

7.3.2.    The Third Package does not provide regulatory solutions to address perceived lack of investment into generation    

7.3.3.    The significant increase in uncoordinated state interventions    

7.3.4.    Increased interconnection and decarbonised market require closer TSO and NRA cooperation    

7.3.5.    Consumers participation and protection    60

7.3.6.    Distribution and flexibility    61

7.3.7.    Security of Electricity Supply Directive    64

7.4.    Coherence    66

7.4.1.    Internal Coherence    66

7.4.2.    External Coherence    67

7.4.3.    Security of Electricity Supply Directive    70

7.5.    EU value added    72

7.5.1.    Value added of EU market framework    72

7.5.2.    Security of Electricity Supply Directive    75

7.5.3.    Assessing the case for continuing EU-intervention    77

8.    Conclusions    77

Annex 1 – Procedural Information    81

Annex 2: Stakeholder consultation    82



1.Executive Summary

1.1.Background and purpose of the evaluation

This Evaluation supports the concomitant Impact Assessment aimed at improving the EU regulatory framework governing the internal electricity market ("Market Design Initiative"). The Evaluation analyses to what extent the existing legislation was successful in achieving its goals 1 . In contrast, the purpose of the Impact Assessment is to identify and weigh options for a future reform of the regulatory framework. 

As set out in the Evaluation Roadmap 2 , this Evaluation will focus on developments in electricity markets which have been subject to a several legislative reforms in the past 20 years. The latest reform of the regulatory framework – which is the object of this evaluation - dates back to 2009 and is commonly referred to as the 'Third Energy Package'. The package followed on a first and second set of landmark energy legislation adopted in 1996 ('First Energy Package') and 2003 ('Second Energy Package') respectively.

The Third Energy Package pursued the general objective of completing the internal energy market and moving towards a competitive, secure and sustainable Energy Union. It covers in particular five main areas:

unbundling energy suppliers from network operators;

strengthening the independence of regulators;

establishing the Agency for the Cooperation of Energy Regulators (ACER);

enhancing cross-border cooperation between transmission system operators and the creation of European Networks for Transmission System Operators;

open, fair retail markets and consumer protection.

This Evaluation also analyses the effects of the Security of Electricity Supply Directive (SoS Directive) 3 as adopted in 2005 to establish some first rules on security of supply in electricity, and which has in the meantime been complemented and partly superseded by the Third Energy Package of 2009 and by other legislation 4 .

1.2.Key findings

Tangible progress

Overall and within the scope of the two evaluations carried out, the evaluation's findings support the view that the Third Package has positively contributed to competition and performance of the internal electricity market, delivering tangible market benefits that have translated into added net social welfare.

Although only a handful of years have passed since the entry into force of the Third Energy Package in 2011, the evaluation showed that the initiative to further increase competition and to remove obstacles to cross-border competition in electricity markets has generally been effective, and that active enforcement of the legislation has led to positive results for electricity markets and consumers.

The reinforced unbundling rules had a positive effect on competition and helped to limit problems of market foreclosure. Markets are in general less concentrated and more integrated than in 2009. The new rules aiming at removing barriers to cross-border trade and to enhance cooperation between transmission system operators and regulators contributed to increased liquidity of electricity markets and a significant increase in cross-border trade, resulting in more competitive wholesale markets and contributing to lower wholesale prices.   

As regards retail markets, the set of new consumer rights introduced by the Third Energy Package have clearly improved the position of consumer in energy markets. The new rules enabled consumers to make better use of emerging competition between different suppliers in many countries, and switching between different suppliers increased. Also, consumers have access to a single point of contact for queries and to alternative (supplier-consumer) dispute settlement services while self-generation and smart technologies started to spread in several markets.

Remaining obstacles

However, in other fields the success of the rules of the Third Package in developing the internal electricity market further to the benefit of customers remains limited.

On wholesale markets, persisting barriers to cross-border trade and unused interconnector capacities resulting notably from insufficient cooperation between national grid operators and regulators on the shared use of interconnectors. The national perspective of the involved parties still prevents effective cross-border solutions in many cases and limits possible cross-border flows.

With regards to retail markets, competition performance could be significantly improved. Electricity and gas prices still vary significantly from Member State to Member State for non-market reasons, and prices have risen steadily for households as a result of significant increases in non-contestable charges in recent years (network charges, taxes and levies). Poor competition, as evidence through a range of market structure and conduct indicators, may help to explain lacklustre consumer satisfaction and engagement in the energy markets, as well as the slow deployment of innovative retail products such as dynamic price supply contracts. A number of Member States still practice some form of blanket price regulation for electricity and/or gas – a practice that may cause gross market distortions.

With regard to consumer protection, rising energy poverty, as well as lack of clarity on the most appropriate means of tackling consumer vulnerability and energy poverty, hamper the further deepening of the internal energy market. Switching related fees such as contract termination charges continue to constitute a significant financial barrier to consumer engagement. In addition, poor consumer satisfaction with energy bills, and poor awareness of information conveyed in bills 5 suggests that there may still be scope to improve the comparability and clarity of billing information.

New developments were not addressed by the existing rules

While the principles of the Third Energy Package achieved its main purposes (e.g. more supplier competition), new developments in electricity markets led to significant changes in the market functioning in the last five years and dampened the positive effect of the reforms for customers.

The commitment to decarbonize the economy led to a steep increase of energy generated from renewable energy sources (RES). The physical nature of renewable electricity generation – more variable, unpredictable and decentralized than traditional generation – had important practical consequences on electricity markets and grid operation. As most RES generation can only be predicted shortly before the actual production (due to weather uncertainties), effective short-term markets play a key role today. Most electricity from RES is produced decentrally and fed into the local distributions grid. The market design rules of the Third Package, however, are based on the predominant generation form of the last decade, i.e. central, large-scale fossil fuel-based power plants.

In parallel, we have seen a dramatic increase of state interventions into the electricity market. Sub-optimal rules for the support of RES generation had the unintended effect to distort the wholesale market price signal. Uncertainty about the ability of the new market to incentivise sufficient investments led many Member States to introduce national subsidies aiming at protecting existing generation or triggering new (so-called Capacity Mechanisms). These state interventions had a significant impact on the market price signals of the market to guarantee lower consumer prices investment signals and to limit cross-border trade. State interventions also translated into higher transmission tariffs, ultimately neutralising the positive developments on wholesale electricity markets and driving up prices for end customers at the retail level. The volumes of electricity trade affected by such state interventions contracted under such mechanisms have increase significantly in the last years, with increasing impacts on functioning of the internal electricity market.

Equally dramatic changes have taken place on the technological side. Power exchanges (PX) and market coupling are facilitating wholesale trading while digitalisation of energy markets and metering increasingly allows to use so-called 'demand response' solutions, enabling the demand of industry, businesses and households to participate in electricity markets. However, the current legislation has not been effective in removing the primary market barriers especially for independent demand response service-providers and creating a level playing field for them. Nor was it designed to address currently known challenges in managing large, commercially valuable consumption data flows. In addition, technological progress allows distribution system operators to reduce network investments by locally managing the challenges posed by increasing amounts of distributed RES E directly connected to distribution systems. However, outdated regulatory frameworks prevent them from operating more innovatively and efficiently. And the increased use of online comparison tools is changing the way consumers interact with the retail market. The nature of the transformation of Europe's energy system and the gap in the existing legislation to deal with these changes has been clearly confirmed by stakeholders.

Overall, the Third Package partially fulfilled its original mission and created a stable market-based approach on which however further legislation should be built on. However, retail level competition could be significantly improved, and consumer protection strengthened further in order to ensure that the full benefits of the internal market can be passed through to all EU consumers. Moreover, the existing rules are not fully adapted to deal with the recent changes in electricity markets effectively. The direction and speed of such changes had not been fully foreseen by the Third Package, creating a clear rationale to update market rules so that they may be able to cope with the reality of today's energy system.

In the area of security of electricity supply, the evaluation finds that the objectives that inspired SoS Directive are still relevant. But the Directive itself was quickly overruled by newest EU rules and had a limited impact on the security of electricity supply in Europe. Moreover, its objectives match only partially the current needs on security of supply in Europe, in particular concerning risk preparedness. Indeed, the Directive failed to address emergency related aspects, i.e. how to make sure that Member States are aware and duly prepared to all kind of security of supply risks, that they clarify roles and responsibilities in case of emergency and that they take into consideration the potential cross border impact when adopting safeguard measures.

2.Introduction

2.1.Scope of the evaluation

The evaluation covers four EU Directives and Regulations concerning the electricity sector, namely the three forming the so-called "Third Electricity Package", adopted in 2009, as well as the Directive on Electricity Security of Supply (SoS Directive), adopted already in 2005. The main evaluated acts are:

Directive 2009/72 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, OJ L 211, 14.8.2009, p. 55–93 (henceforth the "Electricity Directive");

Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity repealing Regulation (EC) No 1228/2003, OJ L 211, 14.8.2009, p. 15–35 (henceforth "Electricity Regulation");

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. OJ L 211, 14.8.2009, p. 1–14 (henceforth "ACER Regulation");

Directive 2005/89 of the European Parliament and of the Council of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment, OJ L 33, p.22 (henceforth, "Security of Supply or SoS Directive").

The EU regulatory framework for gas markets 6 will only be evaluated partly, namely only for those provisions which concern common "horizontal" topics in electricity and gas legislation, such as the provisions on governance (e.g. rules on the European Agency for the Cooperation of Energy Regulators (ACER)), as well as open and fair retail markets, smart meters and consumer protection rules 7 .

Recent EU legislation on transparency (e.g. the Regulation (EU) No 1227/2011 on wholesale energy market integrity and transparency - "REMIT" 8 ) or on infrastructure (e.g. Regulation (EU) No 347/2013 on guidelines for trans-European energy infrastructure 9 - "TEN-E Regulation") will not be subject of this evaluation, but considered in separate evaluations. The evaluation will take into account, where possible, recently adopted delegated acts under comitology rules (e.g. the CACM Guideline 10 , the Requirement for Generators network code 11 ).

For further details see the two published Evaluation Roadmaps (henceforth, "the Evaluation Roadmaps"):

Evaluation of aspects of the regulatory framework of the EU electricity markets – AP 2015/ENER/061 12 ;

Evaluation of the Directive 2005/89/EC on security of electricity supply – AP 2016/ENER/032 13 .

The evaluation is based on a several comprehensive monitoring reports on the functioning of the implemented market legislation 14 , as well as on a number of specific public consultations issued by the Commission to verify the effects of its legislation (see the consultative communications "Launching the public consultation process on a new energy market design" (COM(2015) 340 Final) 15 , "Delivering a new deal for energy consumers" (COM(2015) 339 Final) 16 , as well as two public consultations on "Risk preparedness in the area of security of electricity supply" 17 and "Retail Energy Markets" 18 . Other consultations via public events such as forums and conferences have also contributed to gather feedback from stakeholders on the functioning of the Third Energy Package. For instance, a High Level Conference on electricity market design took place on 8 October 2015 in Florence. The Florence Forum was set up to discuss the creation of true internal electricity and gas markets in Europe 19 . The Third Energy Package and its implementation was discussed in this stakeholder forum at several occasions.

2.2.Purpose of the evaluation

This evaluation provides the basis for the impact assessment for the initiative to review the existing EU electricity market design rules 20 , including the creation of a new framework on security of electricity supply 21 ("Market Design Initiative"). It seeks to contribute to the formulation of an adequate and effective policy response to the challenges electricity markets are currently facing.

The evaluation will assess whether the abovementioned EU rules introduced in 2006 and 2009 have been successful in meeting their stated objectives, in particular achieving a better-functioning internal electricity market and ensure a higher level of security of electricity supply. The evaluation will analyse the effectiveness, efficiency, coherence, relevance and EU added value of the relevant measures in relation to the objectives strived by the Third Electricity Package and the Security of Electricity Supply Directive. In view of some recent changes in electricity markets (see in detail below), the evaluation will also analyse the possible relevance of these changes for EU electricity market regulation and verify to what extent the electricity market rules adopted in 2006 and 2009 and the EU internal energy market framework are able to respond to the energy sector's new challenges and to meet current and future expectations on security of supply in Europe.

3.Background to the evaluated initiatives

3.1.Objectives of the Initiatives

3.1.1.Objectives of the Third Electricity Package

Prior to the EU's liberalisation initiatives, electricity was produced, purchased, transported and sold mostly by domestic, state-controlled monopoly companies. Competition in electricity markets was almost absent, with only limited cross-border exchanges of electricity. This, however, led to manifold problems in terms of cost-efficiency and security of supply.

The EU has taken the initiative to gradually liberalise EU energy markets and to create internal electricity market ("IEM"). The process started with the adoption of the First Electricity Directive in 1996 22 . The liberalisation initiative brought some first successes, but progress remained limited. In 2003, a Second Electricity Package was therefore adopted to stimulate the development of competition in electricity markets 23 .

Despite good progress in some individual countries, the Commission’s systematic sector inquiry into the energy sector from 2005-2007 24 revealed that significant obstacles to competitive cross-border markets remained, and that consumers could still not fully benefit from liberalisation. Incumbent companies - mostly still state owned - had managed to maintain their dominant positions and tried to avoid competition from domestic and foreign companies. They notably systematically used their control over their electricity grids to avoid competition from new energy suppliers. The results of the sector inquiry triggered the Commission’s proposal for a comprehensive Third Electricity Package. The new legislation mainly aimed at addressing the problems identified in the Sector Inquiry 25 , namely:

market concentration and market power in wholesale and retail markets;

vertical foreclosure (in particular the inadequate unbundling of network and supply);

lack of market integration (cross border and national);

lack of transparency;

insufficient independent regulatory oversight;

distorted price formation mechanisms (regulated prices and cross-subsidies); and

downstream market foreclosure (access to consumers).

The identified problems harmed competition, leading to unnecessarily high prices and limiting choice for consumers. Incomplete and inefficient unbundling rules for TSOs 26 prescribed by the Second Directive resulted in structural conflict of interest. Insufficient unbundling of networks from the competitive parts of the sector (vertical integration) resulted in lack of investment in infrastructure and discriminatory conduct on the supply and production markets downstream and upstream from network activities. Consequently, the Commission recommended taking urgent action with regard to some key areas of the regulatory framework 27 .

The overarching objective of the Third Energy Package was to complete the internal market for electricity and gas. Within this objective the EU intended to improve competition in the electricity sector through better regulation and unbundling aimed at removing obstacles resulting from the fact that most established national incumbent electricity suppliers were vertically integrated 28 and could use the control over their electricity grids to keep off potential new competitors. The goal of improving competition was coupled with improving security of supply, inter alia by strengthening the incentives for sufficient investment in transmission and distribution capacities.

The Third Energy Package's objectives in the area of retail markets and consumer empowerment were: (i) to enable effective consumer choice and boost competition through the availability of transparent, comparable and reliable information on prices, costs, energy consumption, fuel mix and environmental impact of electricity suppliers; and (ii) to enable/incentivize energy savings through sufficiently frequent feedback to consumers about (the cost of) their energy consumption. In order to guarantee consumer choice, the Third Package provides that all customers shall be free to buy electricity/natural gas from the supplier of their choice as from 1 July 2007 29 .

At the same time the Third Energy Package sought to ensure protection of vulnerable consumers and to mitigate the problem of energy poverty. This objective was put in place to facilitate the decision by Member States to proceed with electricity and gas market liberalisation, as it was recognised by the legislators that actions to protect vulnerable consumers were needed in the context of liberalising the European energy market 30 .

In a broader context, the Third Energy Package also served the overall goals as formulated in the EU’s 2020 Strategy (or so-called "Lisbon strategy") for smart, sustainable and inclusive growth 31 .

3.1.2.Objectives of the Security of Electricity Supply Directive

As concerns security of energy supply, the first two liberalization packages of 1996 and 2003 contained only rudimentary rules. Directive 2003/54/EC 32 was based on the assumption that a stable regulatory framework would facilitate the necessary investments in new generating capacity and networks, thereby contributing to security of supply. It contained a mere obligation for Member States to monitor security of supply issues, so that appropriate measures could be taken if security of supply was compromised. Finally, Member States were allowed to take safeguard measures in the event of a "sudden crisis" in the energy market. 33  

Between 2000 and 2003, several incidents (blackouts in California in 2000-2001; European heat wave in 2003; several blackouts in Europe, especially one in Italy, that affected 55 million of Europeans and lasted up to 24 hours) raised concerns about the lack of cooperation between European grid operators and network adequacy (i.e. having sufficient transmission capacities available at all times), but also on the market ability to deliver the required demand/supply balance (e.g. following the nuclear phase out decision in Germany in 2001).

With electricity markets growing together and increasing interdependences between national grids, it turned out that some more concrete rules on how to safeguard security of supply and to manage emergency situations were needed, notably to avoid that national measures would endanger security of supply in neighboring countries. A closer integrated market necessitated indeed more aligned, transparent and non-discriminatory security of supply policies at national level, the absence of which could lead to problems with security of supply and distortions of competition. 34

The SoS Directive therefore came in to complement the Second Package rules with the objective to safeguard the security of electricity supply so as to ensure the proper functioning of the internal market for electricity. However, its provisions were not prescriptive enough and were soon superseded by new EU rules 35 .

3.2.Description of the initiatives

3.2.1.Third Electricity Package

The Third Electricity Package followed up on the liberalisation steps in the two "packages" from 1996 and 2003. It built upon key concepts established in the previous packages (e.g. Third Party Access to networks, unbundling, regulatory oversight, right to choose a supplier) and developed these further in order to create a regulatory framework that would allow for integrated and competitive EU electricity wholesale and retail markets, to the benefit of consumers.

The legislation of the Third Energy Package covers five main areas:

1.unbundling energy suppliers from network operators;

2.strengthening the independence of regulators;

3.establishment of the Agency for the Cooperation of Energy Regulators (ACER);

4.cross-border cooperation between transmission system operators and the creation of European Networks for Transmission System Operators;

5.open, fair retail markets and consumer protection.

(1) Unbundling is the separation of energy supply and generation from the operation of transmission or distribution networks. It is based on the assumption that if a single company operates a transmission or distribution network and generates or sells energy at the same time, it may have an incentive to obstruct competitors' access to infrastructure or the market. This prevents fair competition in the market and can lead to higher prices for consumers. Under the Third Package, unbundling for transmission system 36 operators must take place in one of three ways, depending on the preferences of individual EU countries:

Ownership Unbundling where all integrated energy companies sell off their gas and electricity networks. In this case, no supply or production company is allowed to hold a majority share or interfere in the work of a transmission system operator

Independent System Operator (ISO) where energy supply companies may still formally own gas or electricity transmission networks but must leave the entire operation, maintenance, and investment in the grid to an independent company

Independent Transmission System Operator (ITO) where energy supply companies may still own and operate gas or electricity networks but must do so through a subsidiary. All important decisions must be taken independent of the parent company

The relevant provisions concerning distribution system operators require legal unbundling of those operators that serve more than 100,000 customers.

Member States may decide not to apply unbundling rules to DSOs serving less than 100.000 customers, in which cases only accounting unbundling applies. It is the discretion of Member States whether or not to apply this threshold or to set a lower threshold.

(2) A competitive internal energy market cannot exist without independent regulators who ensure the application of the rules. The Commission's assessment of the role of regulators in 2007 showed a number of deficiencies: the effectiveness of regulators was frequently constrained by a lack of independence from government and insufficient powers. Under the Third Package, the requirements for national regulators have undergone a number of changes. Specifically: (1) regulators must be independent from both industry interests and government. They must be their own legal entity and have authority over their own budget. National governments must also supply them with sufficient resources to carry out their operations; (2) regulators can issue binding decisions to companies and impose penalties on those that do not comply with their legal obligations; (3) electricity generators, gas network operators, and energy suppliers are required to provide accurate data to regulators; (4) regulators from different EU countries must cooperate with each other to promote competition, the opening-up of the market, and an efficient and secure energy network system. In order to support the implementation of the Directive, the Commission issued an interpretative note on the energy regulatory authorities 37 .

(3) In order to help the different national regulators cooperate and ensure the smooth functioning of the internal energy market, the EU established the Agency for the Cooperation of Energy Regulators (ACER). ACER is independent from the Commission, national governments, and energy companies. Its work involves:

drafting guidelines for the operation of cross-border gas pipelines and electricity networks

reviewing the implementation of EU-wide network development plans

deciding on cross-border issues if national regulators cannot agree or if they ask it to intervene

monitoring the functioning of the internal market including retail prices, network access for electricity produced from renewables, and consumer rights

(4) The Third Electricity Package also created a framework for the co-operation of Transmission System Operators ("TSOs") by creating the European Network for Transmission System Operators for Electricity ("ENTSO-E"). Before the reform, national transmission system operators were responsible for ensuring electricity and natural gas is effectively transported through pipelines and grids in a secure manner, without any legal framework for the coordination of their activities. Due to the cross-border nature of Europe's energy market, they must work together to ensure the optimal management of EU networks. These organisations develop standards and draft network codes to help harmonise the flow of electricity and gas across different transmission systems. They also coordinate the planning of new network investments and monitor the development of new transmission capabilities. This includes publishing a Europe-wide ten year investment plan to help identify investment gaps every two years.

(5) In order to pursue the objective of consumer empowerment, the Third Energy Package contains provisions on a number of aspects related to electricity and gas supplies, such as switching and contract termination fees, billing of electricity and gas consumption 38 , the right to receive information on energy consumption, and quickly and cheaply resolve disputes.

With regard to consumer protection, the Third Energy Package prescribes the Member States to define the concept of vulnerable consumers at the national level at the national level, adopt the measures to protect such consumers and to address energy poverty.

An important tool to enable competition and consumers' choice in the retail sector is the default prohibition of applying regulated prices 39 . Regulated prices are unlawful under current Gas and Electricity Directives as interpreted by the Court of Justice 40 , unless they form part of a public service obligation (PSO) imposed on undertakings in electricity or gas sector and fulfil specific conditions prescribed by the Third Package.

Smart metering is a crucial measure to allow taking informed decisions by consumers. In recognition hereof, provisions were included in the Gas Directive 2009/73/EC and in the Electricity Directive 2009/72/EC fostering the smart metering roll-out and targeting the active participation of consumers in the energy supply market, through (i) transparency provided by the meter (timely and accurate information on consumption: predictability of costs, awareness), (ii) third party access to data and interoperability (facilitate competitive offers at the customer end, facilitate system integration, lower cost) and (iii) due regard to best practises (for instance installation of in-home displays, connection to home automation, self-consumption, etc.) 41 .

 

The intervention logic table from the Impact Assessment for the Third Package 42 illustrates the relationship between the measures and the structural problems addressed by the respective measures.

Table 1: Intervention logic table

Problems

Measures

Market

concentration

Vertical

foreclosure

Lack of market integration and cooperation

(cross-border and national)

Lack of transparency (insufficient info e.g. on generation & capacities)

Distorted price formation (e.g. regulated prices, cross-subsidies)

Downstream

market

foreclosure

(access to customers)

Secure grid investments & cross-border connections 

TSO unbundling

Improves TPA and thus market entry

tackles problem at the root

facilitates TSO cooperation and mergers

eliminates

preferential

information

flows

eliminates cross subsidies

N/A

Promotes e.g.

interconnection

investment

Strengthen NRA

To ensure level playing field;

To better monitor unbundling obligations

To monitor management of interconnection capacity

To monitor

transparency

obligations

To monitor cross-subsidies and determine tariffs

To monitor access to customer data

To monitor investment in grid & generation

ACER

Indirect effect

Indirect effect

closes regulatory cross-border gap, oversees

ETSO+/GTE+

oversees

ETSO+/GTE+

Indirect effect

Indirect effect

To assess crossborder Art. 22 requests

ENTSO-E

To improve interconnection and create larger markets

To develop common rules on TPA and grid connection

To develop market and technical codes, coordinate grid operation

To develop market and technical codes, rules on trading & transparency

To improve interconnection and thus liquidity

N/A

10-year

investment plan, security and reliability rules

Transparency

obligations

To facilitate market entry

To overcome information advantage of integrated groups

To facilitate market entry

tackles problem at the root

To reveal cause of price deformation

To overcome information advantage of integrated groups

To increase network security & reliability

DSO

unbundling

To improve market entry

strengthen resources of DSOs

NRA to monitor

transparency

obligations

To strengthen compliance officers, NRA to

to eliminate brand confusion; NRA to

N/A

3.2.2.Security of Electricity Supply Directive

The adoption of the Security of Electricity Supply Directive in 2006 was a first attempt to provide the EU with a framework on security of electricity supply. The Directive came at a point in time where a comprehensive set of energy acquis was already in place (2nd IEM package, RES, EE, infrastructure guidelines), but rules addressing specifically supply security and secure operation of the electricity system were still missing.

The SoS Directive required Member States to lay down an appropriate and stable framework which would facilitate security of electricity supply, as a precondition for the proper functioning of the internal market for electricity. It mainly contained principles to ensure security of supply and stable grid operation without undue distortions of the internal market, e.g. by an adequate level of generation capacity, an adequate balance between supply and demand, and an appropriate level of interconnection between Member States. It also required a national regulatory framework that guarantees stable investments in networks, as well as some reporting obligations on national security of supply policies.

The SoS Directive came to complement the framework set by the Second Package and, together with it, provided a co-ordinated set of basic rules for the following issues:

1.Requirement for a stable and transparent wholesale market design - facilitating generation investment and energy efficiency measures in a competitive market framework, and preventing MS from intervening in the markets,

2.Ensuring that network operation rules are agreed and adhered to by transmission system operators,

3.Providing for the maintenance and renewal of transmission and distribution networks,

4.Introduction of a monitoring and reporting system for important interconnection projects.

The table below presents an overview of the 4 issues outlined above:

Table 2: Overview of security of supply measures

Relevant legislation

Stable and transparent wholesale market design - facilitating generation investment in a competitive market framework

Ensuring network operation rules are agreed and adhered to by transmission system operators

Providing for the maintenance and renewal of transmission and distribution networks

Introduction of a monitoring and reporting system

D 2005/89

Art 3(2)(g), Art 5

Art 4(1), 4(3), 4(4)

Art 4(2), 6(1)

Art 6(2), 7

D 2003/54

Art 3, Art 6, Art 7

Art 24

Art 23(2)

Art 4

Art 28(1)(c)(d)

R 1228/2003

Art 5, 8(4)

Art 6(6)

Source: DG ENER

The obligations imposed on Member States as well as the Directive's rationale are illustrated in the following intervention logic scheme:

Figure 1: Intervention logic scheme for security of supply

Source: DG ENER

4.Evaluation logic

The evaluation logic is framed under five different evaluation categories: Effectiveness, Efficiency, Relevance, Coherence and EU added Value (Figure 2). Effectiveness considers how successful the initiatives have been in achieving or progressing towards their objectives. This will be done by comparing the objectives with the actual effects generated by the initiatives (outputs, results, and impacts). Efficiency considers the relationship between the resources used (inputs) and the effects generated by the Directives (outputs, results, and impacts). Relevance looks at the relationship between the needs and problems of the electricity sector and the objectives of the legislation . Coherence looks for evidence of synergies or inconsistencies between the Directives and other EU policies which are expected to work together. EU added value assesses whether action continues to be justified at the EU level and looks for changes which it can reasonably be argued are due to EU intervention, rather than any other factors. For each of these categories a series of evaluation questions, set out in the mandate, are given (see the published Evaluation Roadmaps). These questions are presented under Section 7 for each category.



Figure 2: Fitness Check evaluation logic

5.Evaluation Method

The Evaluation Roadmaps were prepared in October 2015 and made publicly available 43 .

Since 2001, the European Commission has reported yearly on the progress and implementation of the internal electricity market. Indeed, since the adoption of the Electricity Directive, Article 47 legally obliges the Commission to monitor the application of the Directive and to submit an overall progress report to the European Parliament and the Council on an annual basis. Such monitoring and reporting has been conducted yearly 44 . The findings and conclusions of these reports have fed into the present Evaluation. Moreover, several studies have been conducted by external experts on behalf of the European Commission to assess in detail different aspects of the implication if the Third Energy Package on the electricity market 45 .

As the implementation of the rules of the Third Energy Package is ongoing (e.g. adoption of last network codes and implementation of adopted network codes), the evaluation was based on the status quo of the implementation 46 . Throughout the evaluation period, legal documents, position papers, studies, reports, statistical data and other pieces of written evidence were reviewed. The evaluation made use of a number of studies prepared for the Impact Assessment in support of the proposal for a new Market Design. These make up a bulk of close to 30 studies, most of which carried by independent parties and covering a range of different methodologies, including both qualitative and quantitative aspects 47 . For detailed information on the content, authors and how to access such studies we refer the reader to Annex V of said Impact Assessment.

Kex data (such as raw market data) are based on data supplied by ACER, which acts as primary collector of market data from EU Member States and carries a responsibility to make the data comparable across time and geographies.

In addition, two specific stakeholder consultations 48 were launched on the 15 July 2015 in the form of a consultation on the future initiative on electricity market design 49 and on risk preparedness 50 . The stakeholder consultations ended in 9 October 2015. They were open to EU and Member States' authorities, energy market participants and their associations, SMEs, energy consumers, NGOs, other relevant stakeholders and Citizens.

A wide public consultation 51 on a new energy market design (COM(2015)340 was conducted from 15 July 2015 to 9 October 2015. It was open to EU and Member States' authorities, energy market participants and their associations, SMEs, energy consumers, NGOs, other relevant stakeholders and citizens. The public consultation on a new market design aimed at obtaining stakeholder's views on how fit the current regulatory framework is to meet the challenges that the market faces and on how the issues may need to be addressed in a redesign of the European electricity market.

As regards representativeness and quality, the Commission received 320 replies to the consultation. About 50 % of submissions come from national or EU-wide industry associations. 26% of answers stem from undertakings active in the energy sector (suppliers, intermediaries, customers), 9% from network operators. 17 national governments and several national regulatory authorities submitted also a reply. A significant number of individual citizens and academic institutes participated in the consultation.

A public consultation on risk preparedness in the area of security of electricity supply was organized between July 15th and October 9th 2015. This public consultation aimed at obtaining stakeholder's views in particular on how Member States should prepare themselves and co-operate with others, with a view to identify and manage risks relating to security of electricity supply.

The consulation resulted in 75 responses including public authorities (e.g. Ministries, NRAs), international organizations (e.g. IEA), European bodies (ACER, ENTSO-E) and most relevant stakeholders, including SMEs, industry and consumers associations, companies and citizens. The following paragraphs provide a summary of the responses.

The results of the public consultations have been discussed in the Inter-Service Steering Group (ISG) (it was decided to use the same ISG for both evaluations: SoS and Electricity Market Design).

A study 52 was carried out to analyse risk preparedness policies in the Member States.

For detailed information about the studies and documents that constituted the basis for this Evaluation as well as methodologies applied thereto, we refer also to Annex 1 and 2 of this Evaluation.

6.Implementation of the initiatives and state of play

Given the complex nature of the Third Energy Package, the Commission has assisted Member States in the process of the implementation of the new rules, e.g. by discussing draft legislative measures and implementation solutions with the national governments and regulators (as well as with ACER, ENTSO-E and other stakeholders) on an on-going basis since its adoption. This intensive implementation cooperation has proven efficient to prevent deficiencies at national level at an early stage as well as to resolve existing incompatibilities between national and EU legislation. In order to facilitate the implementation of the Third Energy Package, the Commission has also issued a number of interpretative notes, providing guidance to national authorities and stakeholders concerned 53 .

Several Member States were nevertheless reluctant to transpose all required provisions of the Third Electricity Package on time (i.e. by 3.3.2011). The Commission has therefore also resorted to formal legal action where required.

In a first step ("transposition checks"), the Commission opened 19 infringement proceedings against 19 Member States to ensure full transposition of the Electricity Directive between September and November 2011. Non-resolved cases were followed up in 2012-2013 by sending reasoned opinions and referrals to Court. At present, all of the infringement proceedings for partial transposition of the Electricity Directive have been closed as the Member States achieved full transposition in the course of the proceedings.

In a second step ("non-conformity checks"), focus has been put on possible incorrect transpositions or EU law incompatible application of the Third Electricity Package. Priority was given to violations having the highest impact on the functioning of the internal market, e.g. incomplete unbundling of transmission activities from production or supply, violations of the principle of independence of national regulators, or disregard of consumer protection rules. On this basis, the Commission opened so-called "EU-Pilot" cases against a number of Member States 54 . In parallel, it carried out a structured dialogue with the Member States so as to resolve the identified implementation problems. In many cases, such dialogue with national governments has brought satisfactory solutions and the "EU-Pilot" cases could be closed. However, as of 1st July 2016, 8 of these EU Pilot cases have resulted in infringement procedures where, inter alia, violation of EU electricity market rules is at stake. Further EU-Pilots cases remain open and might lead to more infringement procedures.

In parallel to these systematic non-conformity procedures, the Commission has also acted on an ad hoc basis, following up on specific non-conformity problems of which the Commission became aware through complaints from individuals or undertakings, or emanating from contacts with National Regulators or based on the Commission's own assessment. Here again, the Commission first opened EU-Pilot cases against the respective Member States. If the issue raised was not resolved at the EU-pilot phase, the Commission opened an infringement procedure. As of 1st July 2016, two such infringement procedures are still pending.

At the time of writing, some form of price regulation exists in 17 Member States 55 .
A regulated end-user price is considered as a price subject to regulation or control by public authorities (e.g.
governments, NRAs), as opposed to being determined exclusively by supply and demand. This definition includes many different forms of price regulation, such as setting or approving prices, standardisation of prices or combinations thereof.

Price regulation for non-households has been systematically challenged via infringements while price regulation for households 56 has not been yet subject to infringement procedures. Price regulation for non-households has been challenged by the Commission as a priority due to the more important market distortion that the regulation of prices for large and potentially most active consumers represents – after all these consumers cover an important amount of energy sold on the market.

Deregulating household prices may be politically unpopular as regulation in Member States is often justified by social policy objectives and/or lack of competition and refocussing the support only to those in need (such as energy poor) would reduce the access of middle and high income groups to the discounted prices.  Therefore an informal approach via bilateral consultations with Member States was initially preferred to discuss reasonable and sustainable alternatives to price regulation and accompanying measures. However, infringement actions against price regulation for households are not excluded in the follow-up to informal consultations.

The Commission published a detailed report on its enforcement activities in relation to the Third Electricity Package (see the document Enforcement of the Third Internal Energy Market Package (SWD(2014) 315 final 57 ).

The regulatory framework of the Third Package has also created new Commission competences to verify the implementation of EU market rules. It created a competence for the Commission to provide an opinion on draft decisions of national regulators who have to decide whether national TSOs can be considered as compliant with unbundling rules (so-called "certification" of TSOs, see Article 10 and 11 of the Electricity Directive). The Commission has provided opinions in more than 100 cases since 2009. The Third Package gave the Commission also the competence to decide on the compatibility of national exemptions from EU rules in case of investments into major new infrastructure (see Article 17 Electricity Regulation). To the extent pertinent, the experience gained from these ex-ante approval procedures will be fed into the evaluation (see "Effectiveness" section).    

Regarding security of electricity supply, Member States had to implement SoS Directive by 24th February 2008. The Commission issued an interpretative note, meant to help Member States in implementing the Directive 58 . Non-transposition infringement procedures were opened in 2008 against 17 Member States. Between 2009 and 2010, Member States produced comprehensive correlation tables reflecting the transposition in their national legislative frameworks, which served as a basis for the Commission when carrying out systematic conformity checks. Ultimately, no infringement procedure was opened on non-conformity with the SoS Directive. This was, on the one hand, due to the fact that the SoS Directive contains, apart from monitoring and reporting obligations, only a few, rather general, obligations, often in the form of broad principles to be respected. On the other hand, the "Third Package", which entered into force in 2009, superseded some of the rather general provisions of the SoS Directive (e.g. notably concerning grid operation, grid investment or congestion management rules).

Accordingly, the Commission received only a limited number of complaints related to this Directive. None of these led to the opening of an infringement procedure on security of supply related issues. The progress report on the SoS Directive 59 published on 2010 concluded that Member States had implemented the provisions of the Directive either through the creation of new legislative provisions or the use of existing provisions emanating from other European legislation.

7.Answers to the evaluation questions

This section summarises the main findings in relation to the analysis of each of the questions set out in the Evaluation Roadmaps. Questions are either dealt with individually or have been combined where there are significant overlaps in information justifying a unified approach. Additional key provisions of the Third Package - not covered by the questions - have also been evaluated, although more briefly.

7.1.Effectiveness

The effectiveness evaluation aims at verifying whether the Third Energy Package and the Electricity Security of Supply Directive have been achieving their objectives. This is being done by comparing the intended objectives with the actual effects generated in the various areas under consideration.

For the Third Energy Package, two aspects were analysed in particular, namely to what extent the new legislation removed competition problems, contributed to increased market integration, better coordination and stimulated grid investments (7.1.1.) and to what extent the new provisions improved the situation for consumers in terms of consumer protection (7.1.2.). As concerns the Electricity Security of Supply Directive, the analysis focussed on whether the general rules of the Directive have effectively increased security of supply and risk preparedness (7.1.3.).

7.1.1.Market integration, competition and investments

-To what extent have wholesale markets become more competitive?

-To what extent has market integration already been achieved? To what extent has cooperation between TSOs and regulators evolved?

-What factors contributed hereto in particular or prevented this?


Reduced competition and foreclosure problems through strengthened unbundling

In order to further promote competition on the electricity markets, the Third Energy Package strengthened the unbundling rules to completely remove any conflict of interest between generators and suppliers on the one hand and transmission system operators on the other hand. With the aim of ensuring structural independence of network operation, the Directive foresees three unbundling models: ownership unbundling, the independent system operators (ISO) and the independent transmission operator (ITO).

Following the expiry of the transposition deadline on 3 March 2011, the Commission has systematically assessed all national transposition measures. As of July 2013, regarding electricity, 16 Member States had implemented ownership unbundling, 6 Member States had implemented the ITO framework, and one Member State the ISO framework.

Compliance with unbundling requirements is monitored at national level by the national regulatory authorities, under a procedure set out in Articles 10 and 11 of the Electricity Directive. Under this procedure, national regulatory authorities are required to submit their draft decisions on the certification of transmission system operators to the Commission. The Commission then adopts an Opinion on the draft decision within a period of two months. National regulatory authorities are obliged to take utmost account of the Commission's Opinion when adopting the final certification decision. This notification procedure ensures a high degree of consistency in the interpretation of the rules on unbundling for transmission system operators, and thereby increases legal certainty for Member States, transmission system operators and other stakeholders. The certification procedure pursuant to Article 10 of the Electricity Directive has been successfully implemented in practice. In the period of 3 March 2012 60 until 31 May 2016, the Commission has issued 127 Opinions on draft certifications of national regulatory authorities from 26 Member States 61 . Of these, 67 Opinions concerned transmission system operators for gas, and 60 concerned transmission system operators for electricity 62 .

The positive impact of the reinforced unbundling rules was confirmed by a specific evaluation of the new unbundling rules, as required by Art. 47(3) of the Electricity Directive. In its report on the ITO model from October 2014 63 , the Commission analysed in detail to what extent the new rules were capable of sufficiently and adequately ensuring the effective separation of transmission networks from generation and supply interests. According to the Commission's initial assessment, most requirements related to the ITO model seem to work in practice and are usually sufficient and adequate to ensure effective separation of the transmission business from generation and supply activities in the day-to-day business. This assessment was notably based on the view of national regulators, the network users and compliance officers within the ITOs. The report confirmed that problems of network foreclosure, which had been an ongoing concern prior to the adoption of the Third Package 64 , had become less frequent after the introduction of the reinforced unbundling rules.

With regard to DSO unbundling, the intervention mainly aimed at the unbundling of vertical integrated distribution companies with the objective to ensure non-discriminatory and transparent third party access in distribution networks, in order to promote competition in the energy market. There is no evidence that the intervention within the boundaries of the unbundling requirements, did not achieve the objective of promoting competition in the market.

According to CEER's data for 24 EU Member States 65 there is a total of 2,600 electricity DSOs operating in across EU. From these DSOs, 2,347 fall under the 100,000 rule and according to Article 26(4) for these DSOs Member States are not obliged to implement unbundling provisions under Article 26 of the Electricity Directive. Eurelectric 66 also reports a total number of 2,331 DSOs operating in EU (data for 27 Member States). According to Eurelectric from this total number 2,148 DSOs fall under the 100,000 rule leaving only 183 to have obligations of unbundling 67 .

According to CEER only around 189 DSOs across EU are legally unbundled. There are no known cases where Member States have decided to go beyond the provisions of the Electricity Directive. There is only the exception of Netherlands where ownership unbundling requirements have been introduced for DSOs.

Increased liquidity and competition leading to lower prices on wholesale markets

The Commission's analyses of the development of the electricity market 68 showed that the set of the different measures of the Third Electricity Package had a positive effect on liquidity and competition in the wholesale market.

In power markets, Eurostat data on the development of market concentration between 2009 and 2014 indicate new players could enter the wholesale generation and supply market in several countries, leading to decreasing market shares of the largest generators. This is, for instance, the case in Belgium, Czech Republic, Germany, Greece and Latvia. The market concentration, measured by the so-called "Herfindahl Hirschmann Index" (HHI) in the electricity generation market 69 has significantly decreased in several Member States. In Belgium, for instance, HHI was 7 390 in 2008 and 4 700 in 2013. It has also decreased slightly in Italy from example going from 1 087 in 2011 to 884 in 2014).

However, in many Member States, the traditional incumbent generation and supply company holds a dominant position. No significant change in the market can, for instance, be observed in France, Italy, Poland, Romania and Slovakia. The HHI has stayed constant in many Member States such as in Ireland (1 150) or Greece (6 844 in 2011 and 6 183 in 2014) in Spain (around 1 300) or in France (above 8 500). The market share of the largest generator is still higher than 50% in 10 Member States in 2014 (in 11 Member States in 2011). This reveals for some Member States the limited progress brought by the Third Package when it comes to fostering competition through reducing dominant positions and stimulating new entry.

The Commission's market monitoring reports of 2012 and 2014 showed that more competition between generators contributed 70 to a reduction of the electricity prices at wholesale level. In 2014, nearly all EU day-ahead wholesale prices prolonged the downward trend that has been observed since 2011 71 .

Figure 3:

Cross-border electricity trade has increased…

The general objective of the Electricity Directive, as set out in its Article 1 to improve and integrate competitive electricity markets in the EU. In order to measure progress towards market integration, market concentration, the volume of cross-border trade as well as the development of market coupling should be looked at.

One of the main issues at the time of adoption of the Third Package was the lack of sufficient rules and necessary coordination to permit cross-border trade to work effectively. Data on cross-border trade show that cross-border trade in electricity between most EU countries has increased and so has the use of interconnectors – the share of imports in the total electricity available for final consumption has grown in 23 Member States between 2008 and 2012. Despite a decline in EU electricity demand between 2008 and 2014, traded volume of electricity increased in Europe between 2008 and 2014 72 .

Figure 4:

Source: ACER market monitoring report 2015, p. 150

Since 2009, electricity national markets have notably grown together through the development of so-called "market coupling", a coordinated form of electricity trading over a central platform which aggregates all bids and offers, thereby optimising electricity flows almost EU-wide 73 . The Third Package paved the way for market coupling, which has in the meantime been made legally binding though implementing legislation 74 . Today, 19 Member States representing 86% of the EU's energy consumption are connected via the common platform.

Figure 5:


Source: http://www.nordpoolspot.com/globalassets/download-center/pcr/pcr-presentation.pdf

Evidence shows that market coupling increased the convergence of wholesale prices between neighbouring markets in the EU 75 .    

Figure 6: Illustration on price convergence after introducing market coupling between Romania, Czech Republic, Hungary and Slovakia

Source: ENTSO-E, https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/3736161/179B1C2EE4372E9CE053C92FA8C0C45E.PDF

By making more cross-border capacities available, market coupling is also beneficial for cross-border competition, the integration of renewables and security of supply.

The Commission had found frequent evidence of "underinvestment" in cross-border interconnections 76 . One of the aims of the Third Package was therefore to improve security of supply by strengthening incentives for sufficient investments in transmission. To make this possible the Third Package foresees measures to monitor more closely through regulators whether TSOs carry out the adequate investments (for example Article 37 of the Electricity Directive 77 and the unbundling provisions on investment monitoring – Article 22 Electricity Directive), and to encourage closer coordination between TSOs as regards their investments (e.g. long term planning for the development of their systems through a ten-year network development plan as required by Article 22 of the Electricity Directive). Data show that investments into cross-border infrastructure are likely to increase further in the current decade 78 .

Figure 7: Comparison of past and planned future TSO investments [EUR billion]

(Source: Annual reports of TSOs, interviews, Roland Berger research)

…but significant barriers to cross-border trade remain

A report of the European Court of Auditors from 2015 79 commented the on effects of the Third Package as follows "While the aim of unbundling and other measures was to create the regulatory conditions for an internal energy market, a liberalised and competitive market has often not emerged. This is because many governments and incumbent energy companies have continued to restrict third-party network access through regulations and technical restrictions".

