Energy Union – „New Deal“ for consumers or threat to energy democracy?

The Juncker Commission promotes the idea of an Energy Union as “New Deal for energy consumers”. But does the Commission satisfy this claim? Or do consumers only function as disguise for an economic support program? This analysis clarifies that many aspects of the Commission’s “New Deal” – overview of the relevant aspects in this previous blog entry – have a „dark side“ that put the democratisation of the energy system at stake. How this game is going to end will highly depend on the future role of consumers and prosumers in the digitised energy world.

1. Protect consumer interests and boost economy do not always match

The Commission faces a fundamental „home made“ problem: with every measure it aims at empowering consumers and prosumers and boosting economic and employment growth at the same time. This strategy is hardly practicable, and it looks as though the commission would grant precedence to economic support in case of collision – at the expense of consumers. This becomes particularly clear within the Energy Union’s central aspects digitisation, prosumer and privacy.

2. Brave new digital energy world?

According to the Commission one of the essential conditions to reach the goals is a stronger connection between  wholesale and retail market. As main instrument it bets on the “digitised leverage”. New technologies such as smart meters are to be the base for more transparency in metering and billing of consumption, efficient in-house energy management, demand response via dynamic pricing and – last but not least – flexible and „network-friendly“ supply and storage of renewable energies. Vice president Maros Sefcovic´s team that is responsable for the Energy Union ,follows the trend as on EU-level there is a digitisation-hype. The Commission just published its “Strategy for a Digital Single Market for Europe”. But is the Commission backing the right horse? Is digitisation really a panacea? Or does it rather open Pandora’s box?

  • Demand response via smart meters fails reality check

Demand response via dynamic pricing continues to be the white hope for the EU-Commission. The idea: on windy and/or sunny days with a lot of renewable energies and – hence – low prices consumers can use more electricity. In times of less renewable energies consumers will reduce their consumption. This image of a „brave new digitised energy world“ in which households can manage their consumption and hence save money does not pass the reality check. According to a current study[1] large parts of the consumers would not financially benefit from a transition to smart meter-baised dynamic pricing. Without a sufficient reward the Commission´s white hope collapses, at least where private households are concerned. The Commission hence is to take off its rose-coloured demand-response glasses and re-analyse the potential for the different groups of consumers realistically.

Furthermore, the Commission seems to assume that consumers will accept and use smart meter-baised dynamic pricing automatically. This is a fatal misjudgement even in those rare cases when there mighy be an economic benefit, as demand response via dynamic pricing is a technically, economically and juridically complex product. Therefore, transparency, clarity and comparability are key to success.

  •  Smart meter = transparency = savings?

The EU-Commission ascribes smart meters a major savings potential also with regard to metering and billing, particularly if consumers or service providers can access real- or near-time consumption data. But reality looks different again: newly installed hardware does not bring about the necessary change in behaviour automatically. Instead, detailed information, advise and incentives are vital. Actually, there is no need for smart meters in this context. Innovative energy eficiency apps and services developed by a very dynamic start up-scene are much more promising. The „old“ utilities´ activities – buying into or taking over Startups – prove this.

  •  No “forced digitisation”

Due to these disillusioning findings the Commission must adapt its strategy for a smart meter-rollout throughout the EU. The 80%-rollout rate of the Third Legislative Package is no end in itself and needs to be dropped by the Commission. Some Member States – among others also Germany – abuse the rollout-rate as shield (“We can’t help it, this is what the EU wants.”). The smart meter-rollout should bet on voluntariness rather than on “forced digitisation” that damages consumers´ acceptance, especially when the corresponding law is called „Act for the Digitisation of the Energy Transition“ though it has hardly anything to do with the „Energiewende“. It should be called what it is: Smart Meter Act.

  •  Clouded ecobalance and cost balance?

The negative effects of the digitisation of millions of households like additional costs for consumers, more energy consumption (sort of rebound effect) and higher CO2-emissions are scarcely, if even, discussed. The complex metering systems certainly consume electricity. The technology designed to save energy and expenses hence generates high consumption of energy and costs itself. Also to be taken into consideration when „pricing“ the ecobalance and cost balance is the to be built IT-infrastructure, especially servers and hardware of the involved market players such as metering point operators, network system operators, utilities and service providers. Which direct (energy consumption of metering systems) and collateral (costs added to network charges) additional costs does the digitisation cause for the consumer? The drivers of the digitisation have to answer this question.

  • And what about interoperability and open standards for smart home?

In its „New Deal“ and strategy for a digital single market the Commission underlines the importance of Smart Home as economic factor. But the Commission totally ignores key consumer aspects, namely interoperability and open standards. Protocolls and transmission codes will decide the current „war“ for the best interoperability concepts to win plattform partners. Numerous strategic alliances have been formed. Of course, the global internet giants Alphabet (Google), Amazon, Apple, Samsung etc. are in the game – with completely different plattform models.
From the consumer perspective general standards like the general mobile communications frequencies and open standards are ver< important. But it is obvious that the big IT-companies are not interested at all in open, transparent and interopable systems. They want to establish their own plattforms and ecosystems working like app stores, to sell own hardware, software, licenses and – of course user data. As a consequence we´ll have many inoperable „island solutions“. This calls for action to be taken by the Commission. It has to ensure a high level of interopability and transparency. It is very questionable whether the Commission wants to/will do so considering the IT-companies´ power and influcene in Brussels.

