For the a detailed description and summary of the stakeholder consultations used for this evaluation, please refer to Annex 2 of the Impact Assessment on the Market Design Initiative.

No external expertise was used except for the external studies mentioned in footnotes in the text.

-Interim report of the sector inquiry on capacity mechanisms, accompanied by a Commission Staff working document (SWD(2016) 119 final). The interim report points out that there is a lack of proper and consistent analysis of the actual need for capacity mechanisms. It also appears that some capacity mechanisms in place could be better targeted and more cost effective. It emphasizes the need to design capacity mechanisms with transparent and open rules of participation and a capacity product that does not undermine the functioning of the electricity market.

-Special Report by the European Court of Auditors "Improving the security of energy supply by developing the internal energy market: more efforts needed". This special report made nine recommendations to reap the benefits of market integration ;

-Communication on the "Progress towards completing the Internal Energy Market" COM(2014) 634 final. This Communication emphasized that energy market integration has delivered many positive results but that, at the same time, further steps are needed to complete the internal market.

-"Delivering the internal electricity market and making the most of public interventions" (C(2013) 7243). This Communication was accompanied inter alia by a Commission Staff working document (SWD(2013) 438) entitled "Generation Adequacy in the internal electricity market – guidance on public intervention";

Several reports and Communications have been used the draft the present evaluation, inter alia:

A public consultation dedicated to retail energy markets was conducted from 22 January 2014 to 17 April 2014. It was open to all EU citizens and organizations including public authorities, as well as relevant actors from outside the EU. This public consultation aimed at obtaining stakeholder's views on the functioning of retail electricity and gas markets with focus on market functioning, design and consumer participation (demand response, self consumption). A summary of the responses is available on the Commission's website.

Generation adequacy related issues were also the subject of a public consultation conducted from 15 July 2015 to 9 October 201515 November 2012 to 7 February 2013 through the "Consultation on generation adequacy, capacity mechanisms, and the internal market in electricity". It was open to EU and Member States' authorities, energy market participants and their associations, and any other relevant stakeholders, including SMEs and energy consumers, and citizens. It aimed at obtaining stakeholder's views on ensuring generation adequacy and security of electricity supply in the internal market. A summary of the responses is available on the Commission's website.

A public consultation on risk preparedness in the area of security of electricity supply was organized between July 15th and October 9th 2015 and resulted in 75 responses including public authorities, international organizations (IEA), European bodies (ACER, ENTSO-E) and most relevant stakeholders – companies and associations. This public consultation aimed at obtaining stakeholder's views in particular on how Member States should prepare themselves and co-operate with others, with a view to identify and manage risks relating to security of electricity supply. A summary of the responses is available on the Commission website. This consultation helped to identify the current shortcoming of the Electricity Security of Supply Directive.

A wide public consultation on a new energy market design (COM(2015)340 was conducted from 15 July 2015 to 9 October 2015. It was open to EU and Member States' authorities, energy market participants and their associations, SMEs, energy consumers, NGOs, other relevant stakeholders and Citizens This public consultation aimed at obtaining stakeholder's views on: on the issues that may need to be addressed in a redesign of the European electricity market. These issues include: (i) improvements to market functioning and investment signals; (ii) market integration of renewables; (iii) linking retail and wholesale markets (iv); reinforcing regional coordination of policy making, between system operators and of infrastructure investments; (v) the governance of the internal electricity market; and, (vi) an European dimension to security of supply. A summary of the responses is available on the Commission's website . This public consultation served as a basis for this evaluation as it put into light the shorthcomings of the current legislative framework.

The Commission has conducted a number of wide public consultations on the different policy areas covered by the present evaluation which took place between 2014 and 2016. In addition to the public consultations, it has organised a number of targeted consultations and workshops with stakeholders throughout 2015 and 2016.

Regarding the SoS Directive, its added value has been very limited as it was quickly superseded by the Third Package and only created a general framework but left it by and large to Member States to define their own security of supply standard. Whilst electricity markets are increasingly intertwined within Europe, there is still no common European framework governing the prevention and mitigation of electricity crisis situations. National authorities tend to decide, one-sidedly, on the degree of security they deem desirable, on how to assess risks (including emerging ones, such as cyber-security) and on what measures to take to prevent or mitigate them. Having the SoS Directive in place has no added value, both from the internal market perspective and from the perspective of the risk preparedness.

EU-wide framework for introducing competition on retail markets and enabling consumers' choice is beneficial for providing level playing field for energy generators and suppliers as well as to benefit the consumers. It also facilitates providing cross-border services.

ACER and ENTSO-E have become key partners in discussions on regulatory issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively. However, a number of shortcomings concerning their framework have been identified which need to be resolved.

Overall, the needs and rationale for EU level action through the electricity legislation remain valid. The transnational nature of the subjects covered such as cross-border cooperation and interconnectors justify EU level action as an effective way to achieve the objectives of the Third Energy Package. These are topics which legally and practically could only be regulated at EU level. Similarly cooperation between neighbouring TSOs and NRAs needed to avoid fragmented uncoordinated decisions.

Regarding the SoS Directive, it was not prescriptive but rather set general principles on security of supply. It can be considered that the SoS Directive is consistent with other interventions which have similar objectives, in particular with the Third Package. However, the content and approach of the SoS Directive are not consistent with the EU rules on security of supply in the gas sector, and therefore match only partially the current needs on security of supply in Europe, in particular concerning risk preparedness.

The general non-discriminatory access principle and non discriminatory dispatching of the Third Package is contradicted by the priority access granted to renewables in the Renewable Energy Directive.

General speaking, the Third Energy Package provisions are working together well. However, the Commission has spotted several provisions which would need to be either deleted because obsolete or never used or modified because unclear or confusing.

The SoS Directive intervention is no longer relevant today as it does not match the current needs on security of supply. The current needs result from the clear TFEU mandate and, in particular, concerning risk preparedness to make sure that Member States are aware and duly prepared to security of supply risks, clarify roles and responsibilities in case of emergency and provide clear rules on the conditions under which Member States may adopt safeguard measures.

In the area of retail markets and consumer empowerment, the objective of enabling consumers to actively participate in the market will remain the key, multi-dimensional challenge. Firstly, with regard to ability to react to price signals, existing measures have been partly effective in removing market barriers for the participation of industry in balancing and flexibility services, including demand response; but have not been effective in removing barriers for the participation of the residential and the commercial sector. Secondly, further progress is needed in the area of billing information, comparison tools and consumers' ability to easily switch suppliers. In consequence smart metering deployment – a key development facilitating consumer empowerment in the above-mentioned areas – remains a very relevant policy area. Also, the functions of DSOs need further definition and enhanced regulatory oversight in order to deploy inter alia local flexibility markets and non-discriminatory management of consumer data. Progress towards lifting regulated prices blocking competition and consumers' choice should also continue. Last, but not least, consumer vulnerability will remain relevant as some drivers of vulnerability are permanent.

Electricity markets have changed significantly in the last five years, with variable renewable energy production becoming increasingly important. The market-oriented rules of the Third Energy Package are still highly pertinent to cope effectively with the challenges of the new market. Market-based energy prices that are able to take into account the rapid changes of demand and response and cross-border trade are even more crucial than in 2009. However, the existing rules are not sufficient to cope with the increasing levels of variable renewable generation. Different rules are needed to ensure in particular the development of short term markets and the emergence of prices that reflect actual scarcity. The market design of the Third Energy Package does also not ensure sufficient incentives for private investments in new generation capacities. Regarding the institutional framework, it appears that the challenges the EU power system will be facing in the medium to long term are regional or pan-European and cannot be addressed and optimally managed by individual TSOs, rendering the current legal framework concerning system operation unsuitable The institutional framework, especially as regards cooperation of NRAs at regional level, will need to be adapted to ensure the oversight of entities with regional relevance (e.g., RSCs). Moreover, as the European energy markets are more and more integrated, it is crucial to ensure that ACER can function as swiftly and as efficiently as possible.

On security of electricity supply, the evaluation also concludes that due to the limited number of obligations of the SoS Directive, largely referring to mere reporting, the administrative burden remain limited.

There is limited quantitative information available at the EU scale to underpin an assessment of administrative burden and, more generally, of efficiency of the legislation analysed. Overall, it can be concluded that the new rules of the Third Energy Package have generated additional administrative costs for undertakings and regulators. However these are not perceived as too heavy by stakeholders and appear to be counterbalanced by the benefits they generate notably through the increase in competition in the sector.

The evaluation also concludes in the ineffectiveness of the SoS Directive in achieving the objectives pursued. Regulatory gaps exist as regards monitoring, exchange of information and insufficient investment. However, most of these gaps have already been address in subsequent EU regulatory measures.

