The FSR is hosting an academic workshop regarding the most recent insights and research on the design of electricity tariffs.

The main outcomes of the workshop will be summarized in a policy brief.

Background

The energy transition and the electrification of the heating and transport sectors will require the more active participation of the demand side to balance fluctuating renewable energy supply with demand and reduce the need for grid expansion. In addition, the energy crisis has revealed important shortcomings in the current design of electricity tariffs. Customers paying real-time prices have experienced excessive bill increases that led to regulatory interventions in the form of compensations. Customers on fixed-price contracts, on the other hand, had insufficient incentives to reduce their load.

Future-proof electricity tariffs should provide a solution to all these challenges. They should protect customers from excessive price peaks but still retain incentives for demand response and enable customers to specify the amount of flexibility that they are able to provide and ensure that this flexibility is used optimally. In addition, the regulation for retailers needs to be revised, to enable competition without undermining the incentives to hedge against increasingly volatile prices.

The FSR workshop on Future Electricity tariffs aims to bring together the most recent research and insights on the appropriate design of electricity tariffs. The main outcomes of the workshop will be summarised in a policy brief.

Authors participating in the workshop may also submit their article to an associated special issue in Energy Policy. However, participation in the workshop and the special issue are independent of each other.

Deadline for abstract submission: May 31, 2023

Confirmation of presentation: June 15, 2023

The energy transition which the EU is undertaking to achieve its ambitious energy and climate targets – and in particular climate neutrality by 2050 – requires new activities and processes to be developed and deployed at scale. These developments will be assisted and made possible by the rapid advances in technologies, including digitalisation.

The current regulatory framework for the energy sector, which was designed with reference to existing technologies and processes, might not be sufficiently conducive to these new developments and therefore a number of regulators have embarked on regulatory experimentation through the use of ‘regulatory sandboxes’.

The Workshop will aim to review the existing experience with regulatory sandboxes in the energy sector and beyond and to see what lessons could be learned and in which areas, going forward in the energy transition, they could play a useful role.

For this purpose, the Workshop, after an opening part, will be divided into two Sessions:

• Session I, in the morning, will focus on reviewing the existing experience with regulatory sandboxes and identifying the main lessons emerging from this experience;
• Session II, in the afternoon, will aim at discussing which role regulatory sandboxes could play in the energy transition process going forward.

Please note that this event is by invitation only.

Sustainability assessment

The FSR assesses the sustainability and carbon footprint of all its Workshops of the Regulatory Policy Workshop Series. This Workshop is run according to a hybrid format, allowing participants to join it in presence in Florence or through internet-based remote connection. It is expected that most participants will participate in the Workshop through remote connection, while a few of them, who particularly value personal interaction, will join the Workshop in Florence. Therefore, there will be limited travel involved compared to a fully presential event. Those participants joining the event in Florence will be encouraged to offset any carbon emissions related to their air travel. It is considered that, in this way, a suitable balance is achieved between the effectiveness of the policy dialogue and the net carbon footprint of the event.

The Performance Review Commission (PRC) is an independent body supported by EUROCONTROL with a remit to review and report on European Air Traffic Management (ATM) performance. While performance has improved over time this has not always been consistent and the PRC believes that future improvements will require transformation change rather than just evolution.

With an objective to identify, review and champion successful transformation projects based on the ATM Masterplan and the European Green Deal the PRC has created a Transformation Support Strategy. It shall enable the analysis of the contribution of new technologies and concepts on the future performance of the ATM-system. Through this process the PRC aims to identify flagship projects, monitor their performance delivery over time, help stakeholders understand the challenges and benefits of implementing these innovative transformational projects and thereby stimulate and encourage ATM improvements.

To engage key executive stakeholders in this process the PRC is hosting a workshop entitled “in search of flagships for ATM transformation” which will take place in Brussels on 22^nd February 2023. The focus will be on understanding the business level benefits of delivering transformation and overcoming the challenges, rather than on operational and technical details.

Programme

Please note that participation in this workshop is by invitation only.

To request more information you may contact FSR.Transport@eui.eu

FSR Regulatory Policy Workshop Series 2022-2023

This Workshop intends to review the state of the art with respect to measures aimed at promoting or mandating energy savings and with the approach to energy demand rationing.

