COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE EVALUATION Accompanying the document Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) Proposal for a Regulation of the European Parliament and of the Council on the electricity market (recast) Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast) Proposal for a Regulation of the European Parliament and of the Council on risk preparedness in the electricity sector
Date: 2016-11-30
Institutions: Directorate-General for Energy, European Commission
Subjects: European Union Agency for the Cooperation of Energy Regulators, consumer, electrical energy, electricity supply, energy cooperation, energy grid, operation of the Institutions, renewable energy, security of supply, single market

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   EN 

   EUROPEAN COMMISSION  Brussels, 30.11.2016  SWD(2016) 413 final   COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE EVALUATION Accompanying the document Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast)  Proposal for a Regulation of the European Parliament and of the Council on the electricity market (recast)  Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast)  Proposal for a Regulation of the European Parliament and of the Council on risk preparedness in the electricity sector  {COM(2016) 861 final} {SWD(2016) 410 final} {SWD(2016) 411 final} {SWD(2016) 412 final}  
 
 
1.  EXECUTIVE SUMMARY 

1.1.  Background and purpose of the evaluation 

This  Evaluation  supports  the  concomitant  Impact  Assessment  aimed  at  improving  the  EU 
regulatory  framework  governing  the  internal  electricity  market  ("Market  Design  Initiative"). 
The Evaluation analyses to what extent the existing legislation was successful in achieving its 
goals1. In contrast, the purpose of the Impact Assessment is to identify and weigh options for a 
future reform of the regulatory framework.  

As  set  out  in  the  Evaluation  Roadmap2,  this  Evaluation  will  focus  on  developments  in 
electricity  markets  which  have  been  subject  to  a  several  legislative  reforms  in  the  past  20 
years. The latest reform of the regulatory framework – which is the object of this evaluation - 
dates back to 2009 and is commonly referred to as the 'Third Energy Package'. The package 
followed  on  a  first  and  second  set  of  landmark  energy  legislation  adopted  in  1996  ('First 
Energy Package') and 2003 ('Second Energy Package') respectively.  

The  Third  Energy  Package  pursued  the  general  objective  of  completing  the  internal  energy 
market and moving towards a competitive, secure and sustainable Energy Union. It covers in 
particular five main areas: 

  unbundling energy suppliers from network operators; 
  strengthening the independence of regulators; 
  establishing the Agency for the Cooperation of Energy Regulators (ACER); 
  enhancing  cross-border  cooperation  between  transmission  system  operators  and  the 

creation of European Networks for Transmission System Operators; 

  open, fair retail markets and consumer protection. 

This Evaluation also analyses the effects of the Security of Electricity Supply Directive (SoS 
Directive)3 as adopted in 2005 to establish some first rules on security of supply in electricity, 
and  which  has  in  the  meantime  been  complemented  and  partly  superseded  by  the  Third 
Energy Package of 2009 and by other legislation4. 

1 See in detail the Commission's "Better Regulation Guidelines", SWD(2015)111 of 19.5.2015. 
2 Evaluation Roadmap " Evaluation of aspects of the regulatory framework of the EU electricity markets – AP 
2015/ENER/061"; http://ec.europa.eu/smart-
regulation/roadmaps/docs/2015_ener_061_evaluation_eu_electricity_market_en.pdf  
3 Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures 
to safeguard security of electricity supply and infrastructure investment, OJ L 33, 4.2.2006, p. 22–27. 

4 Evaluation Roadmap " Evaluation of the Directive 2005/89/EC on security of electricity supply – AP 
2016/ENER/032"; http://ec.europa.eu/smart-
regulation/roadmaps/docs/2016_ener_032_evaluation_elec_supply_investment_en.pdf 

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1.2.  Key findings 

Tangible progress  

Overall  and  within  the  scope  of  the  two  evaluations  carried  out,  the  evaluation's  findings 
support  the  view  that  the  Third  Package  has  positively  contributed  to  competition  and 
performance  of  the  internal  electricity  market,  delivering  tangible  market  benefits  that  have 
translated into added net social welfare. 