On the retail side, competition still needs to significantly improve to ensure that the full benefits of market integration are passed on to EU consumers. Our evaluation has identified price regulation as one of the major reasons for status quo or little progress in this area. Consumer protection provisions in the analysed legislation prove to be partially fit for purpose. Member States have defined the notion of vulnerable consumers and adopted measures to protect them. However, their protection is uneven between Member States. Energy poverty is growing across the EU. On this point, it appears that data is lacking in order to fully analyse the scale and the drivers of energy poverty.

The various public consultations conducted as well as the studies used provide a good picture of the effectiveness of the analysed legislation. Based on these elements it can be concluded that the reinforcement of unbundling requirements has had a positive effect on competition with new players entering the electricity market. However in some Member States the incumbent still holds a dominant position. Market integration has improved with a clear increase in cross-border trade since 2009. However, uncoordinated state interventions and inefficient use of interconnectors still constitute obstacles to further integration. Cooperation between TSOs and regulators through ENTSO-E and ACER respectively has improved, but remains insufficient.

The main results of the Evaluation can be summarised as follows:

In this evaluation the Commission services have assessed if the Third Energy Package and the Security of Electricity Supply Directive are fit for purpose by examining their performance against five criteria: relevance, effectiveness, efficiency, coherence and EU added value. The results of the evaluation will be used by the Commission to inform future decisions in relation to EU energy policy. In particular, this evaluation provides the basis for the impact assessment for the initiative to review the existing EU electricity market design rules, including the creation of a new framework on security of electricity supply (the Market Design Initiative).

National policy interventions in the electricity sector have direct impact on neighbouring Member States. This even more than in the past as the increasing cross-border trade, the spread of decentralised generation and more enhanced consumer participation increases spill-over effects. No State can effectively act alone and the externalities of unilateral action have become more important. This clearly calls for a continuation of EU action to reach the objectives of the Third Energy Package and of the SoS Directive.

In relation to SoS, the necessity of EU action is based on the evidence that uncoordinated national approaches not only lead to the adoption of suboptimal measures but that they also make the impacts of a crisis more accute. Given the interdependency between the electricity systems of Member States, the risk of a blackout is not confined to national boundaries and could directly or indirectly affect several Member States. Therefore, the actions SoS and crisis situations cannot be defined only nationally, given the potential impact on the level of security of supply of a neighboring Member State and/or on the availability of measures to tackle scarcity situations.

Indeed, the recent increase of decentralised electricity generation and RES calls for continued EU action to to improve the functioning of the internal electricity market and enable maximum cross-border trading to happen. Further EU-action is also necessary in order to enhance the transparency in the functioning of the electricity markets and avoid discrimination between market parties.

Despite the positive developments generated by the examined legislation, there is still very limited coordination between national TSOs, often restricted to very specific subjects or situations. Similarly, there is still very limited use of cross-border capacity in increasingly important areas such as RES aggregation and generation adequacy.

-To what extent do the objectives addressed by the Third Package and the SoS Directive continue to require EU-intervention?

It can be concluded that the added value of the SoS Directive has been very limited as it created a general framework but left it by and large to Member States to define their own security of supply standards. This has resulted in a patchwork of security of supply rules across Europe. Having the SoS Directive in place has no added value, both from the perspective of the internal market rules and from the perspective of the risk preparedness..

The results of the public consultation confirmed the need for further action at EU level to harmonise Member States approaches possibly through the preparation of risk preparedness plans based on common templates, to make sure that each Member State takes appropriate security of supply measures and cooperates with and takes account of others, in line with the Energy Union objectives.

The results of this Study are conclusive about the lack of a coordinated approach in the Union on security of supply and risk preparedness, as well as about the heavy consequences that differing rules and practices may have in case of emergency. The SoS Directive did not contain any specific rule on risk preparedness and coordination; as for the monitoring and reporting obligations, they were understood by Member States in such a narrow way that the Commission lacked the relevant information and had to contract an ad hoc fact finding study in order to get the right picture on the risk preparedness policies in the 28 Member States.

Market suspension measures are foreseen in all Member States by national legislation or operational plans but to different extents. This could potentially lead to dissimilar responses between Member States, which could potentially have consequences for neighbouring countries. In some countries, limitations to cross-border trading capacities are foreseen. Two Member States specifically include explicit legal provisions (law or regulation) on export bans.

There is no common definition of "emergency". This could potentially lead to disparate reactions of Member States in various emergency events.

The time horizons covered by the different measures vary significantly across the Member States and no overall trend can be identified; they can vary from one year to fifteen years. Some Member States set no limits of validity for their measures, others have a system of continuous updates while at least eleven countries do not specify time horizons.

The type of preventive measures envisaged varies significantly across Member States. The large majority of countries focus on the adoption of market measures in their preventive framework (primarily measures directed at supply / demand, operational security and energy efficiency). In seven other countries, the information available does not allow for a categorisation of measures.

While TSOs have, in general, a central role in the adoption of risk preparedness plans or measures, the responsible national entities and TSOs exact role varies significantly.

Research shows a fragmented and diverse framework on security of electricity supply. While all Member States take into account risk preparedness considerations to some extent, the fact is that only ten Member States set clear obligations to draw up risk preparedness plans.

Not all Member States define the types of risks or they do so in a (very) general manner. There exists a patchwork of types of risks covered under the assessments in the Member States, and they are described in various levels of detail.

Although all twenty-eight Member States have a general obligation to monitor the security of electricity supply, only nine countries have a explicit legal obligation to carry out a risk assessment. National entities responsible for risk assessment and role allocation vary across the Member States.

As mentionned when assessing the coherence criterion, the SoS Directive failed to adress risk preparedness issues. The conclusions of the fact finding Study carried out to analyse risk preparedness rules and practices in the EU describe the constellation of national approaches in this area:

Beyond those rules which were already overtaken by the Third Package, the SoS Directive limited itself to providing a very general framework on security of electricity supply, and left it by and large to Member States to define their own security of supply standards. This has resulted in a pachwork of security of supply rules across Europe which make difficult to compare the situation in the different Member States, limit cooperation and imperil trust and confidence in neigbhouring Member States. Unco-ordinated approaches to security of supply may also distort the internal electricity market (e.g premature market intervention) and put at risk the security of supply of neighbouring Member States (e.g. export bans).

As already explained (mainly under the effectiveness criterion), the provisions of the SoS Directive, as such, were quickly superseded by successive EU rules and they therefore had a limited impact on Member States policies. One can therefore argue that, to the extent that the SoS Directive anticipated what would become the Third Package, the added value resulting from this intervention is close to zero (as the relevant Member States policies were based on the Third Package provisions and would have been the same in the absence of the SoS Directive).

-What is the additional value resulting from the EU intervention compared to what could have be achieved by Member States at national and/or regional levels in the absence of the Directive?

Overall, ACER and ENTSO-E have become key partners in discussions on regulatory issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively. However, a number of shortcomings concerning their framework have been identified which need to be resolved.

The 29th meeting of the European Electricity Regulatory Forum of 9 October 2015 underlined, as a conclusion, "the need for analysing and further elaborating the roles, tasks, responsibilities and consider possible governance structures of ACER and ENTSO-E" and stressed "the need to observe and consider possible governance structures for other bodies, including DSOs and power exchanges, and for NEMO cooperation."

Also, it is important to note that ACER acts primarily through recommendations and opinions. As pointed out above, the agency has limited decision-making powers. However, in some instances, fragmented national regulatory oversight has proved to be inefficient for cross-border issues related to the electricity and gas system (e.g. market coupling).The lack of a stronger governance and regulatory framework for cross-border issues constitutes a barrier for the integration of the energy markets. In this regard, there is consensus among market parties and stakeholders that ACER should indeed be enabled to more efficiently oversee the development of the internal energy market and deal with cross-border issues.

However, the implementation of the Third Package has highlighted the existence of a number of shortcomings concerning the framework applicable to ACER and the ENTSOs. See notably section 7.1.1 on the need to reinforce the independence and transparency requirements applicable to this ENTSO-E and the possible conflict of interest in ENTSO-E’s role.

As regards ENTSO-E, improving security of supply by strengthening incentives for investment in transmission and distribution capacities required a tighter cooperation between national TSOs. Through the setting up of ENTSO-E, the Third Package made this cooperation easier and smoother. Such an EU-wide structure could only be created thanks to EU intervention.

An external evaluation of ACER was conducted in 2014. It concluded that ACER’s governance and management structure is widely considered to be appropriate for the Agency's current role. It also concluded that the Agency’s working methods represent significant value added thanks to numerous informal interactions with associations and other stakeholders. Also their on-going publishing of all relevant documents is highly appreciated from the market participants. In 2014 the vast majority of stakeholders consulted for this ACER evaluation reported the Agency to be understaffed. However, the Agency was able to carry out most of the activities planned in the work plans. The report also concluded that deliverables produced by ACER bring value to all stakeholders by informing them of key market and regulatory developments.

