Europe/UK Energy Regulatory update for July 2023.

Our energy teams in over 30 offices across Europe and the UK provide regulatory updates to clients on a regular basis. This monthly update contains, for each of the countries covered, a selection of recent news items of relevance to the energy transition, including its impact on the non-retail electricity markets. It is not intended to be exhaustive or detailed; it simply identifies developments of a policy or regulatory nature considered to be of interest by the contributors.

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AUSTRIA

Amendment for more transparency and competition in the electricity market

The amendment to the Electricity Act 2010 (Elektrizit?tswirtschafts- und -organisationsgesetz 2010 - EIWOG 2010) is intended to provide consumers with more information on the most favourable electricity supply offering. Specifically, the existing tariff calculator, a comparison tool of the regulatory authority E-Control, shall be improved. Furthermore, electricity benefits shall already reduce the partial amounts payable throughout the year and not only in the annual bill, and electricity suppliers must inform their customers of the possibility to change suppliers. The latter is intended to encourage customers to switch providers and thus achieve greater competition amongst providers.

Sanctions for the compulsory stockpiling of emergency oil reserves.

The Oil Stockholding Act 2012 (Erd?lbevorratungsgesetz 2012 – EBG 2012) was amended to impose higher fines for violations of the stockholding obligation. Those subject to the stockholding obligation will now face fines of up to EUR116,240 (or an alternative custodial sentence of up to six weeks) in the event of a breach of the stockholding obligation.

Cries for the Renewable Heat Act become louder again after Germany implements similar law

The draft Renewable Heat Act (Erneuerbaren-W?rme-Gesetz – EWG) negotiated between the governing parties in autumn 2022 is still waiting for a two-thirds majority in parliament. The planned EWG intends to phase out fossil fuels for space heating and hot water supply. All oil heating systems shall be gradually replaced by heating systems based on renewable energies or district heating until 2035. By 2040, only gas heating systems powered by renewable gases such as biomethane may be operational. After 2040, only heating systems that use renewable energies may be installed in new buildings, a regulation that has already been implemented in some federal states (Bundesl?nder).

The delay in adopting the EWG is due to a deadlock imposed by one of the political parties. Recently, however, there have been signals from the party leader that the deadlock could be resolved.

Austria misses deadline to submit national climate plan to EU

By 30 June 2023, EU Member States should have submitted draft versions of their updated National Energy and Climate Plans (NECPs) to the European Commission in accordance with Article 14 of European Regulation (EU) 2018/1999 on the Governance of the Energy Union and Climate Action. Austria missed this deadline and is still in a consultation process until 30 August. The most interesting part of the draft NECP is the announced evaluation of the law on the prohibition of geological storage of carbon dioxide (Gesetz über das Verbot der geologischen Speicherung von Kohlenstoffdioxid) with regard to the storage of carbon dioxide in deep geological reservoirs, e.g. in abandoned gas fields. In addition, the plan also announces a hydrogen pipeline system by converting or adapting the natural gas grid.

BELGIUM

Adoption of a new hydrogen pipeline act

The Federal Parliament in Belgium has adopted a new act that regulates the transport of hydrogen to pipelines in the territory. The Act was published in the Official Journal on 25 July 2023.

The market organisation mode chosen is that of a single hydrogen network operator, appointed by Ministerial Decree and supervised by the federal electricity and natural gas regulator CREG. This single operator cannot directly or indirectly own hydrogen, gases or electricity production or supply companies. The operator is to provide for free and non-discriminatory third party access to all hydrogen pipelines in Belgium, except for pre-existing hydrogen pipelines, that can remain operated by the existing owners until 2030 provided they make capacity available to the market on a non-discriminatory manner in the meantime. The single hydrogen network operator will also have to draw up a network development plan and guarantee hydrogen quality.

This Belgian act may however still be adapted based on the outcome of the legislative procedure at the EU level for the draft revised Gas Directive and Gas Regulation as part of the EU’s Hydrogen and Decarbonised Gas Package. Currently the draft legislation would seem to provide for more than one central operator, instead opting for multiple operators on different hydrogen networks. This is thus a different market organisation model than currently foreseen in the new Belgian act.

CZECH REPUBLIC

Amendment to Government Regulation No. 463/2022 Coll.

