1
Is aggregated demand response a valid tool to
secure energy grid stability and foster the
diffusion of renewable energies within the EU
territory or does it clash with EU Competition
law?
Lorenzo Morandi Stud. Nr. 13006770
TABLE OF CONTENTS
INTRODUCTION ...2
1. WHAT DOES DEMAND RESPONSE CONSIST OF? ...4
1.1THE BENEFITS OF DEMAND RESPONSE ...6
1.2DOES DEMAND RESPONSE HAVE DOWNSIDES? ...7
1.3DIFFERENT TYPOLOGIES OF DEMAND RESPONSE ...9
1.4ENERGY AGGREGATOR: A NEW PLAYER ON THE FIELD ... 10
2. IS DEMAND RESPONSE RELEVANT TO EU COMPETITION LAW?... 11
2.1CAN CONSUMERS BE CONSIDERED UNDERTAKINGS IN CERTAIN CIRCUMSTANCES? ... 13
3. IS DEMAND RESPONSE OPERATED THROUGH THE INTERMEDIATION OF AN ENERGY AGGREGATOR IN BREACH OF EU COMPETITION LAW? ... 15
3.1 CAN AN ENERGY AGGREGATOR BE CONSIDERED A CARTEL FACILITATOR? ... 17
3.2 DOES AGGREGATORS’ CONDUCT AFFECT APPRECIABLY THE TRADE BETWEEN MEMBER STATE?...18
3.3IS AGGREGATED DEMAND RESPONSE CAPABLE OF RESTRICTING COMPETITION BY OBJECT? ... 20
3.4IS AGGREGATED DEMAND RESPONSE CAPABLE OF RESTRICTING COMPETITION BY EFFECT? ... 22
3.5IS THE WOUTERS DOCTRINE APPLICABLE TO THE AGGREGATION CONTRACT?...24
4. CAN AGGREGATED DEMAND RESPONSE BE LASTLY JUSTIFIED UNDER ART. 101.3 TFEU? ... 25
5. CONCLUSION ... 27
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Introduction
The starting point for this thesis arose from the observation that energy and environmental issues are closely linked. Indeed, energy production requires enormous quantities of natural resources. Traditional energy sources are fossil ones, which still represent the main resource used for energy production today. However, the combustion of oil and coal is highly polluting for the environment, since it is one of the main causes of the increase in greenhouse gas emissions, which are the factors that have the strongest influence on climate change. The reduction of energy consumption, in particular that deriving from traditional energy sources, and consequent promotion of renewable energies seem to be valid tools to reverse this worrying trend. Renewable energy sources have a clear advantage of being inexhaustible and carbon-free. However, they are affected by an intermittent problem1. Indeed, the production of renewable energy completely depends on natural factors. While
hydroelectric and geothermal energies are characterized by certain security of supply, since it is difficult to have fluctuations in their production, the question regarding wind and solar energy, which are among the renewable sources that generate the most energy2, is different. They depend on the meteorological conditions, which, as such, are to a large extent unpredictable, especially in the long term. While renewable energy cannot generally guarantee a certain security of supply, the demand for electricity is typically considered inelastic, i.e. it tends not to undergo significant changes over time. Businesses and consumers generally need to have energy available on a sufficiently continuous basis, without being able to rely on the changing weather. Traditionally, in reference to the energy matter, the main focus has always been on the supply side. The answer to society's continuing need for energy consisted in an increase in production by energy producers. However, the recent problems I have just mentioned, i.e. climate change and the consequent need to rely more and more on renewable energy, have prompted institutions to focus not only on the energy supply side, as in the past, but also on demand. side. Demand-side management consists of a series of activities through which it is possible to activate the demand side, ie the consumers, giving them an active role in the energy market. Demand-side management was defined by the Electric Power research Institute as:
“the planning, implementation and monitoring of those utility activities designed to influence customer use of electricity in ways that will produce desired changes in the utility's load shape, i.e. time pattern and magnitude of a utility's load. Utility programs falling under the umbrella of
1 As outlined in the Clean energy for all Europeans package (2015), pp. 4-9.
3 DSM include load management, new uses, strategic conservation, electrification, customer generation and adjustments in market share.”3
Among the activities that make up demand-side management, load management, which consists of managing the flow of energy within the market, is particularly relevant for the purposes of this thesis. Among the load management tools I will analyze the so-called Demand Response (DM). The Demand Response mechanisms, which I will deal with in detail in the next chapter, are tools that intervene by modulating the delivery of energy according to its price variations. Particular attention should be given to the demand response mechanisms operated by the energy aggregators. Energy aggregators are entities that act by providing different types of services to consumers and energy producers, acting as an intermediary between the two sides of the market. Demand response implemented by energy aggregators is known as aggregated demand response. It is a valid tool to promote the integration of renewable energy, the stability of the electricity grid, and in general its efficiency. For these reasons, demand response and energy aggregators are among the protagonists of the recent Clean Energy for all Europeans Package, a package of legislative acts published in 2009 by the EU institutions and aimed at updating the EU energy framework to make it more eco-sustainable, efficient, and beneficial for consumers. Prima facie, (aggregated) demand response seems to be a winning strategy to ensure the efficiency and eco-sustainability of the new EU energy framework. Nevertheless, as it acts, in most cases, by artificially reducing the amount of energy traded on the market to lower its price at peak energy times, there are some compatibility issues with other branches of EU law. The friction with the EU Competition law is particularly delicate. The reduction in the amount of energy available to consumers, operated in an artificial way, in fact leads to market inefficiencies and to the appropriation by consumers of part of the well-being of producers and sellers. In this thesis, I will thoroughly analyze the concept of demand response, focusing on its aggregated form, to demonstrate whether it is compatible with the EU Competition law or not.
In the first chapter, I will focus on the concept of demand response and on the figure of the energy aggregator, which will be analysed in the light of the most recent documents launched by the EU institutions. The next chapter will explain the relevance of (aggregated) demand response for EU Competition law. I will continue my analysis by evaluating, in the third chapter, the eventual infringement of art. 101.1 TFEU by demand response in its aggregate form. Finally, this contribution will summarize the main considerations carried out within the various chapters.
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1. What does demand response consist of?
