EUROPEAN COMMISSION Brussels, 15.12.2021 SWD(2021) 457 final COMMISSION STAFF WORKING DOCUMENT



EVALUATION

Evaluation Report Accompanying the Proposal for a Directive of the European Parliament and of the Council on common rules for the internal markets in renewable and natural gases and in hydrogen (recast) Proposal for a Regulation of the European Parliament and of the Council on the internal markets for renewable and natural gases and for hydrogen (recast)











{COM(2021) 803 final}

{COM(2021) 804 final} - {SEC(2021) 431 final} - {SWD(2021) 455 final} - {SWD(2021) 456 final} - {SWD(2021) 458 final}



Table of Contents 1. Introduction 1.1. Scope of the Evaluation 1.2. Purpose of the Evaluation 2. Background to the evaluated initiatives 2.1. Objectives of the Third Gas Package 2.2. Description of the Third Gas Package 3. Evaluation logic 4. Evaluation method 5. Implementation of the initiatives and state of play 6. Answers to the Evaluation questions 6.1. Effectiveness 6.1.1. Market integration, competition and investments 6.1.2. Consumer empowerment and protection 6.2. Efficiency 6.3. Relevance 6.3.1. The 2009 market design is not fully adapted to the decarbonisation of our economy … 6.3.2. …nor to changing market realities

6.3.3. The Third Package does not provide regulatory certainty for the development and deployment of hydrogen 6.3.4. Decarbonisation and the integration of renewable and decarbonised gases into the market 6.3.5. Consumers participation and protection 6.4. Coherence 6.4.1. Internal Coherence 6.4.2. External Coherence 6.5. EU value added 6.5.1. Value added of EU market framework 6.5.2. Assessing the case for continuing EU-intervention 7. Conclusions Annex 1 – Procedural information Annex 2 – Stakeholder consultation Annex 3 – Table of Synergies between Evaluation and Impact Assessment as well as relevant connected legal acts which require revision Annex 4 – Specific aspects of Retail market competition and consumer gas prices, products and services Table of Figures Figure 1: Fitness Check evaluation logic Figure 2: Average household gas price increase Figure 3: Composition of the EU household gas price (DC)

Figure 4: Performance indicators – Difficulties of switching Figure 5: Market shares of three largest gas suppliers for households by metering points and number of suppliers for households with a market share above 5% by metering points Figure 6: Market share of the three largest suppliers in the market for households – Gas (by metering points, in %) Figure 7: Number of Member States where the offer is available Figure 8: Existence of price intervention in electricity and in natural gas in 2019 Figure 9: Performance indicators – Market foreclosure by price regulation Figure 10: SoLR energy price compared to conventional energy prices in EU Member States and Norway – 2018 Figure 11: Entity determining the energy price for SoLR in EU Member States and Norway – 2018 (number of Member States) Figure 12: Switching rates for gas household customers in 2018 and annual average 2013-2017 (%; by metering points) for selected countries Figure 13: Performance indicators – comparability of offers Figure 14: Measures in place to protect vulnerable consumers in EU MS and Norway – 2019 (number of MS) 1.1.Scope of the Evaluation The Evaluation covers two EU Directives and Regulations concerning the gas sector, which form the so-called ‘Third Gas Package’. The main evaluated acts are: -Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, OJ L 211, 14.8.2009, p. 94–136 (henceforth the Gas Directive) as amended by: -Directive (EU) 2019/692: this amendment clarified the application of the Gas Directive with regard to interconnections with Third Countries; -Regulation (EU) 2018/1999: The Governance Regulation integrated, amended, replaced and withdrew certain planning, reporting and monitoring obligations currently contained in sectoral energy and climate Union legislative acts to ensure a streamlined and integrated approach to the main planning, reporting and monitoring strands. In this regard, it deleted Article 5 of Directive 2009/73/EC on monitoring of security of supply, and replaced Article 52 of Directive 2009/73/EC on Reporting. According to the amended Article 52, the Commission shall monitor and review the application of the Directive and submit an overall progress report to the European Parliament and to the Council as an annex to the annual State of the Energy Union Report. -Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005, OJ L 211, 14.8.2009, p. 36–54 (henceforth Gas Regulation) as amended by: -Commission Decision 2010/685/EU

-Commission Decision 2012/490/EU -Regulation (EU) No 347/2013 -Commission Decision (EU) 2015/715 The Commission decisions amended Annex I of the Gas Regulation by introducing more detailed rules on congestion management procedures and including transparency obligations to be published on a single EU wide platform to provide all interested stakeholders with information, inter alia, on capacity contracted and available at relevant points, e.g. interconnection points between Member States. The Third Energy Package sets the legal basis for establishing more detailed common European rules in the form of gas network codes and framework guidelines, with the aim to harmonise and coordinate the different processes of energy markets and systems. Since the entry into force of Regulation 715/2009 in 2011, four network codes have been adopted, covering capacity allocation mechanisms (CAM NC), gas balancing rules (BAL NC), interoperability between gas systems (IO NC), and transmission tariff structures (TAR NC). Additionally, the Guidelines on congestion management procedures (CMP) and Transparency annexed to the Gas Regulation, have been detailed out with several amendments. The harmonisation of these technical rules has both enhanced the market functioning at national level (in particular BAL NC) and further advanced the interconnection of national gas markets. Notably, CAM NC has fully harmonised the procedure and the calendar for the booking of transmission capacity, which fosters competition and accessibility of national markets. The most recently adopted TAR NC has introduced extensive publication requirements on gas tariff parameters and calculations, which provides additional transparency and tariff predictability for network users across the EU, while highlighting potential tariff outliers. Whereas the implementation of network codes is far advanced across Member States, the continued enforcement of these rules by the Commission remains crucial for the completion of the internal energy market. By Directive 2019/692 of 17 April 2019, Directive 2009/73/EC was amended to clarify its applicability to gas interconnector pipelines between Member States and third countries. In addition to this clarification of the scope, the amendment added a derogation regime for existing interconnectors with third countries and procedural rules on the consultation of authorities of third countries on regulatory issues. Due to the recent entry into force (the deadline for transposition into national law expired on 24 February 2020), these amended provisions are excluded from the scope of the present Evaluation. The revision of the Electricity Directive and Electricity Regulation adopted in 2019 as part of the Clean Energy Package reinforced the institutional framework of the Third Package to make it fit-for-purpose for the changes in the electricity sector (integration of renewables, decentralised electricity production, regionalisation, etc.). However, this has created differences in the institutional set-up between the electricity and gas sectors, which might lead to detrimental regulatory divergence and unnecessary complexity that could affect consumers, industry and regulators alike. Furthermore, some of the reasons for changes in the electricity sector, based on experience with applying the Third Package legislation, equally apply to the parallel provisions in the gas sector and justify similar changes to those provisions. The Recast Internal Electricity Market Directive reinforced ACER’s powers in order to diminish the fragmentation of the regulatory oversight at the EU level. To foster the independence of National Regulatory Authorities (NRAs), new requirements for board members or top managers must ensure that their appointment is based on objective, transparent and published criteria. The appointment follows an independent and impartial procedure, aimed at selecting candidates with the necessary skills and experience for each position. For the same reasons, the directive requires that board members or top management can only be dismissed based on transparent criteria and that specific provisions on conflict of interests are in place and confidentiality obligations extend beyond the mandate of board members or top management. The Electricity Regulation and ACER Regulation adapted the procedures for establishing detailed regulatory rules on the operation of the market and networks (i.e. network codes and guidelines) to the requirements of the Treaty on Functioning of the European Union. They also introduced provisions reflecting the increasing link between the distribution and transmission network levels in the regulatory framework (e.g. requirements for cooperation on network planning, Electricity Regulation Article 57). The Electricity Regulation adapted the mission, tasks and the rules by the European Network for Transmission System Operators for Electricity (ENTSO-E) governing its transparency and oversight by ACER. It also formalised the role of Distribution System Operators (DSOs) at European level by creating a single European DSO entity, rendering their participation effective and independent, The aim was to facilitate distributed resources to participate in the market by – among others – enabling DSOs to become more active at the European level and have increased responsibilities and tasks (similar to those of the Transmission System Operators (TSOs)). The main market principles as set out in the electricity network codes and guidelines were also lifted-up into the Electricity Regulation to increase transparency and reliability of the legal framework. The Evaluation is based on several comprehensive monitoring reports on the functioning of the implemented market legislation, as well as on a number of specific public consultations issued by the Commission to verify the effects of its legislation. Furthermore, some external studies also included assessments of specific elements of the implemented market legislation. Other consultations via public events such as forums and conferences have also contributed to gather feedback from stakeholders on the functioning of the Third Energy Package. The Madrid Forum was set up to discuss the creation of true internal gas markets in Europe. The participants include NRAs, EU national governments, transmission system operators, gas suppliers and traders, consumers, network users, and gas exchanges. The Third Gas Package and its implementation was discussed in this stakeholder forum at several occasions. 1.2.Purpose of the Evaluation This Evaluation provides the basis for the Impact Assessment for the initiative to review the existing EU gas market design rules meanwhile also known as the ‘Hydrogen and gas markets decarbonisation package’. It seeks to contribute to the formulation of an adequate and effective policy response to the challenges gas markets are currently facing in contributing to the climate objectives of the EU. The Evaluation will assess whether the abovementioned EU rules introduced in 2009 have been successful in meeting their stated objectives, in particular achieving a better-functioning internal gas market. The evaluation will analyse the effectiveness, efficiency, coherence, relevance and EU added value of the relevant measures in relation to the objectives strived for by the Third Gas Package. In view of the increased climate ambition of the EU, the evaluation will also analyse the possible contribution of EU gas market regulation and verify to what extent the gas market rules adopted in 2009 and the EU internal energy market framework are still able to respond to the energy sector's new challenges and to meet current and future expectations on decarbonising the European economy. 1.3.Objectives of the Third Gas Package Prior to the EU’s liberalisation initiatives, gas was produced, purchased, transported and sold mostly by domestic, state-controlled monopoly companies. Competition in gas markets was almost absent. This, however, led to manifold problems in terms of cost-efficiency and security of supply. The EU has taken the initiative to gradually liberalise EU energy markets and to create an internal gas market. The process started with the adoption of the First Gas Directive in 1998. The liberalisation initiative brought some first successes, but progress remained limited. In 2003, a Second Gas Package was therefore adopted to stimulate the development of competition in gas markets. Despite good progress in some individual countries, the Commission’s systematic sector inquiry into the energy sector from 2005-2007 revealed that significant obstacles to competitive cross-border markets remained, and that consumers could still not fully benefit from liberalisation. Incumbent companies – mostly still state owned – had managed to maintain their dominant positions and tried to avoid competition from domestic and foreign companies. They notably used their control over their networks to avoid competition from new energy suppliers. The results of the sector inquiry triggered the Commission’s proposal for a comprehensive Third Energy Package. The new legislation mainly aimed at addressing the problems identified in the Sector Inquiry, namely:

