Europe/UK energy regulatory update for November 2023
DLA Piper Energy and Natural Resources Sector
Showcasing our energy and natural resources sector initiatives, insights and events.
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.
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CZECH REPUBLIC
Delaying the start of community energy
In connection with the planned adoption of Lex RES II (in Czech: Lex OZE II), amending the Energy Act, the area of community energy is expected to develop significantly including the introduction of community energy if the amendment to the Lex RES II is adopted. The amendment to the law has passed the second reading in the Chamber of Deputies, and although changes in the field of community energy were originally envisaged for the second half of 2024, the functioning of community energy may still be delayed. In fact, the Economic Committee has come up with a minor legislative technical change that says that electricity sharing will not be possible until the Electricity Data Centre Regulation is ready.
The role of the Electricity Data Centre is to regulate data flows between customers, distributors or the transmission system operator. It regulates the settlement rules of the sharing participants, concerning for example the distribution of shared electricity between energy communities and active customers.
At the moment, it remains to be seen what the final form of the amendment will be when approved, the adoption of which could take place before the end of the year.
Subsidy support for energy communities
One way for consumers to get involved in electricity production and provide it to other customers is through the creation of energy communities, which can be made up of households, businesses, municipalities, or the public or non-profit sector. As these are expensive projects, the Ministry of the Environment will support the creation of energy communities with subsidies. These can range from CZK600,000 to CZK3 million, depending on the type of project. A two-round competition will decide whether applicants will receive subsidies. The first round of the competition will take place from 1 December 2023 to the end of January 2024, and applicants will present their plans for sharing electricity within the emerging communities.
EU
European Commission sets out actions to accelerate the roll-out of electricity grids
The European Commission has unveiled an Action Plan aimed at expediting the expansion and enhancement of electricity grids to facilitate the EU's internal energy market and support the green transition outlined in the European Green Deal. With a projected 60% surge in electricity consumption by 2030, the plan addresses the challenges of a digitised, decentralised energy landscape. The EUR584 billion investment requirement for upgrading aging grids and doubling cross-border transmission capacity by 2030 is emphasised. The European Commission's Action Plan includes 14 key measures: 1) Strengthening support for Projects of Common Interest (PCI) and Projects of Mutual Interest (PMI) and their preparation, implementation, and funding; 2) Enhancing top-down planning towards 2050, incorporating offshore and onshore system needs; 3) Mapping distribution development plans by the EU DSO Entity to support DSO grid planning; 4) Proposing guiding principles for anticipatory investments in grid projects; 5) Issuing guidance on cross-border cost sharing for offshore projects; 6) Harmonising definitions for grid hosting capacity and establishing a pan-EU overview through collaboration between ENTSO-E and the EU DSO Entity; 7) Promoting smart grid technologies and innovative solutions; 8) Recommending best practices for tariff design, including OPEX considerations; 9) Identifying tailored financing models and addressing obstacles to private financing; 10) Increasing visibility on funding opportunities for smart grids and distribution grid modernisation; 11) Supporting permitting acceleration and providing technical guidance; 12) Launching a Pact for Engagement to ensure stakeholder involvement and regulatory support; 13) Collaborating with technology providers to develop common specifications and improve project pipeline visibility; 14) Promoting common technical requirements for generation and demand connection. These actions and the plan aligns with the EU's commitment to achieving a renewable energy share of 42.5%, with an ambition for 45%, by 2030.
European Parliament’s 17 key technologies for the EU’s Net-Zero Industry Act
The recently endorsed Net-Zero Industry Act (NZIA) by the European Parliament, proposed in March 2023 (and including only 10 key net-zero technologies), is a pivotal regulatory initiative within the Green Deal Industrial Plan. Now focused on the development of 17 key net-zero technologies, including solar, renewable energy and battery/storage technologies, the NZIA sets a benchmark for the manufacturing capacity of strategic net-zero technologies to meet at least 40% of the EU’s annual deployment needs by 2030. Despite its recent endorsement, trilogue negotiations in December 2023 will determine the final regulatory framework, particularly regarding the contentious inclusion of nuclear energy. The NZIA aims to streamline administrative processes, facilitate permitting, and support innovation to accelerate the transition to climate neutrality while ensuring a competitive industrial base in the EU.
