COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE EVALUATION 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)
Date: 2021-12-15
Institutions: Directorate-General for Energy, European Commission
Subjects: carbon neutrality, energy cooperation, energy grid, energy market, energy transport, gas supply, hydrogen, natural gas, renewable energy, security of supply

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   EUROPEAN COMMISSION  Brussels, 15.12.2021  SWD(2021) 458 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE EVALUATION  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) 457 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 gas market (Impact assessment for the Hydrogen 
and Decarbonised gas markets package). 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.  

This  Evaluation  will  focus  on  developments  in  gas  markets  which  have  been  subject  to 
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.  It  forms  part  of  what  is 
commonly referred to as the ‘Third Energy Package’. It 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  also  contained  the  regulatory 
framework for electricity markets and the establishment of the Agency for the cooperation of 
Energy  Regulators  (ACER).  These  parts  of  the  Third  Energy  Package  already  underwent 
recasts adopted in 20192.  

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 areas3: 

  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. 

The functioning, role, and structure of ACER was most recently addressed in the recast of the 
ACER Regulation4, and will not be part of this report except where specifically relevant to the 
evaluation of other areas. 

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2  

3  

4  

See in detail the Commission's ‘Better Regulation Guidelines’: https://ec.europa.eu/info/law/law-making-
process/planning-and-proposing-law/better-regulation-why-and-how/better-regulation-guidelines-and-toolbox_en 
In the following, the Third Energy Package is referred to for principles and concepts applicable to both gas and 
electricity markets at the time, whereas aspects specific to the gas market are described under the heading of the 
Third Gas Package. For the evaluation of the Third Energy Package as regards the electricity market, ACER, and 
overarching aspects see the accompanying report to the Market Design Initiative (SWD/2016/0412 final - 
2016/0379 (COD)) https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD:2016:412:FIN 
The intervention logic of the Third Package is set out in the accompanying impact assessment at the time 
https://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2007/sec_2007_1179_en.pdf.   
Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European 
Union Agency for the Cooperation of Energy Regulators: http://data.europa.eu/eli/reg/2019/942/oj  

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1.2.  Key findings 

Tangible progress  

Overall, the evaluation's findings support the view that the Third Gas Package has positively 
contributed  to  competition  and  performance  of  the  internal  gas  markets,  delivering  tangible 
market benefits that have translated into added net social welfare. 

Since  the  entry  into  force  of  the  Third  Gas  Package  in  2011,  the  evaluation  shows  that  the 
initiative to further increase competition and to remove obstacles to cross-border competition 
in gas markets has generally been effective, and that active enforcement of the legislation has 
led to positive results for gas 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  (TSOs)  and  regulators  contributed  to 
increased liquidity of gas markets and an increase in traded volumes, also across borders, 
resulting in more competitive wholesale markets and contributing to robust and fair wholesale 
price formation.    

As  regards  retail  markets,  the  set  of  new  consumer  rights  introduced  by  the  Third  Gas 
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.  

Remaining obstacles  

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

On  wholesale  markets,  the  situation  has  improved  since  2009.  As  stated  in  the  recent  2020 
report on the State of the Energy Union5, gas wholesale markets have become well developed 
in  recent  years.  Traded  volumes  on  natural  gas  hubs  rose  to  an  all-time  high  in  2019.  This 
trend continued into 2020, with the COVID-19 crisis negatively impacting the trading activity 
and demand for gas. The Dutch Title Transfer Facility (TTF) is developing into a benchmark 
also  for  internationally  traded  liquefied  natural  gas  (LNG).  Connectivity  and  access  to 
different sources of gas continue to improve as well. Price correlation between the TTF and 
other hubs in North Western Europe is high6. On the other hand, there are still differences in 
market  development,  liquidity as well as competition  intensity among Member States. Price 
convergence between TTF and North Eastern markets (Poland, Baltics and Finland) or South 
West (Spain, Italy) shows price differences between EUR 1-3/MWh or above during the year. 

5   

6   

COM(2020) 950 final, available at: 
https://ec.europa.eu/energy/sites/ener/files/progress_on_internal_energy_market.pdf  
Below EUR 1/MWh for 90% of trading days in 2019 (ACER MMR 2020, Gas Wholesale Markets Volume, p. 43). 

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Tariff pancaking effects7 could be a cause, but cannot explain the differences completely. For 
several  South  Eastern  Member  States,  the  ACER  report  does  not  even  contain  price 
differences as the data is missing as a result of missing markets or price indications. This is 
due  to  the  fact  that  the  implementation  of  the  Network  Codes  is  still  on-going  or  being 
transposed, is not yet showing the results in practice. 