For this purpose, the Workshop, after an opening part, will be divided into two Sessions:

• Session I, in the morning, will focus on measure to promote or mandate energy savings, with particular focus on the extent to which these measures have been designed to achieve the highest level of savings at the lowest social costs;
• Session II, in the afternoon, will aim to review how planning for rationing has been approached in the different jurisdictions.

For more info, download the full programme

Event under Chatham House rules. Please do not tweet speakers’ names

Europe’s electricity markets are regulated in detail via network codes, guidelines and terms and conditions or methodologies (TCMs). TCMs are an extensive set of binding rules that fill out the details of the system operation and market guidelines. However, they can be made at national, regional or European level. What does the sum of the adopted TCMs mean for harmonization, or for the possibilities to tailor rules to fit national or regional context – and what does this mean for delivering an internal electricity market in Europe? 

The workshop presents results from the INC project, led by the Fridtjof Nansen Institute and with Florence School of Regulation among the research partners. The interdisciplinary workshop will take place physically in Florence 12-13 October, and will present initial findings from the INC project. Importantly, the purpose of the workshop is to facilitate an open discussion among interested stakeholders and researchers on the regulation of the European electricity market, and to take stock of the many, detailed rules in the broader context of EU governance and integration. 

On day 1 (starting at noon), the workshop will discuss the evolving rule of ACER, and consider the governance of the electricity sector in comparative perspective to examine whether the rulemaking process – decision-making by EU agencies and rulemaking processes involving private actors to supplement overarching EU legislation – is unique to the electricity sector or part of a broader European trend. On day 2 (starting in the morning), the workshop will take stock of the adopted TCMs to discuss the impact for overall harmonization and diversity of electricity market regulation in Europe, and look ahead to implementing and adjusting the rules and governance framework amid major challenges and changes in the energy sector. 

Participation is open to everybody but subject to registration and availability of seats. 

Join the discussion using the hashtag #INCproject

Research Briefs

1. The evolving role of ACER: emergence, practice, and review of the TCMs 
   By Torbjørg Jevnaker, Leigh Hancher and Karianne Krohn Taranger
2. Electricity rulemaking in perspective: comparing the TCM procedure with other sectors 
   By Eva Ruffing, Selma Schwensen Lindgren and Torbjørg Jevnaker
3.  Stocktaking of the adopted TCMs – towards harmonization or diversity? 
   By Torbjørg Jevnaker, Simon Fink, Karianne Krohn Taranger, Hermann Lüken genannt Klaβen and Per Ove Eikeland
4. Implementation and adjustment ahead: Enforcing, applying, and revising the TCMs during transition and crisis
   By Torbjørg Jevnaker, Marie Byskov Lindberg and Catherine Banet

About the INC project 

“Implementing Network Codes” (INC) is a collaborative and interdisciplinary research funded by the Research Council of Norway and Norwegian stakeholders (2020-2024, grant agreement no.308855). The focus of INC is the implementation of EU electricity market laws, specifically the rulemaking process for TCMs mandated by the market and system operation guidelines, and how this impacts the integration of the European electricity market. An international team of scholars from political science, law and economics work in close collaboration with industry experts, user partners and other relevant stakeholders. 

For further information, get in touch with rscas.conferences@eui.eu

In its Communication “Tackling rising energy prices: a toolbox for action and support” of 13 October 2021, the European Commission indicated, inter alia, that it would have tasked ACER “to study the benefits and drawbacks of the existing electricity market design and propose recommendations for assessment by the Commission by April 2022”. ACER is on track to publish the results of its analysis by the end of April 2022.

This policy workshop will consider the results of ACER’s analysis and discuss what the implications of these results are for any future enhancement of the wholesale and retail electricity markets in the EU.

For this purpose, after an opening session, the workshop will be structured in two further sessions:

–         Session I – from 10:30am to 1pm, CET – will focus on the wholesale electricity market and, possibly, the wholesale gas market, to the extent that the ACER’s analysis covers the latter as well;

–         Session II – from 1:30pm to 3pm, CET –  will focus on the retail energy market.

FSR Regulatory Policy Workshop Series 2022

The European Union has committed to double the share of renewables in final electricity consumption over the next ten years, from 34% in 2020 to 65-70% in 2030. In this way, the electricity sector will continue to contribute more than proportionally to the overall renewables penetration target of 40% of final energy consumption in 2030 and the decarbonisation goal of reducing greenhouse gas emissions by 55% by the same date.

