Energy communities in the centre of EU energy transition.
Legal status of energy community under the “Clean energy for all Europeans” package
University of Eastern Finland Law School Master thesis 30.04.2020 Olga Gerasina (297565) Supervisors: Kaisa Huhta, Seita Romppanen
ABSTRACT
UNIVERSITY OF EASTERN FINLAND Faculty
Faculty of Social Sciences and Business Studies
Unit
Law School
Author
Olga Gerasina
Name of the Thesis
Energy communities in the centre of EU energy transition. Legal status of energy communities under the “Clean Energy for All Europeans” package
Major
Environmental and climate change law
Description
Master’s thesis
Date
30 April 2020
Pages
65
Abstract
Energy transition requires substantial increase of renewable energy sources in the electricity system. The physical na- ture of renewable energy sources – more variable, less predictable and decentralised than traditional generation – re- quires an adaptation of electricity market and operation rules enabling more flexibility to accommodate an increasing share of renewable energy in the electricity grid. This thesis analysed the role of energy communities in the functioning of EU electricity system in times of energy transition and found that energy communities can improve the flexibility of the electricity system by playing a more active role in both the demand for and supply of electricity, mainly through demand response, self-consumption and storage.
The objective of this thesis was to deliver an analysis of legal regulation of energy communities under the Clean Energy for All Europeans Legislative Package (CEP). Until recently, energy law generally envisaged consumers as passive actors which only take electricity from the grid but do not provide any goods or services in return.However, this vision is currently changing.The CEP provides a legal basis for energy communities’ participation in the energy market. It does so through recognizing energy communities as distinct market actors at the EU level and providing them with the enabling framework, fair treatment, level playing field and a well-defined catalogue of rights and obligations. The re- search analysed those legal instruments under the CEP which are the most relevant for energy communities.
The EU legislation that enables energy communities to participate in the electricity market needs to be further imple- mented into the national legislation of EU Member States. The thesis identified and analysed those legal provisions of the EU legal framework on energy communities which would be the most challenging for Member States to implement in their national legislation.
Key words: energy transition, Clean Energy Package, EU electricity market, renewable energy sources, flexibility, en- ergy community, electricity sharing
CONTENTS
REFERENCES ... V ABBREVIATIONS ... XIV FIGURES AND TABLES ... XV
I. INTRODUCTION ... 1
1.1. Research background ... 1
1.2. Research objective and research questions ... 4
1.3. Methodology ... 5
1.4. Outline ... 7
II. BACKGROUND AND THE ROLE OF ENERGY COMMUNITIES IN THE EU ENERGY TRANSITION ... 8
2.1. Development of EU legal regulation in the energy sector ... 8
2.1.1. Energy transition ... 8
2.1.2. The liberalisation of EU energy markets through the EU Energy Packages ... 8
2.1.3. Legal basis for EU actions in the energy sector ... 11
2.1.4. The Energy Union ... 12
2.1.5. EU energy policy objectives 2020, 2030, 2050 ... 13
2.2. Clean Energy for All Europeans Package ... 14
2.3. Impact of the increase of renewable energy sources on electricity market operation .... 16
2.3.1. EU electricity market fundamentals ... 16
2.3.2. The need for more flexibility in the EU electricity market to accommodate renewables ... 19
2.4. The role of energy communities, in adapting electricity market to the needs of energy transition ... 24
2.5. Community energy initiatives in Europe. ... 31
III. ENERGY COMMUNITIES IN THE CLEAN ENERGY FOR ALL EUROPEANS PACKAGE ... 33
3.1. Legal Definitions in the CEP: Consumer, Customer, Prosumer, Active Customer, Renewable self-consumer, Citizen energy community, Renewable energy community ... 33
3.2. Legal status of energy communities: legal form, membership, relationship between
CECs and RECs. ... 35
3.2.1. Legal form and purpose ... 35
3.2.2. Membership structure and decision-making ... 37
3.2.3. Differences between citizen energy communities and renewable energy communities. ... 38
3.3. Legal regulation of the functioning of energy communities under IEMD and RED ... 40
3.3.1. Scope of operation. ... 40
3.3.2. Enabling framework provided for CECs and RECs... 41
3.3.3. Access to electricity markets ... 43