Indeed, while the measures of the Third Electricity Package clearly had a positive impact in the development of cross-border trade, important barriers to the trade of electricity across borders are still in place. One key barrier to cross-border-trade remains the uncoordinated use of interconnectors, leading to a limitation of available cross-border capacity. Even where interconnection capacity between countries is physically available, TSOs do often not make this capacity available to the market. According to recent ACER analyses, up to 75% of the physically available interconnector capacity cannot be used because of such practices. At some borders, cross-border capacities offered by TSOs have even been reduced to 0 or close to zero, although a large physical interconnection is in place (e.g. at the German/Polish or German/Danish border 80 ). The main motivation for TSOs to reduce existing cross-border capacities and not to make all capacities available to the market is to avoid problems in the internal grid of the TSOs. It is the TSOs task to guarantee stability of the electricity grid. If the internal grid capacity is not sufficient to transport all energy produced, TSOs need to take measures to ensure grid stability ("congestion management"). Such measures can for example consist in so-called "re-dispatch" (e.g. paying generators to de- or increase their generation against a compensation payment), or in the reduction of interconnector capacities. ACER showed in its analysis that TSOs systematically reduce interconnector capacity to deal with internal congestion problems 81 . One main reason for the increasing reductions of cross-border capacities is the significant increase of volatile generation from wind and sun. If the internal grid is not strong enough to accommodate this renewable energy production (e.g. in peak times of strong winds or sun), imports are often reduced or stopped 82 . This is also the result of a bidding zone configuration which is not yet optimised within the EU 83 .

Also uncoordinated national state interventions in the form of renewables support schemes or capacity mechanisms have reduced the effectiveness of the measures of the Third Package and introduced new barriers to cross-border trade, as evidenced in the Commission's comprehensive report of 2014 on this issue 84 . Support schemes which do not take into account that continental Europe is connected though a synchronised grid can lead to reductions of cross-border flows and lead to problems to transport energy in neighbour states 85 . National state aid for generators in the form of capacity mechanism reduced also cross-border electricity exchanges, as most capacity mechanism are not open to production from foreign countries 86 .

Another problem is the lack of adequate and efficient investment in electricity infrastructure to support the development of cross-border trade 87 . ACER's recent monitoring report and other reports on the EU regulatory framework stress that the incentives to build new interconnections are still not optimal. In the current regulatory framework, TSOs earn money from so-called congestion rents 88 . If TSOs reduce congestion between two countries, their revenues will therefore decrease. The Third Package has identified this dilemma and addressed through obliging TSOs to use congestion rents either for investments in new interconnection or to lower network tariffs. Experience with this rule has, however, shown that most TSOs prefer to use congestion rents to lower their tariff to investing into new interconnectors 89 .

Cooperation between TSOs increased…

The creation of ENTSO-E and ENTSO-G as a cooperation bodies for European TSOs has intensified the cooperation between TSOs across Europe and within regions. The ENTSOs have notably worked intensively on developing draft text proposals for so-called "network codes", i.e. implementing legislation for more coordinated grid operation and trading rules. Based on the ENTSOs work and other stakeholders' input, the Commission was in a position to adopt a large number of implementing Regulations under comitology rules since 2009 90 . ENTSO-E has also delivered the required input for a more coordinated infrastructure planning 91 . According to the results of the Commission's stakeholder consultations on the ENTSO's work on network codes (see the Consultation on the establishment of the annual priority lists for the development of network codes and guidelines 92 ) and the ENTSOs role in general, stakeholders consider the creation of the ENTSOs as a step into the right direction for more TSO cooperation. Also recent reports from ACER 93 confirm that both ENTSOs have achieved a good level of performance since their establishment by the Third Package. Implementing legislation adopted under the new Third Package provisions on "network codes" have further strengthened cooperation between TSOs. These network codes oblige TSOs to find common solutions for problems which require action of several neighbouring TSOs (e.g. to coordinate redispatch measures in order to limit negative impact on neighbours) and created new regional groupings of TSOs within which TSOs have to cooperate 94 .

…but cross-border trade is still hampered by insufficient TSO coordination

However, the evaluation has also identified some shortcomings in the regulatory framework created for ENTSOs. A common concern raised by stakeholders in consultations 95 relates to a possible conflict of interest in ENTSO-E’s role – being at the same time an association called to represent the public interest, involved e.g. in network code drafting, and a "lobby organisation" of commercial operators with an interest to expand the own business. Indeed, the Commission had to rework some draft network codes in order to ensure that the interest of all stakeholders and consumers are taken into account in a balanced manner. Stakeholders argued that independence and transparency requirements should therefore be reinforced, and regulatory oversight over the ENTSOs should be reinforced 96 . Stakeholders also suggested in this context that the process for developing network codes should be revisited in order to provide a greater a balance of interests and ensure optimal results for the internal market.

Despite the creation of ENTSOs as coordination body for TSOs, significant problems through insufficient coordination remain. While being connected through a synchronised grid and albeit electricity is traded EU-wide via market coupling, today 42 individual TSOs decide separately about the flows of electricity within this synchronised grid. TSOs tend to maximise benefits within their grid area and to disregarding negative effects outside their grid area. Stakeholders and ACER criticise that this leads to sub-optimal results and hampers cross-border trade 97 . To accommodate the need for coordination across TSO areas, Regulation (EC) No 714/2009 established regions for the coordination of capacity calculation, capacity allocation and secure network operation. These regions were further developed in one of the subsequently adopted network codes called 'CACM Regulation' 98 . The frequent individual and uncoordinated reductions of interconnector capacities through individual TSOs described above show that coordination between TSOs is still underdeveloped. According to the ACER 2014 Market Monitoring Report, progress in coordinating capacity calculation is very limited and varies from region to region. It concludes that there is still significant scope for improvements in the area of capacity calculation coordination and that the inefficiencies of the current methods are probably one of the main obstacles to further market integration. The new obligations for regional coordination between TSOs on electricity trading and system operation issues are likely to improve the situation.

In addition, TSOs have voluntarily launched so-called Regional Security Coordination Initiatives in the recent years (e.g."Coreso" and "TSC" 99 ) covering a greater part of the European interconnected networks aiming at improving TSO cooperation by providing a set of services to national TSOs and maintaining or increasing security of operation of European interconnected networks. This RSCI approach is widely recognised as a positive step forward 100 and is further formalised in European legislation with the new Guideline on System Operation which received a positive vote from Member States on 4 May 2016 101 . However, given the economic importance (and distributive effects) of the decisions TSOs have to agree on, experience has shown that voluntary cooperation between TSOs was not able to overcome the problems that block progress in the internal electricity market (e.g. definition of fair bidding zones, effective cross-border curtailments). Absent robust rules on regional TSO cooperation in the Third Package (including decision-making rules), only limited progress could be achieved on issues requiring a compromise between TSOs.

A clear majority of stakeholders who responded to the public consultation is in favour of closer cooperation 102 between TSOs. Stakeholders mentioned different functions which could be better operated by TSOs in a regional set-up and called for less fragmentation in some important parts of the work of TSOs.

Regulatory independence and cooperation between regulators has improved…

As concerns the newly introduced rules on the reinforcement of independence of national regulators, the Commission's systematic compliance checks showed that the detailed provisions on how to guarantee regulatory independence were implemented in most Member States. The independence rules even go beyond the requirements in other areas such as competition 103 .

The Third Package also created a new coordination body for regulators, the Agency for the Coordination of Energy Regulators (ACER). The evaluation has shown that ACER's activity has provided tangible benefits for EU citizens. Since its creation in 2011, ACER has coordinated the work of 28 national regulators and moderated their discussions within working groups and the Board of Regulators, monitored EU markets as well as the activities of the ENTSOs, and provided valuable advice on regulatory issues, notably in the process of the development of network codes. 104 . The positive impact of ACER on market functioning has been acknowledged by most stakeholders. Since its creation through the Third Package, ACER has also been given new tasks, namely in the field of market supervision in the framework of the "REMIT"-regulation and infrastructure planning, in the framework of the new "TEN-E"-regulation 105 .

...but problems with regulatory independence and coordination remain

The Evaluation showed that despite clearer rules on regulatory independence, many governments try to interfere in competence areas reserved to independent regulators. The Commission has opened several infringement procedures for non-conformity of Member State legislation as regards national regulatory authorities, notably concerning attempts from national governments to interfere in areas which are deliberately reserved to the competence of independent regulators, such as the setting of adequate transmission tariffs 106 . Also the 2015 Special Report of the European Court of Auditors 107 stated that problems with regulatory independence still hamper the internal market and identified three main problems in the operation of the NRAs. Regarding their independence, they underline that the principles set out in the Electricity Directives are not always followed. They illustrate this with examples in Member States where the heads of regulatory bodies are not selected in a transparent manner and provided with sufficient freedom to operate. The Court of Auditors also mentions the existence of restrictions to the scope of their powers. They mention for instance that some governments still retain for themselves (at least partially) certain regulatory powers, notably of tariff setting which are of the competence of the NRA based on the Electricity Directive. This has been addressed by the Commission through the opening of several infringement procedures against Member States. Another concern relates to the level of resources available to the different NRAs which vary considerably from one NRA to another, staff ranging from 21 to more than 200. Some NRAs are for instance better equipped than others to participate in international cooperation and in the work of ACER for instance.

The evaluation identified also deficits in the regulatory set-up of ACER that hamper the internal market. One of the problems relates to the fact that ACER remains largely an advisory body without tangible decisions powers. Indeed, none of the very few decision powers ACER was given in the Third Package (e.g. concerning infrastructure exemption decisions 108 ) have to date been exercised. This has created problems in the implementation of the network codes. Some technical features require a common regional method (e.g. a common algorithm for the market coupling process). However, while a regional group of TSOs can decide by majority on proposals for such methods, ACER cannot approve this method. Instead, each individual regulator has to approve the common method individually. Only after this procedural step, ACER can decide (using its arbitration function under Article 8 of the ACER Regulation) on this method. This has already caused significant delays in the implementation of the CACM regulation 109 . Unlike in other EU agencies, Member States retain a decisive role within ACER. National regulators chair the main decision body ("Board of Regulators"). It is not the independent ACER director or a group of directors who take decisions within ACER (as in similar EU agencies 110 ), but national regulators, voting with a two-thirds majority. Experience with this rule has shown that a "blocking minority" of only 1/3 of the regulators can veto regulatory proposals, which led to failure or delays of regulatory initiatives 111 .

Consumer electricity and gas prices vary significantly for non-market related reasons, and have risen steadily for households

The first observation on electricity and gas consumer prices is that these vary significantly between different MS. Denmark (30.38 euro cents/kWh) remains the country with the highest electricity household post-tax prices (POTP), more than three times the POTP charged to electricity households in Bulgaria (8.63 euro cents/kWh), the country with the lowest POTP in Europe. Household gas prices in 2014 remained lowest in Romania (3.14 euro cents/kWh post-tax), and highest in Sweden (11.61 euro cents/kWh), where considerably higher taxes and charges are levied. A wide range of factors contribute to this including the sources and kinds of energy consumed, the level of regulatory intervention in price setting, differing levels of competition and the different taxes and levies applied 112 .

The second observation is that industrial consumers pay, in general, between two to three times less for their electricity and gas than household consumers do. This is due to a number of factors, including industry's greater ability to benefit from scale economies (higher levels of consumption), the fact that industry is less burdened by non-contestable charges, and the fact that industry may benefit from better market information and bargaining power vis-à-vis suppliers than household consumers.

The third pertinent observation, illustrated in the chart below, is that electricity and gas prices for household consumers rose steadily between 2008 and 2014. Most recently, between 2013 and 2014, post-tax prices (POTP) for electricity and gas supplied to households increased on average by 2.6% and 2.1%, respectively. In contrast to household prices, industrial prices remained largely stable between 2008 and 2014, even declining between 2013 and 2014.

Figure 8: Electricity and gas POTP trends for household and industrial consumers in Europe – 2008-2014 (euro cents/kWh) 113

An analysis of the price components reveals the main drivers of rising household prices in the period 2008-2014. Figure 9 below shows that household electricity prices were greatly influenced by non-contestable charges (i.e. taxation and network charges) in most MS during this period. These currently make up, on average, 40% of the total bill in electricity and more than 50% in gas. Since 2008, and particularly over the last few years, non-contestable charges have significantly increased in many MSs, especially as a result of costs related to support schemes for renewable energy sources (RES). The fact that industrial electricity consumers are less burdened by non-contestable charges helps explain why their electricity POTPs decreased in a number of Member States during the period 2008-2014, albeit to a limited extent (Figure 10).

Figure 9: The compounded annual growth rate (CAGR) 114 of the electricity POTP, energy component and non-contestable part of POTPs for households in Europe – 2008–2014 (%) 115

Figure 10: The CAGR of the electricity POTP, energy component and non-contestable part of POTPs for industry in Europe – 2008–2014 (%) 116

Retail electricity and gas markets for households remain concentrated in most Member States

Figure 11 below shows a high concentration in retail electricity and gas markets for households at the national level in the majority of MS, measured by the concentration ratio CR3. 117 The cumulative market shares of the three largest electricity and gas suppliers for households is more than 70% in the majority of countries, including those with a large number of nationwide suppliers (i.e. those with a bigger ‘bubble’). As a result, the retail household market for small competitors is above 30% in only 8 out of 29 countries in electricity and in 5 out of 25 countries in gas, while the rest of the market is held by three dominant suppliers. CR3 values above 70% and low numbers of main suppliers are indicative of possible competition problems.

Figure 11: Market share of three largest suppliers (CR3) and the number of main suppliers and number of nationwide suppliers in retail markets for households – 2014 118

As regards the trend, Figure 12 below shows that there has been little change in these CR3 values since 2009, with decreases of 10% or more recorded only in the Czech Republic’s electricity and gas household markets, the Swedish electricity and the Spanish gas market. The comparable CR3 data for retail markets for non-households show that non-household markets are much less concentrated than household markets in many MS.

Figure 12: CR3 in the retail electricity and gas markets for households in the EU MSs and Norway – 2014 and change from 2009–2014 (%) 119

To summarize, retail electricity and gas markets for households are highly concentrated in more than 2/3 of MS – a situation that has remained largely unchanged for the last five years. In the non-household sector, market concentration is less pronounced, although still generally high.

Retail margins seem to be increasing more than expected in some Member States

In contrast to non-contestable charges, wholesale electricity and gas prices, as demonstrated earlier in this section, generally decreased between 2008 and 2012 (Figure 3). Mark-ups determine the extent to which these falling wholesale prices were passed through to consumers. They help explain why the CAGR of the energy component of household consumer bills is positive in 15/28 MS (Figure 10), in spite of the general trend of falling wholesale prices.

Figure 13: Average annual mark-ups in electricity and gas retail markets for households from 2008 to 2014 for electricity and from 2012 to 2014 for gas – (euros/MWh) 120

Figure 13 above shows that household mark-ups vary greatly between the MS. On the one hand, mark ups in Member States who practice price regulation (BG, HU and HR, for example) tend to show the lowest retail margins – as low as minus 10% in the case of RO. On the other hand, mark-ups in several MS seem to be higher that could in principle be expected, posing questions about the extent of real price competition. This observation is reinforced by the fact that mark-ups for both electricity and gas household prices in non-regulated markets have shown an increase over the last six and three years, respectively (Figure 14, below) – a trend that cannot be easily explained by other changes in the market during these periods.

Figure 14: Relationship between the wholesale price and the energy component of the retail price and evaluation of mark-up in household segments in countries with non-regulated retail prices from 2008 to 2014 for electricity and from 2012 to 2014 in gas (euros/MWh) 121

Whilst the variety of products is improving in some dimensions, it is lagging in others

Although low prices are the most commonly thought of way for firms to attract consumers, firms may also seek to distinguish their products by other means. These may include quality of service, convenience, an environmentally sustainable product, or any other non-price aspect that adds value for consumer. The diversity of products available in a market is therefore also a good indication of the health of competition.

Although challenging to quantify precisely, the data suggest that 'choice' for consumers in European capitals widened between 2012 and 2014 122 , with a greater variety of offers available. The increasing diversity and variety of offers is a sign of more innovation in the sector, and helps raise consumer interest in the market.

Green electricity and gas offers continue to make strides in the market. By the end of 2014, in total, almost one third of all electricity offers and almost one quarter of gas offers were marketed as green. Dual-fuel offers (electricity and gas), comprised more than 35% of all offers on price comparison tools in Amsterdam, Brussels, Dublin, Lisbon, London and Paris – capitals with traditionally higher consumption of gas. And at the end of 2014, approximately 6% of all electricity and 12% of all gas offers presented in the price comparison tools across Europe included an additional service, 123 up from 4% and 7% respectively from just the previous year. 124

The type of pricing of the offer (i.e. fixed, spot-based or variable) remains one of the most visible features of energy products. Although there is diversity in this dimension, there is certainly scope for improvement. Fixed-price offers account for the majority of all electricity and gas offers in Europe, in spite of the fact that spot-based electricity offers – where available – were consistently found to be the cheaper. This point is developed further in this Section along with shortcomings in consumer access to companies offering demand response services.

Many Member States still practice some form of price regulation

The analysis in this section focuses solely on the regulation of the energy component of retail prices and excludes any discussion on the regulation of network prices 125 .

The regulation of electricity and gas prices limits consumer choice, restricts competition, and discourages investment. This is particularly true for markets where retail end-user prices are set below costs (i.e. without taking into consideration wholesale market prices and other supply costs). Artificially low regulated prices (even without pushing them below costs) limit market entry and innovation, prompt consumers to disengage from the switching process and consequently hinder competition in retail markets. In addition, they may increase investor uncertainty and impact the long-term security of supply. Furthermore, regulated prices (even when set above costs) can act as a pricing focal point which competing suppliers are able to cluster around and – at least in markets featuring strong consumer inertia – can also considerably dilute competition.

This policy choice has meant addressing through infringements the more important market distortion created by the regulation of prices for larger and potentially most active consumers who use most of the energy sold on the European market (more than 70% of total electricity consumption and close to 60% of the total gas consumption) 126 . In addition, the Commission has opted initially for an informal approach via bilateral consultations with Member States to discuss reasonable and sustainable alternatives to price regulation and accompanying support for vulnerable consumers. However, infringement actions against price regulation for households are not excluded in the follow-up to informal consultations.

Cross-referencing the MS who practice price regulation against the indicators covered in this Section is suggestive of the gross distortions to the market that can result from this practice. Observable tendencies include lower consumer prices and mark-ups for household prices in MS that regulate prices, higher market concentration (Figures 11 and 12), lower switching and consumer satisfaction (Figures 15 and 16 below), and lower levels of retail competition performance overall.

Figure 15: Average switching rates in countries with and without regulated electricity and gas prices – 2008–2013 and 2014 (%) 127



Shortcomings of current demand response

The available evidence available generally suggests that the demand response provisions currently in place have been less effective than intended. The provisions have not been effective in removing the primary market barriers especially for independent demand response service-providers and creating a level playing field for them. Instead the heterogeneous development of demand response has led to fragmented markets across the EU. This is mainly due to the high degree of freedom the existing provisions leave to Member States. As such in many Member States, the roles and responsibilities for aggregators are not defined, suppliers are able to prevent independent DR service-providers from entering the market by not granting them access to their customers, and significant 'compensation' payments from aggregators to BRPS and/or suppliers risk to overcompensate those parties and diminish the business case for Demand Response. At the same time, rules and technical requirements at national balancing, wholesale and capacity markets often prevent flexibility products from entering those markets which forms another barrier for incentive based demand response. This seems to be slowly changing, in particular for the balancing markets where the TSOs have started to adapt the requirements. However, the design of more favourable requirements at national level will in the longer term not be sufficient from the perspective of an integrated energy market.

It can be concluded that the different treatment especially of independent DR service-providers in national energy markets as well as of flexibility products in electricity markets risk undermining the large-scale deployment of DR needed as well as the functioning of the internal energy market.

Slow and uneven deployment of smart metering

Commitment to smart metering is not uniform across the EU; the roll-out is overall progressing in a rather conservative manner, at different speeds and operational environments across the Member States.

The least ambitious deployment and slowest pace for rolling-out is noted in the gas sector. Seven Member States only intend to roll-out by 2020 in total 45 million gas smart meters, corresponding to 40% of EU consumers; so far as little as a 1.5% penetration rate has been achieved, as explained earlier. Moreover twelve Member States concluded in their CBAs that for now the costs outweigh the benefits; others intend to install smart metering systems only for selected groups of consumers or have reached no binding decisions yet 128 . This is coherent with the observation that the business case for gas is more challenging given that the expected benefits are either less significant than for electricity, or do not apply 129 .

For electricity, still a majority of Member States intend to proceed with large-scale deployment by 2020. So far, 19 Member States have committed to rolling out close to 200 million smart meters for electricity by 2020, to at least 80% of households in 17 of these nations, and close to 23% in 2 countries that are rolling out to a specific segment of consumers. But Member States are at different stages of the process when it comes to actual installations. Only four have completed so far the roll-out in electricity, while the target date of 2020 is approaching.

The current slow advancement (which is to peak much later than originally foreseen) , the low diffusion rates achieved to date (21% for electricity, and just 1.5% for gas in the EU-28), and the recurring delays in national roll-out programmes, further widen the gap to delivery.

The deployment of smart metering in Member States, which is not as ambitious as originally intended, can be credited to a certain extent to the legislation in place, even though it is difficult to quantify it. However it should not be forgotten that in a number of cases it has been influenced by other factors, e.g. market drivers, regulatory environments.

Conclusions

Overall, the Third Package partially fulfilled its original mission and created a stable market-based approach on which however further legislation should be built on. In particular, it can be concluded that:

The strengthening of unbundling rules has had a positive effect on competition with new players entering the market, except in some Member States where the incumbent still holds a dominant position.

Market integration has improved with the increase of cross-border electricity trade. National markets have grown together since 2009 thanks notably to market coupling. However, obstacles to further integration still exist due to uncoordinated state interventions and inefficient use of interconnectors.

Cooperation between TSOs and between regulators has improved, but needs to evolve further.

Retail level competition has progressed in some Member States, while it remains limited in others, mainly where price regulation is still in place. Overall, the linkage between wholesale and retail markets could be improved to enable the pass-through of the price signals to the consumers and trigger demand response.

7.1.2.Consumer empowerment and protection

-To what extent have consumers been properly empowered, including been given effective freedom of choice to purchase electricity from their supplier of choice;

-Are consumers sufficiently protected, what is the level of consumer satisfaction?

This evaluation addresses three aspects of the existing acquis that cover consumer engagement and protection: The measures on vulnerable and energy poor consumers; the measures on fees related to switching energy suppliers; and the measures on billing.

Consumer satisfaction and engagement in energy markets could be improved

Although subjective, consumer satisfaction is a valuable indicator on the extent to which competition in the market is working for customers and whether suppliers are responding adequately to changing consumer preferences.

In terms of consumer satisfaction, the data indicate that there is clearly scope for improvement. According to the 10th edition of Consumer Scoreboard, 130 which is based on consumer survey 131 and expressed in a composite Market Performance Index (MPI), 132 electricity services rank 28th and gas services 22nd among the 31 markets for services across the EU. Therefore, both markets can be considered low performing from the consumer standpoint. The figure below illustrates the large differences between the top-ranking and bottom-ranking countries in the markets for electricity and gas services, measured by the composite indices MPI and MPIsc. 133 This variance is particularly marked for electricity markets.

Figure 16: Overall performance of markets for electricity and gas services by country – 2013 and change on 2012 (index) 134

The switching rate 135 is perhaps the most direct indicator of consumer engagement with the market and of the choice available on the retail market. Although switching is affected by a range of other factors (regulated prices, the difference in price between offers on the market and trust in new suppliers, for example), the switching rate provides an important quantitative measure of the effectiveness of the Articles in the Electricity and Gas Directives – albeit an indirect one. At the same time, other factors that may influence the switching rate besides status quo bias/inertia are – according to consumers surveyed – linked to the difficulty of finding out what the right tariff would be for them (21%) or the fact that they will have to manage their account online (3%) in order to get cheaper tariffs. Thus, removing certain market barriers could lead to more effective consumer choice. The following figure shows that while switching rates have generally increased since 2008, they remain relatively low in the EU-28 at around 6%.

Figure 17: Switching rates for electricity and gas household consumers in 2014, annual average 2008–2013 136

Contract exit fees represent a salient potential barrier to switching, since they tend to increase the threshold for consumers to switch due to the perceived diminished potential savings available. These are addressed in more detail in Annex 3 of this Evaluation.

Switching and exit fees

Thanks to these provisions on switching and exit fees, the switching process itself is mostly free for the consumer. However, contractual conditions may sometimes include additional charges related to switching. These include exit fees, administrative costs, start-up costs for a new or short-term service 137 .

Exit (termination) fees are applied to cover, inter alia, the costs of leaving a fixed-term and/or fixed-price contract early (as sometimes occurs in MS including NL and UK), as well as to recoup the costs of administrative services, equipment, discounts and/or other incentives provided at the beginning of the contract. While exit fees provide suppliers more flexibility in the range of tariffs they are able to offer, they render comparisons and switching more difficult for consumers. Price comparison tools that do not cover exit and other fees associated with switching are therefore not complete.

In a recent survey of ten MS, 21% of suppliers responded that a customer would be charged a fee or similar other charge for cancelling his or her energy contract. Contractual obligations and administrative hurdles can disproportionately discourage consumers from switching because of a cognitive bias called 'loss aversion' – a tendency to strongly prefer avoiding losses to acquiring gains. This is exacerbated by the fact that incorrect assumptions also deter action. 56% of consumers in a recent electricity study survey responded that they could be charged a fee for switching or did not know whether or not they would be charged.

Given the persistently low levels of switching and consumer engagement in the energy sector (see sections above), there may therefore be scope to further restrict the use of switching and exit fees charged to consumers for changing suppliers. Any such fees should be proportionate to avoid consumer detriment and avoid lock in to a particular contract.

For a detailed analysis, see the accompanying Thematic Evaluation on Switching Fees in Annex.

Billing

In terms of effectiveness, it is impossible to quantify the extent to which the provisions in the Electricity, Gas and Energy Efficiency Directives have made positive contributions towards these objectives, given the multiple and complex other factors that also affect their achievement (the unbundling of network operations and introduction of energy efficiency targets, inter alia), the absence of precise indicators and the scarcity of data. It was, however, possible to identify certain gaps, problems and opportunities for potential improvement in the legislation – notably, the following.

The latest ACER Market Monitoring Report stated that the average electricity and gas consumer in their countries is only able to compare prices to a limited extent. The average score was 4.8 and 5.0 on a scale from 1 to 10 for electricity and gas respectively. 138 These poor figures are backed by a recent Commission survey that found that just 40% of EU respondents strongly agreed that the electricity bills of their electricity company were easy and clear to understand. 139 Correspondingly, the largest share of consumer complaints reported to the Commission between 2011 and 2014 were related to billing (30%). 140

With regard to comparability and clarity of billing information, the relatively low degree of satisfaction of electricity and gas customers and the high number of complaints related to billing suggests that there is still room for improvement and that further action might be required to this end either at national or EU level. There are several factors that could be contributing to this.

There is a widespread divergence in national practices with regards to some billing elements – in particular information on energy sources and consumer rights – that would appear to indicate a lack of implementation of certain billing requirements in the Electricity and Gas Directives. Some Member States have gone beyond EU legislation when setting out billing requirements in national legislation. This has in some cases caused additional confusion at the level of the consumer.

Finally, certain elements of the current legislative framework around metering are complex and open to interpretation with regard to the nature and scope of key obligations – for example, the precise meaning of phrases such as "information on actual time of use". This may be making it more difficult for consumers to gain access to information on their consumption levels. Many consumers continue to receive bills based on estimated consumption, either as a result of annual meter reading or because they do not have individual household meters. This does not enable consumers to manage their consumption effectively, for example, by reducing it, resulting in potentially higher bills than necessary.

For a detailed analysis, see the accompanying Thematic Evaluation on Billing and Metering in Annex 3.

Vulnerable and energy poor consumers

The measures were to some extent effective in getting Member States to define the concept of the vulnerable consumer and to adopt measures to protect those in this category. The measures have tended to be predominantly at the level of welfare provision and social policy, and not so much at the level of energy policy measures. They were also successful in bringing the issue of energy poverty to the attention of some Member States.

Given the absence of a common EU definition of consumer vulnerability, the implementation of the consumer protection provisions resulted in an uneven level of consumer protection across the EU Member States. This result is naturally more pronounced regarding energy poverty where obligations for measures in the Directives had some caveats and were not accompanied by any common definition or a requirement for defining the concept at national level. In addition, there have been shortcomings in the definition of the role of National Regulatory Authorities (NRAs) in the protection of vulnerable consumers and in monitoring of electricity and gas disconnections.

Finally, the provisions have not been effective in assisting Member States in addressing the problem of energy poverty. Even though, recent external research 141 indicates that energy poverty and consumer vulnerability are two distinct issues, the provisions in the Electricity and Gas Directives refer to energy poverty as a type of consumer vulnerability. This categorisation leads to an incorrect expectation that a single set of policy measures from Member States can address both problems simultaneously.

Whilst precise data on the topic remains limited, rising levels of energy poverty as well as lack of clarity on the most appropriate means of tackling consumer vulnerability and energy poverty constitute a barrier to the further deepening of the internal energy market. The need to address the problem seems pressing given that some form of retail energy price regulation, in some cases intended to protect vulnerable and energy poor consumers, still exists in 17 MS, and levels of market concentration remain high in some liberalised markets.

For a detailed analysis, see the accompanying Thematic Evaluation on Consumer Vulnerability and Energy Poverty – Annex 3 of this document.

Conclusions

Switching rates have generally increased since 2008, they remain relatively low in the EU-28 at around 6%. However, the analysis demonstrates that exit fees and lack of information remain a problem. About 20 % of suppliers would charge a customer a fee or similar other charge for cancelling his or her energy contract. Furthermore, 56 % of consumers responded that they could be charged a fee for switching or did not know whether or not they would be charged. Comparison tools were used by 64% of EU consumers who had compared tariffs of different electricity companies.

Current provisions on consumer protection have proved to be a partial success as Member States have defined the notion of vulnerable consumers and adopted some measures to protect them. In general, this is a good direction for regulation with regard to consumers' benefits from the internal market. However, protection of vulnerable consumers in Member States is uneven. Moreover, energy poverty across the EU is growing while data on the scale and drivers of energy poverty is missing.

7.1.3.Security of Electricity Supply Directive

-To what extent have the objectives of Directive 2005/89 (i.e. a high level of security of supply, a better functioning of the internal market) been achieved?

-To what extent would these objectives have been achieved in the absence of Directive 2005/89?

The SoS Directive was proposed by the Commission in December 2003, where Member States were still working on the implementation of the Second Directive. Strong motivation for coming up with this proposal were blackouts in both the EU (especially the one in Italy) and US, which highlighted the need for clear operational standards for transmission networks and the need for correct maintenance and development of the network. Generation adequacy was also tested by both a cold winter in the Nordic region and a very hot summer all over Europe. Although the supply chain performed well, the evidence showed the need for a regulatory framework on investment in generation and demand management.

The SoS Directive was a good example of the Commission's swift reaction to a specific problem: while Italy's blackout intervened in the night of 27 to 28th September 2003, the Commission was able to table a legislative proposal by the end of the year. 142 This proposal represented a big step forward, especially if one considers that it was made at a time where there was no recognised EU policy on energy. 143 This also explains why its provisions are not prescriptive enough and limit themselves to set objectives and enounce general principles.

The limitations of this Directive were soon highlighted by different stakeholders. The European Economic and Social Committee, in its opinion 144 on the Commission's proposal, asked to be cautious before modifying the 2nd package rules (point 3.1) but also criticised that the proposed Directive did not really address the existing concerns regarding security of supply (point 3.2) and suggested that the general provisions in Article 3 were "relevant features of any good national energy policy and widely implemented. Presenting them as provisions in a directive may lead to confusion of responsibilities". MEP Chichester's report on the proposal very directly states that "It is no secret that the original Commission proposal has not found favour with either the Parliament or the Council". 145

Events such as those that were at the origin of the SoS Directive were certainly not the last ones, 146 and less than ten months after the publication of the SoS Directive in the Official Journal, Europe suffered, on 4th November 2006, a generalised blackout that affected 15 millions of European citizens. The disturbance, which started in North Germany, ended up affecting large parts of the European interconnected power systems. This blackout highlighted the existence of a series of regulatory gaps, as identified by the European Regulators Group for Electricity and Gas (ERGEG, ACER's predecessor). 147 On 8th of February 2007, the Commission's press release (IP/07/187) summarised the event as follows: "Three main reasons appear to have caused the blackout. Firstly, E.ON Netz, the German electricity transmission system operator which was at the origin of the fault, was not able to monitor whether the grid was operating securely; secondly, other European transmission system operators did not receive information on the actions taken by the German transmission operator; and thirdly, insufficient investment both at the level of reliability and the operation of the grid." As a matter of consequence, the Commission announced that the necessary improvements of the regulatory framework would be put forward.

The SoS Directive was therefore quickly caught up by the discussions on internal market measures proposed by the Commission already in 2007 and that led to the adoption of the Third Package.

The SoS Directive, in its Article 9, asked the Commission to monitor and review the application of the Directive and to submit a progress report to the European Parliament and to the Council in 2010. In its progress report, 148 the Commission made an overview of ongoing activities on security of supply, referred to the benefits that the implementation of the Third Package would bring along and explained some of the future evolutions in the European electricity system, that would require massive investments and appropriate incentive schemes for delivering the necessary investments in generation and transmission in a timely manner. One should recognise that the progress report contained very little about the SoS Directive, as such, and a lot about the future regulatory changes.

This was not surprising, because the Third Package had in the meantime clarified the role of NRAs and TSOs, reinforced TSO co-operation by putting into place ENTSO-E (responsible, among other tasks, of adopting every 2 years a Community wide ten-year network development plan, including a generation adequacy outlook), and provided for the harmonization of the technical standards and operating procedures for the electricity system through the establishment of network codes and guidelines. Network codes and guidelines, once adopted, become an integral part of the Third Package. Network codes and guidelines are currently at different stages of the adoption procedure. From an electricity Security of Supply perspective, the most relevant are those related to the operation of the electricity system (System Operation Guidelines, expected to be adopted early 2017) and on Emergency and Restoration (currently under discussions in the committee of Member States representatives).

Work on infrastructure projects had also evolved since the adoption of the SoS Directive, mainly based on Regulation No 347/2013 on guidelines for trans-European energy infrastructure. In 2013, the European Union identified 248 energy infrastructure Projects of Common Interest (PCIs). This list was reviewed and up-dated in 2016 and will then be reviewed again every other year. An Energy Infrastructure Forum was set up and convened for the first time in 2015 in Copenhagen as a framework to discuss the major issues relating to infrastructure and EU energy policy.

Under these circumstances, and based on additional analysis and research made by the Commission's services, it is fair to conclude that the SoS Directive had only a limited impact on the electricity sector in general and on the security of electricity supply in particular. This statement is based on the following considerations:

-The Directive imposes Member States a series of open-ended obligations, which gave large freedom for implementation and are therefore hardly enforceable (e..g. Art. 5(1) "Member States shall take appropriate measures to maintain a balance between the demand for electricity and the availability of generation capacity").

-The Directive was quickly (but only partially) superseded by further EU rules, which addressed in particular the role of TSOs in the area of security of supply and the need for infrastructure investments. The new rules do not address, however, the role governments have to play when it comes to setting standards, identifying risks, and taking the necessary measures to prevent & manage crisis situations.

-The Directive has received a limited treatment in the specialised literature. Thorough literature research shows that references to this Directive in articles and comments are marginal. 149  

-The limited number of complaints received indicates the lack of awareness about the Directive and confirms that its content is not precise enough to support citizens/companies rights. According to the Commission's records (database CHAP), potential breaches to this Directive were claimed in only 5 complaints, always as ancillary claim to main breaches to other Directives of the second/third internal energy packages or, in one occasion, the RES Directive. None of these complaints led to the opening of an infringement procedure based on the SoS Directive.

-The SoS Directive did not give rise to any infringement procedure on the Commission's own initiative neither (other than the 17 cases for non-communication of the transposing measures referred to in point 6). The reason was the general nature of its obligations and the adoption of the Third Package, making more efficient to address issues of non-compliance under the new more precise rules.

-The limited European case-law interpreting its provisions: Only the "Castelnou case" 150 , originated in a Commission's state aid decision challenged by a company, gave the Court of Justice the opportunity to construe some provisions of the SoS Directive, whereby it confirmed that "Directive 2005/89 confines itself, in essence, to setting the objectives (Article 1) and the factors to take into consideration when drafting and implementing measures to safeguard security of supply (Article 3)" (recital 206).

-Last, but not least, the SoS Directive has not been the subject of any parliamentary question. To our knowledge, it was mentioned in only one occasion. 151

It can be concluded that the SoS Directive has not been effective in the achievement of the objective pursued. Indeed, the incident of November 2016, one year after its approval, highlighted the existence of a series of regulatory gaps on security of supply in terms of monitoring, information exchange and insufficient investments. Most of these gaps have been addressed by further EU rules.

7.2.Efficiency

-In qualitative terms, to what extent are the costs proportionate to the benefits achieved?

-Are there areas where there is potential to reduce inefficiencies particularly regulatory burden and simplify the intervention (the issue of streamlining planning and reporting will be dealt with elsewhere)?

-Are there areas where the current regulatory framework for the EU's electricity markets could be streamlined and optimised?

Undoubtedly, the detailed rules for TSOs, DSOs, generators and suppliers, and in particular the respective monitoring obligations for national regulators, led to some additional administrative costs for undertakings (e.g. for unbundling compliance monitoring) and for regulators (e.g. through increased tasks in monitoring and deciding on implementation details of the Third Package). This constituted a significant additional burden given the moderate size of many National Regulatory Authorities ("NRAs"). Half of the 28 NRAs have less than 100 staff members 152 . Generally, the level of resources available to different NRAs varies considerably. As underlined by the Court of Auditors 153 , the number of people dealing with energy issues in NRAs visited during their audit ranged from 21 (Estonia) to more than 200.

However, given a value of the EU the electricity sector of more than € 1.000 billion in 2014 154 and the significant potential economic losses due to distortions of competition, the cost for monitoring are considered negligible by stakeholders who rather call for stronger regulatory oversight. This is made clear in the responses to the public consultation where there is notably significant support for increasing ACER's powers by many stakeholders 155 (e.g. oversight of ENTSO-E activities or decision powers for swifter alignment of NRA positions).

Certain regulatory measures contained in the Third Package, such as unbundling have had a cost for electricity stakeholders. The implementation of the unbundling requirements for all TSOs certainly entailed costs for these companies. However these are difficult to quantify and no detailed aggregated data on the cost of these organisational changes required by the unbundling measures exist. The Commission's report on the impact of its unbundling reform from October 2014 156 showed that cost effects did not play a significant role for stakeholders. The possibility for a Member State to choose between three unbundling models has provided some flexibility which may have contributed to keep the costs related to the organisation changes relatively limited. Indeed, it may be assumed that the Member States have opted for the unbundling model which was the closest to the existing organisational structure of their TSOs.

ENTSO-E is financed almost exclusively by fees collected from its members i.e. the TSOs. In 2015, its budget was of 17 000 k€ to be divided by the 41 TSOs from 34 countries. ENTSO-E also holds as members TSOs from the Energy Community from countries which are not part of the EU. The public consultation 157 has not gathered any remarks on the cost or budget of ENTSO-E. The fees paid by the TSOs to ENTSO-E appear to be of an acceptable level and justified by the benefits that the TSOs enjoy from the existence of such an organisation whose task is inter alia to defend their interests.

To the exception of the budget of ACER, no EU funds have been used to implement the measures of the Third Energy Package.

Regarding ACER, its budget is almost exclusively financed by an EU budget subsidy. While initially foreseen to be of approximately 6 to 7 million euros 158 ACER's annual budget in 2015, amounted to 10 513 574 euros. Similarly the staff of ACER was foreseen to be approximately 40-50 people while it is now 69 (ACER Establishment plan 2016). This increase, both is budget and staffing reflects the gradual increase in tasks and duties attributed to ACER, notably in consecutive legislation (e.g REMIT and TEN-E) ACER's financing has been facing different challenges as the tasks of the Agency have grown over the years. While its budget has increased since its establishment, it is still seen as unsufficient by ACER itself. The Director of ACER has been requesting additional staff over the years but these have not been granted in full by DG BUDG. In addition ACER has been given the possibility to collect fees under the Third Package. Article 22 of the ACER Regulation provides that fees shall be due to the Agency for requesting an exemption decision and the fees shall be set by the Commission. Since the establishment of ACER no such exemption decision was requested and until now, the Commission did not set such fees.

Overall, it can be concluded that the new rules of the Third Energy Package have generated additional administrative costs for undertakings and regulators. However these are not perceived as too heavy by stakeholders and appear to be counterbalanced by the benefits they generate notably through the increase in competition in the sector.

Security of Electricity Supply Directive

-To what extent have the interventions been cost effective?

-Is the administrative burden imposed on Member States and economic operators (e.g., through the reporting obligation contained in Article 7) justified?

-Is there room for simplification?

-Could the legislation have been better enforced/implemented?

The SoS Directive limited itself, in essence, to setting the objectives and the factors to take into consideration when drafting and implementing measures to safeguard security of supply. That means that it set a general framework on security of supply, but left it by and large to Member States to define their own security of supply standards and policies within certain limits. Because of the general terms of its provisions, it is estimated that the cost of the intervention was a limited one, because it required limited legislative efforts (as confirmed by CEER 2009 report) and did not imply specific actions by Member States.

Concerning the additional requirements on reporting imposed by Article 7, in connection with the obligation to monitor security of supply imposed in Article 4 of Directive 2003/54/EC and in the Electricity Directive, the administrative burder of the reporting obligation set in Article 7 is negligible.

Therefore, it can conclude that due to the limited number of obligations, largely referring to mere reporting, the administrative burden remain limited.

7.3.Relevance

The evaluation of the effectiveness and efficiency of the Third Electricity Package showed that the new rules clearly had a positive effect on markets and for consumers. However, with a view to some fundamental changes in electricity markets since 2009, the evaluation needs to assess if the Third Package framework is still sufficient to deal effectively with future challenges of the sector.

7.3.1.The 2009 market design is not fully adapted to new market realities

-The 2030 targets imply that the share of electricity generated from RES is likely to reach up to 50% of electricity produced. Under which conditions can the current electricity market facilitate the integration of such increasing levels of RES, also considering that it is primarily decentralised?

Europe's power system is in the midst of profound changes. The European Union's policy to fight global warming requires the electricity systems to shift from a generation mix that is mostly based on nuclear and fossil fuels to a virtually decarbonised power sector by 2050 159 . This shift in the means employed to generate electricity from wind and solar has already started to take place and is expected to become still more pronounced towards 2030.

On the political side, a renewed commitment at both European and global level to decarbonize the economy means that the uptake of generation from renewable energy sources (RES) has been on an upward trend ever since, and is promised to increase further.

The physical nature of renewable electricity generation – more variable, unpredictable and decentralized than traditional generation – has important practical consequences for the way electricity is traded, priced, and how grid operators can operate the electricity grid in a safe and efficient manner. While at the time of the Third Package electricity was mainly produced in central, large-scale fuel-based power plants, a market design with a large part of electricity produced from variable wind and solar sources requires different rules. Effective short-term markets and prices that reflect actual scarcity played a minor role in the Third Package, but are now key for the functioning of the market. The Third Package clearly lacks rules for the development and functioning of short markets as well as rules that would enable the development of peak prices reflecting actual scarcity in terms of time and location.

Despite the importance played by market coupling since 2009 in the further integration of European markets (leading to price convergence and increase of exchanges between Member States), the Third Package does not mention market coupling. Similarly, power exchanges which play a critical role in the energy market are not addressed by the Third Energy Package.

Since variable energy production needs significant backup energy for times without wind and sun, cooperation in organising this backup across member states is crucial to save unnecessary costs for consumers. Also the safe management of the EU-wide connected electricity grid requires closer cooperation between grid operators. While some progress has been made in the Third Package on cross-border cooperation, notably with the creation of ACER and the ENTSOs, close regional cooperation between TSOs and regulators is a key feature of a "decarbonised" electricity market, and the current do not reap the full benefits of cooperation.

Equally dramatic changes have taken place on the technological side. Digitalisation of energy markets increasingly allows the use of so-called 'demand response' solutions, enabling industrial, business and household customers' demand to participate in electricity markets. However, the current legislation has not been effective in removing the primary market barriers especially for independent demand response service-providers and creating a level playing field for them. The same goes for insufficient EU-wide deployment of fit-for-purpose smart metering that can support novel energy services and products of value also to consumers as well as enable the consumers to take active participation in the market.

In addition, technological progress allows distribution system operators to reduce network investments by locally managing the challenges posed by increasing amounts of distributed RES E directly connected to distribution systems. However, outdated regulatory frameworks prevent them from operating more innovatively and efficiently.

In parallel, we have seen a partial comeback of state interventions as Member States began introducing new types of national schemes aimed at protecting existing generation. The most important such examples are support schemes for electricity produced from renewable energy sources and so-called Capacity Mechanisms (CMs). Sub-optimal rules to support renewable generation had the unintended effect to deter price signals or limit cross-border trade. State interventions also translated into higher transmission tariffs, ultimately neutralising the positive developments on wholesale electricity markets and driving up prices for end customers at the retail level. The volumes of electricity trade affected by such state interventions contracted under such mechanisms have increase significantly in the last years, with increasing impacts on functioning of the internal electricity market. Further, whilst the Third Energy Package contains provision on transmission tariffs, their level and design still differ significantly between Member States. This has the potential to distort price signals.

In addition, the worldwide financial and economic crisis in 2008 has depressed economic output - and therefore energy demand - in a way that had not been foreseen. This decline in energy demand, in combination with the politically intended decarbonisation of the generation fleet, had a significant effect on the business case of fuel-based generators and raised the question whether market arrangements are fit to deliver needed investments to decarbonize the economy on the required scale.