Both ACER and ENTSO-E have become important partners in discussions on regulatory issues and fulfil a useful task in the coordination of NRAs and TSOs, respectively. They are both crucial actors in the adoption process of the network codes. In its Communication Delivering the internal electricity market and making the most of public intervention, the Commission underlined that ACER and the ENTSOs have played a key role in the progress towards a functioning internal energy market. The Commission recently made an evaluation on the first years of functioning of ACER and has concluded that the agency has become a credible and respected institution playing a prominent role in the EU regulatory arena and focusing on the right priorities.

The regulatory framework and rule-making process for energy policy has been enriched in the Third Energy Package by creating ACER and ENTSO-E. ACER provides a framework for institutionalised cooperation between national regulators. ENTSO-E, in turn, constitutes a cooperation platform for transmission system operators.

Harmonised approach to metering and billing as well as consumer protection provisions safeguard the level playing field for suppliers and provide equal rights for energy consumers. It also facilitates providing cross-border services.

Overall, it can be concluded that the subjects covered by the examined legislation such as unbundling, cross-border cooperation, interconnectors, are topics which legally and practically could only be regulated at EU level. Similarly cooperation between neighbouring TSOs and NRAs needed to avoid fragmented uncoordinated decisions. Regulation could only happen at supranational level.

In terms of the EU added value, while some Member States had already been protecting their vulnerable energy consumers prior to the EU intervention, others have taken action as a result of the EU intervention.

The provisions addressing consumer information in the Electricity and Gas Directives are essential for protecting consumers in the internal energy market at the retail level. They play an important role in ensuring the benefits of the internal market in energy can be enjoyed by all consumers, and help to create a level-playing field for suppliers and other retail market actors across the EU. Whereas there are currently still very few if any examples of cross-border supply in the retail market, a common base of energy consumer rights is a precondition for that to develop over time.

In a single market for energy there is a strong case for suppliers being subject to similar if not identical obligations and rules, and for consumers to enjoy the same basic rights and be provided with comparable and recognisable information wherever they live and wherever they purchase their energy from. More generally, the delivery of a New Deal for energy consumers as part of the Energy Union includes providing consumers with frequent access to partially standardised, meaningful, accurate and understandable information on consumption and related costs. Guaranteeing certain minimum standards in terms of the frequency and content of billing and billing information therefore contributes to realising the Energy Union and meeting EU goals on energy efficiency and greenhouse gas reductions.

Similarly, as Member States' networks became increasingly interconnected via infrastructure, there was a clear need for more cooperation between neighbouring TSOs. This could clearly only be achieved by supranational measures. This is especially true as regards the need for a coordinated approach to infrastructure development in particular with relevance for security of supply. This has called for the development of ENTSO-E and the establishment of a ten year network development plan. The coordination rules for TSOs and NRAs introduced by the Third Package were needed to avoid fragmented uncoordinated decisions which could hamper the effective functioning of the internal market.

The increase in cross-border trade (see subsection 7.1 on Effectiveness) clearly shows that the Third Package has meant a major step in regulating cross-border interconnectors. This is clearly an issue that could only be regulated at EU level.

At the time the Third Package was adopted the legal framework did not allow for a proper and efficient regulation of the cross border issues relating to gas and electricity network access. The fact that access to cross border interconnectors was often granted in a preferential manner showed that rules were insufficient. This is why the Third Package aimed at a modification of existing EU legislation and at the creation of new frameworks for cross-border co-operation which could legally and practically only be achieved at the European level. The challenges could not be addressed as efficiently by individual Member States. Fostering a more efficient and integrated EU electricity market and ensuring a more co-ordinated policy response to security of supply clearly required harmonised and coordinated approaches by all Member States.

With regard to DSOs, the large majority of the Member States have not set unbundling requirements beyond those of the Electricity Directive, demonstrating that the intervention was necessary in order to structure the EU energy sector in such way so as to pursue the wider objectives of the internal market, to promote competition and economic growth.

The legal and functional unbundling of TSOs that were vertically integrated with production and supply activities, provided for under the Second Package, did not succeed in ensuring equal access to the networks for all suppliers. Reinforced common rules on TSO unbundling introduced by the Third Package in order to foster competition on the grid could only be adopted at EU level. If fragmented national rules had been in place, distortions would have emerged in the synchronised electricity grid in a similar way as today's fragmented state interventions distort the market. Common unbundling rules were needed to ensure a level playing field.

-What is the additional value resulting from the Third Package compared to what could be achieved by Member States at national and/or regional levels?

This section aims to determine value resulting from the Third Package (as determined by ‘Effectiveness and Efficiency’ section) compared to what could have been achieved by Member States at national and/or regional levels. It includes the added value of the institutional bodies established at EU level by the Third Package: ENTSO-E and ACER.

As the SoS Directive was not prescriptive but rather set general principles on security of supply, it can be considered that the SoS Directive is consistent with other interventions which have similar objectives, in particular with the Third Package. However, the content and approach of the SoS Directive are not consistent with the EU rules on security of supply in the gas sector and therefore match only partially the current needs on security of supply in Europe, in particular concerning risk preparedness.

This state of affairs can also lead to undue and unnecessary market interferences. In fact, Article 42 of Directive 2009/72/EC grants Member States wide powers to take safeguard measures in the event of a sudden crisis in the energy market. Such measures must cause the least possible disturbance in the functioning of the internal market and must not be wider in scope than is strictly necessary to remedy the difficulties. The provisions on safeguard measures were introduced in the internal energy market rules from the very beginning, but were never modified, and the current SoS Directive does not offer rules about the governance aspects linked to the safeguard measures and the necessary coordination in case of crisis.

While EU risk preparedness has evolved and improved over the past years in the gas sector, this has not been the case in the electricity sector.

The absence of clear rules guaranteeing a coordinated action by all relevant players when it comes to preventing and managing crisis situations, seriously weakens the EU's ability to deal with large-scale electricity crisis situations. There is a stark contrast between the reality of today's electricity networks, which are increasingly integrated, and the fact that so far Member States identify risks and take action to manage and prevent them on a purely national basis, by reference to their own sets of rules and procedures.

Contrary to the gas sector, the SoS Directive limits itself to anticipate future market related developments but does not address risk preparedness as such. The EU electricity sector therefore lacks a basic act that would enounce basic principles and impose basic obligations and clear procedures aiming at guaranteeing coordinated response in case of emergency.

In the gas sector, issues related to the security of supply "at broad" (understood as a natural consequence of a truly competitive energy market) are covered through the relevant internal market rules (Gas Directive and Gas Regulation). For its part, Regulation No 994/2010, and to some extent also its predecessor (Directive 2004/67), directly adresses risk preparedness issues. In the terms of recital 3, "this Regulation aims at demonstrating to gas customers that all the necessary measures are being taken to ensure their continuous supply, particularly in case of difficult climatic conditions and in the event of disruption". Regulation No 994/2010 created a transparent mechanism, in a spirit of solidarity, for a coordinated response to an emergency at national, regional and EU levels. To this end, it provides for a definition of protected customers, it sets up common infrastructure and supply standards, it introduces the requirement to prepare risk assessments, preventive action plans and emergency plans and defines different crisis levels, among other provisions. All these provisions aim at increasing the degree of emergency preparedness at national and EU level in the gas sector. Regulation No 994/2010 is currently in the process of being reviewed, based on the experience.

However, a comparison of the SoS Directive with the equivalent rules existing in the gas sector raises strong coherence concerns.

The SoS Directive certainly anticipated later regulatory developments, without contradicting them, as shown by the fact that later rules did not required amending of repealing the Directive. To this extent, it can be considered as consistent with the remaining internal energy market rules, with the rules on energy efficiency and on promotion of renewables, as well as with the European guidelines on energy infrastructure.

Special attention deserves Article 4 of the SoS Directive, which deals with "Operational network security" and represents a truly "embryo" of what will become, more than a decade later, the EU Guidelines on System Operation and the Network Code on Electricity Emergency and Restoration.

The importance of encouraging energy efficiency and the adoption of new technologies, in particular demand management technologies, renewable energy technologies and distributed generation (Art. 3(3)(c) SoS Directive).

The need for regular maintenance and, where necessary, renewal of the transmission and distribution networks, to maintain the performance of the network (Art. 3(2)(d) SoS Directive), is further elaborated among the TSOs duties in the Electricity Directive (as complemented by the Network Codes and Guidelines).

The possibilities for cross-border cooperation (Art. 3(2)(c) SoS Directive) are a essential feature of the third package, and in particular of the Electricity Regulation. They are in the essence of the infrastructure guidelines and can also play a role in the promotion of renewables (e.g. in the form of joint support schemes foreseen in Directive 2009/28).

The need to define roles and responsibilities of competent authorities, NRAs, TSO and market actors (Article 3(1) SoS Directive), which is a basic requirement of the EU rules on the promotion of renewables, on energy efficiency and of the guidelines on energy infrastructures.