3.3.4. The right to electricity sharing ... 43
3.3.5. The right to manage distribution networks. ... 45
3.4. Responsibilities ... 47
3.4.1. Balancing responsibility. ... 47
3.4.2. Network charges. ... 47
3.5. Reduction of administrative burden and providing economic incentives for energy communities ... 49
3.5.1. Removing the obstacles to energy communities’ development. ... 49
3.5.2. Adding incentives to energy communities’ development. ... 50
IV. LEGAL CHALLENGES FOR THE IMPLEMENTATION ... 52
4.1. Implementation process ... 52
4.2. Distinction between energy communities and other citizen initiatives ... 53
4.3. Coherence between CECs and RECs at the national level ... 54
4.4. Energy community as an electricity supplier ... 55
4.5. The status of the individual participant of the energy community as a customer supplied by the community ... 56
4.6. Energy community as a grid operator ... 58
4.7. The changing role of distribution system operator as a market facilitator ... 58
4.8. Network charges and remuneration. ... 60
VI. CONCLUSION ... 62
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ABBREVIATIONS
CEC Citizen Energy Community
CEP Clean Energy for All Europeans Package CJEU Court of Justice of the European Union DR Demand response
DSM Demand-side management DSO Distribution-system operator EIA Environmental Impact Assessment
ENTSO-E European Network of Transmission System Operators EU European Union
ICT Information and Communication Technologies IEMD Internal Electricity Market Directive
IEMR Internal Electricity Market Regulation IRENA International Renewable Energy Agency MS Member State
P2P Peer-to-Peer PV Photovoltaic
REC Renewable Energy Community RED Renewable Energy Directive RES Renewable Energy Source SME Small and Medium Enterprise TSO Transmission-System Operator
TFEU Treaty on the Functioning of the European Union
FIGURES AND TABLES
Figure 1. Schematic overview of the electricity system.
Figure 2. Net electricity generation, EU-28, 2017.
Figure 3. Gross electricity generation from renewable sources in the EU-28 by country and share of variable generation (solar and wind) in gross electricity consumption.
Figure 4. Three prosumer market models.
Figure 5. Share of electricity production by investor type in the EU-28 in 2050.
Figure 6. Relation of the renewable energy community and citizen energy community.
Table 1. Characteristics of the main energy generation technologies.
I. INTRODUCTION
1.1. Research background
EU’s energy system is currently undergoing structural changes that are known as the energy transition.1 Energy transition includes three major processes. Firstly, move towards low-carbon energy system (decarbonization).2 Secondly, natural monopolies change into competitive mar- kets (liberalization).3 And thirdly, centralized system owned by very few is changing into more decentralized system, where consumers are activated due to the development of renewable ener- gy sources (decentralization).4
Electricity is expected to play a major role in the transition to a clean energy system.5 The elec- tricity share in the final global energy demand is projected to reach 45% of the total final energy consumption in 2050.6 In the EU the share of renewable electricity has risen to 29% of electricity generation and is expected to reach about half of the EU’s electricity generation mix, mainly from sources like wind and sun.7 Getting the electricity system ready for a substantial increase of renewables is one of the priorities for the European Union to foster energy transition.8 The elec- tricity market rules must be adapted to facilitate the increase of renewable energy sources, while maintaining security of electricity supply, which is understood as uninterrupted availability of affordable electricity9.10 The research is focused on the legal regulation of EU electricity market specifically. Terms “energy” and “electricity” are used for the purpose of the research as equiva- lents.
Until recently, energy law generally envisaged consumers as passive actors which only take elec- tricity from the grid but do not provide any goods or services in return.11 However, this vision is
1 Recital 3 of IEMR; Huhta 2019b, p. 1, 16-17.
2 Huhta 2019b, p. 1, 16-17; Cseres European Journal of Risk Regulation (EJRR) 2018, p. 231.
3 Huhta 2019b, p. 1, 16-17; Cseres European Journal of Risk Regulation (EJRR) 2018, p. 231.
4 Huhta 2019b, p. 1, 16-17.
5 COM(2016) 860 final, p. 8; Keramidas et al. Global Energy and Climate Outlook 2019, p. 27.
6Keramidas et al. Global Energy and Climate Outlook 2019, p.27. The information presented is for the 2°C-Medium scenario.