A large part of the new renewable-based generation – including solar PV and wind – will be characterised by a higher variability (and somewhat lower predictability) of its output compared to conventional generation. Therefore, in order to accommodate the increased penetration of renewables, the electricity system would need to increase its flexibility, i.e. its ability to withstand and respond to sudden and unexpected changes in residual demand (the difference between total demand and the part of it served by renewables-based generation).

Fortunately, technological development – e.g. in batteries, electric vehicles and smarter appliances – provides new resources which can offer flexibility to the system. The increase digitalisation of the energy sector and of contiguous sectors provides the opportunity to harness this flexibility to the benefit of the electricity system. The new resources – generally referred to as Distributed Energy Resources (DERs) – are typically smaller and more decentralised than those, mainly generating plants, which have so far provided most of the flexibility in the electricity system. This poses challenges, but also provides opportunities, e.g. to develop local flexibility markets helping distribution grids to manage local congestion.

Beyond technological advances, a conducive regulatory system and market design is necessary to allow DERs to enter the market to offer their flexibility. In fact, many of the current rules relevant for the connection and participation of these smaller, more decentralised DERs were developed with larger generating units as a reference and might need to be adapted to the characteristics of DERs.

Currently, the participation of DERs in electricity balancing markets, whether individually or aggregated, is still rather limited[1]. It is however now widely accepted that new approaches to system operation and the sourcing of ancillary services[2] from DERs[3] are now needed.  As DERs are in general relatively flexible, i.e. being able to adjust the volumes of electricity withdraw from or injected into the grid at short notice, they are considered very suitable to provide all types of system services.

in developing an enabling regulatory environment for the participation of DERs in balancing and ancillary services markets, a number of aspects should be considered, including:

• the definition of market requirements – e.g. minimum bid size and formats, DER observability – which recognise the characteristics of DERs
• whether the current organisation of the balancing mechanism is suitable for accommodating the participation of DERs or whether the effective interaction of DERs requires a re-organisation of the balancing system;
• the identification of the most effective flexibility aggregation model;
• issues related to data interface and portability.

Against this background, this Workshop on decentralised resources and flexibility will aim at identifying which aspects of the current organisational, regulatory and market design frameworks will need to be adapted to enable the increasing penetration of DERs.

For this purpose, the Workshop will be structured in two sessions:

• Session I will aim at identifying which aspects in the current regulatory and market design (especially in relation to balancing and reserve markets) would need to be adapted to enable the participation of DERs;
• Session II will consider which new market structures would be required fully to exploit and support the participation of DERs in the most efficient manner and which organisational model might best serve these developments.

A recent report produced by the Florence School of Regulation on “Distributed Energy Resources and electricity balancing: visions for a future organisation” will be presented at the Workshop and its conclusions discussed.

Sustainability assessment

The FSR assesses the sustainability and carbon footprint of all its Workshops of the Regulatory Policy Series. This Workshop is run online due to the COVID-19-related restrictions. Therefore, there is no travel involved and the Workshop’s carbon footprint is limited to the impact of using ICT. It is considered that there are no viable ways further to reduce the carbon footprint of the Workshop.

Please note that this event ‘Decentralised resources and flexibility – Policy Workshop’ is exclusively open to National Regulatory Authorities, delegates from public institutions and FSR Energy Donor companies. For further information, please contact Elena Iorio.

Read more

Read more about the previous Policy Workshop of this series ‘Electricity prices and market design‘.

Technical report: Distributed energy resources and electricity balancing

[1] Recent overviews per Member State of the European Union (EU) can be found in The smartEn Map 2020 – PROSUMERS – smartEn.

[2] Article 2(48) of Directive (EU) 2019/944 defines ‘ancillary services’ as a range of functions which system operators contract to guarantee system security. Ancillary services include balancing, but also various other services, such as reactive power provision and black-start capability, but not redispatch.

[3] See, for example, CEDEC, E.DSO, ENTSO-E, Eurelectric, GEODE, 2021. Roadmap on the Evolution of the Regulatory Framework for Distributed Flexibility. A joint report by ENTSO-E and the European Associations representing DSOs (CEDEC, E.DSO, Eurelectric, GEODE), June 2021.

