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ENERGIX-Stort program energi

Reform of EU Internal Energy Market Policies: Implications for the Norwegian Energy Policy Strategy

Alternative title: Reform av EUs indre energimarked: konsekvenser for den norske energipolitiske strategien

Awarded: NOK 5.8 mill.

The REMAP project has analysed EU energy policy reform in 2019 with main focus on regulatory changes affecting the design of the wholesale electricity market. An effective and integrated electricity market has long been viewed as important for Norway to maximize socio-economic value of national power resources. The project has first analysed and explained major changes in power market regulations from the reform. Main hypothesis derived from policy feedback theory is supported by the analyses. Major changes in regulations reflected effects in the market flowing from implementation of existing regulations, how member states and stakeholders mediated these effects into the reform prosess as positions on new policies, and their leeway in decisionmaking on the proposals. Key regulatory changes are assessed for conformity with the target model for wholesale market integration that evolved from EU legislation in 2009, including underlying principles of non-interference with market prices and non-discriminatory access to markets and grids. Several changes are in line with this target model, such as codification of market-related pricing of renewables-based power and non-interference of wholesale market prices by TSOs (retail prices may still be regulated under certain conditions). Another example is removal of priority access to grids for renewables-based generators. To compensate for loss of priority access rights, other changes in market design were adopted to facilitate their bidding in the wholesale market. The target model presupposes harmonisation of different rules for market and grid operations, so-called network codes. Part of the reform were changes in procedural rules aimed at speeding up network code decisions at EU-level: ACER and the European Commission received stronger roles in selected decisions on network codes. However, more far-reaching proposed changes in procedural rules were eventually not agreed and adopted. Other regulatory changes represent non-conforminty with the target model. This includes the requirement for TSOs to make at least 70% capacity on interconnectors available for cross-border trade, lowering the ambition in the 2009 legislation stating the maximum use of interconnector capacity in support of efficient trade. This said, new enforcement measures were added: mandatory international countertrade and change of bidding zone borders should the TSOs fail to deliver on the 70% rule. Another example of target-model non-conformity is that reformed legislation opens for subsidies of power plants considered important for security of supply (so-called capacity mechanisms). The reform was justified extensively in how implementation of legislation from 2009 had affected the power market. Non-market remuneration of and priority access rules for renewables-based generation had brought about massive investments, higher system costs and other non-intended effects in the market, such as falling and more variable wholesale prices. Included were periods of negative prices - without this giving any incentives to reduce power production. As a result, grid stability was challenged. Moreover, low wholesale prices challenged the competitiveness of much non-variable power capacity. To avoid closure of power plants regarded pivotal for security of supply, many countries adopted different forms of capacity subsidies. Grid companies failed to complement increasing renewables-based capacity with grid investments, resulting in congestion of internal grids. To protect national generators and contain system costs, several grid companies chose to reserve capacity on congested grid for national traders to the detriment of trade via interconnectors, a main reason behind the new 70% rule. Finally, we have analysed consequences of new EU rules for power exchange and value creation from Norwegian power resources. Contrafactual analysis shows that increased exchange capacity in combination with more renewables-based generation capacity have increased the socio-economic value of Norwegian power resources. Developments in adjacent markets appear to augment value-creating opportunities from trade. Ambitious transition of adjacent power systems will increase demand for flexible Norwegian power and imports in periods of surplus production abroad. Reformed legislation in the EU may secure allocation of capacity on interconnectors compared to the status quo-situation, depending on implementation of new EU regulation in the member states. EUs new clean hydrogen strategy may provide for stronger competition but also opportunities for increasing the value of Norwegian flexible power production. The project has additionally identified key uncertainties for value creation, including consequences of Brexit and future EU member state implementation of new EU-legislation aimed at local flexibility solutions as alternative to grid investments and trade in the wholesale market.

Prosjektet har bidratt teoretisk og empirisk til forskningsfeltet om EUs politikkutforming og implementering med forventet anvendelse av andre akademiske miljøer. Som KPN-prosjekt var et viktig realisert mål kunnskapsoppbygging hos prosjektpartnerne i forskning, industri og forvaltning om innhold i EUs pakker av energi- og klimapolitikk, om drivere av politikkreformer og endelig utforming av disse. For FNI og Thema Consulting er kompetansehevingen i tråd med mål om å være ledende nasjonale analysemiljøer på utvikling i EU-reguleringer og markeder med stor betydning for Norge. Prosjektet har ledet til oppfølgingsprosjekter (KPN) innen og utenfor partnergruppen. Et eksempel er prosjekt ledet av Norsk Industri for medlemsbedrifter om europeisk energi- og klimapolitikk. Nytteverdi for samfunnet følger av bred formidlingsaktivitet av data og resultater, gjennom åpne seminarer, forelesninger på universitet, ulike typer brukerrettede foredrag og formidling gjennom ulike media.

This project studies reform of EU internal energy market design and renewable energy policies in 2019: drivers, output, and impact on Norways trade-based energy policy strategy. We investigate EU influence on Norwegian policy stemming from how EU policy is implemented in other countries with effects on the IEM and thus opportunities for electricity trade from and to Norway. We further investigate how experiences in the market caused by past EU and national policies have fed into the recent EU reform, and subsequent implementation of new policies (with market implications) in EU Member States. The main research questions posed in the project are: How can we assess and explain the policy output of the EU IEM/renewable energy policy reform package? How can we assess and explain energy policy development in selected EU member states? How will the reform impact Norways cross-border trade-based energy policy strategy via market impacts stemming from implementation in other countries? The cross-disciplinary research team of political scientists, economists and legal professionals have developed a novel approach to analyzing Europeanization - how EU policy may affect this national policy strategy not only directly (through legal pressure) but also indirectly, via policy adaptation in other countries, that subsequently will affect the common market that the Norwegian policy strategy depends on. The project also contributes to the growing literature on what role past policy experiences play in reform of EU policies, by studying feedback from past policies on reform via impacts on the market and market actors.

Publications from Cristin

Funding scheme:

ENERGIX-Stort program energi