FSR

After attending a conference jointly organised by Eurelectric and the Florence School of Regulation on the electricity market design of the future, Pradyumna Bhagwat (FSR) and Nicolò Rossetto (FSR) summarise their main takeaways. First, thinking out of the box is fundamental. We live in transformative times and electricity markets must be able to manage uncertainty and adapt to new, unpredictable conditions. Second, the European Commission and the electricity industry believe in the strong role free markets can play but have a different view on what those markets should look like. On the one side, scarcity pricing may scare policy-makers and investors, while on the other, capacity mechanisms may distort the internal market and hinder integration. Convergence of opinions between the industry, the Commission and most of the academics is more apparent on the need to engage consumers, foster flexibility and the breakthrough that turning reliability into a private good could represent. Finally, the parallel sessions showed how useful it is for academia and the industry to sit down together and merge their theoretical and practical knowledge to understand the current changes better and advance proposals for tackling society’s problems.

Catalyst of the utilities’ transformation: the case of new York | Scott Weiner (New York Public Service Commission)

During a conference at Columbia University Jean-Michel Glachant, director of the Florence School of Regulation, met with Scott Weiner, the deputy for market and innovation at the New York Public Service Commission. With the major wave of changes in energy transition (the three Ds: decarbonisation, decentralisation and digitalisation), Jean-Michel wanted to discuss the role of a public service commission in this new world. According to Weiner, a commission has to implement the policy direction set at the political level and act as a catalyst for transformation, enabling society to take advantage of the opportunities the three Ds have to offer. In the case of New York, in 2012 Hurricane Sandy revealed the vulnerabilities of the utilities, the lack of system resilience and the inability to anticipate customers’ needs. In response to it, the State of New York established a “Utility 2.0” target model (Reforming the Energy Vision), where distribution grids will become platforms for the distribution of energy services, able to host massive amounts of renewables and, in general, distributed energy resources (demand response included). Initiatives from local communities and new intermediaries are expected to blossom on such platforms, allowing the direct participation of end users in energy markets and the creation of new jobs, while ensuring environmental protection. In this context, Weiner adds, a State public service commission has to coordinate and cooperate with the legislative branch, with the stakeholders and, of course, with the federal government. This is not easy, especially because in the US the choices of other States or the federal government may contradict each other or they may be less advanced or ambitious (for example, New York’s goal to build the largest electric vehicle fleet worldwide versus Trump’s decision to withdraw from the Paris Treaty). For these reasons, it is important to continuously examine the experience of other countries and try to learn from one another.

Energy regulation in a federal country: the case of California | Chairman Michael Picker (CPUC)

Jean-Michel Glachant, Director of the Florence School of Regulation, and Michael Picker, Chairman of the California Public Utilities Commission (CPUC), discuss the roles the different levels of government play in managing the changes due to the energy transition (decarbonisation, decentralisation and digitalisation). In California, the governor and the legislative branch set the broad policy framework and appoint the heads of the State energy agencies. The latter then implement the policies. As an example, the CPUC is responsible for regulating the development of gas and electricity infrastructure by public utilities. The Federal Government, located in Washington, D.C., played a role in the recent past by promoting investments in renewables. However, in States like California, a worldwide leader in the energy transition, the overall direction of energy and climate policy is decided, for the most part, autonomously. Due to States’ autonomy, it appears that the transition from the Obama Administration to the one of Trump may not be as consequential when all is said and done.

PETER FRASER on the need for greater consumer participation in decision-making regarding the security of supply in the electricity markets of the future.

On the sidelines of the EURELECTRIC – FSR conference on the market design of the future, Pradyumna Bhagwat (FSR) interviewed Peter Fraser, Head of the Gas, Coal and Power Markets Division at the International Energy Agency (IEA), on the need for greater participation of individual consumers in decision making regarding the security of supply. Mr Fraser supports the idea of increased participation of consumers, and in his view, such involvement would aid in providing the level of adequacy that the consumers want and demand at a reasonable price. Furthermore, he shared his thoughts on the proposals of the Clean Energy for All Europeans Package (Winter Package), highlighting his appreciation for its attempt at moving from a national to a Europe-wide context for Security of Supply. Mr. Fraser also reiterated the need for more work on enabling greater consumer involvement in deciding how much security of supply they require.