Before going into the merits of the subject of this thesis, that is the analysis on the possible compatibility between demand response and EU Competition law, I believe that it is useful to define in detail the concept of demand response, highlighting its strengths and weaknesses and reasons why it is so relevant today. Furthermore, I think it is also important to deepen the demand response in its aggregated form, which is the one that most interests for the purposes of this thesis. The electricity market is undergoing a process of profound change in recent years. The issue of climate change is a real and present danger that requires a change in the way energy is produced and distributed. The reduction of CO2 emissions, an objective expressly envisaged in various documents issued by the EU institutions4, has forced Member States and the European Union itself to focus more decisively on
renewable energy production sources. The old production model, based on the exploitation of power plants powered by highly polluting fossil fuel, is no longer considered sustainable in the present and future. Today, Transmission System Operators (TSOs) have to deal with the limits of renewable energy, and in particular with the lack of security of supply. Demand response can be a valid tool that can be activated to cope with the limits set out above. The definition of demand response is given directly by Directive 2019/944 (Electricity Directive). It is defined as:
"the change of electricity load by final customers from their normal or current consumption patterns in response to market signals, including in response to time-variable electricity prices or incentive payments, or in response to the acceptance of the final customer's bid to sell demand reduction or increase at a price in an organised market as defined in point (4) of Article 2 of Commission Implementing Regulation (EU) No 1348/2014, whether alone or through aggregation.”5
It looks clear, from the definition given by Directive 2019/944, that demand response consists of a tool aimed at allowing consumers of electricity to vary their energy consumption in relation to the fluctuation of relative prices in the market. They are able to benefit from their active participation in the market through a response to price signals or incentives guaranteed by network operators. The key concept is therefore contained in the term "flexibility”6. Electricity grids are today extremely technological, perfectly capable of processing complex information and connecting consumers and operators in real-time. The former, in particular, are increasingly seeing their position evolve over time. They must no longer be considered simple passive subjects within the energy market, they are
4 One of the most recent ones is the Communication from the Commission – The European Green Deal. It is a common European strategy aimed at pursuing environmental goals. Among them, there is the achievement of carbon
neutrality by 2050, as highlighted in the introduction of the document.
5 Art. 2(20), Directive 2019/944 of 5 June 2019 on common rules for the internal market for electricity.
6 E. Martinot, “Grid Integration of Renewable Energy: Flexibility, Innovation, and Experience.” Annual review of
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changing their position into active consumers, directly involved in the energy production and distribution process. Demand response can be the ideal tool to support the transition to this new energy production system, where, as mentioned above, the consumer plays the role of the leading actor7.
I have already illustrated how the lack of security of supply is one of the main problems afflicting renewable production sources, and that it hinders the implementation of a completely green production model. The most important renewable resources for electricity generation are solar and wind power. Energy production depends on meteorological conditions, which, by its nature, cannot be predicted with sufficient accuracy. Even if it was hypothetically possible, the problem of the impossibility of generating energy in moments of absence of wind and sun obscured by clouds would not be eliminated. Therefore, during these unfavorable situations, it is extremely complex to increase energy production from renewable sources. A possible solution could lie in the construction of new plants and energy storage units. In this way, in periods of favorable climate, it would be possible to produce a greater quantity of energy to be stored in the appropriate storage units, so as to be able to cope with future periods of eventual production scarcity. One of the main limitations of this option is undoubtedly its cost. Modernizing existing plants or building new ones is a highly expensive operation. The solution offered by demand response programs appears economically more sustainable, and also conceptually more responsible. In fact, they do not focus on increasing production, but, on the contrary, are based on the modulation of demand. The idea behind demand response is to guarantee consumers a reward in exchange for a temporary reduction in their energy consumption at the request of the network operator8. Its ultimate effect, which is to give relief to the
grid congestion, is not different from what it would be achieved through increasing power generation. However, the reduction of demand is a more efficient and cleaner option, which makes it possible to ensure the stability of the system even in relation to the most energy-intensive consumers (like for instance large industrial plants) and the unpredictability of the weather. Grid operators have the task of ensuring that the balance between electricity production and consumption is continuously maintained, in order to guarantee a constant, safe, and reliable supply, despite the various issues that might sometimes rise, like for instance those intrinsic to the use of naturally non-programmable energy sources. Demand response also has the benefit of being able to meet the needs of businesses, which increasingly require a customizable approach in relation to power consumption and availability. Demand response mechanisms, which, as I have already pointed out, are based on the
7 J. Knigge (CGI Group), Flexible energy - the value of demand response, Jaarcongres Delta Cities.
8 Eid, Codani, “Aggregation of Demand Side Flexibility in a Smart Grid: A Review for European Market Design.” 2015
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concept of flexibility, allow companies to vary their consumption by reducing or increasing production for short periods of time based on the requests of demand aggregators or network operators. In this way, through more efficient use of existing infrastructures, the grid can be kept stable and it is possible to cope with peaks (in energy demand or supply) without the need to build new plants or modernize existing ones9.
1.1 The benefits of demand response
Demand response is important because it can provide certain benefits to the actors involved and to society in general10. The most relevant aspect from the point of view of consumers is certainly the financial one. In fact, the reduction of energy consumption takes place behind the acknowledgment of an incentive in favor of the consumer, who, in a certain way, sells his flexibility on the market for an economic incentive. The electricity market follows the normal rules that apply to any market. Consequently, as energy demand increases, its price also increases. In the presence of energy peaks, i.e. periods in which the energy demand from consumers is extremely high, demand response mechanisms intervene by reducing consumption and consequently the price of energy. In addition to an obvious reduction in consumption, consumers can also benefit from these incentives, and therefore subscribing to a demand response program is economically advantageous for them. An additional aspect of the financial benefits to consumers is the reduction of energy generators’ capacity to overcharge during energy spikes. By avoiding their occurrence, the danger of excessive increases in the price of energy is also consequently avoided11.
The electricity grid in general also benefits from the existence of demand response mechanisms. In peak energy situations, as I explained above, the energy demand raises dramatically. It is essential for the stability of the network that supply and demand are in balance. If the demand is excessive and exceeds the network capacity limit, the system fails and a blackout would occur. The solutions might be to increase the production capacity, so that the system can satisfy the increased demand for energy, or, as highlighted in this thesis, to reduce demand. Demand response acts, in a certain way, as a tool
9 European Commission DG Energy, Impact assessment study on downstream flexibility, price flexibility, demand response & smart metering, pp. 11-15.
10 ivi, pp. 15-18
11 S. Wizinger and F. Pause, 'New EU Law for New Market Players: What's in It for Renewable Energy Aggregators' (2017) 8 Renewable Energy L & Pol'y Rev: 52.
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antagonist to power production, even if both have the same identical purpose, namely to ensure the stability of the network. The second, however, is clearly less cost-efficient12.