Overall, the rules of the Third Energy Package appear to be insufficient to cope with such current levels of RES. Different rules appear needed to ensure in particular the development of short term markets and the emergence of prices that reflect actually scarcity. Rules to ensure closer cooperation of grid operators are also insufficient as they stand.

7.3.2.The Third Package does not provide regulatory solutions to address perceived lack of investment into generation

-Does the market (still) provide a proper framework for investments in electricity assets? Are there barriers to investment, in particular in new technologies?

-Does the EU electricity market constitute a favourable investment climate for electricity assets? To what extent does it create a level playing field for investments in the operation of RES, conventional generation, demand response or storage?

Generation adequacy is not addressed in the Third Energy Package. Consequently, there are no common generation adequacy rules at EU level. However the Commission underlined in its Communication on public interventions that "even if it might be legitimate for generation adequacy standards to be different against the background of differing circumstances in Member States, the system reliability in interconnected markets is interdependent 160 ". This is why the Commission has felt the need to develop some guidance form Member States wishing to put in place generation adequacy measures through a Communication on State Aid Guidelines 161 .

The Interim Report of the sector inquiry on capacity mechanisms 162 conducted this year by DG Competition provides an analysis of the current investment climate in electricity generation. The increase in generation capacity coupled with decreasing demand have led to increasing gaps between peak demand and generation capacity, which points to overcapacity. This has in turn led to decreasing electricity wholesale prices since 2011.

"The generation capacity of new renewable energy usually has lower running costs than conventional coal- or gas-fired power plants. As a result the conventional power plants do not produce as often as they did in the past, especially in markets with a high proportion of renewable energy. The intermittent character of renewable sources of electricity creates uncertainty regarding the frequency of price spikes that help conventional technologies to recoup their investment costs."

In recent years, many unprofitable power plants plan to mothball and close. This is especially the case for flexible gas fired power plants that have become more expensive to run compared to less flexible lignite and coal.

Normally, well-functioning wholesale markets should provide price signals necessary to trigger the right investment, However, the ability of markets to do so is debated today because today's electricity markets are characterised by uncertainties as well as by a number of market and regulatory failures which affect price signals; These include low price caps, renewable support schemes, the lack of short term markets and lack of demand response operators.

Overall, the Third Energy Package does not ensure sufficient incentives for private investments in the new generation capacities and network because of the minor attention in it to effective short-term markets and prices which would reflect actual scarcity.

7.3.3.The significant increase in uncoordinated state interventions

-To what extent can the current regulatory and governance framework respond to the risk that, in an increasingly integrated market, national policies create negative spill-over effects?

State aid support in the field of energy has increased tremendously since the Third package was adopted. Indeed, EU Member States have primarily relied on dedicated policy instruments to support the deployment of renewables. These instruments take the form of operating aid or investment aid. In parallel, based on perceived or real generation adequacy concerns, several Member States have introduced generation adequacy measures. These measures often take the form of either dedicated generation assets kept in reserve or a system of market wide payments to generators for availability when needed, referred to as capacity mechanisms (CMs).

In 2009, state interventions concerning renewable energy support schemes or capacity mechanisms played a limited role in the market, as renewables accounted only for 19% of electricity produced in 2009 163 and CMs had been in place only in a limited number of countries. Since then this share has increased to 27.5% in 2014.

Today, renewable support schemes and capacity mechanisms disregard market rules (priority of dispatch, balancing exemptions, missing cross-border participation, etc.) leadsing to major malfunctions of the market.

On Capacity Mechanisms

Regarding capacity mechanisms, the Third package (Art 8 of the electricity directive) recognises the need for tendering of new capacity if markets are not able to deliver the right level of generation adequacy to safeguard security of supply. It provides a legislative framework for providing for new capacity or energy efficiency/demand-side management measures through a tendering procedure or any procedure equivalent in terms of transparency and non-discrimination.

Since variable energy production needs significant backup energy for times without wind and sun, cooperation in organising this backup across member states is crucial to save unnecessary costs for consumers.

As reflected in the Sector Inquiry on capacity mechanisms led by DG Competition, the heterogeneous development of capacity mechansims has led to fragmented markets across the EU. This is mainly due to the high degree of freedom the existing provisions leave to Member States as they are neither detailed nor instructive. The Sector Enquiry highlights that "The different types of capacity mechanisms are not equally well suited to address problems of security of supply in the most cost effective and least market distortive way."

In particular, these mechanisms may lead to distortions if their design affects natural price formation in the energy market (e.g. bids of energy) and therefore alter production decisions (operation of power generating plants) and cross-border competition 164 Capacity mechanisms may also influence investment decisions (investment in plants and their locations), with potential impacts in the long term 165 ..

CMs may also cause a number of competition concerns. In this respect, the DG Competition's Interim report on the Sector Inquiry identifies substantial issues in relation to the design of CMs in a number of Member States. First, many Capacity mechanisms do not allow all potential capacity providers or technologies to participate, which may unnecessarily limit competition among suppliers or raise the price paid for the capacity 166 . Second, capacity mechanisms are also likely to lead to over-compensation of the capacity providers – often to the benefit of the incumbents – if they are badly designed and non-competitive. In many Member States the price paid for capacity is not determined through a competitive process but set by the Member State or negotiated bilaterally between the Member State and the capacity provider. This creates a serious risk of overpayment 167 . Third, the inquiry revealed that capacity providers from other Member States (foreign capacity) are rarely allowed to directly or indirectly participate in national capacity mechanisms 168 . This leads to market distortions as additional revenues from capacity mechanisms remain reserved to national companies. This is particularly problematic in case of dominant national incumbents whose dominant position may even be strengthened by a national capacity mechanism. Lastly, although there is a challenge to design penalties that avoid undermining electricity price signals which are important for demand response and imports, where obligations are weak and penalties for non-compliance are low, there are insufficient incentives for plants to be reliable.

All in all, as reflected in the Sector Inquiry, "A patchwork of mechanisms across the EU risks affecting cross border trade and distorting investment signals in favour of countries with more 'generous' capacity mechanisms. Nationally determined generation adequacy targets risk resulting in the overprocurement of capacities unless imports are fully taken into account. Capacity mechanisms may strengthen market power if they, for instance, do not allow new or alternative providers to enter the market. Capacity mechanisms are also likely to lead to over-compensation of the capacity providers – often to the benefit of incumbents – if they are badly designed and non-competitive." All of these issues can undermine the functioning of the internal energy market and increase energy costs for consumers.

To conclude, given the widespread use of state aid in European electricity markets today and the potential for state aid measures to create market inefficiencies and distortions, the rules of the Third package remain important and relevant today; but to protect them and make them effective, new rules are necessary on market compatible RES support schemes and capacity mechanisms.

On RES support schemes and regulatory exemptions

In 2009, the majority of Member States were promoting renewable energy production either by green certificate regimes or quotas (23 Member States), or by feed-in-tariff system (21 Member States). Premiums were used in 7 Member States and tendering was not common practice at the time 169 .

Member States retained full discretion over their use of support schemes, including their design, structure and the level of support. The EU legislative framework, including the 2009 RES Directive 170 , provided no guidance on how or when using support schemes, nor even on their eventual revision or reform. As a result, each and every Member State provided its own support, used different models for support schemes and all Member States started off by excluding non-domestic renewables from access to the support schemes. Not all national support schemes were found to be equally efficient and responsive to market signals

When these limitations started to become apparent, the Commission issued Guidance on RES support schemes design and their reform in 2013 171 . The move towards more market-based support mechanisms was then further complemented by the Guidelines on State aid for Environmental Protection and Energy ('EEAG') 172 and both paved the way for the design of future support schemes, which should be market-based and granted through a competitive process. For this, the EEAG set two major deadlines in 2016 and 2017, respectively for market-based support and competitive bidding, which is already in place in 13 Member States 173 , 174

7.3.4.Increased interconnection and decarbonised market require closer TSO and NRA cooperation

-Does the current regulatory and governance framework still provide sufficient scope for fostering necessary market integration, and effective prevention of distortions and secure operation of the integrated electricity system?

Since the adoption of the Third Package in 2009, the increasing share of variable renewable energy sources and decentralised generation in the electricity mix resulting from the implementation of the 2020 and 2030 targets, together with closer market integration, especially in shorter market time intervals, resulting from the implementation of network codes and guidelines, have made system operation much more interrelated than it was in the past. Indeed, interconnection flows can vary hugely from one hour to another depending on weather and market conditions, impacting security of supply.

TSOs play an increasingly important role in facilitating market integration with processes such as capacity calculation or balancing markets where coordination across borders is essential. As analysed in the ACER Market Monitoring Report 175 , there is a high amount of cross-border capacities that remain unused even in case of significant price differences. The increasing volatility of flows might even deteriorate the situation if more efficient methods are not employed.

These evolutions require much deeper regional coordination of TSOs and NRAs.

As regards TSO regional coordination, driven by the lessons learnt from the serious electrical power disruption in Europe in 2006, European TSOs have pursued enhancing regional cooperation and coordination. To this end, TSOs have voluntarily launched Regional Security Coordination Initiatives in the recent years (the most prominent are Coreso and TSC, launched in 2008) covering a greater part of the European interconnected networks and aiming at improving TSO cooperation and maintaining or increasing security of operation of European interconnected networks. Moreover, in a multi-lateral agreement between all the European TSOs signed in December 2015, nearly all have agreed to make participation in these RSCIs obligatory.

The RSCI approach is widely recognised as a positive step forward and has been further formalised in European legislation with the new Commission Regulation establishing a guideline on electricity transmission system operation. The Guideline mandates the creation of Regional Security Coordinators (RSCs) covering the whole of Europe to perform five relevant tasks at regional level as a service provider to national TSOs.

Even with the creation of RSCs, the current framework for system operation is largely based on the national approach, given that it follows the design established during the times of existence of vertically integrated utilities, based on a national power system. This is also reflected by the fact that typically the network of each Member State is managed by one TSO, regardless of the geographical size of the country, valid for e.g. France and Slovenia.

The challenges the EU power system will be facing in the medium to long term are pan-European and cannot be addressed and optimally managed by individual TSOs, rendering the current legal framework concerning system operation unsuitably adapted to the reality of the dynamic and intermittent nature of the future electricity system and putting to question whether the mandated regional cooperation of TSOs via RSCs is fit for purpose in the post 2020 context.

The institutional framework currently applicable to the internal energy market as set out in the Third Package is based on the complementarity of regulation at national and EU-wide level. In view of the developments since the adoption of the Third Package as described above, the institutional framework, especially as regards cooperation of NRAs at regional level, will need to be adapted to ensure the oversight of entities with regional relevance (e.g., RSCs). Moreover, as the European energy markets are more and more integrated, it is crucial to ensure that ACER can function as swiftly and as efficiently as possible. In addition, the implementation of the Third Package has highlighted areas with room for improvement concerning the framework applicable to ACER and the ENTSOs.

7.3.5.Consumers participation and protection

-Does the current regulatory provide sufficient scope to ensure that final consumers can actively participate in the market, and are optimally protected?

At the time of drafting both the Second and Third energy packages, consumer bills and pre-contractual information formed the basis of consumer comparability, as consumers would be given the possibility to measure up individual offers against their current supply contract. Since then, the use of online comparison tools has risen significantly across the EU. Over time the continuation of this trend might challenge the relevance of the EU intervention if it is not adapted to also reflect new ways of consumer-market interaction.

Well-designed, reliable and transparent online comparison tools do the number-crunching necessary to accurately compare the costs of each offer for individual consumers. 64% of EU consumers who had compared tariffs of different electricity companies now say they had used comparison tools to do so. Behavioural experiments show that comparison tools significantly increase the number of cheaper offers consumers are able to identify compared with contacting individual providers directly.

In addition, rising energy prices and stagnant wage growth mean that there are growing levels of energy poverty within the EU. Since 2000 expenditure on energy services for the poorest households in the EU has increased by 50%, reaching almost 9% of their total budget on average. And in 2014, the gap in the share of expenditure spent on domestic energy services between the average and the poorest households increased to three percentage points 176 .

These developments have provoked strong political interest in the issues of consumer vulnerability and energy poverty, and may suggest that the existing provisions on these topics in the acquis need to be revisited to be relevant in the current context.

Consumer vulnerability will remain relevant as some drivers of vulnerability are permanent. Energy poverty problem is likely to grow in the future if no policy measures are adopted.

7.3.6.Distribution and flexibility

-Are the roles carried out by DSOs, and their incentives, still fit-for-purpose given the increased need to integrate variable distributed generation?

-Are the existing provisions for demand response ("demand-side management") sufficient for ensuring cost effective levels of flexibility?

DSOs

Developments in the retail market such as the deployment of smart metering systems and the increasing importance of data will call for a more active and neutral role of DSOs, and put into question the continued relevance of the existing legislation.

Whereas previously, larger-sized generation capacity was mainly connected to the transmission grid, RES-E is often smaller in scale and connected to the medium and low voltage grids. In meeting 2020 targets some Member States are already experiencing a high penetration of RES with an increasing number of the resources being variable (wind and solar). A large share of these resources in many cases is connected to distribution grids (low and medium voltage). According to available data this number is estimated to be as high as 90% (e.g. in Germany) 177 .

Technological progress allows distribution system operators to reduce network investments by locally managing the challenges this presents. However, outdated regulatory frameworks prevent them from operating more innovatively and efficiently. For example, EU provisions which aimed to enhance the DSOs position in using demand side management and energy efficiency measures in planning their networks were not proved to be effective. Also DSOs should be in a position to use innovative tools in order to avoid costly investments and operate their networks more efficiently in only few Member States. The resulting inflexibility of distribution networks significantly increases the cost, in particular terms of investment needs, for integrating larger RES E.

Figure 18: The level of electricity grid fees for households (DC band) in EU member states depending on the current share of RE electricity generation.

The increasing more decentralised connection of electricity production units will imply that distribution system operators will have to manage low and medium voltage grids more actively than previously, when such management was only required at the transmission system level.

There is a common view among DSOs and other stakeholders that in order for DSOs to cope with this increasing number of variable RES-E they should become more active in managing their networks. This would involve the use of flexible resources in order to alleviate short-term and long-term congestions. Moreover, it would require investments in smarter grid elements.

For more information see the Annex on DSOs.

The original objectives of current DSO unbundling requirements still correspond to the EU objective of a competitive internal energy market and given, the growing importance of DSOs, strong enforcement needs to continue.

The introduction of smart metering systems will generate more granular consumption data and new business opportunities in retail market. Moreover, the integration of more RES-E generation at distribution level will require a more active management of the network from DSOs. Even if current provisions partially cover those challenges, the circumstances have changed significantly since the adoption of the Third Package. Consequently, the upcoming market framework requires further definition of tasks for DSOs.

Demand-side response

The current EU legislation (Art 25.7 of the Electricity Directive together with Art. 15 of Energy Efficiency Directive) recognises the need to make electricity demand more flexible in order to enable the energy system to better cope with variable RES and new loads, as well as to reduce the need for related capacity investments. It provides a legislative framework for demand response, obliging Member States to ensure that demand response providers are treated in a non-discriminatory manner.

The evidence available generally suggests that these provisions have been less effective in achieving their stated objectives than intended. The provisions have not been effective in removing the primary market barriers especially for independent demand response service-providers and creating a level playing field for them. Instead the heterogeneous development of demand response has led to fragmented markets across the EU. This is mainly due to the high degree of freedom the existing provisions leave to Member States. As such, a host of market barriers exist in many Member States: The roles and responsibilities for aggregators are not defined, suppliers are able to prevent independent demand response service-providers from entering the market by not granting them access to their customers, and significant 'compensation' payments from aggregators to Balance Responsible Parties and/or suppliers risk to overcompensate those parties and diminish the business case for Demand Response.

As for consumers reacting directly to changes in retail prices (also referred to as price based (or implicit) demand response) there is no binding EU legislation in place, and dynamic price contracts for residential consumers are currently only widely available in four Member States. In the absence of this, two major barriers to enabling price based demand response have emerged: low access to fit for purpose smart meters and (relatedly) the lack of supply contracts with dynamic prices linked e.g. to the spot market.

Under the Electricity (and Gas Directives), MS have some discretion on the extent to which they roll out smart meters based on national Cost Benefit Analyses (CBAs). They only have the obligation to roll out smart meters for electricity to at least 80% of consumers by 2020 if these national CBAs are positive. This has contributed to the partial deployment of smart metering systems. To date, 19 Member States have committed to rolling out close to 200 million smart meters for electricity by 2020, meaning that up to 72% of EU consumers should have a smart meter by this date 178 . However, only 21% of consumers had smart meters as of 2014 (the latest reliable data we have from ACER), raising doubts over whether these national rollout plans are achievable.

Moreover, the legislative provisions in the aforementioned Electricity and Gas Directives are silent on the practicalities/specifications for reaching the ultimate requirement to roll-out systems that shall assist the consumers' 'active participation' in the energy supply market. There is therefore a risk that the systems being rolled-out may not be fit for purpose and not bring all the desired benefits to consumers and the market as a whole – including facilitating price- and incentive-based demand response.

Partly as a result of these deficiencies, price signals in real time are currently not passed to final consumers, resulting in inflexible demand patterns. This is also reflected in the slow uptake of demand response in Europe. According to recent analyses, the current theoretical demand response (or flexibility) potential accounts for approx. 100GW of which up to 40GW could be economically activated. However, currently only approx. 21 GW (predominantly in the industrial sector) are activated indicating that the demand response potential is underutilised.

In summary it can be concluded that the existing measures have been partly effective in removing barriers for the participation of industry in demand response but have not been effective in removing barriers for the participation of the residential and the commercial sector. This is of great concern as by 2030 demand response potential is expected to increase to approx. 160GW by 2030 with the increase mostly driven by the residential sector and the uptake of electric vehicles and heat pumps. As the existing provisions have not been efficient in removing barriers for the commercial and residential sector the gap between demand response potential and activated demand response is likely to further increase in the future unless those barriers are removed.

For a detailed analysis, see the Annex on Demand Response and Smart Metering Systems.

7.3.7.Security of Electricity Supply Directive

-To what extent is the intervention still relevant?

-Do the objectives of the Directive and related EU rules still correspond to the needs of security of electricity supply, taking into consideration the evolution of the electricity markets over the past 10 years?

The objectives that inspired the SoS Directive are still relevant for improving the security of electricity supply in Europe: (1) setting the conditions to facilitate a stable investment climate; (2) clarifying roles and responsibilities; (3) guaranteeing a safe and secure system operation; (4) maintaining the balance between supply and demand, and (5) appropriate regulatory framework for investments.

All these objectives also inspired the Third Package rules, which benefitted from the lessons learnt especially the 2006 blackout (that started in Germany and cascaded across Europe) and certainly improved Europe's preparedness to cope with crisis resulting from predictable events, such as those resulting from the unavailability of generation / transmission units or adverse weather conditions.

Since the 2006 blackout, Europe has luckily not experienced any widespread incident. The 2012 cold spell or the 2003 and 2015 heat waves had adverse impacts on the electricity sectors of some Member States (France, Poland), and those effects were sufficiently addressed at national level. In 2011, Cyprus suffered a serious emergency situation following an explosion in a military naval base which seriously damaged nearly all generation units of a nearby power station.

Well-functioning electricity markets offer the best guarantee for security of supply, both in the long term (by securing the necessary investments in networks and capacity) and in the medium and short-term (by securing an optimal matching of demand and supply). But the question arises: are internal market rules enough to guarantee the supply of citizens with electricity in any event and face to any risks?

The Third Package recognises that, in exceptional circumstances, market mechanisms and operational rules might not suffice, and therefore allows Member States to adopt safeguard measures "in the event of a sudden crisis in the energy market and where the physical safety or security of persons, apparatus or installations or system integrity is threatened". These safeguard measures need to be notified to the Commission, which may ask the MS to amend or withdraw the measures. Especially in case of simultaneous crisis, uncoordinated national safeguard measures can jeopardise the effectiveness of emergency and remedial actions taken at operational level, and the risk of cascading effect and a generalised black-out cannot be excluded.

The results of a recent study 179 show a fragmented and diverse framework in relation to obligations concerning security of supply. In particular, the existing practices differ across Europe regarding (a) monitoring and assessment of security of supply issues, (b) measures to deal with emergency situations and (c) definition of roles and responsibilities.

This patchwork of security of supply rules across Europe stands in stark contrast with the reality of today's interconnected electricity market. Whilst so far, electricity crises have been relatively limited, there is no guarantee that, where a cross-border incident occur, Member States will have to the tools to address it effectively and efficiently.

Whilst all Member States monitor and assess possible risks related to security of supply and take measures to prevent and mitigate such risks, national rules and practices turn out to be very different. First, Member States have different understandings of what constitutes a risk related to security of supply and methods for assessing and addressing such risks vary considerably. There is also no common agreement on what the desired level of security of supply should be. The study results indicate that 23 Member States describe and differentiate between various categories of risks, but the approach followed to assess them differs considerably across these states, and different actors are involved. Further, whilst most Member States have plans in place to prevent and deal with electricity crisis situations, the content and scope of these plans veries considerably. A majority of Member States provide a legal definition of emergency but with varying levels of detail. In addition, existing national plans tend to focus on the national situation only. Cross-border co-operation between Member States in the planning phase is scarce and where it takes place at all, it is often limited to co-operation at the level of TSOs.

The SoS Directive was conceived as a complement to the market rules, in the absence of a clear Treaty mandate on security of supply. Today, Article 194 of the Treaty on the Functioning of the European Union (TFEU) clearly states that the Union policy on energy shall aim, in the spirit of solidarity between Member States, to ensure security of energy supply in the Union. In practice, this means that Member States, system operators, the energy industry and all other stakeholders have the duty to work closely together to ensure a high-level of energy security for European citizens and companies, but also that Member States should be assured that in situations of tight supply, they can rely on their neighbours.

However, whilst electricity markets are increasingly intertwined within Europe, there is no common European framework on security of electricity supply. National authorities tend to decide, one-sidedly, on the degree of security they deem desirable, on how to assess risks and on what measures to take to prevent or mitigate them.

In their replies to the public consultation 180 , most of the respondents acknowledged that security of supply should be considered as a matter of common concern, because countries are increasingly dependent on one another and measures taken in one country can have a profound effect on what happens in neighbouring states and in electricity markets in general. They acknowledged that the SoS Directive does not offer the right framework for addressing this inter-dependence.

In the absence of clear rules and procedures, agreed in advance, on issues such as how to prevent and mitigate cyber-attacks, how to communicate across Member States in crisis situations, what measures to take to prevent a further deterioration of a critical situation, actions taken within one Member State can have serious negative effects elsewhere.

Therefore, it can conclude that the SoS Directive intervention is not relevant today as it does not match the current needs on security of supply. The current needs result from the clear TFEU mandate and, in particular, concerning risk preparedness to make sure that Member States are aware and duly prepared to security of supply risks, clarify roles and responsibilities in case of emergency and provide clear rules on the conditions under which Member States may adopt safeguard measures.

7.4.Coherence

Under this section the evaluation aims at verifying both internal and external coherence of the Third Energy Package. The former (internal coherence) includes consistency and interdependence of various regulatory measures adopted under the Third Package. The latter (external coherence, in turn, means checking coherence of the Third Package with other pieces of legislation relevant for the energy sector namely:

-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 ("RES Directive");

-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 ("Energy Efficiency Directive");

-Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment ("Electricity Security of Supply Directive").

7.4.1.Internal Coherence

-Are the various measures comprised in the Third Package properly working together or not?

-Does the ineffectiveness of certain measures compromise the effectiveness of other components?

General speaking, the Third Energy Package provisions are working together well.

However, the Commission has spotted several provisions which would need to be either deleted because obsolete or never used or modified because unclear or confusing.

More precisely, regarding ACER, the report prepared by ACER in 2014, "Energy Regulation: A Bridge to 2025 Conclusions Paper" 181 recommends that the Agency be given adequate powers to fulfil effectively the important monitoring responsibilities assigned to it in the ACER Regulation, in particular, in respect of information gathering. There seems to be a mismatch between the monitoring tasks and the powers of the Agency to request information from NRAs, TSOs, and ENTSOs.

Regarding ENTSO-E, some stakeholders who replied to the public consultation on the market design initiative mention a possible conflict of interest in ENTSO-E’s role – being at the same time an association called to represent the public interest, involved e.g. in network code drafting, and a lobby organisation with own commercial interests – and ask for measures to address this conflict. This could be considered as incoherence within the Electricity Regulation which entrust, in its Article 6, ENTSO-E to play a key role in the elaboration of the network codes, ENTSO-E being at the same time a representation of national TSOs which represent their own interests. This issue has also been underlined in the report prepared by ACER in 2014, "Energy Regulation: A Bridge to 2025 Conclusions Paper" 182 .

With regard to protection of vulnerable consumers, the main discrepancy between the Electricity and Gas Directive arises from Universal Services (Article 3 (3) of the Electricity Directive). The right to universal service does not exist for gas. This limits some provisions related to the protection of vulnerable consumers in the gas sector. Member States are not obliged to ensure certain protection to all vulnerable consumers, but only to those already connected to the gas system. The reason is that a piped gas network for consumers is not available throughout every EU MS.

The Third Package's provision on allowing regulated prices in specific cases adhere to difficulties with carrying out the overarching objectives of the EU regulatory framework: introducing competition and enabling consumer choice.

7.4.2.External Coherence

-To what extent is the Third Package coherent with other measures affecting the electricity sector, such as the Renewable Energy (RES) Directive, the Energy Efficiency Directive and the Electricity Security of Supply Directive?

Dispatch

The Third Package Electricity Directive sets out in its Article 32 the general principle of non-discriminatory access to the network. The system of access to the electricity network has to be based on tariffs which are applied without discrimination to all network users.

Similarly, the Electricity Directive of the Third Package contains in its Article 15 the general principle of non discriminatory dispatching. Dispatching of the electrcity produced by the different generators within a Member State must be dispatched in the network by the TSO on the basis of criteria approved by the NRA. These criteria may take into account economic precedence of electricty and should be applied in a non-disciminatory manner.

In terms of access to and use of the electricity grid, the Renewable Energy Directive lays down that Member States shall ensure that, priority access or guaranteed access to the grid-system of electricity produced from renewable energy sources is safeguarded. In terms of dispatching to the system, Member States must require system operators to ensure that when dispatching renewable energy electricity installation to the system, they have priority over other installations. Similarly, Member States may also require the system operator to give priority when dispatching generating installations producing combined heat and power (CHP). These measures – clearly aiming at encouraging within a Member State the development of renewable energy sources and CHP – is a positive discrimination in favour of renewable energy producers. Consequently, the general non-discriminatory access principle of the Third Package is contradicted by the priority access granted to renewables in the Renewable Energy Directive.

When the priority access provisions of the RES Directive were developped, renewables represented only a small proportion of installed generation capacity and these were a less mature technology. This special treatment was in a way justifiable and had a limited impact on the electricity system as a whole.

However, in view of the increasing share of RES E, this has resulted in a situation where in some Member States very high shares of power generation are coming from "prioritized" sources 183 . In view of the EU target for at least 27 % of renewable energies in final energy consumption (which according to PRIMES EuCo27 projections would require 47 % of gross final electricity consumption to come from renewable energy), the high share of priority dispatch and priority access-technologies will increasingly occur in other Member States.

This can have very significant impact on the well-functioning of the electricity market. It affects the level playing field between technologies, renders assets non-responsive to price signals and undermines the market's price signals and flexibility and the efficiency of the market outcome. Moreover, where the majority of assets benefit form priority dispatch, the mesure in effect becomes meaningless when viewed from the perspective of its intially intended objective and can have unintended negative effects, such as unnecessary curtailment of RES E.

Balancing

The principles applicable to balancing as set out in Article 15 of the Electricity Directive are similarly not in coherence with other existing rules and practices applicable in many Member States. Balancing responsibility refers to the obligation of market actors to deliver/consumer exactly as much power as the sum of what they have sold and/or purchased on the electricity market. Balancing responsibility implies that the costs of the balancing actions taken by the transmission system operator are generally to be compensated by the market parties which are in imbalance. Article 15 of the Electricity Directive requires that TSOs adopt rules on balancing which are non discriminatory. However, in some Member States, certain types of power generation (notably wind and solar, but possibly also other technologies) are excluded from this obligation or have a differentiated treatment. Whereas many Member States already foresee some balancing responsibility for RES generators (2013: 16 Member States) this is not yet the case for all Member States, and the degree of balancing responsibility differs considerably between Member States.

Demand response

The provisions of the Third Package on demand response are fully coherent with other legislative provisions within the electricity directive, the energy efficiency directive (EED), the renewable energy directive (RED) and the energy performance of buildings directive (EPBD). As all of those directives currently undergo revisions this coherence needs to be continuously ensured to allow demand response to a) enable the integrating of renewables efficiently into the electricity system in line with the RED, b) contribute to energy savings in line with the EED, c) participate as a resource in the electricity markets, d) be considered when capacity mechanisms are established, e) be supported under the distribution tariff design.

Smart metering

In terms of coherence – internally & with other EU actions – even though no clear contradictions could be pointed out, the evaluation has identified some room for improvement. Linking of the term 'actual time of use' in Article 9(2a) and Article 9(1) of the EED to smart metering provisions erroneously restricts the functional requirements of the targeted set-ups and raises questions about coherence with the framework for promoting smart meters. There is therefore a need to clarify that a wide range of functionalities is in fact promoted, as those recommended by the Commission, that go much beyond the capability of just 'actual time of use' information which usually refers to advanced, and not smart, metering. Moreover, to ensure coherence, avoid any further confusion and unnecessary administrative burden for updating the related provisions in different legislative documents, it is advised to consider that all existing requirements and any future legislative interventions on smart metering be consolidated/embedded in one single legal act.

Metering and billing

Whereas no direct contradictions with other provisions and actions have been identified, it may seem incoherent or at least confusing that, as explained above, the minimum frequency of billing is (qualitatively) regulated in the Electricity and Gas Directives and quantitatively regulated in the EED for all but smart electricity and gas meters. Most importantly, the latter (EED) results in what would seem to be an unjustified difference between those customers of electricity/gas and thermal energy forms, respectively, who have equipment allowing for automatic/remote readings: whereas customers with smart electricity or gas meters should expect to have at least monthly information (cf. the Commission's interpretation of the IEM provisions), consumers whose consumption is measured with "smart" heat meters or heat cost allocators are only entitled to information 2 or 4 times a year (assuming that the cost-effectiveness condition has not been used to deviate from it). It would seem more logical that where supplies are measured using remotely readable equipment, and where marginal costs of more frequent information are therefore very small, the minimum frequency would be the same regardless of the energy form, and that this be clearly spelled out.

7.4.3.Security of Electricity Supply Directive

-To what extent is this intervention coherent with other interventions which have similar objectives and with wider EU policy?

-In particular what is the coherence between this Directive and the provisions contained in the Third Package?

Many provisions of the SoS Directive have been superseded by more recent EU legislation, in particular the Third Package and the SoS Directive could therefore be considered as an intermediate step between the Second and the Third Package. The SoS Directive was not prescriptive, but rather set general principles that whould inspire Member States' policies on SoS.

Its provisions represented a forerunner for some measures that were later on developped in successive EU rules, as illustrated by the following references:

The need to define roles and responsibilities of competent authorities, NRAs, TSO and market actors (Article 3(1) SoS Directive), which is a basic requirement of the EU rules on the promotion of renewables, on energy efficiency and of the guidelines on energy infrastructures.

The possibilities for cross-border cooperation (Art. 3(2)(c) SoS Directive) are a essential feature of the third package, and in particular of the Electricity Regulation. They are in the essence of the infrastructure guidelines and can also play a role in the promotion of renewables (e.g. in the form of joint support schemes foreseen in Directive 2009/28).

The need for regular maintenance and, where necessary, renewal of the transmission and distribution networks, to maintain the performance of the network (Art. 3(2)(d) SoS Directive), is further elaborated among the TSOs duties in the Electricity Directive (as complemented by the Network Codes and Guidelines).

The importance of ensuring proper implementation of the EU rules on promotion of renewables and cogeneration (Art. 3(2)(e) SoS Directive).

The importance of encouraging energy efficiency and the adoption of new technologies, in particular demand management technologies, renewable energy technologies and distributed generation (Art. 3(3)(c) SoS Directive).

The importance of removing administrative barriers to investments in infrastructure and generation capacity.

Special attention deserves Article 4 of the SoS Directive, which deals with "Operational network security" and represents a truly "embryo" of what will become, more than a decade later, the EU Guidelines on System Operation and the Network Code on Electricity Emergency and Restoration.

The SoS Directive certainly anticipated later regulatory developments, without contradicting them, as shown by the fact that later rules did not required amending of repealing the Directive. To this extent, it can be considered as consistent with the remaining internal energy market rules, with the rules on energy efficiency and on promotion of renewables, as well as with the European guidelines on energy infrastructure.

However, a comparison of the SoS Directive with the equivalent rules existing in the gas sector raises strong coherence concerns.

In the gas sector, issues related to the security of supply "at broad" (understood as a natural consequence of a truly competitive energy market) are covered through the relevant internal market rules (Gas Directive and Gas Regulation). For its part, Regulation No 994/2010 184 , and to some extent also its predecessor (Directive 2004/67) 185 , directly adresses risk preparedness issues. In the terms of recital 3, "this Regulation aims at demonstrating to gas customers that all the necessary measures are being taken to ensure their continuous supply, particularly in case of difficult climatic conditions and in the event of disruption". Regulation No 994/2010 created a transparent mechanism, in a spirit of solidarity, for a coordinated response to an emergency at national, regional and EU levels. To this end, it provides for a definition of protected customers, it sets up common infrastructure and supply standards, it introduces the requirement to prepare risk assessments, preventive action plans and emergency plans and defines different crisis levels, among other provisions. All these provisions aim at increasing the degree of emergency preparedness at national and EU level in the gas sector. Regulation No 994/2010 is currently in the process of being reviewed, based on the experience. 186

Contrary to the gas sector, the SoS Directive limits itself to anticipate future market related developments but does not address risk preparedness as such.
The EU electricity sector therefore lacks a basic act that would enounce basic principles and impose basic obligati
ons and clear procedures aiming at guaranteeing coordinated response in case of emergency.

The absence of clear rules guaranteeing a coordinated action by all relevant players when it comes to preventing and managing crisis situations, seriously weakens the EU's ability to deal with large-scale electricity crisis situations. There is a stark contrast between the reality of today's electricity networks, which are increasingly integrated, and the fact that so far Member States identify risks and take action to manage and prevent them on a purely national basis, by reference to their own sets of rules and procedures.

While EU risk preparedness has evolved and improved over the past years in the gas sector, this has not been the case in the electricity sector.

This state of affairs can also lead to undue and unnecessary market interferences. In fact, Article 42 of Directive 2009/72/EC grants Member States wide powers to take safeguard measures in the event of a sudden crisis in the energy market. Such measures must cause the least possible disturbance in the functioning of the internal market and must not be wider in scope than is strictly necessary to remedy the difficulties. The provisions on safeguard measures were introduced in the internal energy market rules from the very beginning, but were never modified, and the current SoS Directive does not offer rules about the governance aspects linked to the safeguard measures and the necessary coordination in case of crisis.

As the SoS Directive was not prescriptive but rather set general principles on security of supply, it can be considered that the SoS Directive is consistent with other interventions which have similar objectives, in particular with the Third Package. However, the content and approach of the SoS Directive are not consistent with the EU rules on security of supply in the gas sector and therefore match only partially the current needs on security of supply in Europe, in particular concerning risk preparedness.

7.5.EU value added

This section aims to determine value resulting from the Third Package (as determined by ‘Effectiveness and Efficiency’ section) compared to what could have been achieved by Member States at national and/or regional levels. It includes the added value of the institutional bodies established at EU level by the Third Package: ENTSO-E and ACER.

7.5.1.Value added of EU market framework

-What is the additional value resulting from the Third Package compared to what could be achieved by Member States at national and/or regional levels?

Unbundling

The legal and functional unbundling of TSOs that were vertically integrated with production and supply activities, provided for under the Second Package, did not succeed in ensuring equal access to the networks for all suppliers. Reinforced common rules on TSO unbundling introduced by the Third Package in order to foster competition on the grid could only be adopted at EU level. If fragmented national rules had been in place, distortions would have emerged in the synchronised electricity grid in a similar way as today's fragmented state interventions distort the market. Common unbundling rules were needed to ensure a level playing field.

With regard to DSOs, the large majority of the Member States have not set unbundling requirements beyond those of the Electricity Directive, demonstrating that the intervention was necessary in order to structure the EU energy sector in such way so as to pursue the wider objectives of the internal market, to promote competition and economic growth.

Access to cross-border infrastructure

At the time the Third Package was adopted the legal framework did not allow for a proper and efficient regulation of the cross border issues relating to gas and electricity network access. The fact that access to cross border interconnectors was often granted in a preferential manner showed that rules were insufficient. This is why the Third Package aimed at a modification of existing EU legislation and at the creation of new frameworks for cross-border co-operation which could legally and practically only be achieved at the European level. The challenges could not be addressed as efficiently by individual Member States. Fostering a more efficient and integrated EU electricity market and ensuring a more co-ordinated policy response to security of supply clearly required harmonised and coordinated approaches by all Member States.

The increase in cross-border trade (see subsection 7.1 on Effectiveness) clearly shows that the Third Package has meant a major step in regulating cross-border interconnectors. This is clearly an issue that could only be regulated at EU level.

Similarly, as Member States' networks became increasingly interconnected via infrastructure, there was a clear need for more cooperation between neighbouring TSOs. This could clearly only be achieved by supranational measures. This is especially true as regards the need for a coordinated approach to infrastructure development in particular with relevance for security of supply. This has called for the development of ENTSO-E and the establishment of a ten year network development plan. The coordination rules for TSOs and NRAs introduced by the Third Package were needed to avoid fragmented uncoordinated decisions which could hamper the effective functioning of the internal market.

Metering and billing

In a single market for energy there is a strong case for suppliers being subject to similar if not identical obligations and rules, and for consumers to enjoy the same basic rights and be provided with comparable and recognisable information wherever they live and wherever they purchase their energy from. More generally, the delivery of a New Deal for energy consumers as part of the Energy Union includes providing consumers with frequent access to partially standardised, meaningful, accurate and understandable information on consumption and related costs. Guaranteeing certain minimum standards in terms of the frequency and content of billing and billing information therefore contributes to realising the Energy Union and meeting EU goals on energy efficiency and greenhouse gas reductions.

The provisions addressing consumer information in the Electricity and Gas Directives are essential for protecting consumers in the internal energy market at the retail level. They play an important role in ensuring the benefits of the internal market in energy can be enjoyed by all consumers, and help to create a level-playing field for suppliers and other retail market actors across the EU. Whereas there are currently still very few if any examples of cross-border supply in the retail market, a common base of energy consumer rights is a precondition for that to develop over time.

Customer protection

In terms of the EU added value, while some Member States had already been protecting their vulnerable energy consumers prior to the EU intervention, others have taken action as a result of the EU intervention.

Conclusions

Overall, it can be concluded that the subjects covered by the examined legislation such as unbundling, cross-border cooperation, interconnectors, are topics which legally and practically could only be regulated at EU level. Similarly cooperation between neighbouring TSOs and NRAs needed to avoid fragmented uncoordinated decisions. Regulation could only happen at supranational level.

Harmonised approach to metering and billing as well as consumer protection provisions safeguard the level playing field for suppliers and provide equal rights for energy consumers. It also facilitates providing cross-border services.

-What is the value added of ENTSO-E and ACER?

The regulatory framework and rule-making process for energy policy has been enriched in the Third Energy Package by creating ACER and ENTSO-E. ACER provides a framework for institutionalised cooperation between national regulators. ENTSO-E, in turn, constitutes a cooperation platform for transmission system operators.

Both ACER and ENTSO-E have become important partners in discussions on regulatory issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively. They are both crucial actors in the adoption process of the network codes. In its Communication Delivering the internal electricity market and making the most of public intervention, the Commission underlined that ACER and the ENTSOs have played a key role in the progress towards a functioning internal energy market. The Commission recently made an evaluation on the first years of functioning of ACER and has concluded that the agency has become a credible and respected institution playing a prominent role in the EU regulatory arena and focusing on the right priorities 187 .

An external evaluation of ACER was conducted in 2014 188 . It concluded that ACER’s governance and management structure is widely considered to be appropriate for the Agency's current role. It also concluded that the Agency’s working methods represent significant value added thanks to numerous informal interactions with associations and other stakeholders. Also their on-going publishing of all relevant documents is highly appreciated from the market participants. In 2014 the vast majority of stakeholders consulted for this ACER evaluation reported the Agency to be understaffed. However, the Agency was able to carry out most of the activities planned in the work plans. The report also concluded that deliverables produced by ACER bring value to all stakeholders by informing them of key market and regulatory developments.

As regards ENTSO-E, improving security of supply by strengthening incentives for investment in transmission and distribution capacities required a tighter cooperation between national TSOs. Through the setting up of ENTSO-E, the Third Package made this cooperation easier and smoother. Such an EU-wide structure could only be created thanks to EU intervention.

However, the implementation of the Third Package has highlighted the existence of a number of shortcomings concerning the framework applicable to ACER and the ENTSOs. See notably section 7.1.1 on the need to reinforce the independence and transparency requirements applicable to this ENTSO-E and the possible conflict of interest in ENTSO-E’s role.

Also, it is important to note that ACER acts primarily through recommendations and opinions. As pointed out above, the agency has limited decision-making powers. However, in some instances, fragmented national regulatory oversight has proved to be inefficient for cross-border issues related to the electricity and gas system (e.g. market coupling).The lack of a stronger governance and regulatory framework for cross-border issues constitutes a barrier for the integration of the energy markets. 189 In this regard, there is consensus among market parties and stakeholders that ACER should indeed be enabled to more efficiently oversee the development of the internal energy market and deal with cross-border issues.

The 29th meeting of the European Electricity Regulatory Forum of 9 October 2015 underlined, as a conclusion, "the need for analysing and further elaborating the roles, tasks, responsibilities and consider possible governance structures of ACER and ENTSO-E" and stressed "the need to observe and consider possible governance structures for other bodies, including DSOs and power exchanges, and for NEMO cooperation." 

Overall, ACER and ENTSO-E have become key partners in discussions on regulatory issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively. However, a number of shortcomings concerning their framework have been identified which need to be resolved.

7.5.2.Security of Electricity Supply Directive

-What is the additional value resulting from the EU intervention compared to what could have be achieved by Member States at national and/or regional levels in the absence of the Directive?

As already explained (mainly under the effectiveness criterion), the provisions of the SoS Directive, as such, were quickly superseded by successive EU rules and they therefore had a limited impact on Member States policies. One can therefore argue that, to the extent that the SoS Directive anticipated what would become the Third Package, the added value resulting from this intervention is close to zero (as the relevant Member States policies were based on the Third Package provisions and would have been the same in the absence of the SoS Directive).

Beyond those rules which were already overtaken by the Third Package, the SoS Directive limited itself to providing a very general framework on security of electricity supply, and left it by and large to Member States to define their own security of supply standards. This has resulted in a pachwork of security of supply rules across Europe which make difficult to compare the situation in the different Member States, limit cooperation and imperil trust and confidence in neigbhouring Member States. Unco-ordinated approaches to security of supply may also distort the internal electricity market (e.g premature market intervention) and put at risk the security of supply of neighbouring Member States (e.g. export bans).

As mentionned when assessing the coherence criterion, the SoS Directive failed to adress risk preparedness issues. The conclusions of the fact finding Study carried out to analyse risk preparedness rules and practices in the EU describe the constellation of national approaches in this area:

Although all twenty-eight Member States have a general obligation to monitor the security of electricity supply, only nine countries have a explicit legal obligation to carry out a risk assessment. National entities responsible for risk assessment and role allocation vary across the Member States.

Not all Member States define the types of risks or they do so in a (very) general manner. There exists a patchwork of types of risks covered under the assessments in the Member States, and they are described in various levels of detail.

Research shows a fragmented and diverse framework on security of electricity supply. While all Member States take into account risk preparedness considerations to some extent, the fact is that only ten Member States set clear obligations to draw up risk preparedness plans.

While TSOs have, in general, a central role in the adoption of risk preparedness plans or measures, the responsible national entities and TSOs exact role varies significantly.

The type of preventive measures envisaged varies significantly across Member States. The large majority of countries focus on the adoption of market measures in their preventive framework (primarily measures directed at supply / demand, operational security and energy efficiency). In seven other countries, the information available does not allow for a categorisation of measures.

The time horizons covered by the different measures vary significantly across the Member States and no overall trend can be identified; they can vary from one year to fifteen years. Some Member States set no limits of validity for their measures, others have a system of continuous updates while at least eleven countries do not specify time horizons.

The study could not identify any formal bilateral agreements at Ministerial level (only at TSO level).

There is no common definition of "emergency". This could potentially lead to disparate reactions of Member States in various emergency events.

Market suspension measures are foreseen in all Member States by national legislation or operational plans but to different extents. This could potentially lead to dissimilar responses between Member States, which could potentially have consequences for neighbouring countries. In some countries, limitations to cross-border trading capacities are foreseen. Two Member States specifically include explicit legal provisions (law or regulation) on export bans.

The results of this Study are conclusive about the lack of a coordinated approach in the Union on security of supply and risk preparedness, as well as about the heavy consequences that differing rules and practices may have in case of emergency. The SoS Directive did not contain any specific rule on risk preparedness and coordination; as for the monitoring and reporting obligations, they were understood by Member States in such a narrow way that the Commission lacked the relevant information and had to contract an ad hoc fact finding study in order to get the right picture on the risk preparedness policies in the 28 Member States.