-market concentration and market power in wholesale and retail markets; -vertical foreclosure (in particular the inadequate unbundling of network and supply); -lack of market integration (cross border and national); -lack of transparency; -insufficient independent regulatory oversight; -distorted price formation mechanisms (regulated prices and cross-subsidies); -downstream market foreclosure (access to consumers). The identified problems harmed competition, leading to unnecessarily high prices and limiting choice for consumers. Incomplete and inefficient unbundling rules for TSOs prescribed by the Second Directive resulted in structural conflict of interest. Insufficient unbundling of networks from the competitive parts of the sector (vertical integration) resulted in lack of investment in infrastructure and discriminatory conduct on the supply and production markets downstream and upstream from network activities. Consequently, the Commission recommended taking urgent action with regard to some key areas of the regulatory framework. The overarching objective of the Third Energy Package was to complete the internal market for electricity and gas. Within this objective the EU intended to improve competition in the gas sector through better regulation and unbundling aimed at removing obstacles resulting from the fact that most established national incumbent gas suppliers were vertically integrated and could use the control over their networks to fend off potential new competitors. The Third Energy Package's objectives in the area of retail markets and consumer empowerment were: (i) to enable effective consumer choice and boost competition through the availability of transparent, comparable and reliable information on prices, costs, energy consumption, fuel mix and environmental impact of gas suppliers; and (ii) to enable/incentivize energy savings through sufficiently frequent feedback to consumers about (the cost of) their energy consumption. In order to guarantee consumer choice, the Third Package provides that all customers shall be free to buy electricity/natural gas from the supplier of their choice as from 1 July 2007. At the same time, the Third Energy Package sought to ensure protection of vulnerable consumers. This objective was put in place to facilitate the decision by Member States to proceed with electricity and gas market liberalisation, as it was recognised by the legislators that actions to protect vulnerable consumers were needed in the context of liberalising the European energy market. In a broader context, the Third Energy Package also served the overall goals as formulated in the EU’s 2020 Strategy (or so-called ‘Lisbon strategy’) for smart, sustainable and inclusive growth. 1.4.Description of the Third Gas Package The Third Gas Package followed up on the liberalisation steps in the two ‘packages’ from 1998 and 2003. It built upon key concepts established in the previous packages (e.g. Third Party Access (TPA) to networks, unbundling, regulatory oversight, right to choose a supplier) and developed these further in order to create a regulatory framework that would allow for integrated and competitive EU gas wholesale and retail markets, to the benefit of consumers. The legislation of the Third Gas Package covers five main areas: 1.unbundling energy suppliers from network operators; 2.strengthening the independence of regulators; 3.establishment of the Agency for the Cooperation of Energy Regulators (ACER); 4.cross-border cooperation between transmission system operators and the creation of European Networks for Transmission System Operators; 5.open and fair retail markets and consumer protection.

(1) Unbundling is the separation of energy supply and generation from the operation of transmission or distribution networks. It is based on the observation that if a single company operates a transmission or distribution network and generates or sells energy at the same time, it will have an incentive to obstruct competitors' access to infrastructure or the market. This prevents fair competition in the market and can lead to higher prices for consumers. Under the Third Package, unbundling for Transmission System Operators must take place in one of three ways, depending on the preferences of individual EU countries: -Ownership unbundling where integrated energy companies sell off their gas and electricity networks. In this case, no supply or production company is allowed to hold a majority share or interfere in the work of a transmission system operator; -Independent System Operator (ISO) where energy supply companies may still formally own gas or electricity transmission networks but must leave the entire operation, maintenance, and investment in the grid to an independent company; -Independent Transmission System Operator (ITO) where energy supply companies may still own and operate gas or electricity networks but must do so through a subsidiary. All important decisions must be taken independent of the parent company. The relevant provisions concerning Distribution System Operators require legal unbundling of those operators that serve more than 100 000 customers. Member States may decide not to apply unbundling rules to DSOs serving less than 100 000 customers, in which cases only accounting unbundling applies. It is at the discretion of Member States whether or not to apply this threshold or to set a lower threshold. (2) A competitive internal energy market cannot exist without independent regulators who ensure the application of the rules. The Commission's assessment of the role of regulators in 2007 showed a number of deficiencies: The effectiveness of regulators was frequently constrained by a lack of independence from government and insufficient powers. Consequently, under the Third Package, the requirements for national regulators have undergone a number of changes. Specifically: -Regulators must be independent from both industry interests and government. They must be their own legal entity and have authority over their own budget. National governments must also supply them with sufficient resources to carry out their operations; -Regulators can issue binding decisions to companies and impose penalties on those that do not comply with their legal obligations; -Gas network operators and suppliers are required to provide accurate data to regulators; -Regulators from different EU countries must cooperate with each other to promote competition, the opening-up of the market, and an efficient and secure energy network system. In order to support the implementation of the Directive, the Commission issued an interpretative note on the energy regulatory authorities. (3) In order to help the different national regulators cooperate and ensure the smooth functioning of the internal energy market, the EU established the Agency for the Cooperation of Energy Regulators (ACER). ACER is independent from the Commission, national governments, and energy companies. Its work involves: -drafting guidelines for the operation of cross-border gas pipelines and electricity networks; -reviewing the implementation of EU-wide network development plans; -deciding on cross-border issues if national regulators cannot agree or if they ask it to intervene; -monitoring the functioning of the internal market including retail prices, network access, and consumer rights. The functioning, role, and structure of ACER was most recently addressed in the recast of the ACER Regulation, and will not be part of this report except where specifically relevant to the evaluation of other areas. (4) The Third Gas Package also created a framework for the co-operation of TSOs by creating the European Network for Transmission System Operators for Gas (ENTSOG). Before the reform, national transmission system operators were responsible for ensuring that natural gas is effectively transported through pipelines in a secure manner, without any legal framework for the coordination of their activities on European level. Due to the cross-border nature of Europe's energy market, they must work together to ensure the optimal management of EU networks. ENTSOG supports the development of network codes to harmonise the flow of gas and enable efficient cross-border trade across different transmission systems. It also coordinates the planning of new network investments and monitors the development of new transmission capacities. This includes publishing every two years a European-wide ten-year network development plan (TYNDP) to help identify infrastructure gaps. These plans provide the basis for identifying the projects of common interest (PCIs) for enhancing cross-border network development under the framework of the Trans-European Network for Energy (TEN-E) Regulation. The TEN-E Regulation also mandates both ENTSOG and ENTSO-E to jointly develop energy-system wide scenarios to be used in their respective TYNDPs. For this purpose, the two organisations are requested to submit consistent and interlinked market and network models for both electricity and gas transmission infrastructure as of the end of 2016. However, ACER notes in its opinion on the ENTSOG TYNDP 2020 ‘that the implementation of the interlinked model is mostly limited to a joint ENTSO-E and ENTSOG TYNDP scenario development’. (5) In order to pursue the objective of consumer empowerment, the Third Gas Package contains provisions on a number of aspects related to gas supplies, such as switching and contract termination fees, billing of electricity and gas consumption, the right to receive information on energy consumption, and to quickly and cheaply resolve disputes. With regard to consumer protection, the Third Gas Package prescribes the Member States to define the concept of vulnerable consumers at national level, adopt the measures to protect such consumers and to address energy poverty.