A further advantage deriving from the use of demand modulation systems is represented by the possibility of reducing, or even abandoning, the exploitation of so-called peaking power plants (or simply "peakers"). They are power plants inactive for most of the time. They are used only when energy demand is peaking. Although Peakers might appear, prima facie, an inefficient instrument, the costs of construction and maintenance are often higher than the advantages they bring. Generally, they are also powered by fossil fuel and thus are not a valid tool to achieve a carbon-free economy. The possibility of acting directly by modulating the energy demand is therefore a preferable solution compared to the construction and maintenance of power plants to be used only occasionally. Abandoning the use of Peakers would also affect the wholesale price of electricity. A contraction in demand implies the non-necessity of the less efficient forms of energy production, with the consequence of a decrease in prices13.
The most important benefit of demand response is probably to the advantage of the environment. The modulation of consumer demand solves the age-old problem of security of supply, which has always plagued renewables and prevented the possibility of relying solely on them as regards the composition of the energy mix of each Member State. The problem of intermittency can be solved by reducing the demand in times of production shortage. The inconveniences caused by the unpredictability of solar and wind energy are similar to those caused by the increase in demand during the energy peaks. In both situations, the energy available is not sufficient. Therefore, demand response would act equally by curtailing power demand14.
Finally, given its ability to allow electric vehicles to be charged efficiently, demand response can be a valid tool to facilitate their implementation into the electricity grid. Electric cars are an instrument considered by the EU as fundamental in the mission of decarbonising the transport sector15.
1.2 Does demand response have downsides?
12 ibidem.
13 S. Wijesuriya, “The “Peakers”: The role of peaking power plants and their relevance today”, available at: https://www.sciencepolicycircle.org/.
14 Great Plains Institute (S. Dahlke and D. McFarlane), Environmental Benefits of Demand Response, on https://www.betterenergy.org/.
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Even if, at first glance, demand response seems to bring benefits to every actor involved, the electricity grid itself, and more generally the planet, this is not the case. Energy producers are the losers. Energy peaks represent the moment in which these subjects can maximise their profit. Growth in energy demand indicates that consumers need more energy and are therefore willing to pay an exponentially increasing price for it. Producers can exploit this situation to charge them higher prices16. While the price of energy increases as demand increases, the costs that producers would have
to bear to meet the increased demand do not grow at the same rate. Although there are additional costs that they have to bear in such situations, such as an increase in costs of energy dispatching (i.e. to maintain the balance between supply and demand), these are in any case not directly proportional to the increase in demand. This implies that energy peaks can be defined as the time segment in which power producers can theoretically generate the greatest profits. Although consumers are notoriously the weak side of the market, and therefore most in need of protection, it does not appear correct even to exceed in their protection to the excessive detriment of power generators. For this reason, the Directive 2019/944 provides for the possibility, for Member States, to implement compensation mechanisms to the advantage of them. The compensation must not be excessive and must be limited to covering only the additional costs resulting from the activation of the artificial reduction of demand. Final consumers and aggregators may be involved in participating in the payment of such compensation, provided that they do not incur costs that exceed the benefits of reducing demand. The logic is that of providing economic benefits for the subjects most penalized by the use of demand response tools, i.e. producers, without however having an excessively burdensome impact on the consumers. Otherwise, the very concept of demand response would lose its meaning, and its attractiveness in the eyes of final consumers and the intermediary subjects that operate the modulation would disappear17.
Furthermore, the Energy Directive also establishes Member States’ obligation to ensure that the national regulatory authorities or, depending on the possible different provisions of the national legislative systems, DSOs, and TSOs, in collaboration with final consumers and other participants in the electricity market, set the technical requirements to ensure the implementation of demand response tools in all electricity markets18. EU institutions have foreseen the possibility that the establishment of such mechanisms could lead to complications concerning the stability of the energy grid or any increases in management costs, especially as regards cases in which subjects that move
16 B.R. Huber, “Demand Response and Market Power”, 100 Iowa Law Review Bulletin (2015): 92. 17 Art. 17 (4), Directive 2019/944.
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large quantities of energy, such as large consumers (typically large industries) or a multitude of small consumers aggregated through the activity of an aggregator are involved.
1.3 Different typologies of demand response
Demand response can take many forms. The main division is between implicit and explicit demand response19. The first one, also known as price-based demand response, occurs when consumers react freely to price changes. The fluctuation of prices can influence consumers’ choice, leading them to opt for the use of energy in time slots in which prices are lower. Technological innovation can facilitate this demand response mode. Just think of programmable appliances, such as washing machines, which can be programmed during the day to work at night, when the price of energy is typically lower20.
Demand response, on the other hand, is explicit when it is induced by external parties and therefore does not depend on a natural reaction of consumers to price signals. It is also known as incentive-driven demand response because consumers are induced to reduce their energy consumption following the recognition of a bonus by the power provider or the network operator. Energy users enter into a contract under which the grid operator can unilaterally, based on the clauses provided for in the agreement, reduce the quantity of energy supplied in certain periods. The explicit demand response mode can also manifest itself through the offer by consumers, individually or through an aggregator, of their energy flexibility directly on the market. In this way, they play a leading role. The flexibility they offer is deemed to compete with power production. Explicit and implicit demand-side flexibilities are complementary. One does not exclude the other. Indeed, an implementation of both has the advantage of guaranteeing the full range of options to consumers, meeting their possible different needs. While a large-scale consumer, such as a large factory, may be able to regulate its consumption by itself based on price signals, a small consumer may instead find it easier to adhere to a contract that automatically determines the modulation of the energy flow (which often does not even affect his behavioral energy consumption scheme)21.
19 European Commission DG Energy, Impact assessment study on downstream flexibility, price flexibility, demand response & smart metering, p. 1.
20 Smart Energy Demand Coalition (SEDC), Explicit and Implicit Demand-Side Flexibility - Complementary Approaches for an Efficient Energy System, Position Paper (September 2016).
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1.4 Energy aggregator: a new player on the field
In the previous paragraphs, I already introduced the concept of aggregation without giving a proper definition. Renewable energy aggregators are legal entities that act as an intermediary between the two different sides of the energy market, namely producers and consumers. They provide their services to both sides of the market. As for consumers, aggregators mainly offer two types of services. The first type consists of facilitating the sale of energy by those (domestic or industrial consumers) who own storage or energy generation units22. Such consumers, better known as prosumers23, are unlikely to be able to exchange the excess energy produced directly on the market. For this reason, they exploit the intermediation of aggregators.