The results of the public consultation confirmed the need for further action at EU level to harmonise Member States approaches possibly through the preparation of risk preparedness plans based on common templates, to make sure that each Member State takes appropriate security of supply measures and cooperates with and takes account of others, in line with the Energy Union objectives.

It can be concluded that the added value of the SoS Directive has been very limited as it created a general framework but left it by and large to Member States to define their own security of supply standards. This has resulted in a patchwork of security of supply rules across Europe. Having the SoS Directive in place has no added value, both from the perspective of the internal market rules and from the perspective of the risk preparedness..

7.5.3.Assessing the case for continuing EU-intervention

-To what extent do the objectives addressed by the Third Package and the SoS Directive continue to require EU-intervention?

Despite the positive developments generated by the examined legislation, there is still very limited coordination between national TSOs, often restricted to very specific subjects or situations. Similarly, there is still very limited use of cross-border capacity in increasingly important areas such as RES aggregation and generation adequacy.

Indeed, the recent increase of decentralised electricity generation and RES calls for continued EU action to to improve the functioning of the internal electricity market and enable maximum cross-border trading to happen. Further EU-action is also necessary in order to enhance the transparency in the functioning of the electricity markets and avoid discrimination between market parties.

Today's uncertainty about future investments in generation capacity and uncoordinated government interventions also calls for continued EU action.

In relation to SoS, the necessity of EU action is based on the evidence that uncoordinated national approaches not only lead to the adoption of suboptimal measures but that they also make the impacts of a crisis more accute. Given the interdependency between the electricity systems of Member States, the risk of a blackout is not confined to national boundaries and could directly or indirectly affect several Member States. Therefore, the actions SoS and crisis situations cannot be defined only nationally, given the potential impact on the level of security of supply of a neighboring Member State and/or on the availability of measures to tackle scarcity situations.

National policy interventions in the electricity sector have direct impact on neighbouring Member States. This even more than in the past as the increasing cross-border trade, the spread of decentralised generation and more enhanced consumer participation increases spill-over effects. No State can effectively act alone and the externalities of unilateral action have become more important. This clearly calls for a continuation of EU action to reach the objectives of the Third Energy Package and of the SoS Directive.

8.Conclusions

In this evaluation the Commission services have assessed if the Third Energy Package and the Security of Electricity Supply Directive are fit for purpose by examining their performance against five criteria: relevance, effectiveness, efficiency, coherence and EU added value. The results of the evaluation will be used by the Commission to inform future decisions in relation to EU energy policy. In particular, this evaluation provides the basis for the impact assessment for the initiative to review the existing EU electricity market design rules, including the creation of a new framework on security of electricity supply (the Market Design Initiative).

The main results of the Evaluation can be summarised as follows:

Effectiveness

The various public consultations conducted as well as the studies used provide a good picture of the effectiveness of the analysed legislation. Based on these elements it can be concluded that the reinforcement of unbundling requirements has had a positive effect on competition with new players entering the electricity market. However in some Member States the incumbent still holds a dominant position. Market integration has improved with a clear increase in cross-border trade since 2009. However, uncoordinated state interventions and inefficient use of interconnectors still constitute obstacles to further integration. Cooperation between TSOs and regulators through ENTSO-E and ACER respectively has improved, but remains insufficient.

On the retail side, competition still needs to significantly improve to ensure that the full benefits of market integration are passed on to EU consumers. Our evaluation has identified price regulation as one of the major reasons for status quo or little progress in this area. Consumer protection provisions in the analysed legislation prove to be partially fit for purpose. Member States have defined the notion of vulnerable consumers and adopted measures to protect them. However, their protection is uneven between Member States. Energy poverty is growing across the EU. On this point, it appears that data is lacking in order to fully analyse the scale and the drivers of energy poverty.

The evaluation also concludes in the ineffectiveness of the SoS Directive in achieving the objectives pursued. Regulatory gaps exist as regards monitoring, exchange of information and insufficient investment. However, most of these gaps have already been address in subsequent EU regulatory measures.

Efficiency

There is limited quantitative information available at the EU scale to underpin an assessment of administrative burden and, more generally, of efficiency of the legislation analysed. Overall, it can be concluded that the new rules of the Third Energy Package have generated additional administrative costs for undertakings and regulators. However these are not perceived as too heavy by stakeholders and appear to be counterbalanced by the benefits they generate notably through the increase in competition in the sector.

On security of electricity supply, the evaluation also concludes that due to the limited number of obligations of the SoS Directive, largely referring to mere reporting, the administrative burden remain limited.

Relevance

Electricity markets have changed significantly in the last five years, with variable renewable energy production becoming increasingly important. The market-oriented rules of the Third Energy Package are still highly pertinent to cope effectively with the challenges of the new market. Market-based energy prices that are able to take into account the rapid changes of demand and response and cross-border trade are even more crucial than in 2009. However, the existing rules are not sufficient to cope with the increasing levels of variable renewable generation. Different rules are needed to ensure in particular the development of short term markets and the emergence of prices that reflect actual scarcity. The market design of the Third Energy Package does also not ensure sufficient incentives for private investments in new generation capacities. Regarding the institutional framework, it appears that the challenges the EU power system will be facing in the medium to long term are regional or pan-European and cannot be addressed and optimally managed by individual TSOs, rendering the current legal framework concerning system operation unsuitable The institutional framework, especially as regards cooperation of NRAs at regional level, will need to be adapted to ensure the oversight of entities with regional relevance (e.g., RSCs). Moreover, as the European energy markets are more and more integrated, it is crucial to ensure that ACER can function as swiftly and as efficiently as possible.

In the area of retail markets and consumer empowerment, the objective of enabling consumers to actively participate in the market will remain the key, multi-dimensional challenge. Firstly, with regard to ability to react to price signals, existing measures have been partly effective in removing market barriers for the participation of industry in balancing and flexibility services, including demand response; but have not been effective in removing barriers for the participation of the residential and the commercial sector. Secondly, further progress is needed in the area of billing information, comparison tools and consumers' ability to easily switch suppliers. In consequence smart metering deployment – a key development facilitating consumer empowerment in the above-mentioned areas – remains a very relevant policy area. Also, the functions of DSOs need further definition and enhanced regulatory oversight in order to deploy inter alia local flexibility markets and non-discriminatory management of consumer data. Progress towards lifting regulated prices blocking competition and consumers' choice should also continue. Last, but not least, consumer vulnerability will remain relevant as some drivers of vulnerability are permanent.

The SoS Directive intervention is no longer relevant today as it does not match the current needs on security of supply. The current needs result from the clear TFEU mandate and, in particular, concerning risk preparedness to make sure that Member States are aware and duly prepared to security of supply risks, clarify roles and responsibilities in case of emergency and provide clear rules on the conditions under which Member States may adopt safeguard measures.

Coherence

General speaking, the Third Energy Package provisions are working together well. However, the Commission has spotted several provisions which would need to be either deleted because obsolete or never used or modified because unclear or confusing.

The general non-discriminatory access principle and non discriminatory dispatching of the Third Package is contradicted by the priority access granted to renewables in the Renewable Energy Directive.

Regarding the SoS Directive, it was not prescriptive but rather set general principles on security of supply. It can be considered that the SoS Directive is consistent with other interventions which have similar objectives, in particular with the Third Package. However, the content and approach of the SoS Directive are not consistent with the EU rules on security of supply in the gas sector, and therefore match only partially the current needs on security of supply in Europe, in particular concerning risk preparedness.

EU-added value

Overall, the needs and rationale for EU level action through the electricity legislation remain valid. The transnational nature of the subjects covered such as cross-border cooperation and interconnectors justify EU level action as an effective way to achieve the objectives of the Third Energy Package. These are topics which legally and practically could only be regulated at EU level. Similarly cooperation between neighbouring TSOs and NRAs needed to avoid fragmented uncoordinated decisions.

ACER and ENTSO-E have become key partners in discussions on regulatory issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively. However, a number of shortcomings concerning their framework have been identified which need to be resolved.

EU-wide framework for introducing competition on retail markets and enabling consumers' choice is beneficial for providing level playing field for energy generators and suppliers as well as to benefit the consumers. It also facilitates providing cross-border services.

Regarding the SoS Directive, its added value has been very limited as it was quickly superseded by the Third Package and only created a general framework but left it by and large to Member States to define their own security of supply standard. Whilst electricity markets are increasingly intertwined within Europe, there is still no common European framework governing the prevention and mitigation of electricity crisis situations. National authorities tend to decide, one-sidedly, on the degree of security they deem desirable, on how to assess risks (including emerging ones, such as cyber-security) and on what measures to take to prevent or mitigate them. Having the SoS Directive in place has no added value, both from the internal market perspective and from the perspective of the risk preparedness.



Annex 1 – Procedural Information

DG ENER is leading this evaluation.

Reference to Evaluation Roadmaps: AP 2015/ENER/061 190 and AP 2016/ENER/032 191 .

The Commission has conducted a number of wide public consultations on the different policy areas covered by the present evaluation which took place between 2014 and 2016. In addition to the public consultations, it has organised a number of targeted consultations and workshops with stakeholders throughout 2015 and 2016 192 . 

A wide public consultation 193 on a new energy market design (COM(2015)340 was conducted from 15 July 2015 to 9 October 2015. It was open to EU and Member States' authorities, energy market participants and their associations, SMEs, energy consumers, NGOs, other relevant stakeholders and Citizens This public consultation aimed at obtaining stakeholder's views on: on the issues that may need to be addressed in a redesign of the European electricity market. These issues include: (i) improvements to market functioning and investment signals; (ii) market integration of renewables; (iii) linking retail and wholesale markets (iv); reinforcing regional coordination of policy making, between system operators and of infrastructure investments; (v) the governance of the internal electricity market; and, (vi) an European dimension to security of supply. A summary of the responses is available on the Commission's website 194 . This public consultation served as a basis for this evaluation as it put into light the shorthcomings of the current legislative framework.

A public consultation on risk preparedness in the area of security of electricity supply was organized between July 15th and October 9th 2015 and resulted in 75 responses including public authorities, international organizations (IEA), European bodies (ACER, ENTSO-E) and most relevant stakeholders – companies and associations. This public consultation aimed at obtaining stakeholder's views in particular on how Member States should prepare themselves and co-operate with others, with a view to identify and manage risks relating to security of electricity supply. A summary of the responses is available on the Commission website. 195 This consultation helped to identify the current shortcoming of the Electricity Security of Supply Directive.

Generation adequacy related issues were also the subject of a public consultation conducted from 15 July 2015 to 9 October 201515 November 2012 to 7 February 2013 through the "Consultation on generation adequacy, capacity mechanisms, and the internal market in electricity". It was open to EU and Member States' authorities, energy market participants and their associations, and any other relevant stakeholders, including SMEs and energy consumers, and citizens. It aimed at obtaining stakeholder's views on ensuring generation adequacy and security of electricity supply in the internal market. A summary of the responses is available on the Commission's website.  196  

A public consultation dedicated to retail energy markets 197 was conducted from 22 January 2014 to 17 April 2014. It was open to all EU citizens and organizations including public authorities, as well as relevant actors from outside the EU. This public consultation aimed at obtaining stakeholder's views on the functioning of retail electricity and gas markets with focus on market functioning, design and consumer participation (demand response, self consumption). A summary of the responses is available on the Commission's website. 198

Several reports and Communications have been used the draft the present evaluation, inter alia:

-"Delivering the internal electricity market and making the most of public interventions" (C(2013) 7243). This Communication was accompanied inter alia by a Commission Staff working document (SWD(2013) 438) entitled "Generation Adequacy in the internal electricity market – guidance on public intervention";

-Communication on the "Progress towards completing the Internal Energy Market" COM(2014) 634 final. This Communication emphasized that energy market integration has delivered many positive results but that, at the same time, further steps are needed to complete the internal market.

-Special Report by the European Court of Auditors "Improving the security of energy supply by developing the internal energy market: more efforts needed". This special report made nine recommendations to reap the benefits of market integration 199 ;

-Interim report of the sector inquiry on capacity mechanisms, accompanied by a Commission Staff working document (SWD(2016) 119 final). The interim report points out that there is a lack of proper and consistent analysis of the actual need for capacity mechanisms. It also appears that some capacity mechanisms in place could be better targeted and more cost effective. It emphasizes the need to design capacity mechanisms with transparent and open rules of participation and a capacity product that does not undermine the functioning of the electricity market.

No external expertise was used except for the external studies mentioned in footnotes in the text.

Annex 2: Stakeholder consultation

For the a detailed description and summary of the stakeholder consultations used for this evaluation, please refer to Annex 2 of the Impact Assessment on the Market Design Initiative.

(1) See in detail the Commission's "Better Regulation Guidelines", SWD(2015)111 of 19.5.2015.
(2) http://ec.europa.eu/smart-regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf Evaluation Roadmap " Evaluation of aspects of the regulatory framework of the EU electricity markets – AP 2015/ENER/061";  
(3)

 Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment, OJ L 33, 4.2.2006, p. 22–27.

(4) http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf Evaluation Roadmap " Evaluation of the Directive 2005/89/EC on security of electricity supply – AP 2016/ENER/032";
(5)  European Commission (2016), ' Second Consumer Market Study on the functioning of retail electricity markets for consumers in the EU ',
(6)  Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC OJ L 211, 14.8.2009, p. 94–136 ("Gas Directive") and Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 OJ L 211, 14.8.2009, p. 36–54 ("Gas Regulation").
(7)  See e.g. Articles 5-9 of the Electricity and Gas Regulations. Parallel provisions can also be found in the Directives, see e.g. Articles 4, 5, 6 and 39 of the Electricity Directive and the corresponding Articles 5, 7, 8 and 43 of the Gas Directive.
(8)  Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency, OJ L 326, 8.12.2011, p. 1–16
(9)  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, OJ L 115, 25.4.2013, p. 39–75
(10)  Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management, OJ L 197, 25.7.2015, p. 24–72
(11)  Commission Regulation (EU) 2016/631 of 14 April 2016 establishing a network code on requirements for grid connection of generators, OJ L 112, 27.4.2016, p. 1–68
(12)   http://ec.europa.eu/smart-regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf
(13)  http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf
(14) See (2012 monitoring report; 2014 Monitoring Report; Energy Union Communication 2015); "Report on the progress concerning measures to safeguard security of electricity supply and infrastructure investment" COM (2010) 330 final.
(15) http://ec.europa.eu/energy/sites/ener/files/documents/1_EN_ACT_part1_v11.pdf  
(16) https://ec.europa.eu/energy/sites/ener/files/documents/1_EN_ACT_part1_v8.pdf  .
(17) https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-supply of 15 July 2015
(18) https://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market .
(19) The participants are national regulatory authorities, Member States, the European Commission, transmission and distribution system operators, electricity traders, consumers, network users, and power exchanges. The Forum convenes once or twice a year.
(20) Commission's legislative initiative on "market design and regional electricity markets, and coordination of capacities to ensure security of supply, boosting cross-border trade and facilitating integration of renewable energy, including review of the Agency for the Cooperation of Energy". Agenda Planning reference: 2016/ENER/007.
(21) Agenda Planning reference: 2016/ENER/026.
(22)  The Directive provided for a partial market opening, giving new energy suppliers a possibility to transport their energy on grids owned by the incumbent companies, under conditions to be negotiated with the incumbent (so-called “negotiated Third Party Access”). The biggest consumers (e.g. industrial consumers) were given the right to choose their supplier. Knowing about the incentives of suppliers to use their grids to avoid competition, the Directives also required grid owners to create separate accounting for their grid business, and to nominate a dedicated management for their grids which should not be active in production/supply businesses (“management and accounting unbundling”). Member States were obliged to provide for basic regulatory oversight of these rules.
(23)  The Second Package replaced the right for grid owners to negotiate grid access rules freely with potential grid users and introduced regulated Third Party Access rules. For this purpose, every Member State had to create national energy regulators to determine grid access tariffs and other access conditions, and to better detect discriminating practices by incumbents- The new Package also reinforced the existing loose unbundling rules by imposing a legal separation between grid and production/supply business (legal unbundling”). It also prescribed a mandatory path for full market opening until 2004 (for non-household customers) and 2007 (for household customers).
(24) http://ec.europa.eu/competition/sectors/energy/2005_inquiry/index_en.html  
(25) See also: Impact assessment for the Third Package (SEC(2007) 1179/2)
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52007SC1179
(26)  See in this context also the numerous antitrust investigations of the Commission between 2006 and 2009, identifying systematic problems of network foreclosure and ineffective unbundling rules (see eg. cases .g. E.ON http://europa.eu/rapid/press-release_IP-09-1099_en.htm or RWE http://europa.eu/rapid/press-release_MEMO-07-186_en.htm?locale=en ).
(27)  COM (2006) 841, Communication from the Commission, Prospects for the internal gas and electricity market.
(28)  In a vertically integrated company multiple steps in the typical distribution process are consolidated. In other words, a vertically integrated company performs tasks of a producer, distributor and retailer.
(29)  Article 33 of the Electricity Directive and Article 37 of the Gas Directive
(30)  As stated in paragraph (2) of the Directive 2003/54/EC concerning common rules for the internal market in electricity, which says that "important shortcomings and possibilities for improving the functioning of the market remain, notably concrete provisions are needed to ensure a level playing field in generation and (..) ensuring that the rights of small and vulnerable customers are protected (…)."
(31)  COM (2010) 2020, Communication from the Commission, Europe 2020, A strategy for smart, sustainable and inclusive growth.
(32)  Directive 2003/54/EC of the European Parliament and the Council of 26 June 2003 concerning common rules for the internal market in electricity OJ L 176, 15.7.2003, p.37
(33)  For more details about the baseline situation on Security of Supply, see the "Note of DG Energy & Transport on Directives 2003/54/EC and 2003/55/EC on the Internal market in Electricity and Natural Gas – Measures to secure electricity supply", dated 16/01/2004.
(34) Commission Staff Working Paper, Extended Impact Assessment, (COM(2003) 740 final).
(35)  Directive 2005/89/EC was to be implemented by 24th February 2008. By then, the Commission had already adopted its proposal for a Third Package (that would be adopted in 2009) and new guidelines for trans-European energy networks (TEN-E) were in place, introducing the concept of 'project of European interest' and strengthening project coordination (Decision No 1364/2006/EC of the European Parliament and of the Council of 6 September 2006 laying down guidelines for trans-European energy networks and repealing Decision 96/391/EC and Decision No 1229/2003/EC).
(36)  Transmission System Operators (“TSOs”) are high voltage/high pressure grids which transport the main electricity over long distances. Distribution System Operators (“DSOs”) are usually smaller grids, often at regional or local level, mainly for the distribution to end customers. Unbundling requirements exist also for DSOs (basically legal, functional and accounting unbundling for all TSOs with more than 100000 customers).
(37)   https://ec.europa.eu/energy/sites/ener/files/documents/2010_01_21_the_regulatory_authorities.pdf
(38) The issue of billing is also addressed by Energy Efficiency Directives (addressed in this evaluation in order safeguard coherence), as well as in the Renewable Energy Directive (addressed in the REFIT for that Directive).
(39)

 A regulated supply price is considered as a price subject to regulation or control by public authorities (e.g. governments, NRAs), as opposed to being determined exclusively by supply and demand. This definition includes many different forms of price regulation, such as setting or approving prices, standardisation of prices or combinations thereof. 

(40)  The Court of Justice has ruled that supply prices must be determined solely by supply and demand as opposed to State intervention as from 1 July 2007 (See: Case C-265/08, Federutility and others v Autorità per l’energia elettrica e il gas). The Court based its interpretation on the provision stating that Member States must ensure that all customers are free to buy electricity/natural gas from the supplier of their choice as from 1 July 2007 (Article 33 of the Electricity Directive and Article 37 of the Gas Directive interpreted in light of the very purpose and the general scheme of the directive, which is designed progressively to achieve a total liberalisation of the market in the context of which, in particular, all suppliers may freely deliver their products to all consumers.
(41)  These provisions were then complemented with provisions under the Energy Performance in Buildings Directive 2010/31/EU, and the Energy Efficiency Directive 2014/32/EU which amongst others added demand response as a specific means for energy efficiency benefits via novel energy services based on smart metering data.
(42)  SEC(2007) 1179/2 Commission Staff Working Document, Accompanying the legislative package on the internal market for electricity and gas COM(2007) 528 final, COM(2007) 529 final, COM(2007) 530 final, COM(2007) 531 final, COM(2007) 532 final, SEC(2007) 1180, Impact Assessment, page 91-92.
(43)  Supra note.
(44)   https://ec.europa.eu/energy/en/topics/markets-and-consumers/single-market-progress-report
(45)  See the list of the studies with reports carried out for the European Commission in the field of energy market https://ec.europa.eu/energy/en/studies?field_associated_topic_tid=42  
(46)  However, problems in the implementation, such as the difficulties amongst Member states to agree on network codes, provided evidence in itself which was used for the evaluation.
(47)  For some aspects concerning supplementary evidence, only preliminary results were available at the time of the Evaluation; however, since more than one study was investigating main issues (for example competitiveness or liquidity of short-term markets), the robustness of the Evaluation was not put into question.
(48)   https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
(49)  The Commission issued two Communications - (COM(2015) 340 Final) "Launching the public consultation process on a new energy market design" and (COM(2015) 339 Final) "Delivering a new deal for energy consumers" – as well as a public consultation on risk preparedness in the area of security of electricity supply
(50)   https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-supply
(51)   https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
(52)  Review of current national rules and practices relating to risk preparedness in the area of security of electricity supply, prepared by VVA for DG Energy. (Contract ENER/B4/ADM/2015-623/SI2.717165).
(53)  Interpretative notes are available at http://ec.europa.eu/energy/en/topics/markets-and-consumers/market-legislation .
(54)   EU Pilot is a scheme designed to resolve compliance problems without having to resort to infringement proceedings. It is based on a website which the Commission and national governments use to share information on the detail of particular cases, and give governments a chance to remedy any breaches through voluntary compliance.
(55)  BG, HR, CY, DK, FR, UK, EL, HU, IT, LT, LI, MT, PL, PT, RO, SI, ES.
(56)  And other comparable customers such as SMEs, schools, hospitals etc.
(57)   https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex6_0.pdf . Figures presented here are updated, to the extent necessary.
(58) The note was sent to Member States and is not publicly available.
(59)  COM (2010) 330 final, Report on the progress concerning measures to safeguard security of electricity supply and infrastructure investment. http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1467289040003&uri=CELEX:52010DC0330  
(60)  The application date for the unbundling requirements, as set out in Article 9(1) of Electricity Directive.
(61)  This includes draft certifications by which a transmission system operator previously certified under the ITO or ISO model was re-certified under the OU model.
(62)  The Commission Opinions are available on the website of DG Energy under the following link: https://ec.europa.eu/energy/sites/ener/files/documents/certifications_decisions.pdf
(63)   https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex3.pdf
(64)  See e.g. Communication from the Commission, Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors (Final report), COM(2006) 851 final, 10.1.2007http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52006DC0851 and DG Competition report on energy sector inquiry (SEC (2006)1724, 10.1.2007 http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52006SC1724 http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52009XC0213(02) Cases COMP/39.388 – German Electricity Wholesale Market and COMP/39.389 – German Electricity Balancing market). http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2009.133.01.0010.01.ENG&toc=OJ:C:2009:133:TOC Case COMP/B-1/39.402 – RWE Gas Foreclosure   http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2010.352.01.0008.01.ENG&toc=OJ:C:2010:352:TOC Case COMP/39.315 – ENI   http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1439992538223&uri=CELEX:52010XC0522(01) Case COMP/39.386 – Long Term Electricity Contracts France  
(65)  "Status Review on the Transposition of Unbundling Requirements for DSOs and Closed Distribution System Operators" (2013) CEER.
(66)  "Power Distribution in Europe Facts & Figures", Eurelectric.
(67)  CEER and Eurelectric numbers only coincide for very few Member States. In some cases the discrepancy is very high, for instance for the Czech Republic CEER reports 308 DSOs while Eurelectric only 3, also in Romania 41 (CEER) and 8 (Eurelectric).
(68)  European Commission, EU Energy Markets in 2014, SWD (2014) 310 final and SWD (2014) 311 final accompanying the Communication "Progress towards completing the Internal Energy Market" COM (2014) 634 final of 13 October 2014;European Commission, Energy markets in the European Union in 2011, Commission Staff Working Document SWD (2012) 368 final of 15 November 2012 accompanying the Communication "Making the internal energy market work" (COM(2012) 663 final).
(69)  The HHI is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing on the market and then summing the result numbers the higher the index the more concentrated the market.
(70)  Other factors such as subsidies for certain generation technologies combined with regulatory dispatch rules or changes in energy demand have also contributed to this development. However, the decrease in electricity prices has been higher than the decrease for other energy prices, see e.g. Commission Communication COM(2012) 663 final, p. 4.
(71)  ACER market monitoring report 2014 : http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx ;
(72)  ACER market monitoring report 2014 : http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
(73)  Market coupling ensures that interconnectors are more efficiently used by simultaneously clearing their capacity with all bids and offers into the day-ahead auction. Before interconnectors were coupled, traders had first to secure capacity ahead of time on the interconnector and then offer or bid into the power exchanges on each end of the interconnector (Source: Booz & Company final Report: "Benefits of an integrated European energy market").
(74)  Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management, OJ L 197, 25.7.2015, p. 24–72
(75)  See also example the study from CIGRE, Market coupling, facing a glorious past, 2016
(76)  See for example : Commission Decision of relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA Agreement (Case COMP/39.315 – ENI) http://ec.europa.eu/competition/antitrust/cases/dec_docs/39315/39315_3019_9.pdf  
(77)  Article 37 Electricity Directive "Duties and powers of the regulatory authority": "1. The regulatory authority shall have the following duties:[...] (g) monitoring investment plans of the transmission system operators, and providing in its annual report an assessment of the investment plans of the transmission system operators as regards their consistency with the Community-wide network development plan referred to in Article 8(3)(b) of Regulation (EC) no 714/2009; such assessment may include recommendations to amend those investment plans[.]"
(78)  Final Report by Roland Berger strategy consultants, " The structuring and financing of energy infrastructure projects, financing gaps and recommendations regarding the new TEN-E financial instrument, July 2011:  https://ec.europa.eu/energy/sites/ener/files/documents/2011_ten_e_financing_report.pdf
(79)  Special Report of the European Court of Auditors, "Improving the security of energy supply by developing the internal energy market: more efforts needed", 2015:  http://www.eca.europa.eu/Lists/ECADocuments/SR15_16/SR_ENERGY_SECURITY-EN.pdf
(80)  ACER market monitoring report 2014 : page 162 http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
(81)  See footnote above.
(82)  While other measures would be available which would not limit cross-border flows (e.g. "redispatch"), ACER showed that TSOs prefer to limit cross-border capacity to costly redispatching measures.
(83)  ACER market monitoring report 2014 : page 162 http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
(84)  Communication from the Commission, Delivering the internal electricity market and making the most of public intervention, C(2013) 7243 available at http://ec.europa.eu/energy/sites/ener/files/documents/com_2013_public_intervention_en_0.pdf
(85)  See for a description of the so-called "loop-flow problem" the ACER market monitoring report 2014 p. 163.
(86)  See the Commission's interim report of the sector inquiry into capacity mechanisms, p. 14 http://ec.europa.eu/competition/sectors/energy/state_aid_to_secure_electricity_supply_en.html
(87)  ACER market monitoring report 2014 and 2015 http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
(88) Price differences between bidding areas occur when the surplus volume in one or more bidding area is greater than the total export capacity from this/these areas. The sales and purchase curves then have to be balanced taking the transmission capacity into account. This will lead to a relatively low price in the surplus area and a relatively high price in the deficit area – utilizing the maximum capacity between the areas. These price differences generate an ownerless income on the spot market trading flow from the area with a lower price to the area with a higher price. In specific situations the spot market flow on single connections may also flow from an area with a higher price towards an area with a lower price, thus generating an ownerless cost. This income (or cost) is referred to as the congestion rent and is allocated to the TSOs as owners of the transmission grid.
(89)  ACER 2016 Report on Congestion at Interconnection points in 2015 http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%202016%20Report%20on%20Congestion%20at%20IPs%20in%202015.pdf
(90)  The network codes which have been adopted or on in preparation can be found at: http://ec.europa.eu/energy/en/topics/wholesale-market/electricity-network-codes
(91)  European Network of Transmission System Operators for Electricity, Ten-Year Network Development Plan 2014, https://www.entsoe.eu/major-projects/ten-year-network-development-plan/tyndp-2014/Documents/TYNDP%202014_FINAL.pdf  
(92)   http://ec.europa.eu/energy/en/consultations/consultation-establishment-annual-priority-lists-development-network-codes-and  
(93)  ACER Report, "Energy Regulation: A Bridge to 2025 Conclusions Paper", 19 September 2014See also recent annual activity reports of ACER : http://www.acer.europa.eu/official_documents/publications/pages/publication.aspx
(94)  See Article 15 on capacity calculation regions in the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management.
(95)  See contributions to the market design public consultation from EUROPEX, ACER, CEER and E-Control,,Eurelectric for example https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
(96)  ACER Report, "Energy Regulation: A Bridge to 2025 Conclusions Paper", 19 September 2014
(97)  See Eurelectric position paper: "Optimal use of the transmission network a regional approach" , June 2016 http://www.eurelectric.org/media/278462/eurelectric_report_congestion_management_-2016-2210-0009-01-e.pdf
(98)  Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management
(99)  TSOs have a long tradition of cooperation. In the early 2000s, they voluntarily set up regional entities to provide them with regional data and calculations - the now called Regional Security Coordinators. RSCs complement the TSOs own data and support the TSOs' decision-making on which actions to take to secure their grid while integrating more and more volatile generation and with more and more cross-border exchanges.
(100)  European Parliament, Report on Towards a New Energy Market Design (2015/2322(INI), Committee on Industry, Research and Energy, 21.6.2016.ENTSO-E Policy paper Future TSO Coordination for Europe, November 2014 https://www.entsoe.eu/Documents/Publications/Position%20papers%20and%20reports/141119_ENTSO-E_Policy_Paper_Future_TSO_Coordination_for_Europe.pdf  
(101)  https://ec.europa.eu/energy/en/topics/wholesale-market/electricity-network-codes
(102)  As reflected in the contributions of ACER and CEER, IFIEC, the IEA and Eurelectric for example https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
(103)  SWD(2014) 231 final: "Enhancing competition enforcement by the Member States' competition authorities: institutional and procedural issues", recital 27.
(104)  ACER also provided first opinions on contentious regulatory questions at the request of national regulators under Article 7(4) of the ACER Regulation, see ACER Opinion 09-2015 on the compliance of NRAs´ decisions approving methods of cross-border capacity allocation in the CEE region, 23.9.2015 http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Opinions/Opinions/ACER%20Opinion%2009-2015.pdf  
(105)  In particular ACER received a key role in in the monitoring of trading activity in wholesale energy products to detect and to prevent trading based on inside information and market manipulation, as well as in the energy network planning by participating on the process for the selection of Projects of Common Interest (PCIs) and their regulatory treatment.
(106)  The Commission plans to conduct a specific study on the subject of national regulatory authorities and their independence in the course of 2017.
(107)  Special Report of the European Court of Auditors, "Improving the security of energy supply by developing the internal energy market: more efforts needed", 2015:  http://www.eca.europa.eu/Lists/ECADocuments/SR15_16/SR_ENERGY_SECURITY-EN.pdf
(108)  See Art. 8 and 9 of the ACER Regulation.
(109)  On 17 May 2016, the ACER has been informed by the NRAs, that they could not reach a unanimous decision on the definition of capacity calculation regions. (ACER Consultation document "The definition of capacity calculation regions", PC_2016_E_02 of 22 June 2016). http://www.acer.europa.eu/Official_documents/Public_consultations/PC_2016_E_02/PC_2016_E_02%20on%20the%20capacity%20calculation%20regions.pdf  
(110)  See for example the ESMA Agency: Regulation (EU° No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and markets Authority), amending Decision No 716/2009/EC and repealing Commission decision 2009/77/EC, OJ L 331, 15.12.2010, p. 84. http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02010R1095-20140523  Or the EASA Agency : Regulation (EC) No 216/2008 of the European Parliament and of the Council of 20 February 2008 on common rules in the field of civil aviation and establishing a European Aviation Safety Agency, and repealing Council Directive 91/670/EEC, regulation (EC) No 1592/2002 and Directive 2004/36/EC, OJ L 079 19.3.2008, p. 1. http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1459786766853&uri=CELEX:02008R0216-20160126  
(111)  Such as in the case of the proposed network code on gas tariff harmonisation, where a minority of Member States could prevent that ACER tables a proposal.
(112)  Unless stated otherwise, the figures and analysis presented in the remainder of this section are drawn from the 2014 ACER Market Monitoring Report. ACER/CEER (2015), Market Monitoring Report 2014, http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_Report_2015.pdf
(113)  Source: Eurostat (29/08/2015) and ACER calculations. Note: The figure is based on bi-annual data provided by Eurostat for consumption bands: DC: 2,500 – 5,000 kWh (electricity households), D2: 20-200GJ (gas households), IE: 20,000-70,000 MWh (electricity industrial consumers) and I5: 1,000,000-4,000,000 GJ (gas industrial consumers).
(114)  CAGR is calculated by taking the nth root of the percentage of the year-on-year demand growth rate for the period analysed, where n is the number of years in the period being considered (in this case, the sixth root).
(115)  Source: Eurostat (29/08/2015) and ACER calculations. Note: Consumption band: DC: 2,500-5,000 kWh (electricity households).
(116)  Source: Eurostat (29/08/2015) and ACER calculations. Note: Consumption band: IE: 20,000-70,000 MWh (electricity industrial consumers).
(117)  The sum of the market shares of the three largest suppliers in a market, and the number of main suppliers i.e. suppliers with market shares equal to or higher than 5%.
(118)  Source: CEER National Indicators Database (2015).
(119)  Source: CEER National Indicators Database (2015).
(120)  Source: ACER Database, Eurostat and European power exchanges data (2015) and ACER calculations.
(121)  Source: ACER Database, Eurostat, NRAs and European power exchanges data (2014) and ACER calculations. Note: Gas data are available only for the period 2012-2014.
(122)  ACER market monitoring report 2014 : http://www.acer.europa.eu/en/Electricity/Market%20monitoring/Pages/Reports.aspx
(123)  Free-of-charge services and/or products enticing consumers into a contract (i.e. supermarket points or similar, membership points, air miles, gifts in kind, free insurance cover, maintenance services); or payable services and/or products complementing the electricity and gas offers against additional payment (insurance, boiler maintenance, home insulation, etc.).
(124)  Source: ACER Database.
(125)  Transmission and distribution tariffs are addressed in separate parts of this Evaluation and IA (annexes 2(1).3 and 1(c)3).  Unlike distribution and transmission tariffs which are regulated according to the Third Energy package provisions, the energy component of end user prices shall be in principle set by supply and demand according to existing acquis, exceptions being allowed under certain conditions (article 3(2) of Electricity and Gas Directives).
(126)      In 2014, non-residential customers consumed 1.921.153 out of the total 2.706.310 Gigawatt-hour electricity consumption and 1.506.185 Gigawatt-hour out of the total 2.578.779 Gigawatt-hour of gas consumption – Eurostat data, 2014.
(127) N.B. figure does not include IT. Source: CEER National Indicators Database.
(128) SWD(2014) 189
(129) The fact that gas can be held in storage while the supply and prices of gas do not vary much over short time periods, makes the expected advantages of smart metering more modest than for electricity – [SWD(2014) 189 and EP briefing (September 2015) on smart electricity grids and meters in the EU Member States
(130)  DG Justice and Consumers' ‘Consumer Markets Scoreboard’ provides at the EU-wide level a quantitative assessment of how different markets worked for consumers The 10th edition of Consumer Market Scoreboard published is available at: http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/10_edition/index_en.htm .
(131) http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/market_monitoring/index_en.htm The 2013 edition of the Market Monitoring Survey is available at: . The ‘Market Monitoring Survey’ which has been used as the main statistical source for the Scoreboard has been produced annually from 2010 to 2013. However, from 2013, it will be available only every other year and therefore as data for 2014 are lacking and data for 2013 are used instead.
(132) The MPI is a composite index based on the results of survey questions on four key aspects/components of consumer experience: (1) expectations (i.e. the extent to which the market lives up to what consumers expect); (2) the ease of comparing goods or services; (3) consumers’ trust in suppliers to comply with consumer protection rules; and (4) the experience of problems and the degree to which they have led to complaints. These four aspects of consumer experience are equally weighted when creating the overall score.
(133) MPIsc is the MPI supplemented with ‘choice’ and ‘switching’ components and is used only in markets where it is possible to switch services and providers.
(134)  Source: DG Justice and Consumers (2014).
(135)  The percentage of consumers who change suppliers in any given year.
(136)  Source: CEER National Indicators database
(137)  Charges for short term contracts are justified often by need to cover administrative costs, while at the same time they encourage customers' loyalty.
(138) ACER (2015) Market Monitoring report 2014, http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_Report_2015.
(139)  European Commission ([ongoing]), ' Second Consumer Market Study on the functioning of retail electricity markets for consumers in the EU ', [link].
(140) Recommendation 2010/304/EU is addressed to all third-party complaint bodies (national authorities, consumer organisations, etc.) and calls on them to classify complaints according to a common taxonomy and to report the data to the Commission.
(141)  Energy poverty and vulnerable consumers in the energy sector across the EU: analysis of policies and measures. 2015. Insight_E
(142)  COM(2003) 740 final, of 10 December 2003.
(143)  The Directive, indeed, was based on Article 95 of the EC Treaty, allowing the European Union to adopt measures for the approximation of national rules related to the establishment and functioning of the internal market.
(144)  TEN/173 of 28 October 2004.
(145)  Report on the proposal for a directive of the European Parliament and of the Council concerning measures to safeguard security of electricity supply and infrastructure investment (FINAL-A6-0099/2005), Committee on Industry, Research and Energy, Rapporteur: Giles Chichester, p. 30
(146)  For an overview of blackouts, their impacts and lessons learnt, see the 2011 Report on the analysis of historic outages, prepared under the SESAME project https://www.sesame-project.eu/publications/deliverables/d1-1-report-on-the-analysis-of-historic-outages/view  
(147)  ERGEG Final Report, The lessons to be learned from the large disturbance in the European power system on the 4th of November 2006 Ref: E06-BAG-01-06
(148)  "Report on the progress concerning measures to safeguard security of electricity supply and infrastructure investment" COM (2010) 330 final.
(149)  The consultation of the Commission's bibliographic database produced only 2 results for bibliography mentioning the Directive in their summary. Analysis of the Directive provisions were only found in Christopher Jones e.a. EU Energy Law. Volume I. Internal Energy Market, and in Henrik BjØrnebye, Investing in EU Energy Security, Kluwer Law International.
(150)  Judgment of the General Court (Second Chamber) of 3 December 2014, Case T-57/11, Castelnou Energía, SL,vs European Commission
(151)  It was mentioned in the Commission's answer to the Written Question E-010039/13, by MEP Marc Tarabella on 10 September 2013.
(152)  See overview per Member state in "EU Energy Markets in 2014" http://ec.europa.eu/energy/sites/ener/files/documents/2014_energy_market_en.pdf
(153)  Special Report 16/2015 by the European Court of Auditors, Improving the security of energy supply by developing the internal energy market: more efforts needed, 2015 http://www.eca.europa.eu/en/Pages/DocItem.aspx?did=34751
(154)  The value is calculated using the turnover of the EU electricity sector which was estimated at 1.182 bn € in 2014 (based on Eurostat data), representing around 8% of the EU-28 GDP.
(155)  See for example the answers to the public consultation on the Market Design Initiative from Europex, E-Control, IFIEC, IEA, Eurelectric, EFET, EUROPEX. https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
(156)   https://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_annex3.pdf
(157)  https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
(158)  Impact assessment for the Third Package (SEC(2007) 1179/2)  http://ec.europa.eu/smartregulation/impact/ia_carried_out/docs/ia_2007/sec_2007_1179_en.pdf .
(159) See table under paragraph 2.1
(160)  C(2013) 724 Communication from the Commission, Delivering the internal market and making the most of public interventions, 5 November 2013;
(161)  SWD(2013) 438, Commission Staff Working Document, Generation Adequacy in the internal electricity market - guidance on public interventions, 5 November 2013Communication from the Commission — Guidelines on State aid for environmental protection and energy 2014-2020, OJ C 200, 28.6.2014, p. 1–55
(162)   http://ec.europa.eu/competition/sectors/energy/state_aid_to_secure_electricity_supply_en.html
(163)  Eurostat data : http://ec.europa.eu/eurostat/statistics-explained/index.php/Energy_from_renewable_sources  
(164)  For instance, a possible distortion is when generators in a CM market, receive (capacity) payments which are determined in a way that affects their electricity generation bids into the market, while in a neighbouring "energy-only" market generators do not. This may tilt the playing field for generators on either sides of the border.
(165)  For instance, if contributions from cross-border capacity are not appropriately taken into account, they may lead to over-procurement of capacity in countries implementing CMs, with a detrimental impact on consumers
(166)  In some cases, certain capacity providers are explicitly excluded from participating or the group of potential participants is explicitly limited to certain providers. In other cases, Member States set requirements that have the same effect, implicitly reducing the type or number of eligible capacity providers. Examples are size requirements, environmental standards, technical performance requirements, availability requirements, etc.
(167)  In Spain for example, the price for an interruptibility service almost halved after a competitive auction was introduced.
(168)  For example, Portugal, Spain and Sweden appear to take no account of imports when setting the amount of capacity to support domestically through their CMs. In Belgium, Denmark, France and Italy, expected imports are reflected in reduced domestic demand in the CMs. The only Member States that have allowed the direct participation of cross-border capacity in CMs are Belgium, Germany and Ireland. For more details, see annex 5.2.
(169)   Renewable Energy: Progressing towards the 2020 target, COM (2011) 31
(170)  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 (Text with EEA relevance)OJ L 140, 5.6.2009, p. 16–62
(171)   "European Commission guidance for the design of renewable energy support schemes", 2013, SWD (2013) 439 final
(172)   "Guidelines on State aid for environmental protection and energy 2014-2020", OJ 2014/C 200/01
(173)  DE, ES, ET, FR, HR, HU, IT, LT, LV, MT, PT, SL, SK
(174)   RES-Legal
(175)  ACER/CEER (2015), Market Monitoring Report 2014, http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER_Market_Monitoring_Report_2015.pdf
(176)

 Working Paper on Energy Poverty, 2016. Vulnerable Consumer Working Group.

