Where is the EU steering the Electricity Market?
A Comparison between the Third and Fourth
Electricity Directives
Master’s Thesis
Vicktoria Elazarova (S12374628)
Supervisor: Dr. Ronald van Ooik
Abstract
This thesis provides a commentary on the decision to liberalize the electricity sector in the EU and, in particular, it discusses the manner in which the EU has attempted to achieve this goal. A comparison is made between the provisions in the third and fourth Electricity Directives in order to conclude in what direction the goals of the EU legislator have changed. It is illustrated that the liberalization agenda currently consists of three main goals: sustainability, competition and security of supply, while before it only consisted of the latter two. Furthermore, this thesis argues that the framework of rules created by the EU legislator in the fourth Electricity Directive is suited to achieve these aims as it is capable of nudging consumers to consume electricity more consciously and, as a result, also ensure a secure and competitive electricity market.
Table of Contents
Abstract ... 2
1. The Move Towards Liberalization: Designing the Electricity Market ... 4
A. Introductory Remarks ... 4
B. Competition in the Electricity Market ... 5
C. The Architecture of Liberalization ... 7
2. The Third Electricity Directive ... 10
A. Background ... 10
B. Unbundling ... 12
C. Third-party access ... 16
D. The role of national regulatory authorities ... 17
E. Public-Service Obligations ... 18
F. Conclusion ... 20
3. Brave New World ... 21
4. The Fourth Electricity Directive... 25
A. The New Goal of the Liberalization Agenda: Transitioning to a Low-carbon Energy System ... 25
B. Consumers at the Heart of the Transition ... 27
B.1 Active Consumers ... 29
B.2 Conscious Consumers ... 31
C. Furthering the Original Liberalization Agenda... 35
D. Ensuring Security of Supply ... 37
E. Conclusion ... 37
5. Conclusion ... 39
1. The Move Towards Liberalization: Designing the Electricity Market
The EU-wide process of liberalization started in 1996, when at the end of almost a decade long negotiating period, MS agreed to liberalize the energy market.1 The relationship between
the state and natural monopolies such as the energy sector, postal services, transport and telecommunications sectors was reviewed.2 There were three reasons for this: these
vertically-integrated monopolies owned by states were considered to be less efficient than a competitive market structure; the monopoly nature of these sectors was hindering innovation; and the role of the state in the market was generally reconsidered.3 As a result, the EU legislator set out to
liberalize, amongst others, the electricity market through a series of regulatory packages that each furthered the liberalization process.
A. Introductory Remarks
This thesis will provide a commentary on the decision to liberalize the electricity sector in the EU and, in particular, it will discuss the manner in which the EU has attempted to achieve this goal. A comparison will be made between the rules in the, currently applicable, third Electricity Directive and the, recently adopted, fourth Electricity Directive. In this comparison various points will be made regarding the shift in the liberalization process in terms of the goals of the European legislator as they can be observed in the specific framework of rules. Thus, the research question in this thesis is: Where is the EU steering the electricity market through the regulatory developments in the fourth Electricity Directive? In order to adequately consider the legislative changes, the previous legislative effort in that regard, meaning the third Electricity Directive, will be used to in order to establish where was the EU was steering the electricity market before and compare that with where it is steering it now. Furthermore, detailed account will be given to the specific rules which the EU legislator has created in order to achieve the general legislative goals in the two Directives.
Firstly, the move towards liberalization will be discussed. In particular, the nature of electricity as a commodity and the structure of the electricity market will be considered together with the goal to introduce competition in this sector. When discussing the nature of electricity and the electricity sector, textbooks and scholarly articles will be taken into account, together
1 Rainer Eising, ‘Policy Learning in Embedded Negotiations: Explaining EU Electricity Liberalization’ (2002)
56(1) International Organization 85, 85.
2 Cristina Havris, ‘Competition and Regulation in the EU Energy Market’ (2009) 9(4) Romanian Journal of
European Affairs, 18.
with author’s analysis, in order to provide a commentary on the notion of making the electricity market competitive. In the ensuing Section 2, the specific framework of rules in the third Electricity Directive will be explained and the reasons behind these legislative choices will be considered. The specific framework of rules in the current Electricity Directive will be explained through an analysis of the legislative text, and EU documents such as Commission communications and the Commission’s Proposal that will be considered together with various academic contributions in order to establish what exactly is the current framework of rules and why it is like this. Additionally, attention will be paid to specific discussions concerning this approach or critiques of it. Thirdly, before considering the legislative text of the fourth Electricity Directive, a re-consideration of the electricity sector and the way it functions now will be made in Section 3. The brief discussion on the current developments in the electricity sector and their interaction with the traditional electricity supply system will be made through the same method of analysis characterizing Section 1. Fourthly, the fourth Electricity Directive will be considered in detail in Section 4. The analysis will mainly consist of author’s analysis of the legislative text together with academic contributions, relevant case law of the ECJ, Commission’s Proposal and lobbyist position papers in order to provide an encompassing commentary of the diverse rules in the Directive that aims to showcase how the general goals of the EU legislator have manifested in the specific rules. At the end, a conclusion will be made where it will be considered at what stage the EU is in the effort to liberalize the electricity market, and whether the legislative framework is suited to achieve the goals of the fourth Directive.
B. Competition in the Electricity Market
The goal to introduce the benefits of market forces was considered to be the key for long-term benefits to consumers and, in particular, to ensure that energy is supplied in the most efficient manner and at the cheapest cost.4 In that regard, the benefits that were conceived to
flow from the liberalization of the energy market can be compared to the benefits competition has in general. Basic economic theory has established that when companies compete, they offer as low as possible prices to consumers in order to have their apple pie, for example, chosen over other apple pies, or work towards improving the quality of their apple pie in order to attract more and more customers, or innovate and come up with a new kind of apple pie that
4 Paul L. Joskow, ‘Lessons Learned From Electricity Market Liberalization’ (2008) vol.0 (Special Issue) The
no one has eaten before. This naturally leads to cheaper and better products, and more choice for consumers. How competition works in the electricity market is a slightly different story due to the particularities of the electricity supply industry.