The other type of services offered by aggregators consists of aggregating the demand of multiple consumers. Demand aggregation is defined as:
"a function performed by a natural or legal person who combines multiple customer loads or generated electricity for sale, purchase or auction in any electricity market”.24
This second type of activity is the most relevant for this thesis. Moreover, aggregation can take two different forms. There is an independent and non-independent aggregation. From the Electricity Directive25, it is possible to infer that aggregators are independent when they actively participate in
the aggregation market without being connected to the customers' suppliers. In the other situation, they are considered non-independent. Through the intermediation of aggregators also Citizens' energy communities can enter the market 26.
Art. 13 of the Directive 2019/944 establishes some minimum standards that must characterize the aggregation contract. In particular, customers must be guaranteed the freedom to participate in the market by selling or purchasing electricity services other than the supply (therefore including aggregation), with no regard for their contract with an energy supplier and without the need for their participation to be approved by that supplier.
22As provided for by art. 21, Directive 2018/2001 on the promotion of the use of energy from renewable sources. 23 Briefing European Parliamentary Research Service – Electricity “Prosumers”.
24 Art. 2(18), Directive 2018/2001. 25 ivi, art. 2 (19).
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Directive 2019/944 disciplines also aggregated demand response27. Aggregators fall within the definition of “electricity undertakings”28. Aggregators are not flexibility providers themselves. They
simply aggregate the needs of final users to facilitate the trade of their flexibility on the market. Member States are encouraged to promote the active participation of final consumers in the energy market through the intermediary activity of aggregators. Despite this express provision, the diffusion of aggregators within the territory of the Union is still limited today.2930
2. Is demand response relevant to EU Competition law?
After shedding light on the meaning of the concept of demand response, it is appropriate to continue analyzing its possible relevance for the EU Competition law. Following the liberalization of the sector and the unbundling of undertakings that had monopoly power31, the energy market has opened up to
the competition. Traditionally, the position of consumers was considered merely passive, as they were seen only as buyers of the goods offered by power producers. Energy demand tends to be characterized by a certain lack of elasticity to price changes. This implies that price changes rarely lead to significant changes in consumption by final users. Electricity is a primary good that citizens can hardly do without. The quantity that each of them uses therefore tends to be constant over time. Only large-scale energy consumers can effectively modify significantly their consumption to respond to price fluctuations. This low elasticity of energy demand places consumers in a position of weakness. For this reason, competition law, as occurs regarding all markets characterized by a certain lack of elasticity of demand, pays particular attention to the conduct of suppliers, to prevent them from exploiting their natural market power beyond the limits allowed. Unlike this traditional perspective, the concept of aggregated demand response implies a completely different point of view. In this second case, consumers are indeed the subjects on which national and EU competition law must focus their attention. As I have already pointed out in the previous chapter, energy aggregators act by coordinating the demand response of a multitude of customers. Consumers, abandoning their typical function of passive buyers, in this situation play a central role in the energy market by selling their energy consumption flexibility with the collaboration of aggregators.
27 ivi, art. 17.
28 ivi, art. 2 (57). 29 ivi, art. 17(1).
30 S. Winziger, op. cit., pp. 52-58.
31 The process started with the First Energy Package in 1996, and today is regulated by the Clean energy for all Europeans package.
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Demand response is a tool that simply determines a change in consumer consumption patterns. It does not automatically imply a reduction of the electricity trade on the market to allow a lowering of its price (withholding effect). Users might continue to consume the same amount of energy and just modify the distribution of their consumption patterns. For instance, they may use the energy-intensive appliance during night hours, when the energy price is generally lower. However, in most cases demand response results in a reduction in energy consumption, with a consequent price and quantity of energy traded on the market contraction. Such an eventuality is typically considered inefficient from an economist's point of view. The concept of efficiency lies at the basis of economic theory. The ideal market model is a market in which all buyers interested in buying a good can buy it, and all sellers can sell their goods without any inventories. This economic model is purely idealistic, a paradigm that every market should strive for. In contrast with this theorization, the implementation of a mechanism that helps to reduce the quantity of an asset traded on the market is negative because reduces the general surplus, giving rise to a dead-weight loss. Demand response acts similarly to price-fixing conducts, which are typically implemented by sellers to appropriate part of the consumer surplus. Both conducts in question indeed lead to artificial scarcity. It means that less energy is traded on the market than that which could have been traded in the absence of demand response or price-fixing instruments. As discussed in the previous chapter, the supply curve in the electricity market tends upwards, since as demand increases, energy price also increases exponentially. The amount of energy that producers can generate is not unlimited. This eventuality means that the maximum quantity of energy available equals the maximum amount of energy that can be produced. As the peak capacity of the power generators gradually approaches, energy price raises accordingly since the total capacity of the system is getting progressively closer. Beyond this limit, there would be a system failure. The trend of the electricity supply curve makes it possible to understand why, by reducing the quantity of energy exchanged on the market through a demand-supply mechanism, consequently also the price of the energy itself decreases proportionally since the system progressively moves away from its maximum capacity limit. In essence, demand response acts by altering the substance of the energy consumption model, which then leads to a lowering of the price32.
Through demand response tools, consumers act by exploiting their monopsony power. In a monopsony model, a single buyer has the power to control the market as he is the largest purchaser of goods sold by sellers. The situation is exactly the opposite of a monopoly model, where such power over the market is exercised by the sole seller. Consumers organized through the activity of an aggregator behave like a monopsonist, as they can reduce the quantity of energy traded on the market
32 I. Herrera Anchustegui, “Is EU Competition Law a Hindrance for Aggregated Demand Response?”, available at: https://papers.ssrn.com/.
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to lower the purchase price. In doing so, buyers appropriate part of the sellers' wealth. They purchase energy at a lower price than the price they would normally pay in the absence of aggregated demand response measures. The similarity with the monopoly model is evident again, with the difference that it is the monopolist seller the subject who appropriates buyers’ surplus. Despite the clear negative effect of the implementation of mechanisms that are capable of creating a dead-weight loss, which always represents an economic inefficient result, this drawback is counterbalanced by the numerous benefits that demand response can guarantee to the market. They have been discussed in depth in paragraph 1.1, and briefly consist of financial benefits for consumers, maintenance of the general stability of the electricity system, and environmental protection with consequent reduction of CO2 emissions33. Following the considerations made in this paragraph, it is possible to affirm that EU Competition law is relevant to the use of a tool such as demand response since it alters the normal market trend by inducing an artificial reduction in demand, with a consequent decrease in total welfare. Aggregated demand response is the most relevant form of demand response for EU Competition law, as I will illustrate in more detail later in this chapter.