FSR Regulatory Policy Workshop Series 2022

The surge in electricity prices over the last few months have led to calls by different stakeholders, including some national governments, to introduce changes in the electricity market design. For example, on 5 October 2021, the governments of Spain, France, the Czech Republic, Romania and Greece issued a common statement calling for a reform of the day-ahead electricity market, which would need to be improved “to better establish a link between the price paid by the consumers, and the average production cost of electricity in national production mixes. This is all the more important as decarbonisation will increase the use of electricity in our economy”.

Following this call, a number of ‘non-papers’ were released in November 2021 proposing a variety of measures. For example:

• In a ‘Non-paper on energy and electricity & gas markets’[1], it is argued that urgent action is needed to ensure that “final consumers pay electricity prices that reflect the costs of the generation mix used to serve their consumption” and that this could be achieved through “mechanisms based on financial transfers between producers and consumers, [which] would have no effect on the functioning of the wholesale market, nor affect the merit order of the different generation plants mobilised in the energy market on an hourly basis”.
• In a ‘Non-paper on electricity, gas and ETS markets’, after indicating that “a common European approach is our preference for the whole European energy internal market”, it is suggested that “in exceptional situations, Member States have to be allowed to adapt the electricity price formation to their specific situations (mix, resources, level of interconnections)” and therefore it is proposed that consideration be given to reforming the electricity market design so that “the electricity price would be obtained as an average price with reference as well to the cost of ‘inframarginal’ clean technologies (particularly renewables)”.

These are just examples of the kind of (often contradictory) proposals that have been floating around in recent months. In the first non-paper quoted above, financial transfers are advocated which “would have no effect on the functioning of the wholesale market, nor affect the merit order of the different generation plants mobilised in the energy market on an hourly basis”. In the second non-paper, it is proposed that Member States “be allowed to adapt the electricity price formation to their specific situations” so that “the electricity price would be obtained as an average price with reference as well to the cost of ‘inframarginal’ clean technologies (particularly renewables)”.

To tackle rising energy prices, while preventing damage to the internal energy market from uncoordinated national actions, in October 2021 the European Commission proposed a ‘toolbox for action and support’[2], which outlined a set of measures which the Commission itself and the Member States could adopt to deal with the current high-price situation. Many of these measures are aimed at mitigating the impact of higher energy prices on industry, businesses and households, especially vulnerable ones. However, and interestingly, the Commission also expressed its intention of “task[ing] ACER to study the benefits and drawbacks of the existing electricity market design and propose recommendations for assessment by the Commission by April 2022”[3].

In fact, some of the proposals floated in the debate in recent months, including one of those above, could be interpreted as calling for the ‘pay-as-cleared’ pricing approach in the DAM to be abandoned in favour of some version of the ‘pay-as-bid’ method[4].

This is also the interpretation followed by ACER, which, intervening in this debate with a note in October 2021, indicated that: “any future market design needs to be able to (a) remunerate technologies above their marginal costs, sometimes quite significantly so, and (b) incentivise the alleviation or smoothing of volatility in the market. The ‘pay-as-clear’ model allows for both of these elements”[5].

However, there is a sense that there might be more in the proposals recently voiced than a switch from the ‘pay-as-cleared’ to the ‘pay-as-bid’ remuneration method, which is not a new issue and has been already resolved, in favour of “pay-as-cleared” pricing approach, many times in the past[6].

Against this background, and without trying to pre-empt the assessment being conducted by ACER, but rather possibly contributing to it, the Workshop will aim at digging deeper in the proposals recently floated and discussed by many stakeholders to assess whether and which other measures related to the electricity market design, beyond the pricing mechanism, could and should be considered to deal with the much higher electricity prices now and, most likely, in the forthcoming energy transition.

For this purpose, the Workshop will be structured in two sessions:

• Session I will aim at identifying the scope and details of the proposals on market design enhancements which have been put on the table over the last few months;
• Session II will consider these proposals and assess the extent to which (some features of) the current electricity market design could be enhanced or complemented to support the future energy transition.

Sustainability assessment

The FSR assesses the sustainability and carbon footprint of all its Workshops of the Regulatory Policy Series. This Workshop is run online due to the COVID-19-related restrictions. Therefore, there is no travel involved and the Workshop’s carbon footprint is limited to the impact of using ICT. It is considered that there are no viable ways further to reduce the carbon footprint of the Workshop.