Its provisions represented a forerunner for some measures that were later on developped in successive EU rules, as illustrated by the following references:

Many provisions of the SoS Directive have been superseded by more recent EU legislation, in particular the Third Package and the SoS Directive could therefore be considered as an intermediate step between the Second and the Third Package. The SoS Directive was not prescriptive, but rather set general principles that whould inspire Member States' policies on SoS.

-In particular what is the coherence between this Directive and the provisions contained in the Third Package?

-To what extent is this intervention coherent with other interventions which have similar objectives and with wider EU policy?

Whereas no direct contradictions with other provisions and actions have been identified, it may seem incoherent or at least confusing that, as explained above, the minimum frequency of billing is (qualitatively) regulated in the Electricity and Gas Directives and quantitatively regulated in the EED for all but smart electricity and gas meters. Most importantly, the latter (EED) results in what would seem to be an unjustified difference between those customers of electricity/gas and thermal energy forms, respectively, who have equipment allowing for automatic/remote readings: whereas customers with smart electricity or gas meters should expect to have at least monthly information (cf. the Commission's interpretation of the IEM provisions), consumers whose consumption is measured with "smart" heat meters or heat cost allocators are only entitled to information 2 or 4 times a year (assuming that the cost-effectiveness condition has not been used to deviate from it). It would seem more logical that where supplies are measured using remotely readable equipment, and where marginal costs of more frequent information are therefore very small, the minimum frequency would be the same regardless of the energy form, and that this be clearly spelled out.

In terms of coherence – internally & with other EU actions – even though no clear contradictions could be pointed out, the evaluation has identified some room for improvement. Linking of the term 'actual time of use' in Article 9(2a) and Article 9(1) of the EED to smart metering provisions erroneously restricts the functional requirements of the targeted set-ups and raises questions about coherence with the framework for promoting smart meters. There is therefore a need to clarify that a wide range of functionalities is in fact promoted, as those recommended by the Commission, that go much beyond the capability of just 'actual time of use' information which usually refers to advanced, and not smart, metering. Moreover, to ensure coherence, avoid any further confusion and unnecessary administrative burden for updating the related provisions in different legislative documents, it is advised to consider that all existing requirements and any future legislative interventions on smart metering be consolidated/embedded in one single legal act.

The provisions of the Third Package on demand response are fully coherent with other legislative provisions within the electricity directive, the energy efficiency directive (EED), the renewable energy directive (RED) and the energy performance of buildings directive (EPBD). As all of those directives currently undergo revisions this coherence needs to be continuously ensured to allow demand response to a) enable the integrating of renewables efficiently into the electricity system in line with the RED, b) contribute to energy savings in line with the EED, c) participate as a resource in the electricity markets, d) be considered when capacity mechanisms are established, e) be supported under the distribution tariff design.

The principles applicable to balancing as set out in Article 15 of the Electricity Directive are similarly not in coherence with other existing rules and practices applicable in many Member States. Balancing responsibility refers to the obligation of market actors to deliver/consumer exactly as much power as the sum of what they have sold and/or purchased on the electricity market. Balancing responsibility implies that the costs of the balancing actions taken by the transmission system operator are generally to be compensated by the market parties which are in imbalance. Article 15 of the Electricity Directive requires that TSOs adopt rules on balancing which are non discriminatory. However, in some Member States, certain types of power generation (notably wind and solar, but possibly also other technologies) are excluded from this obligation or have a differentiated treatment. Whereas many Member States already foresee some balancing responsibility for RES generators (2013: 16 Member States) this is not yet the case for all Member States, and the degree of balancing responsibility differs considerably between Member States.

This can have very significant impact on the well-functioning of the electricity market. It affects the level playing field between technologies, renders assets non-responsive to price signals and undermines the market's price signals and flexibility and the efficiency of the market outcome. Moreover, where the majority of assets benefit form priority dispatch, the mesure in effect becomes meaningless when viewed from the perspective of its intially intended objective and can have unintended negative effects, such as unnecessary curtailment of RES E.

However, in view of the increasing share of RES E, this has resulted in a situation where in some Member States very high shares of power generation are coming from "prioritized" sources. In view of the EU target for at least 27 % of renewable energies in final energy consumption (which according to PRIMES EuCo27 projections would require 47 % of gross final electricity consumption to come from renewable energy), the high share of priority dispatch and priority access-technologies will increasingly occur in other Member States.

When the priority access provisions of the RES Directive were developped, renewables represented only a small proportion of installed generation capacity and these were a less mature technology. This special treatment was in a way justifiable and had a limited impact on the electricity system as a whole.

In terms of access to and use of the electricity grid, the Renewable Energy Directive lays down that Member States shall ensure that, priority access or guaranteed access to the grid-system of electricity produced from renewable energy sources is safeguarded. In terms of dispatching to the system, Member States must require system operators to ensure that when dispatching renewable energy electricity installation to the system, they have priority over other installations. Similarly, Member States may also require the system operator to give priority when dispatching generating installations producing combined heat and power (CHP). These measures – clearly aiming at encouraging within a Member State the development of renewable energy sources and CHP – is a positive discrimination in favour of renewable energy producers. Consequently, the general non-discriminatory access principle of the Third Package is contradicted by the priority access granted to renewables in the Renewable Energy Directive.

Similarly, the Electricity Directive of the Third Package contains in its Article 15 the general principle of non discriminatory dispatching. Dispatching of the electrcity produced by the different generators within a Member State must be dispatched in the network by the TSO on the basis of criteria approved by the NRA. These criteria may take into account economic precedence of electricty and should be applied in a non-disciminatory manner.

The Third Package Electricity Directive sets out in its Article 32 the general principle of non-discriminatory access to the network. The system of access to the electricity network has to be based on tariffs which are applied without discrimination to all network users.

-To what extent is the Third Package coherent with other measures affecting the electricity sector, such as the Renewable Energy (RES) Directive, the Energy Efficiency Directive and the Electricity Security of Supply Directive?

The Third Package's provision on allowing regulated prices in specific cases adhere to difficulties with carrying out the overarching objectives of the EU regulatory framework: introducing competition and enabling consumer choice.

With regard to protection of vulnerable consumers, the main discrepancy between the Electricity and Gas Directive arises from Universal Services (Article 3 (3) of the Electricity Directive). The right to universal service does not exist for gas. This limits some provisions related to the protection of vulnerable consumers in the gas sector. Member States are not obliged to ensure certain protection to all vulnerable consumers, but only to those already connected to the gas system. The reason is that a piped gas network for consumers is not available throughout every EU MS.

Regarding ENTSO-E, some stakeholders who replied to the public consultation on the market design initiative mention a possible conflict of interest in ENTSO-E’s role – being at the same time an association called to represent the public interest, involved e.g. in network code drafting, and a lobby organisation with own commercial interests – and ask for measures to address this conflict. This could be considered as incoherence within the Electricity Regulation which entrust, in its Article 6, ENTSO-E to play a key role in the elaboration of the network codes, ENTSO-E being at the same time a representation of national TSOs which represent their own interests. This issue has also been underlined in the report prepared by ACER in 2014, "Energy Regulation: A Bridge to 2025 Conclusions Paper".

More precisely, regarding ACER, the report prepared by ACER in 2014, "Energy Regulation: A Bridge to 2025 Conclusions Paper" recommends that the Agency be given adequate powers to fulfil effectively the important monitoring responsibilities assigned to it in the ACER Regulation, in particular, in respect of information gathering. There seems to be a mismatch between the monitoring tasks and the powers of the Agency to request information from NRAs, TSOs, and ENTSOs.

However, the Commission has spotted several provisions which would need to be either deleted because obsolete or never used or modified because unclear or confusing.

-Does the ineffectiveness of certain measures compromise the effectiveness of other components?

-Are the various measures comprised in the Third Package properly working together or not?

-Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment ("Electricity Security of Supply Directive").

-Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC ("Energy Efficiency Directive");

-Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC ("RES Directive");

Under this section the evaluation aims at verifying both internal and external coherence of the Third Energy Package. The former (internal coherence) includes consistency and interdependence of various regulatory measures adopted under the Third Package. The latter (external coherence, in turn, means checking coherence of the Third Package with other pieces of legislation relevant for the energy sector namely:

Therefore, it can conclude that the SoS Directive intervention is not relevant today as it does not match the current needs on security of supply. The current needs result from the clear TFEU mandate and, in particular, concerning risk preparedness to make sure that Member States are aware and duly prepared to security of supply risks, clarify roles and responsibilities in case of emergency and provide clear rules on the conditions under which Member States may adopt safeguard measures.

In the absence of clear rules and procedures, agreed in advance, on issues such as how to prevent and mitigate cyber-attacks, how to communicate across Member States in crisis situations, what measures to take to prevent a further deterioration of a critical situation, actions taken within one Member State can have serious negative effects elsewhere.

In their replies to the public consultation, most of the respondents acknowledged that security of supply should be considered as a matter of common concern, because countries are increasingly dependent on one another and measures taken in one country can have a profound effect on what happens in neighbouring states and in electricity markets in general. They acknowledged that the SoS Directive does not offer the right framework for addressing this inter-dependence.

