Studies

The electricity markets in the Contracting Parties are experiencing a period of complex transition, characterised by the coexistence of the liberalization and decarbonisation agendas. As a consequence, a number of plants could potentially retire, which raises security of supply concerns.

The results of this study show that an efficient energy-only regional market would bring the flexibility and adequacy required to maintain security of supply. Yet despite all progress, an efficient regional market mechanism is still not in place in the Western Balkans. Beyond delayed reforms, government actions such as non-compliant State aid distort operational and investments signals. Such State aid is often justified by the claim to maintain security of supply, a claim for which the present study in the current conditions does not provide support.

This final report is based on the analysis of direct and selected hidden subsidies to coal-based electricity production in the Energy Community Contracting Parties published by the Secretariat in March 2019 and the outcome of a subsequent public consultation.

It underlines the serious situation in the coal sector of the Energy Community Contracting Parties where direct subsidies amounted to EUR 1,2 billion in 2015-2017. On top of this, hidden subsidies, notably the non- payment of a carbon tax, totalled EUR 1,9 billion on an annual basis. In the three most coal intensive Contracting Parties (Bosnia and Herzegovina, Kosovo* and Serbia), coal subsidies were in absolute terms significantly higher than renewables support. The resulting market distortions and unsustainable consumption patterns are putting the region’s energy transition further at risk.

Following the publication, the Secretariat has continued to revise the study in order to incorporate improved data and new information. The latest summary of comments dates from September 2019.

The study aims to contribute to the reform of  electricity balancing in Southeast Europe.

• provide a basis for the assessment of the prioritisation of integration steps of electricity balancing markets;
• create awareness of the savings potentials of the different forms of balancing market integration; and
• incentivise regulators and transmission system operators (TSOs) to reform their balancing regimes.

It proposes theoretical examples for specific balancing market integration steps, each including at least 2 Contracting Parties’ areas operated by 2 or more TSOs. Each theoretical model represents at least one of the integration targets, pursuant to the Network Code Electricity Balancing, or a case of Sharing of Frequency Restoration Reserves or Replacement Reserves, pursuant to the Network Code on Load-Frequency Control and Reserves.

The Contracting Parties are faced with inefficient balancing markets and typically have only one provider of ancillary services within their countries. This study aims at providing best practice solutions in imbalance settlement mechanisms. It thereby goes beyond the technical elements of system balancing and puts focus on commercial balancing. If was clear from the outset, that the best practice recommendations are to take into account where the Energy Community stands with respect to the 3rd Energy Package implementation.

To this end, the Framework Guidelines developed by ACER and, based on those, the Network Codes developed by ENTSO-E are of key relevance for the future market design. In the light of this, the content of the Framework Guidelines and Network Codes, where they exist, has heavily influenced the recommendations of the present study.

By signing the contract, the Secretariat supported the second phase of the so-called Dry-run for coordinated capacity allocation in the SEE region. It explicitly included the participation of the traders as well as other market participants. The final report gives an overview about the efforts needed to provide the optimal testing environment, including the state of the play in the second phase of the Dry-run (2007).

In terms of most important next steps, the consultant recommended:

• mutual agreement of involved TSOs regarding the location (hosting country) of the CAO
• development and agreement on a common business plan
• development and agreement on the company agreements (articles of association, syndicate agreements when needed)

The main objective of this project was to contribute to understanding of the effects of the Tariff Network Code (TAR NC)^[1] implementation on the existing gas transmission tariffs in two selected Energy Community Contracting Parties, namely Serbia and Ukraine. Proper understanding of the possibilities delivered by the TAR NC should help all regulators to prepare for the legislative and regulatory challenges ahead in the field of gas transmission tariff setting.
 

^[1] REGULATION (EU) 2017/460 of 16 March 2017 establishing a network code on harmonised transmission tariff structures for gas

The study analyses potential geographic scope of gas market integration discussing four regional gas market integration options comprising Contracting Parties and neighbouring EU markets. The options are assessed in their actual potential to directly access new gas sources. The study also makes a cost-benefit analysis on the four market integration options. Here the potential for welfare creation and  improved market functioning improve market functioning in terms of security of supply, competition and liquidity resulting from market integration is evaluated orientating on the indicators of the European Gas Target Model. 

The study proves considerable primary benefits of the selected market integration options, ranging from 110 mil EUR to 872 mil EUR for “Ukraine West Integration” i.e. from 3 mil EUR to 62 mil EUR for “Serbia North Integration”, depending on the efficiency of both wholesale and retail markets.

This study provides guidelines for implementing the Regulation (EU) 994/2010 in the Energy Community and evaluates possible infrastructure projects to improve security of gas supply in the region. The analysis show that the Contracting Parties have already implemented several elements of the regulation. For example, all Contracting Parties with access to natural gas already have some form of an emergency plan. However, the study concludes that Ukraine and Moldova are the only Energy Community Contracting Parties presently meeting the N-1 criterion, as defined in the Regulation..