2.1 Can consumers be considered undertakings in certain circumstances?
In the previous paragraphs, I explained how consumers are the subjects enabled to adhere to so-called demand response contracts. Directive 2019/944 clearly expresses the irrelevance of the size of consumers, in terms of the amount of energy they can consume, concerning the possibility of benefiting from the advantages of demand response. Both non-households and household customers can use it. The former are defined by the Directive as natural or legal persons who purchase energy not intended for their domestic use34. The energy purchased by them does not necessarily have to be used for economic purposes, but it is sufficient that it is not intended for domestic use. The Directive also presents, within the same paragraph, a non-exhaustive list of these subjects, including producers and SMEs. The latter, on the other hand, are customers who use the energy purchased for domestic purposes, with the exclusion of commercial and professional activities35. The first element that must be analysed when an EU Competition law assessment procedure is initiated is whether the person whose conduct is under review is an undertaking. EU competition law deals solely with the conduct of undertakings. If there are no undertakings involved in a matter, then it does not fall under the scope
33 I. Kokkoris. “Buyer Power Assessment in Competition Law: A Boon or a Menace?” World competition 29.1 (2006): 141-145.
34 Art. 2 (5), Directive 2019/944. 35 ivi, art. 2 (4).
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of EU competition law. The concept of an undertaking is not defined by the Treaties. EU Courts, however, have defined the term within their case law. It is considered an undertaking "every entity engaged in an economic activity regardless of the legal status of the entity and how it is financed.”36
The concept of economic activity was also defined solely at the case law level by the EU courts. It is an economic activity "any activity consisting in offering goods or services on a given market.”37
Electricity is an asset intended to be used to carry out other activities. These other activities may be economic, such as the production of cars, which will require energy to be carried out, or non-economic, such as the simple light bulb used by each person to light their home. EU Courts stated that non-economic activities do not fall within the scope of EU Competition law38. Prima facie, simple household consumers would appear to be always unable to fall under the definition of the undertaking, since the energy purchased by them is not connected to the accomplishment of any economic activity, but is used only to carry out typical daily actions related to domestic life. However, the situation is much more complex if consumers are considered in light of the concept of demand response. In the previous chapter, I analysed the functioning of demand response, highlighting that it consists in the modulation of consumers' electricity consumption, determining a reduction if the demand is excessive in relation to the capacity of the system. By joining demand response programs, consumers can trade their flexibility on the market behind the recognition of incentives. From this different point of view, the activity of consumers is true of an economic nature, as they would offer a good, i.e. their flexibility, on a given market (retail market, wholesale market, etc.). For this reason, when consumers act by offering their flexibility on any electricity market, they must be considered undertakings in all respects. As undertakings, consumers can find themselves in competition with each other in their business of providing flexibility39.
As regards demand response aggregators, there is no doubt that they are undertakings. EU law itself identifies them as electric undertakings40. They operate by acting as an intermediary between
consumers and network operators, thus carrying out an economic activity. Their position is distinct from that of consumers. The latter are the real protagonists who offer their flexibility on the market. The aggregators, on the other hand, limit themselves to facilitating the realization of this trade through the organization of individual flexibility providers who would otherwise find it difficult to carry out their business individually. Therefore, there is no competition between them.
36 Höfner (C-41/90) [1991], para 21.
37 Pavlov (joined cases C-180/98 to C-184/98 Pavlov) [2000], para 75. 38 Wouters (C-309/99) [2002], para 57.
39 R. Schuitema, “The Consumer’s Role in Flexible Energy Systems: An Interdisciplinary Approach to Changing Consumers’ Behavior.” IEEE power & energy magazine 15.1 (2017): 54-55.
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3. Is demand response operated through the intermediation of
an energy aggregator in breach of art. 101.1 TFEU?
In the previous chapter I explained that energy aggregators are undertakings and that consumers, in certain circumstances, can themselves be considered undertakings. In general, I have therefore demonstrated the relevance of aggregated demand response mechanisms for the EU Competition law. After doing this, it is advisable to check if this connection between them can turn into a possible conflict. The new directive on electricity, i.e. Directive 2019/944, which is part of the recent Clean Energy for all Europeans package, a new energy rulebook intended to update the energy policies framework to favor the transition towards an economy more sustainable and renewable energy-oriented, repeatedly stresses the importance of the figure of the "active consumer" as the protagonist of this transition towards a low-carbon society41. As already stated in the previous chapters, the role of the consumer has changed profoundly over the last years. Nowadays, the traditional conception of the passive consumer, who simply purchases goods marketed by sellers is no longer in step with the times. Directive 2019/944 encourages Member States to favor the participation of active consumers, ensuring their freedom of action and protecting them from any type of discrimination that could limit their active intervention in the market42. However, EU law also establishes that the new central role that active consumers must play in this updated framework is not only subject to the provisions contained in the same regulations and directives that make up the framework in question. The position of active consumers must also respect the dynamics of other branches of EU law, such as EU Competition law43. In this perspective, it is of fundamental importance to analyse the compatibility
between the demand response mechanisms implemented through the coordination of an energy aggregator and the articles of the Treaties that ensure fair competition within the EU markets. In particular, the most relevant article is 101 TFEU, the first paragraph of which expressly prohibits:
"all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market."
41 As it appears from Recitals 10 and 37, Directive 2019/944. 42 ivi, art. 15, Directive 2019/944.
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Art. 101.1 TFEU also provides for a non-exhaustive list of prohibited conducts. The rationale of the article is to ensure fair competition between the players active in the EU markets, both horizontally and vertically. After having introduced and emphasized art. 101.1 TFEU importance concerning the concept of demand response, all that remains is to check whether the demand response tool has points of collision with it.