As  regards  retail  markets,  competition  performance  could  be  improved.  Gas  retail  prices 
remain  largely  determined  by  wholesale  gas  prices,  which  make  up  most  of  the  energy 
component and filter into the retail price after several months8. In some countries, household 
gas prices seem to be quite low as compared with wholesale prices and disconnected from the 
evolution of wholesale prices. 

Overall,  retail  gas  prices  including  taxes  and  levies  increased  in  2019  compared  to  2018. 
However, since they follow the evolution of wholesale prices with a slight time lag, they are 
likely to drop again in the near future. Gas prices for household consumers ranged from EUR 
33/MWh in Hungary to EUR 116/MWh in Sweden. The average price for the EU was EUR 
68/MWh.  Consumers  in  Luxembourg  spent  the  least  on  taxes  and  levies.  In  Denmark,  the 
share of generation and supply costs was the lowest, while the taxation share was the highest9. 

A number of Member States still practice some form of blanket price regulation for gas  – a 
practice that may cause severe market distortions. 

With regard to consumer protection, in comparison to the electricity sector, the gas market 
framework  lags  behind.  Persisting  high  levels  of  energy  poverty  across  numerous  Member 
States,  as  well  as  the  low  pace  at  which  appropriate  measures  of  tackling  consumer 
vulnerability  and  energy  poverty  are  being  developed,  hamper  the  further  deepening  of  the 
internal energy market. 

As  well,  consumer  engagement  is  under-developed.  Switching  related  fees  such  as  contract 
termination  charges  continue  to  constitute  a  significant  financial  barrier  to  consumer 
engagement. The duration for technical switching supplier is available in nine Member States 
and range from one to 15 days (often much longer than for switching electricity provider). In 
addition,  poor  consumer  satisfaction  with  energy  bills,  and  poor  awareness  of  information 
conveyed  in  bills10  suggests  that  there  may  still  be  scope  to  improve  the  comparability  and 
clarity of billing information. 

New  developments  and  the  decarbonisation  of  the  energy  sector  are  not  addressed  by  the 
existing rules 

While the principles of the Third Gas Package achieved its main purposes (e.g. more supplier 
competition),  new  developments  in  gas  markets  and,  in  particular,  the  ambition  of  the 
European Union to achieve a climate neutral economy by 2050 make adaptations necessary. 

7  

8  
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10  

Namely the accumulation of tariffs to be paid by traders when shipping gas across several borders as result of the 
current entry/exit tariffs system.   
2020 Energy Prices and Costs Report.  
2020 State of the Energy Union Report. 
European Commission (2016), ‘Second Consumer Market Study on the functioning of retail electricity markets for 
consumers in the EU’. 

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In December 2019, the Commission presented the European Green Deal as the new European 
Growth  Strategy  setting  out  a  clear  agenda  to  make  Europe  the  first  climate  neutral 
continent  in  the  world  by  2050.  This  objective,  and  the  objective  of  a  55%  reduction  in 
GHG  emissions  by  2030  compared  to  1990  (as  legally  demanded  by  the  European  Climate 
Law11), requires a substantial transformation of Europe’s economy to a green and competitive 
economy with fundamental changes in many areas, including the energy sector.  

Energy  markets  will  need  to  adapt  to  enable  the  technology  trajectories  highlighted  in  the 
Commission’s 2018 long-term strategy ‘A Clean Planet for All’ and ensure that they can be 
realised in a non-disruptive and cost-effective manner. To achieve the decarbonisation goals it 
will be necessary to gradually replace natural gas by decarbonised energy carriers including 
electricity, renewable heat and decarbonised gases. 

The  existing  gas  market  rules  are  not  fully  suited  for  the  decarbonisation  of  the  energy 
sector. The current regulatory framework for gas focuses on fossil-based natural gas and does 
not fully anticipate the emergence of alternative methane gases, such as bio-methane, or other 
gaseous fuels, notably hydrogen. Also, most renewable gas is currently produced decentrally 
and  fed  into  local  distribution  grids.  The  market  design  of  the  Third  Energy  Package  is 
however based on the flow from large-scale production via the transmission system down to 
the distribution grids and final consumers.  

Lastly,  gas  market  rules  are  not  necessarily  compatible  with  the  framework  applying  to 
electricity,  energy  efficiency  and  renewable  energy  sources  including  heating  and  cooling. 
The increasing penetration of intermittent energy sources, on the contrary, requires the whole 
energy  system,  both  markets  and  infrastructure,  to  be  better  integrated.  The  progressive 
integration  and  emergence  of  new  energy  markets  means  that  infrastructure  becomes  more 
interconnected.  A  more  holistic  and  inclusive  approach  to  infrastructure  network  planning 
may  therefore  be  required  of  system  operators,  as  opposed  to  the  largely  silo-based  current 
practices. 