Electricity is a homogenous good in terms of its function and physical point of view,5 so
regardless of how it is produced it will still light up a light bulb and it will not light it up in any different way if it is produced through solar or thermal generation. However, the costs of producing electricity are not identical as solar energy produced electricity has a marginal cost of zero, while thermal generation has a marginal cost related to the current price of fossil fuels.6
Nevertheless, consumers are usually not inclined to decide to use or not use electricity based on its price at any given moment as there are no substitutes for it, thus the demand for electricity is highly inelastic.7 While electricity producers can compete with each other by using different
production methods or making their production more and more efficient, consumers’ demand will not change accordingly as it might change when they are pondering whether to get another piece of apple pie. Thus, due to the particularities of the electricity market, it is not capable of sustaining the kind of competition other goods and services may. On that account, the ECJ established, in the judgement of Metro SB-Großmärkte GmbH & Co. KG v Commission, that:
“competition shall not be distorted implies the existence on the market of workable
competition, that is to say the degree of competition necessary to ensure the
observance of the basic requirements and the attainment of the objectives of the Treaty… In accordance with this requirement the nature and intensiveness of competition may vary to an extent dictated by the products or services in question and the economic structure of the relevant market sectors.”8
The ECJ acknowledges that some sectors may be able to sustain competition only to a particular extent. The aforementioned characteristics of electricity as a commodity showcase that the nature of it is such that it precludes perfect competition. Furthermore, the economic structure of the electricity market leads to a decrease in the intensiveness of competition. Firstly, becoming a market player in this sector usually involves large sunk costs, which can function as an entry barrier for new participants.9 Secondly, the supply of electricity involves various
vertical stages, such as generation, transmission, distribution and retailing with different
5 G. Erdmann, ‘Economics of electricity’ (2015) 98 EPJ Web of Conferences 1
6 Fabio Domanico, ‘Liberalisation of the European Electricity Industry: Internal Market or National Champions?’
Luiss Guido Carli University, Department of Economics - Industrial and Financial Research Group, 3.
7 ibid.
8 Case 26/76 Metro SB-Großmärkte GmbH & Co. KG v Commission [1977] ECR 1875, para 20.
optimal scales.10 In these various levels of the supply chain, the sunk costs vary. For example,
at the generation level and the segments that directly deal with the provision of services, the sunk costs are lower.11 In any case, the existence of large sunk costs in general and the vertical
structure of the electricity sector have contributed to the historical organization of the sector as a vertically integrated, state-owned monopoly in the majority of European countries.12
Another reason for the regulated lack of competition in the electricity sector in the past has been the difficulty to access the most efficiently produced electricity. As electricity needs to be produced at the same time it is used, supply needs to meet demand exactly. Moreover, the transmission and distribution of electricity depend on the distance and on the resistance in the transmission network.13 Thus, efficient generators may prove to be more expensive depending
on their location than less efficient ones.14
Introducing competition and all of its benefits into such a sector requires a re-designing of the market structure. This re-designing happens through regulation. Thus, the kind of competition that the electricity market can achieve is ‘regulated competition’ as opposed to the ‘free competition’ that apple pie producers enjoy.15
C. The Architecture of Liberalization
Before considering the approach of the EU legislator in designing the electricity market, it is first helpful to consider what the so called ‘textbook’ architecture of liberalization is.16 Various
authors in the field have argued that there a few important aspects that underline a successful energy transition. First, state-owned electricity monopolies need to be privatized in order for an incentive for a performance improvement to be created and preclude states to ‘pursue costly political agendas’.17 Second, it is vital that a vertical separation is ensured of the parts of the
supply chain that are potentially competitive from those that are not.18 In particular, the
potentially competitive levels are generation and retail supply, while the natural monopoly type of levels are distribution and transmission.19 Third, ideally, such vertical separation will be
10 ibid. 11 Domanico (n6) 3. 12 ibid. 13 ibid. 14 ibid.
15 See Kim Talus, Introduction to EU Energy Law (OUP 2016) 54 for the concept of ‘regulated competition’. 16 See Jamasb and Pollitt (n9), 13-16; Joskow (n4) 12-13.
17 Joskow (n4) 12. 18 ibid.
accompanied with horizontal restructuring of the generation and supply segments so that there are an adequate number of competing generators / suppliers and, thus, market power is mitigated.20 Fourth, an independent system operator would need to be designated in order to
ensure supply and demand correspond, maintain the physical parameters of the network and guide transmission infrastructure investments.21 Fifth, new entry into generation and retail
supply needs to be facilitated in order to encourage wholesale and retail competition.22 Beyond
these specific market adjustments, Barrett also advises to ensure that there is ‘consensus and clarity on uniform liberalization methods, requirements, and realistic, achievable objectives’ and to recognize the specific characteristics that differentiate the sector in question and take them into account as part of her five seductively simple steps to making liberalization work.23
While considering the development of the legislative framework of liberalization, it is also important to keep in mind that it is not isolated to the single goal of introducing competition in the electricity market. Rather, the liberalization process is a balancing exercise. Legislators try to introduce the benefits of competition, while still ensuring security of supply and, recently, pushing the ‘sustainable development’ agenda. These two additional goals can be seen as stops or deviations of the complete liberalization agenda. The issue of security of supply, namely, is that even though competition needs to be injected in the electricity market, it cannot be at any cost. In other markets, for example, when something becomes financially unsustainable to produce or supply, the relevant companies can decide to stop doing so. For example, it may be too expensive for Dutch apple pie producers to import their pie into Indonesia and so they will decide not to do so. The market forces in this way, theoretically, ensure that supply equals demand and productive and allocative efficiency are achieved. In the case of electricity, however, such a scenario would mean that a person living in a remote village, where it is less profitable to introduce electricity, will have to live without it. The state aims to guard against such a scenario and ensure security of supply, even when the market forces would dictate a different outcome. Furthermore, the interaction between sustainability and competition in the electricity sector mainly focuses on ensuring that more and more of the produced electricity is without negative externalities as the electricity produced from fossil fuels, for example, is. This can lead to a distortion of the original liberalization agenda as further constraints are now
20 Joskow (n4) 12.
21 ibid.
22 Jamasb and Pollitt (n9) 14-15.
23 See Eva Barett, ‘Market liberalization: Five seductively simple steps to making it work’ (2017) 30(3) The
placed on companies that are part of the electricity sector which can reduce their incentives to compete. This conflict, however, will be considered further in the Section 2 as it is more relevant for the fourth Electricity Directive, rather than the third one.