On 1 July 2023, an amendment to Government Regulation No. 463/2022 Coll., on the determination of electricity and gas prices in an extraordinary market situation supplied for losses in distribution systems and on compensation provided for the supply of electricity and gas for losses at fixed prices, came into force, introducing minor changes. A provision was added to regulate the method of determining the amount of demonstrable losses and profits from electricity and gas activities in the distribution system.

Amendment to Government Regulation No. 298/2022 Coll.

On 1 July 2023, an amendment to Government Regulation No. 298/2022 Coll., on the determination of electricity and gas prices in an extraordinary market situation and on the determination of the related maximum permissible extent of

the customer's property benefit, also came into force, introducing minor wording changes concerning the definition of the property benefit of a large entrepreneur.

EU

Adoption of the new EU Energy Efficiency Directive

The new Energy Efficiency Directive was formally adopted by the European Council on 25 July, meaning that this Directive will now be published in the Official Journal of the EU. EU Member States have to achieve collectively a reduction of final energy consumption of at least 11.7% in 2030, compared with the forecasts made for 2030 in 2020. There is also an indicative subtarget for reduction of primary energy consumption (i.e. what is used for the production and supply of energy). The collective goal is to achieve annual energy savings consumption of 1.49% on average.

Member States are required to contribute to this target through indicative national contributions and trajectories to be contained in their national energy and climate plans (NECPs), of which the final version is to be submitted to the European Commission in 2024. There is an indicative formula that determines what would be a fair contribution of a Member State in the annex to the Directive on which the Commission will base itself to assess the Member States’ trajectories.

GERMANY

Legal measures to accelerate onshore wind energy

The German Federal Parliament and the German Federal Council have passed an amendment to the German Wind Energy Area Needs Act (Windenergiefl?chenbedarfsgesetz, WindBG), which has not yet entered into force, in order to accelerate the expansion of wind energy in Germany. The amendment explicitly gives the federal states the opportunity to make more areas available for the expansion of onshore wind energy than required by existing federal statutory deadlines.

In addition, in order to achieve the binding area targets of the Wind Energy Area Needs Act at the municipal level, the German Federal Parliament and the German Federal Council have passed an amendment to the German Building Code (Baugesetzbuch, BauGB), which will come into force on 14 January 2024. The so-called ‘municipal opening clause’ gives local authorities more leeway to deviate from the requirements of regional planning when expanding wind energy projects. However, they will still be subject to approval by the competent state authority.

IRELAND

Irish Government publishes National Policy Statement on Electricity Interconnection 2023

On 26 July 2023, the Irish government’s Department of Energy, Climate and Communications published a national policy statement on electricity interconnection. This statement noted that increased interconnectivity is needed to enable Ireland’s renewable energy ambitions and improve collective security of supply and states that Ireland’s offshore energy potential makes it central to Europe’s shared energy future. As well as providing significant market, consumer, decarbonisation, grid resilience and energy security benefits increased connectivity is a key enabler of realising Ireland’s energy ambition as it transitions to becoming a net energy exporter.

The policy commitments outlined in the statement include, among others, that the Irish government will:

• increase Ireland’s electricity interconnectivity with more capacity, in more cables, to more countries, consistent with Ireland’s emerging needs, capabilities and grid opportunities.
• transition to a more structured forward planning approach aligned with renewable energy generation growth and the State’s strategic needs and to provide certainty for the citizen and for industry.
• continue to prioritise proposed projects with the earliest possible delivery prospects and those of specific strategic importance irrespective of whether they have been designated as priority EU cross-border infrastructure through the Projects of Common Interest/Projects of Mutual Interest process.
• continue to engage with appropriate projects with regard to inclusion on the EU Projects of Common Interest (between EU Member States) and Projects of Mutual Interest (Third Countries) list.
• integrate interconnector forward planning with:

a.??Offshore renewable energy (ORE) forward planning, identifying site specific electricity export requirements;

b.??terrestrial grid planning to identify and develop opportunities both for traditional point to point cable and the growth of renewables; and

c.??broader European forward planning to maximise benefits for all parties, collectively increasing energy security and market diversity.