Although only a handful of years have passed since the entry into force of the Third Energy 
Package in 2011, the evaluation showed that the initiative to further increase competition and 
to  remove  obstacles  to  cross-border  competition  in  electricity  markets  has  generally  been 
effective,  and  that  active  enforcement  of  the  legislation  has  led  to  positive  results  for 
electricity markets and consumers.  

The  reinforced  unbundling  rules  had  a  positive  effect  on  competition  and  helped  to  limit 
problems of market foreclosure. Markets are in general less concentrated and more integrated 
than in 2009. The new rules aiming at removing barriers to cross-border trade and to enhance 
cooperation  between  transmission  system  operators  and  regulators  contributed  to  increased 
liquidity of electricity markets and a significant increase in cross-border trade, resulting in 
more competitive wholesale markets and contributing to lower wholesale prices.    

As  regards  retail  markets,  the  set  of  new  consumer  rights  introduced  by  the  Third  Energy 
Package have clearly improved the position of consumer in energy markets. The new rules 
enabled consumers to make better use of emerging competition between different suppliers in 
many  countries,  and  switching  between  different  suppliers  increased.  Also,  consumers  have 
access to a single point of contact for queries and to alternative (supplier-consumer) dispute 
settlement  services  while  self-generation  and  smart  technologies  started  to  spread  in  several 
markets.  

Remaining obstacles  

However,  in  other  fields  the  success  of  the  rules  of  the  Third  Package  in  developing  the 
internal electricity market further to the benefit of customers remains limited.  

On wholesale markets, persisting barriers to cross-border trade and unused interconnector 
capacities resulting notably from insufficient cooperation between national grid operators and 
regulators  on  the  shared  use  of  interconnectors.  The  national  perspective  of  the  involved 
parties still prevents effective cross-border solutions in many cases and limits possible cross-
border flows.  

With  regards  to  retail  markets,  competition  performance  could  be  significantly  improved. 
Electricity and gas prices still vary significantly from Member State to Member State for non-
market  reasons,  and  prices  have  risen  steadily  for  households  as  a  result  of  significant 
increases in non-contestable charges in recent years (network charges, taxes and levies). Poor 
competition, as evidence through a range of market structure and conduct indicators, may help 
to explain lacklustre consumer satisfaction and engagement in the energy markets, as well as 
the slow deployment of innovative retail products such as dynamic price supply contracts. A 

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number of Member States  still practice some form of blanket price regulation for electricity 
and/or gas – a practice that may cause gross market distortions.  

With regard to consumer protection, rising energy poverty, as well as lack of clarity on the 
most  appropriate  means  of  tackling  consumer  vulnerability  and  energy  poverty,  hamper  the 
further  deepening  of  the  internal  energy  market.  Switching  related  fees  such  as  contract 
termination  charges  continue  to  constitute  a  significant  financial  barrier  to  consumer 
engagement. In addition, poor consumer satisfaction with energy bills, and poor awareness of 
information  conveyed  in  bills5  suggests  that  there  may  still  be  scope  to  improve  the 
comparability and clarity of billing information. 

New developments were not addressed by the existing rules  

While  the  principles  of  the  Third  Energy  Package  achieved  its  main  purposes  (e.g.  more 
supplier  competition),  new  developments  in  electricity  markets  led  to  significant  changes  in 
the market functioning in the last five years and dampened the positive effect of the reforms 
for customers.  

The  commitment  to  decarbonize  the  economy  led  to  a  steep  increase  of  energy  generated 
from renewable energy sources (RES). The physical nature of renewable electricity generation 
– more variable, unpredictable and decentralized than traditional generation  – had important 
practical consequences on electricity markets and grid operation. As most RES generation can 
only be predicted shortly before the actual production (due to weather uncertainties), effective 
short-term markets play a key role today. Most electricity from RES is produced decentrally 
and  fed  into  the  local  distributions  grid.  The  market  design  rules  of  the  Third  Package, 
however, are based on the predominant generation form of the last decade, i.e. central, large-
scale fossil fuel-based power plants.  