7 COM(2016) 860 final, p. 8.
8 Bruegel 2019, The European Union energy transition: key priorities for the next five years. Policy brief.
9 Huhta 2019b, p. 2.
10 COM(2016) 860 final, p. 8.
11 Recital 7 of IEMR; Jacobs Ecology Law Quarterly 2016, p. 533.
currently changing. Nowadays technological developments together with the decreasing costs of renewable energy generation facilities allow consumers to play active role in facilitating energy transition.12 Active consumers are now put in the centre of the EU energy transition.13 Activating consumer participation is seen as an absolute prerequisite for managing the energy transition successfully and in a cost-effective way.14 In the future, consumers need to be enabled to fully participate in the market on equal footing with other market participants and need to be empow- ered to manage their energy consumption.15 The Clean Energy for All Europeans Legislative Package (CEP) provides a legal basis for active consumer participation in the energy market.16 It does so through recognizing citizens and energy communities as distinct market actors at the EU level and providing them with the enabling framework, fair treatment, level playing field and a well-defined catalogue of rights and obligations.17 The most relevant legislative acts in the CEP concerning the consumers are the following: EU Regulation 2019/943 of 5 June 2019 on the in- ternal market for electricity (recast) (IEMR)18, EU Directive 2019/944 of the European Parlia- ment and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (IEMD)19 and EU Directive 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (RED)20. These legislative acts provide consumers and their communities, who produce their own energy, with the rights to consume, to store and to sell self-generated electricity to the market.21 They can also take part in flexibility and energy-efficiency schemes.22 Moreover, energy communities are entitled to arrange energy sharing, as well as to own, estab- lish, purchase or lease distribution networks and to autonomously manage them.23 At the same time, this legislation also contains responsibilities which follow from these rights, such as, for
12 Roberts European Energy Journal 2019, p. 13.
13 COM (2016) 860 final, p.10; Cseres European Journal of Risk Regulation (EJRR) 2018, p. 228.
14 COM(2016) 864 final/2, p. 5; Cseres European Journal of Risk Regulation (EJRR) 2018, p. 232.
15 Recital 7 of IEMR.
16 Recitals 42, 43 of IEMD.
17 Recitals 42, 43 of IEMD; Articles 2 (8, 11), 15, 16 of IEMD; Articles 2(14, 16), 22 of RED.
18 OJ L 158, 14.6.2019 p. 54–124
19 OJ L 158, 14.6.2019 p. 125–199
20 OJ L 328, 21.12.2018, p. 82–209
21 Article 2(11) of IEMD; Article 22 of RED.
22 Article 16 of IEMD; Article 22 of RED.
23 Article 16 (2) (b) of IEMD
example, the obligation to pay network charges24 or the responsibility for the imbalances they cause in the electricity system.25
Legal framework provided by the CEP allows consumers to participate in the energy market both individually, being identified as ‘active customers’26 or ‘renewable self-consumers’27 and collec- tively through energy communities which are divided by the legislator on ‘citizen energy com- munities’ (CEC)28 or ‘renewable energy communities’ (REC)29. Energy communities provide an option for all consumers to have a direct stake in producing, consuming or sharing energy, even for those who otherwise would not be able to do so.30 Energy communities are usually formed at the local level and are connected to distribution electricity network.31
Energy communities are challenging traditional paradigms in energy law, which are based on the predominant generation technologies of the last decades, in particular centralized, large scale fossil fuel power plants with limited participation of consumers.32 Many authors come to a con- clusion that regulating this kind of innovative relationships is a big challenge for the government as this organizational shift in energy generation, supply and management contributes to increas- ing complexity of energy system.33 Moreover, the specificity of new actors, who can be non pro- fessionals and not well educated in energy field, adds difficulty to the situation.
This research aims to identify the role of energy communities in the functioning of EU electricity system in times of energy transition and deliver an analysis of legal regulation of energy com- munities under the CEP. The research is going to have a specific focus on energy communities, as a legal option for consumer’s collective action. This research is of legal relevance, because from the legal point of view energy communities are new actors in EU electricity market and
24 Article 16 of IEMD; Article 22 of RED.
25 Article 16 of IEMD; Article 22 of RED.
26 Article 2(8) of IEMD
27 Article 2(14) of RED
28 Article 2(11) of IEMD.
29 Article 2(16) of RED.
30 Recital 43 of IEMD.
31 COM(2016) 860 final, p. 8; Lavrijssen European Energy and Environmental Law Review 2017, p. 176-177.
32 COM(2016) 864 final/2, p.4.
33Lowitzscha – Hoickab - van Tuldera, Renewable and Sustainable Energy Reviews 2020, p. 1; Jacobs Ecology Law Quarterly 2016, p. 522.
they have not been recognized under the EU law before the CEP. Moreover, the legal provisions that enable energy communities to participate in the electricity market are mainly included into EU Directives, such as IEMD and RED, and hence need to be further implemented into the na- tional legislation of EU Member States.34 Directives are often used by EU legislators in order to introduce a complex legislative change and require EU Member States to achieve a certain re- sult35, while the manner and form of implementation of directives are for each Member State to decide.36 So, this research could be useful for national legislators for the purpose of the imple- mentation of the respective legislation.