2. The Third Electricity Directive
A. Background
The creation of the first Electricity Directive24 was foreshadowed by a ‘overdrawn and rough
negotiation process’.25 It has been argued that the choice to start the liberalization process of
the electricity market was not necessarily influenced by the desire to bring about lower prices for consumers and higher efficiency of production.26 Jabko presents an argument that the
economic reasoning behind the benefits of liberalization of the electricity market are weak.27
Supported by the economic arguments of other scholars, he claims that the ‘European Commission officials in Brussels… compensated their obvious lack of material power and resources by developing a coherent panoply of normative arguments in favor of liberalization and by carefully constructing alliances within the domestic political arenas of the member states.’28 The so called ‘normative arguments’ relate to the goodness of the market and its role
in ensuring superior efficiency.29 The actual reasons behind the start of the liberalization
process, he claims, is the quest for an ever-integrated European market, rather than the efficiency gains argument which he considers to be weak.30 In any case, regardless of the exact
motivations behind the initial push in the liberalization direction, the EU legislator created two electricity directives31 each furthering the process. After the second Directive, market
concentration in the sector remained high,32 differences between transmission and distribution
network tariffs limited the convergence of end-user prices,33 and there was lack of transparency
and successful monitoring of all the facets of the liberalization process.34 Moreover, some
European consumers blamed the liberalization process for increases in electricity prices.35
24 Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common
rules for the internal market in electricity [1996] OJ L27/20.
25 Nicolas Jabko, ‘The reform of energy regulation in the EU: The market as a norm’ Paper prepared for delivery at the ECPR conference Budapest – September 8-10, 2005, 2.
26 ibid. 27 ibid 4. 28 ibid 8. 29 ibid 3. 30 ibid 4.
31 First Electricity Directive (n24); Directive 2003/54/EC of the European Parliament and of the Council of 26
June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC [2003] OJ L176/37.
32 Jamasb and Pollitt (n9) 38. 33 ibid.
34 ibid.
35 Jacques Percebois, ‘Electricity Liberalization in the European Union: Balancing Benefits and Risks’ (2008)
Against this background, the Commission launched an inquiry that aimed to assess what the prevailing competitive conditions and causes of the perceived market malfunction in the electricity sector were.36 The findings were published in 2007 and were the following: There
was high concentration in the wholesale level of the market which reflected the high concentration in the generation level.37 Moreover, the level of unbundling let to vertical
foreclosure which was a major obstacle for new entry and also a thread to security of supply.38
Also, there was lack of reliable and timely information about the markets which resulted in information asymmetry between vertically integrated incumbents and their competitors.39
There was also lack of effective in transparent price formation which caused consumers to have limited trust in the price formation mechanisms.40 In that regard, the inquiry establishes that
‘price developments’ have been influenced by increases of primary fuels.41 However, it is
acknowledged that this does not fully explain the price increases and that the effect of the EU CO2 trading emissions schemes is not clear yet.42 Another problematic aspect that the inquiry
mentions is the limited level of competition at the retail level caused by switching difficulties for industrial customers and local distribution companies.43 Particularly, long contract
durations, tacit renewal clauses and long termination periods tie industrial customers to incumbent suppliers.44 Finally, the inquiry concludes that the malfunction of the market cannot
be addressed solely through competition law enforcement and that ‘regulatory measures are, therefore, also needed’.45
Not surprisingly, shortly after the sector inquiry, the Commission published its Proposal for a new Electricity Directive that was to repeal the second Electricity Directive.46 After the
respective negotiations, the third Electricity Directive was adopted in 2009.47 The main goal of
the Directive is to improve and integrate competitive electricity markets in the EU.48 And the
36 Commission, ‘Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity
sectors (Final Report)’ (Communication) COM (2006) 851 final, para 2.
37 ibid paras 14-16. 38 ibid paras 18-20. 39 ibid paras 24-26. 40 ibid paras 27-30. 41 ibid. 42 ibid. 43 ibid paras 31-34. 44 ibid. 45 ibid para 40.
46 Commission, ‘Proposal for a Directive of the European Parliament and of the Council amending Directive
2003/54/EC concerning common rules for the internal market in electricity’ COM(2007) 528 final.
47 Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in electricity and repealing Directive 2003/54/EC [2009] OJ L 211/55.
main rules that characterize the legislative framework that the Directive established are the ones concerning unbundling, third party access, national regulatory agencies and Public-Service Obligations.
B. Unbundling
The most contested rule in the Directive is the one concerning unbundling. In order to understand the significance of it, it is first helpful to consider that a core feature of the electricity market is its dependence on an infrastructure network.49 Transmission networks in
any given territory are usually natural monopolies as is not economically beneficial for such networks to overlap as there would be sunk construction costs, environmental issues, demand risks and potential entry barriers for new entrants.50 Thus, in order for effective competition to
occur in such a market, it is vital that third parties have access to the infrastructure.51 This is a
goal that is being regulated through the requirement of unbundling.52
Unbundling means that the electricity network part of the energy industry needs to be separated from the parts of production and supply.53 This in practice means that the
transmission market is unbundled from the wholesale market and the distribution market is unbundled from the retail market.54 The core principle of unbundling boils down to a separation
of network activities from any other activities as network activities are considered as inherently uncompetitive, while the others can be competitive if they are separated.55
Beyond this general rationale of unbundling, there is disagreement over the level of unbundling that is appropriate. The discussion during the creation of the third energy liberalization package centered around ownership unbundling and whether this should be the only type of unbundling allowed or whether alternatives should be possible as well.
The previously required legal and functional unbundling in the second Electricity Directive, the Commission argues, has made a positive contribution, but it has still resulted in some MS choosing to only create a legal entity within an integrated company, instead of applying
49 Talus (n15) 24.
50 Ibid; Nevertheless, such a case does exist. In Finland prior to the energy market liberalisation of the early 1990s,
the electricity networks of Imatran Voima and Pohjolan Voima partially overlapped. See Sabrina Praduroux and Kim Talus, ‘The Third Legislative package and Ownership Unbundling in the Light of the European Fundamental Rights Discourse’ (2008) 9(1) Competition and Regulation in Network Industries 3.