An important tool to enable competition and consumers’ choice in the retail sector is the default prohibition of applying regulated prices. Regulated prices are unlawful under the current Gas Directive as interpreted by the Court of Justice, unless they form part of a public service obligation (PSO) imposed on undertakings in the gas sector and fulfil specific conditions prescribed by the Third Package. Smart metering is an important measure to allow taking informed decisions by consumers. In recognition hereof, provisions were included in the Gas Directive 2009/73/EC and in the Electricity Directive 2009/72/EC, as well as the Energy Efficiency Directive 2012/27/EU, fostering the smart metering roll-out and targeting the active participation of consumers in the energy supply market, through: -transparency provided by the meter (timely and accurate information on consumption: predictability of costs, awareness); -third party access to data and interoperability (facilitate competitive offers at the customer end, lower cost); and, -due regard to best practises (for instance installation of in-home displays, connection to home automation). The intervention logic table from the Impact Assessment for the Third Package illustrates the relationship between the measures and the structural problems addressed by the respective measures. Problems Measures Market concentration Vertical foreclosure Lack of market integration and cooperation (cross-border and national) Lack of transparency (insufficient info e.g. on generation & capacities) Distorted price formation (e.g. regulated prices, cross-subsidies) Downstream market foreclosure (access to customers) Secure grid investments & cross-border connections TSO unbundling improves TPA and thus market entry tackles problem at the root facilitates TSO cooperation and mergers eliminates preferential information flows eliminates cross subsidies N/A promotes e.g. interconnection investment Strengthen NRA to ensure level playing field; to better monitor unbundling obligations to monitor management of interconnection capacity to monitor transparency obligations to monitor cross-subsidies and determine tariffs to monitor access to customer data to monitor investment in grid & generation ACER indirect effect indirect effect closes regulatory cross-border gap, oversees ETSO+/GTE+ oversees ETSO+/GTE+ indirect effect indirect effect to assess cross-border Art. 22 requests ENTSOG to improve interconnection and create larger markets to develop common rules on TPA and grid connection to develop market and technical codes, coordinate grid operation to develop market and technical codes, rules on trading & transparency to improve interconnection and thus liquidity N/A 10-year investment plan, security and reliability rules Transparency obligations to facilitate market entry to overcome information advantage of integrated groups to facilitate market entry tackles problem at the root to reveal cause of price deformation to overcome information advantage of integrated groups to increase network security & reliability DSO unbundling to improve market entry strengthen resources of DSOs NRA to monitor transparency obligations to strengthen compliance officers, NRA to monitor cross-subsidies to eliminate brand confusion; NRA to monitor access to customer data N/A N/A meant that a certain measure was not deemed not to have a direct effect on respective fundamental problem Shaded fields indicated that more detailed measures were envisaged to tackle the respective problem The evaluation logic is framed under five different evaluation categories: Effectiveness, Efficiency, Relevance, Coherence and EU added Value (Figure 1). Effectiveness considers how successful the initiatives have been in achieving or progressing towards their objectives. This will be done by comparing the objectives with the actual effects generated by the initiatives (outputs, results, and impacts). Efficiency considers the relationship between the resources used (inputs) and the effects generated by the Directives (outputs, results, and impacts). Relevance looks at the relationship between the needs and problems of the gas sector and the objectives of the current legislation. Coherence looks for evidence of synergies or inconsistencies between the Directives and other EU policies that are expected to work together. EU added value assesses whether action continues to be justified at the EU level and looks for changes, which it can reasonably be argued, are due to EU intervention, rather than any other factors. For each of these categories a series of questions guide the evaluation. These questions are presented under Section 6 for each category. Detailed evaluations of the functioning of the Internal Gas Market were carried out over the last years, such as the Commission study ‘Potentials of sector coupling for decarbonisation: Assessing regulatory barriers in linking the gas and electricity sectors in the EU’ in which the Commission identified a number of market failures that a future reform may need to address. The Commission analysed as well the regulatory framework for Liquified Natural Gas (LNG) terminals in the EU in which a number of market failures and barriers have been identified that might be addressed to improve the LNG regulatory framework in the EU. In 2020, a comprehensive regulatory study has been conducted to identify and assess options for a potential EU regulatory framework for dedicated hydrogen networks and markets. Other EU institutions, notably ACER, are also regularly reviewing the functioning of the EU's gas markets and, in its ‘Bridge beyond 2025’, carried out an assessment of shortcomings of the current gas market design. Since 2001, the European Commission has reported on the progress and implementation of the internal gas market. Indeed, since the adoption of the Gas Directive, Article 52 legally obliges the Commission to monitor the application of the Directive and to submit an overall progress report to the European Parliament and the Council. Such monitoring and reporting has been conducted yearly. The findings and conclusions of these reports have fed into the present Evaluation. Moreover, several studies have been conducted by external experts on behalf of the European Commission to assess in detail different aspects of the implications of the Third Energy Package on the gas market. The Governance Regulation (EU) 2018/1999 helps the EU meet its climate and energy policy goals until 2030 and beyond. An important tool are the integrated National energy and climate plans (NECPs) prepared by Member States. The plans cover the five dimensions of the Energy Union, based on a common template, including market integration. Member States report on the current situation of their energy markets, relevant objectives and targets in the context of reaching the decarbonisation objective, as well as appropriate policies and measures. The provided information supports the Evaluation of the effectiveness of the Third Gas Package and the identification of issues for which the current rules are no longer sufficiently relevant. In line with the Regulation, Member States are also obliged to report biannually to the Commission on the status of implementation of their NECP by means of an integrated progress report covering all five dimension of the Energy Union including market integration.