1.2. Research objective and research questions
RED, IEMD and IEMR, which are included in the Clean Energy for All Europeans Legislative Package (CEP), are at the core of this legal research. These legislative acts establish key building blocks that acknowledge energy communities and provide the legal framework for their opera- tion.37
The objective of this research is to analyse the legal regulation of energy communities under the CEP and to identify and analyse those legal provisions of the EU legal framework on energy communities which are the most challenging for Member States to implement in their national legislation. While analyzing the legal regulation of energy communities under the CEP, this re- search will provide detailed analysis of such specific issues as the right of energy communities to manage distribution networks, the right to electricity sharing and the right to have access to elec- tricity markets. These activities of energy communities, in the author’s opinion, are the most controversial from the legal point of view and, hence, require legal analysis in terms of this re- search.
This research is going to answer the following research questions:
34 Article 288 Treaty on the Functioning of the European Union (TFEU).
35 Craig - Gráinne de Búrca 2015, p. 108.
36 Article 288 TFEU; Craig - Gráinne de Búrca 2015, p. 108.
37 Roberts European Energy Journal 2019, p. 18
I. What is an energy community and what is the relevance of an energy community in the context of EU electricity system in times of energy transition?
II. How is the legal status of energy communities regulated under the Clean Energy for All Europeans Legislative Package?
III. Which legal provisions of the EU legal framework on energy communities are chal- lenging for the implementation into the national legislation of EU Member States?
1.3. Methodology
This research is based on doctrinal analysis of EU law in energy field which can be also referred to as legal positivism. This approach is best suited for aims of the research to identify the rele- vant provisions that govern the legal status of energy communities as new actors in the EU elec- tricity market, to describe and to interpret these provisions.38 Legal research based on doctrinal approach is a prequel to the further critical analysis of the legal challenges for the further imple- mentation of these new provisions by Member States.39
Assessment of the legal status of energy communities in the EU electricity market requires the analysis of EU primary law, secondary law and soft-law provisions in the energy field as well as the case law of the European Court of Justice. For the purpose of the analysis hierarchy of norms should be taken into consideration. The constituent Treaties, the Treaty on European Union (TEU)40 and the Treaty of the Functioning of the European Union (TFEU)41, along with the Charter of Rights are at the top of the hierarchy of norms in the EU.42 Any legislative act43 of the secondary law, regulation, directive, or decision44, must be made pursuant to some Treaty arti- cle.45 EU primary law, mainly TFEU, introduces general objectives of EU policy in energy sec-
38 Cryer et al. 2011., p. 38.
39 Cryer et al. 2011, p. 38.
40 OJ C 326, 26.10.2012, p. 13–390.
41 OJ C 326, 26.10.2012, p. 47–390.
42 Craig - Gráinne de Búrca 2015, p. 111.
43Legislative act is defined as any legal act, whether in the form of a regulation, directive, or decision, which is enacted in accordance with the ordinary or special legislative procedure is a legislative act for the purposes of the Lisbon Treaty. Article 289(3) TFEU.
44 Article 289 TFEU.
45 Craig - Gráinne de Búrca 2015, p. 111.
tor46. The Clean Energy for All Europeans Package (CEP) is intended to implement the main objectives of EU energy policy.47 It is important to start the legal analysis from general objec- tives stated in the EU primary law as they provide the legal basis for the specific legal instru- ments. Main sources of information relevant for the analysis are secondary sector-specific law sources in particular legislative acts included in the CEP, such as RED, IEMD and IEMR.
Significant amount of information for the purpose of this research is gathered from the soft-law sources, such as Communications issued by the European Commission. Even though these sources have no binding force48, these Communications contain important explanations which should be taken into account for more profound interpretation of the provisions of relevant regu- lations and directives. Moreover, textbooks as well as the views of scholars on the subject are also going to be considered for the purpose of this legal analysis.
Legal provisions of the IEMD, IEMR and RED related to new electricity market design and the role of energy communities on the market are closely linked with the general EU consumer law, as well as contract law, corporate law and tax law. The purpose of this research is to focus on sector-specific energy law legislation. Thus, general EU law in above mentioned fields will be only mentioned in terms of legal analysis of energy law legislation but will not be analysed on their own.
