Europe/UK Energy Regulatory update for September 2023
DLA Piper Energy and Natural Resources Sector
Showcasing our energy and natural resources sector initiatives, insights and events.
Our energy teams in over 30 offices across Europe and the UK provide regulatory updates to clients on a regular basis. This update contains, for each of the countries covered, a selection of recent news items of relevance to the energy transition (including its impact on the non-retail electricity markets). It is not intended to be exhaustive or detailed; it simply identifies developments of a policy or regulatory nature considered to be of interest by the contributors.
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AUSTRIA
The new Austrian Electricity Act is on its way.
The current Electricity Act 2010 (Elektrizitätswirtschafts - und organisationsgesetz 2010 – ElWOG 2010) shall be replaced by a new Electricity Act (Elektrizitätswirtschaftsgesetz - ElWG) to fully implement the EU's Internal Electricity Market Directive 2019/944/EU and the Renewable Energy Directive 2018/2001/EU, as well as to accommodate the transformation of the electricity supply system in recent decades. In line with the EU directives, the focus is to be placed on end customers, with the possibility to have closed distribution systems, new market players like “aggregators” and peer-to-peer trading. All stakeholders are waiting for first official draft to be published by the competent ministry for climate action.
New provisions for Guarantees of Origin for renewable gas.
The July 2023 amendment to the Gas Labeling Ordinance (Gaskennzeichnungsverordnung – G-KenV) includes new provisions on the issuance of guarantees of origin for renewable gas (Gas GoOs) regarding gas storage and gas-to-X conversion as well as clarifications on the transfer of Gas GoOs. E-Control (the Austrian regulatory authority) intends to use the AIB hub also for cross-border transfer of Gas GoOs. This is without prejudice to the issuance and transfer of other gas certificates regarding the sustainability data.
Increased duties of cooperation for balance group members and higher transparency.
The recent amendment of the Gas Market Model Ordinance (Gas-Marktmodell-Verordnung – GMMO-VO) defines in more detail the obligations of balancing group members to cooperate in the case of offers for physical balancing energy as well as increase transparency and add clarity to the operational implementation of the balancing group system.
Extension of reporting obligations for gas trading.
The Gas Monitoring Ordinance 2017 (Gas-Monitoring-VO 2017 – GMO-VO) was amended to extend reporting obligations for various market players to increase customer protection. As December 2023 and January 2024, respectively, the operator of the virtual trading point, gas exchanges and storage companies must provide reports for each gas day. TSOs have a new monthly reporting obligation.
BELGIUM
Legal challenge to the new Belgian federal Hydrogen Pipeline Act.
Earlier this year, the federal Hydrogen Pipeline Act was adopted to regulate the transport of hydrogen to pipelines on Belgian territory via a single hydrogen network operator. The Act was published in the Official Journal on 25 July and entered into force on 4 August 2023.
However, the effective application of this new Hydrogen Pipeline Act has become uncertain. This is due to the persisting competence quagmire in the field of energy in Belgium’s complex state structure, where the Flemish Government has now challenged the new act before the Constitutional Court as it considers that this federal act tramples on the Flemish Region’s competences to regulate hydrogen pipelines in Flanders. To add to the legal uncertainty, the Flemish Government has introduced a draft hydrogen pipeline decree to the Flemish Parliament that would regulate hydrogen pipelines in Flanders differently than in the federal act.
Flemish Decree CO2 pipeline infrastructure.
Fluxys Belgium, the transport system operator of the Belgian natural gas network, took a further formal step in the development of its new business area of CO2 transport in the context of CCS / CCU. Together with industrial pipeline operator Pipelink and public investment companies SFPIM and Socofe, it established a new corporation (Fluxys c-grid) that will build and operate the pipelines for the transportation of captured CO2 in Belgium (both pipelines within existing industrial clusters such as ports and pipelines linking those clusters) and this with a view to eventually further transport to final geological storage via international pipelines or shipping or to the site of re-use of the CO2. The regulatory framework in Belgium for CO2 transport is in full development, whereby e.g. in the Flemish Region a draft decree has been submitted to the Flemish Parliament in August that requires “open access” to the CO2 pipelines and would not grant a single operator such as Fluxys c-grid a monopoly in the whole Flemish Region.
CZECH REPUBLIC
Progress in the process of parliamentary approval of community energy.
In connection with the planned adoption of Lex RES II (in Czech: Lex OZE II), amending the Energy Act, there are plans for significant changes in the field of community energy.