However, whilst electricity markets are increasingly intertwined within Europe, there is no common European framework on security of electricity supply. National authorities tend to decide, one-sidedly, on the degree of security they deem desirable, on how to assess risks and on what measures to take to prevent or mitigate them.

The SoS Directive was conceived as a complement to the market rules, in the absence of a clear Treaty mandate on security of supply. Today, Article 194 of the Treaty on the Functioning of the European Union (TFEU) clearly states that the Union policy on energy shall aim, in the spirit of solidarity between Member States, to ensure security of energy supply in the Union. In practice, this means that Member States, system operators, the energy industry and all other stakeholders have the duty to work closely together to ensure a high-level of energy security for European citizens and companies, but also that Member States should be assured that in situations of tight supply, they can rely on their neighbours.

Whilst all Member States monitor and assess possible risks related to security of supply and take measures to prevent and mitigate such risks, national rules and practices turn out to be very different. First, Member States have different understandings of what constitutes a risk related to security of supply and methods for assessing and addressing such risks vary considerably. There is also no common agreement on what the desired level of security of supply should be. The study results indicate that 23 Member States describe and differentiate between various categories of risks, but the approach followed to assess them differs considerably across these states, and different actors are involved. Further, whilst most Member States have plans in place to prevent and deal with electricity crisis situations, the content and scope of these plans veries considerably. A majority of Member States provide a legal definition of emergency but with varying levels of detail. In addition, existing national plans tend to focus on the national situation only. Cross-border co-operation between Member States in the planning phase is scarce and where it takes place at all, it is often limited to co-operation at the level of TSOs.

This patchwork of security of supply rules across Europe stands in stark contrast with the reality of today's interconnected electricity market. Whilst so far, electricity crises have been relatively limited, there is no guarantee that, where a cross-border incident occur, Member States will have to the tools to address it effectively and efficiently.

The results of a recent study show a fragmented and diverse framework in relation to obligations concerning security of supply. In particular, the existing practices differ across Europe regarding (a) monitoring and assessment of security of supply issues, (b) measures to deal with emergency situations and (c) definition of roles and responsibilities.

The Third Package recognises that, in exceptional circumstances, market mechanisms and operational rules might not suffice, and therefore allows Member States to adopt safeguard measures "in the event of a sudden crisis in the energy market and where the physical safety or security of persons, apparatus or installations or system integrity is threatened". These safeguard measures need to be notified to the Commission, which may ask the MS to amend or withdraw the measures. Especially in case of simultaneous crisis, uncoordinated national safeguard measures can jeopardise the effectiveness of emergency and remedial actions taken at operational level, and the risk of cascading effect and a generalised black-out cannot be excluded.

Well-functioning electricity markets offer the best guarantee for security of supply, both in the long term (by securing the necessary investments in networks and capacity) and in the medium and short-term (by securing an optimal matching of demand and supply). But the question arises: are internal market rules enough to guarantee the supply of citizens with electricity in any event and face to any risks?

Since the 2006 blackout, Europe has luckily not experienced any widespread incident. The 2012 cold spell or the 2003 and 2015 heat waves had adverse impacts on the electricity sectors of some Member States (France, Poland), and those effects were sufficiently addressed at national level. In 2011, Cyprus suffered a serious emergency situation following an explosion in a military naval base which seriously damaged nearly all generation units of a nearby power station.

All these objectives also inspired the Third Package rules, which benefitted from the lessons learnt especially the 2006 blackout (that started in Germany and cascaded across Europe) and certainly improved Europe's preparedness to cope with crisis resulting from predictable events, such as those resulting from the unavailability of generation / transmission units or adverse weather conditions.

The objectives that inspired the SoS Directive are still relevant for improving the security of electricity supply in Europe: (1) setting the conditions to facilitate a stable investment climate; (2) clarifying roles and responsibilities; (3) guaranteeing a safe and secure system operation; (4) maintaining the balance between supply and demand, and (5) appropriate regulatory framework for investments.

-Do the objectives of the Directive and related EU rules still correspond to the needs of security of electricity supply, taking into consideration the evolution of the electricity markets over the past 10 years?

In summary it can be concluded that the existing measures have been partly effective in removing barriers for the participation of industry in demand response but have not been effective in removing barriers for the participation of the residential and the commercial sector. This is of great concern as by 2030 demand response potential is expected to increase to approx. 160GW by 2030 with the increase mostly driven by the residential sector and the uptake of electric vehicles and heat pumps. As the existing provisions have not been efficient in removing barriers for the commercial and residential sector the gap between demand response potential and activated demand response is likely to further increase in the future unless those barriers are removed.

Partly as a result of these deficiencies, price signals in real time are currently not passed to final consumers, resulting in inflexible demand patterns. This is also reflected in the slow uptake of demand response in Europe. According to recent analyses, the current theoretical demand response (or flexibility) potential accounts for approx. 100GW of which up to 40GW could be economically activated. However, currently only approx. 21 GW (predominantly in the industrial sector) are activated indicating that the demand response potential is underutilised.

Moreover, the legislative provisions in the aforementioned Electricity and Gas Directives are silent on the practicalities/specifications for reaching the ultimate requirement to roll-out systems that shall assist the consumers' 'active participation' in the energy supply market. There is therefore a risk that the systems being rolled-out may not be fit for purpose and not bring all the desired benefits to consumers and the market as a whole – including facilitating price- and incentive-based demand response.

Under the Electricity (and Gas Directives), MS have some discretion on the extent to which they roll out smart meters based on national Cost Benefit Analyses (CBAs). They only have the obligation to roll out smart meters for electricity to at least 80% of consumers by 2020 if these national CBAs are positive. This has contributed to the partial deployment of smart metering systems. To date, 19 Member States have committed to rolling out close to 200 million smart meters for electricity by 2020, meaning that up to 72% of EU consumers should have a smart meter by this date. However, only 21% of consumers had smart meters as of 2014 (the latest reliable data we have from ACER), raising doubts over whether these national rollout plans are achievable.

As for consumers reacting directly to changes in retail prices (also referred to as price based (or implicit) demand response) there is no binding EU legislation in place, and dynamic price contracts for residential consumers are currently only widely available in four Member States. In the absence of this, two major barriers to enabling price based demand response have emerged: low access to fit for purpose smart meters and (relatedly) the lack of supply contracts with dynamic prices linked e.g. to the spot market.

The evidence available generally suggests that these provisions have been less effective in achieving their stated objectives than intended. The provisions have not been effective in removing the primary market barriers especially for independent demand response service-providers and creating a level playing field for them. Instead the heterogeneous development of demand response has led to fragmented markets across the EU. This is mainly due to the high degree of freedom the existing provisions leave to Member States. As such, a host of market barriers exist in many Member States: The roles and responsibilities for aggregators are not defined, suppliers are able to prevent independent demand response service-providers from entering the market by not granting them access to their customers, and significant 'compensation' payments from aggregators to Balance Responsible Parties and/or suppliers risk to overcompensate those parties and diminish the business case for Demand Response.

The current EU legislation (Art 25.7 of the Electricity Directive together with Art. 15 of Energy Efficiency Directive) recognises the need to make electricity demand more flexible in order to enable the energy system to better cope with variable RES and new loads, as well as to reduce the need for related capacity investments. It provides a legislative framework for demand response, obliging Member States to ensure that demand response providers are treated in a non-discriminatory manner.

The introduction of smart metering systems will generate more granular consumption data and new business opportunities in retail market. Moreover, the integration of more RES-E generation at distribution level will require a more active management of the network from DSOs. Even if current provisions partially cover those challenges, the circumstances have changed significantly since the adoption of the Third Package. Consequently, the upcoming market framework requires further definition of tasks for DSOs.

The original objectives of current DSO unbundling requirements still correspond to the EU objective of a competitive internal energy market and given, the growing importance of DSOs, strong enforcement needs to continue.

There is a common view among DSOs and other stakeholders that in order for DSOs to cope with this increasing number of variable RES-E they should become more active in managing their networks. This would involve the use of flexible resources in order to alleviate short-term and long-term congestions. Moreover, it would require investments in smarter grid elements.

The increasing more decentralised connection of electricity production units will imply that distribution system operators will have to manage low and medium voltage grids more actively than previously, when such management was only required at the transmission system level.

Technological progress allows distribution system operators to reduce network investments by locally managing the challenges this presents. However, outdated regulatory frameworks prevent them from operating more innovatively and efficiently. For example, EU provisions which aimed to enhance the DSOs position in using demand side management and energy efficiency measures in planning their networks were not proved to be effective. Also DSOs should be in a position to use innovative tools in order to avoid costly investments and operate their networks more efficiently in only few Member States. The resulting inflexibility of distribution networks significantly increases the cost, in particular terms of investment needs, for integrating larger RES E.