The research outcomes are limited due to the chosen research questions and methodology. The selected research questions and methodology cannot be used to evaluate the ultimate practical implications of energy communities on the functioning of the EU electricity system. Firstly, be- cause no field studies on the functioning of energy system or economic realities are included into the scope of this research. Secondly, the implementation period of the EU legislation, which is the focus of this research, is currently ongoing, so the results are not yet in place. The selected approach is suitable though for analyzing the legal status of energy communities as electricity
46 According to the article 194 TFEU, the main aims of the EU’s energy policy are to: ensure the functioning of the
energy market; ensure security of energy supply in the Union; promote energy efficiency and energy saving and the development of new and renewable forms of energy; and promote the interconnection of energy networks.
47 COM(2016) 864 final/2, p. 9.
48 Article 288 TFEU.
market participants49. It also allows identifying the challenges for the further legal regulation of energy communities as new EU electricity market participants in the national legislation.
1.4. Outline
This thesis contains four chapters and is structured in the following way. Chapter II provides the general background and the overview of the development of EU legal regulation in the energy sector. It defines the energy transition, the key objectives of the EU legislation in energy field, starting from EU primary law sources, such as TFEU, and finishing with the general objectives of the Clean Energy for All Europeans Legislative Package. It also analyses the impact of the increase of renewable energy sources on electricity market operation, starting with EU electricity market fundamentals and the discussion on the need for more flexibility in the market, it then turns to the role of energy communities, in adapting electricity market to the needs of energy transition. Chapter III is devoted to the legal analysis of the provisions of the CEP legal instru- ments which are most relevant to energy communities, such as the IEMD, IEMR and RED, in- cluding legal definitions, membership and decision-making, rights and obligations, as well as economic incentives. This chapter also identifies differences and similarities of citizen energy communities, regulated by the IEMD, and renewable energy communities, regulated by the RED. Chapter IV continues the legal analysis started in the chapter III and identifies the legal challenges for the implementation of the EU legal framework concerning energy communities into the national legislation of EU Member States. Finally, Chapter V concludes by summarising the main findings of the preceding chapters.
49‘market participant’ means a natural or legal person who buys, sells or generates electricity, who is engaged in aggregation or who is an operator of demand response or energy storage services, including through the placing of orders to trade, in one or more electricity markets, including in balancing energy markets; Article 2(25) of IEMR.
II. BACKGROUND AND THE ROLE OF ENERGY COMMUNITIES IN THE EU ENERGY TRANSITION
2.1. Development of EU legal regulation in the energy sector 2.1.1. Energy transition
As it was already mentioned in the Introduction chapter, European energy markets are currently undergoing structural changes known as energy transition which include three main processes.50 Firstly, move towards low-carbon energy system (decarbonization).51 Decarbonization, to a large extent, is based on the replacement of fossil fuels by renewable energy sources (RESs).52 Sec- ondly, highly monopolistic and vertically-integrated systems change into competitive markets (liberalization).53 And thirdly, centralized system, where electricity is delivered to passive con- sumers, is changing into more decentralized system, where consumers are activated due to the development of renewable energy sources (decentralization).54
2.1.2. The liberalisation of EU energy markets through the EU Energy Packages
Before the liberalization process of Europe’s energy markets, national energy markets have been traditionally characterized as being dominated by large-scale, vertically integrated and often pub- licly owned monopolies with large centralized nuclear or fossil fuel power plants which are re- sponsible for the production, supply and transport of electricity via transmission and distribution systems.55 Hence, the production, transmission, and distribution of electricity were granted to single companies.56It would be true to say however, that even today the liberalization process is far from being complete in a number of Member States.57
The process known as liberalisation of EU energy markets started with the adoption of the first legislative package in 1990s, which was further followed with the second and the third legisla-
50 Recital 3 of IEMR.
51 Huhta 2019b, p. 1, 16-17.
52 Buschle – Westphal European Energy Journal 2019, p. 54.
53 Huhta 2019b, p. 1, 16-17; Cseres European Journal of Risk Regulation (EJRR) 2018, p. 231.
54 Huhta 2019b, p. 1, 16-17; Cseres European Journal of Risk Regulation (EJRR) 2018, p. 231.
55 Leal-Arcas - Wouters 2017, p. 257; Lavrijssen European Energy and Environmental Law Review 2017, p. 174;
Recital 2 of IEMD.
56 Welsch 2017, p. 149.
57Welsch 2017 p. 149; Heldeweg, – Saintier Renewable and Sustainable Energy Reviews 2020, p.2.
tive packages, and was generally aimed to introduce the competitive internal electricity market.58 It was then followed by the fourth Clean Energy for All Europeans Package which is in the focus of this research.