Protection against market manipulation in the wholesale energy market
The European Council and Parliament have reached a provisional political agreement on the Regulation on wholesale energy market manipulation (REMIT), marking a significant step in the broader EU electricity market design reform proposed in March 2023. This regulatory initiative is aimed at fostering fair competition, transparency, and integrity in European wholesale energy markets, particularly crucial during times of volatile energy prices. The REMIT agreement is part of a comprehensive strategy to enhance consumer and company protection, with a specific focus on mitigating the impact of price volatility. Future negotiations will centre on additional aspects of the electricity market design reform, including reducing dependence on fluctuating fossil fuel prices, ensuring consumer protection, expediting the deployment of renewable energies and bolstering overall market resilience. The agreement encompasses key measures, such as the requirement for market participants from third countries to designate a representative in a member state where they operate in the wholesale energy market. Additionally, it delineates the decision-making powers, competence, and investigative tools of the European Union Agency for the Cooperation of Energy Regulators (ACER), underscoring the commitment to stringent oversight. The upcoming formal adoption of this provisional agreement by both institutions sets the stage for continued advancements in regulatory frameworks to safeguard the integrity of European energy markets.
Methane emissions
The European Council and Parliament have reached a pivotal provisional agreement on a comprehensive regulation designed to address methane emissions in the energy sector, a crucial component of the expansive 'Fit for 55' legislative package. This regulatory framework, central to the EU's commitment to climate neutrality, specifically targets the oil, gas and coal sectors, imposing mandates for the meticulous measurement, reporting, and verification of methane emissions. Beyond monitoring domestic sources, the agreement introduces global monitoring tools to ensure transparency in tracking methane emissions associated with imported oil, gas and coal. The agreement establishes specific timelines and adopts a risk-based approach for effective monitoring, reporting and inspections. Notably, the framework encompasses comprehensive provisions, including strategies for leak detection and repair, delineation of import phases and regulations governing inactive wells and closed or abandoned coal mines. The pending formal adoption of this agreement signifies a stride within the broader 'Fit for 55' legislative landscape, reinforcing the EU's steadfast commitment to achieving climate neutrality by 2050. Moreover, it solidifies the EU's global role in advancing methane reduction initiatives, aligning with strategic visions outlined in the EU's methane strategy of 2020 and the Global Methane Pledge launched at COP 26. As the regulatory landscape progresses, discussions on the methane emissions reduction initiative are anticipated to contribute to the broader EU negotiating position at COP 28.
ITALY
National Energy Income Fund
On 8 November 2023 the Ministry of the Environment and Energy Safety has issued Decree 8 August 2023 establishing the National Fund for energy income for access to the benefits for construction of self-consumption photovoltaic systems serving residential real estate units in the availability of families in suitable conditions of economic hardship. The financial resources of the National Energy Income Fund amount to a total of EUR200 million to be split between the years 2024 and 2025 and are eligible for the benefits the installation of photovoltaic systems created for self-consumption, connected to consumer users for which it is active, at the time of submission of the application for access to benefits, the electricity supply contract in the ownership of the beneficiary or another member of the family unit.
Green hydrogen financial contribution
MISSION 2, COMPONENT 2 , MEASURE 5.2 “Idrogeno” [M2C2M5] of the EU-funded PNRR - Nextgeneration EU provides a financial contribution for an amount equal to EUR100 million for Production Investment Plans for the development of the supply chain of components for the production of renewable hydrogen, including components for electrolysers, industrial research and/or experimental developments and personnel training. The subsidies are granted on the basis of a negotiation procedure with an appraisal process: application may be received from 29 November 2023 to 12 January 2024.