At the end of the EURELECTRIC – FSR conference on the market design of the future, Nicolò Rossetto (FSR) and Professor Graham Weale (Bochum University) discuss the market design for electricity in 2050. Despite the relevance the European Commission attributed to scarcity prices, Professor Weale is sceptical of the idea that energy-only markets will be enough to induce and remunerate adequate investment in generation capacity. According to him, political opposition to excessively high spot prices, an increased cost of capital and the wide-ranging deployment of renewables with low variable costs can undermine a market design based on few, infrequent price spikes. A second revenue stream to remunerate capacity could be necessary for the electricity market of the future. This position is beloved by Eurelectric. At FSR we see it as controversial as it is not widely agreed upon by many scholars and practitioners. However, “retweeting is not supporting”. What is less controversial and we support is the importance to adopt a holistic and gradual approach to market reform in order to avoid unintended consequences and side-effects.

Description: Nicolò Rossetto (FSR) and Jean-Michel Glachant (FSR) discuss the role of the Florence Forum in the development of an internal market for electricity. Following an intense exchange of views on the European Commission’s proposal on regional cooperation and ROCs, Glachant highlights the need for coordination tools, cost and benefit sharing principles and solidarity at the European level. These three elements are necessary if Europe wants to create a seamless electricity system from Lisbon to Helsinki. Cross-border remedial actions for congestion management and crisis management are two concrete and relevant examples, where coordination, sharing and solidarity are particularly needed.

Recorded 18 May 2017, Brussels

Description: Nicolò Rossetto (FSR) and Juan Alba Rios (chairman of the EURELECTRIC Markets Committee) discuss the 2016 legislative proposals of the European Commission on a new market design for the electricity sector. Alba Rios expresses a positive view on the proposal, which strengthens the role of markets in providing signals to economic actors and acknowledges the possibility of establishing capacity remuneration mechanisms to complement the existing energy-only markets. Indeed, short-term scarcity prices are not enough to foster adequate investment decisions in generation capacity and must be supported by additional, market-based, incentives. According to EURELECTRIC, although the Commission's proposal is not perfect, it goes in the right direction and provides a good starting point for building the market design of the future.

Recorded 11 May 2017 at CEER, Brussels

Description: Nicolò Rossetto (FSR)and Ben Voorhorst (COO at TenneT, ENTSO-E)discuss the report prepared by the Florence School of Regulation on the integration and the decarbonisation of the European electricity sector. Mr Voorhorst acknowledges the relevance of the missing pillars and the roadblocks identified in the report and underlines the necessity for European policy-makers to take clear decisions regarding coordination of actions and decisions, sharing of costs and benefits, and of solidarity beyond costs and benefits. Without such basic and intrinsically political choices, technical entities like TSOs cannot provide, by their own, efficient and effective solutions enabling the full integration of the European electricity system and a smooth and speedy transition to a low-carbon economy.

In this podcast, Christopher Bremme and Thomas Schulz of Linklaters Berlin discuss the Commission’s proposed revision of the Renewable Energy Directive of 30 November 2016.

In this podcast, Rosaria Arancio of Macchi di Cellere Gangemi discusses the implementation of REMIT in Italy. REMIT is the EU Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) (Regulation No. 1227/2011), overseen by ACER and National Regulatory Authorities, which aims to establish common rules, at European level, to prevent abusive practices in wholesale energy markets. It defines abusive practices in terms of market manipulation and insider trading, prohibits abusive practices in the wholesale electricity and gas markets, applies a monitoring system of the European energy markets, and gives National Regulatory Authorities powers to enforce rules, investigate and sanction misconducts. This podcast considers how the Italian regulatory authority AEEGSI has applied REMIT to Italy, including looking at recent cases where the criteria of REMIT was put into effect.