Documents considered by the Committee on 13 December 2017 Contents

4EU Electricity Market Design

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; scrutiny waiver granted; 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

Legal base

Article 194(2) TFEU; Ordinary Legislative Procedure; QMV

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

Summary and Committee’s conclusions

4.1Market design is the set of rules establishing the principles and details for participation in, and oversight of, the energy market. The three 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.

4.2Our predecessors supported the Government’s approach, sharing concerns about the way in which the provisions on capacity markets and regional cooperation would function in practice. They also sought re-assurance about the impact of the UK’s withdrawal from the EU on electricity trading arrangements. The then Minister for Industry and Energy (Jesse Norman) confirmed that the UK would be able to trade electricity with the EU post-Brexit from outside the internal energy market but noted that the terms of such trade would depend on the outcome of negotiations.

4.3An amendment was proposed to the 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 previous Committee was less confident than the Minister that this made no substantive change and therefore considered it unwise to agree to such text.

4.4The Minister for Industry and Energy (Richard Harrington) has now written, requesting scrutiny waivers in advance of possible agreement to General Approaches on the Electricity Regulation and Directive (documents (a) and (c)) at the 18 December Energy Council, and on the ACER Regulation (document (b)) in January.

4.5Regarding the ACER Regulation, the Minister explains that the proposed text on third country participation has reverted back to the current provisions whereby third country participation in the Agency is conditional on complying only with EU energy rules and with “relevant” EU environmental and competition rules. The published compromise text further specifies that compliance with energy legislation need only be with “the main relevant” energy rules. These include “the rules on independent national regulators, third party access to infrastructure and unbundling, energy trading and system operation and consumer participation and protection”.19

4.6On the electricity Regulation and Directive, the Government has two outstanding issues, resolution of which will determine whether the Government abstains or supports the General Approaches:

4.7We note the swift progress made in these negotiations. Following earlier concern about the proposed new restrictions in the ACER Regulation on third country participation in ACER, we are pleased to note that the status quo will apply and that there will be no new restrictions. The Minister’s letter to us is largely silent on the ACER Regulation. While we are content to grant a scrutiny waiver on that Regulation (document (b)) in advance of agreement in January, we look forward to receiving more comprehensive information on the outcome of discussions, including potential implications for UK participation in the Agency post-Brexit.

4.8We are also content to waive the scrutiny reserve for the electricity Regulation and Directive (documents (a) and (c)) in order that the Government is able to lend its support to the General Approaches at the 18 December Council meeting based on the principles set out in the Minister’s letter. We look forward to an update from the Minister on the outcome of the Council meeting and an assessment of the prospects for agreement with the European Parliament. We are drawing this chapter to the attention of the Business, Energy and Industrial Strategy Committee given that Committee’s interest in the impact of Brexit upon energy and climate policy.

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; and (c) Proposal for a Directive on common rules for the internal market in electricity: (38348), 15150/16 + ADD 1, COM(16) 864.

Background

4.9The package of 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 2017.21 Key new suggestions include:

4.10The 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.

4.11In 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 Committee agreed with the Minister’s initial concerns about the way in which the provisions on capacity markets and regional cooperation would work.

4.12Responding to queries raised by our predecessors, the Minister assured them that the Government would 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 confirmed that the UK would be able to trade electricity with the EU post-Brexit from outside the internal energy market but noted that the terms of such trade would depend on the outcome of negotiations.

4.13The 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 indicated that the Commission’s proposal made no substantive change.

4.14Finally, the Minister 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.

4.15At their meeting of 25 April 2017, our predecessors considered the Minister’s response to be largely helpful, although they were less confident than he that the proposed amendment to the ACER Regulation represented no substantive change. The Committee considered it unwise to agree to text that would make third country participation in the Agency conditional on applying EU environmental, energy and competition law.

The Minister’s letter of 5 December 2017

4.16The Minister explains that the Estonian Presidency is aiming for a General Approach to be agreed in Council on 18 December on the proposals for a Regulation and Directive on the internal market in electricity (documents (a) and (c)), and early in the New Year for the ACER Regulation (document (b)). He is therefore requesting a scrutiny waiver in order to be able to vote in favour in Council, subject to conditions set out below.

4.17The Minister is sorry to have to request a waiver with such urgency. This, he says, is because of the “exceptional speed” at which the Presidency is progressing the Electricity Market Design proposals. The Presidency has resisted calls for the pace to be set at a more reasonable level, explains the Minister, as it has placed a high premium on achieving a General Approach on these dossiers before the end of its term.

4.18The Minister sets out the Government’s approach in the following terms:

“The proposals are largely consistent with our own electricity market reforms. Where we have raised concerns, we have generally been successful in securing changes to address them. The most significant of these include: Regional Operational Centres will be re-named Regional Security Coordinators and national system operators will retain decision making powers on all significant issues relating to security of supply; the UK will be able to retain its 30 minute Imbalance Settlement Period; and the UK’s model for the use of interconnector revenues—which has been central to the UK’s success in attracting investment for interconnectors—will be able to continue.

“There are, however, two issues which are important to the UK and which have still not been finally settled. The first of these is public intervention in the setting of retail electricity prices. The current wording is largely acceptable to us and would allow the UK to implement its proposed energy price-cap. The Council is split on this issue, with half of the Member States supporting price regulation and half opposed. We are hopeful that the General Approach will allow for the UK price-cap but, if not, I am proposing that the UK abstains.

“The second issue concerns the proposals relating to resource adequacy assessments and capacity mechanisms. The current wording gives too much weight to the European adequacy assessment in determining whether Member States may operate capacity mechanisms. It is important for the UK’s energy security that a capacity mechanism can be operated where it is deemed necessary by the UK’s national resource adequacy assessment. I am proposing that the UK should abstain if the General Approach does not meet these conditions.”

4.19On the ACER Regulation, the Minister writes in a separate letter to the House of Lords EU Committee:

“We consider the latest version of the ACER Regulation a considerable improvement on previous versions. The conditions for third country participation now refer to the need to comply with relevant rules in the fields of environment and competition, as was in the original ACER Regulation. The voting procedure for the Board of Regulators has been changed from a simple majority to two-thirds majority which gives National Regulators a much greater degree of influence.”

Previous Committee Reports

Fortieth Report HC 71–xxxvii (2016–17), chapter 6 (25 April 2017); Twenty-ninth Report HC 71–xxvii (2016–17), chapter 4 (25 January 2017).


20 The financial support that EU Member States grant to electricity producers to safeguard security of electricity supply.

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




15 December 2017