Europe/UK Energy Regulatory update for August 2023

Please note that content of this edition is shorter than usual, as EU legislatures meet in plenary session every month except August. We will have more information to share in the next issue.

HUNGARY

Government Decree 361/2023 (VII 31) on issues related to the implementation of Government Decree 238/2023 (VI 19) on competitive pricing

• The Decree lays down the rules for the implementation of the pricing decree referred to in its title, including the amount of compensation to be paid to electricity traders as a consequence of fixed contract energy prices.
• The pricing decree capped electricity tariffs at a net price of EUR200 / MWh for sectors that have a significant impact on inflation such as manufacturing, accommodation, warehousing and transport.
• Above this amount, the state subsidises the cost of electricity between 1 July 2023 and 31 December 2023, i.e. for a period of 6 months.
• Beyond the compensation amount, the Decree lays down numerous procedural rules related to the price fixation, including claiming the compensation by electricity traders.

Government Decree 382/2023 (VIII 14) on the different application of Act LXXXVI of 2007 on electricity under a state of emergency

• The Decree established the framework of a new subsidy scheme for the development and installations of electricity storage facilities. According to the “electricity storage facility” definition of the Decree, not only storage units that will have injection capacity into the public grid may participate in the subsidy scheme, but also storage facilities which, irrespective of their injection capacity can supply electricity to a user.
• Although the Decree has not introduced detailed regulations to this new subsidy scheme (tender categories, subsidy period, etc.) it established a framework comparable to the already existing green premium support regime for renewable producers called METáR.
• Participants under the subsidy scheme of the Decree shall sell the stored electricity on the free market; a certain premium may be awarded to the winning storage operators as a state subsidy to ensure return on investment. The premium will be awarded through regularly announced open tenders, like in the case of the METáR scheme.
• Similar to METáR, and the previous feed-in-tariff support scheme (KáT), this new contract for difference-type scheme will also be financed through a separate fund, financed by other balancing groups, ultimately by market end users outside universal service (primarily industrial and commercial users).

PORTUGAL

Capacity Reservation Title and the procedures set out in the Legal Framework for Environmental Impact Assessment | Joint Order APA and DGEG

• The Portuguese Environment Agency (APA) and the Directorate-General for Energy and Geology (DGEG) recently issued a joint order regulating Grid Injection Capacity Reservation Titles and the procedures laid down in the Environmental Impact Assessment legal regime. The order aims to prioritise projects for which the respective viability is guaranteed, ensuring that project processing takes place within a timeframe compatible with the operationalisation of the projects during the period of validity of the environmental decisions.
• Developers therefore need to demonstrate the maturity of their projects to the environmental authorities, either by presenting a guarantee of connection to the grid or by making a commitment to that effect.
• To ensure that promoters can adequately demonstrate the maturity of the projects, the order specifies which elements must be submitted to APA with requests for prior appraisal of projects and with Environmental Impact Assessment procedures.

Government authorised to reform and simplify urban planning and land use licensing

The Portuguese Parliament has authorised the government to reform several diplomas as regards urban planning and land use licensing. The purpose of the future reform is to simplify procedures, namely by increasing the situations that are exempt from prior control under the Legal Framework for Urbanisation and Construction (RJUE). Among the possible amendments, the Government will now be able to refine and streamline the system of exemption from prior urban planning control for the installation of photovoltaic panels or other solar energy production systems. As per the authorisation granted by the Parliament, the government now has 180 days to legislate.

ROMANIA

New support mechanism through contracts for difference announced in Romania

The Romanian Ministry of Energy has published a draft legislation purporting to approve a new CfD mechanism in Romania with the first tender announced for September 2023. Contracts for difference will be offered to eligible generators through a competitive auction process run by Transelectrica while the CfD counterparty will be OPCOM. The scheme will involve two rounds of auctions, each with separate tenders for onshore wind and solar and with a total capacity of 5000 MW of new projects.

Draft offshore law

A new offshore law has been published for public consultation with the aim for the legislation to be passed this year. The new law purports to grant support in the form of contracts for difference for 3 GW of offshore projects. Moreover, the new legislation provides the permitting process and involved authorities as well as the stages of development of offshore projects. There are several discussions with interested stakeholders and the Ministry of Energy aiming at improving the draft legislation before it will be sent to the Romanian Parliament for legislative procedure in view of being adopted.

UK

Future System Operator

On 4 August 2023, the Department for Energy Security and Net Zero (DESNZ) announced a further consultation and an update on the Future System Operator (FSO), i.e. the proposed new system operator which is provided for in Part 5 (The Independent System Operator and Planner) of the Energy Bill. The document published on 4 August is entitled ‘Future System Operator – Second Policy Consultation and Update’. The consultation part of the document (Chapter 2) relates to two new policy areas for the FSO in respect of system resilience and national security. The document also provides an update and summary in respect of: the status of the system operator?reform project (the aim is for the FSO to be operational in 2024); the ‘day one’ roles for the FSO once established; and potential future roles which the FSO could take on in the longer term. Chapter 4 outlines ‘next steps’ including planned future consultations.