Demand response acts on the energy demand by artificially reducing it in moments of energy peak. Consequently, it has the effect of influencing, by modulating it, the consumption pattern of consumers, who are led to decrease consumption during peak hours and possibly increase it during hours when prices are lower. Despite the inapplicability of art. 102 TFEU in relation to the relationship between flexibility provider consumers and energy producers, I believe that it is however interesting to briefly explain the reason for this inapplicability.The single consumer who, by selling his flexibility, can influence the market by causing a change in prices in a way contrary to the logic of the market is considered in breach of EU Competition law only if he occupies a dominant position within a single market and abuses it to gain advantages to the detriment of the other participants. Such behavior would be contrary to art. 102 TFEU, which prohibits the abuse of a dominant position. Art. 102 TFEU, however, is not relevant for the purposes of this thesis. In fact, it is not possible to hypothesize concretely a case in which a single consumer is so powerful as to be able to influence market trends. The reality is instead made up of a multitude of consumers, especially small ones, who can achieve a leading position in the market only thanks to the organization and intermediation of an energy aggregator.The unreal hypothesis just proposed, in which a single consumer could exercise individually his power on the market, corresponds to the concept, already exposed in chapter 2, of monopsony power. Monopsony power, which represents the counterpart of monopoly power on the other side of the market, is in question when a single consumer, on whom the various sellers consequently depend, acts on the market. In this case, the sole buyer can exercise his power in an abusive manner, since he represents the only counterpart of the sellers. A similar situation is present when there is not a single buyer but a handful of them. This circumstance is known as oligopsony. In this model, the few buyers generally occupy a dominant position, which they can equally exploit to the detriment of sellers. The case of consumers in the various EU energy markets is different since there are neither a single nor a few subjects active within them. EU energy markets are characterized by the simultaneous presence of a multitude of consumers eager to offer their flexibility behind the payment of incentives. As just said, if the latter acted individually, given their impossibility of occupying a dominant position in the market due to their extremely large number, there would be no compatibility problem between EU Competition law and demand response. The problems instead
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arise because the consumers do not act individually but exploit the coordinating activity of a third party, the aggregator, which acts by facilitating collaboration between them.
3.1 Can an energy aggregator be considered a cartel facilitator?
While the activity of a consumer acting alone is not of particular relevance, a possible agreement between more consumers to act together could instead be relevant to the EU Competition law and fall within the conduct prohibited by art. 101.1 TFEU. The article does not require that the pactum sceleris translate into an actual agreement, with all the formalities that agreements generally require. Art. 101.1 TFEU also prohibits the so-called "concerted practices", which consist of:
"a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition.”44
While an agreement, the nature of which is characterized by the presence of specific formalities, is hardly conceivable between consumers, a concerted practice would be more likely. However, even this possibility would be to some extent hypothetical and difficult to manifest in practice, since consumers are rarely endowed with a common vision. Each of them tends to pursue its objective (in this case the sale of flexibility) individually, and therefore without the presence of a community of intentions that would be necessary for the concerted practice case to be realized. It is completely different the situation in which consumers do not act on their own, individually or together, but are assisted by a third party, the energy aggregator. This subject, acting as an intermediary, connects more consumers. Considering the collaboration between several consumers as a collaboration between several undertakings in a horizontal competition (as already discussed just above), a demand response aggregator would essentially act as a “cartel facilitator”. Nevertheless, the fact that art. 101.1 TFEU does not mention cartel facilitators at all, casts doubts on the possibility of configuring such conduct harmful to EU Competition law. Things changed in October 2015, when the Court of Justice issued a very important ruling on what is now considered a landmark case. Within its ruling on AC-Treuhand
AG v European Commission45, the Court initially admitted that art. 101.1 TFEU (81.1 EC at the time of the events) did not refer to the facilitation of cartels in any way46. Despite this, it continued its reasoning by establishing that the article in question refers in general to any agreement or concerted
44 The definition of concerted practice is not present in the Treaties, but it was given by The Court ICI (C-48-69) [1972], para 64.
45 AC-Treuhand AG (C-194/14 P) [2015]. 46 ivi, para 27.
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practice, vertical or horizontal, which distorts competition in the single market, regardless of which market the parties operate in. The Court continued by stating that the rationale of art. 101.1 TFEU is to ensure the fairness of competition between undertakings, prohibiting any type of conduct that could put it at risk. Denying the possibility of indicting the facilitation of a cartel would therefore be contrary to the very essence of EU Competition law47. The conduct of an aggregator which, in a moment of
energy peak, sends a signal to all consumers contractually linked to it, ordering them to reduce their consumption, is easily identifiable as capable of hindering the smooth functioning of competition. This example perfectly explains the functioning of the phenomenon of aggregation. It is a quite complex concept, relevant both horizontally and vertically. On the one hand, there is the contract that binds the aggregator to its various consumers individually (vertical effect). On the other hand, there are the multiple aggregation contracts that allow the aggregator to coordinate the action of consumers, who can uniform their conduct on the market after having received a signal from the aggregator (horizontal effect)48. The violation of the principle of fair competition in its essence is here evident. Consumers "substitutes practical cooperation between them for the risks of competition49", to the detriment of the market. After demonstrating that the activity of aggregators limits competition between undertakings, it remains to be discussed whether this limitation results in a violation of Article 101.1 TFEU or not. Indeed, for the conduct of an undertaking to be in breach of art. 101.1 TFEU the existence of a distortion of competition is not sufficient50.
3.2 Does aggregators' conduct affect appreciably the trade between Member
States?
To fall within the scope of art. 101.1 TFEU, the activity of an undertaking that distorts EU competition law may affect trade between Member States. However, the concept expressed by the provision at issue is not sufficiently clear. The concept of trade is not limited to the typical exchange of goods and services between Member States. It means that “there must be an impact on cross-border economic activity involving at least two Member States.”51 Moreover, it is not necessary that the
aforementioned impact on cross-boarder economic activity effectively happens. “The notion ‘may affect’ implies that it must be possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or fact that the agreement or practice may have an influence, direct
47 ivi, para 35-36.
48 OECD, Roundtable on Hub-and-spoke Arrangements (2019), p. 18. 49 ICI (C-48-69) [1972], para 64.
50 I. Herrera Anchustegui, op. cit., pp. 18-20.
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or indirect, actual or potential, on the pattern of trade between Member States.52” The effect on trade must be appreciable. It means that it must have a certain magnitude. It generally refers to the position of the relevant undertakings on the market, which has to be of particular importance53.
The Court refined the concept of effect on trade within its ruling issued in Volk v Vervaecke54, where
it denied the relevance of situations in which conduct detrimental to competition was irrelevant for the trade between Member States due to the weak position of the actors involved (De Minimis
Doctrine). The case that must be analysed to verify whether conduct is capable of having an
appreciable effect on inter-state trade is not that inherent in the individual contractual relationships between aggregators and consumers. All contractual relationships that customers have with a single aggregator must be taken into consideration since the activity of the latter influences the behavior of a multitude of subjects55. As already discussed in the first part of this chapter, aggregation is composed of a vertical relationship (consumer-aggregator) and a horizontal one (all the consumers contractually connected to the same aggregator). First, it is important to assess whether the aggregated demand response can affect trade between Member States. Later, I will express my considerations about the appreciability of this possible inter-state effect. National energy markets are interconnected. In addition to the physical transmission networks, they are connected by so-called market coupling mechanisms, which are tools that can coordinate different areas (such as the Baltic Power Systems' Integration for the Baltic area) within the European Union by standardizing their energy prices5657. In
such a scenario, the action of an aggregator coordinating the conduct of a multitude of consumers can influence the energy markets of several Member States.
