Jaume Loffredo
The key pillar of the European Union (EU) carbon policy is to achieve carbon neutrality on the continent by 2050. The two enablers to meet are the deployment of new wind and solar capacity to replace fossil fuel power generation and the electrification of end uses that today are dependent on fossil fuels, such as heating and transport.
As the sun does not shine and the wind does not blow at all times, the renewable-based power system of the future will increasingly require the active participation of consumers through demand-side flexibility. The International Energy Agency forecasts that, by far, the biggest demand-side flexibility potential will need to come from buildings and transport, with industry coming as the next important option.
As the European Commission is currently considering changes to the functioning of the EU electricity markets, this is the ideal time to understand whether the current legislation adequately empowers them to become active participants in these markets.
Article 15 of the Electricity Directive 2019/944 grants consumers the right to sell the electricity that they generate and to have their photovoltaic panels connected to the grid within a reasonable time frame. However, in countries like Estonia, Poland, Romania, and Bulgaria, the time frame for obtaining a grid connection is often quite long, reportedly because of an insufficient grid capacity due to a lack of investments. In Bulgaria, consumer organizations report that the time frame for a grid connection can be up to three years.
The key pillar of the European Union carbon policy is to achieve carbon neutrality on the continent by 2050.
In addition, while the EU Electricity Directive says that active customers should not be subject to disproportionate administrative requirements, unfortunately, consumers in countries like Malta, Italy, and Germany need to submit applications for multiple authorizations to different bodies (municipalities, distribution system operators, regulators) to be able to lawfully install a photovoltaic panel. This requirement discourages many consumers from even considering switching to renewables, due to the excessive complexity of the process.
Even when consumers overcome all of these hurdles, in many cases they receive a very low level of remuneration for the electricity they feed into the grid, despite the fact that the EU Renewable Energy Directive 2018/2001 grants them the right to receive payments reflecting the electricity market value. Public research done in 2022 in The Netherlands by the Dutch consumer organization Consumentenbond revealed that of 30 suppliers surveyed, 14 pay consumers less than 70% of electricity wholesale prices and six of them pay less than 15% of wholesale prices.
The Electricity Directive also allowed consumers to have access to offers incentivizing them to use energy in a flexible way, so that they can contribute to the resilience of the electricity system. To this end, the Electricity Directive granted consumers with a smart meter the right to sign up for dynamic electricity price contracts, which are contracts foreseeing that the price paid by consumers is directly linked to hourly prices in day-ahead wholesale electricity markets.
Despite that, the Council of European Energy Regulators and the Agency for the Cooperation of Energy Regulators reported in 2022 that these offers were available only in 11 countries across Europe in 2021. Since the publication of this report, dynamic electricity price offers have been discontinued in France because, due to the recent increase in electricity prices, these are not competitive with the regulated tariff offered by Electricité de France.
In addition, while the Electricity Directive demanded large suppliers to offer these innovative contracts to consumers, the reality is that in most countries it has been up to new market entrants to voluntarily offer them, at least in those countries where they are a novelty. The dynamic electricity price contract in Belgium offered by ENGIE is a notable exception to this trend.
This directive also allowed consumers to participate in all electricity markets to provide demand-side flexibility to the system. But, again, the European association for digital and decentralized energy solutions (Smart Energy Europe, or SmartEn) reported in 2022 that this is unfortunately not yet the case in most European countries. And even in those countries where demand-side flexibility can access multiple electricity markets, often it is only industrial customers who can access, while aggregated households’ loads cannot yet do so.
Lastly, but most importantly, consumers are only able to make informed choices in electricity markets if they receive information that they can understand. Article 10 of the Electricity Directive granted consumers the right to have access to a summary of the key contractual conditions written in concise and simple language. But surveys carried out in several European countries hint that the information provided to consumers is still far too complex, which leads to a far too limited understanding of electricity markets by consumers. A survey carried out in 2021 by the Norwegian consumer organization Forbrukerrådet shows that 47% of Norwegian consumers do not know whether their contracts are on a dynamic or a fixed electricity price tariff. Similarly, a survey carried out by the Belgian Energy Regulator in the same year also shows that half of the Belgian consumers do not know whether they have a fixed or a variable electricity price tariff.
The question now is how these issues can be addressed and what steps are needed to ensure that consumers can truly become active participants in electricity markets. There are at least five areas where European and national policymakers should focus their attention.
First, the latest electricity market design review has not yet been transposed in most European member states, despite a December 2020 deadline. While it is true that the COVID-19 pandemic and the ongoing energy price crisis disrupted the work of lawmakers and pushed them to deprioritize the transposition of European legislation, it is also true that more demand-side flexibility would have in part contributed to keeping electricity prices under control. This situation was recognized by the European Commission in its toolbox released in October 2021 to support member states’ efforts to tackle high energy prices. In addition, to address the possible worsening of the energy price crisis, in autumn 2022 the European Commission approved a binding target to reduce electricity demand at peak times by 5%, which highlights the importance of demand-side flexibility.
Second, a thorough review of administrative requirements for installing rooftop solar panels is way overdue. Over the past decades, national and local policymakers have put in place regulations aiming to achieve policy goals that are now conflicting with the goal of tackling climate change. On the one hand, there are regulations striving to protect historical and natural heritages and city permits are often needed to be able to install photovoltaic panels on buildings’ rooftops. On the other hand, there are regulations protecting individual rights in collective properties, which often lead to decision-making rules in multiunit buildings that are not conducive to decisions being made. These two goals now conflict with the rapid rolling out of a large number of solar panels on European rooftops. National and local policymakers should review administrative requirements to find a better balance between these conflicting policy goals.
Third, European legislation is probably not sufficiently prescriptive, as requirements envisaged on time frames for grid connections and on the burdensomeness of administrative procedures are quite vague. Clearer requirements would help in making sure that consumers truly enjoy the rights that are granted to them in legislation. The European Commission has proposed to accelerate permitting procedures for solar panels by setting a deadline of one month, but the measure is only temporary. This prescriptive, outcome-based approach should become the standard in European policymaking.
Fourth, in many European countries, electricity grids are a bottleneck to the deployment of solar panels. This problem is more of an issue for large renewable energy projects, but in many cases, as explained earlier, it also affects rooftop photovoltaic panels. Although in the long term it is likely that distribution grids will need to be expanded, the procurement of flexibility at the distribution level can mitigate existing issues at least in the short term. SmartEn reports that only operators in the United Kingdom and in The Netherlands procure flexibility from their customers at the distribution level in a systematic way, while there are some trials ongoing in another handful of countries. Energy regulators across Europe should reform the existing remuneration mechanisms to incentivize flexible procurement from their customers by distribution system operators.
Lastly, even if, since well before the publication of the Clean Energy Package in 2016, the mantra of the European Commission has been that the energy system should be designed around consumers, evidence shows that existing regulations are not effective in engaging them. This situation highlights that there is a need for further investigation of consumers’ understanding, behavior, and preferences when it comes to energy, and that there is a need for regulations designed around this insight. Households’ contributions will be fundamental to achieving a fossil-free electricity system, which is now more urgent than ever.
Digital Object Identifier 10.1109/MPE.2023.3269548
Date of current version: 21 June 2023
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