In the 1990s, the various directives constituting the First Energy Package were adopted.59 The First Package aimed at introducing competition. The Package was focused on separating or un- bundling energy monopolies and ensuring the distinction between regulated and non-regulated activities.60 Unbundling means that an undertaking’s network activities are to be kept separate from other activities, such as electricity production and trade, by means of different legislative obligations.61However, it was clear that this First Energy Package was not sufficient to create a functioning energy market.62
The Second Energy Package was adopted in 2003.63 This packageincluded more detailed sector- specific obligations, which were intended to achieve further liberalization of the European ener- gy markets.64 The new legislative acts included provisions on national energy market authorities, regulated third-party access, and unbundling, as well as creating a regulatory framework for cross-border interconnectors. Third-party access refers to a system in which Member States en- sure that third parties have access to transmission and distribution networks.65 The outcome, however, was still not sufficient, and so there was a need for further development of the regulato- ry framework.66
58 Leal-Arcas - Wouters 2017, p. 259-260; Welsch 2017, p. 31.
59 This package included Directive 96/ 92/ EC of the European Parliament and of the Council of 19 December 1996
concerning common rules for the internal market in electricity (OJ L 27, 30.1.1997).
60 Welsch 2017, p. 31.
61 Talus 2016, p. 24.
62 Talus 2016, p. 4.
63 This package included Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC (OJ L 176, 15.7.2003); and Regulation (EC) No 1228/ 2003 of the European Parliament and of the Council of 26 June 2003 on conditions for access to the network for cross- border exchanges in electricity (OJ L 176, 15.7.2003).
64 Talus 2016, p. 4.
65 Talus 2016, p. 19.
66 Ibid., p.4.
The Third Energy Package67 was introduced in 2009. It contained, for example, the rules on ownership unbundling, as well as detailed rules for the role of transmission and distribution sys- tem operators.68 Full ownership unbundling does not allow the network company to engage in any energy-market-related activities other than those related to its networks.69The promotion of renewables was enhanced with 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/EC70 of the Third Package, which included a priority dispatch for renewables.Priority dispatch means, with regard to the self-dispatch model, the dispatch of power plants on the basis of criteria which are differ- ent from the economic order of bids and, with regard to the central dispatch model, the dispatch of power plants on the basis of criteria which are different from the economic order of bids and from network constraints, giving priority to the dispatch of particular generation technologies.71 The purpose of priority dispatch is to facilitate the integration of renewable energy into the electricity system, to promote sustainability and security of supply in the EU electricity market.72
Starting from the beginning of the liberalization process, the underlying idea of the EU energy policy was that a competitive internal market in electricity is the best way to ensure the objec- tives of EU energy policy.73 The EU liberalized internal energy market is now built on well- established principles, such as the right of access for third parties to electricity grids, free choice of suppliers for consumers, unbundling rules, the removal of barriers to cross-border trade and on ensuring competition on wholesale and retail markets.74
67 This package included Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 con-
cerning common rules for the internal market in electricity and repealing Directive 2003/ 54/ EC (OJ L 211, 14.8.2009); Regulation (EC) No 714/ 2009 of the European Parliament and of the Council of 13 July 2009 on condi- tions for access to the network for cross-border exchanges in electricity.
68 Welsch 2017, p. 32; Talus 2016, p. 5.
69 Talus 2016, p. 26.
70 OJ L 140, 5.6.2009, p. 16–62
71 Article 2(20) IEMR.
72 The European Wind Energy association (EWEA), position paper on priority dispatch of wind power.
73 As follows from the European Commission Proposal COM(2016) 864 final/2, p. 2: “Both the European Council
and the European Parliament have repeatedly stressed that a well-functioning integrated energy market is the best tool to guarantee affordable energy prices, secure energy supplies and to allow for the integration and development of larger volumes of electricity produced from renewable sources in a cost efficient manner”; Cseres European Journal of Risk Regulation (EJRR) 2018, p. 231;
74COM(2016) 864 final/2, p. 3; European Parliamentary Research Service 2016, p. 6;
2.1.3. Legal basis for EU actions in the energy sector
The specific legal basis for the EU actions in energy sector was established by the Treaty of Lis- bon Amending the Treaty on European Union and the Treaty Establishing the European Com- munity.75 The central, most important provision is article 194 of the TFEU which recognizes energy as a shared competence between European Union and Member States. It is stated that Union policy on energy shall aim to (a) ensure the functioning of the energy market, (b) ensure security of energy supply in the Union, (c) promote energy efficiency and energy saving and the development of new and renewable forms of energy and (d) promote the interconnection of en- ergy networks. The article preserves the sovereignty of Member States over their choice between different energy sources and the general structure of its energy supply.76 This means that despite the competence conferred on the EU in energy matters, Member States retain the competence to determine which energy sources they wish to exploit. They may therefore choose freely between natural gas, nuclear power, coal, or renewable energy sources. However, this Member State competence is restricted in practice, for example, due to obligations relating to the promotion of renewable energy77, such as EU climate and energy policy targets introduced in the 2030 Climate and Energy Framework.