Whereas previously, larger-sized generation capacity was mainly connected to the transmission grid, RES-E is often smaller in scale and connected to the medium and low voltage grids. In meeting 2020 targets some Member States are already experiencing a high penetration of RES with an increasing number of the resources being variable (wind and solar). A large share of these resources in many cases is connected to distribution grids (low and medium voltage). According to available data this number is estimated to be as high as 90% (e.g. in Germany).

Developments in the retail market such as the deployment of smart metering systems and the increasing importance of data will call for a more active and neutral role of DSOs, and put into question the continued relevance of the existing legislation.

-Are the roles carried out by DSOs, and their incentives, still fit-for-purpose given the increased need to integrate variable distributed generation?

Consumer vulnerability will remain relevant as some drivers of vulnerability are permanent. Energy poverty problem is likely to grow in the future if no policy measures are adopted.

These developments have provoked strong political interest in the issues of consumer vulnerability and energy poverty, and may suggest that the existing provisions on these topics in the acquis need to be revisited to be relevant in the current context.

In addition, rising energy prices and stagnant wage growth mean that there are growing levels of energy poverty within the EU. Since 2000 expenditure on energy services for the poorest households in the EU has increased by 50%, reaching almost 9% of their total budget on average. And in 2014, the gap in the share of expenditure spent on domestic energy services between the average and the poorest households increased to three percentage points.

Well-designed, reliable and transparent online comparison tools do the number-crunching necessary to accurately compare the costs of each offer for individual consumers. 64% of EU consumers who had compared tariffs of different electricity companies now say they had used comparison tools to do so. Behavioural experiments show that comparison tools significantly increase the number of cheaper offers consumers are able to identify compared with contacting individual providers directly.

At the time of drafting both the Second and Third energy packages, consumer bills and pre-contractual information formed the basis of consumer comparability, as consumers would be given the possibility to measure up individual offers against their current supply contract. Since then, the use of online comparison tools has risen significantly across the EU. Over time the continuation of this trend might challenge the relevance of the EU intervention if it is not adapted to also reflect new ways of consumer-market interaction.

-Does the current regulatory provide sufficient scope to ensure that final consumers can actively participate in the market, and are optimally protected?

The institutional framework currently applicable to the internal energy market as set out in the Third Package is based on the complementarity of regulation at national and EU-wide level. In view of the developments since the adoption of the Third Package as described above, the institutional framework, especially as regards cooperation of NRAs at regional level, will need to be adapted to ensure the oversight of entities with regional relevance (e.g., RSCs). Moreover, as the European energy markets are more and more integrated, it is crucial to ensure that ACER can function as swiftly and as efficiently as possible. In addition, the implementation of the Third Package has highlighted areas with room for improvement concerning the framework applicable to ACER and the ENTSOs.

The challenges the EU power system will be facing in the medium to long term are pan-European and cannot be addressed and optimally managed by individual TSOs, rendering the current legal framework concerning system operation unsuitably adapted to the reality of the dynamic and intermittent nature of the future electricity system and putting to question whether the mandated regional cooperation of TSOs via RSCs is fit for purpose in the post 2020 context.

Even with the creation of RSCs, the current framework for system operation is largely based on the national approach, given that it follows the design established during the times of existence of vertically integrated utilities, based on a national power system. This is also reflected by the fact that typically the network of each Member State is managed by one TSO, regardless of the geographical size of the country, valid for e.g. France and Slovenia.

The RSCI approach is widely recognised as a positive step forward and has been further formalised in European legislation with the new Commission Regulation establishing a guideline on electricity transmission system operation. The Guideline mandates the creation of Regional Security Coordinators (RSCs) covering the whole of Europe to perform five relevant tasks at regional level as a service provider to national TSOs.

As regards TSO regional coordination, driven by the lessons learnt from the serious electrical power disruption in Europe in 2006, European TSOs have pursued enhancing regional cooperation and coordination. To this end, TSOs have voluntarily launched Regional Security Coordination Initiatives in the recent years (the most prominent are Coreso and TSC, launched in 2008) covering a greater part of the European interconnected networks and aiming at improving TSO cooperation and maintaining or increasing security of operation of European interconnected networks. Moreover, in a multi-lateral agreement between all the European TSOs signed in December 2015, nearly all have agreed to make participation in these RSCIs obligatory.

TSOs play an increasingly important role in facilitating market integration with processes such as capacity calculation or balancing markets where coordination across borders is essential. As analysed in the ACER Market Monitoring Report, there is a high amount of cross-border capacities that remain unused even in case of significant price differences. The increasing volatility of flows might even deteriorate the situation if more efficient methods are not employed.

Since the adoption of the Third Package in 2009, the increasing share of variable renewable energy sources and decentralised generation in the electricity mix resulting from the implementation of the 2020 and 2030 targets, together with closer market integration, especially in shorter market time intervals, resulting from the implementation of network codes and guidelines, have made system operation much more interrelated than it was in the past. Indeed, interconnection flows can vary hugely from one hour to another depending on weather and market conditions, impacting security of supply.

-Does the current regulatory and governance framework still provide sufficient scope for fostering necessary market integration, and effective prevention of distortions and secure operation of the integrated electricity system?

When these limitations started to become apparent, the Commission issued Guidance on RES support schemes design and their reform in 2013. The move towards more market-based support mechanisms was then further complemented by the Guidelines on State aid for Environmental Protection and Energy ('EEAG') and both paved the way for the design of future support schemes, which should be market-based and granted through a competitive process. For this, the EEAG set two major deadlines in 2016 and 2017, respectively for market-based support and competitive bidding, which is already in place in 13 Member States, .

Member States retained full discretion over their use of support schemes, including their design, structure and the level of support. The EU legislative framework, including the 2009 RES Directive, provided no guidance on how or when using support schemes, nor even on their eventual revision or reform. As a result, each and every Member State provided its own support, used different models for support schemes and all Member States started off by excluding non-domestic renewables from access to the support schemes. Not all national support schemes were found to be equally efficient and responsive to market signals

In 2009, the majority of Member States were promoting renewable energy production either by green certificate regimes or quotas (23 Member States), or by feed-in-tariff system (21 Member States). Premiums were used in 7 Member States and tendering was not common practice at the time.

To conclude, given the widespread use of state aid in European electricity markets today and the potential for state aid measures to create market inefficiencies and distortions, the rules of the Third package remain important and relevant today; but to protect them and make them effective, new rules are necessary on market compatible RES support schemes and capacity mechanisms.

All in all, as reflected in the Sector Inquiry, "A patchwork of mechanisms across the EU risks affecting cross border trade and distorting investment signals in favour of countries with more 'generous' capacity mechanisms. Nationally determined generation adequacy targets risk resulting in the overprocurement of capacities unless imports are fully taken into account. Capacity mechanisms may strengthen market power if they, for instance, do not allow new or alternative providers to enter the market. Capacity mechanisms are also likely to lead to over-compensation of the capacity providers – often to the benefit of incumbents – if they are badly designed and non-competitive." All of these issues can undermine the functioning of the internal energy market and increase energy costs for consumers.

CMs may also cause a number of competition concerns. In this respect, the DG Competition's Interim report on the Sector Inquiry identifies substantial issues in relation to the design of CMs in a number of Member States. First, many Capacity mechanisms do not allow all potential capacity providers or technologies to participate, which may unnecessarily limit competition among suppliers or raise the price paid for the capacity . Second, capacity mechanisms are also likely to lead to over-compensation of the capacity providers – often to the benefit of the incumbents – if they are badly designed and non-competitive. In many Member States the price paid for capacity is not determined through a competitive process but set by the Member State or negotiated bilaterally between the Member State and the capacity provider. This creates a serious risk of overpayment . Third, the inquiry revealed that capacity providers from other Member States (foreign capacity) are rarely allowed to directly or indirectly participate in national capacity mechanisms. This leads to market distortions as additional revenues from capacity mechanisms remain reserved to national companies. This is particularly problematic in case of dominant national incumbents whose dominant position may even be strengthened by a national capacity mechanism. Lastly, although there is a challenge to design penalties that avoid undermining electricity price signals which are important for demand response and imports, where obligations are weak and penalties for non-compliance are low, there are insufficient incentives for plants to be reliable.

In particular, these mechanisms may lead to distortions if their design affects natural price formation in the energy market (e.g. bids of energy) and therefore alter production decisions (operation of power generating plants) and cross-border competition Capacity mechanisms may also influence investment decisions (investment in plants and their locations), with potential impacts in the long term..

As reflected in the Sector Inquiry on capacity mechanisms led by DG Competition, the heterogeneous development of capacity mechansims has led to fragmented markets across the EU. This is mainly due to the high degree of freedom the existing provisions leave to Member States as they are neither detailed nor instructive. The Sector Enquiry highlights that "The different types of capacity mechanisms are not equally well suited to address problems of security of supply in the most cost effective and least market distortive way."

Since variable energy production needs significant backup energy for times without wind and sun, cooperation in organising this backup across member states is crucial to save unnecessary costs for consumers.

