Europe/UK energy regulatory update for March 2024

Our energy teams in over 30 offices across Europe and the UK provide regulatory updates to clients on a regular basis. This 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.

We hope you find it helpful. Sign up for our monthly newsletter!

BELGIUM

Ratification and promulgation of decree on pipeline transport of carbon dioxide in Flemish Region

On March 29, 2024, the Flemish Government ratified a decree to facilitate carbon dioxide transport via pipelines, crucial for advancing the Carbon Capture, Utilization, and Storage (CCUS) technique. This technique involves capturing carbon dioxide emissions from industries and power plants, either for storage or utilization, to mitigate climate change. The decree establishes a supportive framework emphasizing local clusters and a robust transport network to connect projects and regions. It also includes provisions for safety measures during transportation, regulations for inspections, and mandates for monitoring and reporting obligations.

Additionally, it accelerates the deadline for the submission of quotas for green power and cogeneration certificates, incentivizing sustainable practices. Regulatory oversight of these networks falls under the Flemish Regulator for the Electricity and Gas Market (VREG). Overall, this decree is a significant step toward establishing an efficient and secure carbon dioxide transport system, supporting broader decarbonization goals in the Flemish Region.

?

CZECH REPUBLIC

Amendment to the Energy Act

On 20 March 2024, the Government approved an amendment to Act No. 458/2000 Coll., the Energy Act, abbreviated as "Lex OZE III", which aims to regulate the rules of the electricity market and to better protect consumers. The amendment is largely a transposition of Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market in electricity. It will define following aspects: the energy accumulation, network flexibility and aggregation.

Energy accumulation will make it possible to "store" surplus energy generated from renewable sources or to postpone electricity consumption to a time when it is most profitable based on energy market conditions. Flexibility will bring a response to energy supply and demand - adapting the energy production and distribution system to meet current needs. As the power sector is decentralised into different sources, the principle of aggregation allows multiple generators to be grouped together into a larger, more efficient but also more predictable group in terms of electricity production.

Another aim of the amendment is to strengthen consumer protection. The amendment introduces an obligation for energy traders to establish a security index. This will strengthen transparency and allow consumers to make better choices when choosing their supplier based on whether they have purchased enough energy to meet their customers' demand. Finally, the amendment introduces stricter rules for the licensing of electricity and gas traders. With this move, the Ministry of Trade and Industry wants to protect consumers from traders who have a history of unfair practices.

The amendment also complements the previous LEX OZE II amendment in the areas of active customer, energy communities and data centre. The next step will be its discussion in the Chamber of Deputies.

EU

EU Parliament plans on energy efficiency of buildings

The EU Parliament has approved plans to cut energy use and emissions from buildings, aiming for climate neutrality by 2050. The proposed revision of the Energy Performance of Buildings Directive aims to mandate zero-emission new buildings by 2030, with stricter standards for public properties. It targets a 16% reduction in residential energy use by 2030 and 20-22% by 2035, along with renovating poorly performing buildings. Fossil fuel boiler subsidies will end by 2025, with a full phase-out by 2040. Certain buildings like agricultural and historic ones are exempt. The directive aligns with EU's 'Fit for 55' package and the Conference on the Future of Europe, aiming for energy independence and sustainability. The proposed revision was adopted with 370 votes to 199, with 46 abstentions. It will now have to be formally endorsed by the Council of Ministers too.

EU Parliament Adopts New Regulations for Industrial and Livestock Emissions Management

The EU Parliament has approved new regulations to reduce harmful emissions from industrial installations and large livestock farms. The revised industrial emission directive (IED) will enforce strict emissions standards and include extractive industry installations and battery manufacturing. Livestock farm regulations extend to pig and poultry farms meeting certain criteria, with a reassessment of emissions from cattle planned for 2026. The legislation also enhances transparency through an EU Industrial Emissions Portal, imposing penalties for non-compliance and ensuring affected citizens can claim compensation for health damages. The law awaits adoption by the Council before being published in the EU Official Journal.