51 Praduroux and Talus (n50) 4. 52 Talus (n15) 24.
53 Praduroux and Talus (n50) 4. 54 ibid.
different organizational structures.56 The problem with such a scenario is that the transmission
system operator may treat companies that are affiliated to it better than competing third parties.57 Moreover, non-discriminatory access to information cannot be guaranteed and the
investment incentives in such an integrated company are distorted.58
In the communication ‘An Energy Policy for Europe’ two possible options to address this problem were mentioned.59 The first one – Independent System Operator is when a company
that is already vertically integrated continues to own the network assets and to get a regulated return on them, however, it is not responsible for operating the assets, nor maintaining or developing them.60 The second one and most controversial one – ownership unbundling is
when the network company is completely separated from the supply and generation companies.61
The Commission argued that ownership unbundling is the most effective option as it will lead to more freedom of choice for energy users and it will encourage investment.62 The
rationale behind this is that each company dealing with supply, generation or network interests is only influenced by its segment in the supply chain and will invest in relation to that segment.63 Moreover, Commission argued that the alternative, Independent System Operator
will lead to disproportionately burdensome administration and complex regulation.64 In
contrast, various economic articles have disagreed with this view. Brunekreeft and Ehlers argue that ownership unbundling of distribution network operators will lead to less efficient investment in distributed generation.65 Mulder, Shestalova and Lijesen claim that the net effect
on welfare of ownership unbundling is ambiguous and they stress that ownership unbundling is a radical measure and considering this, they suggest that the best course of action would be to first improve the current unbundling structure and the corporate governance structure and
56 Commission, Proposal for third Electricity Directive (n46) 4. 57 ibid.
58 ibid.
59 Commission, ‘An Energy Policy for Europe’ (Communication) COM (2007) 1 final, 7. 60 ibid.
61 ibid. 62 ibid. 63 ibid. 64 ibid.
65 Gert Brunekreeft and Eckart Ehlers, ‘Ownership Unbundling of Electricity Distribution Networks and
Distributed Generation’ (2006) 1(1) Competition and Regulation in Network Industries 63; For more on the benefits of distributed generation see Virginia Tech, ‘Distributed Generation: Education Modules’ (Consortium on Energy Restructuring, 2007) accessed 18 February 2019
only if this is insufficient to move onto ownership unbundling.66 When discussing the German
electricity market in another paper, Brunekreeft conducts a social cost-benefit analysis of ownership unbundling and concludes that while the net effect on social welfare will most likely be positive, it will be small.67 A trend in these findings that can is also confirmed by other
authors in the field,68 is that the positive expectations of ownership unbundling might be
overrated and that the actual effect of it is not clear.69 Nevertheless, there is opposition to this
view. Pollitt, for example, does agree that the evidence for the success of ownership unbundling is circumstantial and based on case studies, but he stresses that the evidence is consistent and ownership unbundling does appear to be associated with ‘competitive wholesale and retail markets and effective regulation of monopoly networks’.70
In the background of this debate, the final choice of the European legislator has been to make ownership unbundling the principal model, but to also allow for two other models.71 In order
to deviate from the principal model, the condition established in the Electricity Directive is that the transmission network was still part of a vertically integrated undertaking on 3rd of
September 2009.72 In such a case there are two available alternative options for Member States.
First, the model of independent system operator can be applied. In this case, such an operator is independent from supply and generation interests and in order for such an operator to be approved the conditions for ownership unbundling listed in Article 9 of the Directive such as lack of any control in other segments of the electricity supply chain,73 lack of appointment
powers of the supervisory board, the administrative board and the bodies representing another supply chain segment body legally have to be fulfilled,74 and, moreover, the same person
cannot be a member of these bodies and board when they relate to an undertakings performing functions of generation or supply and transmission.75 Beyond these conditions, other ones are
66 Machiel Mulder, Victoria Shestalova and Mark Lijesen, ‘Vertical separation of the energy-distribution industry;
an assessment of several options for unbundling’ (CPB Document from CPB Netherlands Bureau for Economic Policy Analysis, April 2005) accessed 15 June 2019 <https://econpapers.repec.org/paper/cpbdocmnt/84.htm>.
67 Gert Brunekreeft, ‘Ownership Unbuilding in Electricity Markets - A Social Cost Benefit Analysis of the German
TSO'S’ (Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge, July 2008) accessed 18 February <https://econpapers.repec.org/paper/camcamdae/0833.htm>.
68 See Johann-Christian Pielow, Gert Brunekreeft and Eckart Ehlers, ‘Legal and economic aspects of ownership
unbundling in the EU’ (2009) 2(2) Journal of World Energy Law & Business 96, 97.
69 ibid.
70 Michael Pollitt,‘The arguments for and against ownership unbundling of energy transmission networks’ (2008)
36 Energy Policy 704, 712.
71 Third Electricity Directive (n47) art 9. 72 ibid art. 9(8).
73 ibid art 9, (1) (b). 74 ibid art 9, (1) (c). 75 ibid art (1) (d).
listed in Article 11 of the Directive, such as that the operator needs to have financial, technical, physical and human resources to carry out its tasks and that the operator needs to have undertaken to comply with a network development plan that will be monitored by the regulatory authority for ten years.76 Furthermore, such operators, after having complied with
all relevant conditions, need to be approved by the relevant national regulatory authority.77
The second option is an independent transmission operation. The difference with the independent system operator model is that the system operator remains part of the vertically integrated electricity supply chain and only legal unbundling and financial separation of assets is done without the two segments being completely separated.78 Some of the conditions listed
in the Directive regarding the independence of such transmission system operators include effective decision-making rights with regards to the assets necessary to operate, maintain or develop the transmission system and the power to raise money on the capital market.79
Moreover, no direct or indirect shareholding or management links are allowed between the vertically integrated undertaking performing functions of generation or supply and the transmission system operator.80
This final legislative result needs to be compared to the original intent that can be seen in the communication ‘An Energy Policy for Europe’, where it was strongly argued that ownership unbundling needs to be the only model. The end result where two milder alternatives are available to Member States can be explained as a compromise that was needed due to the opposition of a majority of Member States led by France and Germany which argued that the goal of effective competition can be accomplished without full ownership unbundling.81
This legislative result has been criticized for deficient market design and poor implementation.82 In particular, it has been argued that the two alternative unbundling models
are not an adequate way to accomplish the goal of energy market liberalization and, moreover, that national regulators should not have been the ones making decisions on what the unbundling structure should be.83 Thus, Barrett claims that a fourth energy packet is needed, because in
76 ibid, art 11 (2).
77 ibid, art 11 (3). 78 Talus (n15) 26.
79 Third Electricity Directive (n47) art 18 (1). 80 ibid art 18 (3) and 18 (4).
81 Euractiv, ‘Eight EU states oppose unbundling, table ‘third way’ (Euractiv, February 1 2008) accessed 17 May
2019 <https://www.euractiv.com/section/energy/news/eight-eu-states-oppose-unbundling-table-third-way/>.
