News brief of 21.2.2017

News from the European energy market:

Α. European Energy Regulators' Overview Paper

The Council of European Energy Regulators (CEER) and the Agency for the Cooperation of Energy Regulators (ACER), discussed various important topics as well as the regulatory requirements of the new Energy Market Design during a joint conference held on January 23 and 24. An outline of the Regulators' initial reactions to the European Commission's proposals on Clean Energy for All Europeans package was presented during the conference. The text summarises the following:
1. The core principles against which the proposals of the European Commission on Clean Energy for All Europeans package have been assessed, .i.e:
• Maintaining and enhancing security of supply;
• Promoting competition and avoiding cross-subsidies between consumers and market actors;
• Promoting cost-efficiency and effectiveness to the benefit of consumers;
• Ensuring that, at European level, legislation is proportionate, allowing flexibility for local, national and regional innovation;
• Sustaining cohesion and coherence with the ongoing implementation of the Third Package, European Codes and other measures;
• Avoiding over-regulation and overly prescriptive measures which could affect markets and discourage consumers;
• Ensuring that the European regulatory system is underpinned by a reasonable and appropriate system of checks and balances.

2. The following points regarding Clean Energy for All Europeans package have also been stressed:

• The creation of the Internal Energy Market has been successful in enhancing competition and benefiting consumers; The current legislation (Third package, Guidelines and Network Codes) are being successfully implemented. It is crucial that the new legislation refrain from undermining the ongoing implementation and adopt improvements to the existing provisions;
• Regulators support speedier switching of suppliers to allow consumers to benefit from major changes in the Market;
• Consumers are increasingly becoming self-generators and need to face prices that truly reflect costs. Self-generation should not be subsidised by other users, therefore net metering should be checked to avoid any issues;
• Regulation should enable Energy Market changes and Regulators should keep a vigilant eye to make sure that there is no risk of over-regulation inhibiting progress. Detailed rules in fast evolving segments of the market should be laid down only where less prescriptive measures have proven inadequate;
• There are areas where the challenges are clear and action is required. Areas requiring a framework are storage, electric vehicle charging and demand-side response. The separation between DSOs and storage operators should be safeguarded. Storage and Demand-side response should compete on a level playing field with Generation and Consumption. Thus, European Commission’s proposals to remove priority dispatch, to introduce renewables into the market, and to ensure that all market players are responsible for balancing are assessed to be on the right track;
• Regulators support European Commission’s opinion that prices must truly reflect energy costs and that maximal cross-border capacity available should be ensured;
• The European Commission’s initiative to avoid overcapacity across Europe at the same time ensuring Member States security of supply, is also a positive step;
• Prospective cooperation between TSOs and DSOs is welcomed, especially when the distinction between transmission and distribution is becoming increasingly blurred;
• Another positive step is the creation of the EU DSO body, a development that highlights the increasing role that DSOs will play;
• The European Commission's recognition of the challenge for individual regions to adopt different approach to meet local needs is welcomed;
• There are serious reservations regarding the European Commission's proposal to reallocate significant managerial responsibilities within the Agency as, following this, the Agency might no longer be shielded from political interference. (Β4) (attached).

Β. CEER Report on Investment Conditions in European Countries

The Report of the Council of European Energy Regulators provides information on investment conditions in European countries in electricity and gas transmission and distribution networks by comparing data from 23 countries (22 EU Member States and Norway) against financial parameters such as the type of regulatory framework, the ROR calculation, risk-free rate, market risk premium, taxes, RAB (Regulatory Asset Base), etc. Below is a summary of the report's conclusions:
• Although regulatory regimes differ among countries, risk-free base rate does not present great variations;
• Weighted Average Cost of Capital (WACC) is the preferred method used in asset valuation;
• All countries include fixed assets as a component of the RAB whereas a large amount of them do not include working capital in the RAB;
• As a rule of thumb, depreciations are associated with RAB, applying the linear method. The lifetime of a typical network asset ranges between 30 and 50 years;
• Further to the performance of capitals invested in RAB, some countries implement incentive policies thereby improving capital efficiency and quality of services (Β3) 

Information records