3. Energy Union´s impact on prosumers

Introductory (and preventive): it is out ouf question that prosumers have to take responsibility for and contribute to the network security. This might include the prosumers´ integration into load and feed-in management – if appropriate and useful! The Commission – just like the Member States – has to respect the principle of proportionality. This prohibits unnecessary regulatory hindrances, as the in Germany discussed “forced integration” of even very small solar installations into the smart grid with mandatory hardware installation (smart meter + so called control box) and additional fees – even in regions where network system operators will „never“ have to disconnect small installations (e.g. in/near big cities).

  • New Guidelines – threat to the democratisation of the energy system?

Cause for concern are on the hand the „Guidelines on State aid for environmental protection and energy“, which have already had a major influence on the German Renewable Energy Act (GREA)-novella 2014 in the form of auctions. According to the first drafts for the 2016 GREA-novella auctions will be extended. The shift towards auctions puts the diversity of players at stake as private persons and small community initiatives will hardly stand the bidding process. The recently finished second round of pilot auctions that the responsable Federal Ministry of Economy called „a great success“ due to the acceptance of small bidders, is no reason to sound the all-clear. There needs to be a thourough evaluation first.

Especially from the German perspective the harmonisation of the support schemes for renewable energies would be critical. Against the background of very different targets for renewable energies within the member states, a suppression of the European diversity would not add up. Countries with ambitious goals need different support schemes than countries with not ambitious or even no goals. Same goes for an „assimilation“ of renowable energy goals. The European energy transition needs pioneers that promote the development of renewable energies and a functioning competition for how to achieve these. Therefore, countries like Germany need sufficient „space“ for their support schemes and targets.

  • Welcoming culture for prosumers?

The current status of the Energy Union opposes the expansion of renewable energies as “grassroot-movement” though prosumers are contributing significantly to the achievement of the energy union’s goals: they boost competition and the diversification of the generation capacities and the energy mix. They disrupt market concentration and energy oligopolies and they lower the wholesale market prices. The Commission hence would be well advised to ensure a regulatory “welcoming culture” for prosumers. In particular, it needs to ensure that private households are not lumped together in one category with large corporations, for private households are neither energy traders nor utilities, but remain private households with limited options and means. In this context business models allowing tenants to profit from in-house energy generation – e.g. the provision of tenants via solar plants on the roof or a combined heat and power unit, CHP, in the celler of an apartment building – increasingly gain importance. Through these models also tenants can benefit from the energy revolution. The Commission should thus ensure a regulatory framework that enables – or at least does not complicate – the realisation of such models. This would also rebut the often used „de-solidarisation“-argument.

4. Data sovereignty, privacy, data-treasure – in this order!

The Commission’s digitisation plans are of considerable relevance for consumers´ privacy, especially the smart meter-rollout, but also in the field of smart home. In this context, the ambivalence of the Commission’s action becomes evident. It sees a necessity for data privacy with regard to the individual energy consumption data, but also the data-treasure as business model to boost economic growth. The Commission’s goals, plans and measures outlined in COM(2015) 339 as well as tje EU-plans for a Digital Single Market lead to the apprehension that – at a pinch – it will sacrifice consumers´ privacy to the economy’s wishes; that, although the importance of individual energy consumption data and the potential of abuse have been sufficienty discussed and must be explicit to national and European legislators.

Effective consumer protection of individual energy consumption data is of outstanding relevance to really achieve a „New Deal“ for consumers. Therefore, the consumer´s data-sovereignty must not be limited nor shifted to others, and the principle of data minimisation must always be in the first place. Furthermore, the right of (free of charge!) access, correction and deletion of data is important. Every market player requiring energy consumption data should be obliged to provide evidence of this necessity. A “nice-to-have” is not sufficient. To safeguard privacy it is not enough to point at the currently discussed General Data Protection Regulation. It might be necessary to create a specific legislative framework for the energy sector beyond this edict.

5. Conclusions: If “consumer” is on the label it ought to be inside!

Do German consumers and prosumers thus need the Energy Union? The answer can only be a differentiated one. Certainly consumers profit from a functioning internal energy market. Many ideas – often not much more yet – can simplify their lives and safe money (and nerves).

Digitisation though is not the silver bullet as the EU-Commission and also the German Ministry of Economy and Energy hope. For most of the consumers smart meters would only be an “expensive toy”. The EU-Commission overly focusses on promoting economic and employment growth via digitisation. Consumers are to serve as “enablers” through their (housing) infrastructure, their purchasing power and their data without having adequate benefits themselves. Therefore, a clearly differentiated approach is necessary leaving the choice up to the consumers if and which technologies they want to purchase and use. A forced digitalisation many Commission’s suggestions smell like would lead the wrong way.

In order to live up to its promises of a “consumer-centric Energy union” the Commission needs to acknowledge prosumers as euqals with the „old“ market players (network system operators and energy providers) and provide regulatory support for them. Consumers must not be understood as a supplement to centralised generation capacities but emancipated business partners.

Until now the EU-Energy Union is only a “communication success” as Severin Fischer recently called it in the NZZ. It is to be hoped that the Commission can use the currently strong momentum as to hold its promise of a “New Deal for Consumers”. 2016 will be the decisive year for that. However, it is questionable whether the EU-Commission has enough political weight for this very challenging task. The Internal Energy Market is probably the lowest common denominator the Member States can agree upon. And maybe that is the EU-Commission´s strategy: that stronger links of the national energy and gas markets will sooner or later call for an EU-energy policy. As a result the EU-Commission hence needs the consumers for its plans.

In the end the Commission will be measured against its own promises: If “consumer” is on the label it must be inside, too!


[1]WIK, “Quantitative Auswirkungen variabler Stromtarife auf die Stromkosten von Haushalten”: http://www.vzbv.de/pressemitteilung/digitale-stromwelt-kaum-vorteile-fuer-verbraucher

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