GERMANY

German Parliament passes new emission control legislation

On 14 March, the German Bundestag passed a recast of the 37th regulation to the German Federal Emissions Control Act (37. Bundesimmissionsschutzverordnung, 37. BImSchV). Germany is thereby implementing EU law, in particular two EU Delegated Acts supplementing Directive (EU) 2018/2001 (RED II), introducing new rules applying to the production of liquid or gaseous fuels based on renewable energy. The changes also affect the way in which greenhouse gas savings of fuels are calculated. One of the reasons for this is that the EU is imposing stricter requirements on the electricity used to produce fuels such as those that are hydrogen-based. The amendment also includes a verification system for compliance with these requirements.

The Bundestag also adopted a resolution calling on the Federal Government to ensure that electricity-based fuels are promoted and used to a large extent in aviation and long-distance shipping in the context of the greenhouse gas reduction quota.

HUNGARY

Government Decree 54/2024 (III 6) on the different application of Act LXXXVI of 2007 on electricity in a state of emergency

The Gov. Decree has practically abolished the applicable grid connection regime of power plants commonly referred to as the capacity allocation procedure. According to Section 4(1) of the Gov. Decree, in contrast to Section 35(8) of Act LXXXVI of 2007 on electricity, the network operators shall not announce further capacity allocation procedures.

Under the referred provision, a separate Government Decree will be adopted to provide detailed rules determining the available free capacities and their allocation. The Government Decree shall be announced until 31 December 2024.

Due to the above referred provision of the Gov. Decree, there will be no further capacity allocation procedures announced after the one which was initiated on 30 November 2023. It appears that at its current state the public grid cannot handle the amount of weather-dependent renewable capacities intending to connect to the grid, consequently to which the legislator decided to temporarily halt the announcement of further capacity allocation procedures.

NORWAY

Joint notification for state aid prior to project area allocation for offshore wind area Utsira Nord

The Norwegian Ministry of Energy (ME) announced on the 29 March 2023 the start of the licensing process related to the offshore areas for floating offshore wind at Utsira North (Utsira Nord).

Allocation of Utsira North has been placed on hold, awaiting response from ESA, the EFTA Surveillance Authority on possible state aid. On 22 March 2024 the ME announced that based on the dialogue with ESA, the ME has decided to notify a common model for state aid to Utsira North, before project areas are allocated, and that there will be a joint notification for Utsira North and other areas relevant for floating offshore wind.

The ME intends to get notification approved before the end of 2024 and to facilitate the allocation of project areas at Utsira North in 2025.

Ventyr SN II AS won the auction for the allocation of a project area for offshore wind in S?rlige Nordsj? II (SNII)

In February, a total of five applicants qualified for the offshore wind auction for SNII. The applicants had documented that they met the minimum criteria for sustainability and positive ripple effects, in addition to the pre-qualification criterion of implementation ability.

It was announced on 20 March 2024 that Ventyr SN II AS, owned by Parkwind and Ingka-group, will be the first joint venture to develop offshore wind at SN II. The winning bid in the auction was 115 ?re/kWh and will be included in a later contract for difference with the Norwegian state. The contract for difference must be signed within four weeks. The contract for difference will regulate the payment of state aid. The Ventyr SN II AS winner is awarded a project area and thus a time-limited exclusive right to carry out a project-specific impact assessment, and to apply for a license under the Norwegian Ocean Energy Act.

The Norwegian parliament has decided that the upper limit for support from the state is NOK23 billion.

Postponed deadline for consultation on the EU Renewable Energy Directive from 2023

The 20 March 2024 the Ministry of Energy announced that due to receiving several requests for an extended deadline for consultation on the Renewable Energy Directive adopted by the EU I 2023, they are extending the consultation deadline to Friday 19 April 2024.

The Fosen matter resolved: Agreement between Nord-Fosen siida and Roan Vind

The well-known Fosen matter reached a final conclusion when the Northen Fosen Sami Group and Roan Vind DA reached an amicable agreement with the support of guarantees from the Norwegian Government. The Northern Fosen Sami Group practice reindeer husbandry in the Fosen District and the Supreme Court on 11 October 2021 ruled them subject of a violation of human rights (Article 27 ICCPR) as a result of the construction and operation of the Roan Wind Farm. The Roan Wind Farm includes 71 turbines with a total installed capacity of 256 MW.