Ofgem and market regulation

The energy regulator for Great Britain, the Office of Gas and Electricity Markets (Ofgem), has published a number of consultation documents over recent weeks. These include:

• a consultation headed ‘Centralised Strategic Network Plan: Consultation on framework for identifying and assessing transmission investment options’, 28 July 2023;
• a ‘Call for Input - Impact of high inflation on the network price control operation, 1 August 2023; and
• a call for input, ‘Engaging domestic consumers in energy flexibility’, 17 August 2023.On 25 August 2023, Ofgem published a document entitled ‘Decision to modify the electricity transmission special licence conditions: Accelerated Strategic Transmission Investment’. This relates to the introduction of a new Accelerated Strategic Transmission Investment (ASTI) regulatory framework within which Ofgem will assess and approve funding for the accelerated delivery of large, strategic onshore electricity transmission projects that are required to deliver the government’s ambition to connect up to 50 GW of offshore wind generation to the electricity network by 2030.

Renewables Obligation (RO) scheme

DESNZ has announced an open consultation by the UK Government, the Scottish Government and the Northern Ireland Executive on introducing fixed price certificates into the Renewables Obligation (RO) scheme. The consultation document (published on 31 July 2023) outlines the case for transition to a Fixed Price Certificate (FPC) model in 2027, to provide cost and revenue certainty to stakeholders in the latter part of the RO scheme, as price volatility is expected to emerge when generating stations start to retire from the scheme.

Offshore Transmission Network Review

On 27 July 2023, DESNZ published the ‘Offshore Transmission Network Review: summary of outputs’ – this marks the conclusion of the review into the way that the offshore transmission network is designed and delivered, and the move to delivery of the outcomes.

Contracts for Difference scheme - Allocation Round 5

On 3 August 2023, DESNZ announced a funding increase for the current allocation round in respect of the Contracts for Difference (CfD) scheme (i.e. allocation round 5 (AR5)) – the press release is headed ‘Energy Security boost with multi-million backing for renewables’ – the budget for AR5 is now GBP227 million. This is allocated as follows:

• an increased budget for established technologies such as solar and offshore wind (Pot 1) – from GBP170 million to GBP190 million; and
• an increase in the budget for emerging technologies such as floating offshore wind (Pot 2) – up from ￡35 million to ￡37 million.

The GBP10 million ring-fenced budget for tidal stream projects is maintained (this forms part of Pot 2).

The above budget increase is expected to boost energy security in the future as well as contribute to delivering a decarbonised power sector by 2035 and achieving the 2050 net zero target. The revised budget notice for AR5 was published on 3 August on DESNZ’s page ‘Contracts for Difference (CfD) Allocation Round 5 – statutory notices’. Further information can be found in the news section of the CfD allocation round microsite, which on 3 August included an item headed ‘Government increases AR5 budget to ￡227m’. As noted in that microsite news item, details of the upcoming stages for AR5 are given in scenario five within the ‘Timeline scenarios’ on the microsite.

National Grid ESO – distributed generation and ancillary services

On 9 August 2023, National Grid Electricity System Operator (NGESO) announced a new ancillary service for distributed energy – this is a collaboration between NGESO,?UK Power Networks?and?National Grid Electricity Distribution (NGED)?which delivers a new route to market for Distributed Energy Resources (i.e. the smaller electricity generators connected to Distribution Networks), while unlocking capacity for them to connect to the network. The new ancillary service (as available for use by NGESO) is called ‘MW Dispatch Service’ – it will support the management of transmission network constraints, by extending the options available to NGESO’s control room beyond those generators currently operating in the Balancing Mechanism.

Carbon dioxide licensing and exemptions

On 16 August 2023, DESNZ published an open call for evidence (consultation) under the heading ‘Exemptions from the requirement to hold a carbon dioxide transport and storage license’ – the closing date for responses to this is 11 October 2023.

By way of background, the Energy Bill establishes a prohibition on providing a service of transporting carbon dioxide by pipeline and operating a geological storage site, without a transport and storage economic licence under clause 2 (Prohibition on unlicensed activities) in Part 1 (Licensing of Carbon Dioxide Transport and Storage) of the Bill. To ensure that this prohibition, as applied to operating a carbon dioxide transport and storage network without a licence, does not impact upon activities for which economic regulation is not considered necessary or is considered inappropriate, clause 5 (Exemption from prohibition) in Part 1 of the Energy Bill allows the Secretary of State to make regulations to grant exemptions from the prohibition.

Cross-border wholesale electricity trading arrangements with the EU

On 24 August 2023, DESNZ published a consultation outcome document entitled ‘GB Wholesale Electricity Market Arrangements: Government response to consultation on re-coupling GB auctions for cross-border trade with the EU at the day-ahead timeframe’. This is the response to the consultation launched on 30 September 2021 which sought views on the current arrangements for trading electricity on power exchanges in the Great Britain (GB) wholesale electricity?market and proposals to support efficient cross-border trading. From its analysis of the responses, the government has concluded that a single GB clearing price in the day-ahead timeframe would be highly beneficial in supporting the UK to discharge its obligations under the UK-EU Trade and Cooperation Agreement (TCA), as well as deliver broader benefits to the GB wholesale electricity market and its participants in trading electricity cross-border as efficiently as possible as part of and in any case in advance of multi-region loose volume coupling (MRLVC). The government intends to legislate to achieve a single GB clearing price, subject to engagement with the Specialised Committee on Energy (SCE), industry and stakeholders. The SCE is designed to ensure the proper functioning of the Energy Title (Title VIII) in the TCA. In parallel, the government plans to engage with industry and stakeholders to explore and understand how the recoupling of the two hourly day-ahead GB auctions can be successfully designed and implemented.

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