Key data (such as raw market data) are based on data provided by ACER, which acts as primary collector of market data from EU Member States and carries a responsibility to make the data comparable across time and geographies. ACER publishes annually a report on the results of the monitoring on the electricity and natural gas markets where it identifies any barriers to the completion of the internal markets for electricity and natural gas. The provided information supports the Evaluation of the effectiveness of the Third Gas Package. The Commission ran multiple consultations to inform the EU Communications on Energy System Integration and the Hydrogen Strategy, respectively. The consultation responses covered aspects relevant for the revision of the gas market regulatory framework and for the integration of the gas sector into an integrated energy system. The consultation in May and June 2020 on ‘An EU Smart Sector Integration Strategy’, based on a roadmap, received 156 responses. The Commission also organised a stakeholder consultation on the review of the Renewable Energy Directive (Directive 2018/2001/EU) between 17 November 2020 and 09 February 2021. The Commission’s public consultation on the Inception Impact Assessment for the ‘Revision of EU rules on Hydrogen and Gas Market Decarbonisation Package’ was open between 10 February and 10 March 2021 and received altogether 128 replies on the ‘Have your say’ platform of the European Commission. These were divided between 113 business/industry representatives (companies and associations), five NGOs, two think-thanks, two NRA representatives (one national regulatory authority and the European association of NRAs), one European consumer association (BEUC), one national authority (non-EU Member State), one research entity, one national trade union and the Energy Community Secretariat and one EU citizen. Within the industry group, we received responses from 30 national industry and business associations and 26 European industry and business associations (representing gas infrastructure operators, energy companies, industrial gas end-users, gas end-use appliance manufacturers, hydrogen industry and traders). Gas infrastructure operators were the group strongest represented (15 gas TSOs and their associations, five gas DSOs and their associations and one gas storage system operator). Stakeholders expressed general agreement with the Commission’s plan to revise the gas legislation (Gas Directive and Gas Regulation) and consider legislative proposals for the regulation of hydrogen infrastructure as a key element for achieving the increased greenhouse gas emissions reduction targets and to implement the European Green Deal. In addition, a specific stakeholder consultation was open between 26 March and 18 June 2021 in the form of a questionnaire on the future initiative on gas market design. This wide public consultation gathered the views of EU and Member States’ authorities, energy market participants and their associations, SMEs, energy consumers, NGOs, academia, international organisations, representatives of civil societies and citizens. The public consultation on the revision of the gas market regulatory framework aimed at obtaining stakeholder’s views on how fit the current regulatory framework is to meet the energy transition challenges that the market faces and on how the issues may need to be addressed in a revision of the European gas market regulation. Given the complex nature of the Third Energy Package, the Commission has assisted Member States in the process of the implementation of the new rules, e.g. by discussing draft legislative measures and implementation solutions with the national governments and regulators (as well as with ACER, ENTSOG and other stakeholders) on an on-going basis since its adoption. This intensive implementation cooperation has proven efficient to prevent deficiencies at national level at an early stage as well as to resolve existing incompatibilities between national and EU legislation. In order to facilitate the implementation of the Third Energy Package, the Commission has also issued a number of interpretative notes, providing guidance to national authorities and stakeholders concerned . In a first step (‘transposition checks’), the Commission opened 19 infringement proceedings against 19 Member States to ensure full transposition of the Gas Directive between September and November 2011. Non-resolved cases were followed up in 2012-2013 by sending reasoned opinions and referrals to Court. At present, all of the infringement proceedings for partial transposition of the Gas Directive have been closed as the Member States achieved full transposition in the course of the proceedings. In a second step (‘non-conformity checks’), focus has been put on possible incorrect transpositions or EU law incompatible application of the Third Gas Package. Priority was given to violations having the highest impact on the functioning of the internal market, e.g. incomplete unbundling of transmission activities from production or supply, violations of the principle of independence of national regulators, or disregard of consumer protection rules. On this basis, the Commission opened so-called ‘EU-Pilot’ cases against a number of Member States. In parallel, it carried out a structured dialogue with the Member States so as to resolve the identified implementation problems. In many cases, such dialogue with national governments has brought satisfactory solutions and the ‘EU-Pilot’ cases could be closed. However, as of 9 November 2020, seven of these EU Pilot cases have resulted in infringement procedures where, inter alia, violation of EU gas market rules is at stake. In parallel to these systematic non-conformity procedures, the Commission has also acted on an ad hoc basis, following up on specific non-conformity problems of which the Commission became aware through complaints from individuals or undertakings, or emanating from contacts with National Regulators or based on the Commission's own assessment. Here again, the Commission first opened EU-Pilot cases against the respective Member States. If the issue raised was not resolved at the EU-pilot phase, the Commission opened an infringement procedure. As of 9 November 2020, four of such infringement procedures are still pending. At the time of writing, some type of price intervention for household consumers exists in 15 Member States. A regulated end-user price is considered as a price subject to regulation or control by public authorities (e.g. governments, NRAs), as opposed to being determined exclusively by supply and demand. This definition includes many different forms of price regulation, such as setting or approving prices, standardisation of prices or combinations thereof. Price regulation for non-households has been challenged via infringements while price regulation for households has not been yet subject to infringement procedures. Price regulation for non-households has been challenged by the Commission as a priority due to the more important market distortion that the regulation of prices for large and potentially most active consumers represents – after all these consumers cover an important amount of energy sold on the market. Regulation in Member States is often justified by social policy objectives and/or lack of conditions for fair competition. Deregulating household prices may be politically unpopular as refocussing the support only to those in need (such as energy poor) would reduce the access of middle and high income groups to the discounted prices. Therefore, an informal approach via bilateral consultations with Member States was initially preferred to discuss reasonable and sustainable alternatives to price regulation and accompanying measures. However, in the follow-up to informal consultations, the Commission will assess if the conditions for opening infringement actions against price regulation for households are present. The Commission published a detailed report on its enforcement activities in relation to the Third Energy Package (see the document ‘Enforcement of the Third Internal Energy Market Package (SWD(2014) 315 final’). The regulatory framework of the Third Package has also created new Commission competences to verify the implementation of EU market rules. It created a competence for the Commission to provide an opinion on draft decisions of national regulators who have to decide whether national TSOs can be considered as compliant with unbundling rules (so-called ‘certification’ of TSOs, Articles 10 and 11 of the Gas Directive and Article 3 of the Gas Regulation). The Commission has provided opinions on more than 60 preliminary certifications of TSOs for gas since 2012. The Third Package gave the Commission also the competence to decide on the compatibility of national exemptions from EU rules in case of investments into major new infrastructure (see Article 36 Gas Regulation). To the extent pertinent, the experience gained from these ex-ante approval procedures will be fed into the Evaluation (see ‘Effectiveness’ Section). The transposition deadline of Directive 2019/692 of 17 April 2019, that amended Directive 2009/73/EC to clarify its applicability to gas interconnector pipelines between Member States and third countries, expired on 24 February 2020. In the first step (‘transposition check’), the Commission opened 13 infringement proceedings against 13 Member States to ensure full transposition. This section summarises the main findings in relation to the analysis of each of the key areas of the Evaluation. Guiding questions indicate the focus of the Evaluation at the beginning of each section. 1.5.Effectiveness

The effectiveness evaluation aims at verifying whether the Third Gas Package has been achieving its objectives. This is being done by comparing the intended objectives with the actual effects generated in the various areas under consideration. Two aspects were analysed in particular, namely to what extent the new legislation removed competition problems, contributed to increased market integration, better coordination and stimulated grid investments (6.1.1.) and to what extent the new provisions improved the situation for consumers in terms of consumer protection (6.1.2.). 1.5.1.Market integration, competition and investments ·To what extent have wholesale markets become more competitive? ·To what extent has market integration already been achieved? To what extent has cooperation between TSOs and regulators evolved? ·What factors contributed hereto in particular or prevented this?



Reduced competition and foreclosure problems through strengthened unbundling In order to further promote competition on the energy gas markets, the Third Energy Package strengthened the unbundling rules to completely remove any conflict of interest between producers and suppliers on the one hand and transmission system operators on the other hand. With the aim of ensuring structural independence of network operation, the Directive foresees three unbundling models: ownership unbundling, the independent system operator (ISO) and the independent transmission operator (ITO). Following the expiry of the transposition deadline on 3 March 2011, the Commission has systematically assessed all national transposition measures. As of 1 January 2020, regarding gas, 25 Member States had implemented the mandatory ownership unbundling. In addition, ten Member States had implemented also the ITO framework, and two Member States the ISO framework. Compliance with unbundling requirements is monitored at national level by the NRAs, under a procedure set out in Articles 10 and 11 of the Gas Directive and Article 3 of the Gas Regulation. Under this procedure, NRAs are required to submit their draft decisions on the certification of transmission system operators to the Commission. The Commission then adopts an Opinion on the draft decision within a period of two months. NRAs are obliged to take utmost account of the Commission’s Opinion when adopting the final certification decision. This notification procedure ensures a high degree of consistency in the interpretation of the rules on unbundling for transmission system operators, and thereby increases legal certainty for Member States, transmission system operators and other stakeholders. The certification procedure pursuant to Article 10 of the Gas Directive has been successfully implemented in practice. In the period of 3 March 2012 until March 2021, the Commission has issued 145 Opinions on draft certifications of NRAs from 25 Member States . Of these, 65 Opinions concerned transmission system operators for gas, and 80 concerned transmission system operators for electricity. The positive impact of the reinforced unbundling rules was confirmed by a specific evaluation, as required by Article 52(3) of the Gas Directive. In its report on the ITO model from October 2014, the Commission analysed in detail to what extent the new rules were capable of sufficiently and adequately ensuring the effective separation of transmission networks from generation and supply interests. According to the Commission’s initial assessment, most requirements related to the ITO model seem to work in practice and can be (but are not always), sufficient and adequate to ensure effective separation of the transmission business from production and supply activities in the day-to-day business. This assessment was notably based on the view of national regulators, the network users and compliance officers within the ITOs. The report confirmed that problems of network foreclosure, which had been an ongoing concern prior to the adoption of the Third Package, had become less frequent after the introduction of the reinforced unbundling rules. However, both the ITO and (to lesser extent) the ISO models depend on behavioural safeguards which create additional regulatory costs for operators and NRAs. Moreover, such behavioural safeguards are more reliant on the monitoring by national authorities than structural separation (as in the ownership unbundling model), which eliminates incentives for anti-competitive behaviour altogether. With regard to DSO unbundling, the intervention mainly aimed at the unbundling of vertical integrated distribution companies with the objective to ensure non-discriminatory and transparent third party access in distribution networks, in order to promote competition in the energy market. There is no evidence that the intervention within the boundaries of the unbundling requirements, did not achieve the objective of promoting competition in the market. According to CEER the number of DSOs varies from one or two in some Member States to several hundred in other countries. In 2019 there were 1 317 gas DSOs in the EU (data for 27 Member States). From these 1 200 fall under the 100 000 rule and according to Article 26(4) for these DSOs Member States are not obliged to implement unbundling provisions under Article 26 of the Gas Directive. That means that only 117 DSOs across EU have the obligation to be unbundled according to the rules included in the Gas Directive. Increased liquidity and competition leading to fairer prices on wholesale markets The Commission’s and ACER’s analyses of the development of the gas market showed that the set of the different measures of the Third Gas Package had a positive effect on liquidity and competition in the wholesale market. The number of active suppliers and traded volumes increased, while market concentration and price spreads between markets decreased. Developments on wholesale markets also benefitted European consumers. ACER estimates that since 2013, benefits for European consumers stemming from positive wholesale market developments are in the range of several billions per year. The main share of these gains are caused by a move away from oil-price indexation to gas-to-gas competition. While the Third Gas Package and subsequent network codes proofed to be efficient and effective in delivering on identified issues such as lack of market integration, high market concentration and market power, its relevance for the efforts to implement the European Green Deal are not focusing on how to extend the benefits of liquidity and competition to a decarbonised gas system. Cooperation between TSOs increased… The creation of ENTSO-E and ENTSOG has intensified the cooperation between EU TSOs across Europe and within regions. The European Network for Transmission System Operators (ENTSOs) have notably worked intensively on developing draft text proposals for so-called ‘network codes’, i.e. implementing legislation for more coordinated network operation and trading rules. Based on the ENTSOs work and other stakeholders' input, the Commission was in a position to adopt a large number of implementing Regulations under comitology rules since 2009 . ENTSOG has also delivered the required input for a more coordinated infrastructure planning. According to the results of the Commission's stakeholder consultations on the ENTSO’s work on network codes (see the Consultation on the establishment of the annual priority lists for the development of network codes and guidelines) and the ENTSOs role in general, stakeholders consider the creation of the ENTSOs as a step into the right direction for more TSO cooperation. Also recent reports from ACER confirm that both ENTSOs have achieved a good level of performance since their establishment by the Third Package. Implementing legislation adopted under the new Third Package provisions on ‘network codes’ have further strengthened cooperation between TSOs. These network codes oblige TSOs to find common solutions for problems that require action of several neighbouring TSOs (e.g. allocation of bundled capacity, scheduling and coordination of maintenance). Consumer gas prices vary significantly for non-market related reasons, and have risen steadily for households With regards to retail markets, gas prices still vary significantly from Member State to Member State for nonmarket reasons, and prices have risen steadily for households since 2009 (Figure 2), primarily as a result of a significant increases in non-contestable charges in recent years (network charges, taxes and levies), but also a more recent increase of the energy component. The taxes and levies component has been the most significant driver of retail price developments over the last decade. The next section analyses in greater detail which specific policies and fiscal instruments were driving this increase.