• establish Ireland’s anticipated interconnection needs to be tested against technical feasibility, financial viability and benefits to the State and people, considering.

a.??A second connection to France by the middle of the next decade.

b.??A connection to Spain, if feasible considering the practical geographical challenges

c.??A connection to Belgium/Netherlands, potentially a hybrid or multi-purpose project.

d.??A further connection to Great Britain potentially a hybrid interconnector, beyond 2030 seeking to give effect to the April 2023 Ostend declaration of energy Ministers.

e.??Any further interconnection required to support export of renewable electricity in the context of other uses such as green hydrogen and new demand centres.

• aim through the strategy to reach and then surpass the EU target of interconnectivity of 15% generation capacity (peak load methodology).
• explore the potential for multipurpose (hybrids) interconnectors to: maximise export opportunities; reduce development intensity; and facilitate ORE development.
• establish the necessary legislative, institutional, and regulatory arrangements to facilitate delivery of interconnectivity.

National Hydrogen Strategy published by the Irish Government

The Irish Government published a National Hydrogen Strategy on 12 July 2023, which it states sets out the strategic vision on the role that hydrogen will play in Ireland’s energy system, looking to its long-term role as a key component of a zero-carbon economy, and the short-term actions that need to be delivered over the coming years to enable the development of the hydrogen sector in Ireland.

The main takeaways are:

• Kickstarting production - Ireland will prioritise the scale up and production of renewable hydrogen. A 2 GW target of offshore wind, for the production of renewable hydrogen, to be in development by 2030, will help to provide greater certainty for investors and create the volumes needed to scale up the sector.
• Clarity on End Uses - The deployment of renewable hydrogen in Ireland will focus on hard-to-decarbonise sectors where energy efficiency and direct electrification are not feasible or cost-effective solutions.
• Enabling Infrastructure - Hydrogen infrastructure is expected to roll out initially across several regional clusters where production, high priority demand uses and large-scale storage are co-located. The expansion and linking of these clusters into a national hydrogen network will be key to creating a liquid mature hydrogen market.
• Safety and Regulation - Hydrogen safety is essential, and early focus is needed to develop a safety roadmap to delivering the necessary safety frameworks and regulatory regimes across the entire hydrogen value chain.
• Enabling Innovation and Skills - Global research and innovation over the coming years will be essential to future competitiveness and scale up. Climate research is a strategic priority of Ireland’s research and innovation strategy, as set out in Impact 2030: Ireland’s Research and Innovation Strategy.

ITALY

Incentives for the increase of production of biomethane and maintenance in operation of biogas plants

With Law n. 95 of 26 July 2023 containing the “Conversion into law, with amendments, of the decree-law of 29 May 2023, n. 57, containing urgent measures for local authorities, as well as to ensure the timely implementation of the National Recovery and Resilience Plan and for the energy sector" (published in the Official Gazette of 27 July 2023), significant amendments have been introduced with the aim of:

• increasing the production of biomethane by introducing a simplified autorisation procedure for interventions on biomethane production plants in operation which do not involve an increase in the area already subject to authorisation, regardless of the resulting quantity of biomethane introduced into the network following the interventions themselves;
• guaranteeing the continuation of the operation of biogas and biomass plants, providing for a guaranteed minimum price mechanism for the production of renewable electricity from biogas and biomass plants in operation on the date of entry into force of this provision, which benefit from incentives expiring by 31 December 2027 or which, within the same term, waive the incentives to adhere to the regime of guaranteed minimum price mechanism. The value of the guaranteed minimum prices, or of the additions to the revenues, is updated annually, taking into account the cost values of the raw materials and the need to promote the progressive efficiency of the plant costs, also in order to avoid increases in the prices of the raw materials correlated to the presence of incentives for their energy use; and
• introducing a mechanism of adjustment of the incentives, thereby updating them to the trend in consumer prices in the country.

Incentives for renewable energy communities and self-consumption of energy configurations

The new decree, adopted by the Ministry of the Environment and Energy Security, regulating the access to the incentives for renewable energy communities (CER) and self-consumption of energy configurations (CACER) is currently under evaluation by the European Commission.

The draft of decree provides for two types of contributions:

• incentive tariffs on the shared energy; and
• PNRR (Italy’s National Recovery and Resilience Plan) non-repayable grants.