Article 194 TFEU is not the only provision under which regulatory measures regarding energy can be adopted. Legislative measures concerning renewable energy have also been adopted un- der Article 191 TFEU, which is the legal basis for measures in respect of environmental mat- ters.78 It provides that EU policy on the environment is intended to contribute to the following objectives: preserving, protecting, environment; protecting human health; prudent and rational utilization of natural resources; and promoting measures at international level to deal with re- gional or worldwide environmental problems, and in particular combating climate change.79
As follows from article 194 TFEU, EU energy policy has three key objectives, which are securi- ty of supply, sustainability and competitiveness of energy system. These objectives can be con-
75 OJ C 306, 17.12.2007, p. 1–271.
76 Art 194(2) of TFEU
77 Talus 2016. p. 13.
78 Talus 2016. p. 13.
79 Article 191 TFEU.
flicting as well as supportive. Hence, the main challenge of the energy policy is to find a way to balance these three objectives. This is often described as “the energy trilemma” – a concept that refers to the contradiction in EU (and national) energy policies deriving from the fact that they are supposed to ensure security of supply and at the same time increase competitiveness and sus- tainability.80
2.1.4. The Energy Union
The Energy Union is a policy initiative that was initially inspired by security of supply concerns in the natural gas market.81 However, the aims of the Energy Union were further broadened to- wards the European single internal energy market and in support of climate policy towards the 2030 and 2050 energy and climate goals. In 2015, it was formally established in terms of the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank, A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy, COM (2015) 80 final.
The main focus of Energy Union Strategy of the European Union is in providing EU consumers with “secure, sustainable, competitive and affordable energy”.82 The Energy Union comprises five closely related and mutually reinforcing dimensions:
- Energy security, solidarity, and trust;
- A fully integrated European energy market;
- Energy efficiency contributing to moderation of demand;
- Decarbonizing the economy;
- Research, innovation, and competitiveness.83
The European Commission explicitly acknowledges in its Energy Union strategy that consumers should be “at its core, where [they] take ownership of the energy transition, benefit from new technologies to reduce their bills, participate actively in the market, and where vulnerable con-
80 Mersinia 2017., p. 2.
81 Welsch 2017, p. 33.
82 Ibid., p. 2.
83 COM (2015) 80 final, p. 4.
sumers are protected”.84 It is emphasized that in order to reach these goals, fundamental trans- formational Europe’s energy system is needed.85
2.1.5. EU energy policy objectives 2020, 2030, 2050
To encourage the transition to a more secure, affordable and decarbonised energy system, the EU adopted climate and energy targets for 2020, 2030 along with long-term goals for 2050.86 The economy-wide European 2020 strategy for growth forms the basis of the energy and climate goals to 2020, which were translated into final legislation in April 2009.87 The 2020 Climate and Energy Package comprises three main EU targets:
- 20% share renewables in final energy consumption of which a 10% share of renewables in the transport sector; as part of the Climate and Energy Package, the 2009 Renewable Energy Sources (RES) legislation reinforced the concept of priority dispatch for renewa- ble-based electricity.88
- 20% lower energy consumption, quantified as an EU ceiling measured in terms of prima- ry energy or final energy consumption.89
- 20% reduction in greenhouse gases compared to 1990.90
According to the European Environmental Agency, the European Union is on track to achieve its 2020 energy and climate policy targets.91
The 2030 Climate and Energy Framework introduced the following EU climate and energy poli- cy targets for 2030:
- at least 40% cuts in greenhouse gas emissions (from 1990 levels);
- at least 32% share for renewable energy;
- at least 32.5% improvement in energy efficiency.92
84 Ibid., p. 2.
85 Ibid., p. 2.
86 Leal-Arcas – Lesniewska - Proedrou Netherlands Yearbook of International Law 2017, p. 148-149.
87 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, OJ L 140,5.6.2009 p. 16-62.