Earlier this month, the amendment was passed in the Parliament, and will now move further through the legislative process. The amendment provides for the possibility of shared energy within so-called energy communities. In other words, it will be possible to share the energy produced, for example, between a house and a cottage, without further charge. Smaller energy communities of up to ten people, e.g. extended family or friends, should be able to operate in this way without complicated administration. However, if the electricity is shared through the distribution system, it will be subject to payments for the use of the electricity system.
It will also be possible to share energy in wider groups. Up to 1,000 customers will be able to participate in a community energy. However, they must register as legal entities.
EU
Renewable Energy directive (REDIII).
There would seem to be an end in sight of the legislative process for the revised Renewable Energy Directive (referred to as REDIII), a key instrument of the EU’s Green Deal, with the approval of the latest instalment of a compromise text by the European Parliament in its plenary session on 12 September.
After this approval the text would only require the approval by the Member States in the Council of Ministers before finally becoming law. Even though this approval is a mere formality given that the Council was one of the architects of this EU inter-institutional compromise text, it is no longer guaranteed since previous “trilogue” compromise texts were refused due to emerging disagreement over the role of nuclear power in the context of this Directive.
The revised Renewable Energy Directive text now approved by the European Parliament contains the high-profile headline target to expand the share of renewable energy in the EU to at least 42,5% of all EU energy consumption by 2030. This is roughly twice the amount of the current share of renewable energy in the EU (22.1% in 2022).
Apart from this headline renewable energy target, the revised directive sets out other targets and measures. We can highlight the following:
Once into force, a review of the REDIII is planned in 2026.
European Hydrogen Bank (EHB).
The effective installation of a European Hydrogen Bank has come a step closer now that the European Commission, starting from its proposal published in March 2023, has also published the terms and conditions for the operation of the mechanism on 31 August 2023.
We recall that the European Hydrogen Bank aims to reduce the costs between renewable and fossil hydrogen by price discovery and hydrogen market formation. Additionally, the auction mechanism it installs aims to keep hydrogen projects in Europe by reducing administrative burdens and connecting supply and demand. The interventions by the European Hydrogen Bank are financed by the EU’s Innovation Fund (itself financed through the EU’s Emissions Trading System) at a value of EUR800 million.
With the pilot auction coming up in November 2023, the terms allow all parties to prepare by giving them insight into the economic design and qualification requirements. The auction in November might be followed up annually, depending on the amount of participation in the previous auction.
NETHERLANDS
In September 2023, the Dutch government presented its plans and corresponding budget for the year 2024. This includes an investment in the climate fund of EUR11.8 billion. This fund will be invested in energy infrastructure, scaling up renewable energy and hydrogen, and making industry more sustainable. In addition, the SDE++ subsidy will remain in place. This subsidy scheme has been a major driver of renewable energy projects for years. The above means that there will also be considerable government funds available for renewable energy in the coming year.
Although the plans are still subject to debate, it is important to note that the tax on natural gas will be increased while the tax on electricity will be reduced.
These plans stand against the backdrop of ongoing Extinction Rebellion protests against fossil fuel subsidies, a discussion that plays a role in the national elections later this year.
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PORTUGAL
Portuguese authorities issue guide on the licensing of renewable energy projects.
The Portuguese Agency for Environment (APA), alongside the General Directorate for Energy and Geology (DGEG) and the Portuguese Association for Renewable Energy (APREN) have launched a guide on the licensing of onshore renewable energy projects.
The guide aims to clarify the process and the stages of the licensing process of onshore renewable projects (wind, solar and hybrid). Further to the different phases and types of licensing, it also tackles tax and environmental aspects.
This tool stems from the need to have further clarity on these procedures, given the novelty of the legal framework surrounding them. In the face of this reality, APA, DGEG, and APREN have joined forces in order to help promoters and other stakeholders better understand the processes and good practices on this matter.
Allocation of grid connection capacity for electricity consumption facilities in areas of high demand | New legal framework.
Decree-Law no. 80/2023 of 6 September was published this month, establishing the exceptional procedure for allocating grid connection capacity to electricity consumption facilities in areas of high demand.
Due to the implementation of new strategic industrial investments in Portugal, there has been an exceptional and localised demand for the allocation of grid connection capacity for electricity consumption facilities. The newly approved legal framework was created to maximise the conditions of access to the network necessary for these investments. The procedure established by this Decree-Law is intended to guarantee the proper management of the national electricity grid, as well as to encourage the development of investment projects. The main pillars of Decree-Law no. 80/2023 are transparency and the open market principle.