Tax credit for the South Economic Zone (ZES)
The Law No. 162 of 13 November 2023, converted into law Decree-Law No. 124 of 19 September 2023 providing, from 1 January 2024, the tax benefit (Tax Credit) for the South Economic Zone (ZES) composed by territories of the following Italian regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Apulia, Sicily, Sardinia. Tax Credit investments related to the acquisition (even in case of financial leasing) of machineries, plants and miscellaneous equipment intended for production facilities already existing or being planted in the territory, as well as the purchase of land and the acquisition, construction or expansion of real estate instrumental to the investments are eligible if performed from 1 January 2024 up to 15 November 2024. Land and real estate assets are eligible to the extent that their value is not higher than 50% of the value of the investment benefitting from the tax credit. The investment must be at least equal to EUR200,000 and not higher than EUR100 million.?By 30 December 2023 a specific decree should define the limit of the Tax Credit as a whole. The amount of the Tax Credit depends on the size of the business making the investment and the site where the investment is made.
Withdrawal of extra revenues from the sale of energy
Italia Solare Association, representing the producers of electricity from photovoltaic plants and Assoidroelettrico, representing the producers of electricity from hydroelectric plants were admitted by the Milan Court to participate in the proceedings pending before the EU Court of Justice concerning the preliminary question of incompatibility of Article 15 bis of the Legislative Decree 4/2022 introducing a two-way compensation mechanism on the price of electricity fed into the grid starting from 1 February 2022 and until 30 June 2023 with Euro-unitary law and specifically with EU Regulation 1854/2022.
NETHERLANDS
On January 1, 2024, the new Environment and Planning Act (Omgevingswet) will come into force in the Netherlands, resulting in a complete overhaul of the existing environmental and planning laws in the Netherlands. For example, new zoning rules and approval procedures will be introduced, which will require more involvement by project companies in order to support local authorities that are still finding their feet. In addition, local participation will play a more prominent role in projects, so that the timely and tactical involvement of all stakeholders in larger projects will be a key focus.?At the same time, the Act will provide more local flexibility (maatwerk), which will allow a wider range of possibilities for project development. Despite the fact that the Act aims to overhaul and combine all relevant environmental legislation, it is noteworthy that the current gas and energy regulations including the Heat Act will not become part of it. Our Amsterdam team have prepared a client report discussing the changes and are also giving knowledge sessions in the form of a crash course to several clients on this topic.
Further to this, a new Energy Act (Energiewet) combining the existing gas and energy regulations is currently in the preparatory phase, and a new Collective Heat Act (Wet Collectieve Warmte) has passed the preparatory phase and is now being reviewed by the Council of State’s advisory body (Raad van State).
NORWAY
The applications to participate in Southern North Sea II offshore wind auction is announced
The Norwegian Ministry of Petroleum and Energy (MPE) announced 29 March 2023 the start of the licensing process related to the offshore areas Southern North Sea II (S?rlige Nordsj? II) (SNII) and Utsira North (Utsira Nord) (UN). The deadline for applying to participate in the auction for offshore wind for SNII was 15 November 2023. The tentative auction date is February 2024.
The MPE announced 15 November 2023 that they have received seven applications to participate in the auction for offshore wind project areas in the SNII. In the application, the applicant must document that they fulfil the minimum criteria for sustainability and positive ripple effects. Furthermore, the applicant must be assessed on the pre-qualification criterion implementation capacity.
Consortium and companies that have applied:
Publication of the final draft of the contract for difference with appendices for offshore wind for Southern North Sea II
On 20 September 2023 the Norwegian Ministry of Petroleum and Energy sent out, for consultation, a draft contract for difference (CfD) for offshore wind for Southern North Sea II. On 7 November 2023 the MPE published the final draft of the CfD. According to the draft the CfD is still subject to approval by ESA.