After having established the possible existence of an effect on the trade between Member States, it is time to reflect on the extent of this effect, i.e. whether it is appreciable. In addition to the considerations made at the beginning of this paragraph, I think it is important to mention the fact that the Commission, within its Guidelines on inter-state trade, has given precise indications, in quantitative terms, which can be used to verify whether an agreement between undertakings is capable of affecting inter-state trade58. These indications are presumptions, and as such rebuttable by interested parties. The Guidelines establish that the undertakings at issue must have a total market share higher than 5% and that their overall annual turnover must be higher than 40 million euros. It
52 ivi, para 23.
53 ivi, para. 44.
54 Völk (C-5/69) [1969], para 5-7.
55 This is also evident from para 14, European Commission's Guidelines on inter-state trade.
56 Z. Bompard, “Baltic Power Systems' Integration into the EU Market Coupling under Different Desynchronization Schemes: A Comparative Market Analysis”, Energies (Basel) 11.8 (2018): 6.
57 ACER, “Market Coupling”, available at: https://www.acer.europa.eu/. 58 Para 52, Guidelines on inter-state trade.
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remains to say which market the thresholds just mentioned should be applied to. It is not simple to give a solution, as the result is not definitive, but depends on the broadness of the interpreter's view59. By adopting an extensive interpretation, it is arguable that the relevant market for the calculation of the thresholds present in the Guidelines on inter-state trade is the one in which every possible form of power flexibility is detected. Therefore, the energy production activity of the generators would also be included. Being able to modulate the amount of energy produced, they can consequently adapt to the flexibility of consumers. Differently, by adopting a more restrictive interpretation, only the market constituted by consumers as flexibility providers would be considered relevant. The identification of the relevant market is of primary importance, as the choice would greatly influence the ease with which the thresholds mentioned above can be reached. While in a narrower relevant market it would be easier, in a larger one it would be more complicated to exceed them. Although there is still no clarity on the matter, Directive 2019/944 seems to opt for the broad interpretation, since it explicitly encourages Member States to promote the participation of flexibility provider consumers in all energy markets "alongside producers”, prohibiting any discrimination against the former60. While in a narrower relevant market it would be easier, in a larger one it would be more complicated to reach them. Despite that, nothing prevents an aggregator contractually linked to a vast multitude of customers from exceeding the set thresholds even taking into consideration the wider market as the relevant one.
After the assessment carried out, if the aggregator's conduct does not affect appreciably trade between Member States, art. 101.1 TFEU is not applicable, and the case at issue is not relevant under EU Competition law. However, the lack of relevance for EU Competition law does not exclude automatically the possibility that a case may fall under the scope of national competition law, which does not require the presence of an inter-state element61. The last element foreseen by art. 101.1 TFEU for the realization of an infringement of the cartel prohibition is the need, for the conduct in question, to limit the competition by object or by effect. As it appears looking at the provisions of art. 101.1 TFEU, these are two disjoint elements, and therefore should not be proven cumulatively. In the next two paragraphs, I will focus my analysis on both of them, starting from the restriction by object.
3.3 Is aggregated demand response capable of restricting competition by object?
59 I. Kokkoris, op. cit., pp. 145-146. 60 Art.17(1), Directive 2019/944.
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The definition of restriction of competition by object is not contained in the Treaties or in EU institutions’ secondary law. As often happens in EU law, it was the Court of Justice, through its rulings, that gave content to this concept. A certain conduct is considered restrictive by object when, because of its very nature, it is capable of limiting the competition. Considering the legal and economic context, the intrinsic content of the agreement, and the objectives it aims to achieve, it is possible to identify certain agreements as restrictive by object62, without the intention of the parties
being an essential element63. It is of fundamental importance to establish whether there is a restriction of competition by object, as in this case there is a presumption that the conduct damages the competition64 and, furthermore, the conduct is considered harmful to the competition even if it does not have a significant quantitative impact on it65. This last possibility is particularly delicate. Indeed,
rec sic stantibus, any trivial agreement between undertakings would be considered theoretically
quantitatively relevant. However, it should be noted that an agreement of this type could not appreciably affect trade between Member States, and therefore would not be relevant under the EU Competition law. Although the assessment must be made on a case-by-case basis, taking into account all the elements relevant in the case at issue, some conducts are commonly recognized, based on experience, as restrictive by object. Art. 101.1 TFEU provides also a non-exhaustive list of them66. Aggregate demand response generally manifests itself through a limitation of the trade of energy power. Conducts that consist of limiting the production of a good or service are commonly considered restrictive by object by EU law, as they lead in most cases to a reduction in the general welfare67.
Following the considerations just made, there seem to be no doubts about the inclusion of the aggregated demand response mechanisms among the prohibited conducts provided for by art. 101.1 TFEU. However, it is important to always keep in mind that all the elements that characterize the different cases shall be taken into account. It would be a sign of superficiality to focus the assessment only on the limiting effect of the output that demand response coordinated by an aggregator has on the market. The factual context in its entirety must be considered. In Cartes Bancaires the Court added that the assessment must also examine the intrinsic nature of the asset and the general functioning of the relevant market68. There is a myriad of circumstances that contribute to the determination of a single case of aggregated demand response. For example, the frequency with
62 GlaxoSmithKline Services Unlimited (C-501/06 P) [2009], para 58.
63 Neverthless, in T-Mobile (C- 8/08) [2009], para 27, the Court of Justice held that parties' subjective intention can be taken into account anyway.
64Cartes Bancaires (C-67/13 P) [2014], para 49; Dole v Commission (C-286/13 P) [2015], para 113. 65 Expedia (C-226/11) [2012], paras 35-37.
66R. Whish, and D. Bailey, “Competition Law” (7th ed.), Oxford, UK, Oxford University Press, 2015, pp. 115-125. 67As it results from the European Commission, Guidance on restrictions of competition "by object" for the purpose of defining which agreements may benefit from the De Minimis Notice, p. 5.