In parallel, we have seen a dramatic increase of state interventions into the electricity market. 
Sub-optimal rules for the support of RES generation had the unintended effect to distort the 
wholesale market price signal. Uncertainty about the ability of the new market to incentivise 
sufficient  investments  led  many  Member  States  to  introduce  national  subsidies  aiming  at 
protecting existing generation or triggering new (so-called Capacity Mechanisms). These state 
interventions had a significant impact on the market price signals of the market to guarantee 
lower consumer prices investment signals and to limit cross-border trade. State interventions 
also 
the  positive 
developments on wholesale electricity markets and driving up prices for end customers at the 
retail  level.  The  volumes  of  electricity  trade  affected  by  such  state  interventions  contracted 
under such mechanisms have increase significantly in the last years, with increasing impacts 
on functioning of the internal electricity market.  

tariffs,  ultimately  neutralising 

transmission 

into  higher 

translated 

Equally dramatic changes have taken place on the technological side. Power exchanges (PX) 
and market coupling are facilitating wholesale trading while digitalisation of energy markets 
and metering increasingly allows to use so-called 'demand response' solutions, enabling the 

5   European  Commission  (2016),  '  Second  Consumer  Market  Study  on  the  functioning  of  retail  electricity 

markets for consumers in the EU ', 

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demand of industry, businesses and households to participate in electricity markets. However, 
the  current  legislation  has  not  been  effective  in  removing  the  primary  market  barriers 
especially  for  independent  demand  response  service-providers  and  creating  a  level  playing 
field for them. Nor was it designed to address currently known challenges in managing large, 
commercially  valuable  consumption  data  flows.  In  addition,  technological  progress  allows 
distribution  system  operators  to  reduce  network  investments  by  locally  managing  the 
challenges  posed  by  increasing  amounts  of  distributed  RES  E  directly  connected  to 
distribution systems. However, outdated regulatory frameworks prevent them from operating 
more  innovatively  and  efficiently.  And  the  increased  use  of  online  comparison  tools  is 
changing the way consumers interact with the retail market. The nature of the transformation 
of Europe's energy system and the gap in the existing legislation to deal with these changes 
has been clearly confirmed by stakeholders.  

Overall, the Third Package partially fulfilled its original mission and created a stable market-
based approach on which however further legislation should be built on. However, retail level 
competition could be significantly improved, and consumer protection strengthened further in 
order  to  ensure  that  the full  benefits  of  the  internal  market  can  be  passed  through  to  all  EU 
consumers. Moreover, the existing rules are not fully adapted to deal with the recent changes 
in electricity markets effectively. The direction and speed of such changes had not been fully 
foreseen by the Third Package, creating a clear rationale to update market rules so that they 
may be able to cope with the reality of today's energy system.  

In  the  area  of  security  of  electricity  supply,  the  evaluation  finds  that  the  objectives  that 
inspired  SoS  Directive  are  still  relevant.  But  the  Directive  itself  was  quickly  overruled  by 
newest  EU  rules  and  had  a  limited  impact  on  the  security  of  electricity  supply  in  Europe. 
Moreover,  its  objectives  match  only  partially  the  current  needs  on  security  of  supply  in 
Europe,  in  particular  concerning  risk  preparedness.  Indeed,  the  Directive  failed  to  address 
emergency  related  aspects,  i.e.  how  to  make  sure  that  Member  States  are  aware  and  duly 
prepared to all kind of security of supply risks, that they clarify roles and responsibilities in 
case  of  emergency  and  that  they  take  into  consideration  the  potential  cross  border  impact 
when adopting safeguard measures. 

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