The final draft CfD is part to the ongoing competition for project areas for offshore wind in Southern North Sea II, first phase. The winners of the competition are awarded a project area with a time-limited exclusive right to carry out a project specific impact assessment and to apply for a license to build, own and operate a production facility for onshore wind.
领英推荐
Feasibility study on a hydrogen value chain between Norway and Germany
The joint feasibility study on a hydrogen value chain between Norway and Germany was published 23 November 2023. The study shows that, given a number of assumptions, it is technically feasible to establish a value chain for transporting large quantities of hydrogen from Norway to Germany.
The industry-led feasibility study was commissioned by the German and Norwegian governments last year, and has been undertaken by Gassco and the German energy Agency DENA on behalf of the industry. The objective of the study was to assess the viability of a German-Norwegian hydrogen value chain, from potential hydrogen producers in Norway to consumers in Germany, with a planned start up in 2030. Conditions necessary to realise the value chain include market maturation and willingness to pay on the user side, regulatory framework and technology qualification. The results of the feasibility study on hydrogen will be discussed and followed up in the joint task force which was recently set up between German and Norwegian authorities.
Far more power projects in Northern Norway than there is room for in the power grid
In August 2023, the Norwegian government presented a power and industry program for Finnmark, the northernmost county in Norway. As a follow-up to this, the Norwegian Water Resources and Energy Directorate (NVE) has asked power producers to provide information about mature projects. The feedback shows that far more projects are being worked on than there is capacity for, even with a major upgrade of the grid in Finnmark.
A total of around 9,000 MW of projects have been applied for or notified. In East Finnmark, the capacity of the power grid has already been utilised. If Statnett is granted a licence for the power line between Skaidi and Lebesby, there will be room for around 500 MW of new power production. West of Skaidi, the capacity is around 300 MW. The power grid in Finnmark can thus accommodate around 800 MW of new power generation, based on current power consumption and the electrification of Melk?ya.
NVE currently has five wind power cases in Finnmark under consideration, all in eastern Finnmark. In addition, the power producers have informed us that they are working on 23 other projects. This includes wind power, hydro power upgrades and nuclear power. Based on the project overview, NVE is seeking input on how the further process should be organised. The aim is to ensure predictability and good involvement.
The Norwegian government upholds rejection of NorthConnect application
The NorthConnect interconnector is a proposed 650 km (400-mile) 1,400 MW HVDC interconnector over the floor of the North Sea from Norway to Scotland.
In March 2023, the MPE rejected the application for the interconnector. The decision was appealed to the King in Council (the ministers of the Government's official weekly meeting overseen by the King), but The King in Council upheld the rejection on the 10 November 2023.
POLAND
The polish energy price cap and the forthcoming inspections.
The Polish regulator, the President of the Energy Regulatory Office, will begin inspections to check that energy producers and traders are complying with their obligations under the Act of 27 October 2022 on emergency measures to limit the level of electricity prices and to support certain consumers in 2023 (Journal of Laws of 2022, item 2243, as amended) (the “Energy Price Cap Act” or the “Act”). These inspections will commence on 1 December 2023.
Amid a surge in energy prices across Europe in 2022, the Polish government passed a law requiring energy companies – both producers and traders – to pay a special fee on revenues exceeding a set price cap (windfall tax). This law was introduced to implement Council Regulation (EU) 2022/1854 of 6 October 2022 on emergency intervention to deal with high energy prices (the “EU Regulation 2022/1854”) (part of a coordinated action with other EU member states).
The Polish Energy Price Cap Act has been amended several times. The latest amendment, which entered into force on 1 September 2023, modified the method of calculating the contribution to the Price Differential Payment Fund (the "Fund"). The amendment provides, among others, for a change in the approach to calculating the contribution to the Fund in relation to financial settlements (income) resulting from financial agreement and income resulting from the sale of guarantees of origin.
As the obligation to contribute to the Fund covers the period from 1 December 2022 to 31 December 2023, energy producers and distributors have been required to calculate the amount of the contribution themselves during this period and to pay it into the Fund's account by the 10th working day of each month following the settlement month. Energy companies are also required to submit reports on the contributions made.