The composition of gas prices changed from 2010 until 2019. The energy component increased at an annual rate of 0.8% and reached 30 EUR/MWh in 2019, whilst the network charges and taxes increased annually for household gas consumers by 2.6% and 3.6%, respectively. In 2019, these non-contestable charges make up, on average, 55% of the total household gas bill. Taxes and levies remain as such the most important cause of differences in retail prices across Member States due to the varied nature of Member States’ policies and fiscal instruments affecting the taxation of gas consumption. Retail gas markets for households remain concentrated in most Member States Overall, the average market share of the three largest supplier seems to show a downward trend. However, performances by the Member States are rather differentiated. Member States like Germany, Italy, Czech Republic and Romania have a high number of suppliers with a market share below 1% on the gas market. For some Member States such as Germany and Italy, this implies the numerous presence of local or regional suppliers. However, for countries such as Czech Republic and Romania, such a logic does not hold, as all of the suppliers are active nationwide. The cumulative market shares of the three largest gas suppliers for households is more than 70% in the majority of countries, including those with a large number of nationwide suppliers. As a result, the retail household market for small competitors is above 30% in only five out of 25 countries in gas, while the rest of the market is held by three dominant suppliers. CR3 values above 70% and low numbers of main suppliers are indicative of possible competition problems. As regards the general trend, data suggests that there has been little change in these CR3 values since 2009, with decreases of 10% or more recorded only in the Czech Republic’s and Spanish gas household markets. The comparable CR3 data for retail markets for non-households show that non-household markets are much less concentrated than household markets in many Member States. To summarize, retail gas markets for households are highly concentrated in more than 2/3 of Member States – a situation that has remained largely unchanged for the last years. In the non-household sector, market concentration is less pronounced, although still generally high. Whilst the variety of products is improving in some dimensions, it is lagging in others Although low prices are the most commonly thought of way for firms to attract consumers, firms may also seek to distinguish their products by other means. Whilst challenging to quantify precisely, the data suggest that ‘choice’ for consumers in European capitals widened between 2012-2014 and 2018-2019. The increasing diversity and variety of offers is a sign of more innovation in the sector, and helps raise consumer interest in the market. Although fixed, mixed, variable, online and green offers are still the most available products on the European gas markets, recent data suggests a downwards trend between 2018 and 2019 in availability of these products. The type of pricing of the offer (i.e. fixed, spot-based or variable) remains one of the most visible features of energy products. Whilst there is diversity in this dimension, there is certainly scope for improvement. Fixed-price offers still account for the majority of all gas offers in Europe. Furthermore, there are positive developments observable in terms of availability of offer type in the Member States. There were ten more types of offers available in 2019 in comparison to 2018, with social offers being increasingly available in Member States (from two to eight Member States by 2019). In addition, Member States have also reported the introduction of offers with different pricing options, monetary or additional service. Many Member States still practice some form of price regulation Today, regulated offers are present in 15 out of 27 gas markets. The regulation of gas prices limits consumer choice, restricts competition, and discourages investments. This is particularly true for markets where retail end-user prices are set below costs (i.e. without taking into consideration wholesale market prices and other supply costs). In general, EU gas markets show a higher penetration of price regulation among residual customers and low mark-ups of the regulated offer because regulated prices are more commonly set below competitive levels. Data shows that the combination of the high share of the customers with regulated price and the low margin of the regulated offer may lead to market foreclosure in Latvia, Hungary, Romania, Croatia, Bulgaria, Slovakia and Poland. In five countries, price regulation leaves some space for market competition but may prevent entry by reducing the contestable part of the market.

Infringement procedures have been launched to address the most serious market distortions created by the regulation of prices in favour of larger and potentially most active consumers, including industry sector and commercial and public services, who use the majority of the energy sold on the European market (53% of the total gas consumption in 2017). In parallel, the Commission has opted initially for an informal approach via bilateral consultations with Member States to discuss reasonable and sustainable alternatives to price regulation and accompanying support for vulnerable consumers. However, infringement actions against price regulation for households are not excluded in the follow-up to informal consultations. Investments (pipelines) The 2011 Impact Assessment for the TEN-E Regulation identified an investment need for gas networks in the period 2011-2020 of EUR 89 billion, with EUR 67.8 billion not yet having received a final investment decision even though the projects are very important to enhancing the security of gas supply. (Significantly) more than EUR 10 billion worth of projects were at risk. The study supporting the Impact Assessment for the revision of the TEN-E Regulation found that the total amount of funding realised for gas PCI projects summed up to EUR 1 500 million. The reasons for investing into infrastructure are different and ranged from market driven investments, to security of supply required investment (e.g. to enable physical reverse flow or to reach the N-1 infrastructure standard) to investments identified in national network development plans as required for the system on the basis of gas demand and supply scenarios that were expected to materialise. While there is little indication for underinvestment, some stakeholders rather point to an overestimation of gas demand, which led to overinvestments including a risk of future stranded assets. In any case, the rules on network investment effectively prevented underinvestment. Investments (renewable and decarbonised gases) Investments in biogas and biomethane Investments in biogas production has seen a significant growth in the last 10 years in Europe, mainly driven by favourable renewable energy sources (RES) support schemes in place in several European Union Member States. The EU energy and climate policies, together with positive policy framework conditions, programmes, administrative procedures and financial support (feed-in tariffs, investment support, etc.), have generally encouraged the development of biogas markets. This have favoured in several Member States the development of biogas plants for energy production. As a matter of fact, most of the biogas in the EU is currently used as a fuel for electricity generation, in electricity only or in combined heat and power plants with the effort toward the maximum use of heat aiming to increase the income and to improve the economics of the biogas plants. A combination of factors, including the advancement of biogas upgrading technology, poor economics of electricity biogas plants and the new opportunities for the use in the transport sector, has resulted in a shift from electricity and heat production to upgrading biogas to biomethane. This has created new opportunities and opened the competition between various biogas uses. Biomethane could be used as fuel in Natural Gas-powered Vehicles (NGVs) or injected into the natural gas grid as a substitute for natural gas to supply traditional end-users (power plants, industries and households). However, there is no harmonized EU framework enabling direct participation of biomethane production on the gas market as well as there is no obligation upon gas networks operators to connect and accept biomethane or other renewable or low-carbon gases. Therefore, in so far investments in biogas and biomethane have been driven by national policies based on renewable energy targets with no EU rules on how to enable direct renewable gases penetration of the gas market. Conclusions Overall, the Third Package partially fulfilled its original mission and created a stable market-based approach on which however further legislation should be built. In particular, it can be concluded that: -The strengthening of unbundling rules has had a positive effect on competition with new players entering the market, except in some Member States where the incumbent still holds a dominant position; -Market integration has improved; however, obstacles to further integration still exist. While tariff structures and the methodology has become more transparent, structural differences as well as tariff pancaking affects the cost for cross-border trade. Missing definitions or clear rules on the integration of DSOs has delayed and in some cases prevented access on a level playing field to the wholesale market; -Cooperation between TSOs and between regulators has improved, but needs to evolve further; -Retail level competition has progressed in some Member States, while it remains limited in others, mainly where price regulation is still in place with negative impact also on lower switching and consumer satisfaction. Overall, the linkage between wholesale and retail markets could be improved to enable the pass-through of the price signals to the consumers and trigger demand response; -The largely unchanged high concentration in the more than 2/3 of Member States’ retail gas markets for households over last years has resulted in the rising of gas prices for household consumers who pay on average two to three times more than industrial consumers. 1.5.2.Consumer empowerment and protection ·To what extent have consumers been properly empowered, including been given effective freedom of choice to purchase gas from their supplier of choice; ·Are consumers sufficiently protected, what is the level of consumer satisfaction? This Evaluation addresses four aspects of the existing acquis that cover consumer engagement and protection: the measures for easy and timely access to the appropriate tools and information for consumers to get actively engaged in the market; the provisions to protect vulnerable and energy poor consumers; the measures on fees related to switching energy suppliers; and the measures on billing. Consumer satisfaction and engagement in gas markets has improved in the last years