Please note that this event is by invitation only. For further information, please contact Elena Iorio.

[1] Non-paper by the Spanish, French, Italian, Romanian and Greek governments.

[2] Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions, Tackling rising energy prices: a toolbox for action and support, Brussels 13.10.2021, COM(2021) 660 final.

[3] Ibid, Section 3.2.1, page 15.

[4] It seems that this is the way in which ACER also interpreted at least some of the proposals voiced in the last few months. It addresses the ‘pay-as-bid’ vs. ‘pay-as-cleared’ debate in its Preliminary Assessment of Europe’s high energy prices and the current wholesale electricity market design, Part 1, November 2021, Section 4.3.

[5] ACER, High Energy Prices, October 2021, page 12.

[6] Cfr., among many, Susan Tierney, Todd Schatzki and Rana Mukerji, “Pay-as-Bid vs. Uniform Pricing: Discriminatory Auctions Promote Strategic Bidding and Market Manipulation,” Public Utility Fortnightly, March 2008.

The European Union’s Energy Strategy, part of the European Green Deal, is central to the aim of achieving a zero net emissions economy by 2050. Central to this strategy is creating a more integrated energy system, with circular energy system, energy efficiency, electrification, and decarbonization at its core. While the transition to direct heating or electrification is neither feasible nor efficient in all end-use applications, many renewable and low-carbon fuels must be used to reduce the consumption of natural gas and fossil fuels. Biofuels and biogases produced from biological waste from agriculture, food and forestry are then a short-term sustainable solution. The scenario, therefore, urges a legal framework that enables a more circular energy system.

The development of the EU’s circular energy system occurs in a complex legal landscape, covering a multi-level jurisdictional system and crossing many economic sectors. Specifically, the key sectors to this transition – agriculture, food, forestry – deal with waste in different ways. Moreover, the current environmental and sectoral regulations of these industries do not envisage and actively discourage circularity within the production process. In order to live up to the promise of a circular energy system – make use of resources that are currently discarded with a view of addressing the urgent climate and energy crises that the EU faces; improve human, animal and plant life; and allow for a more sustainable society without the need to dramatically change our lifestyle – these legal complexities need to be mapped and addressed holistically. This edited volume brings together legal and non-legal academics to develop a roadmap to the transition towards a more EU’s circular energy system.

The workshop will provide authors with the chance of presenting the first draft of their book chapters and receiving feedback from book editors and other authors. The book project is a collaboration of the Florence School of Regulation with Wageningen University and Research (Netherlands).

Organisers:

Lucila de Almeida and Josephine van Zeben

Participation:

Closed to contributors

The Workshop will aim at:

• Identifying the challenges, but also the benefits of holistic planning of the needs for electricity, gas, and hydrogen transport services, based on the forecasting of the level and geographical pattern of demand for the different energy vectors and hydrogen in particular (being the newest among them), and taking into account the interlinkages with other contiguous sectors;
• Assessing how the hydrogen network could be best planned, taking into account the existing gas infrastructure available for repurposing, but also the opportunity and cost of developing new dedicated assets;
• Considering how the cost of the hydrogen network should be recovered through the charging for their usage.

Background

The European Union is committed to decarbonise its energy system at a large scale. The targets are set, the path – energy efficiency first, electrification as far as possible, usage of hydrogen and other types of “low-carbon gas” in the hard-to-electrify sectors – is agreed as well. The EU decarbonisation challenge is characterised by the need for speed, cost-efficiency, and the subsidiarity principle on the one side and the existing infrastructures, market and regulatory frameworks for electricity and gas on the other hand. The mantras of legal and regulatory certainty, transparency and predictability are still very valid, maybe even more so in times of such a fundamental transformation of the whole EU economy and energy system.

The European Commission has proposed the first set of rules in its Fit for 55-package1 in July 2021, focusing on the (renewable) energy source and sink aspect at large. Further proposals focusing on the infrastructure and market aspects, also for decarbonised gases, are expected by the end of 2021.

