Clean Energy Package: Magna Charta of Prosumer Rights

Prosumers are the new superheroes in achieving climate and energy targets. At least, the EU counts on their generation, consumption and storage capabilities and flexibilities. To unleash their potential, the EU´s recently adopted Clean Energy Package sets a surprisingly pushing regulatory framework – the most comprehensive explicit prosumer framework so far. This „Magna Charta of Energy Prosumer Rights“ sends a strong signal to the global community struggling with energy transition and climate change mitigation. But: Is the prosumers´ mission possible?

15 + 21 = The EU´s formula for a prosumer-centric energy system

The Clean Energy Package (CEP) is a set of four directives and four regulations that has been entirely adopted politically in 2018. Legally, the prosumer-relevant Internal Market Directive (IMDII) and the Renewables Directive (REDII) are still awaiting formal adoption by the European Parliament and the Council by March 2019. Once adopted, the directives must be transposed into national law by the Member States by 2021.

Consumers have since the publication of the CEP proposals in winter 2016 (“Winter Package”) been in the center of the European Commission´s communication efforts. And the Commission kept promise: the adopted legislative package includes a number of interesting prosumer-provisions – a kick off for a prosumer-centric energy system. Two (long) articles are the backbone of the new framework:

• “Active Consumers”, Art. 15 Internal Market Directive (IMDII)
• “Renewables Self-Consumers”, Art. 21 Renewable Energy Directive (REDII)

The two articles include a large number of different subjects.

“Active Consumers”, Art. 15 IMD

Article 15 IMDII is the core prosumer-provision of the whole CEP, demonstrating the EU´s vision: consumers shall participate in all energy markets as equals among all (traditional) market players. Therefore, Art. 15 entitles consumers to:

• operate either directly or through aggregation,
• sell self-generated electricity including through power purchase agreements,
• participate in flexibility and energy efficiency schemes,
• be subject to cost reflective, transparent and non-discriminatory network charges.

Art 15 also tackles one of the most important show stoppers for the rise of prosumers: bureaucracy. It bans disproportionate technical and administrative requirements, procedures and charges for active consumers.

Residential storage facilities play a key role in the EU´s vision. Hence, Art. 15 obliges Member States to ensure that active customers owning a storage facility:

• have the right to a grid connection within a reasonable time,
• are not subject to any double charge, including network charges, for stored electricity remaining within their premises and when providing flexibility services to system operators,
• are not subject to disproportionate licensing requirements and fees,
• are allowed to provide several services simultaneously.

“Renewables Self-Consumers”, Art. 21 REDII

Art. 21 REDII is a specific “active consumers” provision for renewable energy generation, storage and consumption. It entitles renewable consumers, individually or through aggregators,

• to generate renewable energy, including for their own consumption,
• store and
• sell their excess production of renewable electricity, including through power purchase agreements, electricity suppliers and peer-to-peer trading arrangement.

And again, the EU tackles bureaucratization by banning discriminatory or disproportionate procedures and charges. And again, residential storage plays an important role: consumers are entitled to install and operate storage systems combined with renewables installations for self-consumption without liability for any double charge, including grid fees for stored electricity.

Art. 21 also “takes care” of the excess energy fed into the grid: self-generated renewable electricity fed into the grid must be remunerated reflecting the market value taking into account the long-term value of the electricity fed in to the grid, the environment and society.

The EU Commission has high expectations on self-consumption of self-generated renewable electricity. Therefore, Art. 21 bans any charge or fee on self-consumed electricity. And Member States have to create an “enabling framework” (by 2021!!) after having assessed the potential and barriers. That enabling framework shall address:

• accessibility of self-consumption to all final customers, including low-income or vulnerable households,
• other possible unjustified regulatory barriers to renewable self-consumption, including for tenants,
• incentives to building owners to create opportunities for self-consumption, including for tenants.

Flanking Provisions

The two core provisions are flanked by several other closely related provisions all across the CEP, but especially in IMDII.

• Aggregators

The most important one is the creation of a new “official” market role: aggregators. The EU was aware of the fact that most consumers – and a lo of communities, too (see below) – will not be able to become “active consumers” on their own. Aggregators as intermediaries shall enable all consumers (and communities) access to energy markets to trade their flexibility and self-generated electricity, with demand response being a special focus of the EU in this context (see Art. 17 IMDII). Therefore, the CEP sets a regulatory framework for aggregation with rights and duties, most importantly: non-discriminatory market access.