Although subjective, consumer satisfaction is a valuable indicator on the extent to which competition in the market is working for customers and whether suppliers are responding adequately to changing consumer preferences. According to the new Market Monitoring Survey (MMS) , in the gas services market a strong majority of EU27 consumers (82%) trust their providers. This is in line with the average across all surveyed markets (81%, in the electricity market trust counts 77%). This figure varies to an extent by Member State, from a high of 93% (in Greece) to a low of 70% (in Italy and Romania). 89% of EU consumers report positive experiences of making purchases in the gas market, with no notable differences between countries or sociodemographic subgroups. This percentage is below the average of other markets (92%), and above the 86% of the electricity services market. Such 89% positive opinion by consumers on their gas provider ranks this market 12th out of 22 surveyed markets for services across the EU. There seems to be thus a negative trend if compared to the MMS 2018, where it ranked 9th out of then 25 markets, though the criteria of the two surveys do not entirely coincide so any comparison is only relatively reliable. 89% of consumers say that price is important to them when choosing gas services. In comparison, 78% say the likely environmental impact of services is important. (For electricity, it is 77%.) Across all surveyed markets, 9% of EU27 consumers have experienced a problem (either with the product/service bought or with the retailer/provider/operator) that they felt gave cause for complaint. This percentage is of 7% for gas services. The figure is highest in Italy (14%) and Portugal (13%), and lowest in Estonia (1%). Looking at experience of problems more generally, whether or not these gave grounds for complaint, the most common is difficulties accessing support from providers (e.g. difficulties getting in contact with them), reported by 10% of consumers who have purchased gas services. This is closely followed by incorrect or unclear pricing, and inaccurate or misleading information about services both reported by 9% of consumers. Of all those who have experienced a problem, approaching a third (31%) suffered financial detriment as a result and 80% suffered other, non-financial impacts. The non-financial impacts were most commonly a loss of time (75%) or anger/frustration (60%). Two-thirds (66%) of all those who have experienced a problem in the market have gone on to make a complaint – most commonly to the service provider (53%). Just over half (55%) of all those who have made a complaint report being satisfied with the outcome. Consumers have demonstrated an interest in bundled products in recent years (offers increased for gas in the 2018-2019 period). From the MMS survey, 22% of EU27 consumers have purchased gas services in combination with other, similar services (such as electricity services). This figure ranges from a high of 60% in Belgium to a low of 8% in Slovenia. 8% of EU27 consumers have bought gas services in combination with other, non-similar products or services. Slow and uneven deployment of smart metering The Third Energy Package promoted the rollout of smart metering for gas, to assist the active participation of consumers and the modernisation of the energy market. The aim of the co-legislators was not to enforce an EU-wide smart metering deployment, but to encourage it only in those situations where it is economically reasonable, cost-effective and beneficial, and therefore appropriate. The related provisions instructed: (i) the deployment potentially subject to a Cost-Benefit-Analysis; but also (ii) the function of the systems to be rolled-out, namely to be interoperable, with due regard to standards and able to support the active participation of consumers in the energy market. Complementary functional requirements were also introduced in the Energy Efficiency Directive for the metering systems to make a substantial contribution to energy efficiency and serve consumers’ needs and their active participation. To guide Member States in their choices and assist them in meeting these obligations in the field, the Commission also tabled guidelines in non-binding Recommendations, and issued related standardisation mandates. To date, the implementation of gas smart metering in the EU is progressing in a rather conservative manner, at different speeds and operational environments across the Member States that are the ones deciding whether, and under which conditions, they proceed with deployment. Member States do that usually following a Cost-Benefit-Analysis, which in many cases turns out unfavourable for a large-scale implementation given that the business case for gas smart metering is more challenging to make than that for electricity. Accordingly, no penetration target is set in the legislation so far, nor a fixed timeline for deployment, unlike electricity. The rollout of gas smart metering in Europe reached onlya 27% penetration rate in the EU-28 by 2020120, despite Member States’ earlier announcements119 and following the lowering of targets in a number of occasions and changes in national deployment programmes120, In this slow-paced deployment , few Member States only are currently proceeding with large-scale rollouts, namely France, Italy, Luxembourg and the Netherlands . Installations of gas smart meters have also started in other countries but at different speed and level of ambition, namely in Germany, Estonia, Ireland and Poland. The rest of the Member States concluded for now that the costs outweigh the benefits; others intend to install gas smart metering only under certain conditions or have reached no decision yet . The successful rollout is to large extent controlled by Member States that decide on the deployment conditions and the respective arrangements. This calls for setting up well in advance clear roles and responsibilities. In most cases, the DSOs are (or expected to be) the responsible party for the implementation, ownership of smart meters as well as the data handling when countries proceed with a rollout. These are extra responsibilities for DSOs. They should be performed in a transparent and non-discriminatory way, given the increasing importance of metering data, and with due respect to applicable rules, such as the General Data Protection Regulation when data is identified as personal. This is clearly instructed in the new Electricity Directive; there is nothing similar currently enforced for gas. However, the Third Energy Package entitles consumers to receive their consumption data from electricity and gas undertakings, and allow access to it by a third party of their choice, free of charge . In addition, NRAs must provide an easily understandable and harmonised framework for accessing the respective data . With the introduction of smart meters, this data is more granular and further enriched, enabling service providers to offer to consumers broader value propositions beyond energy supply. To do that, they need to access/exchange the data in an easy, safe and secure way. In this context, the new Electricity Directive sets a comprehensive framework for data management Such clear rules for handling (smart) meter data and data required to run certain processes, are currently lacking in the gas provisions. Equipped with the right tools (smart meters) and with access to timely and accurate data, consumers can actually get actively involved in the gas market, if they wish so. Prior to that though they need to trust and feel at ease with such a perspective. Consumer acceptance of smart metering is a prerequisite for this, and a key element for the success of a rollout. To this respect, pilot projects confirm the need for tailored-made communication campaigns with targeted messages. These could help increase the effectiveness of the respective smart metering provisions. Switching and exit fees The switching rate is an important indicator of consumer engagement and of the choice available on the retail market. Although switching is affected by multiple factors such as regulated prices, the difference in price between offers on the market and trust in new suppliers, the switching rate is an important quantitative indicator of the effectiveness of the Gas Directive provisions. Even though consumer rights related to switching were already strengthened to an extent through the Third Energy Package, these still lag behind the electricity sector. In recent years, the switching rates have increased overall and consumer trust and experience with regard to the gas sector has generally improved . Nevertheless, switching remains inconsistent among countries and still forms one of the main retail barriers with conflicting data about consumer satisfaction with the switching process. To facilitate further consumer engagement in the gas market and improve consumer experience, it is necessary to strengthen consumer rights related to switching. According to the new Market Monitoring Survey 2020 on gas services, 12% of consumers in the gas services market have switched provider in the last year. Switching rates are driven by consumer engagement and incentives in the way of competitive offers. However, despite an overall increase in recent years, external as well as internal switching rates for household consumers vary significantly across Member States. Countries such as the UK, Belgium, Finland, Ireland, the Netherlands and Portugal had around 10-20% switching rate. However, there are countries, like Poland, Luxembourg, and Croatia where the switching rate still remains below 1%. The inconsistent data among switching rates across Member States points to a need to strengthen consumer rights with regard to switching and incentivise consumer engagement in the market. Across Member States, the number of types of gas offers, where fixed ones prevail, is generally lower than for electricity products. Nevertheless, the trend is positive in this segment. Data from 2018 collected by CEER shows that consumers in 14 out of 23 countries had the choice between five or more different types of offers, compared with 11 countries in 2017. To further illustrate the positive trend, ten types of offers were made available in more MS in 2019 than in 2018. With regard to customer satisfaction with the switching process, there is clear room for improvement. While consumer satisfaction and trust in the gas sector in general has improved, consumers report issues with the switching process. In the ‘Market Monitoring Survey 2020’, customers reported a positive experience with the gas services in general. At the same time, data collected in the ‘Barriers in retail energy market study’ shows consumer dissatisfaction with the switching process in the gas sector and difficulties with switching (see below Figure 4). On average, approximately 60% of the customers had a bad experience or expressed a negative opinion on the switching process in both markets. In the gas markets, seven countries had high barriers (close to or above 9 points), while two countries (Belgium and Netherlands) had low barriers (ca. 3 points).

