Documents considered by the Committee on 25 April 2017 Contents

6EU Electricity Market Design

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee

Document details

(a) Proposal for a Regulation on the internal market for electricity (recast); (b) Proposal for a Regulation establishing a European Agency for the Cooperation of Energy Regulators (recast); (c) Proposal for a Directive on common rules for the internal market in electricity and (d) Proposal for a Regulation on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC

Legal base

(a) Article 194(2) TFEU (b) Article 194(2) TFEU (c) Article 194(2) TFEU (d) Article 194 TFEU

Department

Business, Energy and Industrial Strategy

Document Numbers

(a) (38346), 15135/16 + ADDs 1–11, COM(16) 861; (b) (38347), 15149/16 + ADD 1, COM(16) 863; (c) (38348), 15150/16 + ADD 1, COM(16) 864 and (d) (38349), 15151/16 + ADD 1, COM(16) 862

Summary and Committee’s conclusions

6.1Market design is the set of rules establishing the principles and details for participation in, and oversight of, the energy market. The four proposals considered in this Chapter represent the Commission’s proposed overhaul of the rules as a response to the changing nature of the electricity market, notably the increasing volume of renewable energy. They aim to increase the efficiency and resilience of the market.

6.2We supported the Government’s approach when we first considered these documents on 25 January, sharing the Minister’s concerns about the way in which the provisions on capacity markets and regional cooperation would function in practice. We looked forward to further detail once the Government had assessed the full implications of this complex set of proposals. We also asked that the Government set its response more clearly in the context of the UK’s departure from the European Union.

6.3Full details of the response from the Minister for Industry and Energy (Jesse Norman) are set out below. In summary, he assures the Committee that the Government will continue to engage in the negotiations even though some or all of the legislation may not be in force by the time the UK has left the EU. He confirms that the UK will be able to trade electricity with the EU post-Brexit from outside the internal energy market but notes that the terms of such trade will depend on the outcome of negotiations.

6.4The Committee had queried an amendment to the new rules governing the European Agency for the Cooperation of Energy Regulators (ACER) whereby a third country would be allowed to participate in the Agency on condition that it applied EU energy, environmental and competition law. The Government clarifies that the Commission’s proposal makes no substantive change.

6.5Finally, the Minister has also submitted a Checklist for Analysis of each proposal, largely summarising the Commission’s assessment of the impact of the various proposals and giving UK-specific analysis on potential enforcement costs.

6.6The Minister’s response was helpful in addressing our Brexit-related queries, although we are less confident than he that the proposed amendment to the ACER Regulation represents no substantive change. As far as we are aware, the desirability or otherwise of UK engagement with ACER post-Brexit has yet to be resolved. In that context, it would seem unwise at this stage to agree to text that would make third country participation in the Agency conditional on applying EU environmental, energy and competition law.

6.7We understand that the Maltese Presidency is not treating these proposals as a priority and, as such, detailed negotiations are unlikely to take place until the second half of the year. We expect an update once some progress has been made, along with identification of any UK-specific impacts once that work has been concluded.

6.8The documents remain under scrutiny. We draw this chapter to the attention of the Business, Energy and Industrial Strategy Committee in the light of its inquiry into the impact of Brexit on energy and climate change.

Full details of the documents

(a) Proposal for a Regulation on the internal market for electricity (recast): (38346), 15135/16 + ADDs 1–11, COM(16) 861; (b) Proposal for a Regulation establishing a European Agency for the Cooperation of Energy Regulators (recast): (38347), 15149/16 + ADD 1, COM(16) 863; (c) Proposal for a Directive on common rules for the internal market in electricity: (38348), 15150/16 + ADD 1, COM(16) 864 and (d) Proposal for a Regulation on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC: (38349), 15151/16 + ADD 1, COM(16) 862.

Background and Content

6.9The package of four proposals aims to increase the efficiency and resilience of the internal energy market. Full details on the background to, and content of, the proposals were set out in our Report of 25 January 2017.10 Key new suggestions include:

6.10The Government considered that the proposals were largely in line with the direction of UK policy, but a number of initial concerns had been identified: the provisions on capacity mechanisms; the arrangements for regional cooperation; the strengthened role of ACER; consumer price regulation; and the potentially prescriptive nature of rules on risk-preparedness plans.

6.11In its Report of 25 January, the Committee noted that this was a complex set of proposals to which the Committee expected to return once the Government had had an opportunity to assess their full implications. The Government agreed with the Minister’s initial concerns about the way in which the provisions on capacity markets and regional cooperation would work.

6.12As regards the UK’s withdrawal from the EU, the Committee asked the Minister:

6.13The Committee looked forward to receiving the standard checklist for analysis identifying the potential costs and benefits of the proposal in the UK and also asked for any early indication as to whether the Government’s concerns might be shared by others. The documents were held under scrutiny and drawn to the attention of the Business, Energy and Industrial Strategy Committee.

Minister’s letter of 27 March 2017

6.14On the likely timing of implementation of the new legislation, the Minister says:

“On timing, the Government understands that the Commission intends to give priority to these proposals to enable legislation to enter into force from around one year from now. While this is a highly ambitious timescale, it is possible that the legislation could enter into force prior to the UK’s departure from the EU. The revised Regulation on the European Union Agency for the Cooperation of Energy Regulators (ACER) and the Regulation on risk-preparedness in the electricity sector have direct effect so could apply in the UK prior to EU exit. However, as currently drafted, the revised Regulation on the internal market for electricity would apply from 1 January 2020 and the deadline for transposing the revised Directive on common rules for the internal market in electricity into domestic legislation is likely to be after March 2019.”

6.15Regarding the UK’s approach to negotiations, the Minister assures the Committee that

“we will continue to use our influence while we are still a member of the EU to develop EU energy policy which meets our objectives for a secure, reliable, low carbon and affordable energy supply, consistent with our aim of securing maximum freedom to trade after our exit.”

6.16In response to the Committee’s observation that third countries would be allowed to participate in ACER where they agree to adopt and apply Union law on energy, environment and competition, the Minister clarifies that this provision was already incorporated in the current rules governing ACER. She states that the Commission’s proposals “make substantive change to the policy”.

6.17On the question of whether the UK could continue to trade electricity with the EU if it no longer participated in ACER or the internal energy market, the Minister asserts that there is no need to participate in the internal energy market in order to trade, but that the terms of trade would depend on the outcome of the exit negotiations.

6.18Finally, the Minister comments that the UK’s concerns on a number of areas are “widely shared”, notably on capacity mechanisms, regional cooperation, a strengthened role for ACER and consumer price regulation.

Previous Committee Reports

Twenty-ninth Report HC 71-xxvii (2016–17), chapter 4 (25 January 2017).


10 Twenty-ninth Report HC 71-xxvii (2016–17), chapter 4 (25 January 2017).




27 April 2017