82 Eva Barrett, ‘A case of: who will tell the emperor he has no clothes? – market liberalization, regulatory capture
and the need for further improved electricity market unbundling through a fourth energy package’ (2016) 9(1) The Journal of World Energy Law & Business 1, 15.
order for an Energy Union to come into existence the market needs to be designed better in a way that effective separation between electricity activities comes into fruition.84
C. Third-party access
Another key feature of the Directive is third-party access. In order for competition to occur in the network-dependent electricity market, non-discriminatory third-party access is essential. This access needs to be regulated because such energy networks as the electricity one have an inherent monopoly character.85 Without regulation competition will not naturally occur. Thus,
Member States need to enforce specific rules that will aid the creation of the liberalization of the energy market.
In practice this is accomplished through a system in which the access of third parties is ensured by publishing the tariffs that third parties need to pay to use the network in advance.86
Moreover, these tariffs need to be applicable to all customers objectively and discrimination between customers is strictly forbidden.87 In the Electricity Directive it is established that the
tariffs or methodologies underlying the tariffs need to be approved beforehand by the relevant regulatory authority and they need to be published prior to their entry into force.88 Furthermore,
all eligible customers need to be allowed access.89 This ensures that network operators do not
abuse their dominant position by restricting access. The legislative choice to ensure third party access through the so called ‘regulated third party access’ system instead of ‘negotiated third party access’ can be explained by considering that competition in the electricity market was not developing satisfactory.90
In situations where the transmission or distribution system operator lacks the necessary capacity, they can refuse access.91 Such refusal, nevertheless, should be substantiated on the
basis of criteria that is technically and economically justified and the relevant regulatory authorities are obliged to ensure that the application of these criteria is consistently applied.92
This system of rules is the highest in generality and more detailed obligations as to how to
84 ibid.
85 Talus (n15) 19. 86 ibid.
87 ibid.
88 Third Electricity Directive (n47) art 32 (1). 89 ibid art 32 (1).
90 See Christopher Jones, EU Energy Law Volume I: The Internal Energy Market - The Third Liberalisation Package (3rd edt, Claeys & Casteels 2010).
91 Third Electricity Directive (n47) art 32(2). 92 ibid art 32(2).
govern the network access tariffs and network codes are present in other EU legislation.93
In any case, these more detailed provisions only apply with regards to electricity in cross-border situations.94 Thus, the result is that the general framework of rules in the Electricity
Directive leads to differences in tariffs between Member States as the specific rules regarding these tariffs or their methodologies are set up by the different national regulatory authorities.95
D. The role of national regulatory authorities
A key aspect of the approach of the European legislator in the third Electricity Directive is
the important role that national regulatory agencies were given. Following the second Electricity Directive, where every Member State was obliged to designate a single national regulatory authority,96 the third Electricity Directive had the goal of strengthening their
independence and harmonize further their competences in order to ensure non-discriminatory access to the transmission networks. Commission stresses, in the Explanatory Memorandum of the Directive, that these authorities need to be able to monitor compliance of distribution and transmission operators with the relevant rules, review investment plans of transmission system operators in order to ensure they are consistent with the European-wide 10-year network development plan, monitor transparency obligations, the level of market opening and competition and ensure the effectiveness of consumer protection measures.97
In order for these objectives to be achievable, the Directive stresses the importance of the independence of these national regulatory agencies. Member States need to ensure that the authorities exercise their powers impartially and transparently.98 The authorities need to be
legally distinct and functionally independent from other entities (public or private),99 the staff
of the authorities need to act independently from market interests and cannot seek direct instructions from other entities when carrying out their tasks,100 it needs to have a separate
annual budget and the board members of the authority have to be appointed for fixed terms.101
93 Talus (n15) 21. For examples of network codes, please refer to European Network of Transmission System
Operators for Electricity, ‘What are Network Codes? / The code families’ (ENTSOE, 2019) accessed 25 June 2019 <https://www.entsoe.eu/network_codes/>.
94 Talus (n15) 21. 95 ibid.
96 Second Electricity Directive (n31). 97 ibid.
98 Third Electricity Directive (n47) art 35(4). 99 ibid art 35 (4) (a).
100 ibid art 35 (4) (b). 101 ibid art 35(5).
These rules have been criticized because of their high generality level and the extent to which they leave the choice of appointing of staff and senior management to the Member States.102
The result is that some Member States prohibit employees of these agencies from seeking employment in the industry for a number of years after they were employed in the regulatory authority and others do not have such a rule which leads to a possibility of the ‘revolving door syndrome’.103 The implications of this phenomena of a flow of personnel from regulatory
agencies to industry and the opposite has been debated by authors. Laffont and Tirole argue that this practice leads to regulatory agencies treating industry interests with more priority.104
On the other hand, Meghani and Kuzma point out that even though this practice is problematic, it should not be barred.105 They claim that the change should be in the policy-making process
and that multiple shareholders, not only industry interests, need to be involved in order for decision-making to be more objective.106 In any case, currently the situation is that neither the
decision-making process at national level has been dealt with, nor the revolving door syndrome. Thus, the rules aiming to ensure the independence of the regulatory agencies are arguably insufficient to ensure it.
Taking this into account with the power that these national regulatory agencies have in relation to third-party access and, in particular, to decide on access tariffs and the methodologies behind it, makes the setup of the system questionable.
E. Public-Service Obligations
Most of the key provisions in the Directive, such as the ones previously discussed are part of the economic approach, which aims to ensure that the electricity market is competitive. However, beyond that there is also the universal service approach.107 The need for this
additional approach can be found in the fact that market-based logic does not always lead to the most optimal results.108 In particular, if the price of electricity completely fluctuated
102 See Eva Barrett, ‘A case of: who will tell the emperor he has no clothes?’ (n82) 11. 103 ibid.
104 See Jean-Jacques Laffont and Jean Tirol, ‘The Politics of Government Decision-Making: A Theory of
Regulatory Capture’ (1991) 106(4) The Quarterly Journal of Economics 1089.
105 See Zahra Meghani and Jennifer Kuzma, ‘The ‘‘Revolving Door’’ between Regulatory Agencies and Industry:
A Problem That Requires Reconceptualizing Objectivity’ (2011) 24(6) Journal of Agricultural and Environmental Ethics 575.
106 ibid 595.