(177) Based on data from the EvolvDSO Project (FP7/2007-2013).
(178) http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2014%3A356%3AFIN http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:52014SC0188 http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:52014SC0189 https://ec.europa.eu/energy/sites/ener/files/documents/EG1_Final%20Report_SM%20Interop%20Standards%20Function.pdf  The Commission Report COM(2014) 356 “Benchmarking smart metering deployment in the EU-27 with a focus on electricity”, as also recently updated in the Smart Grids Task Force EG1 Report: “Status report based on a survey regarding Interoperability, Standards and Functionalities applied in the large scale roll-out of smart metering in EU Member States”, October 2015. COM(2014) 356: ; and accompanying (country fiches) SWD(2014) 188: ; (analysis of data) SWD(2014) 189: ; Smart Grids Task Force EG1 report:  
(179)  Risk Preparedness Study - "Review of current national rules and practices relating to risk preparedness in the area of security of electricity supply" (2016), prepared for DG Energy of the EC. https://ec.europa.eu/energy/sites/ener/files/documents/DG%20ENER%20Risk%20preparedness%20final%20report%20May2016.pdf
(180) Consultation on risk preparedness in the area of security of electricity supply. https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-supply
(181) http://www.acer.europa.eu/official_documents/acts_of_the_agency/sd052005/supporting%20document%20to%20acer%20recommendation%2005-2014%20-%20%20energy%20regulation%20a%20bridge%20to%202025%20conclusions%20paper.pdf  
(182)  See footnote above
(183)  The comparison of Germany and Denmark, two Member States with high shares both of RES-E and CHP, is helpful to assess the deficiencies of systems based on strong priority dispatch and priority access principles. Taking the example of Denmark, an average of 62 % of power demand in the month of January 2014 has come from wind generation alone ( http://www.martinot.info/renewables2050/how-is-denmark-integrating-and-balancing-renewable-energy-today ) and the share of annual demand covered by wind power has risen from 19 % in 2009 to 42 % in 2015 ( http://www.energinet.dk/EN/El/Nyheder/Sider/Dansk-vindstroem-slaar-igen-rekord-42-procent.aspx ). Adding to this the share of 50.6 % of CHP in total Danish power generation. ( https://ec.europa.eu/energy/sites/ener/files/documents/PocketBook_ENERGY_2015%20PDF%20final.pdf , p. 183), which makes Denmark one of the Member States with the highest share of CHP ( http://www.code2-project.eu/wp-content/uploads/Code-2-D5-1-Final-non-pilor-Roadmap-Denmark_f2.pdf ;), in many periods almost all generation would be subject to "priority dispatch". Finally, it may be necessary to add certain generation assets which are needed to operate for system security, e.g. because only they can provide certain system services (e.g. voltage control, spinning reserves), further limiting the scope for fully market based generation. However, in Denmark, market incentives on generators are set in a way that drastically reduces the impact of priority dispatch. Almost all decentralized CHP plants and a large number of wind turbines would be exposed to and are not willing to run at negative prices. As CHP are not shielded from market signals by national support systems, they have strong incentives to stop electricity generation in times of oversupply. The integration of a high share of RES-E and CHP in parallel has been successful to a significant extent because CHP are not built and operated on the basis of a "must run" model, where heat demand steers electricity generation. To the contrary, CHP plants have backup solutions (boilers, heat storage), and use these where this is more efficient for the electricity system as expressed by wholesale prices. http://www.netztransparenz.de/de/Studie-konventionelle-Mindesterzeugung.htm Taking the example of another "renewables front runner", Germany, "must run" conventional power plants have been found to contribute significantly to negative prices in hours of high renewable generation and low load, with at least 20 GW of conventional generation still active even at significantly negative prices (See: ). Financial incentives are so that many conventional plants generate even at significantly negative prices, with many power plants switching off electricity generation only at prices around minus 60 €/MWh. This increases the occurrence of negative prices, worsening the financial outlook for both renewable and conventional generators, and can increase system stress and costs of interventions by the system operator. This is not due to technical reasons – also in Germany, CHP plants generally have backup heat capacities, which are already necessary to address e.g. maintenance periods of the main plant, or could technically install these. While it may be economically and environmentally efficient to run through short periods of low prices (to avoid ramping up or down), this is no longer the case where the market is willing to pay a lot for electricity being not generated. Excess electricity is in these situations not very efficiently generated, but essentially a waste product. While there is a wide range of reasons for conventional generation to produce at hours of negative prices (e.g. very inflexible technologies such as nuclear or lignite which need a long time to reactivate), approximately 50 % of the plants in such a situation in Germany had at least the capability for parallel heat production, and approximately 8-10 % of conventional plants still producing at such moments were found to be heat-controlled CHP generation (Consentec, "Konventionelle Mindesterzeugung – Einordnung, aktueller Stand und perspektivische Behandlung", Abschlussbericht 25. Januar 2016, p. vii and 25).
(184) Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October 2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC (OJ L 295/1).
(185) Council Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply (OJ L 127/92).
(186) Commission Proposal for a Regulation of the European Parliament and of the Council concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010 (COM(2016) 52 final).
(187)   https://ec.europa.eu/energy/sites/ener/files/documents/20140122_acer_com_evaluation.pdf
(188)  Commission Evaluation of 22.01.2014 of the activities of the Agency for the Cooperation of Energy Regulators (ACER) under article 34 of Regulation (EC) 713/2009 – C(2014) 242 final.
(189)  Study for the ITRE Committee of the European Parliament "Energy Union: Key Decisions for the Realisation of a Fully Integrated Energy Market", 15 March 2016 "In several regional or EU-level projects (e.g. market coupling projects, (…)) national authorities, TSOs, regulators and energy exchanges of different Member States need to cooperate. However, as they are primarily responsible for their own national gas and electricity system and market they are not always sufficiently motivated to also take supranational interests into account. […] This leads to complex and slow decisional and implementation processes for most cross-border projects, resulting in delayed implementations (e.g. the intra-day markets’ coupling project)." In this context, different stakeholders argue for stronger governance at the EU level. For example, EPEX Spot states the need to accompany the electricity target model by appropriate governance architecture at European level, applicable on Market Coupling activities, which will be crucial to ensure an efficient day-to-day operation of such complex mechanisms. http://www.europarl.europa.eu/RegData/etudes/STUD/2016/578968/IPOL_STU(2016)578968_EN.pdf
(190)   http://ec.europa.eu/smart-regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf
(191)   http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf
(192)  For more information on the consultation process, please refer to Annex 2
(193)   https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
(194)   https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design
(195) https://ec.europa.eu/energy/en/consultations/public-consultation-risk-preparedness-area-security-electricity-supply  
(196)   https://ec.europa.eu/energy/en/consultations/consultation-generation-adequacy-capacity-mechanisms-and-internal-market-electricity
(197)   https://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market
(198)  https://ec.europa.eu/energy/sites/ener/files/documents/Charts_Public%20Consultation%20Retail%20Energy%20Market.pdf
(199)   http://www.eca.europa.eu/en/Pages/DocItem.aspx?did=34751
Top

Brussels, 30.11.2016

SWD(2016) 412 final

COMMISSION STAFF WORKING DOCUMENT

Evaluation Report
covering the
Evaluation of the EU's regulatory framework for electricity market design and consumer protection in the fields of electricity and gas

Evaluation of the EU rules on measures to safeguard security of electricity supply and infrastructure investment (Directive 2005/89)

Accompanying the document

Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast)

Proposal for a Regulation of the European Parliament and of the Council on the electricity market (recast)

Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast)

Proposal for a Regulation of the European Parliament and of the Council on risk preparedness in the electricity sector

{COM(2016) 861 final}
{SWD(2016) 410 final}
{SWD(2016) 411 final}
{SWD(2016) 413 final}


ANNEXES AND EVALUATION FICHES

ON SPECIFIC ASPECTS OF RETAIL MARKETS

FOR ELECTRICITY AND GAS



Contents

1.    Annex 3: Details on the consumer vulnerability and energy poverty provisions in the 2009 Electricity and Gas Directives    

1.1.    Executive Summary    

1.2.    Introduction    

1.2.1.    Purpose of this evaluation    

1.2.2.    Overview of EU acquis related to vulnerable consumers and energy poverty    

1.3.    Scope of this evaluation    

1.4.    Background to the initiative    

1.4.1.    Description of the initiative and its objectives    

1.4.2.    Baseline    

1.5.    Evaluation Questions    

1.6.    Method    

1.7.    Implementation state of play (Results)    

1.7.1.    State of play as regards implementation    

1.7.2.    Problems and issues identified    

1.8.    Answers to the evaluation questions    

1.9.    Conclusions    

1.10.    Stakeholder consultation    

1.11.    Member States definitions of vulnerable consumers    

1.12.    Member States definitions of energy poverty    

2.    Annex 4: Details on the EU Framework For Switching and Exit fees    

2.1.    Executive Summary    

2.2.    Introduction    

2.2.1.    Purpose of this evaluation    

2.2.2.    Summary of EU acquis related to switching fees    

2.3.    Scope of this evaluation    

2.4.    Background to the initiative    

2.4.1.    Description of the initiative and its objectives    

2.4.2.    Baseline    

2.5.    Evaluation Questions    

2.6.    Method    

2.7.    Implementation state of play (Results)    

2.7.1.    State of play as regards implementation    

2.7.2.    Problems and issues identified    

2.8.    Answers to the evaluation questions    

2.8.1.    Electricity and Gas Directives    

2.9.    Conclusions    

2.10.    Stakeholder consultation    

3.    Annex 5: Details on the EU Framework For Metering and Billing of Energy Consumption    

3.1.    Executive Summary    

3.2.    Introduction    

3.2.1.    Purpose of this evaluation    

3.2.2.    Overview of EU acquis related to metering and billing    

3.2.3.    Scope of this evaluation    

3.3.    Background to the initiative    

3.3.1.    Description of the initiative and its objectives    

3.3.2.    Baseline    

3.1.    Evaluation Questions    

3.2.    Method    

3.3.    Implementation state of play (Results)    

3.3.1.    State of play as regards implementation    

3.3.2.    Problems and issues identified    

3.4.    Answers to the evaluation questions    

3.4.1.    Electricity and Gas Directives    

3.4.2.    EED    

3.4.3.    Billing (information) and frequency    

3.5.    Conclusions    

3.6.    Stakeholder consultation    

3.7.    REFIT assessment of the Renewable Energy Directive – Provisions related to Guarantees of Origin (GOs)    

3.8.    Main sources used for the analysis    

3.9.    Details on Commission proposals    

3.10.    Billing practices and regulation per country    

4.    Annex 6: Details on The EU Framework For Smart metering roll-out and use of smart meters    

4.1.    Executive Summary    

4.2.    Introduction    

4.2.1.    Purpose of the evaluation    

4.2.2.    Scope of the evaluation    

4.3.    Background to the initiative    

4.3.1.    Description of the initiative and its objectives    

4.4.    Evaluation Questions    

4.5.    Method    

4.6.    Implementation state of play (Results – description of current situation )    

4.7.    Answers to the evaluation questions (Assessment of current situation)    

4.8.    Conclusions (Gap Analysis)    

4.9.    Summary of smart metering provisions are found in the following EU Directives:    

4.10.    Smart metering roll – out    

5.    Annex 7: Details on the EU framework for Demand Side Flexibility (DSF)    

5.1.    Introduction    

5.2.    Background to the initiative    

5.2.1.    Why Demand response    

5.2.2.    Legislative Background    

5.2.3.    Main objectives of the European legislation    

5.3.    Evaluation Questions    

5.4.    Method    

5.5.    Implementation / state of play    

5.5.1.    Implementation of EU legislation in Member States    

5.6.    Uptake of Demand response in MS    

5.6.1.    Theoretical potential of Demand Response    

5.6.2.    Current Situation in Member States    

5.7.    Answers to the evaluation questions (Assessment of current situation)    

5.7.1.    EU-added value    

5.7.2.    Other evaluation criteria    

5.8.    Conclusions (Gap Analysis)    

5.9.    Annex: Demand-Side participation in energy markets in the Member States    

6.    Annex 9: Evaluation Fiche on Distribution System Operators    

6.1.    Introduction    

6.2.    Background to the initiative    

6.3.    Evaluation Questions    

6.4.    Method    

6.5.    State of play and implementation (Results – description of current situation and development since 2009)    

6.5.1.    State of play    

6.5.2.    Implementation of existing measures    

6.6.    Answers to the evaluation questions (Assessment of current situation)    

6.7.    Conclusions (Gap Analysis)    



1.Annex 3: Details on the consumer vulnerability and energy poverty provisions in the 2009 Electricity and Gas Directives

1.1.Executive Summary

Key notes:

Uneven protection of vulnerable consumers across the EU

Insufficient measures to prevent energy poverty

This Annex presents a more detailed thematic evaluation of existing provisions in EU law relating to the specific themes of consumer vulnerability and energy poverty. The evaluation is one of a series of evaluations looking at certain themes that have been carried out to inform the follow-up of the Communication on The public consultation process on a new energy market design and on Delivering a new deal for energy consumers adopted by the Commission in July 2015.

The protection of vulnerable and energy poor consumers is regulated in the 2009 Electricity and Gas Directive contained in the Third Energy Package.

The legislators' original objectives of these provisions were in summary:

1.To ensure protection of vulnerable consumers by having Member States define the concept of vulnerable consumers and implement measures to protect them.

2.To mitigate the problem of energy poverty by having Member States address energy poverty, where identified 1 , as an issue.

These provisions were put in place to facilitate the decision by Member States to proceed with electricity and gas market liberalisation, as it was recognised by the legislators that actions to protect vulnerable consumers were needed in the context of liberalising the European energy market. 2 In fact, while progress has been achieved in liberalisation of the energy markets across the EU, 17 Member States still apply some form of price regulation in their electricity and gas markets. Growing energy poverty levels and the need to protect vulnerable consumers are often quoted as a justification for maintaining price regulation in the retail energy markets.

The provisions on vulnerable and energy poor consumers in the Electricity and Gas Directives have been partially effective.

They were effective in getting Member States to define the concept of a vulnerable consumer and to adopt measures to protect those in this category. The legislation was partially successful by bringing the issue of energy poverty to the attention of some Member States. It can be argued that, for some Member States, the inclusion of provisions on consumer vulnerability in the Electricity and Gas Directives provided the necessary guarantees on consumer protection to proceed in synchronization with the opening of retail energy markets.

However, given the absence of a common EU definition of consumer vulnerability, in the Electricity and Gas Directive, the implementation of the provisions resulted in uneven consumer protection across the EU Member States. The result is even more pronounced in the case of energy poverty where a general obligation for action exists but only if energy poverty is identified as a problem. In addition, the evaluation identified shortcomings in the implementation of the provisions on the National Regulatory Authorities's role (NRAs) in the monitoring of electricity and gas disconnections.

Finally, the evaluation also identified that the provisions in the legislation have not been effective in assisting Member States in addressing the problem of energy poverty. Despite recent external research indicating that energy poverty and consumer vulnerability are two distinct issues (Insight_E, 2015), the provisions in the Electricity and Gas Directives refer to energy poverty only as a component of consumer vulnerability. While vulnerability and energy poverty often relate to each other 3 , vulnerable households are not necessarily energy poor 4 and vice versa. This categorisation leads to a simplistic expectation that a single set of policy measures from Member States would automatically address both problems simultaneously. This will instead depend on how vulnerability is defined and the variations in the Member States are significant in this respect.

Figure 1: Effectiveness of policy measures on vulnerable and energy poor consumers

Prioritisation of vulnerable consumer protection in the context of electricity market liberalisation

Increasing energy poverty across the EU acts as a barrier to the completion of the Internal Energy Market

Growing levels of energy poverty as well as lack of clarity on the most appropriate means of tackling consumer vulnerability and energy poverty constitute a barrier to the further deepening of the internal energy market. 

With regard to efficiency, it is likely that the benefits derived from defining consumer vulnerability at the Member State level and implementing well-targeted measures to protect them outweighed the costs of setting up such a policy. This should entail savings to public budgets and reduce fiscal pressure where it allows replacing protection measures benefiting the entire or disproportionately large parts of population without distinction to those in real need.

In relation to relevance, the data indicates that consumer vulnerability in the energy market is an increasingly relevant policy issue, as factors such as old age and poor health are major drivers of the problem. Without EU action, some Member States may find difficulties in striking a balance between consumer protection and market liberalisation which may appear as conflicting objectives. In fact, some Member States have already expressed interest in the Commission providing informal guidance on good practices in addressing energy poverty when phasing out regulated prices and opening markets 5 .

Looking at coherence, the evaluation has not identified any inconsistencies or elements of legislation working against the objectives of the provisions on vulnerable and energy poor consumers. Nevertheless, as described previously, the lack of clear definitions of the concepts and caveat in obligations regarding energy poverty stand in contrast to the call for decisive action in the Electricity and Gas Directives.

In terms of the EU added value, while some Member States had already been protecting their vulnerable energy consumers prior to the EU intervention, others have taken action as a result of the EU intervention. Similar added value could be expected from EU intervention on energy poverty. Commission’s recent talks with individual Member States (e.g. BG, FR) and in stakeholder forums demonstrate also a clear interest towards sharing of good practices at EU level.

1.2.Introduction

1.2.1.Purpose of this evaluation

The purpose of this evaluation is to take stock of the actual performance and continued relevance of existing EU legal provisions on vulnerable consumers and energy poverty so as to evaluate what is working, what is not, and why. This is done as a follow-up to The public consultation on a new energy market design 6 and the Communication on Delivering a new deal for energy consumers 7 .

1.2.2.Overview of EU acquis related to vulnerable consumers and energy poverty

The Electricity and Gas Directives 8 contain the following key provisions related to vulnerable consumers and energy poverty.

Recital (45) 

Member States should take the necessary measures to protect vulnerable customers in the context of the internal market in electricity. Such measures may differ according to the particular circumstances in the Member States in question and may include specific measures relating to the payment of electricity bills, or more general measures taken in the social security system.

Recital (45) highlights the responsibility of Member States to put in place measures to protect vulnerable consumers in the context of market liberalisation.

Article 3(7) 9

Member States shall take appropriate measures to protect final customers, and shall, in particular, ensure that there are adequate safeguards to protect vulnerable customers. In this context, each Member State shall define the concept of vulnerable customers which may refer to energy poverty and, inter alia, to the prohibition of disconnection of electricity to such customers in critical times. Member States shall ensure that rights and obligations linked to vulnerable customers are applied. In particular, they shall take measures to protect final customers in remote areas.

Article 3(7) states the need for Member States to provide a definition of vulnerable consumers so that adequate protection can be provided.

Article 3(8) 10

Member States shall take appropriate measures, such as formulating national energy action plans, providing benefits in social security systems to ensure the necessary electricity supply to vulnerable customers, or providing for support for energy efficiency improvements, to address energy poverty where identified, including in the broader context of poverty. Such measures shall not impede the effective opening of the market set out in Article 33 or market functioning and shall be notified to the Commission, where relevant, in accordance with the provisions of paragraph 15 of this Article. Such notification may also include measures taken within the general social security system.

Article 3(8) states the need for Member States to consider appropriate measures to address energy poverty. Although the type of measures will be determined by Member States themselves. Energy efficiency improvements and social security measures are equally presented as possible policy areas, while National Action Plans rather appear as implementing tools. It is specified that no measures should impede the opening of electricity and gas markets 11 .

The 2010 Energy Efficiency of Public Buildings Directive (EPBD) 12 and the 2012 Energy Efficiency Directive (EED)  13 also contain reference to energy poverty.

EPBD: Recital 20 states that Member States should provide to the European Commission with a list of measures to reduce market barriers and encourage investments to increase energy efficiency in buildings contributing to reduce energy poverty.

EED: Article 7 states that Member States shall set up an energy efficiency obligation scheme. The scheme may include requirements with a social aim in the saving obligations they impose, including by requiring a share of energy efficiency measures to be implemented as a priority in households affected by energy poverty or in social housing 14 .

The Unfair Commercial Practices Directive 15 is the overarching piece of EU legislation regulating unfair commercial practices in business-to-consumer transactions. It applies to all commercial practices that occur before (i.e. during advertising or marketing), during and after a business-to-consumer transaction has taken place. The Unfair Commercial Practices Directive complements other EU legislation that regulates specific aspects of unfair commercial practices.

Article 5(3) of the Unfair Commercial Practices includes a fully harmonised concept of "vulnerable consumers":

Commercial practices which are likely to materially distort the economic behaviour only of a clearly identifiable group of consumers who are particularly vulnerable to the practice or the underlying product because of their mental or physical infirmity, age or credulity in a way which the trader could reasonably be expected to foresee, shall be assessed from the perspective of the average member of that group. This is without prejudice to the common and legitimate advertising practice of making exaggerated statements or statements which are not meant to be taken literally.

The interplay between this provision and Article 3(7) of the Electricity Directive and Article 3(3) of the Gas Directive is regulated by Article 3(4) of the Unfair Commercial Practices Directive. This provision clarifies that where sector-specific EU law is in place and its provisions overlap with the provisions of the UCPD, the corresponding provisions of the sector-specific EU rules will prevail. Consequently, within the scope of the Electricity Directive and the Gas Directive, Member States should provide definitions of vulnerable consumers.

1.3.Scope of this evaluation

This evaluation is based on the five Better Regulation criteria (effectiveness, efficiency, relevance, coherence and EU-added value). It considers simplification, burden reduction potential, and the quantification of costs and benefits, only implicitly or to a limited extent, given its partial scope, the multiple and complex other factors affecting the objectives studied, and the limited data available.

The scope of the evaluation covers the following elements:

Electricity and Gas Directives

General evaluation of the performance/continued relevance of Article 3(7) and 3(8) of the Electricity Directive. This covers definition and protection of vulnerable consumers and the obligation to address energy poverty where identified.

General evaluation of the performance/continued relevance of Article 3(3) and 3(4) of the Gas Directive. This covers definition and protection of vulnerable consumers and the obligation to address energy poverty where identified.

The main discrepancy between the Electricity and Gas Directive with respect to the protection of vulnerable consumers arises from Universal Services (Article 3 (3) of the Electricity Directive). The right to universal service does not exist for gas. This limits some provisions related to the protection of vulnerable consumers in the gas sector. Member States are not obliged to ensure certain protection to all vulnerable consumers, but only to those already connected to the gas system. The reason is that a piped gas network for consumers is not available throughout every EU MS.

The EED and the EPBD articles and recitals relevant to energy poverty are assessed as part of the separate evaluation of the EPBD and the EED. In the evaluation of the EED Article 7, the social aim in the saving obligation is considered relevant as the need to address energy poverty continues. In terms of coherence, the evaluation finds that Article 7 creates the space for addressing energy poverty under the saving obligation. The evaluation of the EPBD cites energy efficiency in buildings as a tool to address energy poverty. In terms of relevance, addressing energy poverty is included as one of the goals the Directive contributes to achieve. The evaluation also notes that regarding coherence, even though several Member States are implementing programmes to improve the energy performance of the homes of those in lower-income, these actions remain a stand-alone instrument without any broader strategy at the national or even EU level 16 .

1.4.Background to the initiative

This section identifies the objectives behind the existing provisions on vulnerable consumers and energy poverty in the Internal Energy Market (IEM) legislation based on the legislative texts (including their recitals) and on the related Commission proposals and preparatory documents accompanying the latter such as Impact Assessments (IAs). At the end of the section, we describe the intervention logic behind the legislative provisions.

1.4.1.Description of the initiative and its objectives

Legislation prior to the Third Energy Package

A provision calling on Member States to protect vulnerable consumers was introduced in the Second Energy Package 17 in 2003. The recitals accompanying the Directives show that consumer protection was an integral part of the plans to liberalise and to deepen the internal energy market for electricity and gas. In this context it is worthwhile to note that the requirement to protect vulnerable consumers at the Member State level was inserted by the co-legislators.

The recitals of the Second Energy Package acknowledged that the protection of vulnerable consumers was one of the shortcomings of the functioning of the internal energy market and constituted an area for possible improvement. The text called on Member States to take the necessary measures to protect vulnerable consumers in the context of the internal energy market, whilst providing full flexibility for the Member States to act according to their national circumstances. Specifically, it stated that within these protective measures, Member States could opt for measures to help vulnerable consumers avoid disconnections.

The Second Energy Package also recognised several energy consumer rights 18 , which apply to all consumers, including vulnerable ones. The Directives, nonetheless, make no reference to energy poverty.

The 2007 Commission proposal for the new Electricity 19 and Gas Directive 20 (i.e. Third Energy Package) continued to argue in favour of guaranteed consumers rights and freedom to choose suppliers in the context of energy market liberalisation. The proposal indicated that the provisions regarding vulnerable consumers included in the Second Energy Package were incorrectly applied in some Member States. Thus, to ensure their correct implementation, it proposed to define binding guidelines on the protection of vulnerable consumers. However, the final text adopted by the co-legislators includes no reference to these binding guidelines 21 .

The Third Energy Package: the Electricity and Gas Directives

The Electricity and Gas Directives included in the Third Energy Package contain some of the legal text which already appeared in the Second Energy Package but also new provisions and references to energy poverty.

The following elements remained largely unchanged:

Member States are responsible for the protection of vulnerable consumers (Electricity Directive Recital 45).

Member States have the flexibility to choose the measures to protect vulnerable consumers. These measures may include support to afford payments to energy bills or support within the social security system (Electricity Directive Recital 45 and Article 3; point 7 - Gas Directive Article 3 point 3).

Safeguards against disconnection are presented as a possible measure not addressing but defining vulnerable consumers (Electricity Directive Article 3; point 7 – Gas Directive Article 3 point 3).

New elements:

In relation to vulnerable consumers and disconnections:

oIn addition to the previous obligation to protect vulnerable consumers, Member States have to define the concept of vulnerable consumers. When defining this concept, Member States can refer, inter alia, to energy poverty or prohibition of disconnection to such customers in critical times (Electricity Directive Article 3; point 7 - Gas Directive Article 3 point 3).

oEnergy regulators are given a specific role to monitor the protection of vulnerable consumers (Electricity Directive Recital 37; Article 36; point h – Gas Directive Article 40; point j).

In relation to energy poverty:

oThe term energy poverty appears as a new concept in the recitals and the provisions. The term energy poverty also appears in subsequent energy legislation such as the 2010 EPBD and the 2012 EED. However, the term energy poverty is not defined in any of the Directives.

oEnergy poverty is acknowledged as a growing problem and Member States affected by this problem are requested to include measures 22 to address energy poverty. (Electricity Directive Recital 53; Article 3; point 8 – Gas Directive Recital 50; Article 3 point 4).

The intention of the legislators was, within the limits of subsidiarity, to improve the protection of vulnerable consumers by requesting Member States to define the concept. The idea being that once the concept of vulnerable consumer was defined at the Member State level, the Commission would be able to assess the degree and effectiveness of the protection.

When assessing the potential impacts of the Electricity and Gas Directive in the Third Energy Package, the 2007 Commission's IA 23 said that the Commission would keep under constant review the retail markets to assess the effects of liberalisation on households, in view of increasing consumers’ confidence in the energy market. It also pointed to the existing protection of vulnerable consumers in the form of a recognition of the concept of universal service for electricity within the Electricity Directive. The IA concluded that the cost of provisions on vulnerable and energy poor consumers will depend on the legislative details and means of implementation of the protective measures at the Member State level.

1.4.2.Baseline

The 2007 Electricity and Gas Directives were fundamental to the liberalisation of the EU's gas and electricity sectors and the deepening of the internal energy market. For the liberalisation process to be successful, it needed to be accompanied by the strengthening of consumer rights, including measures to protect vulnerable consumers, as stated in alinea (2) of the Directive 2003/54/EC concerning common rules for the internal market in electricity and repealing Directive 96/92/EC, which says that "important shortcomings and possibilities for improving the functioning of the market remain, notably concrete provisions are needed to ensure a level playing field in generation and (..) ensuring that the rights of small and vulnerable customers are protected (…).".

Without these protective measures, it is unlikely that many Member States would have proceeded with liberalising their energy markets at the same speed and to the same extent. And without energy market liberalisation, significantly fewer EU energy consumers would have been able to benefit from market competition in terms of broader choice, lower energy costs and higher standards of service.

In the absence of the Third Energy Package, the Second Energy Package would have continued to apply. However, as mentioned before, the Second Energy Package had not proven to consistently lead to adequate protection of vulnerable consumers across the EU.

Figure 2: Intervention Logic Diagram illustrating the subject of this evaluation

1.5.Evaluation Questions

This evaluation aims, for each of the sub-themes within the scope, to answer the following questions:

1. What is the current situation?

2. How effective has the EU intervention been?

3. How efficient has the EU intervention been?

4. How relevant is the EU intervention?

5. How coherent is the EU intervention internally and with other (EU) actions?

6. What is the EU added value of the intervention?

1.6.Method

This evaluation has been carried out in-house by the Commission services. The following activities and studies have provided key inputs:

DG ENER commissioned Insight_E 24 to assess how Member States define the concept of vulnerable consumer and energy poverty, and the measures implemented to address these issues. The report 25 lists and critically appraises the definitions of consumer vulnerability and energy poverty across the EU. The report also contains analysis of the measures to protect vulnerable consumers and to tackle energy poverty.

Insight_E is currently undertaking a follow-up study in which measures of protection for vulnerable consumers across Member States will be appraised. In addition, the report will look in detail into three specific measures, among which safeguards against disconnections which are assessed in this evaluation. Interim results have been used in this evaluation as the final report is not yet finalised.

The Vulnerable Consumer Working Group chaired by DG ENER produced a guidance document on vulnerable consumers 26 which provides a comprehensive analytical framework for the identification of drivers of consumers' vulnerability. The document also provides details of existing Member State instruments and practices. The Vulnerable Consumer Working Group under Citizens Energy Forum produced furthermore a Working Paper on Energy Poverty 27 of which findings also informed this evaluation.

DG ENER led an initiative together with DG ESTAT to carry out an ad-hoc data collection on energy expenditure in Member States by income quintiles. The analysis of the data shows the increasing proportion of expenditure dedicated to pay for domestic energy services, particularly by low-income households.

DG JUST commissioned a study on consumer vulnerability 28 . The aim of the study was to explore and better understand the multiple causes of consumer vulnerability. The study proposes a new definition of consumer vulnerability and identifies the main drivers of consumer vulnerability in key markets of the European Union. The energy sector is one of three sectors studied in-depth.

DG JUST commissioned a study on the functioning of retail electricity markets for consumers in the EU. The study looks at consumers’ perceptions of prices and reported affordability in retail electricity markets. Initial findings from the 2015 electricity study were published in November 2015 together with the State of the Energy Union 2015 Communication 29 . 

The Agency for the Cooperation of Energy Regulators (ACER) 30 produces annual Market Monitoring Reports (MMR) 31 . ACER reports, published annually since 2011, provide an in-depth coverage of issues such as protection of vulnerable consumers, number of vulnerable consumers and number of disconnections across EU Member States 32 . The findings of these reports have been used extensively in this evaluation.

The Council of the EU conducted a survey of the Member States on the scope of consumer vulnerability which gave input to Council conclusions on the subject in June 2014. The conclusions of this survey provided information on the Member States' experiences when implementing the provisions evaluated in this document.

1.7.Implementation state of play (Results)

1.7.1.State of play as regards implementation

Electricity and Gas Directives

Enforcement action undertaken by the Commission in relation to the internal energy market legislation is ongoing. Procedures are set out in detail in "Enforcement of the Third Internal Energy Market Package (SWD(2014) 315 final)". 33  

As of 20 January 2016, all of the infringement proceedings for partial transposition of the Electricity and Gas Directive have been closed. The focus is now on addressing incorrect transposition or bad application of the Third Energy Package at the Member State level, with priority being given to violations which have the highest impact on the functioning of the internal market, including unbundling, independence, powers and duties of the national regulatory authorities and consumer protection. On this basis, the Commission has opened structured dialogues ("EU Pilot 34 ") with a number of Member States. As of 20 January 2016, eight of these dialogues have been followed by infringement procedures.

1.7.2.Problems and issues identified

In September 2011 the Commission opened 38 infringement proceedings against 19 Member States to ensure full transposition of the Electricity and Gas Directives. Non-resolved cases were followed up in 2012 by sending reasoned opinions and referrals to Court.

The two Directives have been now transposed by all Member States. The Commission closed all the non-communication cases.

Structured dialogues with Member States as well as infringements on incorrect transposition or bad application are currently ongoing. As of 20 January 2016, 8 of the structured dialogues have resulted in infringement procedures where, inter alia, violation of the EU electricity and gas consumer provisions is at stake.

So far, based on the preliminary findings of the conformity checks, Electricity Directive Article 3 point 7 and Gas Directive Article 3 point 3 on the protection and definition of vulnerable consumers seems to be the more problematic issues with regard to the implementation of the provision in five Member States 35 .

In relation to the Electricity Directive Article 3 point 8 and Gas Directive Article 3 point 4 on the measures to address energy poverty where identified, the conformity checks found issues with regard to the implementation in two Member States.

1.8.Answers to the evaluation questions

In this section we first describe the current situation with respect to consumer vulnerability, energy poverty and disconnections across the EU. Secondly, the evaluation questions are addressed for each of the key provisions within the scope of the evaluation.

What is the current situation?

Article 3 of the Electricity and Gas Directives states that Member States shall take appropriate measures to protect final customers, and in particular, shall ensure that there are adequate safeguards to protect vulnerable consumers. In this context, each Member State should define the concept of vulnerable consumers, which may refer to energy poverty and, inter alia, to the prohibition of disconnecting to such customers in critical times.

Consumer Vulnerability 36

a) Definitions across Member States

Member States take different approaches to the transposition of the obligation to define the concept of vulnerable consumers.

ACER MMR identifies explicit and implicit definitions at the Member State level.

Explicit definition of consumer vulnerability may refer to a list of criteria defining vulnerability, such as personal or household characteristics, or specific economic conditions which are specified in national law. In roughly half of the Member States the definition of energy consumer vulnerability refers to aspects of low income, bad health, or critical dependence on energy for life support. In some Member States, an additional reference is made to the energy consumption of a vulnerable households e.g. by reference to an upper limit of power or consumption level over a certain period (for instance, Portugal and Spain). Most explicit definitions also include references to existing social security laws with respect to eligibility criteria. This underlines the embedded character of the concept of vulnerable consumers in a wider social protection agenda 37 .

Some Member States argue that the eligibility criteria of existing national social protection already capture the essence of the concept of vulnerable consumers 38 and opted for implicit definitions of consumer vulnerability. Implicit definitions, which are more difficult to grasp, are usually not encoded in law. Instead vulnerable consumers are supported by a wider social security net.

Insight_E (2015)  39 provides another categorisation of the concept of vulnerable consumers. Based on their research, the most common type of definition of vulnerable consumers adopted across EU Member States is based on receipt of social welfare whereby a consumer is automatically defined as vulnerable based on the eligibility criteria used for the receipt of social welfare. Other Member States define vulnerable consumers based on the difficulty to afford basic energy services. Four Member States specifically refer to health and disability while other Member States refer to a broad range of socio-economic groups, which may include income, age or health characteristics.

Table 1: Insight_E (2015) Categorisation of vulnerable consumer definitions

Definition type

Member State

Energy affordability (low income / high expenditure)

FR, IT, SE

Receipt of social welfare

BG, CY, DE, DK, EE, FI, HR, HU, LT, LU, MT, PL, PT, SI,

Disability / health

CZ, NL, SK, IE

Range of socio-economic groups

AT, BE, ES, GR, RO, UK

Source: Insight_E (2015) "Energy poverty and vulnerable consumers in the energy sector across the EU: analysis of policies and measures".

Different categories in definitions of vulnerable consumers result in significant differences among Member States with regards to the coverage of the definition of vulnerable consumers and, as a consequence, differences in the share of the population defined as vulnerable. For instance, while all households are de facto considered potentially vulnerable in Luxembourg, only consumers with health issues, connected to life-support equipment, qualify as vulnerable in the Czech energy market. Furthermore major differences exist among Member States with regards to the level of support that vulnerable consumers receive.

b) Consumer vulnerability rates across the EU

Findings from the latest ACER MMR suggest that the level of consumer vulnerability across the EU is stable, with the exception of Greece and France where the number of consumers benefiting from social tariffs has noticeably increased in the last year. However, the report also highlights that solid conclusions cannot be drawn on the exact rates and variation in energy consumer vulnerability because of incomplete and incomparable data.

Figure 3: Share of vulnerable customers in electricity and gas - 2013-2014 (%) (ACER MMR)

 

The ACER MMR also pointed out that only a minority of Member States were able to report figures on the precise number of vulnerable consumers. 

Energy poverty

a) Definitions

As of today, Cyprus, France, Ireland, UK and Slovakia define the issue of energy poverty in their legislations. The definitions focus on identifying groups facing problems of affordability in maintaining necessary energy services, heating in particular, in their homes. In addition, such definitions often consider various energy carriers, such as electricity, gas and coal. Annex 4 shows the official and unofficial definitions in use across the EU. The Commission is aware of on-going activities in several other Member States to introduce definitions of energy poverty in national legislation.

b) Energy poverty across the EU

Growing levels of energy poverty have provoked strong political interest in the issue of consumer vulnerability and energy poverty within the European Parliament 40 41 , the Committee of the Regions 42 , and the Economic and Social Committee 43 , as well as broader stakeholder community including think tanks and consumer associations.

Since 2000 expenditure on energy services for the poorest households in the EU has increased by 50%, reaching almost 9% of their total budget on average, driven mainly by energy prices rising faster than household disposable income 44 .

In 2014, the gap in the share of expenditure spent on domestic energy services between the average and the poorest households increased to three percentage points.

Figure 4: EU average - share of households' budget spent on domestic energy services 45

Source: National Statistical Authorities of EU Member States

Other Eurostat indicators draw similar conclusions. For example, the number of European citizens saying that they were unable to keep warm during winter shows a similar upward trend. Yet, the incidence of this indicator changes across Member States. While more than one in four citizens in Bulgaria, Greece, Portugal and Lithuania felt their homes were cold during winter, in Denmark, Luxembourg, Austria, Finland and Sweden just less than 3% of the population felt that way.

Disconnections

Safeguards against disconnections due to non-payments are one of the most frequently used instruments to protect vulnerable and energy poor consumers. Insight_E (2015) estimates that 20% of the Member States use disconnection safeguards as their primary measure for protection of vulnerable and energy poor consumers. 25 Member States have in their legislation some kind of provision against disconnections either during winter, targeted to specific group, or general and preventative safeguards (Insight_E (2016)). Popular safeguards against disconnections include an extended notice procedure, the involvement of social support institutions in disconnections processes, and similar hurdles for suppliers and Distribution System Operators (DSOs) to prevent premature disconnections of their non-paying customers 46 .

The ACER MMR shows that in 2014 disconnection rates were highest in Portugal (5.6% electricity and 4.0% gas), Italy (4.0% electricity and 2.1% gas), Malta (2.8% electricity and no data for gas) and Greece (2.5% electricity and 1.7% gas). In other Member States, disconnection rates were significantly lower.

The ACER report also states that the availability of data on disconnections remains limited. This is despite the fact that the Electricity and Gas Directives state that Member States have to provide for disconnection data to be collected by National Regulatory Authorities (NRAs) 47 . 

In addition, the ACER report points that looking just at disconnection rates may lead to premature conclusions as many households, unable to keep warm during winter, decide to self-disconnect to avoid falling into arrears or debt. This situation is particularly important in Great Britain, Belgium, Poland or Ireland 48 .

It is important to note that, once disconnected, consumers face additional costs and waiting times to ensure reconnection. Having been disconnected from the electricity and gas grid, it takes between 5 and 76, and an average of 25 days, to be reconnected to the network 49 . Disconnections are also particularly problematic for vulnerable consumers because of their dependency on electricity and gas due to for example the need to be connected to medical equipment; and the barriers when interacting with the market.

To summarise, there is currently a broad divergence in Member States, both with regards to the definition of vulnerable consumers and to the measures adopted to protect them.

While a degree of difference is justified by the variety in national circumstances, significant differences in the level of protection of vulnerable consumers across EU Member States.

Even though levels of consumer vulnerability seem stable, energy poverty is a growing problem and is increasingly being discussed in its own right. Safeguards against disconnections represent one of the most popular measures to protect vulnerable consumers and to mitigate the impacts of energy poverty.

How effective has the EU intervention been?

This section considers how effective EU action has been in achieving its objectives. The main objectives of the provisions in the Electricity and Gas Directives in relation to vulnerable consumers and energy poverty were to:

Incentivise protection of vulnerable consumers at the Member State level through:

Getting the Member States to define the concept of vulnerable consumers

Getting the Member States to address energy poverty where identified as an issue.

Facilitate the decision by Member States to proceed with electricity and gas market liberalisation

EU action has successfully encouraged Member States to define the concept of vulnerable consumers as all Member States have a definition of vulnerable consumer in their legislation. However, the coverage of the group defined as vulnerable, as well as the associated protective measures vary widely across Member States. 50 The wide range of definitions of consumer vulnerability across Member States highlights the variety of problems and challenges around vulnerability in the energy market across Member States. Whilst variety of definitions is not a problem per se, it can be noted that the definition of consumer vulnerability has a bearing on the type of action that follows. This in turn led to unequal level of energy consumers' protection across EU Member States.

It must be noted that EU action has not been fully effective in ensuring that Member States effectively address the problem of energy poverty. As outlined previously, the level of energy poverty across the EU has increased substantially over the past 15 years. Moreover, only a small minority of Member States have decided to define the concept.

While tackling energy poverty is mainly a Member State issue, EU action can incentivise adequate identification and propose most appropriate solutions to the problem of energy poverty. However, current legislation is not effective in that respect as it does not assist Member States in defining energy poverty and refers to the problem of energy poverty only as a sub-category of the problem of consumer vulnerability – which in today's context is too restrictive.

It is important to recognise that energy poverty and consumer vulnerability are two distinct issues. Consumer vulnerability 51 is driven by consumer characteristics such as age, number of dependents, health, ability to interact with the market, behavioural characteristics, employment, or access to shops or the internet. Energy poverty, on the other hand, is driven by poor energy efficiency of dwellings and high energy prices correlated with stagnating or falling wages. This difference is not recognised in the Electricity and Gas Directives as both issues are treated simultaneously and none of the terms is identified, thus providing limited assistance to Member States.

It must also be noted that a study carried out for the purpose of this evaluation, Insight_E (2015), argues in favour of recognising that the issues of vulnerable consumer protection and energy poverty are distinct. The report argues that consumer vulnerability and energy poverty can affect different energy consumer groups, and require different measures. The overlap between the concept of consumer vulnerability in energy markets and energy poverty depends on the definition of consumer vulnerability used in each of the Member States. When vulnerable consumers are narrowly defined, for example by defining vulnerable consumers as those in need of access to electricity to power their medical devices, the overlap is limited.

Price regulation constitutes a barrier for liberalisation and potential cross-border integration of the electricity and gas markets in a number of Member States - the argument being that electricity and gas price regulation constitutes a form of protection against energy poverty. In fact while some progress has been achieved in liberalisation of the energy markets across the EU, 17 Member States still apply some form of price regulation in their electricity and gas markets. Growing energy poverty levels and the need to protect vulnerable consumers are often quoted by Member States as a justification for maintaining price regulation in retail energy markets where energy suppliers may abuse their market power to increase prices.

In that context any future legislative changes could look into reinforcing EU assistance/action on energy poverty and propose appropriate tools for addressing energy poverty which enable Member States to phase-out regulated prices.

How efficient has the EU intervention been?

This section looks at the relationship between the resources used by Member States to implement the provisions on vulnerable consumers and energy poverty in the Electricity and Gas Directives and the changes generated by the intervention.

There is no data available to assess this question quantitatively. Yet, it is likely that the benefits derived from defining consumer vulnerability at the Member State level and implementing measures to protect them outweigh the costs of setting up such a policy.

The cost of defining vulnerable consumers is likely to have been limited as in many of the Member States, the definition of vulnerable consumers is linked to other social security benefits. The administrative cost of delivering protection to vulnerable consumers is also likely to have been limited as many Member States choose to address consumer vulnerability through their general welfare system, thus limiting additional costs.

The end cost of protecting vulnerable consumers depends on the level of support and remains at the discretion of the Member States. Consequently, the rate between costs and benefits will depend on factors such as how adequately Member State definition of vulnerable consumer captures vulnerability, the type of protective measures, and the means to implement these measures.

The same logic applies to the costs of executing the provisions on energy poverty in the Electricity and Gas Directive 52 .

In this context, it is important to stress that it is unlikely that Member States would have proceeded to implement the liberalisation of their energy markets without strong guarantees on the rights of consumers, including vulnerable consumers.

The distributional impact of costs and benefits associated with Member State execution of the provisions on vulnerable consumers and energy poverty depends on whether the protective measures were financed through general taxation or passed on to consumers. Assuming a progressive system of taxation, it is likely that measures financed through the energy bill have a more regressive effect than if financed through general taxation.

While the overall benefits of energy market liberalisation accrue to all consumers, the main beneficiaries of the protective measures for vulnerable consumers are those who qualify for the support. Conversely, those bearing the cost (though taxes or duties in the energy bill) and who do not receive the benefits, will be worse off. However, the overall benefits of market liberalisation to all consumers are likely to outweigh the costs of funding the measures to protect vulnerable and energy poor consumers.

How relevant is the EU intervention?

This section looks at the relationship between the needs and problems in society and the objectives of the articles in the Electricity and Gas Directives relevant to vulnerable consumers and energy poverty.

EU action on vulnerable consumers and energy poverty is driven by the need to protect vulnerable and energy poor consumers. These objectives were identified by earlier legislative initiatives as a shortcoming of electricity and gas market liberalisation, as measures to ensure an effective finalisation of the internal energy market. Both objectives are still relevant.

Evidence quoted previously shows that the problem of energy poverty across the EU is growing despite action by some Member States to address vulnerable energy consumers. A number of Member States also see consumer vulnerability and energy poverty as a barrier for electricity and gas market liberalisation. Therefore the protection of vulnerable consumers and actions to address energy poverty are still a relevant area for EU intervention in the context of the completion of the internal energy market.

EU intervention is further justified by the variability in the definitions of consumer vulnerability and in the type of protective measures adopted at the Member State level, which leads to unequal consumer protection across the EU.

Recent research suggests that consumer vulnerability in the energy market will continue to be a relevant policy issue in the future 53 as a substantial share of those characterised as vulnerable consumers may continue to find difficulties to interact with the market due to social, behavioural or cognitive drivers. While general consumer protection measures such as consumer rights will continue to be maintained, specific provisions for vulnerable consumers will also be needed to ensure that vulnerable consumers can also benefit from the internal energy market.

Energy poverty is also likely to continue to be an important policy issue in the future. In recent years, energy prices have risen faster than household disposable income 54 . This has been particularly problematic for low-income households. If this trend continues, it is likely that the level of energy poverty in the EU will grow, which creates an even stronger case for EU intervention to deliver adequate tools for the Member States to address the problem of energy poverty without obstructing the completion of the internal energy market through practices such as electricity and gas price regulation.

How coherent is the EU intervention internally and with other (EU) actions?

This section looks at the coherence between various provisions on vulnerable consumers and energy poverty. It assesses the internal coherence of the Electricity and Gas Directives and the external coherence in relation to other provisions on vulnerable consumers and energy poverty included in the EED and Commission actions outside legislation.

As previously explained, when defining vulnerable consumers, Member States can make reference to energy poverty and/or limitation of disconnections. Insight_E (2015) concluded that consumer vulnerability and energy poverty are distinct issues which need to be targeted by different measures. Although both terms are highlighted in the Electricity and Gas Directives, they are not defined and it is not made clear that energy poverty and consumer vulnerability are two distinct issues which require different solutions. 

In relation to the measures to address vulnerability and energy poverty, the Electricity and Gas Directives suggest limitation to disconnections as a measure characterising vulnerability. In the absence of a more precise description of the measures, some Member States have opted to continue with price regulation. This un-targeted measure has had a negative impact on customer choice, competition, and the development of the internal energy market and the Energy Union.

Article 7 of the Energy Efficiency Directive provides the main instrument for the EU to encourage Member States to tackle energy poverty. This article states that Member States shall set up an energy efficiency obligation scheme. This scheme may include requirements with a social aim including by requiring a share of energy efficiency measures to be implemented as a priority in households affected by energy poverty or in social housing. Nonetheless, only four Member States (Austria, France, Ireland and the UK) have added this element in their energy efficiency obligation schemes.