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which the de demand response mechanism is activated, the actual extent of the price reduction that it determines as opposed to the extent of the benefit for the network stability, the degree of flexibility of the grid system, any eventual pro-competitive effect that might stimulate power generators to be more efficient, the undeniable benefit of the reduction of greenhouse gas emissions into the atmosphere and the consequent reduction of Member States’ dependence on polluting energy sources, with the possibility to increasingly implement renewable energies limiting their security of supply issue, etc. Taking into consideration all these and many other elements that characterize the essence of the concept of demand response aggregation, it appears that, in most cases, aggregation agreements do not have the harmfulness that they would seem to have if the focus is kept solely on the effect of reducing energy price through a curtailment of the output69. The fostering of aggregated demand response carried out by the European institutions also contributes to this conclusion70, as well as the provision by Directive 2019/944 of the possibility that consumers are required to pay compensations to counterparties for the artificial reduction of output71. The latter circumstance is irreconcilable with the existence of a cartel between buyers. Indeed, in any case, buyer undertakings can be encouraged to compensate counterparts for the restriction of competition resulting from their participation in a cartel. According to the points discussed within this paragraph, I reckon that it is reasonable to conclude that, in most of the cases, by virtue of the numerous positive elements, assessed in depth in paragraph 1.1, which it can bring to the market, aggregated demand response should not be considered restrictive of competition by object for the sole fact it can determine, in certain circumstances, a reduction in output with consequent loss of total welfare.
3.4 Is aggregated demand response capable of restricting competition by effect?
An agreement or a concerted practice, as well as by object, can restrict competition by effect. Once it has been shown that an agreement is restrictive by object, there is no need to prove that it has the effect of doing so. On the contrary, if the assessment has not demonstrated this eventuality, it can proceed by analysing the effects of the agreement to verify if it is still capable of restricting competition72. Once again, as EU Treaties and secondary law do not give a definition of restriction by effect, the Court had to intervene with its case law to shed light. As restrictions by object, also restrictions by effect must look at the entire factual and legal context73. The assessment cannot
69 I. Kokkoris. “Purchase Price Fixing: a Per Se Infringement?” European competition law review 28.9 (2007): 473-478. 70As it appears from the wording of art. 17.1, Directive 2019/944.
71 Art. 17.4, Directive 2019/944.
72 Institute of Independent Insurance Brokers (C-1003/2/01) [2001], para 170.
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disregard the so-called counter-factual hypothesis, according to which it should be examined the hypothetical case in which the agreement being assessed had not been stipulated74. A comparison between the two different hypotheses would make it easier to realize the possible restrictive effect of the competition by the conduct. In MasterCard v Commission, the Commission has defined an agreement restrictive by effect if it is capable of impacting significantly the variables of competition (e.g. price, quantity, and quality of the goods or services)75. As can be seen from the Court's ruling
just mentioned, the assessment must evaluate the appreciability of the agreement’s harmful effect on competition, according to the aforementioned De Minimis Doctrine. The Commission intervened by giving guidelines for the assessment with its Notice on Agreements of Minor Importance. This document contains provisions that identify thresholds beyond which agreements are considered appreciably relevant by the Commission. It is established that an agreement is not capable of affecting appreciably competition "if the aggregate market share held by the parties to the agreement does not exceed 10% on any of the relevant markets affected by the agreement76". Nevertheless, no presumption is relevant when assessment by effect is made. It is therefore up to the plaintiff to provide evidence of the existence of appreciable adverse effects on competition77. Obviously, in case of exceeding the thresholds established by the Commission’s Notice on Agreements of Minor
Importance, the proof will be quite simple to be provided. In my opinion, the reasoning about
agreements restrictive by effect should be concluded by discussing the problem of identifying the relevant market. The question becomes of primary importance when thresholds are at stake. Considering the entire market in which electricity is traded as the relevant one (with the inclusion therefore of power generators) it would be slightly probable to exceed the 10% threshold. As it did regarding the inter-state effect on trade appreciability, also in this circumstance EU law seems to be in favor of an extensive interpretation. In fact the Notice on Agreements of Minor Importance refers to “any of the relevant markets affected by the agreement.”78
In conclusion, the assessment of agreements between undertakings’ potential ability to restrict competition by effect is carried out if no restriction by object is detected. The restriction by effect must be appreciable, and it must presumably be carried out taking as a reference the electricity market in general, and not the market only constituted by consumers acting as flexibility providers. Given
74 As stressed by the Court in O2 (Germany) GmbH & Co, OHG (T-328/03) [2006] para 65-117. 75 MasterCard (C-382/12 P) [2014], para 93.
76 Para 8(a), Communication from the Commission - Notice on agreements of minor importance which do not
appreciably restrict competition under Article 101 (1) of the Treaty on the Functioning of the European Union (De
Minimis Notice).
77R. Whish, and D. Bailey, “Competition Law” (7th ed), Oxford, UK, Oxford University Press, 2015, pp. 125-128 and 343-345.
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these premises, it is unlikely that an agreement between undertakings coordinated by an aggregator could have an appreciable restricting effect on competition. This could hypothetically happen in the hypothesis of an aggregator contractually linked to an exorbitant number of customers.
3.5 Is the Wouters doctrine applicable to the aggregation contract?
In certain situations, EU Competiton law considers certain contractual restrictions which limit parties’ freedom as inherent to the very essence of the agreement. In such cases, while there is a limitation that can potentially restrict competition, it is still considered acceptable. This approach is called the inherent restriction approach or Wouters doctrine, as the Court adopted it for the first time in its ruling on the Wouters79 case. Two types of inherency can be identified: a commercial and a policy one.
To better understand the essence of commercial inherency, just think of the concept of a cooperative. Small or medium producers of a given good, for example milk, can decide to join cooperatives that take care of the collection, labelling and selling of the product because it is more efficient than the eventuality in which each individual producer carries out all these operations themselves. Generally, these agreements provide for contractual arrangements that limit the freedom of cooperative members, who are bound to purchase certain goods or services solely from the cooperative. The limitation of the freedom of the cooperative members is necessary to allow it to function, and therefore is considered acceptable under art. 101.1 TFEU if the restrictions are proportionate. This same principle can be applied to the aggregation contract, since without the inevitable aggregation of flexibility providers by the aggregator, with the consequent limitation of their economic freedom, the agreement cannot perform its function. In my opinion, the situation of the aggregation contract is different from a typical example of commercial inherency, such as the concept of cooperative that I have just exposed. Without the intermediation of the aggregator, consumers would not have the tools to actively participate in the market as flexibility providers. It is thanks to the intermediation of the aggregator that they can, grouped together, respond to energy price increases by changing their consumption. Individually, only large energy users, such as large companies, could do this by modifying their production processes.
However, I believe that, although the Wouters doctrine is an extremely interesting concept, it is not of particular use in the case of the aggregation contract. The Wouters doctrine test is in fact more incomplete and superficial than that provided for by art. 101.3 TFEU, which, being more detailed, I
79 Wouters (C-309/99) [2002].
