Our take on the European Commission’s Winter Package

Publish date:

The European Commission’s Winter Package has yet to be implemented by the individual Member States.

Co-authored by Alain Chardon (Director), Julien Cosse (Principal), Alexandra Bonanni (Manager), Capgemini Consulting

The Winter Package, published in November 2016 by the European Commission, is the operational version of the energy and climate goals set out in the 2015 EU Energy Union Strategy. In some thirty documents and a few thousand pages, it breaks down the objectives of the 2030 climate and energy package [1] adopted by the European Council in October 2014. It aims to create necessary market conditions based on three main axes:

  • Integrating renewable energies into the electricity market
  • Securing the remuneration of the means of production by generalizing capacity markets
  • Showcasing consumers, innovative companies, and local communities.

Although these are just partial measures in the absence of a fully harmonized energy market, they do introduce interesting mechanisms that each require existing preconditions for their implementation or development.

The Winter Package has yet to be implemented by the individual Member States according to conjectural deadlines.

Dealing fairly with consumers (“Fair Deal”)

To begin with, because they are free to select their energy suppliers, consumers are encouraged to participate more actively in the market by self-producing (or self-consuming) their own energy, or thanks to more flexible contracts. The Winter Package strives toward:

  • On one hand, fairer and more transparent treatment of consumers (“fair deal”)
  • And on the other hand, the emergence of more “dynamic” plans for customers (“time of use”), providing improved access to information: real-time price access, smart metering, detailed billing, etc.

Our opinion: An interesting element of the Winter Package is the concept of “consumer-citizen” or “producer-consumer” It is crucial to give consumers control over their personal energy choices. Only then can the consumer take ownership of the energy question and send signals to the market that had previously been controlled either by the public sector, the wholesale market, or the “upstream” choices made by players in the utilities industry. Moreover, the incentive for suppliers to introduce the principle of a “fair deal” to customers was imposed in the context of rising retail prices as a result of which residential consumers have may have felt wronged by the market. To make this happen, digital technologies must be deployed:

  • Smart meters are essential because they allow self-consumption and dynamic pricing
  • Smart home technologies should help automate actions and tradeoffs so that the prosumer doesn’t have to constantly worry about their electricity consumption or production.

Lastly, some points must still be considered when addressing consumer demand for the energy mix desired for personal use. While guarantees of origin play their part in terms of traceability, the European Commission does not sufficiently improve green plans, calling into question the benefits of adding them.

An increase in energy efficiency

The goal of improving energy efficiency gains is set to grow from 27% to 30% by 2030. Member States must finance a EUR 10 billion fund to renovate existing buildings and develop electric vehicles through a “clean mobility package” which aims to: “accelerate the transition to low- (or zero-) emission vehicles, in order to position the European Union as a leader in this market.” The Winter Package notably aims to promote clean mobility solutions in all public tenders.

Our opinion: This is an ambitious component that focuses on the renovation of buildings and infrastructures, and values innovative technologies. However, it is incomplete and the budget limited given the need to renovate all real estate within a few decades, primarily buildings that are poorly isolated. Private funds will have to be involved for this and for the financing of the EV-charging infrastructure.

Integrating renewables into market conditions

The key point regarding integrating renewable means of production involves replacing purchase prices with additional compensation mechanisms awarded by calls for tenders in order to encourage competition and reveal any decreases in cost until network parity is achieved. In addition, the Commission encourages so-called “technologically neutral” tenders.

Our opinion: Getting rid of specific purchase rates in their current form and level in each country should stabilize and homogenize the global renewables market. Industry players (developers, funders, consultants) are quickly finding a new balance in this new world. Market integration is pushing to normalize renewable production under the same conditions as other production sectors. In this way, renewable operators are now focusing on optimizing their market production: either on its own (trading in wholesale markets, supplying end customers) or through aggregators (whose market is changing rapidly).

Technologically neutral tenders aim to develop the cheapest technology in terms of production cost (LCOE). On the other hand, this would let the market, rather than the public, determine the energy mix, regardless of energy type. In addition, other equally important parameters, such as adequacy of the electrical system, mix complementarity, acceptability, innovation, or industrial strategies would not be taken into account.

On a pan-European level, the Winter Package gives no direction regarding the convergence of support mechanism rules between Member States (for example, the rules for the treatment of hours at negative prices). Moreover, these measures offer no insight on how to improve conditions for the development of renewable energy projects (development deadlines, recourse management, network connection) and these conditions are very uneven in Europe: seven years of development in France versus three in Germany for onshore wind projects. Simplification measures are discussed country by country, as is currently the case for wind power in France.