107 See H. Cremer, F. Gasmi, A. Grimaud, J. J. Laffint, ‘Universal Service: An Economic Perspective’ (2001)
72(1) Annals of Public and Cooperative Economics 5.
according to supply and demand the quality of the service or even its supply might be threatened. Thus, services such as electricity have been termed as services of general economic interest as they need to be supplied to everyone in society irrespective of their social or economic situation.109 The Directive deals with this essential feature of electricity by allowing
Member States to impose on the undertakings operating in the sector public service obligations in the general economic interest.110 These can be related to security, security of supply,
regularity, quality, price of supplies and environmental protection.111 In order to ensure that
this right of Member States does not interfere to an excessive extent with the goal of free competition, the public service obligations need to be clearly defined, transparent and non-discriminatory amongst others.112
Furthermore, consumers are protected with a series of provisions that aim to ensure that everyone is provided with electricity regardless of the Member State in which the supplier is registered.113 The Directive also obliges Member States to define the concept of vulnerable
consumers, referring to energy poverty and prohibits the disconnection of electricity to such consumers in critical times.114
In order to understand the decision to add social provisions to the liberalizing reform, it is first helpful to consider the interplay between EU’s legislative institutions. Commission appears to have been reluctant to include such measures in the Directive as there was no mention of energy poverty in the Green Paper in 2006, then it proposed a non-binding charter in 2008 and then in 2009 most of the provisions of the non-binding charter were included in the Directive.115 This movement towards social regulation was a result of Parliament’s
insistence as its specific suggestions, which were different or even opposing to those of Commission, were adopted in the final legislative text.116 The reason for the social regulation
inclusion, has been argued, is due to the difficulty of addressing the problem through fiscal social policy.117 Another reason that has been claimed is that including social regulation into
the Directive served to legitimize the liberalization reform, which was criticized for leading to
109 W. Sauter, ‘Services of general economic interest and universal service in EU law’ (2008) 33(2) European
Law Review 167, 175.
110 Third Electricity Directive (n47) art 3(2). 111 ibid.
112 ibid.
113 ibid art. 3(4). 114 ibid art. 3(7).
115 Hanan Haber, ‘Liberalizing markets, liberalizing welfare? Economic reform and social regulation in the EU's
electricity regime’ (2018) 25(3) Journal of European Public Policy 307, 317.
116 ibid. 117 ibid 318.
price increases, blackouts and consumer dissatisfaction.118 The third reason is argued to be a
policy transfer from the national UK level to the European one as there is great similarity in the tools used.119 In any case, the inclusion of these provisions represents the goal of the EU
legislator to ensure security of supply.
Another trend that begins to emerge from the legal framework in the third Electricity Directive is the aim to increase awareness of domestic energy consumption, the cost of energy, measures to reduce CO2 emissions and to increase energy efficiency action from households.120
This is observed in the requirement for Member States to ensure that consumers can switch electricity suppliers in three weeks and receive all relevant consumption data.121 These rights
need to be granted in a non-discriminatory manner with regards to cost, effort and time.122
Furthermore, Member States are obliged to ensure that electricity suppliers specify to consumers the contribution to each energy source to the overall fuel mix and reference to existing sources that showcase what the environmental impact of the overall fuel mix is.123
F. Conclusion
The approach taken by the European legislator in the current Directive concerning the internal market for electricity can be seen as a result of the interaction between an ambitious effort by Commission to bring about the liberalization of the electricity market as far as possible and the resistance of Member States visible through the influence of the two institutions with a final say in the adoption of legislation, namely Council and Parliament. The end result is a watered down version of the Commission’s initial proposal that has advanced the liberalization quest that the EU undertook, but not as far as possible. Moreover, public service obligations are included that ensure that the competition goal does not go too far and security of supply is still ensured. Finally, a trend begins to emerge for more conscious energy consumption through a few provisions that aim to educate final consumers about electricity production externalities and the possibility to change suppliers.
118 ibid.
119 ibid 318-319.
120 Commission, Proposal for third Electricity Directive (n 46) 18. 121 Third Electricity Directive (n47) art. 3(5).
122 ibid.
3. Brave New World
In order to consider the specific rules in the fourth Electricity Directive the changes in the electricity sector that occurred during the decade that followed the adoption of the third Electricity Directive need to be briefly considered.
Electricity was considered as a ‘a relatively simple and well-established basic commodity that is not subject to erratic changes in demand or fast technological change’.124 In the past
decade, however, this assumption has been rebutted because of technological developments and the changes in consumers’ mindset that they are capable of leading to. In particular, the changes that occurred during the past decade can be characterized first and foremost by the phenomena of ‘global warming’. After it was established that the Earth is on average warmer now than it was in pre-industrialization times, slowly, but surely consumers and regulators began to conceive of different ways in which the benefits of industrialization can be maintained, while decreasing the repercussions of it.
Recently, the EU along with most states in the world, committed to limit the increase of the global average surface temperature to 1.5–2 °C.125 This move towards sustainability naturally
affected the production of electricity as fossil-fueled electricity production is a significant driver of climate change. Specifically, it has been established that in order to meet its Paris Agreement commitment, the EU would need to increase the share of renewable energy sources (RES)126 to around 80% of the total electricity generation by 2050.127 Government support
schemes and personal investments have been poured into increasing this share and as a result RES capacities have increased worldwide.128 Nevertheless, this solution is not complete. The
specific characteristics of RES are difficult to reconcile with the fossil fuel-based electricity network. The core of the conflict can be found in the variability and uncertainty of RES which are causing technical, operational and financial friction when integrating them in the energy system.129 Electricity needs to be produced and used simultaneously, so supply must meet
124 Jabko (n25).
125 Paris Agreement (United Nations, 2015) art 2.
126 Renewable energy is energy that comes from natural sources or processes that are constantly replenished.
Renewable energy sources are solar, wind, hydroelectric, biomass, geothermal. For further reference see Lora Shinn, ‘Types of Renewable Energy Sources’ (Natural Resources Defense Council, 15 June 2018) accessed 26 July 2019 <https://www.nrdc.org/stories/renewable-energy-clean-facts#sec-types>.
127 Commission, ‘A Clean Planet for all: A European strategic long-term vision for a prosperous, modern,
competitive and climate neutral economy’ (Communication) COM(2018) 773 final, 9.
128 R.A.Verzijlbergha, L.J.De Vriesa, G.P.J.Dijkemab, P.M.Herdera, ‘Institutional challenges caused by the
integration of renewable energy sources in the European electricity sector’ (2017) 75 Renewable and Sustainable Energy Reviews 660, 660.
demand exactly.130 This is achieved through ancillary services and demand response
programmes which have the goal of ensuring that increases in demand are handled in real time.131 Moreover, through capacity, day-ahead and intraday markets power plants are
informed about the projected need of regions they supply with electricity in order for them to ensure their production meets the future demand.132 When considering how RES fits into this
picture, it is helpful to take into account that the variability of atmospheric processes that power RES and the uncertainty associated with weather forecasts.133 During solar and wind power
oversupply, for example, the price of electricity falls, possibly reaching zero, as RES have a marginal cost of zero.134 When that happens legacy electricity producers will not be
incentivized to be on-line in order to ensure the operation for essential system services.135
Usually, traditional electricity producers make significant profits during the spot-market, meaning through unexpected peaks in the real time market.136 However, the possibility of
random blurts of electricity released into the system can decrease those profits. Thus, due to its unpredictable nature, referred to as intermittency, RES do not neatly fall into the traditional electricity supply system.