Additionally the Commission has been taking action to assist Member States to meet their obligations under EU law by identifying good practices and supporting exchange of information among stakeholders and Member States representatives on how to alleviate consumer vulnerability and energy poverty in the most cost-effective way.

The Commission also finances energy efficiency improvements, in particular through the structural funds to increase efficiency in buildings which are likely to help reducing energy poverty.

What is the EU added value of the intervention?

EU-added value looks for changes due to EU intervention. The analysis of this evaluation question is limited to qualitative assessment given the difficulties to identify a counter-factual i.e. to quantify what would have happened without EU intervention.

The provisions on consumer vulnerability and energy poverty in the Electricity and Gas Directives ensure that all EU Member States have some level of protection for vulnerable energy consumers. While it is true that some Member States had been already protecting their vulnerable energy consumers prior to EU intervention, others have been brought to take action as a result of EU intervention. Annex 3 55 includes the definitions of vulnerable consumers and links to the national legislation. The table shows that some Member States enacted laws to transpose the Electricy and Gas directive which include a definition of consumer vulnerability in energy markets.

More importantly the consideration of consumer vulnerability and energy poverty in the Electricity and Gas Directives is key for all EU citizens, including vulnerable and energy poor consumers, to enjoy the benefits of the internal energy market. At the same time, having both concepts in the EU legislation creates a more level-playing field for energy suppliers and other retail market actors across the EU. Furthermore, it is also a necessary accompanying measure for Member States to continue the completion of the internal energy market.

Energy affordability is one of the pillars of the energy union. The completiton of the energy unions bring benefits but also costs to Member States. It is fundamental that the EU and Member States understand the impact of these policies upon European citizens and their ability to afford adequate energy services. Hence, the focus on energy poverty at the EU level and the need to address energy poverty where identified, as well as, the inclusion of energy poverty in the EED and the EPBD.

1.9.Conclusions

The legislators' original objectives behind the provisions were as follows:

To ensure protection of vulnerable consumers by getting the Member States to define the concept of vulnerable consumer and implement measures to protect them.

To mitigate the problem of energy poverty by getting the Member States to address energy poverty where identified as an issue.

When setting these two objectives, the legislators also wanted to facilitate the decision by Member States to proceed with electricity and gas market liberalisation. However, 17 Member States still apply some form of price regulation in their electricity and gas markets. Growing energy poverty levels and the need to protect vulnerable consumers are quoted by Member States as a justification for maintaining price regulation in the retail energy markets.

Effectiveness

The evidence available and considered in this evaluation suggests that the provisions in the Electricity and Gas Directive related to consumer vulnerability and energy poverty were partially effective.

EU action has successfully encouraged Member States to define the concept of vulnerable consumers in their legislation and to adopt measures to protect vulnerable consumers. The provisions have also brought the issue of energy poverty to the attention of some Member States. These provisions helped Member States to liberalise their retail energy markets bringing considerable benefits to all consumers in the form of competitive prices and higher standards of services.

It is nevertheless possible to identify certain unintended consequences and areas of potential improvements.

With respect to consumer vulnerability, whilst the variety of definitions is not a problem per se, research shows that the definition of consumer vulnerability has a bearing on the type of action that follows. This in turn led to unequal level of consumer protection across the EU.

With respect to energy poverty, the evaluation demonstrates that even though most Member States have correctly implemented the provisions on consumer vulnerability, the problem of energy poverty has not been effectively mitigated. While recent research indicates that energy poverty and consumer vulnerability are two distinct issues, the provisions in the Electricity and Gas Directives refer to energy poverty as a type of consumer vulnerability. This led to an incorrect expectation that a single set of policy tools can address both problems simultaneously.

This evaluation also identifies shortcomings in the effectiveness of the provisions referring to the role of National Regulatory Authorities (NRAs) in the protection of vulnerable consumers and monitoring of electricity and gas disconnections.

Efficiency

There is little evidence but good reason to assume that the intervention has been efficient in terms of the proportionality between the overall benefits and the costs of the resources deployed to fulfil the objectives of the provisions.

The cost of defining and protecting vulnerable consumers is likely to have been limited, as in many Member States, consumer vulnerability is linked to other social security benefits.

Relevance

Overall the key provisions remain highly relevant. For the Energy Union to be completed, strong consumer protection for all consumers and especially for the vulnerable ones is needed.

Evidence suggests that consumer vulnerability and energy poverty will continue to be increasingly relevant policy issue in the future. On one hand, a substantial share of those characterised as vulnerable consumers have permanent characteristics that make them vulnerable. On the other hand, energy poverty is likely to continue growing as energy prices have risen faster than disposable income, particularly for low-income households.

Coherence

In terms of coherence, the evaluation has not identified any inconsistencies or elements in the legislation working against the objectives of the provisions on vulnerable and energy poor consumers. 

Nevertheless the misidentification of consumer vulnerability and energy poverty as the same issue in the Electricity and Gas Directives means that expected combined impacts are not occurring and energy poverty grows while Member States take action to protect vulnerable consumers.

Lack of a definition of energy poverty in the Electricity and Gas Directives, the EED and the EPBD makes the implementation of the provisions unclear and ambiguous.

EU added-value

The provisions addressing consumer vulnerability in the Electricity and Gas Directives are essential for protecting vulnerable consumers in the internal energy market at the retail level. While it is true that some Member States had been already protecting their vulnerable energy consumers prior to EU intervention, others have been brought to take action as a result of EU intervention. 

1.10.Stakeholder consultation

This evaluation has benefitted from input from the following processes involving stakeholders:

1.Consultation on the retail energy market
http://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market  

2.Meetings of the Vulnerable Consumer Working Group between April and December 2015.

Consultation on retail energy market - results

Below are summarised in graphic form a quantitative summary of the feedback from the consultation referred to in point 1 above in so far as retail energy market and the protection of vulnerable and energy poor consumers are concerned.

Please five your opinion on the relative importance of the following factors in helping residential consumers

o) Protection of vulnerable consumers

In your opinion, which of the following factors will be the main drivers of future developments in the retail market?

Meetings of the Vulnerable Consumer Working Group

The Vulnerable Consumer Working Group 56 is a stakeholder group chaired by the European Commission and attended by industry, consumer organisations, Member State and regulators representatives and academia. The group provided input to the European Commission in various aspect of this evaluation. In particular, this evaluation draws from the Guidance on Vulnerable Consumers and the Working Paper on Energy Poverty.

1.11.Member States definitions of vulnerable consumers

Member State

Definition of vulnerable consumers

Austria

The concept of vulnerable customer is implemented through a series of protection mechanisms for clearly identified groups of people/households according to social security and energy laws.

Belgium

Flanders: Cf. national definition of "sociale maximumprijs". In Flanders, vulnerable customers are those customers that are entitled to get the social tariff. National legislation defines the preconditions to get the social tariff.

Brussels: The Brussels Region applies the definition of vulnerable customer such as defined in the Directive. The categories recognised by the national Government as vulnerable ones are also recognised in the Brussels Region. The Brussels Region recognises two extra categories of customers as vulnerable: 1) which are recognised as vulnerable customers by local public aid centres and 2) ones that meet certain criteria defined in the regional legislation in terms of revenues and number of persons composing the household and whom are on that basis recognised as vulnerable customers by the Brussels regional regulator. For the two additional categories recognised in the Brussels Region the 'statute' of vulnerable customers is linked to a limitation of power supply and is limited in time and ceases once the customer has paid off his debt to his supplier.

Federal: The definition of the concept of vulnerable customers is implicitly recognized by the energy law and/or social security system in my country; The energy law/legal framework explicitly states what groups of customers are regarded as “vulnerable” based on personal properties of customers (disability).

Bulgaria

Social Assistance Law through Ordinance No. RD-07-5 as of 16 May 2008 for provision of targeted benefits for heating is given once a year to Persons or families whose average monthly income in the last six months is lower or equal to differentiated minimum income; these citizens are eligible for heating benefits according to Art. 10 and 11.11 From July 2012, vulnerable customers are defined in the Energy Act.*

Croatia

In its valid and effective wording, the Energy Act does not define ‘vulnerable customer’; for consumers who can be regarded as ‘socially disadvantaged’, certain measures for their protection and support for their rights are provided for at the level of generally applicable legislation in the domain of social security law

Cyprus

The definition of vulnerable customers is determined in a Ministerial decree (CEER 2013). Additional public assistance is provided to recipients to satisfy special needs, including “heating 170 euro per annum”. Recipients include persons with disability and medically confirmed patients treated abroad for a period not exceeding six months; persons with disability studying in an educational institution in Cyprus or abroad (for a period not exceeding by more than one year the normal period of their course) to obtain qualifications that will help them become independent of public assistance; and persons under the care of the director of the Social Welfare Services (SWS) when they become 18 years old and enrol in an educational institution in Cyprus or abroad in order to obtain qualifications that will help them become independent of public assistance

Czech Republic

There is a legal term "protected customer" such as hospitals and ill people dependant on life-support equipment.

Denmark

There are no specific provisions regarding vulnerable consumers in energy law; instead this issue is dealt with in social legislation.* However the principal of universality exists where every citizen has a right to social assistance when affected by a specific event. Various schemes in existence for short and longer-term support to unemployed, social security for the non-working.

Estonia

A household customer to whom subsistence benefit has been awarded pursuant to section 22(1) of the Social Welfare Act: A person living alone or a family whose monthly net income, after the deduction of the fixed expenses connected with permanent dwelling calculated under the conditions provided for in subsections 22 (5) and (6) of this Act, is below the subsistence level has the right to receive a subsistence benefit. Subsistence level is established based on minimum expenses made on consumption of foodstuffs, clothing, footwear and other goods and services which satisfy the primary needs.

Finland

In the energy market act there are defined in connection to the disconnection of the electricity. Also in the constitution there is a concept of basic rights and social security legislation defines the target groups.

France

Special tariffs are reserved for households with an income below or equal to a threshold of entitlement to supplementary universal health cover. These tariffs are available for both electricity and natural gas consumers. From the end of 2013, these social tariffs were further extended to cover all households with an annual reference fiscal income per unit (revenu fiscal de reference) lower than EUR 2,175. The number of households benefitting from the social tariff is expected to increase from 1.9 million to 4.2 million, equivalent to 8 million people.*

Germany

Vulnerable customers eligible for support are in line with the social security system (CEER 2013). Additional support is provided in terms of consumer protection in line with the Third Energy Package.*

Greece

Groups of customers defined under the Energy law:

(a) The financially weak customers suffering from energy poverty.

(b) Customers who themselves or their spouses or persons who live together, rely heavily on continuous and uninterrupted power supply, due to mechanical support.

(c) Elderly who are over seventy years old, provided they do not live together with another person who is younger than the above age limit.

(d) Customers with serious health problems, especially those with severe physical or mental disability with intellectual disabilities, severe audiovisual or locomotor problems, or with multiple disabilities or chronic illness who cannot manage their contractual relationship with their Supplier.

(e) Customers in remote areas, especially those living at the Non Interconnected Islands.

Hungary

Vulnerable customers' shall mean those household customers who require special attention due to their social disposition defined in legal regulation, or some other particular reason, in terms of supplying them with electricity.

Ireland

A vulnerable customer is defined in legislation as a household customer who is:

a) critically dependent on electrically powered equipment, which shall include but is not limited to life protecting devices, assistive technologies to support independent living and medical equipment, or

b) particularly vulnerable to disconnection during winter months for reasons of advanced age or physical, sensory, intellectual or mental health.

Italy

Several measures aim to protect customers (vulnerable household customers, utilities, activities relating to 'public service’, including hospitals, nursing homes and rest, prisons, schools and other public and private facilities that perform an activity recognized of public service as well as household customers that require electricity-powered life-support equipment with severe health problems). Italian decrees establish the “social bonus” (a social support program) defined by the Government for the benefit of electricity customers whose annual income does not exceed a certain threshold (set up by the law and certified by equivalent economic situation indicator, that takes into account income, assets, the characteristics of a family by number and type). The “social bonus” is a discount (annual amount fixed the same in the free market or in the enhanced protection regime) of the electricity bill each year, dependent upon the use, number of people in the family, and climate zone

Latvia

There is no clear definition of vulnerable consumers yet, but plans exist to introduce several measures to inform and support vulnerable consumers.*

Lithuania

The persons to whom according to the procedure established by the Laws of the Republic of Lithuania social support is granted and/or social services are provided can be defined as socially vulnerable customers. The list of socially vulnerable customers and the groups thereof and/or additional social guarantees, related to supply of electricity, which are applied to such customers or their groups, are set by the Government or its authorized institution. Developing the definition (list) of vulnerable consumers is currently under discussion.

Luxembourg

All customers are de facto considered as potentially vulnerable in Luxembourg.*

Malta

Vulnerable consumers are supported through social policy. Recipients of social security are eligible for support

Netherlands

Legislation states that a household consumer for whom ending the transport or the supply of electricity or gas would result in very serious health risks for the domestic consumer or a member of the same household of the household customer is regarded as vulnerable, and thus disconnection is not permitted, unless a case of fraud has been proved

Poland

The energy law states that vulnerable customer of electricity is a person who is eligible to housing allowance (income support) because the level of its income is lower than a certain degree. That means that the concept of vulnerable customers is based on poverty.

Portugal

The concept is defined in the energy sector law and corresponds to that of economically vulnerable customers which correspond to people receiving certain social welfare subsidies (social security system) with some contract limitations (e.g. contracted power). These customers have access to a social tariff.

Romania

Vulnerable customers are defined as household consumers with low income within the limits laid down in the Ordinance 27/2013*

Slovakia

The concept for the protection of consumers fulfilling conditions of the energy poverty was in preparation in 2013. Act on Energy Industry defines vulnerable household electricity customer as a strongly disabled person and whose vital functions are depending upon the offtake of electricity and uses electricity for heating. The DSO keeps records of vulnerable customers and can disrupt electricity distribution only after previous direct communication of these electricity customers with the DSO.

Slovenia

Social support is provided to households through a minimum income to households/individuals without an income or an income below the official level.

Spain

The concept of vulnerable costumers has only been defined so far for electricity customers. Vulnerable customers should fulfil at least one of the following criteria: a large family or a family where all members are unemployed; be low voltage consumers (less than 1 kV) with contracted demand lower than or equal to 3 kW; or a pensioner older than 60 years with a minimum level pension. Vulnerable customers’ electricity tariffs are reduced by means of a “social bonus”, which sets their tariffs at the July 2009 level. As of December 2012, 2,544,170 customers were defined as vulnerable.

Sweden

Vulnerable customers are defined as persons who permanently lack ability to pay for the electricity or natural gas that is transferred or delivered to them for non-Commercial purposes.

United Kingdom

Ofgem have defined vulnerability as when a consumer’s personal circumstances and characteristics combine with aspects of the market to create situations where he or she is:

-significantly less able than a typical consumer to protect or represent his or her interests in the energy market; and/or

-significantly more likely than a typical consumer to suffer detriment, or that detriment is likely to be more substantial

Source: Insight_E (2015)

1.12.Member States definitions of energy poverty

Member State

Energy / fuel poverty definition

Definition metric

Cyprus

Energy poverty may relate to the situation of customers who may be in a difficult position because of their low income as indicated by their tax statements in conjunction with their professional status, marital status and specific health conditions and therefore, are unable to respond to the costs for the reasonable needs of the supply of electricity, as these costs represent a significant proportion of their disposable income.

Energy poverty is defined in the Electricity Law. Based on the provisions of the Law, a Ministerial Degree is issued specifying the various categories of vulnerable consumers and the corresponding measures to protect them.

France

Definition according to article 11 of the “Grenelle II” law from 12 July 2010:

Is considered in a situation of energy poverty “a person who encounters in his/her accommodation particular difficulties to have enough energy supply to satisfy his/her elementary needs, this being due to the inadequacy of resources or housing conditions.”

A quantitative threshold is missing.

Slovakia

Energy poverty is defined as a condition when average monthly household expenditures for the consumption of electricity, gas and heat, represent a significant share of the average monthly household income.

According to the Concept for the protection of consumers fulfilling conditions of energy poverty, issued by the Regulatory Office, the Statistical Office provides information on average monthly household expenditure for energy consumption and household income. A household can be considered as energy poor if disposable monthly income is lower than the minimum monthly disposable household income threshold.

The threshold is published on the website of the Ministry of Labour, Social Affairs and Family of the Slovak Republic, the Regulatory Office for Network Industries and on message boards of labour, social affairs and families, municipalities and municipal authorities.

Ireland

Energy poverty is a situation whereby a household is unable to attain an acceptable level of energy services (including heating, lighting, etc) in the home due to an inability to meet these requirements at an affordable cost.

Spends more than 10% of its disposable income on energy services in the home.

UK (England)

A household to be fuel poor if (i) their income is below the poverty line (taking into account energy costs); and (ii) their energy costs are higher than is typical for their household type (DECC 2013).

Low income, high consumption (LIHC). Two criteria include (i) fuel costs are above the median level, and (ii) residual income net of fuel cost spend is below the official poverty line. This applies in England, while other constituent countries use the 10% threshold metric.

Note that England continues to report the 10% threshold metric for comparison, which is that a fuel poor household is one which needs to spend more than 10% of its income on all fuel use to heat it home to an adequate standard of warmth (21C in living room, and 18C in other rooms as recommended by WHO.

UK (Scotland)

A household is in fuel poverty if, in order to maintain a satisfactory heating regime, it would be required to spend more than 10% of its income (including Housing Benefit or Income Support for Mortgage Interest) on all household fuel use (Scottish Executive 2002).

The definition of a 'satisfactory heating regime' as per for Wales (below)

UK (Wales)

Fuel poverty is defined as having to spend more than 10 per cent of income (including housing benefit) on all household fuel use to maintain a satisfactory heating regime. Where expenditure on all household fuel exceeds 20 per cent of income, households are defined as being in severe fuel poverty (Welsh Assembly Government 2010).

As stated. The definition of a 'satisfactory heating regime' recommended by the World Health Organisation is 23°C in the living room and 18°C in other rooms, to be achieved for 16 hours in every 24 for households with older people or people with disabilities or chronic illness and 21°C in the living room and 18°C in other rooms for a period of nine hours in every 24 (or 16 in 24 over the weekend) for other households.

UK (Northern Ireland)

A household is in fuel poverty if, in order to maintain an acceptable level of temperature throughout the home, the occupants would have to spend more than 10% of their income on all household fuel use (DSDNI 2011).

'Acceptable' level as per WHO 'satisfactory heating regime'

Source: Insight_E (2015)



2.Annex 4: Details on the EU Framework For Switching and Exit fees

2.1.Executive Summary

Keynotes:

Influence of current EU regulatory framework on switching rates is rather positive, but impossible to quantify

Consumers are dissatisfied with comparability and clarity of billing information

This Annex presents more detailed explanations on the evaluation of existing provisions in EU law relating to switching and exit fees in energy markets. The evaluation was carried out to inform the review of the Internal Energy Market Directives, and the follow-up of the “New Deal for Energy Consumers” Communication adopted by the Commission in July 2015 as part of the Market Design Initiative.

Switching fees are regulated by provisions in the Electricity and Gas Directives 57 . The legislators' original objectives behind the consumer-related provisions – including those around switching and exit fees – were in summary:

1.To enable effective consumer choice and boost competition, and more specifically offer every EU consumer the possibility to choose his/her electricity and gas supplier freely between any EU company;

2.To ensure competitiveness in retail market pricing;

3.To enable easy price comparison for - inter alia – households

4.To create consumer incentives to save energy.

In terms of effectiveness, the evidence available and considered in this evaluation generally suggests that the provisions in the Electricity and Gas Directives are likely to have made positive contributions towards these objectives.

Nevertheless, the legislation may not have been fully implemented in all Member States. The deadline for transposing the Electricity and Gas Directives was 3 March 2011, giving Member States ample time for implementation.

It is thus clear that there is still significant room for improvement and that further action might be required to this end. Two issues in particular should be addressed.

First, further restricting switching-related fees would enable consumers to - inter alia - better manage their energy costs, avoid lock-in with a particular supplier, and ensure their rights are guaranteed.

Secondly, the current framework remains both complex and open to interpretation with regard to the nature and scope of certain key obligations. This could be addressed by revisiting certain aspects of Annex I of the IEM.

In terms of efficiency, there is no evidence or any reason to assume that the provisions considered have not been efficient in terms of the proportionality between impacts and resources/means deployed.

With regard to relevance, all provisions remain highly relevant.

In terms of coherence, the evaluation has highlighted that the legislation could be clearer in terms of setting out final customer rights, such as Article 3(7) of the IEM. Annex I of the IEM should clearly define which switching activity should be cost-free and which switching activity should incur costs. For example, free-riding customers who switch simply to benefit from different energy companies’ offers should be discouraged from doing so as this may cause detriment to final customers as a whole in terms of higher costs. In addition, where the contract has included the provision of or payment for, say, micro-generation capacity (photovoltaic panels, etc.), the supplier should be reimbursed appropriately for this investment.

Finally, as regards the EU added-value of provisions for free switching, the evaluation has identified no reason to question that. Healthy levels of consumer engagement and retail competition are key to ensuring the rollout of new products and services that will help the energy system become more flexible, and build demand for innovative energy products. In addition, the provisions addressing consumer information in the Electricity and Gas Directives are essential to ensure that the benefits of the internal energy market are passed on to all EU consumers.

2.2.Introduction

2.2.1.Purpose of this evaluation

The purpose of this evaluation is to take stock of the actual performance of existing EU legal provisions on switching fees in the context of the follow-up on the Communications on a new energy market design 58 and on Delivering A New Deal for Energy Consumers 59 (hereinafter referred to jointly as the Market Design - "MDI"), and of the parallel review of the Electricity and Gas Directives. At the same time, the evaluation presents an opportunity to look critically at provisions where problems have already been identified in the course of the ongoing work with transposition and implementation of the Directives.

2.2.2.Summary of EU acquis related to switching fees

The Electricity and Gas Directives contain the following key provisions:

Art. 3    Public service obligations and customer protection

o3(5) Non-discrimination towards customers

o3(7) Consumer protection and easy switching

Annex I Consumer protection

o1(b) Free customer withdrawal from contracts if new conditions are not accepted

o1(e) No customer charges for changing supplier

2.3.Scope of this evaluation

The scope of the evaluation covers the following elements:

Electricity and Gas Directives

A specific evaluation of the performance/continued relevance of Art 3(5) and 3(7) of the Electricity Directive with regards to switching-related fees: This covers non-discrimination towards consumers, consumer protection and easy switching.

A general evaluation of the performance/continued relevance of Annex I 1(b) and Annex I 1(e) of the Electricity Directive: These address the applicability of switching-related fees.

2.4.Background to the initiative

This section seeks to establish the objectives behind the existing provisions on switching fees in the IEM legislation based on the legislative texts (including their recitals) as well as the Commission proposals and preparatory documents accompanying the latter (impact assessments).

2.4.1.Description of the initiative and its objectives

The Commission's proposal for the Electricity and Gas Directives

The switching fee provisions in the current Electricity and Gas Directives were introduced in the Second Energy Package in 2003 as an integral part of measures making all consumers free to choose their supplier and to switch free of charge.

Although the 2007 Commission proposals for the Electricity and Gas Directives did not include new provisions on switching fees, they reiterated that the existing universal public service 60 requirements in Article 3 of the legislative texts were there "to make sure that all consumers can benefit from competition." The Commission's Impact Assessment accompanying the 2007 proposals 61 stated that one of the specific objectives of the broader effort to improve consumer protection was "[e]nabling easier price comparisons".

The Electricity and Gas Directives as finally adopted by the co-legislator

The recitals of the 2003 Electricity and Gas Directives as finally adopted by the co-legislators following the co-decision process reinforce the objectives identified by the Commission to a large extent. The co-legislators:

Inserted a recital stating that the ability of electricity and gas customers to choose their supplier freely was fundamental to the freedoms which the Treaty guarantees European citizens (Recital 4) – a point reiterated elsewhere in the recitals. 62

Reinforced a recital on standards of public service to include the right for household customers and, where Member States deem it appropriate, small enterprises "to be supplied with electricity of a specified quality at clearly comparable, transparent and reasonable prices" (Recital 24)

The provisions and recitals on the freedom to choose suppliers, to change supplier at any time, and the right to clear, comparable information remained largely unchanged by the co-legislators in the 2007 Directives.

The European Parliament stated “Member States shall ensure that the eligible customer is in fact easily able to switch to a new supplier.” in its Resolution of 18/6/08. “Effectively” replaced easily at some point but “easily” was the final wording.

To summarise, the switching provisions in the electricity and gas markets Directives have remained largely unchanged since they were first proposed/adopted in 2001/2003. The wording of Article 3(7) has however been changed with the addition of the word “easily”: “Member States shall ensure that the eligible customer is in fact easily able to switch to a new supplier.” Whilst no specific reference to switching-related fees was made, legislative texts and supporting documents reveal that the broader objectives of the Commission and co-legislators around the consumer-related provisions were to:

Enable effective consumer choice and boost competition, and more specifically offer every EU consumer the possibility to choose his/her electricity and gas supplier freely between any EU company;

Ensure competitiveness in retail market pricing;

Enable easy price comparison for - inter alia - households;

Create consumer incentives to save energy.

2.4.2.Baseline

The 2003 and 2007 Electricity and Gas Directives were fundamental to the liberalisation of the EU's gas and electricity sectors and the completion of the internal market. In their absence, it is not likely that many Member States would have proceeded with liberalising their energy markets at the same speed and to the same extent. Therefore, it is likely that significantly fewer EU energy consumers would have been able to benefit from market competition in terms of:

increased efficiency and competitiveness;

lower energy supply costs.

Figure 1: Intervention Logic Diagram illustrating the subject of this Annex 

2.5.Evaluation Questions

This evaluation aims, for each of the sub-themes within the scope, to answer the following questions:

1. What is the current situation?

2. How effective has the EU intervention been?

3. How efficient has the EU intervention been?

4. How relevant is the EU intervention?

5. How coherent is the EU intervention internally and with other (EU) actions?

6. What is the EU added value of the intervention?

2.6.Method

This evaluation has been carried out in-house by the Commission services. The following activities and processes have provided the key inputs:

Electricity and Gas Directives

ACER is an agency created by the ACER Regulation. ACER's duties include monitoring and reporting on the internal electricity and gas markets. By the end of 2015, ACER will have published four annual Market Monitoring Reports 63 that provide in-depth coverage of relevant issues such as consumer empowerment and protection, supplier switching and consumer information. 64

DG JUST (formerly DG SANCO) has commissioned two consecutive studies on the functioning of retail electricity markets for consumers in the EU (2010, 2015). 65 These major studies investigate whether a well-functioning electricity market is in place for consumers in the EU. They also examine the extent to which consumers are able to make informed and empowered choices and what motivates behaviour in the electricity market – evidence pertinent to evaluating the billing and metering measures put in place by the Electricity Directive.

In addition, DG JUST's (and formerly DG SANCO's) consumer scoreboards 66 are an important source of information on how the single market is performing for EU consumers.

The Council of European Energy Regulators (CEER) is a not-for-profit association through which Europe's national energy regulators cooperate and exchange best practice. It has recently produced a position paper on early termination fees, 67 presenting recommendations on how to interpret the switching fee provisions in the Electricity and Gas Directives and how switching-related fees should be regulated at the EU level.

The European Consumer Complaints Registration System - ECCRS (DG JUST). In May 2010 the Commission adopted the "Recommendation on the use of a harmonised methodology for classifying and reporting consumer complaints and enquiries". The Recommendation is addressed to any body that is responsible for collecting consumer complaints, or attempting to resolve complaints, or giving advice, or providing information to consumers about complaints or enquiries, that is a third party to a complaint or enquiry by a consumer about a trader 68 . Consumer complaints collected by consumer handling bodies are a key source of information on the functioning of consumer markets across EU, in particular on problems faced by consumers. As the data will be directly comparable across the EU, this should allow for a faster, better targeted, evidence-based policy response at the EU or the national level to real problems experienced by consumers.

2.7.Implementation state of play (Results)

2.7.1.State of play as regards implementation

Electricity and Gas Directives

Enforcement action undertaken by the Commission in relation to the Third Energy Package is ongoing. Procedures are set out in detail in "Enforcement of the Third Internal Energy Market Package (SWD(2014) 315 final)". 69 As of 30 September 2015, all of the infringement proceedings for partial transposition of the Electricity Directive have been closed. The focus is now on addressing the incorrect transposition or bad application of the Third Energy Package, with priority being given to violations which have the highest impact on the functioning of the internal market, including unbundling, independence, powers and duties of the national regulatory authorities and consumer protection. On this basis, the Commission has opened EU Pilot cases against a number of Member States (see further details below).

2.7.2.Problems and issues identified

In September 2011 the Commission opened 38 infringement proceedings against 19 Member States to ensure full transposition of the Electricity and Gas Directives. Non-resolved cases were followed up in 2012 by sending reasoned opinions and referrals to Court. The two Directives have been now transposed by all Member States. The Commission closed all the non-communication cases.

EU Pilots and infringements on incorrect transposition or bad application are currently ongoing. As of 1 December 2015, eight of these EU Pilot cases have resulted in infringement procedures where, inter alia, violation of the EU electricity and gas consumer provisions is at stake. However, they do not specifically address the issue of switching (exit) fees.

Annex I(1)(a) 5th indent of Directives 2009/72/EC 2009/73/EC on whether withdrawal from the contract without charge is permitted has been raised in an EU Pilot with three Member States. Annex I(1)(e) on not being charged for changing supplier has been raised in an EU Pilot with one Member State. Annex I(1) has been raised in its entirety in several EU Pilots.

The findings of a mystery shopping exercise 70 carried out between 11 December 2014 and 18 March 2015 also suggest that the implementation and/or enforcement of some measures addressed in this evaluation may be an issue in certain Member States. 4% of mystery shoppers were told they may be charged fees related to switching other than exit fees, which are contrary to the provisions in the Electricity and Gas Directives. Such fees may include administrative costs, start-up costs for a new or short-term service, or security deposits ( Text Box 1   below ). This finding is notable because EU legislation ensures that consumers "are not charged for changing supplier". 71 As checks by the Commission indicate that this legislation has been correctly transposed into Member State law, the finding suggests either legal failures in the EU legislative text that prevent it from fulfilling its intention and/or non-enforcement by national authorities.

Text Box 1: Examples of “extra charges” when switching mentioned by electricity providers (when being contacted by phone) 72

• Administration cost (€35) – France

• A service fee (€27.90) – France

• A fee for starting up the service (€27.16) – France

• An administration cost added on the first electricity bill (€27.59) – Italy

• An activation fee – Italy, Poland

• An extra charge of €20.54 on the first bill; no explanation was provided for this charge – Italy

• A security deposit (€70) – Italy

• A deposit (€77) – Italy

• A fee for contracts of less than one year – Spain

• A yearly charge of 300 SEK/year (or 25 SEK/month) for each new contract – Sweden

The responses to the Commission's Consultation on the retail energy market 73 conducted in spring 2014 generally confirm the impression that there's much room for improvement in the retail market, including when it comes to switching fees. Of a total of 237 responses, 222 responded that transparent contracts and bills were important or very important, 89 indicated that consumers were not aware of their switching rights, and 180 thought awareness of consumer rights should be improved. 110 thought that tariffs were too difficult to compare due in part to contractual conditions, and 128 though that switching offered insufficient benefits. Just 32 out of 237 respondents agreed with the statement: "There is no need to encourage switching."

2.8.Answers to the evaluation questions

Below the evaluation questions are addressed for each of the key provisions within the scope of the evaluation.

2.8.1.Electricity and Gas Directives

What is the current situation?

Article 3 and Annex I of the Electricity and Gas Directives put forward general switching requirements. The information below is taken from the ACER 2015 Market Monitoring Report 74 and summarises the current situation for household customers.

Among the potential barriers to switching, this Report has also identified exit fees, since they tend to increase the threshold for consumers to switch due to the perceived diminished potential savings available. However, exit fees in fully competitive retail markets are applied to cover the costs incurred by suppliers due to early contract termination. Offers which include exit fees should be made fully transparent on price comparison tools and, for instance, filterable from other offers by consumers in search of a different deal.” Exit fees tend to be linked to fixed-price and fixed-term contracts i.e. they represent an early termination fee.

Exit fees in France, Belgium and Italy have been eliminated. In Belgium, this is perceived to have increased consumer trust in energy markets. In GB, AT, and DE, termination fees cannot be charged if there is a contract price change. Of 13 capital cities assessed, consumers in Amsterdam were the most affected by electricity and gas exit fees, LB: presumably because NL is renowned for its well-functioning switching market, which does not encourage customer loyalty.

Exit fees may not correspond to the actual cost incurred by the supplier of losing the customer; LB/GK: they should thus be proportionate.

Interestingly, gas offers tend to specify a contractual period more often than electricity offers. LB: If the contractual period is not defined then an exit fee (as this should be linked to, for example, premature cancellation) should not be required. Exit fees are more likely to be linked to electricity than to gas contracts; this is assumed to be because there is a higher number of suppliers and of offers in electricity markets.

According to consumer associations and NRAs, factors that prevent electricity and gas consumers from switching include insufficient monetary gain (see Figure 46 below), which takes exit fees into account.

Figure 47 seems to indicate that there is a strong status quo/loss aversion bias in terms of switching that could be linked to the exit fee. The net savings represent the savings customers can make after the deduction of the exit fee. The exit fee charged in NL, IE, and SI appears to represent a significant barrier to switching.

Finally, one ACER recommendation is that price comparison tools should include mention of the exit fee, enabling consumers to perform improved searches.

The following findings are taken from the 2nd consumer market study on the functioning of retail electricity markets for consumers in the EU.

In addition to the exit fees mentioned above, mystery shoppers were advised of a range of different fees linked to switching, such as an administration cost of €35 and a security deposit of €70.

There is a large disparity in the information provided: mystery shoppers were far more likely to receive the correct information on exit fees if they called the provider rather than taking the information from the provider’s website, with the exception of SI. Suppliers thus seem to be using incorrectly published information as a barrier to switching. In answer to the statement “you will not be charged for the change” the ratio is 77:42 (calling : website); for the statement “ a fee for cancelling your current energy deal”, the ratio was the inverse, 7:17. The proviso is of course the fact that consumers may have signed a contract which mentions that an exit fee will be charged.

When survey respondents were asked whether they could be charged for the change when switching electricity company, 45% of respondents answered that no such charges were allowed, while 17% stated the opposite, and 39% selected the “don’t know” response. Across the EU28, 3% of respondents stated that one of the main reasons they had not tried to switch was that they would incur an exit fee from their electricity company. This percentage rose to 7% in IT and GB, and 6% in HR.

In five Member States - Finland (51%), Portugal (52%), Austria (53%), Belgium (59%) and Germany (67%) - more than half of respondents answered that a consumer should not be charged when changing electricity company. In eight countries – Hungary (51%), Denmark (58%), France (60%), Bulgaria (62%), Lithuania (62%), Greece (65%), Luxembourg (70%) and Iceland (79%), more than half of respondents thought this statement was false.

Figure 2: Knowledge of switching rules – no charge when changing electricity company, by country

Q26_2 The following are statements regarding consumer rights in the energy sector. Please indicate whether each statement is true or false: "If you decide to change your electricity company, you will not be charged for the change“

%, by country, Base: all respondents; Question not asked in Cyprus, Latvia and Malta

Source: Consumer survey

Whereas customers in the majority of MS are currently provided with information on the consumption period, actual and/or estimated consumption, and a breakdown of the price, there is a greater diversity of national practices with regards to other potentially beneficial information, such as switching information, information about price comparison tools, and the duration of the contract. As outlined above, the duration of the contract is essential when it comes to charging exit fees.

However, the inquiries/complaints data collected through the European Consumer Complaints Registration System show an increasing trend over the last years of consumers complaints related to unclear invoice/bill for electricity or gas.

To summarise, there is currently a high level of divergence in Member States with regard to policy measures concerning exit fees, and the level of those fees. This would appear to indicate a lack of implementation of certain requirements of the Electricity and Gas Directives.

How effective has the EU intervention been?

To recap, the major objectives of the Articles in the Electricity and Gas Directives relevant to switching fees were:

To enable effective consumer choice and boost competition, and more specifically offer every EU consumer the possibility to choose his/her electricity and gas supplier freely between any EU company

To ensure competitiveness in retail market pricing

To enable easy price comparison for - inter alia - households

To create consumer incentives to save energy

In terms of consumer choice, consumer organisations responding to the latest ACER Market Monitoring Report stated that the average electricity and gas consumer in their countries is only able to compare prices to a limited extent. The average score was 4.8 and 5.0 on a scale from 1 to 10 for electricity and gas respectively. 75 These poor figures are backed by a recent Commission survey that found that just 40% of EU respondents strongly agreed that the electricity bills of their electricity company were easy and clear to understand. 76 Correspondingly, the largest share of consumer complaints reported to the Commission between 2011 and 2014 were related to billing (30%) 77 .

Figure 3: Reasons for electricity and gas consumer complaints 2011 - 2015 (in % in a database with 28.490 cases) 78

Information on energy sources appears to be one specific area of concern. Article 3(9) of the Electricity Directive requires suppliers specify the contribution of each energy source to the overall fuel mix of the supplier over the preceding year in or with consumer bills.

The consumer switching rate is perhaps the most direct indicator of consumer engagement with the market and of the available choice. Although switching is affected by a range of other factors (regulated prices, the difference in price between offers on the market and trust in new suppliers, for example), it offers an important quantitative measure of the effectiveness of the Articles in the Electricity and Gas Directives – albeit an indirect one. At the same time, other factors that may influence the switching rate besides that status quo bias/inertia are, according to consumers surveyed, linked to the difficulty of finding out what the right tariff would be for them (21%) or the fact that they will have to manage their account online (3%) in order to get cheaper tariffs. Thus, removing certain market barriers could lead to more effective consumer choice. The figure 7 shows that while switching rates have generally increased since 2008, they remain relatively low in the EU-28 at around 6%.

Figure 4: Switching rates for electricity and gas household consumers in 2014, annual average 2008–2013 79

At a broader level of analysis, enabling consumer choice can be seen as means of improving consumer satisfaction. Here, the data indicate that there is clearly scope for improvement. According to the 10th edition of Consumer Scoreboard, 80 which is based on consumer survey 81 and expressed in a composite Market Performance Index (MPI), 82 electricity services rank 28th and gas services 22nd among the 31 markets for services across the EU. Therefore, both markets can still be considered low performing frmo the consumer standpoint.

Figure 5: Overall performance of markets for electricity and gas services by country – 2013 and change on 2012 (index) 83

The figure above shows large differences between the top-ranking and bottom-ranking countries in the markets for electricity and gas services, measured by composite indices MPI and MPIsc. 84 This is particularly true for the electricity markets.

With regard to the second of the three objectives – boosting competition in retail markets – evidence clearly indicates that retail market competition has increased in the EU since the articles relevant to billing and metering were introduced in the Second Energy Package. However, there have also been a great number of other relevant measures put in place at the same time as part of the broader effort to liberalise EU energy markets. These include unbundling rules and limits on price regulation. This makes it impossible to quantitatively gauge the competition gains brought about by the articles on billing and metering.

There is a similar situation for the last of the three objectives – creating consumer incentives to save energy. There is evidence to show that there has been progress in recent years. 85 However, as numerous EU energy efficiency policy measures have been put in place in parallel during the period in question, it is again impossible to quantitatively disambiguate the individual contribution to these gains by the measures introduced in the Second Energy Package. Qualitatively, however, we can estimate these gains to be relatively minor as also acknowledged in the Energy Efficiency Directive, where Recital 32 expressly states that the " impact of the provisions on metering and billing in Directives 2006/32/EC, 2009/72/EC and 2009/73/EC on energy saving has been limited. In many parts of the Union, these provisions have not led to customers receiving up-to-date information about their energy consumption, or billing based on actual consumption at a frequency which studies show is needed to enable customers to regulate their energy use..".

To summarise it is difficult to say how much the billing articles in the Electricity and Gas Directives have contributed to their stated objectives, inter alia because these objectives were not accompanied by indicators and it is hence difficult to judge upon achievement. However, their impact on energy savings have most certainly been quite limited, whereas their impact on enabling easier and more effective consumer choice can be judged at least a partial success. Areas for potential further improvement in this sphere may include ensuring the provision of key information elements to further improve clarity and comparability, reducing the volume of information presented in bills, as well as improving the provision and quality of information on energy sources.

How efficient has the EU intervention been?

There is no data available to assess this question quantitatively, but given that the overall impact may have been rather limited, both the effects and the costs likely have been so too. Consumer bills are currently heavily regulated beyond the requirements imposed by the Electricity and Gas Directives in most Member States. 86  

How relevant is the EU intervention?

At the time of drafting both the Second and Third energy packages, consumer bills and pre-contractual information formed the basis of consumer comparability, as consumers would be given the possibility to measure up individual offers against their current supply contract. Since then, the use of online price comparison tools has risen significantly across the EU. Over time the continuation of this trend might challenge the relevance of the EU intervention if it is not adapted to also reflect new ways of consumer-market interaction. Well-designed, reliable and transparent price comparison tools do the number-crunching necessary to accurately compare the costs of each offer for individual consumers. In the future it will be increasingly important to ensure that bills provide all the key inputs that consumers need to be able to use comparison tools.

A recent study found that 64% of EU consumers who had compared tariffs of different electricity companies said they had used comparison tools to do so. It also showed that comparison tools – which grants access to the offers of a larger number of providers-significantly increased the number of cheaper offers consumers were able to identify compared with contacting individual providers directly. 87  

Comparison tools are likely to become even more important as the retail market for energy matures. Between 2012 and 2014, ‘choice’ for consumers in European capitals widened, with a greater variety of offers being available. However, the ability of consumers to compare prices can be hampered by the complexity of pricing and the range of energy products, as well as by an increasing number of offers and their bundling with additional free or payable services. 88  

ACER has therefore recommended that: "To improve consumer switching behaviour and awareness further, National Regulatory Authorities (NRAs) could become more actively involved in ensuring that the prerequisites for switching, such as transparent and reliable online price comparison tools and transparent energy invoices, are properly implemented." 89  

It is important to emphasise that in the context of the general efforts to move energy markets from simple commodity markets (for kWhs) towards energy an services market, "transparent and reliable price comparison tools" need to be able to assess contracts from a holistic perspective that integrates broader aspects including energy efficiency improvement actions or services, differences in energy sourcing qualities (greenness) etc.

How coherent is the EU intervention internally and with other (EU) actions?

The provisions on switching in the Electricity and Gas Directives are not contradicted elsewhere in the EU acquis. However, the current framework remains both complex and open to interpretation with regard to the nature and scope of certain key obligations.

The consumer protection provisions in the Electricity and Gas Directives regulate switching fees. Largely unchanged since their 2001/2003 introduction, these provisions state that “customers are not to be charged for changing supplier”.

However, the following text regarding contract exit fees was added in 2007: contracts must specify “whether withdrawal from the contract without charge is permitted”. It weakened the initial provision by affirming the permissibility of certain switching-related charges without explicitly addressing whether the legislation addressed all switching-related charges in categorically exhaustive manner.

What is the EU added value of the intervention?

The provisions addressing consumer information in the Electricity and Gas Directives are essential for protecting consumers in the internal energy market at the retail level.They play an important role in ensuring the benefits of the internal market in energy can be enjoyed by all consumers, and help to create a level-playing field for suppliers and other retail market actors across the EU. Whereas there is currently still very limited if any examples of cross-border supply in the retail market, a common base of energy consumer rights is a precondition for that to develop over time.

2.9.Conclusions

The legislators' original objectives behind the provisions can be summarised as follows:

To enable effective consumer choice and boost competition through the availability of transparent, comparable and reliable information on prices, costs, energy consumption, fuel mix and environmental impact of electricity supplies

To enable/incentivize energy savings through sufficiently frequent feedback about (the cost of) their energy consumption

Effectiveness

The evidence available and considered in this evaluation suggests that the provisions in the IEM and EED together are likely to have made positive contributions towards the achievement of both of these objectives, although it is impossible to quantify this.

With regard to comparability and clarity of billing information, the relatively low degree of satisfaction of electricity and gas customers and the high number of complaints related to billing suggests that there is still significant room for improvement and that further action might be required to this end.

This said, the EED generally contains the most specific and detailed provisions in the area of metering and billing, and not just as regards energy savings but also as regards comparability. As the deadline for its transposition is also relatively recent (mid 2014) and since some of the key obligations therein have later deadlines for actual application, it is generally speaking too early to draw too many conclusions as regards the effectiveness of the current legislative framework. In particular, the requirement for heat meters or heat cost allocators in multi-flat/purpose buildings is not mandatory before the end of 2016, and the minimum frequencies on billing were only mandatory as of 1/1-2014.

It is nevertheless already now possible to identify certain areas of potential improvements.

With respect to the EED there was clearly stated intention to clarify the pre-existing requirements contained in the IEM and in the 2006 Energy Services Directive (ESD) as their effect on the second objective was considered to have been too limited. This intention has only partially been met given that the current framework remains both complex and open to interpretation with regard to the nature and scope of certain key obligations. From this perspective, there might be a case already now for revisiting certain aspects of EED Art. 9(1), Art.9(3), Art. 10(1) and of Annex VII.

With regard to disclosure of energy sources, the evidence available suggests that the way the current requirements are implemented is not sufficient to match the intentions: a rather high share of citizens seem to either not find or notice disclosure information with their billing information. While this in some instance may be due to bad application/non-enforcement, it also points to a potential for making such information more accessible and visible. The fact that a high share of gas offers carry "green" labels or claims despite biogas injection still being very limited further puts a question mark over the effectiveness of what is in fact amounts to a voluntary/unregulated regime, given there currently is no disclosure obligation for gas as there is for electricity.

