Author: Josh Roberts, Posted: 4/ 1/ 2017
With new legislative proposals on 30 November, the European Commission said it would provide a fair deal for consumers, put efficiency first and maintain global leadership for renewables. Its proposal to create a new EU body for energy distributors could make it harder to hit these goals.
Put simply, the Commission aims to create a formal body for energy distributors that will draft rules that they (and their competitors) will have to follow, which the body will then monitor with little regulatory oversight.
This could result in industry capture of the energy transition. In an environment where the EU is struggling to maintain its legitimacy and to be seen as working for citizens, the proposal does not go in the right direction.
A DSO body that can provide technical expertise in developing new rules that promote a clean, more flexible, decentralised energy system would be welcome. However, several important changes are needed:
A narrower mandate to contribute to further rules – not to write them;
Stronger independence requirements for the body and its members;
Rules to guarantee adequate representation of small/independent distributors and other stakeholders;
Monitoring by an independent a regulator.
Most people have never heard of an energy distributor, better known as a DSO. Yet everyone has one – there are about 2,750 of them throughout Europe. As natural monopolies, they operate and maintain local power infrastructure, and connect consumers and energy production to the grid. These activities are financed through grid fees included in everyone’s energy bills.
As the amount of renewable energy (particularly produced by consumers), storage and electric vehicles increases, distributors must adapt their networks and incentivise smarter, more flexible and efficient consumption.
With digitalisation and the growth of businesses that help consumers manage their consumption, arrangements are needed to manage and protect customer data and privacy. As local power grids become more dynamic, distributors need to collaborate with operators of larger power transmission systems.
This means the role of distributors is evolving – dramatically.
The Commission has rightly tried to bring energy regulations up to speed. To ensure a consistent direction of travel, common rules are necessary. As the technical experts, distributors have much to contribute.
In a democratic system like the EU, we would expect these rules to be developed in a transparent and inclusive process led by an independent body. But the EU executive has opted for a mostly technocratic approach with minimal transparency. This raises several concerns.
Most worrying is the lack of any independence requirement, allowing the DSO body to simultaneously lobby for members’ interests while drafting of regulations that its members will have to follow.
This mistake was already made with ENTSO-E. Created in 2009 for energy transmission operators, it has since been criticised for acting both as a lobbyist and a drafter, implementer, and overseer of technical regulations. The Commission is repeating old mistakes with this DSO body.
There is also nothing to guarantee balanced representation of individual distributors when the body takes decisions. This could allow larger distributors to have excessive influence at the expense of smaller ones – which comprise 75% of distributors across Europe. Access to the drafting process itself is likely to be limited to a select number of stakeholders.
These issues are important because the DSO body will set the tone for rules that will significantly impact consumer data privacy, as well as integration of renewables, storage and demand response – which not all DSOs are fond of. For example, many energy distributors want to impose special network charges on consumers to limit self-production from solar panels.
This is exacerbated by the fact that under EU law, energy distributors have considerable flexibility to maintain connections to their utility counterparts. Without further safeguards or oversight to ensure existing rules are respected, members of the body could attempt to influence rules that give these utilities an unfair advantage.
The proposal contains some minimal checks to prevent this – for instance, rules drafted by the DSO body can be amended, and they must ultimately be approved by the Commission. The worry is that once these rules reach the desk of regulators and the Commission, they are unlikely to be changed much.
What is more, it looks like the DSO body will monitor the rules once finalised.
The Commission has missed a big opportunity here. The Council and MEPs now face the task of going back to the drawing board to ensure that energy consumers – and the climate – get a fair deal with a new energy distributor body.