NORWAY
Draft contract for difference for onshore wind for Southern North Sea II.
On 20 September 2023 the Norwegian Ministry of Petroleum and Energy sent out for consultation a draft contract for difference (CfD) for onshore wind for Southern North Sea II. The draft CfD is part of the ongoing competition for project areas for onshore wind in the first phase of Southern North Sea II. The winners of the competition are awarded a project area with a time-limited exclusive right to carry out a project specific impact assessment and to apply for a license to build, own and operate a production facility for onshore wind.
Any input regarding the draft had to be submitted to the Norwegian Ministry of Petroleum and Energy by 29 September 2023.
NVE to assess new possible offshore wind areas.
The Norwegian government has commissioned Norway’s Directorate of Water Resources and Energy (NVE) to start strategic impact assessment of three offshore wind areas that may be relevant for opening and tendering in 2025.
SWEDEN
New Swedish FDI Act.
On 13 September 2023, the Swedish Parliament adopted a law on a Swedish system for review of foreign direct investments (FDI). The law will enter into force on 1 December 2023 and will be applicable to investments that close on that day and onwards. The FDI Act aims to prevent investments that could be detrimental to the security of Sweden, in sensitive industries. These can be activities that are carried out in the context of infrastructure that maintains or ensures functions which are essential to society's fundamental needs, values or security.
Anyone who intends to invest in a sensitive business is obligated to notify their investment when, after the investment, they acquire (direct or indirectly) voting rights equal to or exceeding 10, 20, 30, 50, 65 or 90% in the business. An investment that falls within the scope of the FDI Act is prohibited until it has been approved or a decision has been made by the screening authority not to take further action.
Non-compliance, such as failure to notify or actions against authority decisions, can result in fines up to SEK100 million (approx. EUR10 million). The obligation of notification under the FDI Act applies to all investors, regardless of where the investor is from.
Legislative changes enabling more nuclear power.
The Swedish Government has on 28 September 2023 presented a bill which proposes to change the rules that currently prevent the expansion of nuclear power, so that it will be possible to build more nuclear power reactors and in more places in Sweden.
The bill contains proposals to remove the provision in the Environmental Code that prohibits the construction of nuclear reactors in places other than where nuclear power already exists. In addition, the Government proposes that the provision limiting the number of reactors in operation to ten to be removed. The legislative changes are proposed to enter into force on 1 January 2024.
More efficient permitting processes.
The Swedish Government proposes an annual investment of SEK123 million, starting on 2024 and until 2026, in order to strengthen the authorities' ability to speed up the permit and supervision processes for environmental assessments. By increasing the budget, authorities are expected to be better equipped to handle matters quickly and efficiently. This is a continuation of the long-term work that the Government is conducting to shorten and simplify permitting processes, ensuring that the process from application to decision is faster, simpler, more efficient and more predictable.
UK
The Energy Bill, which covers a multitude of energy policy areas of relevance to the resilience and reform of the UK’s energy systems and the delivery of climate change commitments, had its report stage and third reading in the House of Commons on 5 September 2023 (following the summer recess) and is now in its final stages. On 13 September 2023, a news item was published on the UK Parliament site with the heading ‘Lords asks government to think again on Energy Bill’.
UK Emissions Trading Scheme.
The Draft Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2023was laid before Parliament on 19 September 2023 together with a Draft Explanatory Memorandum. The instrument (when it becomes statutory) will make various amendments to the UK Emissions Trading Scheme (UK ETS) to provide for the capping of the aviation free allocation at 100% of emissions, clarifying the treatment of carbon capture and storage (CCS) plants and making amendments to free allocation rules for electricity generation.The instrument comes into force on 1 January 2024 or, if not made before then, on the day after the day on which it is made. The extent and territorial application of the instrument is Great Britain. As explained in the Draft Explanatory Memorandum, the UK ETS was established under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 (2020 No. 1265) as a UK-wide greenhouse gas emissions trading scheme to encourage cost-effective emissions reductions which will contribute to the UK’s emissions reduction targets and net zero goal.