Efficiency

There is neither any evidence, not any reason to assume that the intervention hasn't been efficient in terms of the proportionality between impacts and resources/means deployed. The major reason for thist is that the obligations are modest in ambition.

Relevance

Overall the key provisions remain highly relevant. Switching-related fees continue to be faced by around 20% of EU electricity consumers, and a lesser, although still significant number of gas consumers. There is still a need to regulate their application.

Coherence

The evaluation has highlighted that the legislation could be clearer in terms of setting out final customer rights, such as Article 3(7) of the IEM. Annex I of the IEM should clearly define which switching activity should be cost-free and which switching activity should incur costs. For example, free-riding customers who switch simply to benefit from different energy companies’ offers should be discouraged from doing so as this may cause detriment to final customers as a whole in terms of higher costs. In addition, where the contract has included the provision of or payment for, say, micro-generation capacity (photovoltaic panels, etc.), the supplier should be reimbursed appropriately for this investment.

EU added-value

Delivering a New Deal for energy consumers as part of an Energy Union with consumers at its heart means, inter alia, removing barriers to consumer engagement with the market and driving competition between energy supplier and service providers. Healthy levels of consumer engagement and retail competition are key to ensuring the rollout of new products and services that will help the energy system become more flexible, and build demand for innovative energy products. Reducing financial barriers to switching to the minimum amount practicable therefore contributes to realising the Energy Union and meeting EU goals on energy efficiency and greenhouse gas reductions.

In addition, the provisions addressing consumer information in the Electricity and Gas Directives are essential for protecting consumers in the internal energy market at the retail level. They play an important role in ensuring the benefits of the internal market in energy can be enjoyed by all consumers, and help to create a level-playing field for suppliers and other retail market actors across the EU. Whereas there are currently very few, if any, examples of cross-border supply in the retail market, a common base of energy consumer rights that helps national rules converge over time is a precondition for that to develop. With the perspective of developing an internal retail market where customers one day might even shop cross-border, the common definition of minimum requirements for information on consumers creates an added value. But even in absence of cross-border supplies at retail level, common minimum requirements allow service providers to develop standard solutions and create economies of scale, leveraging the internal market of 500 mio consumers.

2.10.Stakeholder consultation

Below are summarised in graphic form a quantitative summary of the relevant feedback from the consultation on the retail energy market 90 .

Retail market public consultation - results

Please give your opinion on the relative importance of the following factors in helping residential consumers and SMEs better control their energy consumption and costs.

ACER/CEER Annual Report concludes that consumers are dissatisfied with the information they receive in their contract and in their billing information. The report also shows the frequency with which consumers switch from one energy supplier to another. This varies between 0% to 14,8% in the EU Member States.

In your opinion, what are the key factors that influence switching rates?

Please indicate if you agree or disagree with the following statements concerning ways to increase consumers' interest in comparing offers and switching to a different energy supplier.



3.Annex 5: Details on the EU Framework For Metering and Billing of Energy Consumption

3.1.Executive Summary

This Annex presents more detailed information on provisions in EU law relating to the specific theme of metering and billing of energy consumption. The evaluation is one of a series of such evaluations looking holistically at certain themes that have been carried out to inform the review of the Energy Efficiency Directive and the follow-up of the “New Deal for Energy Consumers” Communication adopted by the Commission in July 2015 as part of the Market Design Initiative.

Metering and billing of energy consumption is regulated by provisions in the Internal Energy Market Directives ("IEM") for electricity and gas and in the Energy Efficiency Directives (EED). In addition, provisions on guarantees of origins of electricity produced from cogeneration and renewables included in the latter and in the Renewable Energy Directive (RED), respectively, are of relevance for the obligation (in the Electricity Directive) to disclose the energy sources of electricity supplies to customers.

The legislators' original objectives of these provisions were in summary:

3.To enable effective consumer choice and boost competition through the availability of transparent, comparable and reliable information on prices, costs, energy consumption, fuel mix and environmental impact of electricity suppliers

4.To enable/incentivize energy savings through sufficiently frequent feedback to consumers about (the cost of) their energy consumption

It is important to stress, however, that this evaluation does not purport to be an evaluation of all aspects of the policies of relevance to the objectives. It is "part of a bigger puzzle", and further evaluation work, including on smart metering for electricity and gas, will be reported separately as part of the Market Design Initiative.

In terms of effectiveness, the evidence available and considered in this evaluation generally suggests that the provisions in the IEM and EED together are likely to have made some contributions towards both of these objectives, although it is impossible to quantify this given the multiple and complex other factors that also affect these objectives' achievement, the absence of precise indicators and the scarcity of data.

The deadline for the EED transposition is relatively recent (mid 2014) and some of the key obligations therein have later deadlines for actual application. Until the national transposition measures are in place, have been verified to be in conformity with the requirements of the Directive and have been applied by market players on the ground, it is generally speaking too early to draw many firm conclusions as regards the effectiveness of the current legislative framework.

It is nevertheless already now possible to identify certain gaps, problems and potential improvements.

With regard to comparability and clarity of billing information, the relatively low degree of satisfaction of electricity and gas customers compared to other services markets and the high share of complaints related to billing suggests that there is still room for improvement and that further action might be required to this end either at national or EU level.

Specifically with respect to energy savings there was clear intention at the time of the EED proposal to clarify the pre-existing requirements on metering and billing that were then contained in the Energy Services Directive ("ESD"), and in the IEM legislation. This intention has only partially been met given that the current framework remains complex and open to interpretation with regard to the nature and scope of certain key obligations. This could be addressed by revisiting certain aspects of EED Articles 9-11 and of Annex VII.

With regard to disclosure of energy sources, the evidence available suggests that the way the current requirements are implemented is not sufficient to match the intentions: a rather high share of citizens seem to either not find or not notice disclosure information with their billing information. Others have doubts about the credibility or added-value of green claims made. While these problems in some instances may be due to bad application/non-enforcement, it also points to a potential for making such information more trustworthy, accessible, visible and easy to understand and compare.

In terms of efficiency, there is little evidence but good reason to assume that the provisions considered have generally been efficient in terms of the proportionality between impacts and resources/means deployed, notably due to the built-in cost-effectiveness conditions in key provisions. In certain cases, these could however be substituted with simpler and more relevant terms reflecting recent technological and market developments as regards the availability of remotely readable equipment.

With regard to relevance, most provisions remain highly relevant, although parts of both the IEM and the EED to some extent have been surpassed by developments and could benefit from being revisited / updated, as part of the EED review as well as the Market Design Initiative.

In terms of coherence, the evaluation has pointed to a number of issues where improvements would seem possible.

One case is the minimum frequency of billing which is regulated by the IEM Directives in a qualitative way (not making references to quantified frequencies), and by a more specific quantified provision in the EED but only in so far as non-smart meters are concerned. This results in what appears to be an unjustified difference in the guaranteed minimum frequency of provision of information between those customers of respectively electricity/gas and heat whose consumption is measured with smart/remotely read equipment.

In so far as billing and billing information is concerned, the way Annex VII of the EED is drafted and referenced could be improved to address certain internal overlaps or ambiguities as regards the nature and scope of its applicability.

Further coherence questions can be raised as regards disclosure of energy sources:
Firstly, the
current disclosure regime is not technology-neutral. Secondly, whereas EU legislation establishes tools to facilitate electricity-related disclosure for both renewables and high-efficiency cogeneration, it only stimulates a demand for the former. The obligation to disclose the fuel mix, enshrined in the Electricity Directive, does not require or stimulate disclosure of the share of cogeneration. Moreover, even for renewables, the disclosure obligation is not systematically/exclusively met using guarantees of origin, despite their being available for that purpose, as their use is not mandatory.

Finally, as regards the EU added-value of provisions on metering and billing, the evaluation has identified no reason to question that. Indeed, in a single market for energy there is a strong case for suppliers being subject to similar if not identical obligations and rules, and for consumers to enjoy the same basic rights and be provided with comparable and recognisable information wherever they live and wherever they purchase their energy from. More generally, the delivery of a New Deal for energy consumers as part of the Energy Union includes providing consumers with frequent access to partially standardised, meaningful, accurate and understandable information on consumption and related costs. Guaranteeing certain minimum standards in terms of the frequency and content of billing and billing information therefore contributes to realising the Energy Union and meeting EU goals on energy efficiency and greenhouse gas reductions.

3.2.Introduction

3.2.1.Purpose of this evaluation

The purpose of this evaluation is to take stock of the current performance and continued relevance of existing EU legal provisions on metering and billing so as to evaluate what is working, what is not, and why. This is done in the context of the follow-up on the communications on a new energy market design 91 and on Delivering A New Deal for Energy Consumers 92 (hereinafter referred to jointly as the Market Design Initiative - "MDI") and as part of the parallel review of the Energy Efficiency Directive (EED). At the same time the evaluation presents an opportunity to look critically at provisions where problems have already been identified in the course of the ongoing work with transposition and implementation of the EED.

3.2.2.Overview of EU acquis related to metering and billing

The Electricity and Gas Directives 93 contains the following key provisions related to metering and billing:

Article 3    Billing and promotional material

o3(3) Access to comparable and transparent supply options (Electricity only!)

o3(5)/3(6) Access to consumption data

o3(9) Disclosure of the overall fuel mix and environmental impact of the supplier (Electricity only!)

Annex I    Consumer protection

o1.c) The transparency of applicable prices and tariffs

o1.d) Consumer payment methods

o1.i) Frequency of information on consumption and costs

o2. Intelligent metering systems (smart meter roll-out)

The Energy Efficiency Directive (EED) 94 contains the following key provisions:

Article 9    Metering

o9(1) Individual metering generally

o9(2) Requirements related to smart metering

o9(3) Metering of thermal energy in multi-apartment/purpose buildings

Article10    Billing information (in conjunction with Annex VII)

o10(1) Consumption based billing (information) requirement in general (incl. as regards minimum frequency)

o10(2) Requirements on consumption information from smart meters

o10(3) General information and billing requirements pertinent to costs, consumption and payment

Article 11    Cost of metering and billing information

o11(1) Metering and billing generally free of charges

o11(2) Conditions for pass-through of cost of sub-metering/-billing

In addition the following provisions are of relevance when considering disclosure of energy sources in bills:

The Renewable Energy Directive (RED) 95 contains the following key provision:

Article 15    Guarantees of Origin (GO)

o15(1-12) A comprehensive framework for the issuance, transfer, and cancellation of guarantees of origin for electricity produced from renewable electricity sources for the sole purpose of disclosure.

The EED contains similar provisions for guaranteeing the origin of electricity produced from a high-efficiency cogeneration process:

Article14(10)

3.2.3.Scope of this evaluation

This evaluation is based on the five Better Regulation criteria (relevance, effectiveness, efficiency, coherence and EU-added value) in a proportionate way and considers simplification, burden reduction potential, SMEs and quantification of costs and cost benefit only implicitly or to a limited extent, given its partial scope, the multiple and complex other factors affecting the objectives studied and the limited data available.

The scope of the evaluation covers the following elements:

Electricity and Gas Directives

General evaluation of the performance/continued relevance of Article 3(3) of the Electricity Directive: This covers access to comparable and transparent supply options, implicitly addressing the information presented in bills, comparison tools, metering information and pre-contractual information.

General evaluation of the performance/continued relevance of Article 3(9) of the Electricity Directive: This addresses the disclosure of the overall fuel mix and environmental impact of the supplier. The evaluation of the legal text will therefore be performed together with Article 15 of the RED, which cross references it (see below).

General evaluation of the performance/continued relevance of Articles 1.c) and 1.i) of Annex 1 of the Electricity and Gas Directives: These cover key information presented in consumer bills.

Energy Efficiency Directive

General evaluation of the performance/continued relevance of Article 9(1): Substantial experience with implementing this article already exists since it has been in force longer than the remaining provisions (it was transferred virtually unchanged into the EED from the 2006 Energy Services Directive).

EED Article 10(1) and the related annex VII in particular in so far is concerned minimum billing frequency (identified as possible area for development in MDI) and comparability of information

EED Articles 9(2) and 10(2) and Annex I point 2 of both the Electricity and Gas Directives concern requirements specifically for smart electricity and gas meters and will be considered as part of a separate thematic evaluation on smart meters.

Remaining provisions in Articles 9-11 are not within the scope of the evaluation, except to the extent justified by:

Early indications of a need for technical clarifications already emerging from the ongoing implementation work;

The need to address overlap/coherence with MDI actions on consumer empowerment/information/transparency,

The RED has already been subject to a REFIT review, so this evaluation contains the conclusions from that report for issues related to the GO system. The relevant parts of the REFIT review are in Annex 3. The REFIT evaluation of the legal text will therefore be considered together with the evaluation of Article 3(3) of the Electricity Directive, which it cross references (see above), as will the EED provisions on GOs for high-efficiency cogeneration.

3.3.Background to the initiative

This section identifies the objectives behind the existing provisions on metering and billing in the IEM legislation and in the EED based on the legislative texts (including their recitals) and on the related Commission proposals and preparatory documents accompanying the latter (impact assessments). At the end of the section the intervention logic behind the legislative provisions on metering and billing is depicted.

3.3.1.Description of the initiative and its objectives

The Electricity and Gas Directives as adopted by the co-legislator

The recitals of the 2003 Electricity 96 and Gas Directives 97 as adopted by the co-legislators following the co-decision process reinforce the objectives identified by the Commission 98 to a large extent. The co-legislators

Inserted a recital stating that the ability of electricity and gas customers to choose their supplier freely was fundamental to the freedoms which the Treaty guarantees European citizens (Recital 4) – a point reiterated elsewhere in the recitals. 99

Reinforced a recital on standards of public service to include the right for household customers and, where Member States deem it appropriate, small enterprises "to be supplied with electricity of a specified quality at clearly comparable, transparent and reasonable prices" (Recital 24).

Added to the Electricity Directive a recital acknowledging the Commission's intention to ensure that reliable information on the environmental impact of electricity from different sources could be made available in a transparent, easily accessible and comparable manner (Recital 25).

The provisions and recitals on the freedom to choose suppliers and the right to clear, comparable information remained largely unchanged by the co-legislators in the 2007 Directives. Although the original recital on disclosure was removed in the 2007 Electricity Directive, the co-legislators reinforced the provisions in the Directive to specify that information on fuel sources should be clear and, at the national level, comparable.

To summarize, the metering and billing provisions in the electricity and gas markets Directives have remained largely unchanged since they were first proposed/adopted in 2001/2003. Legislative texts and supporting documents reveal that the major objectives of the Commission and co-legislators were to:

Enable easier and more effective consumer choice;

Boost competition in retail markets;

Create consumer incentives to save energy.

The Commission's proposal for the EED

The 2011 Commission proposal for an Energy Efficiency Directive 100 included a comprehensive and ambitious set of provisions on metering and billing representing very significant changes compared to the already existing provisions in the field, namely Article 13 of the Energy Services Directive 101 (ESD).

The Commission's proposal was accompanied by detailed analysis of options on metering & billing 102 . The stated specific objective of the proposal as regards the metering and billing provisions was to "[e]nsure that consumers are empowered with correct, understandable and regular information on their energy use".

More particularly, there was a clear aim to address problems identified with the application of Art 13 of the ESD: As the Impact Assessment summarized it: "Because of the vague wording the provisions did not lead to improvements" with respect to the aim that was to "ensure understandable and accurate information is provided for consumers via individual meters and energy bills on a frequent basis." 103

Key changes proposed included:

minimum frequency of consumption based billing of every 1-2 months in most cases, and

clarification that individual metering in each flat in multi- apartment buildings was also required for heating, cooling and hot water.

The EED as adopted by the co-legislator

The recitals of the EED as adopted by the co-legislators following the co-decision process to a large extent mirror the objectives identified by the Commission despite the operative provisions being very different. Notably, the co-legislators:

Retained a recital emphasizing the need to take account of the benefits of cost-effective technological innovations such as smart meters, albeit without stressing the need for visualization of cost and consumption indicators (Recital 26).

Included new recitals with cross-references to the provisions on smart meters in Directives 2009/72/EC and 2009/73/EC (Recitals 27& 31), and on the appropriate conditions for using heat cost allocators and sub-metering of heating, cooling and hot water more generally in multi-apartment buildings (Recitals 28-29).

Added two recitals expressly acknowledging the insufficient progress and clarity of the existing provisions and the need for clearer rules:

"(32) The impact of the provisions on metering and billing in Directives 2006/32/EC, 2009/72/EC and 2009/73/EC on energy saving has been limited. In many parts of the Union, these provisions have not led to customers receiving up-to-date information about their energy consumption, or billing based on actual consumption at a frequency which studies show is needed to enable customers to regulate their energy use. In the sectors of space heating and hot water in multi-apartment buildings the insufficient clarity of these provisions has also led to numerous complaints from citizens."

(33) In order to strengthen the empowerment of final customers as regards access to information from the metering and billing of their individual energy consumption, bearing in mind the opportunities associated with the process of the implementation of intelligent metering systems and the roll out of smart meters in the Member States, it is important that the requirements of Union law in this area be made clearer. This should help reduce the costs of the implementation of intelligent metering systems equipped with functions enhancing energy saving and support the development of markets for energy services and demand management. Implementation of intelligent metering systems enables frequent billing based on actual consumption. However, there is also a need to clarify the requirements for access to information and fair and accurate billing based on actual consumption in cases where smart meters will not be available by 2020, including in relation to metering and billing of individual consumption of heating, cooling and hot water in multi-unit buildings supplied by district heating/ cooling or own common heating system installed in such buildings.

As regards the possibility to guarantee the origin of electricity from high-efficiency cogeneration the EED essentially incorporated and updated provisions from Directive 2004/8/EC:

"(39) To increase transparency for the final customer to be able to choose between electricity from cogeneration and electricity produced by other techniques, the origin of high-efficiency cogeneration should be guaranteed on the basis of harmonised efficiency reference values…."

In short, based on the EED recitals the objective of Articles 9-11 as identified by the co-legislators was to strengthen the empowerment of final customers as regards access to up-to-date information on their actual, individual energy consumption at a frequency enabling them to regulate their energy use, bearing in mind the opportunities associated with intelligent metering systems as well as the situations where smart meters will not be available by 2020. There was a clear aim to clarify existing provisions that were considered unclear and ineffective. The GO provisions in Article14 and the related Annex expressly aimed at increasing transparency for the final customer to be able to choose between electricity from cogeneration and electricity produced by other techniques

As adopted, the EED's operational provisions in essence:

Carried forward without changes the ESD provisions on individual metering (in EED Article 9(1));

Added requirements for smart electricity and gas meters (Article 9(2));

Added new provisions expressly requiring metering of heating/cooling/hot water in multi-apartment/purpose buildings, and on cost allocation (Article 9(3)), subject to technical feasibility and cost-effectiveness condition;

Extended provisions on billing and billing information to include a specified minimum frequency, and elaborated on billing information requirements (Article10(1), 10(3) and Annex VII);

Added new provisions on historical information for customers with electricity or gas smart meters (Article 10(2));

Carried forward provisions on guaranteeing the origin of electricity produced through high-efficiency cogeneration from Dir. 2004/08/EC.

3.3.2.Baseline

The 2003 and 2009 Electricity and Gas Directives were fundamental to the liberalisation of the EU's gas and electricity sectors and the completion of the internal market. In their absence, it is not likely that many Member States would have proceeded with liberalising their energy markets at the same speed and to the same extent. Therefore, it is likely that significantly fewer EU energy consumers would have been able to benefit from market competition in terms of:

increased efficiency and competitiveness;

lower energy supply costs;

higher standards of service.

In absence of the EED, ESD provisions from 2006 would have continued to apply. As mentioned above, these had not proven to consistently lead to the expected improvements. The detailed issues with the ESD provisions will be further explored below.

As regards guarantees of origin, such were already introduced for electricity from renewables and from high-efficiency cogeneration in Directives 2004/8/EC and 2001/77/EC, respectively.

The purpose of this evaluation is somewhat atypical in that it has not aimed to evaluate a single, specific intervention. Rather, it seeks to take stock of the current situation which is the cumulative outcome of several, past policy developments/legislative processes with different timing. It does so only in so far as regards metering and billing is concerned and with a particular focus on coherence and relevance. Consequently, it has been considered less important to identify a clear baseline, but in the analysis only interventions over the last 1-2 decades have been considered (although there are examples of EU action on metering and billing even before that 104 ).

Figure 1: Intervention Logic Diagram illustrating the subject of this Annex

3.1.Evaluation Questions

This evaluation aims, for each of the sub-themes within the scope, to answer the following questions:

1. What is the current situation?

2. How effective has the EU intervention been?

3. How efficient has the EU intervention been?

4. How relevant is the EU intervention?

5. How coherent is the EU intervention internally and with other (EU) actions?

6. What is the EU added value of the intervention?

3.2.Method

This evaluation has been carried out in-house by the Commission services. No analytical models have been applied. The main activities and processes which have provided the key inputs are listed in annex 4.

3.3.Implementation state of play (Results)

3.3.1.State of play as regards implementation

Electricity and Gas Directives

Enforcement action undertaken by the Commission in relation to the Internal Energy Market legislation is ongoing. Procedures are set out in detail in "Enforcement of the Third Internal Energy Market Package (SWD(2014) 315 final)". 105 As of 20 January 2016, all of the infringement proceedings for partial transposition of the Electricity Directive have been closed. The focus is now on addressing the incorrect transposition or bad application of the Third Energy Package, with priority being given to violations which have the highest impact on the functioning of the internal market, including unbundling, independence, powers and duties of the national regulatory authorities and consumer protection. On this basis, the Commission has opened structured dialogues ("EU Pilot 106 ") with a number of Member States. As of 20 January 2016, 8 of these dialogues have been followed by infringement procedures (see further details below).

Energy Efficiency Directive

As the deadline for transposing the EED was relatively recent (5/6-/2014), the enforcement action undertaken by the Commission in relation to the EED at this stage mainly concerns incomplete transposition. As of 20 January 2016 there were still 23 infringement procedures pending for incomplete transposition of the EED. In addition, the Commission is yet to verify the conformity of the transposed national measures with the requirements of the Directive.

Importantly, two of the key provisions in Article 9 and 10 of relevance to this evaluation have later application deadlines than the general transposition deadline as regards certain aspects of heating, cooling and hot water metering and billing in multi-apartment buildings. Although certain metering and billing requirements already existed under Article 13 of the Energy Services Directive, they were further developed in the EED which clarified the difference between heat cost allocators and individual heat meters and imposed additional metering obligation for buildings with central heating system, in addition to buildings with district heating. The obligation for frequent billing in accordance with Article 10(1) only became mandatory as of 31/12/2014, and the deadline for introducing metering of heating, cooling and hot water in individual units in multi-apartment/purpose buildings is 31/12/2016. This provision, of particular importance to owners and tenants in Member States in which large apartment blocks make up a significant percentage of the residential housing stock, obviously cannot yet be evaluated fully as the application deadline has not yet passed and it is therefore impossible to check how the legal obligation has been put into practice.

3.3.2.Problems and issues identified

In September 2011 the Commission opened 38 infringement proceedings against 19 Member States to ensure full transposition of the Electricity and Gas Directives. Non-resolved cases were followed up in 2012 by sending reasoned opinions and referrals to Court.

The two Directives have been now transposed by all Member States. The Commission closed all the non-communication cases.

Structured dialogues with Member States as well as infringements on incorrect transposition or bad application are currently ongoing. As of 20 January 2016, 8 of the structured dialogues have resulted in infringement procedures where, inter alia, violation of the EU electricity and gas consumer provisions is at stake.

So far, Annex I(1)(d) on consumer choice of payment methods and Annex I(1)(i) on frequency of information on consumption and costs of both Directive 2009/72/EC and Directive 2009/73/EC seem to be the most problematic of the articles relevant here. Issues as regards the non-conforming transposition of Annex I(1)(d) have been raised in structured dialogues with 5 Member States and 1 Member State has received a Letter of Formal Notice regarding the transposition of the same provision. As for the Annex I(1)(i) of Directive 2009/72/EC and Directive 2009/73/EC, structured dialogues raising issues as regards the non-conforming transposition of this provision are currently pending for 5 MS and for one Member State the procedure is currently at the stage of Letter of Formal Notice. 107

Findings of a mystery shopping exercise 108 carried out between 11 December 2014 and 18 March 2015 suggest that the implementation and/or enforcement of some measures addressed in this evaluation may be an issue in certain Member States.

Only 28% of mystery shoppers (including experts) were able to find a contact point where they could obtain information about their energy rights, as required under Article 3(9)(c) of the Electricity and Gas Directives. 109  In addition, Article 3(9)(a) of the Electricity Directive requires suppliers to specify the contribution of each energy source to the overall fuel mix of the supplier over the preceding year in or with consumer bills. 110 However, more than a third (35%) of mystery shoppers in the same study disagreed that their electricity company informed them about how the electricity they used was produced (scores 0 to 4 on a scale to 10). 111  As transposition checks for the directives do not indicate particular irregularities around these articles, this points to possible interpretation issues or the bad application of the relevant measures by national authorities.

As regards the EED, only 44% of mystery shoppers were able to find a comparison of the current energy consumption with consumption for the same period in the previous year, preferably in graphic form (EED Annex VII 1,2 b)), and only 26% were able to find tips on saving energy or contact information (e.g. link to a website) (EED Annex VII 1.2 c) / 1.3). 112 However, the transposition of the Directive is still incomplete in several Member States and even where transposition has been completed, further implementation activities are still ongoing. A preliminary analysis of notified transposition measures carried out for the Commission indicates that transposition of Articles 9-11 remains very patchy at this stage 113 . On average across all Member States, it seems that only some 44% of the mandatory provisions of these articles have been fully transposed so far (it is emphasised that this is based on preliminary analysis).

Several complaints from citizens have also been received by the Commission concerning implementation of Article 13 of the ESD (which pre-ceded the EED provisions) in multi-apartment buildings, leading to infringement procedures against a number of Member States.

The responses to the Commission's Consultation on the retail energy market 114 conducted in spring 2014 generally confirm the impression that there's much room for improvement in the retail market, including when it comes to metering and billing issues. Of a total of 237 responses, 160 didn't consider that consumers have the information they need to use energy more efficiently, and of those 160 more than half (125) considered that the availability of such information could be improved "a little" or "a lot" by more frequent and informative billing.

In terms of stakeholder views on the overall adequacy of the current EED provisions on metering and billing, roughly 3 out of 5 of respondents to the public consultation on the EED review who had an opinion on this question were satisfied. About 2 out of 5 expressed the opposite view. Unsurprisingly, utilities were most likely to find the current provisions sufficient, with 92% of all utility respondents being of this view. In contrast, 2 of every 3 NGOs or consumer organisations expressing an opinion considered the current provisions to be inadequate to guarantee all consumers easily accessible, sufficiently frequent, detailed and understandable information on their own consumption of energy.

3.4.Answers to the evaluation questions

Below the evaluation questions are addressed for each of the key provisions within the scope of the evaluation.

3.4.1.Electricity and Gas Directives

What is the current situation?

The evidence presented in this section draws extensively on survey data, as well as data from a mystery shopping exercise. The aim of the mystery shopping exercise was to replicate, as closely as possible, real consumers’ experiences across 10 Member States 115 selected to cover North, West, South and East Europe countries. A total of 4,000 evaluations were completed between 11 December 2014 and 18 March 2015. 116 Whilst data from the mystery shopping exercise is non-exhaustive, the methodology enables the controlled sampling of a very large topic area, 117 as well as providing insights that would not be apparent in a desktop evaluation of legislation and bills. Using a behavioural research approach rather than a traditional survey allowed us to identify what people actually do, rather than what they say they do.

Whereas this evaluation describes the relatively small number of non-prescriptive measures on energy billing contained in the EU acquis, all Member States have legislation with further billing requirements (see Annex 5 or an overview of billing practices and regulation per country). For example, UK electricity and gas suppliers must follow over 70 pages of rules on the information in bills as part of their current licensing requirements.

In addition to legislative requirements, suppliers communicate and present information in different ways as a part of their non-price competition with other suppliers. For example, information may be presented in a certain format for branding purposes, or to target different customers with different kinds and levels of information to increase consumer satisfaction. There is therefore currently a broad divergence in Member States with regards to the individual elements in electricity and gas consumer bills and the total amount of information in these bills.

Text Box 1: Select requirements for UK domestic energy bills 118

The following information must be grouped together, in a box, distinct from other information and included on page one of the Bill:

The following information must be grouped together and included on page two of the Bill, in a box, distinct from other information, in the following order:

The following information must be provided anywhere on a bill:

* The Personal Projection is a standardised methodology that uses a consumer's actual or estimated consumption to estimate their projected cost for a particular tariff for the next year.

** The TCR or 'Tariff Comparison Rate' is used to assist consumers to make an initial comparison of alternative tariffs. It is similar in nature to the Annual Percentage Rate used to describe savings, loan and credit agreements.

The standardised title “Could you pay less?”

Information on cheaper tariffs offered by the supplier and the savings available if the consumer were to switch.

A Personal Projection* for the consumer's current tariff.

A signpost to further tariff information.

A standardised switching reminder “Remember – it might be worth thinking about switching your tariff or supplier”.

The standardised title “About Your Tariff”.

The name of the customer's fuel, current tariff, payment method, any applicable tariff end date, exit fees and the customer's personalised usage in the last 12 months.

The standardised title “About Your TCR”**.

The TCR for the customer's current tariff.

A signpost to where to find independent advice on switching supplier.

Figure 2 below from ACER summarizes the information provided to household customers on their bills. It includes general billing requirements put forward in Article 3 and Annex I of the Electricity and Gas Directives (for example, information on the single point of contact), as well as items not covered by EU law (price comparison tools). Whereas customers in the majority of MSs are currently provided with information on the consumption period, actual and/or estimated consumption, and a breakdown of the price, there is a greater diversity of national practices with regards to other potentially beneficial information, such as switching information, information about price comparison tools, and the duration of the contract.

Figure 2: Information on household customer bills in MSs – 2014 119

The results of a mystery shopping exercise on the information in energy bills covering ten representative Member States 120 provide a more detailed impression of the differences in billing practices within the EU. Mystery shoppers were instructed to analyse one of their own monthly, bi-monthly or quarterly electricity bills for a number of information elements identified as best practices by the Citizens' Energy Forum's Working Group on e-Billing and Personal Energy Data Management as well as a number of information elements addressed (although not always required) by the current Electricity Directive. 121

Table 1: Information included on an electricity bill in a sample of ten Member States - I 122  

 

Country

Item

Item in "billing" evaluation sheet

% who found item on their bill (total)

CZ

DE

ES

FR

IT

LT 123

PL

SE

SI

UK

Supplier's name

Provider’s name

99%

96%

100%

100%

100%

100%

88%

100%

100%

100%

100%

Contact details (including their helpline and emergency number)

Telephone number of customer service/helpline

96%

92%

100%

100%

100%

100%

80%

93%

100%

100%

97%

Postal address of provider

94%

92%

100%

97%

100%

100%

60%

100%

96%

100%

83%

Email address of provider

69%

92%

95%

80%

27%

37%

40%

75%

84%

96%

60%

Emergency number (e.g. to call in the event of an electrical emergency or power outage)

59%

68%

8%

97%

87%

93%

28%

35%

64%

40%

87%

The duration of the contract

Duration of the contract (e.g. 24 months)

22%

8%

50%

27%

17%

10%

0%

5%

40%

4%

50%

The deadline for informing the supplier about switching to another supplier

The period of notice to terminate your electricity contract (e.g. 30 days before the intended termination date)

19%

4%

50%

0%

57%

0%

12%

0%

28%

0%

27%

The tariff name

Tariff name/plan (e.g. 'Day & Night Fix')

80%

84%

65%

57%

87%

93%

60%

93%

80%

76%

100%

(A reference to) a clear price breakdown for the tariff (the base price plus all other charges and taxes)

A detailed price breakdown for your tariff (e.g. division of total price in base price, network charge, etc.)

79%

92%

65%

100%

83%

93%

8%

88%

92%

96%

73%

The base price of one energy unit (in kilowatt hours or kWh) for the selected tariff

Base price per kWh of your tariff

82%

68%

65%

87%

93%

83%

68%

83%

92%

88%

93%

The switching code

Switching code/meter identification (EAN or MPAN code; a unique code for your electricity meter)

73%

96%

58%

87%

87%

67%

44%

78%

76%

72%

67%

The amount to be paid, for which billing period, by when and how

Amount to be paid

97%

100%

100%

97%

97%

100%

72%

100%

100%

100%

97%

Billing period (e.g. 15 November – 14 December 2014)

95%

96%

90%

100%

97%

100%

80%

93%

100%

100%

97%

Payment method (e.g. direct deposit, cheque, bank transfer)

84%

88%

100%

87%

87%

87%

64%

65%

92%

64%

100%

Clear information on how this amount has been calculated: is it based on an actual meter reading or estimated only?

% of shoppers stating that it not clear how the billing amount was calculated

5%

4%

18%

3%

0%

0%

8%

3%

4%

4%

3%

For calculations based on actual consumption: meter readings and consumption during the billing period (measured in kilowatt hours or kWh)

Details about consumption during billing period (in kWh)

89%

95%

67%

96%

100%

100%

73%

95%

87%

91%

95%

Value of the meter reading at the end of the billing period

89%

90%

93%

96%

86%

88%

73%

95%

87%

82%

95%

Value of the meter reading at the beginning of the billing period

88%

95%

93%

96%

86%

88%

73%

86%

83%

91%

90%

Where does the energy come from, how is it generated, how environment friendly is it ("the fuel mix")

Fuel mix/energy sources (e.g. wind power, biomass)

32%

48%

45%

20%

47%

43%

0%

18%

52%

40%

13%

Information on how to get tips on saving energy (e.g. a link to a website)

Tips on saving energy (e.g. link to a website)

26%

8%

48%

17%

23%

20%

36%

8%

24%

20%

57%

Information on how to obtain the bill in alternative formats (e.g. in large print) for consumers with disabilities

Information on how to obtain your bill in alternative format (e.g. paper/online, large print)

24%

16%

8%

23%

27%

53%

28%

5%

20%

16%

50%

Base (note: figures in grey are based on a smaller sample):

300

25

40

30

30

30

25

40

25

25

30

Table 2: Information included on an electricity bill in a sample of ten Member States - II 124

 

Country

Information

Item in "billing" evaluation sheet

% who found item on their bill (total)

CZ

DE

ES

FR

IT

LT

PL

SE

SI

UK

The contribution of each energy source to the overall fuel mix of the supplier over the preceding year

13a. Fuel mix/energy sources (e.g. wind power, biomass)

32%

48%

45%

20%

47%

43%

0%

18%

52%

40%

13%

Information concerning the consumer's rights as regards the means of dispute settlement available to them in the event of a dispute

8b. National contact information point (or single point of contact where you can obtain information about your energy rights)

28%

44%

43%

33%

43%

30%

4%

3%

16%

12%

53%

8c. An energy mediator or third-party assistance

23%

36%

45%

23%

57%

0%

0%

3%

12%

0%

50%

Base:

300

25

40

30

30

30

25

40

25

25

30

The results show a large variation across countries for selected items; for example, information about the period of notice to terminate a contract was not found on bills in Italy, Poland, Slovenia and Spain, while in Germany and France, at least half of shoppers had found such information on their bill (50% and 57%, respectively). These variations may reflect national differences in consumer preferences and the characteristics of local markets, as reflected in Member State rules and discretionary billing practices by suppliers. In addition, the figure illustrates the possible bad application issues.

To illustrate another dimension of divergence, the following figure shows information load in consumer bills in different Member States. This can have a significant impact on consumers' ability to comprehend their bills.

Figure 3: Information on household customer bills in MSs – 2014 (number of information elements) 125

To summarize, there is currently a broad divergence in Member States, both with regards to the individual elements in consumer bills and the total amount of information in these bills. The widespread divergence in national practices reflects differences in national legislation and marketing by suppliers, which may themselves be influenced by consumer preferences and the characteristics of local markets. To a more limited extent, the divergence may also reflect the bad application of certain requirements of the Electricity and Gas Directives identified earlier in the Annex, particularly EU requirements on information on consumer rights and energy sources.

How effective has the EU intervention been?

To recap, the major objectives of the Articles in the Electricity and Gas Directives relevant to billing and metering were:

To boost competition in retail markets;

To create consumer incentives to save energy;

To enable easier and more effective consumer choice.

With regards to the first of the three objectives – boosting competition in retail markets – retail market competition has clearly increased in the EU since the articles relevant to billing and metering were introduced in the Second Energy Package. However, there have also been a great number of other relevant measures put in place at the same time as part of the broader effort to liberalise EU energy markets. These include unbundling rules and limits on price regulation. 126 This makes it impossible to quantitatively gauge the competition gains brought about by the articles on billing and metering.

There is a similar situation for the second of the three objectives – creating consumer incentives to save energy. There is evidence to show that there has been progress in recent years. 127 However, as numerous EU energy efficiency policy measures have been put in place in parallel during the period in question, it is again impossible to quantitatively disambiguate the individual contribution to these gains by the measures introduced in the Second Energy Package. Qualitatively, however, we can estimate these gains to be relatively minor as also acknowledged in the Energy Efficiency Directive, where Recital 32 expressly states that the "impact of the provisions on metering and billing in Directives 2006/32/EC, 2009/72/EC and 2009/73/EC on energy saving has been limited. In many parts of the Union, these provisions have not led to customers receiving up-to-date information about their energy consumption, or billing based on actual consumption at a frequency which studies show is needed to enable customers to regulate their energy use".

In terms of the third of the three objectives – enabling easier and more effective consumer choice – there exist various data that help us understand how EU consumers perceive their energy bills and the extent to which their bills are building awareness about energy use. These data are summarised in the remainder of this section.

Consumer organisations responding to the latest ACER Market Monitoring Report stated that the average electricity and gas consumer in their countries is only able to compare prices to a limited extent. The average score was 4.8 and 5.0 on a scale from 1 to 10 for electricity and gas respectively. 128  

These mediocre figures are backed by the 2016 Electricity Study that found that one in five consumers surveyed still disagree that the electricity bills of their electricity company were easy and clear to understand (note the disparity in individual Member States concerning the level of understanding with Bulgaria performing worst and Cyprus performing best). This effect was even more pronounced among mystery shoppers from ten Member States who were quizzed with their current bills to hand. Here, between 20 and 54% of respondents disagreed with the statement “My bill is easy to understand”. Correspondingly, 8% of all consumers who had reported having a problem with their electricity supplier in the past three years identified problems with billing. 129

Figure 4: Agreement with statement: “bills of my electrify company are easy and clear to understand”, by country 130

Figure 5: Agreement with the statement: “My bill is easy to understand” 131

The complaints data collected through the European Consumer Complaints Registration System indicates the largest share (28%) of consumer complaints reported to the Commission between 2011 and 2016 were related to billing. Whilst the complaints classified as relating to "unjustified" or "incorrect" invoicing/billing (10% of all electricity and gas complaints) are most likely related to billing on estimated rather than actual consumption, 132 complaints about unclear invoices or bills make up around 1% of all electricity and gas complaints in the system. The category 'other billing complaints' relates to cases where users of the European Consumer Complaints Registration System did not encode a sub-category, or where their specific complaint could not be categorised according to the options presented below.

Figure 6: Electricity and gas consumer complaints, 2011-2016 133

It therefore appears that whereas a significant percentage of EU consumers have difficulties understanding their energy bill, problems directly related to bill clarity have not led to a large number of consumer complaints compared with other issues such as back-billing, unfair commercial practices, and contractual clauses. However, looking at consumer complaints alone may be insufficient as complaint levels are influenced by consumer awareness and expectations, both of which may be low when it comes to energy bills.

Energy bills are the foremost means through which suppliers communicate with their customers. As such, consumers' ability to correctly answer simple questions about their own electricity use indirectly reveals the extent to which bills have been effective in providing information that could facilitate effective consumer choice. The figures show that whereas the majority of EU consumers report that they know how much they pay for electricity, fewer were aware of their consumption in terms of kWh, what type of tariff they have, or their sources of electricity.

Whilst this finding may certainly reflect a lack of consumer interest in this information, the information facilitates effective consumer choice by helping consumers identify the best offer in the market and weigh the benefits of switching. Their omission from many bills, as proven by data, may therefore be impeding the achievement of one of the stated objectives of the billing provisions in the Electricity and Gas Directives.

Figure 7: Self-reported awareness of electricity use 134

Looking deeper into consumer awareness of energy sources, across the EU28, just 24% of respondents “strongly agreed” (scores 8 to 10) that they knew how the electricity they used was produced. The proportion expressing strong agreement varied between 12% in the UK and 51% in Malta. This low level of awareness corresponds with the fact that just 32% of sampled bills contain this information.

Figure 8: Agreement with statement: “I know how the electricity that I use is produced (e.g. nuclear generation, wind, gas, solar, petroleum, coal, etc.)”, by country 135

Notwithstanding these low consumer awareness figures, data from the 2016 Electricity Study indicate that consumer demand for information on energy sources is nevertheless high. A behavioural experiment involving 10,056 consumers from 10 EU Member States (CZ, DE, ES, FR, IT, LT, PL, SE, SI and the UK) tested consumer willingness to switch to a green offer for extra-costs. 42% of consumers chose a green offer when the premium was low (€1.5/kWh) and another 37% of consumers when the premium was high (€3/kWh). 136  

The increasing proportion of green tariffs currently on offer in the EU also shows that suppliers are responding to this demand: by the end of 2014, almost one third (697) of all electricity offers and almost one quarter (178) of gas offers in the EU were labelled as 'green'. 137

However, there may be scope to facilitate growth in this area. Improving the provision (availability, ease of access and use) and quality (clarity and comparability) of information on energy sources in bills may therefore lead not only to enhanced non-price competition and support the further development of renewable energy capacity, but also to greater overall consumer engagement and satisfaction with the market. In this respect, expert bodies such as ACER and CEER have specifically highlighted "the lack of standardisation of how Guarantees of Origin are used to prove green credentials in different Member states" as an important issue. 138

To summarize, it is difficult to say how much the billing articles in the Electricity and Gas Directives have contributed to their stated objectives, because of other significant policy interventions aimed at fulfilling these same objectives, and because these objectives were not accompanied by specific indicators that would allow us to disentangle causal relationships. Nevertheless, the analysis presented in this section indicates that there is certainly scope to further improve the extent to which the billing provisions in the Electricity and Gas Directives facilitate consumer choice.

How efficient has the EU intervention been?

There are no data available to assess this question quantitatively, but given the narrow scope and low level of prescription of the billing provisions in the Electricity and Gas Directives, the costs are likely to have been limited. Consumer bills are currently heavily regulated beyond the requirements imposed by the Electricity and Gas Directives in most Member States. 139  

How relevant is the EU intervention?

At the time of drafting both the Second and Third energy packages, consumer bills and pre-contractual information formed the basis of consumer comparability, as consumers would be given the possibility to measure up individual offers against their current supply contract. Since then, the use of online comparison tools has risen significantly across the EU. Over time the continuation of this trend might challenge the relevance of the EU intervention if it is not adapted to also reflect new ways of consumer-market interaction. Well-designed, reliable and transparent online comparison tools do the number-crunching necessary to accurately compare the costs of each offer for individual consumers. In the future it will be increasingly important to ensure that bills enable or even facilitate consumers' use of these online tools to compare their individual consumption or current tariff to other available offers (e.g. by providing a code that the consumer can input in the tool to customize the comparison).

The 2016 Electricity Study found that 64% of EU consumers who had compared tariffs of different electricity companies said they had used comparison tools to do so. It also showed that comparison tools – which grants access to the offers of a larger number of providers-significantly increased the number of cheaper offers consumers were able to identify compared with contacting individual providers directly. 140  

Comparison tools are likely to become even more important as the retail market for energy matures. Between 2012 and 2014, ‘choice’ for consumers in European capitals widened, with a greater variety of offers being available. However, the ability of consumers to compare prices can be hampered by the complexity of pricing and the range of energy products, as well as by an increasing number of offers and their bundling with additional free or payable services. 141  

ACER has therefore recommended that: "To improve consumer switching behaviour and awareness further, National Regulatory Authorities (NRAs) could become more actively involved in ensuring that the prerequisites for switching, such as transparent and reliable online price comparison tools and transparent energy invoices, are properly implemented." 142  

It is important to emphasise that in the context of the general efforts to move energy markets from simple commodity markets (for kWhs) towards an energy services market, "transparent and reliable price comparison tools" need to be able to assess contracts from a holistic perspective that integrates broader aspects including energy efficiency improvement actions or services, differences in energy sourcing qualities (greenness) etc.

How coherent is the EU intervention internally and with other (EU) actions?

Whilst the provisions on billing in the Electricity and Gas Directives are not contradicted elsewhere in the EU acquis, they are complemented and reinforced by various Articles in the EED and RED, also addressed in the present document. Consolidating, streamlining or clarifying the respective scope of these articles would make the legislation as a whole easier to understand and reduce the scope for unintended interactions resulting from subsequent legislative revisions. This concerns for example the issue of billing frequency (see further discussion below) but also smart metering requirements (addressed in a separate evaluation paper).

With regard to disclosure, it is notable that gas deliveries are not subject to disclosure although this could stimulate consumer demand for green gas supplies (such as biogas injected in the gas grids) or allow some consumers to choose certain sources over others (if for example shale gas or LNG was identified separately). Equally it is notable that while the EED provides a means for guaranteeing the origin of electricity from high-efficiency cogeneration, there is no disclosure obligation to stimulate the use of that tool.