The agreement is similar to the previously agreed agreement between the Southern Fosen Sami Group and Fosen Vind DA. It includes a yearly financial contribution and a veto-right for the Northern Group in relation to repowering of Roan Wind Farm or an extension of the facility license after the expiration of the initial term. As part of the basis of the agreement, the Norwegian Government has guaranteed to provide alternative grazing areas to mitigate the impact of the wind farm and a NOK5 million (one-off) support to a new Sami Cultural Fund. The parties agree that the agreement ensures that the Northern Group's future is secured and sustainable. Thus, the agreement secures full operation of the wind farm to 2045. ?

Announcement of new areas for offshore CO2 storage

The 6 March 2024 the Ministry of Energy (ME) announced two new areas in the North Sea to be available for applications related to CO2 injection and storage on the Norwegian continental shelf. Activities aimed at surveying and exploring for subsea reservoirs for the storage of CO2, as well as exploitation, transport, and storage of CO2 in reservoirs on the Norwegian continental shelf are subject to the regulations on transportation and storage of CO2 into subsea reservoirs on the continental shelf (regulation 5th December 2014 no. 1517). Anyone who is conducting such storage operations needs a permit in accordance with the regulations. In addition, on 29 February 2020, the Petroleum Safety Authority established regulations on safety and the working environment for the transport and storage of CO2 on the continental shelf (the CO2 safety regulations).

The permitting process is initiated by companies by applying for permits according to the storage regulations, after having established that they have a sufficiently good basis for applying. The application deadline is 24 April 2024.

?

PORTUGAL

Portuguese Government extends exceptional measures to simplify energy production procedures from renewable sources.

The Portuguese Government has approved Decree-Law No. 22/2024 extending the period of validity of Decree Law No. 30-A/2022 which introduces exceptional measures to simplify energy production procedures from renewable sources with the objective to accelerate the production of energy from renewable sources in alignment with EU objectives.

This means that the exceptional measures put in place for prior control procedures of urban operations for electricity production centres for renewable energy sources and hydrogen production by water electrolysis will remain in place until the 31st of December of 2024.

Principles and timetable for awarding LV electricity distribution concessions

Resolution no. 27/2024 of 23 February, issued by the Council of Ministers, has been officially, establishing the fundamental principles and timetable for the award of municipal low voltage (LV) electricity distribution concessions. This initiative aims to synchronise the launch of public procurement procedures for these concessions.

The government is currently striving to expedite the publication of these public procurement procedures in a concerted effort among municipalities. However, the option for a single tender (with exceptions permitted for municipalities opting for an alternative approach before 31 October 2024) might complicate and extend the process.

Recognising this challenge, the government has designated 30 June 2025 as the deadline for publishing the public tender process for the allocation of LV electricity distribution concessions in Portugal.

Order no. 3034/2024, determines the new amount of the payment on account to be applied to electricity producers covered by the competitive balance mechanism

On 21 March 2024, Order no. 3034/2024 was published determining the new amount of the payments on account due by electricity producers covered by the competitive balance mechanism, to be in force for the year of 2024.

ROMANIA

Romanian CfD support scheme for renewables expected to launch

On 14 March, the Romanian Ministry of Energy has launched under public consultation a Draft Government Decision for the approval of the general framework?for implementation and operation of a Contracts for Difference support mechanism for low carbon emissions technologies as well as a proposed draft form for the CfD contract to be concluded under this support scheme, included as an annex to the Draft Decision.

These proposals follow the approval by the European Commission, at the beginning of March, of an EUR3 billion support scheme for new photovoltaic and onshore wind installations, to be implemented through two-way CfDs granted under a competitive bidding process.

As per the Draft Decision, the actual CfD support schemes and related procedures will be approved by the Ministry of Energy, which will also ensure the availability of funds in the CfD liquidity fund, for payments to the CfD beneficiaries. The CfD scheme operator, responsible, among others, for organizing the auction procedures will be the transport and system operator, CNTEE Transelectrica S.A., while the CfD counterparty that will sign the CfD contracts with the beneficiaries, as well as exercise the rights and observe the obligations under the respective contracts, will be OPCOM (i.e. the operator of the Romanian centralized electricity and natural gas markets).