Reasons for consumers not to switch vary, ranging from regulatory barriers (such as regulated prices) to behavioural aspects (e.g. lack of trust in new suppliers or perceived time-consuming procedures). An important factor that enables consumer empowerment and improves switching behaviour is the availability of clear and transparent information of energy supply prices and effective tools to compare offers. Data suggests that comparison websites cover both the electricity and gas markets, and the offers are communicated in a similar way. Price Comparison Tools (PCTs) have risen across the EU in 2018: Almost 64% of European consumers had used a comparison tools to switch suppliers. However, European countries show heterogeneous results in terms of uptake of PCTs in the gas sector. As an example, in four countries (Bulgaria, Cyprus, Hungary and Malta) consumers do not have access to comparison tools for energy offers, while in others, several PCTs are in place. In the Netherlands 25 prices comparison tools were reported. Consumer experience with comparability of prices is generally positive. Three in five (61%) consumers report finding it easy to compare the services of different gas providers, though the figure varies widely by Member State, from a high of 82% in Portugal to a low of 31% in Denmark. Among consumers who report finding it difficult to compare services, 45% say the total price of different services is not always clear and a similar proportion say it is difficult to know how services compare on aspects other than price (42%), or that service specifications are either not provided, are unclear or differ between providers (41%). Studies also showed that vulnerable groups of consumers were more likely to state that comparing offers had been difficult. 35% of those in the group with respondents for whom it was not easy at all to make ends meet, answered that it had been very or rather difficult to compare the information on contract duration, while among those who stated that it was very easy to make ends meet, 28% expressed this view. Respondents’ evaluations of the ease of comparing offers varied by the type of channel they had used to compare offers. Respondents who had used PCTs to look for alternative deals tended to be most likely to think that comparing energy offers had been easy, while respondents who had received offers via door-to-door and other channels were less likely to describe comparisons as easy. Contract exit fees represent a salient potential barrier to switching, since they tend to increase the threshold for consumers to switch due to the perceived diminished potential savings available. Concerning switching fees, current provisions already ensure that the switching process itself is mostly free for consumers; however, contractual conditions may differ and include additional charges, such as termination fees or administrative costs. PCTs that do not cover termination fees are therefore incomplete. From the MMS 2020 survey, among consumers who report finding it difficult to compare services – 45% say the total price of different services is not always clear and a similar proportion say it is difficult to know how services compare on aspects other than price (42%), or that service specifications are either not provided, are unclear or differ between providers (41%). Technical switching times Most Member Stats have legal maximum durations for switching in place, usually within three weeks. In 2019, eight countries did not have a specification on the timeframe (max. three weeks) of the switching period in their national legislation and five countries reported a timeframe of one month. The duration for technical switching of supplier is available in 9 Member States and range from one to 15 days. In comparison to the Electricity Directive, according to which the process of technical switching should take no longer than 24 hours by 2026 , the Gas Directive does not set a limit for technical switching. Collective switching Collective switching can serve as a powerful tool to stimulate switching, as well as to improve competition on the market by removing barriers for new entrants. The right to collective switching is currently not granted in the Gas Directive in comparison to the already established consumer right in electricity. Consumers could benefit from collective switching rights explicitly granted for their gas supply so that they can choose the best offer. Billing Transparent bills and billing information are essential to enabling consumers to regulate their consumption, compare offers and switch suppliers. Certain rights related to billing and contractual conditions are already provided by the Gas Directive and Energy Efficiency Directive. However, these are elementary compared to the current electricity market provisions, as set out in the Electricity Directive, and bills and billing information remain the most common consumer concern. The composition of the final gas bill for household consumers continues to vary greatly across the EU, and consumers in many Member States have expressed low satisfaction with the comparability and clarity of gas billing information. The Gas Directive entitles consumers to have access to relevant data, but it does not specify minimum requirements for the content of bills for gas supply alike regarding frequency of bills. Vulnerable and energy poor consumers Energy poverty continues to be a major challenge for the Union and one of the biggest concerns in view of the upcoming reinforcement of climate and energy legislation to meet the 2050 climate targets, in view of the decarbonisation’s distributional impacts on vulnerable low and middle income households that will be hit hardest. Article 3(3) and (4) of the Gas Directive sets out provisions for the protection of vulnerable consumers. Member States are required to establish a definition of vulnerable consumers and to adopt appropriate protection measures and safeguards. In particular, Member States are required to take appropriate measures to protect final customers in remote areas who are connected to the gas system. In order to adequately address energy poverty, including in the broader context of poverty, Article 3 of the Gas Directive states that Member States shall take appropriate measures, such as formulating national energy action plans, providing social security benefits to ensure the necessary gas supply to vulnerable customers, or providing for support for energy efficiency improvements.

Given the absence of a common EU definition of consumer vulnerability and energy poverty, however, the implementation of the consumer protection provisions has resulted in an uneven level of consumer protection across the EU Member States. Some Member States have defined in their legislation the concept of the ‘vulnerable consumer’ and have adopted corresponding measures to protect those belonging to this category. Such measures have tended to be predominantly at the level of welfare provision and social policy, and not so much at the level of specific energy policy measures. They were nonetheless successful in making more visible and effective the fight against energy poverty in the concerned Member States. State of play indicators and definition Income levels belong to the defining criteria of vulnerability in 19 and 14 Member States in electricity and gas respectively, followed by critical dependency for health reasons in 11 and six MS and age in nine and seven Member States. Many NRAs reported a combination of the listed determinants as well as specific ones, such as mental and/or physical disabilities, larger family size, unemployment or remote locality. Especially in Member States with implicit definitions of the concept of vulnerable consumers, e.g. Austria, determining criteria are closely bound to eligibility criteria for ear-marked social benefits. Since precise data on the topic remains limited, levels of energy poverty remain significant and a lack of clarity on the most appropriate means of tackling consumer vulnerability and energy poverty persists and constitutes to be a barrier to the further deepening of the internal energy market. In particular, the need to address the problem seems pressing given that some form of retail energy price regulation, in some cases intended to protect vulnerable and energy poor consumers, still exists in some Member States, and levels of market concentration remain high in some liberalised markets. As much as well-targeted direct interventions in the price of supply of energy to energy-poor/vulnerable consumers (e.g. Belgium, Spain, and Portugal) can be good practices, badly designed interventions can distort markets. The same applies for energy vouchers, credit line sand subsidies or tax exemptions or reductions for structural solutions. Switching rates are inconsistent among countries and data show dissatisfaction with the switching process and difficulties with switching. PCTs, an important factor to enable consumers to switch, show inconsistent uptake among Member States. Consumer experience with PCTs is generally positive, but contract termination and switching fees continue to be an obstacle. Some countries still do not have in place a maximum timeframe of 3 weeks for switching and, compared to the electricity sector, some rights such as technical switching times or collective switching are missing. Bills remain one of the largest consumer concerns and the composition of the final gas bills is not consistent among Member States. Minimum requirements and frequency of billing, as e.g. provided for in the Electricity Directive, are missing in the gas sector. 1.6.Efficiency ·In qualitative terms, to what extent are the costs proportionate to the benefits achieved? ·Are there areas where there is potential to reduce inefficiencies particularly regulatory burden and simplify the intervention? ·Are there areas where the current regulatory framework for the EU’s gas markets could be streamlined and optimised? Undoubtedly, the detailed rules for TSOs, DSOs, 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 reporting obligations towards the NRAs and for NRAs (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 NRAs. Half of the 28 NRAs have less than 100 staff members. This ratio did not change structurally. In 2019, the number of NRAs with less than 100 staff dedicated to energy regulation was 14 out of 24 NRA reporting data. Generally, the level of resources available to different NRAs varies considerably. As underlined by the Court of Auditors in 2015, the number of people dealing with energy issues in NRAs visited during their audit ranged from 21 (Estonia) to more than 200 at the time. In 2019, these numbers ranged from 16 (Cyprus) to more than 350. Certain regulatory measures contained in the Third Package have had a cost for gas 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 2014 showed 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. ENTSOG is financed almost exclusively by fees collected from its members i.e. the TSOs. ENTSOG also holds as observers TSOs from the Energy Community from countries which are not part of the EU. The fees paid by the TSOs to ENTSOG 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. 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. 1.7.Relevance 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 gas 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. With the 2030 Climate Target Plan, the Commission proposed in September 2020 to raise the EU’s ambition on reducing GHG emissions to at least 55% below 1990 levels by 2030, delivering on the commitment made in the Communication on the European Green Deal, which sets out a renew growth strategy to make Europe the first climate neutral continent in the world by 2050. In June 2021, the European Parliament and the European Council approved the first European Climate law, which embeds into EU law legally binding targets for net zero greenhouse gas emissions by 2050 and sets targets to reduce EU emissions by 55% by 2030. The transition to a climate-neutral society requires from energy markets to adapt in support of the decarbonisation of the whole energy system, while remaining affordable, safe, competitive, and secure. A fully integrated and well-functioning internal energy market is the most efficient means of ensuring affordable energy prices, necessary price signals for investments in green energy, securing energy supplies and enabling the least cost path to climate neutrality. The surge of the COVID-19 pandemic has further demonstrated the crucial role of the energy sector in the EU’s economic recovery. The Commission’s recovery plan presented on 27 May 2020 highlights the need to better integrate the energy system as part of its efforts to unlock investment in key clean technologies and value chains and increase economy-wide resilience. 1.7.1.The 2009 market design is not fully adapted to the decarbonisation of our economy …