Two other technological developments, however, aim to partially fill the gap. First, energy storage is seen as an important part of the transition towards a carbon-neutral economy.137
Various technologies that are capable of storing electricity are being developed at a fast pace.138
One of them is hydrogen that allows energy storage over long periods of time.139 The other is
batteries that is considered as one of the most advanced low-carbon technology.140 Both of
which, however, are currently not completely developed in order to be used on a large scale and in a cost-effective way.141 Nevertheless, research is ongoing and energy storage is expected
to continuously advance in the coming years.142
130 For further reference see CME Group, ‘Understanding Basics of the Power Market’ (Youtube, 25 September
2017) accessed 10 March 2019 <https://www.youtube.com/watch?v=dYvEG3uQzsQ>.
131 ibid.
132 For further reference see Bilal Dahlab, ‘How do electric markets work (Capacity, Day-Ahead, Intraday,
Frequency)’ (Youtube, 9 November 2017) accessed 10 March 2019 <https://www.youtube.com/watch?v=7wAvBzMc7QI>.
133 R.A.Verzijlbergha, L.J.De Vriesa, G.P.J.Dijkemab, P.M.Herdera (n134) 661. 134 ibid 664.
135 ibid.
136 See Dahlab (n138).
137 European Commission, ‘Energy Storage’ (European Commission, 2019) accessed 23 May 2019
<https://ec.europa.eu/energy/en/topics/technology-and-innovation/energy-storage>. 138 ibid. 139 ibid. 140 ibid. 141 ibid. 142 ibid.
The second technological development that can facilitate the use of RES is software designed to manage electricity consumption. Various companies have now started offering such technology to industrial and commercial customers or small-to medium-sized enterprises.143
AI and smart algorithms control and optimize when flexible assets use energy.144 For example,
the demand-side response operator will track when electricity prices are lower and turn all the washing machines in a hotel at that time. This will lead to lower electricity bill for the hotel, but it will also decrease consumption during peak times. Thus, the operator will have freed up electricity that its customers would have used during the peak times and is now able to sell this electricity to the network operator. This service, while designed for more efficient energy use can also be used to adjust electricity consumption to the availability of RES-produced energy. The aforementioned technological advances have altered the way the electricity market can function. Nevertheless, it is also important to recognize that while scientific advancements have made the inception of an energy transition possible, the desire of consumers and regulators to change production and consumption patterns of electricity are also playing an important role. For example, the aforementioned notion that electricity is homogenous in its function no longer means that it is necessarily homogenous from a consumers’ point of view in general.145 There
is currently a group of consumers that are concerned with where their electricity comes from and as such do not see electricity as an entirely homogenous product. These consumers are buying their electricity from companies that offer ‘green electricity’.146 As one can imagine,
since there is only one grid, when a consumer pays for green electricity from a ‘green’ provider that means that the provider ensures that there is as much green electricity in the grid as the consumer will use. That, however, does not mean that the electricity that is used in the home of that particular consumer is the green electricity that the provider has released into the grid. The rationale here is not that green electricity and other electricity have any differences in physical function, rather that now some consumers have started to consider the externalities involved in the production of ‘dirty electricity’ and would like to mitigate them. There is, of
143 For reference see companies: REstore (https://restore.energy/en/utilities/), Kiwi Power
(https://www.kiwipowered.com/about-kiwi/), Energy Pool (https://www.energy-pool.eu/en/who-we-are/), enbala (https://www.enbala.com/).
144 See Tempus Energy (https://www.tempusenergy.com/).
145 Domanico considered that electricity is homogenous from a consumer’s point of view in 2007. See Domanico
(n6) 3.
146 For reference see companies: Clean Choice Energy (https://cleanchoiceenergy.com/how-it-works/), ecotricity
course, still a long way to go until all consumers adopt such a mindset. In any case, however, what can be taken out of this example is that there is an emerging demand for electricity produced from renewable energy sources and consumers are willing to pay for a slightly higher electricity bill as long as they are assured that their consumption does not lead to any negative externalities. This trend in consumer outlook, together with the need to ensure fulfilment of the Paris Agreement and technological developments have led to a change in which electricity can be used and even seen.
4. The Fourth Electricity Directive
The fourth Electricity Directive marks a deviation from the path on which the EU had steered the sector in the current third Directive. The liberalization agenda before can be described as a pendulum moving between the two main goals of introducing competition and ensuring security of supply. In the past decade, as described in the previous section, a decisive change led to a need to rethink the electricity sector. Therefore, the fourth Electricity Directive is no longer striving to find a balance between two goals, but between three, neither of which can be set aside.
A. The New Goal of the Liberalization Agenda: Transitioning to a Low-carbon Energy System
Article 1 describes the goals of the fourth Electricity Directive. A few changes from the same article in the third Electricity Directive clearly showcase the addition of the new ‘sustainable development’ goal:
“Using the advantages of an integrated market, this Directive aims to ensure affordable, transparent energy prices and costs for consumers, a high degree of security of supply and a smooth transition towards a sustainable low-carbon energy system. […] This Directive also sets out modes for Member States, regulatory authorities and transmission system operators to cooperate towards the creation of a fully interconnected internal market for electricity that increases the integration of
electricity from renewable sources, free competition and security of supply.”147
A clear statement is made that the electricity market of the future will not only be competitive, but also sustainable. Moreover, the need for an overhaul of the current electricity supply system is hinted towards by referring to the ‘sustainable development’ goal as a process. The European legislator refers to this process as a ‘smooth transition’ which will lead to increased interconnectedness and ‘integration of electricity from renewable sources’ along with free competition and security of supply.
