Democracy, Decentralisation, Divestment: ‘3D screening’ of the EU Energy Package


Publication date

November 30, 2016

How “3D compatible” is the newly released, 1200-page strong “clean energy for all Europeans” package released today by the European Commission? How much does it contribute to a system shift towards more prosperity, legitimacy and leadership on sustainable energy? In other words: how is legitimacy secured by Democratizing the energy system, empowering citizens and communities? How is prosperity brought about, by Divesting funding streams from fossil fuels and reDirecting them to activities creating local added value? How is true leadership – as the EU remains intent on being #1 on renewables – guaranteed by putting the right players in control and Decentralising not only the production but also the competences?

On the rhetoric, the package includes very positive language on each dimension of this 3D agenda for action. But as always, the devil is in the detail and a closer look at actual provisions provides a much bleaker picture.

What’s in the package?

What the Brussels bubble informally calls the “jumbo package” notably includes the overhaul of the EU electricity market design, the recast of the Renewables and Energy Efficiency Directives and a proposal for the governance of the Energy Union, ie the mechanism through which member states will be expected to contribute towards and report on the five pillars of (1) energy efficiency; (2) decarbonisation; (3) internal market; (4) research and innovation and (5) energy security.

Energy democracy, really?

A central message of the package talks about “securing a fair deal for energy consumers” – alongside putting energy efficiency first and making the EU world number one on renewables. Just looking at the semantics, it is regrettable that the reference is not on “energy citizens” instead, as active protagonists of the system change rather than passive market beneficiaries or contributors to enhanced flexibility. Energy citizens indeed, whether acting at individual or community level, are a key ally for Europe to achieve its ambition of becoming a renewable leader, with the potential to cover half of the bloc’s electricity demand by 2050.

The new set of legislations now enshrines the individual right to produce, consume and store one’s own energy, as well as sell any surplus to the grid. But apparent progress on certain provisions are quickly overshadowed by others, as the market design on the other hand foresees a phase out of so-called “priority dispatch”, which forces the grid to take power from renewables before other sources of energy. Changing this would penalize renewable energy investments, as they would be the first to be stopped in a situation of oversupply at the benefit of less flexible conventional plants. While large power companies might be able to withstand such a move, it poses a serious threat to the business model of smaller energy cooperatives.

© World Future Council

Decentralising production, but re-centralising decisions

The Commission has made it clear across the board: it wants its energy market and grid to be fit for increasing shares of decentralised generation. But while production is going more local, the decision-making architecture is becoming ever more centralised and top-down.
One key example of this worrying trend is the decision to create an official European body for Distribution System Operators (DSOs) allowing them to make their own rules and regulation over all aspects of grid planning, the so-called “network codes”. In effect, this body would provide greater influence to large incumbents – especially as many DSOs still hold conflict of interest links with power companies – while leaving little to no room for smaller players such as local energy companies.

As regards the proposed governance of the Energy Union, the new protagonists of the decentralised energy system are also left aside. Local authorities are only treated as part of a larger group of stakeholders to be consulted on the margins. Their contribution to energy security and grid stability is still underestimated, despite their key role in tapping local resources first, optimizing surplus electricity via power to gas or hydrogen options, storing heat through district heating networks, etc. Instead, the focus is still very narrowly put on interconnection of electricity markets, an important and complementary strategy but one that can sometimes prove less resilient than local solutions, as recent news have shown.

On a more upbeat note, the new energy efficiency directive provides positive political signal for more energy efficiency actions across cities with a 30% binding target at EU level, although the mechanisms to ensure compliance remain vague. New instruments such as the “Smart Finance for Smart Buildings” could help local authorities better reap the benefits of energy savings.

Money flowing the wrong way

The release of the package comes with the promise to create 900 000 jobs and pump €190bn into Europe’s economy, notably thanks to a prominent energy efficiency focus on the European Commission agenda.

On renewables and market design however, financial support is not heading in the right direction. On one hand, the European Commission puts an end to green support schemes such as feed in tariffs, leaving renewables hostage to market rules of competitive bidding. This new tendering logic risks marginalising community energy projects, as the latter might in some cases be forced to compete with large utilities, despite their greater socio-economic contributions to society.

On the other hand, the Commission preserves the Member States’ right to introduce so-called “capacity mechanisms”, a form of indirect subsidies to pay for conventional power plants to remain on stand by and provide back-up generation in case of supply shortage. Although not all fossil fuel plants will qualify for such payments, this old system logic might nonetheless contribute to overcapacity and thus discourage new investments in more sustainable alternatives. The failure to consider the full ranges of options is also due to the “electricity-only” bias of the market design legislation.

Energy Cities’ efforts as part of the coalition for community energy have nonetheless helped to draw attention on the manifold advantages of local projects. Indeed, the Electricity Market directive now states that such initiatives have managed “to deliver economic, social and environmental value to the community that goes beyond the mere benefits derived from the provision of energy services.” As the ball now rolls into the Council and European Parliament’s court, the next steps will be to make sure that good language comes with enforceable provisions.