1. Competition and regulation in the EU energy sector*
Jose Manuel HERNANDEZ
First Secretary, Competition policy and energy markets
EU Delegation to Ukraine
Kiev, 3 March 2017
(*) All views expressed are personal and do not bind the EU Delegation

2. Main features of each instrument
EU Antitrust Law (Art. 101; 102, 106)
Ex post enforcement
Focus on infrastructure and supply markets
Investigative powers
Behavioural and structural remedies
Sanctions
Lessons from cases serve as input for regulation
EU State Aid control (Art. 106 and 107)
Ex-ante control
Avoid market distortion
Pursue efficient use of taxpayers' money
Enabler of energy policies such as renewables
EU Regulation (Third package)
Ex-ante intervention
Focus on infrastructure and cross-border interfaces
'towards everyone' measures

3. The electricity supply chain
Power Generation (Competition)
Transmission (Regulated)
Distribution (Regulated)
Consumers (Competition)
MWh
MWh
MWh € €
Supplier
Wholesale market
Retail market

4. The EU Regulatory framework
Unbundling energy suppliers from network operators
Regulated, third party access to the networks
Independent regulatory oversight
Set of network codes aimed at seamless cross-border integration (day-ahead markets, intraday markets, balancing markets, congestion management, etc)
Latest proposals (December 2016):
Upgrade wholesale market rules
Strengthen EU preparedness (security of supply)
Empower consumers
Improve regional cooperation

5. Antitrust enforcement sample
Withholding generation capacity: German wholesale electricity market (2008)
Network foreclosure: RWE gas (2008)
Pre-emptive booking networks: CEZ (2013)
Long term contracts with consumers: EdF, 2010
Long term capacity bookings: GdF gas (2009) and EON gas (2010)
Limiting cross-border capacity: SvK, 2010
Market sharing agreement (Power exchanges, 2014)
Discrimination: EON balancing (2008), OPCOM (2014)
Territorial restrictions in wholesale electricity contracts (BEH, 2015)

6. State aid modernisation (2012-2014)
Objectives
Foster growth in a strengthened, dynamic and competitive internal market, by encouraging “good aid” and discouraging useless or counter-productive aid
Focus enforcement on cases with the biggest impact on internal market
Streamline rules and faster decisions
Energy
New Guidelines in force since Major overhaul: support schemes for renewable energy, capacity mechanisms, reductions for energy intensive users, energy networks.
No effect on rules for closing coal mines, stranded assets, etc

7. RES-e support: Rules under EEAG
Integrating RES into the market (n/a small RES)
From 2016:
Sell electricity directly on the market (aid as premium on top of the market price)
Balancing responsibilities (if liquid intra-day market)
No incentives to generate with negative prices.
Minimising risk of overcompensation (n/a small RES)
From 2017
Competitive bidding for at least 5% of the planned RES capacity.
Competitive bidding for 100% of the planned RES capacity
Open to all RES technologies
Flexible criteria

8. State aid sector inquiry capacity mechanisms
Capacity mechanisms = Member States' measures to ensure that electricity supply can match demand in the medium and long term
State aid sector inquiry on capacity mechanisms launched on 29 April 2015 and concluded on 30 November 2016
Scope: 11 Member States

9. CM Sector inquiry: Types identified

10. CM Sector inquiry: : 35 measures in 11 States

11. CM Sector inquiry: Recommendations
Establishing need
Market reforms first
Economic adequacy assessment and reliability standard
Choosing an appropriate CM
Long term? Market wide
Short term? Reserve
Local issue or need for DR?
Ensuring proportionality
'Capacity payments' not acceptable – need competitive price setting
Protecting trade and competition
Open to all technologies, small sizes
Open across borders (market wide)

12. CM Cases: Enforcement record
Strategic Reserves
Germany (network reserve)
Interruptibility schemes
Germany (ABLAV)
Greece
Italy
Capacity payments
Greece (Flexibility mechanism)
Tenders
France (Brittany)
Croatia (Plomin C)
Market wide mechanisms UK
France

13. Wrapping up: Application to Ukraine
DCFTA: Aims at the same EU energy model and competition law framework => Ukraine can benefit from the wealth of case practice
ECJ: Antitrust law enforcement is independent from Regulation
ECJ: Compliance with Regulation does not hinder antitrust enforcement
Antitrust is stricter than Regulation and remedies can be more far reaching e.g. ownership unbundling, releasing bookings)
Big challenge: align today's practice of subsidies in the energy sector with State aid rules
Strict State aid control in UKR would significantly reduce public spending and reduce competition distortions.