On the technological side, the ability to produce increasing quantities of renewable and low-
carbon  gases, including  hydrogen, has increased  considerably. They  are,  however, not  price 
competitive towards hydrogen produced from fossil fuels at the moment, and therefore require 
support. Abolishing regulatory barriers will enable renewable and low carbon sources of gases 
to  compete  in  the  EU  gas  market,  bringing  down  costs  of  production,  increasing  cost 
efficiency  and  leading  to  less  support  measures  and  state  aid.  It  will  also  enable  supply  of 
those gases to Member States that otherwise would not satisfy their demand. 

To  better  identify  the  shortcomings  of  the  Third  Energy  Package  with  respect  to  the 
integration  of  renewable  and  low  carbon  gases,  the  current  provisions  should  be  assessed 
against the pathways likely to be taken towards a climate-neutral economy. Principally, two 
pathways are expected to emerge in parallel, as one does not exclude the other. They are 
expected to develop at different pace in the EU in terms of scope, speed and location. 

11  

Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the 
framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 
(‘European Climate Law’), OJ L 243, 9.7.2021, p. 1–17. 

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(i) 

A methane-based infrastructure in which natural gas will progressively (but not fully) 
be replaced by other sources of methane (i.e. bio-methane, synthetic methane and to 
some  degree  renewable  or  low  carbon  hydrogen)  using  the  currently  existing 
infrastructure; 

(ii) 

A  parallel  hydrogen-based  infrastructure  in  a  parallel  dedicated  network  that  will 
progressively complement methane-based gases. 

For the first pathway, the existing gas rules, focusing on natural gas mainly imported from 
outside  the  EU,  do  not  address  the  specific  characteristics  of  decentralized  renewable  and 
low-carbon gases production within the EU. The vast majority of today’s bio-methane plants 
in the EU are connected at the distribution level. However, the current regulatory framework 
does not anticipate decentralised gas injections, meaning that the tradability and access of bio-
methane to markets and the gas grid is not on a level playing field with fossil natural gas. This 
affects the business case of bio-methane producers and ultimately the costs for achieving the 
EU’s climate objectives. 

Accommodating  higher  shares  of  renewable  and  low-carbon  gases  in  the  system  poses  also 
new  challenges  that  were  not  originally  foresaw  by  the  Third  Gas  Package.  The  growing 
volumes of biomethane, hydrogen but also LNG affect gas quality and thereby the design of 
gas infrastructure and end-user appliances. Differences in gas quality entail the risk of cross-
border trade restriction and market fragmentation. However, the current regulatory framework 
was not designed with these upcoming challenges for gas quality management in mind.  

The second pathway was not anticipated by the Third Gas Package. The current gas market 
rules do not contemplate the large development and deployment of renewable or low carbon 
hydrogen in the European gas market. Whilst the Gas Directive and Gas Regulation apply to 
all gases that can safely be injected into the natural gas network, they neither apply to newly 
built hydrogen networks nor to natural gas networks that might be retrofitted to accommodate 
pure hydrogen transport.  

Renewable and low-carbon hydrogen is perceived as a promising energy carrier and feedstock 
to support the EU’s decarbonisation efforts with demand projected to take off in transport and 
industry and sizeable investment needed to take place already before 2030. A re-examination 
of  the  current  gas  market  regulatory  framework  is  therefore  needed  and  it  has  already  been 
announced  in  the  European  Commission’s  communication  on  a  hydrogen  strategy  for  a 
climate  neutral  Europe12.  Given  the  different  potential  in  EU  Member  States  for  the 
production  of  renewable  and  low  carbon  hydrogen,  a  suitable  market  framework  could 
facilitate  hydrogen  to  play  its  role  as  an  energy  carrier  and  as  an  enabler  of  energy  system 
integration in the EU.  

As  far  as  security  of  supply  is  concerned,  the  relevant  provisions  in  the  Third  Package 
represented a step in  the right  direction;  but  they were soon superseded by  the  lex specialis 
contained  in  the  2010  Security  of  supply  Regulation,  which  laid  down  a  comprehensive 

12  

COM(2020) 301 final. 

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governance to improve the Union resilience to gas supply disruption, and in the most recent 
rules,  adopted  in  2017,  which  strengthened  the  role  of  regional  cooperation,  solidarity  and 
transparency  in  times  of  crisis.  This  evolution  was  not  fully  reflected  in  the  additional  acts 
adopted under the Third Package (the so-called Network Codes and Guidelines). 

Overall, the Third Package partially fulfilled its original mission and created a stable market-
based approach on which further legislation should be built. 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 decarbonisation of the gas 
sector. The scope and speed of the EU’s climate objectives had not been fully foreseen by the 
Third Package, creating a clear rationale to update market rules so that they may be able to 
fully contribute to reaching a climate neutral economy by 2050.  

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