88European Commission. Climate Strategies and Targets [https://ec.europa.eu/clima/policies/strategies/2020_en#tab- 0-0]
89 Ibid.
90Ibid.
91 COM/2018/773 final, p. 4; European Environment Agency 2015, p. 8.
EU 2050 long-term strategy is aimed to achieve EU carbon neutrality (net-zero greenhouse gas emissions) by 2050.93The term carbon neutrality, or having a net zero carbon footprint, refers to achieving net zero carbon emissions by balancing a measured amount of carbon released with an equivalent amount sequestered or offset.94According to the Emissions GAP Report 2014, pub- lished by the UNEP, to stay within the 2 °C limit, global carbon neutrality will need to be achieved sometime between 2055 and 2070. Thus, EU 2050 long-term strategy is meant to link EU climate and energy policy with achieving the Paris Agreement95 temperature objectives in line with UN Sustainable Development Goals96.97
2.2. Clean Energy for All Europeans Package
As it is very clearly observed from EU energy and climate goals, the objectives of energy policy have broadened from only market liberalisation and the introduction of competitiveness to a wider set of objectives due to newly-set environmental and climate policy goals98.
In order to implement the objectives of the Energy Union Strategy and to facilitate the clean en- ergy transition, the fourth energy legislative package - the Clean Energy for All Europeans Pack- age was adopted by the European Commission in 2016.99 The whole package aims to facilitate the transition away from fossil fuels towards cleaner energy100 and to deliver on the EU’s Paris Agreement commitments for reducing greenhouse gas emissions.101 The package provides an important contribution to the EU’s long-term strategy of achieving carbon neutrality by 2050.
92 COM/2014/015 final. The targets for renewables and energy efficiency were revised upwards in 2018.
93 COM/2018/773 final, p. 5.
94 United Nations Environment Programme, [https://www.unenvironment.org/news-and-stories/story/business- unusual-shift-carbon-neutral].
95 The Paris Agreement under the United Nations Framework Convention on Climate Change, Paris, 12 December
2015, in force 4 November 2016 (Paris Agreement)
96 The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by all United Nations
Member States in 2015 as a universal call to action to end poverty, protect the planet and ensure that all people en- joy peace and prosperity by 2030. [https://www.undp.org/content/undp/en/home/sustainable-development- goals.html]
97 COM/2018/773 final, p. 3.
98 Such as EU climate and energy policy targets introduced in the 2030 Climate and Energy Framework.
99 COM (2016) 860 final.
100 COM (2016) 860 final, p. 3.
101 European Commission 2019, Press release. Clean Energy for All Europeans; European Commission 2017, Clean
energy for all Europeans package.
The package is based on three pillars: “(1) putting energy efficiency first, (2) achieving global leadership in renewable energies, (3) providing a fair deal for consumers”102 and is aimed to “put consumers at the centre of the Energy Union”.103
A key part of the CEP is aimed at making EU electricity market fit for the clean energy transi- tion. The new electricity market design aims to adapt market rules to new market realities104, to integrate the increased share of renewable energy sources and new technologies in a more flexi- ble way while not putting the security of supply at risk. The CEP also proposes the regulatory changes in the electricity market design which lead to the shift from centralized conventional generation to decentralized, smart and interconnected markets.105 Consumer empowerment is envisaged as one of the instruments for reaching these aims.106 To facilitate this goal, the Clean Energy Package sets a legal framework for the notions of self-consumption, collective self- consumption and energy communities. The definitions of active customer and citizen energy community are given in the IEMD and the definitions of renewables self-customer and renewa- ble energy community are given in RED. Remarkably, it is the first time when the concept of energy communities is formally being recognized in EU-level legislation.
The intention of the Package is to enable energy communities to fully participate in the market on equal footing with other market participants.107 Thus, new legislation provides energy com- munities, who produce their own renewable energy, with the rights to consume, to store and to sell self-generated electricity to the market. They can also take part in flexibility and energy effi- ciency schemes. Moreover, energy communities are entitled to own, establish, purchase or lease distribution networks and to autonomously manage them.108 At the same time, it also contains obligations which follow from these rights, such as, for example, the obligation to pay network charges or the responsibility for the imbalances they cause in the electricity system.109
102 COM (2016) 860 final, p. 3.
103 Ibid., p. 10.
104 COM (2016) 861 final/2.
105 COM (2016) 860 final, p. 10.
106 COM (2016) 861 final/2.
107 Recital 7 of IEMR.
108 Article 16 (2) (b) of IEMD.
109 Article 15 (2) (f), Article 16 (3) (c) of IEMD.
