Five things you need to know about the Winter Package

Cillian Totterdell, Matt Hinde

It’s big

First and foremost, the sheer size of the winter package means some elements will remain untouched for quite some time. With the package including documents on renewable energy, market design, bio-energy, energy efficiency, energy funding and more, not all Council Presidencies will have the resources to focus on the whole scope of the reforms. Larger Member States are unlikely to be in a hurry to push forwards without a detailed examination of the proposals, especially given the sensitive issues discussed below. This gives businesses the time to consider their approach and to engage effectively with policymakers and European Parliamentarians over the next few months.

Targets are back…

Having managed to wriggle out of nationally binding targets in 2014, Member States are now facing the prospect of a binding EU-level target of 30% for energy efficiency. In terms of quality and quantity this is more than the indicative 27% previously agreed upon by Heads of State and Government in 2014, and as such is unlikely to be universally politically popular – certainly in Eastern Europe. It will also be the first thing on the Council table – the Maltese Presidency has made clear that its limited resources will be dedicated towards the revisions of Energy Efficiency and Energy Performance of Buildings Directives, as well as existing legislation still under discussion. Nonetheless, whilst it may be tabled quickly, it is unlikely to be agreed quickly. The Commission clearly seems to have gone for a target striking a compromise between Member States who wanted a low and non-binding target, and Parliament and NGOs who wanted a much higher, 40% binding target. The energy savings obligation for utilities is also prolonged. Overall, the ‘energy efficiency first’ principle is rather well reflected in the package, but it is likely to provoke a strong political argument between the institutions during codecision.

 …but not entirely

A leaked draft of the proposal for revising the Renewable Energy Directive (RED) had foreseen a fund, into which Member States who failed to maintain their 2020 renewable energy target levels would pay, to fund competitive auctions of renewable energy projects in order to help reach the 2030 27% target. Initial reactions from the Council at such a financially punitive measure were far from positive, and the scheme is conspicuously absent from the final publication, as are other gap-filling mechanisms Left as it is, the RED and proposed regulation on Energy Union governance invoke talk of “action at the EU level” to ensure Europe meets its target of a 27% share of renewables by 2030. The proposal on Energy Union Governance will see Member States submitting draft plans by January 1 2018, outlining their climate and energy strategies for the period 2021-2030. At this point the Commission will begin to flex muscle in order to ensure Member States are ambitious enough to reach that EU target, and in the following decade it will monitor progress closely to ensure countries stick to their plans. Some member states and the EP are likely to try and strengthen the Commission’s powers over this during negotiations.

It’s not kind to first generation biofuels

Among the most prominent black marks on EU energy policy of the last two decades is that of biofuels. Originally envisioned as the green  saviour for oil based transport back in 2007, its sustainability was quickly called into question, impacting on significant private sector investment. Cast out of favour, new policies have sought to stifle “conventional” biofuels post-2020 due to concerns, in some cases legitimate, over food scarcity, carbon savings and the effects their feedstock has on the environment. The Winter Package carries this trend forward, making clear the Commission’s intention to phase out conventional biofuels after 2020, in order to make room for “advanced” biofuels (not that there are any currently commercially available), but not dealing with the fact that there are some first generation biofuels that do in fact meet those sustainability and emission criteria. The biofuels industry has a strong case to feel rather hard done by given these policy swings…

Market Design will be a challenge

The proposals on electricity markets contained within the Winter Package include measures to free up the flow of electricity across borders, change how member states deal with electricity demand as well as supply and better adapt markets to a more modern, renewables based energy system. The proposals contain a lot of sensible ideas, drawn from the work that has been undertaken on network codes, and learnings from market developments over the past few years. However, significant challenges face the proposal if it is to be adopted as published. CO₂ standards for capacity mechanisms, pricing zones and regional cooperation will be thorny issues, and the sheer complexity of the proposals will unnerve negotiators. Meanwhile the moves away from priority dispatch on new renewable generation are practically guaranteed to be a big political fight over the next two years (not least as the German government is by all accounts highly unimpressed). Previous major efforts in this area, such as the Third Energy Package, have made their way to a tough Council agreement only to end up poorly implemented by some Member States. Either way this negotiation will take time – not least given the interlocking nature of various the electricity market proposals and the renewable directive, and the overall complexity. Realistically we are looking at final agreement in the Austrian Presidency in Q2 2018, or even the Romanian Presidency in 2019….