Regarding capacity mechanisms, the Third package (Art 8 of the electricity directive) recognises the need for tendering of new capacity if markets are not able to deliver the right level of generation adequacy to safeguard security of supply. It provides a legislative framework for providing for new capacity or energy efficiency/demand-side management measures through a tendering procedure or any procedure equivalent in terms of transparency and non-discrimination.

In 2009, state interventions concerning renewable energy support schemes or capacity mechanisms played a limited role in the market, as renewables accounted only for 19% of electricity produced in 2009 and CMs had been in place only in a limited number of countries. Since then this share has increased to 27.5% in 2014.

State aid support in the field of energy has increased tremendously since the Third package was adopted. Indeed, EU Member States have primarily relied on dedicated policy instruments to support the deployment of renewables. These instruments take the form of operating aid or investment aid. In parallel, based on perceived or real generation adequacy concerns, several Member States have introduced generation adequacy measures. These measures often take the form of either dedicated generation assets kept in reserve or a system of market wide payments to generators for availability when needed, referred to as capacity mechanisms (CMs).

-To what extent can the current regulatory and governance framework respond to the risk that, in an increasingly integrated market, national policies create negative spill-over effects?

Overall, the Third Energy Package does not ensure sufficient incentives for private investments in the new generation capacities and network because of the minor attention in it to effective short-term markets and prices which would reflect actual scarcity.

Normally, well-functioning wholesale markets should provide price signals necessary to trigger the right investment, However, the ability of markets to do so is debated today because today's electricity markets are characterised by uncertainties as well as by a number of market and regulatory failures which affect price signals; These include low price caps, renewable support schemes, the lack of short term markets and lack of demand response operators.

In recent years, many unprofitable power plants plan to mothball and close. This is especially the case for flexible gas fired power plants that have become more expensive to run compared to less flexible lignite and coal.

"The generation capacity of new renewable energy usually has lower running costs than conventional coal- or gas-fired power plants. As a result the conventional power plants do not produce as often as they did in the past, especially in markets with a high proportion of renewable energy. The intermittent character of renewable sources of electricity creates uncertainty regarding the frequency of price spikes that help conventional technologies to recoup their investment costs."

The Interim Report of the sector inquiry on capacity mechanisms conducted this year by DG Competition provides an analysis of the current investment climate in electricity generation. The increase in generation capacity coupled with decreasing demand have led to increasing gaps between peak demand and generation capacity, which points to overcapacity. This has in turn led to decreasing electricity wholesale prices since 2011.

Generation adequacy is not addressed in the Third Energy Package. Consequently, there are no common generation adequacy rules at EU level. However the Commission underlined in its Communication on public interventions that "even if it might be legitimate for generation adequacy standards to be different against the background of differing circumstances in Member States, the system reliability in interconnected markets is interdependent". This is why the Commission has felt the need to develop some guidance form Member States wishing to put in place generation adequacy measures through a Communication on State Aid Guidelines.

-Does the EU electricity market constitute a favourable investment climate for electricity assets? To what extent does it create a level playing field for investments in the operation of RES, conventional generation, demand response or storage?

-Does the market (still) provide a proper framework for investments in electricity assets? Are there barriers to investment, in particular in new technologies?

Overall, the rules of the Third Energy Package appear to be insufficient to cope with such current levels of RES. Different rules appear needed to ensure in particular the development of short term markets and the emergence of prices that reflect actually scarcity. Rules to ensure closer cooperation of grid operators are also insufficient as they stand.

In addition, the worldwide financial and economic crisis in 2008 has depressed economic output - and therefore energy demand - in a way that had not been foreseen. This decline in energy demand, in combination with the politically intended decarbonisation of the generation fleet, had a significant effect on the business case of fuel-based generators and raised the question whether market arrangements are fit to deliver needed investments to decarbonize the economy on the required scale.

In parallel, we have seen a partial comeback of state interventions as Member States began introducing new types of national schemes aimed at protecting existing generation. The most important such examples are support schemes for electricity produced from renewable energy sources and so-called Capacity Mechanisms (CMs). Sub-optimal rules to support renewable generation had the unintended effect to deter price signals or limit cross-border trade. State interventions also translated into higher transmission tariffs, ultimately neutralising the positive developments on wholesale electricity markets and driving up prices for end customers at the retail level. The volumes of electricity trade affected by such state interventions contracted under such mechanisms have increase significantly in the last years, with increasing impacts on functioning of the internal electricity market. Further, whilst the Third Energy Package contains provision on transmission tariffs, their level and design still differ significantly between Member States. This has the potential to distort price signals.

In addition, technological progress allows distribution system operators to reduce network investments by locally managing the challenges posed by increasing amounts of distributed RES E directly connected to distribution systems. However, outdated regulatory frameworks prevent them from operating more innovatively and efficiently.

Equally dramatic changes have taken place on the technological side. Digitalisation of energy markets increasingly allows the use of so-called 'demand response' solutions, enabling industrial, business and household customers' demand to participate in electricity markets. However, the current legislation has not been effective in removing the primary market barriers especially for independent demand response service-providers and creating a level playing field for them. The same goes for insufficient EU-wide deployment of fit-for-purpose smart metering that can support novel energy services and products of value also to consumers as well as enable the consumers to take active participation in the market.

Since variable energy production needs significant backup energy for times without wind and sun, cooperation in organising this backup across member states is crucial to save unnecessary costs for consumers. Also the safe management of the EU-wide connected electricity grid requires closer cooperation between grid operators. While some progress has been made in the Third Package on cross-border cooperation, notably with the creation of ACER and the ENTSOs, close regional cooperation between TSOs and regulators is a key feature of a "decarbonised" electricity market, and the current do not reap the full benefits of cooperation.

Despite the importance played by market coupling since 2009 in the further integration of European markets (leading to price convergence and increase of exchanges between Member States), the Third Package does not mention market coupling. Similarly, power exchanges which play a critical role in the energy market are not addressed by the Third Energy Package.

The physical nature of renewable electricity generation – more variable, unpredictable and decentralized than traditional generation – has important practical consequences for the way electricity is traded, priced, and how grid operators can operate the electricity grid in a safe and efficient manner. While at the time of the Third Package electricity was mainly produced in central, large-scale fuel-based power plants, a market design with a large part of electricity produced from variable wind and solar sources requires different rules. Effective short-term markets and prices that reflect actual scarcity played a minor role in the Third Package, but are now key for the functioning of the market. The Third Package clearly lacks rules for the development and functioning of short markets as well as rules that would enable the development of peak prices reflecting actual scarcity in terms of time and location.

On the political side, a renewed commitment at both European and global level to decarbonize the economy means that the uptake of generation from renewable energy sources (RES) has been on an upward trend ever since, and is promised to increase further.

Europe's power system is in the midst of profound changes. The European Union's policy to fight global warming requires the electricity systems to shift from a generation mix that is mostly based on nuclear and fossil fuels to a virtually decarbonised power sector by 2050. This shift in the means employed to generate electricity from wind and solar has already started to take place and is expected to become still more pronounced towards 2030.

-The 2030 targets imply that the share of electricity generated from RES is likely to reach up to 50% of electricity produced. Under which conditions can the current electricity market facilitate the integration of such increasing levels of RES, also considering that it is primarily decentralised?

The evaluation of the effectiveness and efficiency of the Third Electricity Package showed that the new rules clearly had a positive effect on markets and for consumers. However, with a view to some fundamental changes in electricity markets since 2009, the evaluation needs to assess if the Third Package framework is still sufficient to deal effectively with future challenges of the sector.

Therefore, it can conclude that due to the limited number of obligations, largely referring to mere reporting, the administrative burden remain limited.

Concerning the additional requirements on reporting imposed by Article 7, in connection with the obligation to monitor security of supply imposed in Article 4 of Directive 2003/54/EC and in the Electricity Directive, the administrative burder of the reporting obligation set in Article 7 is negligible.

The SoS Directive limited itself, in essence, to setting the objectives and the factors to take into consideration when drafting and implementing measures to safeguard security of supply. That means that it set a general framework on security of supply, but left it by and large to Member States to define their own security of supply standards and policies within certain limits. Because of the general terms of its provisions, it is estimated that the cost of the intervention was a limited one, because it required limited legislative efforts (as confirmed by CEER 2009 report) and did not imply specific actions by Member States.

-Is the administrative burden imposed on Member States and economic operators (e.g., through the reporting obligation contained in Article 7) justified?

Overall, it can be concluded that the new rules of the Third Energy Package have generated additional administrative costs for undertakings and regulators. However these are not perceived as too heavy by stakeholders and appear to be counterbalanced by the benefits they generate notably through the increase in competition in the sector.