The study investigated operational developments of gas transmission under the third party access in the Contracting Parties. It analysed current capacity availability, interoperability, transparency and operational rules and discusses the methods used for balancing transmission networks including resort to storage facilities. The study identified the major obstacles and barriers for gas transportation in the Energy Community and provided recommendations on the necessary next steps.  In its conclusions, the study stressed the lack of "TSO to TSO Interconnection Agreements (IAs) at the respective transfer points in any of the Contracting Parties." "Common IAs based on the EASEE-gas common business practices should be put in place at all the current (5) transfer points", the consultants argued.

For the assessment of candidate projects the consultant developed an assessment methodology, building on its previous assessments of infrastructure projects on behalf of the Energy Community in 2013 and 2016, as well as taking into account the methodology applied for the latest selection of EU Projects of Common Interest (PCIs) under the same Regulation as well as the methodologies for the assessment of network infrastructure projects developed by ENTSO-E and ENTSOG. 
The report provides an overview of all submitted investment projects as well as the modelling assumptions that have been made and agreed to with the PECI Groups, presenting detailed results and rankings of the projects. Based on the best estimate ranking and the additional information provided by the sensitivity analysis, the Groups were able to make an informed decision on the preliminary list.

The 16th Ministerial Council adopted the list of projects of Energy Community interest in November 2018. 

The modelling results on the expected future progress by 2020 indicate the likelihood by each Contracting Party to achieve the binding 2020 RES target as required under the RES Directive. There are two distinct scenarios concerning the future development of energy demand (i.e. reference and efficiency trends, originally based on CPs NREAPs, but corrected in accordance with actual demand developments). Results suggest that Bosnia and Herzegovina, Moldova and Montenegro, are expected to reach the given 2020 target with currently implemented and planned policy measures – if energy demand will develop as planned according to the low demand case (assuming complementary energy efficiency measures to be taken or other reasons that justify the low demand path). Despite the expected increase in absolute terms, Albania, Kosovo*, FYR of Macedonia, Serbia and Ukraine would fail to achieve their 2020 RES targets.

The Secretariat’s study analysed the Contracting Parties progress in renewable energy in 2012-2013 based on data provided in each Progress Report and checked consistency with the data in official energy statistics. It identified inconsistencies in data reported with energy statistics mostly related to biomass consumption in some Contracting Parties. Accuracy and reliability of biomass data is instrumental for the Contracting Parties in reaching the 2020 renewable energy targets and an urgent revision of energy statistics based on energy consumption surveys is needed.

In autumn 2014, the Secretariat engaged a consultant, E4tech, to provide knowledge transfer to the Energy Community Contracting Parties and Georgia (Observer) on sustainable biofuels in the transport sector. The aim of the support was to deepen the knowledge of stakeholders on the sustainability criteria for biofuels and related certification systems and to recommend appropriate solutions for biofuel uptake. The consultancy support consisted of workshops and national reports.

The objective of the study was to determine the biomass consumption for electricity, heating and cooling based on representative and consistent consumption surveys. This was to result in a report on the share of energy produced from biomass in the gross final consumption of energy in the Contracting Parties. CRES was tasked to carry out biomass consumption surveys and collect data for the years 2009 and 2010. As a next step, it reconstructed the statistical energy data series back to reference year 2005 according to EUROSTAT practice.

The tasks of this study were fourfold:
1 Review the current status quo  of renewable energy; 
2 Analyse the impact of the renewable Directive on the  Parties, considering the available renewable energy potential and the provisions for co-operation among EU and Energy Community;
3 Based on the methodology prepared by the European Commission, calculate targets to be achieved by 2020; 
4 Provide an evaluation of the costs associated with the fulfilment of the mandatory targets, investment opportunities, employment possibilities, greenhouse gas savings and reduction in fossil fuel consumption.

The aim of the study was to investigate the impact and modalities of a possible inclusion of the new EU Renewable Energy Directive in the Energy Community Treaty. The point of departure was the acquis on renewables as defined in the Treaty (Directives 2001/77/EC and 2003/30/EC). Further to the state of play assessment, the study identified a set of policy measures which each Contracting Party should consider in order to fully comply with the acquis requirements. It also assessed barriers hindering the implementation and proposed means for overcoming these. 

The 2013 Ministerial Council proposed the implementation of Directive 2012/27/EU in the Energy Community in 2014 with certain modifications. When adopted in the Energy Community, the Directive will repeal Directive 2006/32/EC and set more ambitious energy efficiency targets. This study assesses the impact of the implementation of the Directive 2012/27/EU in the Energy Community focussing on its four key provisions: national targets; exemplary role of public buildings; energy efficiency obligation schemes; and promotion of efficiency in heating and cooling.