NETHERLANDS

This month, ACM, the Dutch regulator has urged net operators to tighten rules for large electricity consumers, who could therefore lose their unused transport capacity. This is a response by the regulator to the existing and increasing issues with net congestion, as the (proposed) measure aims to address congestion on the electricity grid. With this measure, net operators must unilaterally reduce the contracted transport capacity if it remains unused for an extended period. The regulator insists that only the net operator should decide whether the unused transport capacity will be utilised within a reasonable timeframe.

A proposal to require additional justification for capacity expansion requests in congested areas, potentially causing inequality, is under consideration for removal.

PORTUGAL

ERSE | New Electricity Sector Regulations approved

The Regulatory Entity for Energy Services (Entidade Reguladora dos Servi?os Energéticos – ERSE) approved new regulations for the electricity sector. These regulations are in line with current legislation, namely Decree-Law no. 15/2022, of 14 January.

The new regulations (approved on 17.07.2023) reflect a decentralised model that aims to ensure that consumers are active participants in the electricity markets. This model, which was first developed with Decree-Law no. 15/2022, has in its core local production, self-consumption measures, and active management of smart networks.

The amendments concern the following regulations:

• Commercial Relations Regulation for the Electricity and Gas Sector (Regulamento de Rela??es Comerciais do Setor Elétrico e do Gás - RRC);
• ?Regulation on Access to Networks and Interconnections (Regulamento de Acesso às Redes e às Interliga??es - RARI);
• Tariff Regulation for the Electricity Sector (“Regulamento Tarifário do Setor Elétrico - RT);
• ?Network Operations Regulation (Regulamento de Opera??es das Redes - ROR);
• ?Quality of Service Regulation (Regulamento da Qualidade de Servi?o – RQS) and Manual of Quality of Service Procedures (“Manual de Procedimentos da Qualidade de Servi?o – MPQS).
• Regulation on Smart Grids and Services (Regulamento dos Servi?os e das Redes Inteligentes – RSRI);
• ?Regulation on the Misappropriation of Energy (Regulamento relativo à Apropria??o Indevida de Energia – RAIE);
• ?Self-consumption Regulation (Regulamento do Autoconsumo – RAC).

UK

Electricity Generator Levy enacted

The Finance (No. 2) Bill, introduced to Parliament in March 2023, received Royal Assent on 11 July 2023 becoming the Finance (No. 2) Act 2023. The ‘Electricity Generator Levy’, which was first announced in the Autumn Statement of November 2022 and creates a charge/levy for “qualifying generating undertakings” on any “exceptional generation receipts”, is addressed in Part 5 of the new Act, in sections 279 to 313. HM Revenue’s policy paper on the ‘Electricity Generator Levy’ explains who is subject to the levy, how it works, and how long it is to apply. As stated in that paper, the levy will be applied to companies or groups generating electricity from nuclear, renewable, biomass, and energy from waste sources, but will not apply to electricity generated under a Contract for Difference with the Low Carbon Contracts Company, nor under any future arrangement for nuclear generation under the Regulated Asset Base model - nor will it apply to electricity which has been generated outside of the UK and been imported.

Contracts for Difference allocation rounds

On 12 July 2023, the Department for Energy Security and Net Zero (DESNZ) published the government’s response to the consultation which ran from 14 December 2022 to 7 February 2023 on potential changes to the contracts for difference (CfD) scheme for allocation round 6 (AR6), which is due to open in 2024. The CfD scheme is the government’s primary means of supporting new low carbon power generation. The document published by DESNZ on 12 July has the title ‘Contracts for Difference (CfD) for Low Carbon Electricity Generation: government response to consultation on policy considerations for future rounds of the Contracts for Difference scheme’.

The response confirms the government’s decision on implementing an amendment to the CfD scheme regarding the Private Network CfD (PN CfD) Agreement ahead of AR6 - this is to make renewable generators that directly supply offshore oil and gas facilities ineligible for that agreement. The specific amendments to the?PN?CfD?Agreement will be consulted on before?AR6?opens. Corresponding changes will be made to the Allocation Framework.