What is the EU added value of the intervention?

The provisions addressing consumer information in the Electricity and Gas Directives are essential for protecting consumers in the internal energy market at the retail level. They play an important role in ensuring the benefits of the internal market in energy can be enjoyed by all consumers, and help to create a level-playing field for suppliers and other retail market actors across the EU. Whereas there are currently still very few if any examples of cross-border supply in the retail market, a common base of energy consumer rights is a precondition for that to develop over time.

3.4.2.EED

Article 9(1)

What is the current situation?

Article 9(1) of the EED is, apart from some very minor editorial changes, identical to Article 13(1) of the ESD. Member States have generally transposed and implemented Article 9(1), which should not be surprising given that they have effectively been under the obligation to do so since the 2006 adoption of the identical provisions in the ESD.

However, the absence of substantial changes is somewhat paradoxical given that ESD Article 13(1) contained several elements known to be the subject of different interpretations and that a key objective of the EED, as discussed above in Section 3, was to clarify existing provisions on metering and billing. In the context of the Concerted Action on the Energy Services Directive the Member States themselves reported that there is a "large variance in the interpretation of Article 13 of the ESD" and that the Article had "….only limited causal influence on changes in metering & billing policies" 143 .

The areas where particular ambiguities persist are

The definition of "final customer"

Meaning of "competitively priced individual meters that accurately reflect the final customer’s actual energy consumption and that provide information on actual time of use"

The definition of "final customer"

A ‘final customer’ means according to EED Article 2 (23) "a natural or legal person who purchases energy for own end use". This definition has given rise to different interpretations notably in cases where heating and cooling or hot water is purchased collectively by or on behalf of an association of end-users (for example a group of households responsible for energy consumption in each of the individual apartments in a multi-apartment building). Although it is often a housing cooperative that purchases the energy, it is arguably the individual households who are the end-user (except, perhaps, of energy used for heating stairwells and similar collective uses). The Commission services have taken the view that the definition of final customer should be understood as covering those end-users (i.e. households/tenants) as well as the entity purchasing heating/cooling/hot water on behalf of the end-users (e.g. a housing cooperative/building owner). However, some Member States (FI, FR, DE, UK,…) seem to interpret the provisions differently, taking the view that the individual households in such buildings are not to be considered as final customers if they do not have a contractual relationship with the energy supply company . This question has important implications for the effective scope of the obligations in the EED, incl. Article 9(1), 10(1), Article 10(3) and Annex VII. In principle this problem applies to all energy forms, in practice it is most relevant for thermal energy forms (electricity and gas more rarely, not being subject to individual supply contracts even in multi-apartment buildings). It is particularly problematic when it comes to new buildings or major renovations, for which the obligation in the EED Article 9(1) to fit individual meters is absolute (i.e. technical and economic conditionalities do not apply), but where the applicability of this absolute obligation is undermined by the uncertainty about the meaning of the definition of "final customers".

Meaning of "competitively priced individual meters that accurately reflect the final customer’s actual energy consumption and that provide information on actual time of use"

EED Article 9(1) (and before that ESD Article 13) refers to "competitively priced individual meters that accurately reflect the final customer’s actual energy consumption and that provide information on actual time of use." This obligation is challenging to implement/enforce for a number of reasons:

1.It is not clear what "competitively priced" means. The term "competitively priced" was presumably used to protect consumers from overly costly solutions imposed by monopolistic utilities. In practice it is unclear precisely how this is to be interpreted/implemented.

2.It is not clear precisely how/with what time resolution "information on actual time of use" must be provided. Dating back to the 2006 ESD, it is arguably a reference to one of the functionalities of what is now commonly referred to as smart meters. However, firstly the provision of actual time of use data is but one of the recommended/desirable features of smart meters. Secondly, time of use is typically mostly of relevance for electricity, and less so for other energy forms 144 . Recital 28 to the ESD stated that " [i]n the context of this Directive, competitively priced individual meters include accurate calorimeters". Calorimeters are devices to measure thermal energy flows.

3.Thirdly, it is not entirely clear what "individual" meters mean (c.f. the point on the controversy around the definition of final customers above).

In short, where the provisions aimed to advance the use of sophisticated meters (with time of use capabilities), the ambiguous wording has meant that few if any Member States have interpreted it to require smart meters. Where it sought to advance the provision of meters to end-consumers, many of which are individual households in multi-flat buildings, the ambiguous definition of final customers has prevented it from doing so consistently. Eventually this issue may have to be resolved legally, either through an interpretation by the Court or through legislative changes.

How effective has the EU intervention been?

With respect to the intervention logic, there is a wealth of scientific and technical literature published over the last 40 years on the influence energy consumption feedback can have on consumers' decisions and behaviour and the resulting energy savings. By way of example the following three recent literature review papers/reports provide a useful overview:


Karlin, B., Zinger, J. F., & Ford, R. (2015, September 21). "The Effects of Feedback on Energy Conservation: A Meta-Analysis". Psychological Bulletin. Advance online publication.


Zvingilaite E. and Togeby M. (2015). Impact of Feedback about energy consumption. Ea Energy Analyses, 15-05-2015.  

EEA Technical report No 5/2013 – "Achieving energy efficiency through behaviour change: what does it take?",

Individual metering is a necessary precondition for providing any feedback to consumers on their actual consumption. Billing, on the other hand, is but one way of conveying consumption feedback. Since utilities anyways bill customers for purely commercial reasons it is however a low-cost and widely used approach to providing feedback.

The literature mentioned above is generally reporting findings from specific, concrete studies, programmes and pilot projects. It establishes beyond doubt that feedback on individual actual consumption, including via billing, tends to trigger enduring savings. The precise impact depends a lot on the precise modalities, the situation before, the frequency etc.

No evidence is available as regards the total impact of applying the EU acquis on metering and billing, because there has been no systematic monitoring or reporting of the implementation of individual metering and consumption based billing, or the extent to which such practices have been furthered by EU legislation. It is safe to say, however, that to the extent/where the EU provisions have triggered the installation of individual meters, and consumption based (frequent) billing, this will have led to savings: this causal link is well established in the scientific literature.

There is evidence from the work and discussions on implementation in (and between) Members States to suggest that Article 9(1) of the EED has been less effective than intended because

a) Key concepts or terms used remain either ambiguously defined or undefined, and are interpreted differently by different parties.

b) In addition, Member States in many instances have made use of the caveats regarding technical feasibility and financial reasonableness / proportionality to make broad exceptions. These conditions may of course be subject to review and possible infringement action from the Commission as part of its enforcement role.

c) Other provisions meanwhile provide more impetus to reach at least some of its intended objectives (cf. e.g. Article 9(3)).

This is in line with an assessment of the effectiveness of Art. 13 ESD where the Member States argued that changes in metering and billing were mainly due to factors other than the ESD and that the causal influence of Article 13 ESD on the practice of metering and billing in the Member States was weak 145 . The relatively low penetration rate of smart electricity meters throughout most EU Member States gives an indication of the limited effectiveness of Article 9(1). Whilst time-of-use information can be provided by other types of meters (e.g. dual-tariff (night/day) meters), and while such meters may not be uncommon in some countries (e.g. FR), the fact is that most electricity meters throughout the EU remain conventional ones, despite this provision being in force since 2008 (as part of the ESD).

For gas, even fewer MS have rolled out smart meters, and gas remains dominated by conventional metering with no time-of-use capabilities. For thermal energy, time-of-use capable meters are rather the exception than the rule 146 , and many individual dwellings/consumers are still not equipped with individual meters for hot water and heat consumption.

Figure 9: Share of household customers equipped with smart meters for electricity - 2014

Source: CEER Database, National Indicators (2014-2015) 147 .

In terms of heat metering, it has been estimated that there is a theoretical potential of some 20 million permanently occupied dwellings in multi-unit buildings that are not individually sub-metered yet 148 .

How efficient has the EU intervention been?

As a preface to answering this question it is worth recalling that utilities for commercial reasons in any case send bills to their customers, and requirements for feedback delivered via bills therefore entail very marginal or no additional costs except where the additional information is of a nature that is costly to collect or where the billing process is frequently repeated. They also in most cases install meters to justify such billing, although there have historically been exceptions, especially in multi-unit buildings and/or district heating networks.

Secondly, it is worth recalling that the acquis under consideration in this evaluation does not require the installation of smart meters (or was at least not interpreted to that effect). The additional costs of "smart" meters over conventional ones is therefore less relevant here, but it is central to the evaluation of smart metering provisions that has been conducted and will be reported elsewhere as part of the forthcoming Market Design Initiative.

There are no data available to assess the cost or efficiency of the EU intervention here considered quantitatively, but given that most of the key obligations as regards metering and billing in the current acquis are either expressly subject to cost-effectiveness conditions OR softly/ /ambiguously worded, Member States have typically integrated efficiency/proportionality considerations when transposing and implementing the provisions nationally. It is therefore safe to assume that obligations for enhanced metering and billing measures generally have only been introduced where there was a sound economic case, and , it is therefore very unlikely that the rules have imposed any disproportionate costs.

How relevant is the EU intervention?

For the purpose of strengthening consumer empowerment, Art 9(1) is very relevant and would be even more so if it were to be clarified. The fundamental notion that individual consumers (incl. households) should have the right at reasonable costs ("competitively priced") to accurate metering of their own consumption ("individual meters"), and have access to information on when their actual consumption takes place (i.e. "time of use") remains highly relevant.

However, in so far as thermal energy supplies are concerned the practical relevance of EED Article 9(1) has been diminished by the addition of the more precise Article 9(3). As regards electricity and gas the smartness/capabilities of the meters have since been addressed in more detail in the context of the smart meter roll out provisions under the IEM legislation (adopted years after the original ESD provisions) and in a subsequent Commission Recommendation 149 . At least for electricity and gas it would therefore seem appropriate to update these requirements in the light of these developments to reflect that "time of use" is but one of several important features of modern meters. For thermal energy, the emergence and increasingly common market development of remotely readable heat meters and heat cost allocators should similarly be reflected in order to remain fully relevance.

As regards the lack of individual meters the Commission services are not aware of any evidence that this is a significant issue for electricity and gas. This said, the presence of even a simple conventional meter within reasonable reach allowing at least self-checks cannot still be taken for granted even for electricity, as is evident from a case recently having been the subject of a ruling by the Court 150 . This could suggest that a clearer right without any conditions or caveats but for something more basic, namely the right to a meter allowing self-checks, might be at least as relevant going forward.

As regards billing, it should be noted that even where other forms and means of providing energy feedback (e.g. smart phone apps etc.), consumption information delivered with bills remains relevant since the various forms of feedback generally are complementary and reinforce each other. By way of example, research has shown that real-time feedback (possible only with smart equipment) tends to impact more on behaviour, whereas more indirect feedback (e.g. with monthly, quarterly or annual bills) tends to impact more on investment decisions.

How coherent is the EU intervention internally and with other (EU) actions?

The ambiguities in the wording of Article 9(1) raise questions of coherence with other EED provisions: For example,

Are "meters …that provide information on actual time of use" to be considered to mean smart meters of the kind referred to in Article 9(2) (and in the IEM legislation), or another intermediate category (between smart and simple, conventional meters)?

Are "Individual consumption meters" for thermal energy referred to in Article 9(3) also supposed to be "meters …that provide information on actual time of use"?

What is the EU added value of the intervention?

Rules to empower consumers and provide adequate consumer protection remain absolutely critical for the well-functioning and the legitimacy of the EU's internal energy market. The provisions now contained in Article 9(1) of the EED did, when first adopted as part of the ESD in 2006, push forward the agenda of individual metering and smart metering at least in some EU Member States. This said, the current added value has been diminished because of the various ambiguities and the subsequent developments elsewhere on smart meters. By being made more precise, it could (re)gain added-value.

EED Article 9(3) Thermal energy in multi-unit buildings: Possible clarifications

Article 9(3) being new (compared to the ESD) and the deadline for achieving its effective outcome (installation of meters or heat cost allocators in individual units in multi-unit buildings) only being by 31/12/2016, it is at this stage premature to evaluate Article9(3) as a whole.

Nevertheless, during the Commission's work overseeing Member States' implementation, a few areas where technical clarifications could be welcome have emerged and merit attention. These concern:

The meaning of "multi-apartment/purpose buildings"

Technical feasibility and cost-effectiveness criteria for meters and heat cost allocators

Availability of transparent cost allocation rules

The meaning of "multi-apartment/purpose buildings"

Whereas the Commission services have taken the view that a "multi-purpose building could be understood as a building occupied by at least two entities that need to share between themselves the bill for the energy purchased", a different reading is possible. For example, the French authorities read the (French version of) the provision as referring to buildings with both dwellings and non-dwelling uses ("immeubles mixtes"). The first reading implies a broader scope in that buildings containing no dwellings but more than one commercial or industrial entity (e.g. a shopping mall) would be covered.

It could be considered to clarify this aspect next time the Directive is amended anyways or through further guidance). From a coherence perspective, and given that the EPBD for the purpose of building Energy Performance Certificates (EPC) uses the notion of "building units" 151 , it could be considered to align with this so that Article 9(3) metering would be required wherever EPCs are required, in order to facilitate implementation in Member States by avoiding the need to use two similar but not identical distinctions. It could also be left to MS discretion to interpret the precise boundaries in their specific national contexts.

Technical feasibility and cost-effectiveness criteria for meters and heat cost allocators

The first part of Article 9(3) is relatively clear, except that the conditionality can be interpreted/applied in widely differing ways. DG ENER's ongoing contract with "empirica" 152 aimed at formulating best practice guidelines for application of these criteria and analyzing Member States' application of these criteria has revealed that many Member States literally transpose the criteria into national law without giving further guidance on how to apply them. In addition, some Member States apply general or broad exemptions based on cost-benefit analysis carried out on a single average building or a limited range of typical/example buildings. Very few Member States have adopted specific measures to ensure a building-by-building assessment of the fulfilment of the criteria, with most leaving it to local actors (heat suppliers, building managers etc) to assess if the criteria require the provision of individual meters.  This situation could potentially affect the achievement of the policy objective of ensuring that individual metering and billing is implemented at least where it is cost-effective and feasible. Depending on the outcome of the ongoing transposition and implementation process, it could be considered at a later stage to "codify" (some elements of) best practice approaches in any further, future review of the EED provisions. Doing so now however seems premature given that the deadline has not even passed yet, which is why progress at this stage should better focus on encouraging MS to follow best practice based on guidance from the Commission and through the work on enforcement.  

It is noteworthy that respondents to the public consultation on the EED review widely agreed that it is appropriate for the requirements to be subject to technical feasibility and/or cost effectiveness conditions – this view was not only shared by 5 of every 6 respondent expressing an opinion, but also by a majority in each category of stakeholders, including NGOs who were otherwise most critical as regards the overall adequacy of Articles 9-11. There was similarly broad agreement that conditions should not be harmonized at EU level, although NGOs and private respondents were slightly more favorable to this idea.

Availability of transparent cost allocation rules

The last sub-para of Article 9(3) provides that "…Member States may introduce transparent rules on the allocation of the cost of thermal or hot water consumption in [multi-apartment/purpose] buildings to ensure transparency and accuracy of accounting for individual consumption.". Although it is optional ("may") it is nevertheless of some use because it implicitly recognises that despite the right to be billed based on individual consumption (Article 10) , occupants of multi-unit buildings may not be billed exclusively on that basis but also on other factors. This is also significant in the context of the many complaints from occupants in multi-apartment buildings who, unhappy with the collective solutions, wish (and sometimes decide) to use individual solutions, and thus do not wish to pay for the collective solutions.

This topic is also the subject of work under the contract referred to above. Depending on the outcome produced by empirica, it could be considered to "codify" (some elements of) best practice approaches in the review of the EED provisions, or simply to encourage MS to follow best practice based on guidance adopted or published by the Commission. In any case there is a link with the application of Article 10(3) and Annex VII in so far as heating, cooling and hot water in multi-unit buildings is concerned.

3.4.3.Billing (information) and frequency

What is the current situation?

The EED provisions on billing contained in Article 10 essentially

1)Define the basic right for customers without smart electricity and gas meters to accurate billing information based on actual consumption with a certain minimum frequency (Article 10(1) & Point 1.1. of Annex VII)

2)Define certain minimum information to be provided with billing information, namely

a)Current actual prices and actual consumption of energy
(A.VII point 1.1 a);

b)Comparisons with previous years (A.VII point 1.1 b);

c)Contact information to locate further energy information information/resources/advice (A.VII points 1.1 c and 1.3);

d)Comparisons with average customers in the same user category (A.VII point 1.1 c).

3)Define certain other rights to request

a)That billing and consumption information to the extent it exists be made available to a third party energy service provider (Article 10(3) a)

b)Electronic billing (Article 10(3) b)

c)Clear, understandable explanations of how bills are derived (Article 10(3) b)

d)Information/estimates on energy costs in an easily understandable format allowing to compare deals on a like-for-like basis (Article 10(3)e)

The EED does not specify a minimum billing frequency for supplies metered with smart electricity and gas meters. Where a smart metering system is available to final customers, the general provisions of the IEM legislation continue to apply. According to Annex I point 1 i) of the IED and IEG Directives it is to be ensured that customers "are properly informed of actual electricity consumption and costs frequently enough to enable them to regulate their own electricity consumption. That information shall be given by using a sufficient time frame, which takes account of the capability of customer’s metering equipment and the electricity product in question". According to an interpretative note published by the Commission on 22 January 2010, the Commission's services consider that where smart meters are installed, receiving actual consumption based information on a monthly basis would be sufficient to allow a consumer to regulate his consumption  153 .

It should be stressed that the right/obligation referred to in point 1 above applies only "where this is technically possible and economically justified". Similarly, the minimum information referred to under point 2 above is to be provided "where appropriate" according to Annex VII. The rights listed under point 3 are not subject to such caveats.

How effective has the EU intervention been?

The Commission does not yet have comprehensive data on the detailed implementation of EED Article 10. Initial high-level analysis of the current state of transposition suggests that it is still very incomplete and patchy, although this remains to be confirmed by more in-depth analysis at country level. In the latest annual report from ACER on the results of monitoring the internal electricity and natural gas markets 154 information on the billing frequency is available for a range of Member States for 2014, but the new requirements as regards minimum frequency under the EED took effect only as of 31/12/2014.

Table 3: Frequency of billing information based on actual consumption – 2014
Source: CEER Database, National Indicators (2014-2015) . Note: * Electricity, ** Gas.

Without smart meters

With smart meters

Legal

In practice

Legal

In practice

Daily

FI*

Monthly

BG, EE, LT, SE*

BG*, EE, HR**, LV*, LT

AT, EE*, ES*, PT*, SE*

FR, ES*, PT*, SE*

Bimonthly

CY*, PT**

CY*, ES*, FR, PT**

NL

NL**

Quarterly

AT, IE, NO*, PT*, RO**

DK, IE, PT*, RO

NO*

DK*, EE*, NO*

Triannually

FI

EL

Biannually

HR, RO*, SI

HR*, MT*

Annually

CZ, DK, EL, ES*, FR, HU, NL, PL*, SE**, SK

LU, NL, SI, SK

DK, FR, SE**

As discussed earlier, data collected and reported by ACER shows that a high share of registered complaints about electricity and gas retail markets are related to billing issues. But the data are neither specific nor recent enough to reveal if the reasons are related to issued that were (to be) addressed as part of the EED implementation as of 2015. Whereas the mystery shopping study referred did contain data from 2015 and suggested that problems exist, that is also not surprising given the less that complete situation as regards both transposition and actual implementation.

As regards heating, cooling and hot water, no evidence is available as regards the extent to which the various information elements are made available to final customers or at what frequency.

For consumers in multi-unit buildings supplied from central heating, cooling or hot water systems, these challenges ares compounded by lack of clarity as to whether the requirements are actually applicable to them at all or not (cf. the discussion in section Error! Reference source not found. where the consumers/occupants of individual units do not have a direct contract or commercial relationship with the energy utility. A specific stakeholder consultation carried out as part of the contract referred to in section Error! Reference source not found., confirmed that the Annex VII requirements are only considered fully applied by less than 75% of the respondents (cf. Error! Reference source not found. ).

Figure 10: Expert stakeholder responses on the question: "Today in your country, does invoicing of heating, cooling and hot water, and information provided to tenants on their consumption pattern, generally conform to the requirements of Annex VII?"

Not surprisingly, a similar proportion of the same stakeholders did not consider that - where heating and/or hot water is sub-metered - invoices sufficiently transparent and clear, and cost allocation regarded as fair (cf. ).

Figure 11: Expert stakeholder responses to the question: "Where data from heat meters or heat cost allocators are used to calculate the amount of energy invoiced to residents, are invoices sufficiently transparent and clear, and cost allocation regarded as fair?"

 

How efficient has the EU intervention been?

There are no data available to assess this question quantitatively yet, but given that the provision themselves (in EED Article 10(1)) contain "caveats" regarding cost-effectiveness, it is unlikely that the rules have imposed any disproportionate costs.

Even where meters or heat cost allocators are in place, the "cost plus" regulation that is typical of district heating networks, or internal heating accounts of sub-metered multi-unit buildings supplied e.g. from a central fuel oil boiler, is often operating on an annual basis. It may thus be costly or impossible to produce the cost figures that would in principle be required to produce sub-annual billing information including current energy costs. For this reason focus on consumption information (in terms of energy) rather than billing information (including also cost/price data) might be a more realistic option for sub-annual information in these cases. Depending on how MS have applied the "caveat" in Article 10(1) in this case, this may have resulted in more or less efficienct outcomes.

How relevant is the EU intervention?

With EED Article 10 and Annex VII having been adopted rather recently and aiming to address some of the problems identified, it clearly remains highly relevant.

How coherent is the EU intervention internally and with other (EU) actions?

Whereas no direct contradictions with other provisions and actions have been identified, it may seem incoherent or at least confusing that, as explained above, the minimum frequency of billing is (qualitatively) regulated in the Electricity and Gas Directives and quantitatively regulated in the EED for all but smart electricity and gas meters. Most importantly, the latter (EED) results in what would seem to be an unjustified difference between those customers of electricity/gas and thermal energy forms, respectively, who have equipment allowing for automatic/remote readings: whereas customers with smart electricity or gas meters should expect to have at least monthly information (cf. the Commission's interpretation of the IEM provisions), consumers whose consumption is measured with "smart" heat meters or heat cost allocators are only entitled to information 2 or 4 times a year (assuming that the cost-effectiveness condition has not been used to deviate from it). It would seem more logical that where supplies are measured using remotely readable equipment, and where marginal costs of more frequent information are therefore very small, the minimum frequency would be the same regardless of the energy form, and that this be clearly spelled out.

Moreover, the wording of Annex VII in some cases can be considered ambiguous. The use of the word "should" in Annex VII point 1.1. has led some Member States to consider the minimum requirements optional/non-binding, although the word "shall" is used in the operative Article itself (Article 10(1)). In the same vein, there seems to be some overlaps between the requirements listed in point 1.2 c) and point 1.3 of Annex VII, which both refer to contact information for external resources that the customer can refer to.

What is the EU added value of the intervention?

Delivering a New Deal for energy consumers as part of an Enery Union with consumers at its heart means inter alia providing consumers with frequent access to partially standardised, meaningful, accurate and understandable information on consumption and related costs 155 . Guaranteeing certain minimum standards in terms of the frequency and content of billing and billing information therefore contributes to realising the Energy Union and meet EU goals on energy efficiency and greenhouse gas reductions.

3.5.Conclusions

The legislators' original objectives behind the provisions can be summarised as follows:

To enable effective consumer choice and boost competition through the availability of transparent, comparable and reliable information on prices, costs, energy consumption, fuel mix and environmental impact of electricity supplies

To enable/incentivize energy savings through sufficiently frequent feedback about (the cost of) their energy consumption

Effectiveness

The evidence available and considered in this evaluation suggests that the provisions in the IEM and EED together are likely to have made some contributions towards the achievement of both of these objectives, although it is impossible to quantify this given the multiple and complex other factors that also affect these objectives' achievement, the absence of precise indicators and the scarcity of data.

The EED generally contains the most specific and detailed provisions in the area of metering and billing, and not just as regards energy savings but also as regards the clarity and comparability of energy bills. The deadline for its transposition is relatively recent (mid 2014) and some of the key obligations therein have later deadlines for actual application. Until the national transposition measures are in place, have been verified to be in conformity with the requirements of the Directive and have been applied by market players on the ground it might be too early to draw many firm conclusions as regards the effectiveness of the current legislative framework.

It is nevertheless already possible to identify certain gaps and areas of potential improvements.

With regard to comparability and clarity of billing information, the relatively low degree of satisfaction of electricity and gas customers compared to other services markets and the high share of complaints related to billing suggests that there is still room for improvement and that further action might well be required to this end, at national or EU level. This conclusion is corroborated by the findings of the 2016 Electricity Study and the responses to the Commission's Consultation on the retail energy market conducted in spring 2014. A specific expert stakeholder consultation confirmed similar issues for centrally supplied thermal energy in multi-unit buildings: only 1 out of 4 consider that invoices are sufficiently transparent and clear, and cost allocation regarded as fair by consumers in such sub-metered buildings.

With respect to energy savings there was a clearly stated intention with the EED to clarify the pre-existing requirements contained in the IEM and in the 2006 Energy Services Directive (ESD) as their effect on this objective was considered to have been too limited. This intention has only partially been met given that the current framework remains complex and open to interpretation with regard to the nature and scope of certain key obligations. From this perspective, there is a case already for revisiting certain aspects of EED Articles 9-11 and of Annex VII, in particular those related to the minimum frequency of provision of information, the precise nature of that information and the situations in which the requirements are applicable.

With regard to disclosure of energy sources, the evidence available suggests that the way the current requirements are implemented is not sufficient to match the intentions: a rather high share of citizens seem to either not find or not notice disclosure information with their billing information. Others have doubts about the credibility or added-value of green claims made. While these problems in some instances may be due to bad application/non-enforcement, it also points to a potential for making such information more trustworthy, accessible, visible and easy to understand and compare. Moreover, the fact that a high share of gas offers carry "green" labels or claims despite biogas injection still being very limited also puts a question mark over the effectiveness of what is in fact amounts to a voluntary/unregulated regime, given there is no disclosure obligation for gas as there is for electricity. Finally, there is increasing demand from energy consumers, particularly the corporate sector, but also from organisations representing general consumers, for robust information on the emissions associated with the energy use. This has resulted in a number of organisations proposing that the Guarantees of Origin system is extended to cover emissions such as CO2.

Efficiency

There is little if any evidence but good reason to assume that the intervention has been efficient in terms of the proportionality between impacts and resources/means deployed. The major reason for this is that certain obligations are either modest in ambition, unclear in scope (and therefore not implemented) or qualified with conditions allowing Member States to make implementation subject to cost-effectiveness/proportionality criteria. A possible exception is the rules on disclosure where resources have been committed to establish systems allowing the issuance of guarantees of origin of electricity from renewable energy sources and from high-efficiency cogeneration under the RES and EED, respectively, but where the disclosure obligation in the IED does not require their use, thereby missing an obvious opportunity to use common EU tools that anyways exist.

Relevance

Overall the key provisions remain highly relevant, not least those of the EED which is not surprising given its relatively recent adoption. This said, parts of both the IEM and the EED itself have to some extent been surpassed by developments in the market as well as in the regulation (EED). This concerns notably EED Article 9(1) which carried forward provisions from the former Energy Services Directive without addressing certain ambiguities, and without reflecting recent technological and market developments as regards the availability of remotely readable heat cost allocators and meters. As regards the IEM, the increasing use of online price comparison tools challenges the relevance, or at least the completeness, of certain provisions if they are not adapted to also reflect and support new ways of consumer-market interaction.

Coherence

In terms of coherence, the evaluation has pointed to a number of issues where improvements seem possible.

Firstly, it must be noted that smart metering is addressed by provisions in both the Electricity and Gas Directives, in the EED and in the EPBD, as well as by a non-binding Commission Recommendation. These provisions are the subject of a separate thematic evaluation reported as part of the Market Design Initiative and not discussed in depth here. It suffices to say here that whereas no direct contradictions have been identified, this situation is at the very least confusing and renders it more complex to understand the applicable requirements. An example is the minimum frequency of billing which is regulated by the IEM Directives in a qualitative way (not making references to quantified frequencies), and by more specific quantified provision in the EED but only in so far as non-smart meters are concerned. This results in what appears to be an unjustified difference in the guaranteed minimum frequency of provision of information between those customers of respectively electricity/gas and heat that have remotely readable/"smart" equipment installed: the latter are not currently sure to fully benefit from the capabilities of the smart equipment (be it heat meters or heat cost allocators).

Secondly, the continued use in the EED (Article 9(1)) of the term "meter…. that provide information on actual time of use", originating from the 2006 Energy Services Directive, raises questions about the coherence with the framework for promoting smart meters. The latter generally aims to promote the roll-out, where cost-effective, of meters with a wider range of functionalities of which capability to provide time-of-use information is just one.

Thirdly, in so far as billing and billing information are concerned, the way Annex VII of the EED is drafted and referenced could be improved to address certain internal overlaps or ambiguities as regards the nature and scope of its applicability. Notably it might be worth clarifying beyond doubt that the annex is applicable to consumers of thermal energy in multi-flat/purpose buildings even where they're not directly or individually parties to an energy supply contract. The precise nature of some of the information elements (comparisons) could also be clarified.

Finally, two observations can be made as regards disclosure of energy sources:

Firstly, the current disclosure regime is not technology-neutral. Electricity supplies are subject to disclosure whereas network supplies of gas and thermal energy forms are not. It might be argued that historically this was justified a) because "gas is just gas" and b) because thermal energy supplies were not regulated by an internal market directive. However, as gas supplies are increasingly being diversified to include biogas, gas customers arguably might also start having an interest in knowing where their gas comes from and use this information as active consumers. As regards heat, switching supplier is typically not an option in the short term. Nevertheless, heat consumers – whether supplied from a central boiler in a multi-flat building or from a district heating network – arguably also could have a legitimate interest in knowing the source of their energy: at building level this could inform collective decisions to change energy source when installations have to be renovated. At the level of district heating networks, this could increase awareness and political pressure over time to transition to using more efficient and low-carbon sources or upgrading infrastructures in the network.

Secondly, whereas EU legislation establishes tools to facilitate electricity-related disclosure for both renewables and high-efficiency cogeneration, it only stimulates a demand for the former. The obligation to disclose the fuel mix, enshrined in the Electricity Directive, does not require or stimulate disclosure of the share of cogeneration. Moreover, even for renewables, the disclosure obligation is not systematically/exclusively met using guarantees of origin, despite them being available, as their use is not mandatory.

EU added-value

Delivering a New Deal for energy consumers as part of an Energy Union with consumers at its heart means inter alia providing consumers with frequent access to partially standardised, meaningful, accurate and understandable information on consumption and related costs. Healthy levels of consumer engagement and retail competition are key to ensuring the rollout of new products and services that will help the energy system become more flexible, and build demand for innovative energy products. Guaranteeing certain minimum standards in terms of the frequency and content of billing and billing information therefore contributes to realising the Energy Union and meeting EU goals on energy efficiency and greenhouse gas reductions.

In addition, the provisions addressing consumer information in the Electricity and Gas Directives are essential for protecting consumers in the internal energy market at the retail level. They play an important role in ensuring the benefits of the internal market in energy can be enjoyed by all consumers, and help to create a level-playing field for suppliers and other retail market actors across the EU. Whereas there are currently very few, if any, examples of cross-border supply in the retail market, a common base of energy consumer rights that helps national rules converge over time is a precondition for that to develop. With the perspective of developing an internal retail market where customers one day might even shop cross-border, the common definition of minimum requirements for information for consumers creates added value. But even in absence of cross-border supplies at retail level, common minimum requirements allow service providers and equipment manufacturers to develop standard solutions and create economies of scale, leveraging the internal market of 500 million consumers.

Simplification, burden reduction potential, SMEs, and quantification of costs and benefits

From the evaluation it appears very likely that it should be possible to clarify the current legislative provisions which are somewhat complex and open to interpretations on important points. This in turn should simplify the task for the public authorities whose task it is to transpose the rules in national law and ensure their actual implementation and enforcement. However, also other market players and not least citizens would benefit from clearer and more coherent rules at the EU level. In terms of burdens for citizens economic operators, including on SMEs, the existing rules create a net benefit as they are not requiring action where it is not cost-effective, and are therefore not imposing significant burdens.

3.6.Stakeholder consultation

This evaluation has benefitted from input from the following processes involving stakeholders:

3.Consultation on the retail energy market
http://ec.europa.eu/energy/en/consultations/consultation-retail-energy-market  

4.Consultation on the Review of Directive 2012/27/EU on Energy Efficiency
http://ec.europa.eu/energy/en/consultations/consultation-review-directive-201227eu-energy-efficiency  

5.Three stakeholder workshops on metering and billing of thermal supplies organised by "empirica" for the Commission
http://www.empirica.biz/projects/energy/details/?projectid=182  

6.Three range of workshops organised by the JRC on metering and billing of heat
http://iet.jrc.ec.europa.eu/energyefficiency/tags/heat-metering-and-billing  

Retail market public consultation - results

Below are summarised in graphic form a quantitative summary of the relevant feedback from the consultation referred to in point 1 above.

Please give your opinion on the relative importance of the following factors in helping residential consumers and SMEs better control their energy consumption and costs.

ACER/CEER Annual Report concludes that consumers are dissatisfied with the information they receive in their contract and in their billing information. The report also shows the frequency with which consumers switch from one energy supplier to another. This varies between 0% to 14,8% in the EU Member States.

In your opinion, what are the key factors that influence switching rates?

Please indicate if you agree or disagree with the following statements concerning ways to increase consumers' interest in comparing offers and switching to a different energy supplier.

With the implementation of related provisions in the Energy Efficiency Directive by December 2014, consumers can be billed on the basis of their actual energy consumption and have the right to access their actual and historical consumption data. Do you think that bills provide consumers with sufficient information about their consumption patterns?

EED review - results

Below are summarised in graphic form a quantitative summary of the feedback from the consultation referred to in point 2 above in so far as EED Articles 9-11 are concerned, on the basis of 326 responses. Further details have been published online in a full synthesis report 156 .

Overall adequacy: Do you think the EED provisions on metering and billing (Articles 9-11) are sufficient to guarantee all consumers easily accessible, sufficiently frequent, detailed and understandable information on their own consumption of energy (electricity, gas, heating, cooling, hot water)?

Do you think it appropriate that the requirement to provide individual metering and frequent billing (Articles 9(1), 9(3) and 10(1)) is subject to it being technically feasible and/or cost effective?



Should such conditions of being technically feasible and/or cost effective be harmonised across the EU?

How would these conditions of being technically feasible and/or cost effective affect the potential for energy savings and consumer empowerment?

3.7.REFIT assessment of the Renewable Energy Directive – Provisions related to Guarantees of Origin (GOs)

This section summarises the evaluation work that has been carried out in relation to Article 15 of the Renewable Energy Directive (Directive 2009/28/EC). This Article relates to the Guarantees of Origin (GO) system which tracks the origin of renewable electricity and can be used for disclosure purposes.

Conclusions and recommendations for GOs

The REFIT assessment concluded the following actions:

Continue to stress the importance of MS to move towards a GO system based on the European Energy Certificate System (EECS) operated by the Association of Issuing Bodies (AIB). Also, continue to monitor progress, to ensure full implementation of this article throughout the EU.

Assess the option to link GOs to the actual energy stream, after 2020.

Assess the benefits of following the Best Practice Recommendations formulated by RE-DISS I and any further recommendations from RE-DISS II22. These include: extending the use of GOs for all types of power generation; streamlining the use of tracking mechanisms at MS level; clarifying the relation between support schemes and the tracking systems used for purposes of disclosure.

Investigate the possible extension of the use of GOs beyond RES-E and high-efficient cogeneration to all types of power generation i.e. including electricity from fossil and nuclear generation.

REFIT assessment

What is the current situation?

The REFIT analysis of the RED summarised the situation with the GO system.

Article 15: Guarantees of origin (GOs) Positive contributions

Key issues and barriers

Transparency on RES generation has increased and GOs proved to be a useful tool to reduce fraud and inaccuracies.

Systems throughout the EU have become more standardised.

There are still barriers to the trade and transfer of GOs; differences in the comprehensiveness of procedures and the use of GOs remain.

The administrative burden seems reasonable but data are lacking and likely to depend on MS implementation and starting point

How effective has the EU intervention been?

The REFIT analysis showed:

All MS now have some sort of RES GO system in place with competent bodies assigned for issuing, transferring and cancelling GOs. The use of GOs for heating and cooling remains limited as RED does not set a mandatory requirement regarding their issuance.

Guarantees of Origin are used for three main purposes: fuel mix disclosure i.e. to prove how the energy was produced and ensure transparency of the energy data produced by the system and of the information provided to final consumers; to determine eligibility for national support schemes - it is up to Member States to decide whether they want to combine GOs and support schemes; as a traded commodity between MS.

Almost all countries use GOs for consumer disclosure purposes and most recognize GOs from other countries and allow trade, albeit with different conditions.

The number of GOs issued, traded and transferred has been increasing sharply between 2010 and 2013 but the trade in GOs remains limited due to barriers to the trade and transfer of GOs based on the fact that not all Member States are members of the Association of Issuing Bodies (AIB) and use a system compliant with the European Energy Certificate System (EECS), which means that GOs from some Member States are refused by others.

At this stage there is no specific research which isolates and quantifies the impact that GOs have had on the level of investment in renewable energy at EU or MS level.

GOs have proved to be useful tools to reduce fraud and inaccuracies. The effectiveness of the systems in place to avoid inaccuracy and double-counting has clearly improved significantly since the first version of the Directive (2001) and even since 2009. The majority of countries are now compliant with the EECS and have systems in place to check the validity of the information supplied by GOs. However, there still remain differences in the comprehensiveness of these procedures and therefore their likely effectiveness.

The effectiveness of GOs as a tradable commodity which can support investment in RES across Europe is less clear. The exclusion of GO use as a compliance means for meeting national targets reduces their effectiveness in supporting investment across the EU, because it places the emphasis on domestic (national) measures irrespective of the opportunity for cheaper investment elsewhere.

How efficient has the EU intervention been?

Efficiency was examined by the REFIT analysis:

The costs of a Guarantee of Origin regime include the development and operation costs of a registry as well as costs of plant registration and audits and transaction costs for participants.

Implementing article 15 of the 2009 Directive will have involved additional costs for public authorities in order to meet the new mandatory requirements it included. However, in most countries the system will build on: the existing GO system if one was implemented in response to the 2001 Directive; or using an existing body as the responsible authority and allocating it these additional responsibilities in order to limit additional costs.

Overall the administrative burden does seem reasonable, although in practice it will depend on how MS implement the system. The system costs associated with fraud and double-counting avoidance also need to be viewed in the context of the risks and costs of fraud and double-counting itself. These costs can be minimised through a standardisation of GOs across Europe.

Ultimately the cost efficiency of the system will not only depend on the implementation and operation costs but also on the volume of GOs issued and traded: the more GOs are issued the higher the economies of scale achieved and therefore the efficiency of the system.

There is no available overview of the costs placed on producers by the various MS systems at this point.

The continued standardisation of the GO system at EU level – following the Best Practice Recommendations formulated by RE-DISS I and any further recommendations from RE-DISS II - seems to be the best way to maximise the potential benefits from this Article.

What is the EU added value of the intervention?

The REFIT analysis summarised added value as:

The article is not directly related to other EU initiatives but GOs might be considered useful tools as part of the objective for a single internal energy market set out in the 2009 Energy Market Directives. Specifically, the role of GOs in supporting fuel mix disclosure helps facilitate consumer choice and supplier competition, both of which are encouraged by the 2009 Energy Market Directives.

The 2009 RED introduced improvements in the minimum requirements originally set out in the 2001 Directive. Without further intervention at EU level the situation would likely have remained unchanged since 2001 with a fragmented system as opposed to the more standardised (although still not unified) process currently in place.

The added value of this article in terms of cost-efficiency is limited by the need for individual MS to meet their renewable targets and the separation between GOs and the underlying commodity they related to (i.e. energy).

It is also limited by the presence of other tracking systems in some MS along with GOs which can create confusion and duplication.

Conclusions

The main conclusions with regards to GOs from the REFIT review are that:

They represent a generally effective tool for auditing purposes and that there is value in having a consistent approach at EU level. This consistency reduces barriers to investment (because the market has confidence in the integrity of the GOs across a standardised system) and transaction costs (because of the efficiency of common rules). The role of the Association of Issuing Bodies (AIB) and use of a system compliant with the European Energy Certificate System (EECS) is important in underpinning the integrity of GOs as internationally traded commodities.

They could also be a useful tool for creating a voluntary, consumer-driven market for renewables. The consumer buying a green tariff supply backed up by GOs can be confident that the corresponding renewable electricity has only been accounted for once in green supply agreements. However, the decoupling of the electricity and GOs weakens this benefits since a consumer cannot directly attribute his or her electricity to a particular renewable source (or indeed any renewable source).

Despite progress in implementation, improvements are still needed in order to achieve a consistent system across Europe.

GO trade is still in its infancy and it is as yet unclear whether it will have net positive impacts on RES deployment at EU level and, consequently on MS ability of reaching their targets. There is a potential for conflict between EU level and country level benefits from the mainstream use of GOs should it happen. This is because the exclusion of GO use as a compliance means for meeting national targets places the emphasis on domestic (national) measures irrespective of the opportunity for cheaper investment elsewhere.

It is important that all MS continue to move towards a GO system based on the European Energy Certificate System (EECS) operated by the Association of Issuing Bodies (AIB). Joining AIB and the EECS can provide guidance for MSs on developing a system which is compliant with others across Europe, and will facilitate trade.

Separating GOs from the energy system itself decreases transparency since the consumer cannot associate their electricity with a renewable source. This can reduce the effectiveness of this article as a means to encourage the voluntary market in green electricity supplies.

It is worth investigating the possible extension of the use of GOs beyond RES-E and high-efficient cogeneration (HE cogeneration) to all types of power generation i.e. including electricity from fossil and nuclear generation. This would help support the tracking and auditing on non-renewable supplies and underpin the integrity of the supply mix disclosure statements that inform consumer choices concerning these generation types.

Finally, the overall future effectiveness of GOs will be improved by continuity of the RED beyond 2020 (and communicating that continuity), especially to avoid uncertainty in the GO market as we approach 2020.

3.8.Main sources used for the analysis

Electricity and Gas Directives

ACER is an agency created by the ACER Regulation. ACER's duties include monitoring and reporting on the internal electricity and gas markets. By the end of 2015, ACER will have published four annual Market Monitoring Reports 157 that provide in-depth coverage of relevant issues such as consumer empowerment and protection, supplier switching and consumer information. 158

DG JUST published in 2010 (2009 data) a study on the functioning of retail electricity markets for consumers in the EU ("the 2010 electricity study"). 159 This major study examined whether a well-functioning electricity market was in place for consumers in the EU. It also examined the extent to which consumers were able to make informed and empowered choices and what motivates behaviour in the electricity market. The study provided evidence pertinent to evaluating the billing and metering measures put in place by the Electricity Directive.

DG JUST commissioned a follow-up study on the functioning of retail electricity markets for consumers in the EU ("the 2016 Electricity Study" 160 ) to assess the development of consumer conditions across the EU28 Member States' (and Norway, Iceland) electricity markets following the implementation of the Third Energy Package. The 2016 Electricity Study assesses the extent to which the electricity market benefits consumers and what is still missing for better consumer outcomes. It also examines the extent to which consumers are able to make informed and rational choices corresponding to their energy consumption needs, whether they possess the necessary tools to compare prices and offers, and what motivates consumer behaviour in the energy market. The study makes comparisons with the findings of the 2010 electricity study. The findings provide evidence for future policy initiatives and identify actions needed for further integration of the EU Internal Energy Market. Initial findings from the 2016 Electricity Study were published in November 2015 together with the State of the Energy Union 2015 Communication. 161 The final report will be published in summer 2016.

DG JUST published a study on the coverage, functioning and consumer use of comparison tools and third-party verification schemes, 162 which addresses the possible improvements that can be made to ensure comparison tools are reliable, transparent and user-friendly and that they benefit consumers given that consumers are increasingly using such tools to compare offers on the market.

In addition, DG JUST's (and formerly DG SANCO's) consumer scoreboards 163 are an important source of information on how the single market is performing for EU consumers.

The Council of European Energy Regulators (CEER) is a not-for-profit association through which Europe's national energy regulators cooperate and exchange best practice. It has recently produced advice on customer information on sources of electricity, 164 presenting recommendations on how to make the system for disclosing how electricity has been produced more comprehensive, coherent and reliable.

The European Consumer Complaints Registration System - ECCRS (DG JUST). In May 2010 the Commission adopted the "Recommendation on the use of a harmonised methodology for classifying and reporting consumer complaints and enquiries". The Recommendation is addressed to any body who is responsible for collecting consumer complaints, or attempting to resolve complaints, or giving advice, or providing information to consumers about complaints or enquiries, that is a third party to a complaint or enquiry by a consumer about a trader 165 . Consumer complaints collected by consumer complaint handling bodies are a key source of information on the functioning of consumer markets across the EU, in particular on problems faced by consumers. As the data is directly comparable across the EU, this should allow for a faster, better targeted, evidence-based policy response at the EU or the national level to real problems experienced by consumers.

EED

In so far as metering and billing of thermal supplies is concerned, the work performed under a se