Energy producers and traders are therefore reminded by the President of the Energy Regulatory Office to ensure that they comply with all their obligations under the Energy Price Cap Act. This includes being able to prove that they have calculated and paid the correct amount of contributions to the Fund.
Companies that do not comply with the obligation to contribute to the Fund are subject to a fine imposed by the President of the Energy Regulatory Office.
The provisions of EU Regulation 1854/2002, under which Poland introduced the contribution to the special fund (price cap), expired on 30 June 2023. As a result, the Polish price cap should also have ended on 30 June 2023, which did not happen.
In June 2023, the European Commission published a report on the application of the EU Regulation 2022/1854 in Member States and the review of emergency interventions to address high energy prices. The European Commission recommended not extending the price cap legislation in the EU beyond 30 June 2023, not least because of the impact on renewable energy investments and PPAs. Also, the energy market, among others, the European Federation of Energy Traders (EFET), SolarPower Europe, and WindEurope have called on EU Member States to stop using emergency power market interventions and inframarginal revenue caps in national legislation.
As a result, the Council decided not to prolong EU Regulation 2022/1854 on the price cap, thus rendering the Polish regulations, which provide for an energy price cap until the end of 2023, incompatible with EU law.
In this legal and factual landscape, some of the energy companies envisage taking legal action against the Polish government regarding the incompatibility of the Polish price cap regulations with EU law. The claims will be brought before Polish courts, but with reference to EU law.
UK
Contracts for Difference.
On 16 November 2023, the Department for Energy Security and Net Zero (DESNZ) issued a press release regarding Contracts for Difference (CfD) Allocation Round 6 (AR6) and future allocation rounds, with the heading ‘Boost for offshore wind as government raises maximum prices in renewable energy auction’ – it also published the ‘Contracts for Difference (CfD) Allocation Round 6: core parameters’. These announcements provide the pot structure, the administrative strike prices (which bids must be below) and the delivery years for AR6, which is due to commence in March 2024, and they explain that there will be a separate funding pot for offshore wind in AR6.
Transmission Acceleration Action Plan and Connections Action Plan.
Coinciding with the UK government’s Autumn Statement of 22 November 2023, DESNZ published the Transmission Acceleration Action Plan (Action Plan), which is the government’s response to a?report by the Electricity Networks Commissioner published on 4 August 2023. The Action Plan contains measures intended to halve the average end-to-end build time for electricity transmission network infrastructure from 14 to 7 years. On the same day, DESNZ and Ofgem (the energy regulator) published the Connections Action Plan which has the aim of cutting significantly average delay times in the queue for projects waiting to connect to the electricity grid, a problem which has been limiting investment in the transition to low-carbon power generation. The Connections Action Plan follows on from Ofgem’s announcement of 13 November 2023 regarding a new queue management system for connection agreements (establishing a ‘first-ready, first connected’ approach) which is to be implemented by the Electricity System Operator.
Electricity Generator Levy exemption.
The Autumn Statement of 22 November included an announcement that the government will legislate for a new investment exemption in respect of the Electricity Generator Levy (EGL). The EGL was introduced with effect from 1 January 2023 and legislated for in Part 5 of the Finance (No. 2) Act 2023). Under the exemption, new projects for which the “substantive decision” to proceed is made on or after 22 November 2023 will be exempt from the EGL on revenues from those projects. On the same day, HM Treasury published its ‘Technical note: Electricity Generator Levy – new investment exemption’ explaining the new exemption, which is intended to support continued investment in the UK’s renewable generation capacity. The technical note is to be followed by formal guidance, which will be issued by HM Revenue and Customs.
Energy Network Enterprise Mergers.