In fact, an effective, efficient, and affordable energy transition will require:

• a more holistic approach to network planning, including the electricity, gas and hydrogen grids in a consistent framework, taking the interlinkages with other contiguous sectors – e.g. transport and heating and cooling – and the opportunities provided by digitalisation into account. In the future, hydrogen may support the electricity sector by providing additional and more effective opportunities for storing energy and thus to help manage the likely mismatch between the variable electricity generation from renewables and the demand profile of consumers, as well as congestion in the electricity grid. Hydrogen is currently produced and consumed in localised clusters, which are expected to develop into “hydrogen valleys”. It is however still uncertain if and when a hydrogen “backbone” network will be needed, which will depend on the demand for hydrogen by the different consuming sectors, the geographical pattern of demand and supply, and on the extent to which hydrogen imports will be needed to meet demand;
• an efficient and no-regret path to the development of hydrogen transport capability. The expected decrease in gas demand in Europe and the resulting reduction in gas volumes in the existing network will make some gas infrastructure available for possible repurposing to transport hydrogen. However, the availability of such infrastructure should not be the main driver in planning a future hydrogen backbone. A cost-benefit analysis should be carried out, comparing different ways of transporting hydrogen: in new pipelines, in repurposed pipelines or using non-pipeline facilities;
• a charging structure for the use of the hydrogen transmission infrastructure which is conducive to the development of competition and the creation of an internal market for hydrogen. The current tarification of the gas network has served well the transition of the gas sector from its previous vertically integrated structure and contracts with delivery at flanges and destination clauses. However, it has also shown its limits, with tariff pancaking distorting competition in the internal gas market. Therefore, the opportunity for a different approach for the hydrogen network needs to be considered.

Correspondingly, the Workshop will be structured in three sessions:

• Session I will focus on the challenges and benefits of a holistic planning of the demand for energy network services in Europe;
• Session II will zoom into the planning of the hydrogen network;
• Session III will aim at identifying the main principles for a hydrogen tariff structure which is conducive to undistorted competition and a well-functioning internal market for hydrogen.

Please note that this event is by invitation only.

The Workshop will aim at reviewing and comparing the experience with the implementation of incentive-based regulation in the energy, transport, and water sectors.

Background

Incentive-based regulation has been used to regulate private monopolies across Europe since the mid-1980’s. It may take a number of different forms, and has been the subject of attention both by academics and practitioners.

When compared to cost-of-service/rate-of-return regulation, incentive-based regulation has been credited with providing greater incentives for efficiency and some degree of flexibility to regulated companies on how to pursue it, while reducing the cost of regulation.

Incentive-based regulation has been the default regulatory approach for network activities in the energy sector for more than three decades. However, it has been increasingly perceived to increase risk and uncertainty in regulated companies’ earnings and has shown its limitation when applied to highly capital-intensive industries.

More recently, with the greater importance of new technologies and therefore innovation, and the massive investments required to decarbonise the energy sector activities, a different approach has been experimented, which put emphasis on the need for innovation and investment, while protecting consumers by ensuring fair prices.

In the transport sector, despite the introduction of competition in many transport modes, infrastructure keeps being operated under monopoly rights or at least under very limited competition in most modes. Incentive-based regulation is increasingly used to foster efficiency in the operation of infrastructure.

In the water sector, cost plus and rate of return are more commonly used by regulators across EU Member States than price and revenue cap tariff setting methods. Nevertheless, great emphasis is being put on performance and quality of service through alternative regulatory tools such as key performance indicators targeting drinking water quality, water losses, pipes breakdown, internal sewer flooding among others. More recently, regulators have started introducing economic incentives to promote the ecologic transition of water and sanitation operators.

Structure

Against this background, the Workshop will be structured in three sessions:

• Session I will focus on the taxonomy for incentive-based regulation, as used in the different sectors covered by the Workshop;
• Session II will review and compare the experience with the implementation of incentive-based regulation in the sectors covered by the Workshop;
• Session III will aim at drawing conclusions, based on the available experience, and at formulating recommendations on best practices for the implementation of incentive-based regulation in the network industries. It will also consider how incentive-based regulation compare with the newer forms of regulation for network industries which have emerged as a result of the increasing need for innovation and investment.

This event is by invitation only.