• Communities

The EU Commission was also aware of the importance of “communities”. Therefore, the two core prosumer-articles for individual consumers are each followed by prosumer-community articles:

• “Citizens Energy Communities”, Art. 16 Internal Energy Market Directive
• “Renewable Energy Communities”, Art. 22 Renewables Directive

Issues

The „prosumer“ articles have been among the most disputed subjects. That is not a surprise considering their disruptive potential and the interests and money at stake. The involved EU institutions had the following roles in the policy making play: the EU-Commission initiated the CEP and was driving a prosumer-friendly framework. During the official policy making process it then became the mediator between the two legislative bodies: EU Parliament and Council. The EU-Parliament was the most prosumer-friendly EU-institution with far-reaching proposals. The EU-Council representing the Member States was the most prosumer-skeptic EU-institution.

• Dissents are “transformed” into vague legal terms

Most of the disputes and dissents have not vanished with the adoption of the CEP. They are hidden in the adopted compromise texts in the form of vague legal terms that leave room for differing interpretations when transposing the directives into national law – a common compromise instrument in European policy making. Many issues regarding Art. 15 IMDII and Art. 21 REDII arise from vague legal terms.

This affects already the fundamental rights in the two core articles. Regarding Art. 15 IMDII: When are technical and administrative requirements, procedures and charges disproportionate? And when are network charges cost reflective, transparent and non-discriminatory? Regarding Art. 21 REDII: When are procedures and charges discriminatory or disproportionate? When is a framework enabling self-consumption? The large number of vague legal terms is the biggest risk for the CEP to fail. This regards not only the prosumers´ mission but also other policy areas of the CEP.

• Discrimination of jointly acting consumers

Both prosumer-articles explicitly allow Member States to treat individual and jointly acting consumers differently. The supply of solar energy to tenants or the sharing of solar energy among neighbors in the same multi-unit building is an illustrative example. By allowing discrimination the EU missed the opportunity to fully unleash the huge potential of “joint renewable energy consumption”, even though there is no difference between individual and joint self-consumption, especially not from a grid perspective.

Issues regarding Art. 15 IMDII

Apart from the vague legal terms the following issues are critical for the success of the CEP.

• Net Metering

The EU-Council succeeded in inserting a restriction to net metering. Accounting separately for the electricity fed into the grid and the electricity consumed from the grid will limit the option for Member States to use net metering, even though net metering is evidently a very efficient regulatory tool to boost investment in renewables installations.

• Responsibility for imbalances, compensation

The CEP declares active consumers financially responsible for the imbalances they cause in the electricity system. They are “balance responsible parties”, though they can delegate their balance responsibility. Aggregators are also responsible for imbalances. Regarding demand response, consumers even have to pay a compensation to other market participants or their balancing responsible party that are directly affected by their demand response activity. The responsability for imbalances plus the obligation to compensate might be a show stopper for active consumers.

Issues regarding Art. 21 REDII

Art. 21 REDII was one the most disputed articles of the whole CEP.

• Fees and charges on self-consumed renewable electricity

And inside the discussion of Art. 21 REDII, the most disputed subject has been whether and how to financially burden self-consumed renewable electricity. The final text allows three exemptions from the general ban of „any charge or fee“ on self-consumed renewable electricity. The first of the three exemptions is likely the most important and most critical:

Member States may apply non-discriminatory and proportionate charges and fees to renewable self-consumers if the electricity produced by the self-consumer is effectively supported via support schemes, only to the extent that the economic viability of the project and incentive effect of such support are not undermined.

The German situation illustrates the problem the best having a support scheme. Does the German support scheme support the production of renewable electricity effectively? When are charges and fees non-discriminatory and proportionate? It is obvious that these vague legal terms are an invitation to any Member State to justify its point of view.

• Fees and charges for self-consumers who also feed-in excess electricity

A similar issue regards those “renewables self-consumers” who feed their excess electricity into the grid. The CEP allows Member States to make these prosumers “contribute in an adequate and balanced way to the overall cost sharing of the system”. Again, when is the prosumer´s contribution set by Member States adequate? The contribution of prosumers who are still linked to the grid is the crucial discussion for all countries with advanced energy transitions. No country has found the silver bullet yet. The EU should aim at finding a solution for all Member States. It should not be up to each Member State.

Will Member States use the momentum or steal the thunder?

The CEP is not a revolution. It does not provide maximum empowerment and protection for consumers and prosumers. But there can be no doubt that the CEP is supporting them. Considering the diverse stakeholder interests and the money at stake, the EU achieved a lot more than most experts had expected. And the EU, at least Commission and Parliament, has made clear that consumers and prosumers play a crucial role in achieving the EU´s energy and climate goals.

It is now up to the Member States to transpose the directives into national law. The vague legal terms leave Member States (too much) room for differing interpretations. The question is: Will they take advantage of the strong “pro prosumer” momentum? Or will they steal the thunder? Coming back to the start: Is the prosumers´ mission possible in achieving the energy and climate targets? That is to be seen, they depend on the Member States´ good will.