Whilst the Third Energy Package applies to all gases that can safely be injected into the gas network, it is not necessarily suited for the decarbonisation of gases and their local production and it neither applies to networks transporting pure hydrogen. Hydrogen is generally perceived as a promising energy carrier and feedstock to support the EU’s decarbonisation efforts if decarbonised. This is a new development and significant uncertainties remain as to the actual deployment of clean hydrogen in terms of production pathways (electrolysis-based vs. gas-based with carbon capture and storage or usage technologies), geographical location of hydrogen production, sectors and geographical location of hydrogen consumption, and the predominant means of its transportation (pipelines, ships, etc). Although no developed hydrogen market exists yet in Europe, working on a transparent, contestable market framework based on clear rules is expected to be beneficial already at an early stage of development. This is because: -all decarbonisation scenarios show that clean hydrogen, in particular renewable, will play an important role in the not too distant future – it is thus not a question of whether but a question of when precisely this will happen; -investment decisions are expected to be taken in the years towards 2030; national strategies including on clean hydrogen are currently being developed and Member States are looking to the Commission for guidance; -setting the principles and objectives of regulation early on provides for investment security; -the draft ‘EU Hydrogen Strategy for a climate-neutral economy’ recognises the need for planning transportation infrastructure already in the first phase of building a hydrogen economy i.e. before 2025 and the first availability of this infrastructure already in the second phase i.e. between 2025 and 2030; -the use of pipelines and possibly other type of hydrogen infrastructure such as large scale storage and import terminals, requires rules securing competition as they can constitute a natural monopoly; setting basic rules now can avoid the costly ex-post interventions that were needed in the gas and electricity markets; -if the Commission proposes rules for a regulatory framework on clean hydrogen late 2021 at the earliest, usually such rules could be expected to become binding in Member States not earlier than 2024/2025, i.e. at the start of phase 2 and when important investment decision to prepare this phase need to have been taken already. Important developments are also expected for other renewable gases. The most significant production of renewable gases in the EU is currently provided by biogas and biomethane with some 17 bcm annually (against around 400 bcm of total market). There were 16 859 biogas installations in 2019 and currently some 550 biomethane plants in the EU are connected to the gas grid. Biogas is mainly used today for producing electricity and heat supported by support schemes. However, once support schemes end, it is foreseeable that existing biogas plants may decide to invest into upgrading biogas to biomethane for injection into the gas grid. Investments in new plants are expected to increase biogas and biomethane production significantly. Estimates range from 33 to 50 bcm by 2030 and 50 to 140 bcm by 2050. A 2016 study by DG ENER found that until 2030 the production of 18 bcm renewable gases could be doubled if the potential is optimally utilized. One of the main recommendations of this study for EU regulation was to ensure that EU rules enable biomethane cross-border trade. The current gas market design cannot fully accommodate the increasingly important role that renewable gases will play in the system. The vast majority of today’s biomethane plants are connected at the distribution level without the possibility to inject gas from the distribution to the transmission level. As distribution grids have limited possibilities for physical balancing, in practice, an injection at the distribution level requires consumption by consumers connected to that local grid. In cases of high over-supply at distribution level and lack of arrangements between DSOs and TSOs allowing ‘virtual’ trade, biomethane producers are deprived of access to wholesale markets and cross-border trade. This distorts the level playing field vis-à-vis other gas producers and is a barrier to scaling up renewable gas production. 1.7.2.…nor to changing market realities Decarbonisation of the gas sector will need to happen across Member States. In this process, both fuel switching and the development of renewable and decarbonised gases could benefit from a pooling of supply and demand beyond existing market areas. Particularly for the upscaling of renewable and decarbonised gas production, larger market areas provide better conditions because they allow the exploitation of economies of scale through easier trading and access to a larger consumer base. Additionally, overall gas demand is expected to decrease, which requires a larger area to be covered to reach comparable demand supporting a liquid market. Gas quality management In the current framework, gas quality standards are not binding on EU-wide scale and therefore gas quality differences can be a barrier to (cross-border) trade. Injection of growing volumes of decarbonised gases, in particular biogas and the blending of hydrogen into the existing gas network as well as further diversification of supply sources, including LNG, will change the quality of gas consumed in Europe. This will affect the design of gas infrastructure and end-user applications, as well as industrial processes using gas as feedstock. Such changes have important repercussions on the role and responsibilities of different actors (e.g. system operators, producers and network users) along the value chain in measuring, managing, and ensuring gas quality. At present, the process to manage cross-border restrictions due to gas quality differences is lengthy and not effective. With more gas injected at distribution level the process will become even more complex, involving new actors and additional quality measurement and management. The future regulatory framework needs to address fundamental issues of gas quality and its standardisation, such as the acceptance of gases with diverging gas quality injected into the grid at transmission and distribution levels and their cross-border tradability. The possible integration of growing volumes of hydrogen blended into the gas network would change the quality of gas transported in the pipeline network. The design of any future hydrogen regulatory framework containing rules on hydrogen blending levels – be it at Member State or at EU-level – will strongly influence gas qualities in the network and consequently the discussion on gas quality standardisation in the EU. Hydrogen blending obligations will aggravate the issue of technical feasibility of adjusting the quality and increase the cost of handling the differences in gas quality specification. Role of LNG LNG in Europe has helped diversify supply, thereby strengthening our security of supply, and bringing price competition and flexibility in the supply of gas. This is especially relevant due to the significant increase of LNG imports to the EU in the recent years. At the same time, the existing capacity of LNG terminals is not being used to its full potential.

The Third Energy Package regulatory framework for LNG leaves a wide margin of discretion to Member States (e.g. no strict unbundling provisions – Member States designate the LNG System Operators, access negotiated or regulated, with possible exemptions). At the same time, LNG terminals are used inefficiently with sometimes high booking ratios but low rate of utilisation/accessibility as utilisation rate stands currently at 27% in Europe. Rules on capacity allocation, utilisation of unused capacity and congestions management (set in network codes – CAM and CMP) are not applicable to the LNG facilities. In accordance with the tariff network code (TAR NC), discounts may be applied by the regulators to the transmission tariffs on the entry points from LNG facilities to the respective entry exit zones of the Member States. There are still some barriers and gaps that could be addressed in order to ensure the optimal use of existing LNG terminals, notably with regards to capacity allocation, tariff structures, transparency, products flexibility, and exemption regime. Improving these areas of the exiting framework would positively impact on terminal utilisation rates and competition on the gas market. These regulatory improvements have also the potential to further support the decarbonisation of the EU gas market by enhancing the liquidity, transparency and flexibility in the internal gas market and ensuring a more efficient usage of existing infrastructure. Overall, the rules of the Third Energy Package appear to be insufficient to meet the new climate targets and to ensure an effective and cost-efficient transition to a cleaner energy system. Different rules appear to be needed to ensure in particular a level playing field for the market up-take of renewable and low carbon gases and to unlock the potential of emerging market realities. The Third Package does not provide regulatory certainty for the development and deployment of hydrogen. 1.7.3.The Third Package does not provide regulatory certainty for the development and deployment of hydrogen To achieve the EU decarbonisation goals by 2050, it will be necessary to gradually replace natural gas with renewable and low-carbon gases. A large potential to achieve this objective lies with hydrogen. As a gaseous energy carrier, hydrogen can be deployed in hard-to-decarbonize sectors for which low carbon and renewable alternatives are scarce or non-existent and where direct electrification is currently challenging. In addition, hydrogen can contribute to energy system integration by linking the electricity and gas system. It can be used to manage a European electricity system increasingly based on renewables by offloading electricity grids in times of abundant electricity supply and by providing an option for large scale and long term (electricity) storage. In order to realize climate neutrality in 2050, the share of hydrogen in Europe’s energy mix is projected to grow. In the strategic vision for a climate-neutral EU, the share of hydrogen in Europe’s energy mix is expected to increase from the current less than 2% to 13-14% by 2050. According to the Climate Target Plan Impact Assessment, which outlines the policy options to cut greenhouse gas emissions by at least 55% by 2030, hydrogen will have to represent a significant share of gases in the energy mix in any of the more pertinent policy scenarios. Alongside these projections, Member States have developed national strategies on the deployment of hydrogen and have requested the European Commission to create regulatory guidance. The European Commission has set out its vision on actions needed to realize an integrated energy system and the further development and deployment of hydrogen in its Communications on Energy System Integration and Hydrogen. EU Member States have a different potential for the production of renewable and low carbon hydrogen. Consequently, an internal market for hydrogen and a suitable European market framework to support it may well be necessary for hydrogen to play its role as an energy carrier and enabler of energy system integration in the EU. However, the Third Gas Package applies to all gases that can be safely injected into the gas network, which include hydrogen blended safely into the natural gas system but does not apply to dedicated hydrogen infrastructure. Gas market rules apply therefore neither to newly build hydrogen networks nor to natural gas networks that could be retrofitted in the future to transport pure hydrogen. Thus, the current framework cannot facilitate the large deployment of hydrogen as an independent energy carrier via dedicated pure hydrogen networks. At the same time, Member States may take national initiatives based on national strategies, but these efforts are likely to be dispersed, resulting in uncoordinated and weak cross-border integration and network development. In the absence of infrastructure and well-functioning markets, some Member states will have no or limited access to hydrogen storage and import facilitates as geographical and geological circumstances are vary among Member States. Moreover, the existing provisions do not include rules on unbundling the network-related activities between natural gas and pure hydrogen infrastructure. The level of