The main aim of the study was to support the Contracting Parties in their efforts to meet their obligations under the Energy Community Treaty. The study gives a comprehensive overview of status of implementation of the Building Directive in the Contracting Parties. It also tries to facilitate the Parties' future efforts in preparation of NEEAPs and to change attitude toward energy consumption in buildings. The report gives guidelines for preparing inventory of buildings and defining reference building for each category as defined in the EPB Directive.

Enabling customers to switch their suppliers is a core prerequisite for a well-working liberalised market. Whilst functional in the EU, these procedures have not yet been established in the Energy Community context. To facilitate the process, the Energy Community contracted consultants to develop best practice recommendations for customers’ supplier switching, both for electricity and gas markets.  The study identifies a best practice switching model among the EU-27 using a variety of criteria.

In an ideal world, the national regulatory authorities would ensure liberalization of the electricity market without any worsening of the quality of electricity service. The study provides recommendations for the quality of electricity service data collecting, reporting and auditing and the gradual development of the quality of service regulation. The study refers to recently made experience of European Union Member States on the quality of service regulation and uses best practise legislation as a sort of a checklist for all the necessary activities. It addresses the three dimensions of the quality of service, namely the continuity of supply, the voltage quality and the commercial quality.

The aim was to develop a set of best practice recommendations for rolling-out smart metering in the Energy Community, taking into account the EU's lessons learned and the specifics of its Contracting Parties.  The cost-benefit assessments regarding smart metering deployment as specified in Annex I of the Directives 2009/72/EC and 2009/73/EC are due by Jan 2014. The ECRB commissioned the report due to the fact that large-scale implementation of smart metering has not yet taken place in the Energy Community and that all Contracting Parties still need to carry out the economic assessment of the long-term benefits and costs of smart metering implementation. 

The study provides a detailed overview about tariff and price evolution in the Contracting Parties and Georgia. It takes a look at the regulatory regimes for electricity tariffs, the level of end-user prices, end-user revenues by supply chain component and prices per consumer type including an analysis on cost coverage and cross-subsidies. The study furthermore assesses the relation between tariffs and consumption and discusses investment self sufficiency, allocative efficiency and productive efficiency for generation, transmission, distribution and supply.

In spring 2010 the Secretariat contracted the EIHP to assess the current status of energy statistics and to identify measures and resources needed to streamline the efforts to harmonize energy statistics with the rules and procedures applicable in the OECD and EU countries. The report put for the first time energy statistics systems of all Contracting Parties and most Observers under one cover. All Contracting Parties and Observers are preparing some sort of energy balances, but the methodologies and coverage differ significantly. According to the study, some countries have excellent statistical quality, but their analytical approaches are of low quality.

The starting point of this study was an assessment of the current state of development of the Contracting Parties with respect to the EU cybercrime legal framework (Budapest Convention), which forms a basis for cybersecurity legislation by defining criminal law offences and associated provisions and thus enables prosecution of cybercrime actors. Special attention has been placed on critical infrastructure and essential services identification criteria, as well as on national strategies on the security of network and information systems applicable to both the electricity and gas sectors.

An overview for each Contracting Party was prepared based on the collected and consolidated information. International standards, training programs and cooperation initiatives as enablers for energy-related cybersecurity capacity building, were indicated at a country level.

The core objective was to further develop the methodology and to conduct a quantitative assessment of pathways for achieving calculated 2030 energy efficiency, RES and GHG emissions reduction targets that can be expected under aligned framework conditions in the Contracting Parties.The report describes the methodologies, data and key assumptions for deriving 2030 energy and climate targets. A set of options that can be used for target setting has been derived within each respective field and for overall GHG emission reduction.

The study concludes that setting GHG targets is strongly needed due to several highly GHG emitting industrial processes in the Energy Community region. Setting 2030 GHG emission targets is the beginning of a convergence process towards the EU long term (i.e. 2050) target that needs to take into account countries current and historic emissions pro-files and the strong need for economic recovery.

Building on the technical assistance provided, the consultant prepared a final report - with following focus: 

• Assessments of the problematic issues, possible solutions and evaluation of each solutions (viability, risks and advantages)
• Recommendation of procedural and substantial dealing with the issues of concern
  - elaboration of criteria for evaluation and recognition of costs component of concern,
  - introduction of incentive based tariffs, with the focus on quality based incentives challenges and best practices
  - allocation of costs component and tariff design.

The goal of the study was to assess value-added tax (VAT) legislation in the Contracting Parties in order to identify obstacles to market competition and market integration stemming from non-harmonized rules governing the VAT on goods and services in the network energy businesses, and to propose measures for their harmonization. Harmonized VAT rules are meant to ensure a level playing field with regards to the supply and demand of gas and electricity, both between the Energy Community  on one side and EU Member States on the other, as well as among the Contracting Parties.