A definition of an ideal capacity mechanism

The Winter Package supports mechanisms to expand capacity markets that feature:

  • An openness to all capacity providers (domestic and foreign) and the possibility of cross-border participation
  • A competitive pricing process to minimize the price of capacity
  • The development of interconnections and protection against overcapacity and trade distortions.

Our opinion: In addition to integrating their electricity markets, some Member States have developed their own capacity compensation mechanisms which address their individual problems (peak consumption, “missing money,” flexibility, etc.) with different rules (market or mechanisms, centralized or decentralized, etc.). These mechanisms are not mutually compatible and sometimes even distort the integrated electricity markets.

The Winter Package strives to make these mechanisms interoperable with the explicit participation of foreign capabilities. This will benefit from a geographical proliferation of capabilities [2] (provided that double remuneration is prohibited). Nevertheless, such interoperability inspires greater harmonization: common objectives, failure criteria, type of existing or new eligible capacities, taking into account erasure, renewables, storage, unregulated private networks, etc.

It should also be noted that the lack of environmental criteria in these capacity markets could help maintain CO2-intensive means [3]. Much work remains in order to create compatible, complex mechanisms.

Better consideration of supply and network costs

The Winter Package offers market-based pricing in order to better reflect the cost of using networks and measures to better coordinate the transmission and distribution network operators:

  • Better regional balancing and free access for all market players to balancing markets
  • Financial compensation for renewable projects subject to reduction
  • Introducing the concept of border auction zones
  • A market approach to dispatching electricity production
  • Distribution rates that reflect the cost of using the distribution system by the users of the system
  • A plan to develop and facilitate the integration of electric vehicles.

The scope of the activities and missions of network operators is expanded by:

  • The establishment of new players, the ROCs (regional operational centers), regional coordination centers
  • New roles for DSOs (distribution system operators) in digitization and data
  • The increased role of TSOs (transmission system operators) in network coordination, utilization, and submission
  • A clarification of the provisions of the TSOs for energy storage.

Our opinion: The Winter Package strives to better manage two goals:

  • Necessary pan-European harmonization based on transport networks, interconnections, and zonal markets
  • Ongoing decentralization to integrate additional renewable production into the local grid.

From a tariff vantage, it’s time to change the principles:

  • To take into account the economic factors (in terms of costs or services for the networks) that are likely to increase with integration with an increasingly local grid of renewables
  • To integrate the flexibility provided by storage
  • To rethink, in the long term, the sizing, location, operational model, and economic model of the networks in terms of the stabilization or even the decrease of gas and even electrical flow.

Increasing self-production requires reforming network-access tariffs.

The Winter Package adds to the energy industry’s regulatory ocean that will require deep redesigns of many laws. Yet, this is an ocean shrouded in fog: at the time of this writing one and a half years after the proposals were published, it was impossible to find anything convincing on the discussion and adoption agenda: this is an ocean shrouded in fog that requires its players to have strong navigational abilities.

Article published in Enerpresse, Thursday, April 5, 2018, No. 12047

[1] The objectives of the 2030 climate and energy package are:

  • “A 40% cut in greenhouse gas emissions compared to 1990s levels
  • At least a 27% share of renewable energy consumption, leaving Member States the flexibility to set national targets
  • Improving energy efficiency, possibly making changes to the Energy Efficiency Directive
  • A reform of the EU Emissions Trading Scheme to include a market stability reserve
  • Key indicators, relating to energy prices, diversification of supply, interconnections between Member States, and technological developments to measure progress towards a more competitive energy system
  • A new governance framework for reporting by the Member States, based on national plans coordinated and evaluated at the EU level.” (Europa-EU)

[2] Especially if the market moves towards a significant share of zero marginal cost renewable and other back-up means, of which capacity-based pay will be the main source of revenue.

[3] The first British auction has kept many coal plants running. The second, on the other hand, focused on gas, nuclear, and storage. In France, the capacity mechanism has, in fact, highlighted and covered the fixed costs of operation and maintenance of thermal power stations.


Related Posts

Capgemini Invent

Why is a renewable energy sourcing strategy essential on your path towards net zero?

Date icon September 22, 2021

It is time for corporates to accelerate their uptake of renewable energy sources.


Is pure clean power a fantasy?

Philippe Vié
Date icon May 18, 2021

Accelerating to net zero


How DER can help utilities reach net zero

Ajay Verma
Date icon March 15, 2021

Among the biggest renewable developments in recent years are privatization and the unbundling...