Regarding ACER, its budget is almost exclusively financed by an EU budget subsidy. While initially foreseen to be of approximately 6 to 7 million euros ACER's annual budget in 2015, amounted to 10 513 574 euros. Similarly the staff of ACER was foreseen to be approximately 40-50 people while it is now 69 (ACER Establishment plan 2016). This increase, both is budget and staffing reflects the gradual increase in tasks and duties attributed to ACER, notably in consecutive legislation (e.g REMIT and TEN-E) ACER's financing has been facing different challenges as the tasks of the Agency have grown over the years. While its budget has increased since its establishment, it is still seen as unsufficient by ACER itself. The Director of ACER has been requesting additional staff over the years but these have not been granted in full by DG BUDG. In addition ACER has been given the possibility to collect fees under the Third Package. Article 22 of the ACER Regulation provides that fees shall be due to the Agency for requesting an exemption decision and the fees shall be set by the Commission. Since the establishment of ACER no such exemption decision was requested and until now, the Commission did not set such fees.

To the exception of the budget of ACER, no EU funds have been used to implement the measures of the Third Energy Package.

ENTSO-E is financed almost exclusively by fees collected from its members i.e. the TSOs. In 2015, its budget was of 17 000 k€ to be divided by the 41 TSOs from 34 countries. ENTSO-E also holds as members TSOs from the Energy Community from countries which are not part of the EU. The public consultation has not gathered any remarks on the cost or budget of ENTSO-E. The fees paid by the TSOs to ENTSO-E appear to be of an acceptable level and justified by the benefits that the TSOs enjoy from the existence of such an organisation whose task is inter alia to defend their interests.

Certain regulatory measures contained in the Third Package, such as unbundling have had a cost for electricity stakeholders. The implementation of the unbundling requirements for all TSOs certainly entailed costs for these companies. However these are difficult to quantify and no detailed aggregated data on the cost of these organisational changes required by the unbundling measures exist. The Commission's report on the impact of its unbundling reform from October 2014showed that cost effects did not play a significant role for stakeholders. The possibility for a Member State to choose between three unbundling models has provided some flexibility which may have contributed to keep the costs related to the organisation changes relatively limited. Indeed, it may be assumed that the Member States have opted for the unbundling model which was the closest to the existing organisational structure of their TSOs.

However, given a value of the EU the electricity sector of more than € 1.000 billion in 2014 and the significant potential economic losses due to distortions of competition, the cost for monitoring are considered negligible by stakeholders who rather call for stronger regulatory oversight. This is made clear in the responses to the public consultation where there is notably significant support for increasing ACER's powers by many stakeholders (e.g. oversight of ENTSO-E activities or decision powers for swifter alignment of NRA positions).

Undoubtedly, the detailed rules for TSOs, DSOs, generators and suppliers, and in particular the respective monitoring obligations for national regulators, led to some additional administrative costs for undertakings (e.g. for unbundling compliance monitoring) and for regulators (e.g. through increased tasks in monitoring and deciding on implementation details of the Third Package). This constituted a significant additional burden given the moderate size of many National Regulatory Authorities ("NRAs"). Half of the 28 NRAs have less than 100 staff members. Generally, the level of resources available to different NRAs varies considerably. As underlined by the Court of Auditors, the number of people dealing with energy issues in NRAs visited during their audit ranged from 21 (Estonia) to more than 200.

-Are there areas where the current regulatory framework for the EU's electricity markets could be streamlined and optimised?

-Are there areas where there is potential to reduce inefficiencies particularly regulatory burden and simplify the intervention (the issue of streamlining planning and reporting will be dealt with elsewhere)?

-In qualitative terms, to what extent are the costs proportionate to the benefits achieved?

It can be concluded that the SoS Directive has not been effective in the achievement of the objective pursued. Indeed, the incident of November 2016, one year after its approval, highlighted the existence of a series of regulatory gaps on security of supply in terms of monitoring, information exchange and insufficient investments. Most of these gaps have been addressed by further EU rules.

-Last, but not least, the SoS Directive has not been the subject of any parliamentary question. To our knowledge, it was mentioned in only one occasion.

-The limited European case-law interpreting its provisions: Only the "Castelnou case", originated in a Commission's state aid decision challenged by a company, gave the Court of Justice the opportunity to construe some provisions of the SoS Directive, whereby it confirmed that "Directive 2005/89 confines itself, in essence, to setting the objectives (Article 1) and the factors to take into consideration when drafting and implementing measures to safeguard security of supply (Article 3)" (recital 206).

-The SoS Directive did not give rise to any infringement procedure on the Commission's own initiative neither (other than the 17 cases for non-communication of the transposing measures referred to in point 6). The reason was the general nature of its obligations and the adoption of the Third Package, making more efficient to address issues of non-compliance under the new more precise rules.

-The limited number of complaints received indicates the lack of awareness about the Directive and confirms that its content is not precise enough to support citizens/companies rights. According to the Commission's records (database CHAP), potential breaches to this Directive were claimed in only 5 complaints, always as ancillary claim to main breaches to other Directives of the second/third internal energy packages or, in one occasion, the RES Directive. None of these complaints led to the opening of an infringement procedure based on the SoS Directive.

-The Directive has received a limited treatment in the specialised literature. Thorough literature research shows that references to this Directive in articles and comments are marginal.

-The Directive was quickly (but only partially) superseded by further EU rules, which addressed in particular the role of TSOs in the area of security of supply and the need for infrastructure investments. The new rules do not address, however, the role governments have to play when it comes to setting standards, identifying risks, and taking the necessary measures to prevent & manage crisis situations.

-The Directive imposes Member States a series of open-ended obligations, which gave large freedom for implementation and are therefore hardly enforceable (e..g. Art. 5(1) "Member States shall take appropriate measures to maintain a balance between the demand for electricity and the availability of generation capacity").

Under these circumstances, and based on additional analysis and research made by the Commission's services, it is fair to conclude that the SoS Directive had only a limited impact on the electricity sector in general and on the security of electricity supply in particular. This statement is based on the following considerations:

Work on infrastructure projects had also evolved since the adoption of the SoS Directive, mainly based on Regulation No 347/2013 on guidelines for trans-European energy infrastructure. In 2013, the European Union identified 248 energy infrastructure Projects of Common Interest (PCIs). This list was reviewed and up-dated in 2016 and will then be reviewed again every other year. An Energy Infrastructure Forum was set up and convened for the first time in 2015 in Copenhagen as a framework to discuss the major issues relating to infrastructure and EU energy policy.

This was not surprising, because the Third Package had in the meantime clarified the role of NRAs and TSOs, reinforced TSO co-operation by putting into place ENTSO-E (responsible, among other tasks, of adopting every 2 years a Community wide ten-year network development plan, including a generation adequacy outlook), and provided for the harmonization of the technical standards and operating procedures for the electricity system through the establishment of network codes and guidelines. Network codes and guidelines, once adopted, become an integral part of the Third Package. Network codes and guidelines are currently at different stages of the adoption procedure. From an electricity Security of Supply perspective, the most relevant are those related to the operation of the electricity system (System Operation Guidelines, expected to be adopted early 2017) and on Emergency and Restoration (currently under discussions in the committee of Member States representatives).

The SoS Directive, in its Article 9, asked the Commission to monitor and review the application of the Directive and to submit a progress report to the European Parliament and to the Council in 2010. In its progress report, the Commission made an overview of ongoing activities on security of supply, referred to the benefits that the implementation of the Third Package would bring along and explained some of the future evolutions in the European electricity system, that would require massive investments and appropriate incentive schemes for delivering the necessary investments in generation and transmission in a timely manner. One should recognise that the progress report contained very little about the SoS Directive, as such, and a lot about the future regulatory changes.

The SoS Directive was therefore quickly caught up by the discussions on internal market measures proposed by the Commission already in 2007 and that led to the adoption of the Third Package.

Events such as those that were at the origin of the SoS Directive were certainly not the last ones, and less than ten months after the publication of the SoS Directive in the Official Journal, Europe suffered, on 4th November 2006, a generalised blackout that affected 15 millions of European citizens. The disturbance, which started in North Germany, ended up affecting large parts of the European interconnected power systems. This blackout highlighted the existence of a series of regulatory gaps, as identified by the European Regulators Group for Electricity and Gas (ERGEG, ACER's predecessor). On 8th of February 2007, the Commission's press release (IP/07/187) summarised the event as follows: "Three main reasons appear to have caused the blackout. Firstly, E.ON Netz, the German electricity transmission system operator which was at the origin of the fault, was not able to monitor whether the grid was operating securely; secondly, other European transmission system operators did not receive information on the actions taken by the German transmission operator; and thirdly, insufficient investment both at the level of reliability and the operation of the grid." As a matter of consequence, the Commission announced that the necessary improvements of the regulatory framework would be put forward.

The limitations of this Directive were soon highlighted by different stakeholders. The European Economic and Social Committee, in its opinion on the Commission's proposal, asked to be cautious before modifying the 2nd package rules (point 3.1) but also criticised that the proposed Directive did not really address the existing concerns regarding security of supply (point 3.2) and suggested that the general provisions in Article 3 were "relevant features of any good national