Contracts for Difference:
- Results of CfD Allocation Round 5: On 8 September 2023, the Department for Energy Security and Net Zero (DESNZ) issued a press release headed ‘Record number of renewables projects awarded government funding’. This relates to the Contracts for Difference (CfD) scheme, which is the government’s main mechanism for supporting low-carbon electricity generation. It states that “Significant numbers of solar power and onshore wind, and a record number of tidal energy schemes, have been awarded funding today”. The press release includes the following on the offshore position: “While offshore and floating offshore wind do not feature in this year’s allocation, this is in line with similar results in countries including Germany and Spain, as a result of the global rise in inflation and the impact on supply chains which presented challenges for projects participating in this round”. Other documents published on 8 September regarding CfD Allocation Round 5 (CfD AR5) include the ‘Allocation Round 5 results’.
- Non-price factors: On the same day, DESNZ announced the outcome of the consultation, commenced on 17 April 2023, on non-price factors in the CfD scheme – this is contained in the document ‘Contracts for Difference for Low Carbon Electricity Generation: Government Response to the Call for Evidence on introducing non-price factors into the Contracts for Difference Scheme’. The April 2023 call for evidence on CfD non-price factors sought to test whether and how to introduce mechanisms to value criteria, other than just cost, through CfD auctions – this was in response to market conditions faced by renewable energy projects. Non-price factors should encourage sustainable renewable electricity generation by helping to address supply chain issues that are affecting deployment, thereby contributing to overall ‘Net Zero’ ambitions, while having regard to consumer costs.
Future System Operator – whole system mandate.
Ofgem has published a number of consultations regarding the proposed Future System Operator (FSO), i.e. the body provided for in Part 5 (Independent System Operator and Planner) of the Energy Bill (version published 11 July 2023) and which is intended to take on, and build on, the existing roles of National Grid Electricity System Operator, as well as certain strategic, longer-term gas forecasting, market and planning roles. The consultations in question are: (i) ‘Consultation on supply and generation licence conditions to implement the new ownership arrangements for Elexon’ (launched 5 September); (ii) ‘Statutory consultation on a proposal to modify the Special Conditions of the Electricity Transmission licence held by National Grid Electricity System Operator Limited – September 2023’ (launched 6 September); and (iii) ‘Future System Operator (FSO) draft licences consultation’ (launched 19 September). In addition, on 28 September Ofgem published its ‘Decision on the funding of the transition to a Future System Operator’ - this sets out Ofgem’s decisions in response to its consultation launched on 21 June 2023 regarding proposals to fund National Grid Electricity System Operator Limited, National Grid plc and National Gas Transmission plc to carry out work needed to enable the delivery of the FSO.
Electricity interconnectors.
Ofgem announced a consultation on 1 September 2023 under the heading ‘Consultation on changes to the financial parameters of the cap and floor regime for window 3 electricity interconnectors and risk considerations for offshore hybrid assets’. Section 1 of the consultation document (downloadable from the above webpage) deals with the first consultation topic – i.e. the proposed changes to the cap and floor regime design parameters for window 3 interconnector projects; and section 2 deals with the second topic, namely risk considerations for the pilot offshore hybrid asset (OHA) regime.
Regulation for offshore hydrogen pipelines and storage.
On 6 September 2023, DESNZ announced the publication of the ‘Offshore Hydrogen Regulation: government response to consultation: Summary of responses received and government response to consultation on legislative proposals for offshore hydrogen pipelines and storage’ – this is in response to the consultation (open from 24 April 2023 to 22 May 2023) which related to certain proposed amendments (by way of secondary legislation) to the existing system of offshore oil and gas pipeline and gas storage regulation that will enable first of a kind (FOAK) offshore hydrogen projects to be realised – it also concerned environmental and decommissioning regulations for hydrogen activities. On the same day, the North Sea Transition Authority published a press release with the heading ‘NSTA expected to take on role of offshore hydrogen transport and storage regulator’.
Electricity market reform – transmission network charging.
On 11 September 2023, Ofgem announced the publication of an ‘Open letter on strategic transmission charging reform’ – this letter follows on from Ofgem’s earlier ‘Open letter regarding prioritisation of electricity network charging and connections activity’, 27 April 2023. The letter of 11 September relates to how network costs (i.e. the costs which are incurred by the network companies in providing, maintaining and developing the electricity transmission system) should be recovered through transmission network charges, and how signals relating to network charging contribute to both investment decisions (as made by electricity network users) and how the energy system is used by market participants. The letter is a useful source of information on the wider energy policy reforms that are ongoing, including the government’s Review of Electricity Market Arrangements (REMA), which aims to identify and implement reforms to Great Britain’s electricity markets to unlock the necessary investment in and drive efficient operation of a secure, low carbon electricity system.