The various faces that the EU legislator wants the electricity market of the future to have, such as sustainability, competition and security of supply, might at first glance appear to be too many. Nevertheless, this goal is not unachievable. All these seemingly diverse fragments have
147 Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for
in their essence one thing in common and that is efficiency. Electricity produced from sustainable sources will lead ultimately to a more efficient system as the marginal costs for producing clean electricity are none and, in turn, make it cheaper to supply electricity, which will make the realization of ensuring security of supply goal easier. Moreover, true competition between all market players will naturally lead to an increased strive towards further and further efficiency in production which in the context of electricity can ultimately mean one thing and that is using non-finite energy sources. Therefore, in order for each of these three goals to be truly achieved, even if independently from one another, the answer is renewable energy sources. Thus, there is ultimately no conflict in the upcoming fourth Electricity Directive. As discussed in the previous section, however, such a balance between these three goals is far from straightforward. The intermittency of RES does not coincide with the traditional electricity supply system. Moreover, the introduction of RES into the system has led to decreased profits of traditional electricity producers, which if continuing could place them in further and further financial difficulties, leading to a threat to the security of supply. Currently, there are a few considerations to be made with regards to the transition of the electricity sector. First, batteries and RES cannot be the only sources of energy due to the limitations of RES and the high cost of batteries.148 Second, global interconnectedness of the electricity sectors would
decrease the limitations of RES as there will be sun shining somewhere always. Third, sophisticated demand response methods can also help to ensure that the variability of RES is addressed. These four components could, theoretically, when used together, lead to completely clean electricity consumption in the long run.149 Nevertheless, global interconnectedness,
widespread demand-response and such high RES and battery capacity do not seem to be a staple in the near future. Therefore, traditional electricity producers will not be disregarded any time soon. In that regard, it must be stressed that the goal of ‘sustainable development’ is a long process that would most likely take a few decades. Therefore, this Directive is aiming to
148 For further reference see David MacKay, ‘A reality check on renewables’ (TED Talks, March 2012) accessed
25 July 2019 <https://www.ted.com/talks/david_mackay_a_reality_check_on_renewables/transcript>; Michael Shellenberger, ‘Why renewables can’t save the planet’ (TEDxDanubia, January 2019) accessed 25 July 2019
<http://www.tedxdanubia.com/videos/why-renewables-can-t-save-the-planet-michael-shellenberger-tedxdanubia>; James Temple, ‘The $2.5 trillion reason we can’t rely on batteries to clean up the grid’ (MIT Technology Review, 27 July 2018) accessed 25 July 2019 <https://www.technologyreview.com/s/611683/the-25-trillion-reason-we-cant-rely-on-batteries-to-clean-up-the-grid/>.
149 Interview with Julian Popov, Adviser to the European Climate Foundation, former Minister of Environment
of Bulgaria, founding CEO and current Board Member of the New Bulgarian University (Amsterdam, 14th May
regulate the electricity market during these changes that will take place in it in the coming years.
In its Proposal, the Commission makes a few important points with regards to the rules during this period of gradual change. First, it stresses that consumers need to be placed at the heart of this transition.150 Second, it establishes that the new market design is aimed towards ensuring
that supply prices are free from public intervention.151 Third, it, nevertheless, allows Member
States to be involved in price setting during the transition period under strict conditions.152
B. Consumers at the Heart of the Transition
The first point of Commission showcases how important final consumers are in the transition to a low-carbon energy system. In the electricity market of the future, RES will have a larger and larger role and, therefore, their particular characteristics will be more and more difficult to ignore. For example, Verzijlbergh and others argue that a ‘ whole renewed public perception of the energy system may be needed’.153 They explain that the more unpredictable RES will
lead to stronger energy price fluctuations.154 Consumers will, thus, be forced to consider at
what times electricity is cheaper and at what it is very expensive and adjust their consumption accordingly.155 Such consumer behavior is not necessary in the traditional electricity supply
chain, where continuous energy availability is ensured and power plants are turned on in order to respond to projected consumer demand. However, the energy supply and demand system of the future could be characterized by the opposite market scheme. Consumers’ demand will shift according to the set supply that is the result of uncontrollable weather patterns. For example, consumers will turn on their dishwasher during the day when it can be powered by the sun, rather than in the evening when it might be a more convenient time. In order for this future to materialize, it is recognized that consumers need to become more aware in their consumption. Various rules in the Directive showcase what the role of these new kind of consumers is.
Before going into a detailed consideration regarding the new role of electricity consumers, it is important to note what the underlining motivations of consumers regarding electricity
150 Commission, ‘Proposal for a Directive of the European Parliament and of the Council on common rules for
the internal market in electricity (recast)’ COM(2016) 864 final, 4.
151 ibid 5. 152 ibid.
153 R.A.Verzijlbergha, L.J.De Vriesa, G.P.J.Dijkemab, P.M.Herdera (n 134) 665. 154 ibid.
consumption are. Thus, it is helpful to consider the results of the study by Innocent and Francois-Lecompte, who have attempted to discover what the values of electricity saving for consumers are.156 They have discovered that consumers engage in electricity saving because
of the satisfaction of being a good household manager and the psychological well-being arising from this practice.157 They, thus, claim that individualistic considerations lead to the decision
to engage in electricity saving rather than environmental concerns.158 Furthermore, according
to their results, ‘as more people monitor their electricity consumption, even more value is acquired from their actions, along with an increased willingness to intensify the practice’.159
These results showcase, first, that the underlining motivation consumers have is in its essence efficiency and in turn the benefits this efficiency can lead to. Second, once consumers engage in the practice of electricity saving, they are more likely to continue it and this practice is more likely to spread. Therefore, it is clear that in order for the majority of consumers to begin to rethink their electricity consumption, the motivating factor should not be the environment, rather it should be something more individualistic such as budgeting.
Taking this into consideration, it is helpful to consider the desired future scenario when most of the electricity is produced through RES. Then, electricity will be cheaper during the day when solar energy can be harvested and more expensive during the night when electricity will be still available, but from non-sustainable sources, for example. Consumers will most likely not chose to turn on their washing machine during the day because they want it to be powered with clean electricity. Rather, they will make that choice because they know it will cost them less. In any case, however, regardless of what the underlying motivations of consumers are, the result is the same. Led by motivation to save money or to save the planet, it stands to reason that once consumers begin to consider their consumption more consciously, they will experience the internal gratification that Innocent and Francois-Lecompte describe, attribute more value to it and will continue doing it and, in turn, influence those around them to do the same. A kind of snowball effect will materialize as essentially all roads lead to the same end goal. Nevertheless, there is still a long way to go until that future materializes and the fourth Electricity Directive aims to govern the process through which consumers’ mindsets are expected to change.
156 See Morgane Innocent and Agnès Francois-Lecompte, ‘The values of electricity saving for consumers’ (2018)
123 Energy Policy 136.
157 ibid 141. 158 ibid. 159 ibid 142.