The event is under Chatham House rules. Please do not tweet speakers’ names, but use our event hashtags: #FSRPolicyWorkshop #BrexitElectricity

A Market Framework for Hydrogen | FSR Regulatory Policy Workshop Series 2020-2021

The EU Hydrogen Strategy published by the Commission in July 2020 envisions the establishment of “a liquid and well-functioning hydrogen market”, in which “commodity-based hydrogen trading would facilitate entry of new producers and would be beneficial for deeper integration with other energy carriers”. Such a market “would create viable price signals for investments and operational decisions”.

At the same time, the Strategy set the priority of developing renewable hydrogen, produced using mainly wind and solar energy, stating that “renewable hydrogen is the most compatible option with the EU’s climate neutrality and zero pollution goal in the long term and the most coherent with an integrated energy system”. However, at least in the short and medium term, renewable (green) hydrogen will not be the only hydrogen produced and consumed in Europe.

Different shades of hydrogen contribute differently to the achievement of EU energy and climate objectives. Green hydrogen contributes to the achievement of the renewable energy penetration target. Green, blue and turquoise hydrogen contribute to the decarbonisation target, albeit to different extents, since blue and turquoise hydrogen are not totally carbon free. The fact that different shades of hydrogen contribute differently to the energy and climate objectives, while being traded, as a commodity, on the same market, requires that other mechanisms be put in place to reflect their different policy values. The performance of the different hydrogen shades vis-à-vis the decarbonisation target can be reflected in their production process requiring different quantities of EU Emission Allowances (EUAs) to cover their greenhouse gas (GHG) emissions. In particular, the production of green hydrogen would not require any EUA, while the production of blue or turquoise hydrogen would only require a fraction of the EUAs needed to cover GHG emissions from the production of grey hydrogen.

Instead, at present, there is not an established EU-wide market for the renewable value of green hydrogen. As mentioned above, green hydrogen would have a marginal advantage with respect to blue and turquoise hydrogen in terms of EUAs, but this advantage might not reflect the greater value of green hydrogen as the only one, among all the hydrogen shades, contributing to the renewable energy penetration target. An additional instrument is therefore needed and this could be provided by a system of guarantees of renewable origin (GROs). GROs would be issued against the production of green hydrogen and GRO demand will be created by the need to achieve the renewable energy penetration target (either by a decentralised quota obligations or a centralised auction).
Therefore, the future market framework for hydrogen could comprise three markets:

• The hydrogen (commodity) market;
• The EU Emissions Trading System;
• A GRO system and market, for recognising and trading the renewable value of green hydrogen.

A GRO system could however be extended to cover other energy vectors and to assist, inter alia, in the implementation of the “additionality” condition for the production of green hydrogen. This would require GROs being issued also vis-à-vis the production of electricity from renewable energy sources. And in fact the GRO system could be extended to all three energy vectors – electricity, gas and hydrogen – thus providing any desired degree of flexibility on the way in which the renewable energy penetration target could be achieved.
Finally, in the context of the coupling of the electricity, gas and hydrogen sectors, and the resulting requirement for a strong coordination of the planning and operation of the respective networks, the question should arise as to the best structure for cooperation of transmission system operators, at national and EU level.
The Workshop will aim at exploring the market framework for hydrogen and all these issues. It will be structured in three sessions:

• Session I will focus on the best market framework for hydrogen, in particular how best to recognise the decarbonisation value of green, blue and turquoise hydrogen and the value of green hydrogen in pursuing the renewable energy penetration target. The potential role of a GRO system in this context will also be assessed;
• Session II will consider whether GROs could play a role in the implementation of the additionality condition and, more generally, in providing an accounting framework for the achievement of the renewable energy penetration target, allowing for any desired degree of flexibility on the resulting vector mix;
• Session III will assess how best to ensure the needed coordination of network planning and operation across the electricity, gas and hydrogen sectors, at national and EU level.

Scientific Directors

Alberto Pototschnig | Florence School of Regulation/Robert Schuman Centre for Advanced Studies/European University Institute
Ilaria Conti | Florence School of Regulation/Robert Schuman Centre for Advanced Studies/European University Institute

Please note

This workshop is by invitation only. For further information, please contact: Elena Iorio

Read more

A proposal for a regulatory framework for hydrogen guarantees of origin(FSR Energy | Policy Brief)
How many shades of green? : an FSR proposal for a taxonomy of ‘renewable’ gases (FSR Gas | Policy Brief)
Upgrading guarantees of origin to promote the achievement of the EU renewable energy target at least cost (FSR Gas | Technical Report)