Understanding the EU clean energy package is the first step to success

Leonardo Meesus,
Leonardo Meesus,
Opinion by Leonardo MeesusProfessor at Vlerick Business School and Florence School of Regulation

The EU clean energy package will introduce major changes that could transform how the energy market operates.

The implications are huge for all concerned, from the largest firms through to consumers, yet for many it has largely snuck under the radar. Companies have much to gain from the new opportunities but there are risks in the way of increased competition. With the package due to be adopted in 2018, it is time for companies to plan ahead.

A game-changer

When the liberalisation of the energy market began in the 1990s, legislation sought to increase the number of players in the value chain. Each new piece of legislation clarified the responsibilities of those players and heightened the competition.

The EU clean energy package changes the game entirely. It sets out the EU energy efficiency and renewables ambitions for 2030. It also updates the rules that govern the functioning of the internal electricity market and the transmission and distribution grid. Crucially, the package creates new opportunities for consumers and brings in players that were never considered 20 years ago. With more companies in the mix, those that are slow to capitalise on the new setup will fall behind firms that are faster and eager to get a step ahead.

The changing role of the consumer

When the EU announced the package in 2015, it was “a new deal for consumers.” So far, transformation in the energy market has had little effect on the actual end consumer. Each household still gets one bill and they have a choice to switch providers but otherwise there is minimal interaction.

Overall, society’s engagement with energy has been limited but some consumer cooperatives have operated quietly in the margins. They were dissatisfied with the incumbents so set out to establish greener, more collaborative approaches as part of local energy communities. The package now hands greater choice and power to the consumer and perhaps the most significant change is its support of these cooperatives. It removes many of the obstacles to their introduction and sets out more rights, allowing them to truly flourish.

It is a controversial move that will not only increase competition but also change the very nature of that competition. For incumbents, it highlights the importance of greater customer engagement as well as a review of pricing policies to stay relevant. Inevitably, the market will see the role of utilities shift from pure commodities provider to service provider.

Greater consumer involvement is also a good opportunity for existing companies. What looks like a brewing conflict could result in new and productive partnerships. The key will be adaptability and proactively exploring fresh ways of working.

Collaborative communities

This theme of communities is played out across a broad spectrum of the package. The legislation stipulates that there can be different types of community initiatives, starting with those that focus purely on creating awareness around energy efficiencies or providing local level information. Then there are those that initiate collective switching, moving providers as a group. Others are investing together in solar PV panels to lower the threshold and enable everyone to benefit. Finally, there are communities that have more ambitious aims. They are dissatisfied will how some companies operate the network and so set out to take over the management of the infrastructure, including the lines and cables.

These are some big steps and, crucially, the legislation grants the rights for communities to pursue these various courses of action. Simply acknowledging the right can be powerful – and sufficient to suggest the notion that the monopoly is at least contestable.

The rise of the prosumer

For consumers that don’t collaborate as part of a community, they will still have the right as an individual to become more engaged as a prosumer. This means investing in their own production and providing services to the system.

This shift from consumer to prosumer has already begun but the package will lead to new players trying to profit. The next step is then to become a service provider, not only injecting production back into the system but also providing flexible services. To date, this idea of monetising services has been the domain of the larger players. However, the package opens up the opportunity to many more new entrants.

One example is with the services traditionally provided by large power plants to the grid operators. In a few European countries, some operators are turning to smaller players for these services, which they must obtain via an aggregator. The aggregators are also small players and they’ve often struggled to survive. However, with the new changes, they are set to become more prominent across all of Europe and able to operate more effectively within a defined legal framework.

Bringing clarity

Since the start of the market reform, as new initiatives emerge legislation has sought to clarify grey areas and establish new frameworks. The EU clean energy package continues this approach and one focus will be electric vehicles.

As transportation becomes electrified, debate has increased around the charging infrastructure and whether it will be an extension of the grid or provided by a retailer. The new legislation takes a firm stance on this by setting out a market solution that is separate to the grid.

Get informed to get ready         

In many ways, the essence of the legislation is to accelerate the work of the larger players and breathe new life into the smaller ones. It is perhaps the most progressive piece of energy legislation so far in that it shifts some of the best innovations from the side lines and into the mainstream. In the process, it raises the bar across all of Europe and creates greater harmonisation.

Preparation starts with greater understanding and plugging the gaps in knowledge that exist today. To help companies with this, InnoEnergy has partnered with Florence School of Regulation and Vlerick Business School to run a series of interactive courses. The first is an online course beginning in May 2018 covering the breadth of the legislation and is suitable for everyone with a vested interest in the changes. It will set out what’s included in the package and its impact on public and private organisations. Subsequent courses will follow, geared towards more senior industry professionals as well as industry managers, helping them to adapt in their leadership roles.

As an introduction to the courses, InnoEnergy and Vlerick are running an interactive “Clean Energy Board Game” to help bring the package to life, providing essential insight into how businesses can reap the benefits.

Armed with the right knowledge and an in-depth understanding of how they will be affected, companies can begin to put their plans in place. Those that fail to do so risk losing out to more agile players that are quicker and better equipped to capitalise on the new opportunities.

 

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