On 7 November 2023, the Enterprise Act 2002 (Merger Fees and Determination of Turnover) (Amendment) and Energy Network Mergers (Consequential Amendments) Order 2023 was made under powers conferred by the Enterprise Act 2002 and Energy Act 2023. The Order, which comes into force on 6 December 2023 and was published with an explanatory memorandum, relates to amendments made by the Energy Act 2023 to the Enterprise Act 2002 to enable the Competition and Markets Authority (CMA) to investigate effectively energy network enterprise mergers in Great Britain. The explanatory memorandum informs that the Order enables the CMA to set and collect merger fees for investigating energy network mergers, and also makes amendments to reflect the new regime for such mergers introduced pursuant to section 204 (Mergers of energy network enterprises) and Schedule 16 (Mergers of energy network enterprises) of the Energy Act 2023.
Hydrogen production revenue support.
The draft Hydrogen Production Revenue Support (Directions, Eligibility and Counterparty) Regulations 2023 were laid before Parliament in November under the Energy Act 2023, for approval by resolution of each House of Parliament. The draft regulations, which have been published with a draft explanatory memorandum, are to make provision in connection with the offering by a hydrogen production counterparty designated under section 65 of the Energy Act 2023 of contracts for the production of hydrogen by eligible low carbon hydrogen producers (referred to in the Act as ‘hydrogen production revenue support contracts’). As explained in the memorandum, the Energy Act 2023 makes provision in Part 2 for the implementation of the Hydrogen Production Business Model (HPBM) which is intended to provide revenue support to low carbon hydrogen producers to overcome the cost gap between low carbon hydrogen and higher carbon counterfactual fuels (thereby incentivising private sector investment in low carbon hydrogen production). The draft regulations concern the implementation of the HPBM.
Offshore wind consultations.
On 13 November 2023, DESNZ launched two open consultations regarding offshore windfarm network infrastructure. The first is in respect of the Offshore Transmission Owner (OFTO) regime, seeking evidence to support policy development on: (i) how to ensure the OFTO regime remains fit for purpose in the long-term; and (ii) ensuring the continued delivery of offshore wind to meet the UK’s net zero target – the consultation document has the title ‘Offshore Transmission Owner Regime: Call for Evidence’ – the territorial extent for this is England, Scotland and Wales. The second consultation is entitled ‘Notice of Proposed Transmission Licence Exemption for Array Systems’. This seeks views on a proposal to make an order under section 5(1) of the Electricity Act 1989 granting a class exemption (for offshore generators operating offshore windfarm array systems at 132 kilovolts and above – i.e. high voltage) from the requirement (as might otherwise arise) to hold a transmission licence under section 4(1)(b) of the 1989 Act in respect of offshore windfarm array systems which connect an offshore windfarm to an offshore substation.
Reform of the energy system at sub-national level.
On 15 November 2023, Ofgem announced reforms to Great Britain’s energy system at the sub-national level as described in its decision document entitled ‘Future of local energy institutions and governance’. On the same day it published a press release headed ‘Ofgem green lights regional energy planning roles to speed up net zero transition’. The decision document sets out a package of measures on how local energy systems are to be planned and operated in the future. The key components of the decision relate to the three major energy system functions, namely: energy system planning; market facilitation of flexible resources; and real time operations. The first of those components (energy system planning) involves the creation by Ofgem of regional energy planning roles across Great Britain, to be called Regional Energy Strategic Planners (RESPs). This is to improve local energy planning and speed up the transition to net zero. The Future Systems Operator (FSO), i.e. the new body to be designated under Part 5 of the Energy Act 2023 (where it is called the Independent System Operator and Planner), will be responsible (as delivery body) for implementing up to thirteen RESPs across Great Britain. The decision document also announces (as regards the second component referred to above) that Ofgem will introduce a new market facilitator function that will deliver joined up flexibility market arrangements. Ofgem will publish a consultation regarding which entity should be the delivery body for this new function (both Elexon and the FSO are noted as being candidates). Ofgem’s decision in respect of the third component of the reform package (real time operations) is to proceed with the proposal for distribution network operators to remain accountable for real time operations and maintaining network and system reliability and resilience.