The response also covers a range of policy considerations for future rounds beyond AR6, including:

·??????floating offshore wind?– the government will continue working with stakeholders with a view to developing a long-term solution to the eligible definition of floating offshore wind projects;

·??????facilitating coordinated infrastructure?– the government will continue to engage with stakeholders to help build an enabling framework for supporting the building of a first multipurpose interconnector (MPI), as committed to in the Powering Up Britain Energy Security Plan of 30 March 2023 (updated 4 April 2023);

·??????offshore wind phasing?– the government will keep phasing policy for offshore wind projects in place, but continue to keep this under review, including the expansion to floating offshore wind projects in future allocation rounds;

·??????CfD?appeals system?– the government will further consider how best to streamline the process for future?CfD rounds; and

·??????repowered renewable generation assets?– the government will fully explore the most appropriate revenue support mechanism for the repowering of existing renewable sites, including the role that the?CfD?could deliver.

Subsidy control – energy

On 30 June 2023, the Department for Business and Trade and DESNZ’s predecessor announced that they had updated the ‘Statutory Guidance for the United Kingdom Subsidy Control Regime’. This provides a framework for designing and giving subsidies in a way that is consistent with the Subsidy Control Act 2022 - it is to help public authorities award subsidies in a way that minimises any negative impact on competition and investment, and to help ensure public money is used in an effective and efficient way. Chapter 4 of the statutory guidance document deals with subsidies and schemes in relation to energy and the environment.

UK Emissions Trading Scheme – mandatory carbon markets

On 3 July 2023, DESNZ and the devolved UK governments (together known as the UK Emissions Trading Scheme Authority) published the outcome of a consultation which started on 25 March 2022 – this is contained in the document ‘Developing the UK Emissions Trading Scheme: Main Response’. On the same day, DESNZ published a press release headed ‘Tighter limit on industrial, power and aviation emissions, as UK leads the way to Net Zero’. In summary, there is to be a new limit on emissions for the power sector, energy intensive industries and aviation from 2024; and the emissions cap will be expanded to more UK sectors (domestic maritime transport and waste).

Capacity Market

On 18 July 2023, National Grid Electricity System Operator (NGESO) acting as Capacity Market Delivery Body, announced that it had published the Auction Parameters, the Auction Guidelines and User Guide, the Electricity Capacity Report, and the Demand Incentive Letter, in each case in respect of the following Capacity Market Auctions which are the next to occur: T-1 (i.e. one year ahead, delivery year 2024/25) and T-4 (i.e. four years ahead, delivery year 2027/28) – these documents are available on the NGESO’s Electricity Market Reform site. The two auctions are planned for February 2024, with the pre-qualification process to precede that. On the same day, 18 July, DESNZ published here a letter from the Secretary of State for Energy Security and Net Zero to NGESO setting out the parameters for the T-1 and T-4 auctions.

The statutory regime for the Capacity Market is provided for in the Electricity Capacity Regulations 2014 (2014 No. 2043), with further detailed and technical provision made by the Capacity Market Rules 2014. The regulations and rules are made under powers given in Chapter 3 (Capacity Market) of Part 2 of the Energy Act 2013. On 12 July 2023, DESNZ published on its ‘Capacity Market Rules’ page the Capacity Market (Amendment) Rules 2023 and the Informal Consolidation of Capacity Market Rules July 2023. On 21 July 2023, the Electricity Capacity (Amendment) Regulations 2023 (SI 2023/860) were made, coming into force on 22 July 2023 – the explanatory note at the end of these regulations explains the amendments made by them to the Electricity Capacity Regulations 2014, as well as describing the workings of the Capacity Market and the auctions which take place within it.

Energy Profits Levy

On 18 July 2023, HM Treasury published on open consultation document with the heading ‘Discussion note: Energy Profits Levy – Energy Security Investment Mechanism’ – this contains the consultation questions and relates to the government’s announcement on 9 June 2023 of the Energy Profits Levy (EPL) Energy Security Investment Mechanism (ESIM), which confirmed that the EPL will be permanently disapplied if average oil and gas prices are both at or below the?ESIM?price threshold for two consecutive quarters (this is to give the oil and gas sector certainty to raise capital and invest in new and existing projects). Although the key parameters of the?ESIM?have been set, the government would like to engage through the consultation with industry experts, financial institutions, tax specialists and interested stakeholders to discuss the technical detail and practical application of the?ESIM. The government will introduce legislation to remove the?EPL?if the?ESIM?is triggered. The consultation closes on 1 September 2023.

Should you require information about a jurisdiction not mentioned here, or have a suggestion on a future topic of interest, please contact Nicolas?Stofenmacher.