While the Draft Decision and Draft CfD Contract mainly provide the framework for the subsequent launch of actual CfD support schemes, based on the information provided by representatives of the Ministry of Energy, a 5 GW CfD support scheme for onshore wind and photovoltaic technologies is expected to be launched as early as April 2024, with the first set of auctions in this scheme envisaged to cover 1 GW for photovoltaic and 1 GW for wind, while the maximum strike price for the auction procedures is expected to be EUR91 / MWh for photovoltaic and EUR93 / MWh for wind. Actual details of the support scheme, including eligibility conditions, deadlines, budget, capacity targets and auction procedures will be included in an order of the Ministry of Energy to be adopted specifically for this purpose, but which has yet to be published.

Some additional characteristics of the expected CfD support scheme include:

·?????? CfD payments under the relevant contracts will be effective for a period of 15 years, subject to certain reductions if the target commissioning date is exceeded (with no more than 24 months) or if the final installed capacity is lower than the offered capacity under the CfD auction (with no more than 10%);

·?????? Strike price will be indexed every 3 years based on the Harmonised Index of Consumer Prices; however, no indexation will apply in case the increase is of less than 10%;

·?????? Bidders will be required to post an auction participation bond, and beneficiaries will need to provide a performance bond, the value of whom are yet to be established officially, but should be clarified once the full documentation for the first auction process is adopted;

·?????? Bidders will be able to participate to the auction only with part of a project, provided however that the part of the project benefitting from the a CfD contract will be metered separately;

·?????? Regarding the sale of electricity, CfD beneficiaries will be obliged to sell their entire production on organized electricity markets (under sanction of exclusion from the CfD scheme and termination of the CfD contract);

·?????? For negative price intervals on the Romanian Day Ahead Market, CfD beneficiaries will not be entitled to any payments under the CfD contract;

·?????? Upwards and downwards adjustments of the strike price are possible during the performance of the CfD contract, to the extent that regulatory changes determine either additional costs or savings for the CfD beneficiaries; and

·?????? In case beneficiaries sell electricity through bilateral contracts on the organized markets, and the contract price is higher than the reference price, a percentage of the difference will have to be paid by the beneficiaries to the CfD counterparty as excess profit.

UK

Contracts for Difference

On 6 March 2024, the Department for Energy Security and Net Zero (DESNZ) published various statutory notices regarding the contracts for difference (CfD) allocation round 6 (AR6) (which is to have the largest CfD single round budget to date), including the Budget Notice for AR6 and accompanying note, and the allocation round notice. The related DESNZ press release of 7 March 2024 is headed ‘Over ￡1 billion budget for renewable energy auction’ (DESNZ has updated its Contracts for Difference Allocation Round 6 collection page regarding the above).

Later, National Grid Electricity System Operator (NGESO) announced that the application window for AR6 had, on 27 March, opened, with closure on 19 April 2024. Information regarding AR6 is available on the CfD Allocation Round Resource Portal. The Portal includes the AR6 Timeline. Prior to the opening of AR6, DESNZ published the final versions of the contract documents.

Two CfD consultation responses were published by DESNZ on 13 March 2024: (1) the ‘Government’s response to the consultation on drafting amendments to the CfD contract’. The response confirms the government’s decision to make several amendments to the CfD standard terms and conditions and the Private Network CfD?agreement for AR6; and (2) the ‘Government’s response to the consultation on introducing a CfD sustainable industry reward’. The response confirms the government’s decision to implement the CfD Sustainable Industry Rewards (SIR), subject to parliamentary approval. The criteria for SIR will be: (a) investment in shortening supply chains, in deprived areas in the UK;?(b) investment in more sustainable means of production, anywhere in the world; or (c) combining both approaches. The?CfD?SIR?process will be run as a competitive allocation for extra revenue support 6 months before the main?CfD?auction. Alongside the government’s response on SIR, DESNZ published: (i) the draft?CfD?Sustainable Industry Reward Allocation Framework (i.e. the rule book for how the?SIR?process will operate) and (ii) draft guidance.

Related to the SIR consultation response, the draft Contracts for Difference (Sustainable Industry Rewards) Regulations 2024 have been published along with a draft explanatory memorandum (this provides further information on SIRs). The aim of the regulations is to introduce SIRs into the CfD scheme. This will be a temporary replacement for CfD Supply Chain Plans for offshore and floating offshore wind for CfD annual AR7 (scheduled for 2025), AR8 and AR9. The extent and territorial application of this draft instrument is England and Wales and Scotland.

Review of Electricity Market Arrangements (REMA)

On 12 March 2024, DESNZ published the ‘Review of Electricity Market Arrangements: Second Consultation Document’, with a closing date for responses of 7 May 2024. It was issued together with the ‘Review of Electricity Market Arrangements: Options Assessment’ providing further analysis of the remaining reform options on the table, a set of technical research reports commissioned by DESNZ, and a press release headed ‘Energy Secretary takes action to reinforce UK energy supply’. The REMA programme relates to wholesale electricity market reform in Great Britain, focusing on “core electricity markets: the wholesale market, Balancing Mechanism, ancillary services, as well as policies that impact these – including the evolution of and alternatives to the CfD scheme and the CM [Capacity Market]”. The ‘Next Steps’ section of this second REMA consultation document refers to using “the consultation responses and evidence submitted to inform further policy development and thinking on the best allocation of risk in a renewables-dominated system”, with a summary of responses to the consultation expected to be published in summer 2024, and the policy development phase of the REMA programme expected to conclude by mid-2025, with full-scale implementation of the decided-upon policy from 2025 onwards (or earlier where possible).

Energy code governance reform

On 11 March 2024, DESNZ announced the publication of an open consultation being conducted jointly by DESNZ and Ofgem entitled ‘Energy Code Reform Consultation on Code Manager Licensing and Secondary Legislation’ – this is on the secondary legislation and regulatory framework for code managers, which will allow Ofgem to implement the new code governance arrangements pursuant to the reforms in Part 6 (Governance of gas and electricity industry codes) of the Energy Act 2023 and drive strategic changes across the codes in the interests of consumers and competition. As noted in the consultation document, energy industry code governance is currently managed by code panels and supported by code administrators. Under the proposed reforms, Ofgem will license code managers, who will become responsible for the governance of designated codes. The Energy Act 2023 introduced code management as a licensable activity.

Ofgem’s multiyear energy sector strategy

Ofgem published a press release on 28 March 2024 headed ‘Multiyear Strategy sets out Ofgem’s vision for delivering a clean, affordable and secure energy system’. This includes a link to the strategy document headed ‘Protect, Build, Change, Deliver: Ofgem’s Multiyear Strategy’, which covers the next five years and beyond. The strategy sets out Ofgem’s plans to protect the interests of energy consumers now and in the future, build more low carbon infrastructure at the lowest costs, change the energy system to become more efficient, fairer, flexible, and low carbon, and deliver government schemes to promote energy efficiency and low carbon energy, and help with affordability. The strategy document has sections on: (1) Shaping a retail market that works for consumers; (2) Enabling infrastructure for net zero at pace; (3) Establishing an efficient, fair and flexible energy system; (4) Advancing decarbonisation through low carbon energy and social schemes; and (5) Strengthening Ofgem as an organisation.

Offshore hybrid assets and interconnectors

On 1 March 2024, Ofgem announced the publication of a consultation called ‘Initial Project Assessment of the Offshore Hybrid Asset Pilot Projects’. The Offshore Hybrid Asset Pilot, the application window for which closed in October 2022, comprises the following two projects, which were deemed eligible to be assessed under the ‘Initial Project Assessment’: (1) LionLink – this is to the Netherlands: it is a proposed 1.8GW connection to an offshore converter station on a Dutch offshore transmission platform; and (2) Nautilus – this is to Belgium: it is a proposed 1.4GW connection to an offshore converter station on the Modular Offshore Grid 2 (MOG2) Belgian energy island. The consultation provides Ofgem’s ‘minded-to position’ on the Initial Project Assessment of the above projects, both of which are offshore hybrid assets (OHAs), which means they combine both interconnection and offshore windfarm generation.