The European regulatory framework
Regulation of greenhouse gas emissions
In February 2018 the European Parliament and the Council formally approved the reform of the EU’s ETS Directive for the period from 2020 to 2030. The new directive entered into force on April 8, 2018. To achieve the objective of an overall reduction in greenhouse gas emissions of 40% by 2030 compared with 1990, the sectors affected by the EU Emissions Trading Scheme (EU ETS) will have to reduce their emissions by 43% compared with their 2005 levels. The new ETS Directive provides for a set of interrelated measures to make this possible. To accelerate the pace of emissions reductions, starting from 2021, the total quantity of emissions permits will decrease at an annual rate of 2.2%, compared with the current rate of 1.74%. The Market Stability Reserve (MSR) – the mechanism established by the European Union to reduce the surplus of emissions permits on the market and improve the ETS’s resilience to future shocks – has been strengthened substantially. Between 2019 and 2023, the amount of allowances set aside in the reserve will double to 24% of the allowances in circulation, while starting from 2024 the normal feeding rate of 12% will be restored. As a long-term measure to improve the functioning of the ETS, unless otherwise decided in the first review of the MSR scheduled for 2021, from 2023 the number of allowances in the reserve will be limited to the auction volume of the previous year. Allowances held above this amount will no longer be valid. The provisions of the new EU ETS Directive will be reviewed in the context of each global stocktake agreed under the Paris Agreement, in which the efforts and ambition of each participating member state will be quantified in aggregate: the first global stocktaking will take place in 2023.
On May 30, 2018 Regulation 2018/842/EU was published. It concerns the annual greenhouse gas emission reductions by member states from 2021 to 2030 for sectors not covered by the ETS, namely agriculture, transport, construction and waste treatment, which together account for around 60% of the Union’s greenhouse gas emissions. The European nonEU ETS emission reduction target of 30% compared with 2005 has been incorporated into binding national targets.
“Clean Energy for all Europeans” legislative package
On November 30, 2016, the European Commission issued the “Clean Energy for all Europeans” package of measures for proposed legislation on European climate and energy policy.
In particular, the package includes the following regulations and directives, some of which are revised versions, others newly issued: the Electricity Market Regulation, the ACER Regulation, the Risk Preparedness Regulation, the Energy Union Governance Regulation, the Electricity Market Directive, the Renewable Energy Directive, the Energy Efficiency Directive and the Energy Performance of Buildings Directive.
Revision of the Electricity Market Directive and the Electricity Market Regulation
On December 19, 2018, the European Parliament and the European Council reached a political agreement on two of the main dossiers of the “Clean Energy for all Europeans” legislative proposal issued on November 30, 2016 by the European Commission, namely the Electricity Market Directive and the Electricity Market Regulation.
The agreement reached by European legislators marks an important step in bringing the regulatory frameworks of the EU and of the member states up to date with the aim of efficiently integrating renewable energy and new technologies in the electricity system, harmonizing the functioning of the markets, sending efficient signals for investment and placing the consumer at the center.
Although the definitive texts of the new directive and regulation have not yet been completed, these are the main firm points of the political agreement reached by the European institutions:
- at the discretion of the member states, maintaining forms of electricity price regulation for the protection of vulnerable and non-vulnerable customers;
- introduction of the option for customers to ask their seller (provided they serve more than 200,000 customers) for a dynamic electricity price contract, i.e. one in which the Report on operations 119 electricity component follows the wholesale cost of electricity; > reduction in the time to switch suppliers from the current 21 days to 24 hours by 2026;
- introduction of new actors, such as independent aggregators, self-consumption and local energy communities, into the member states’ legal systems;
- substantial confirmation of the expectations concerning distribution system operators (DSOs), with national regulators being required to offer them incentives to use new efficient solutions in grid operation (e.g. flexibility);
- prohibition on grid operators (TSOs and DSOs) installing and managing storage facilities, except in cases of market failure and in the case of technologies fully integrated into the grid; in both cases, however, the national regulator’s specific approval is required;
- maintaining dispatching priority for small-scale renewables plants (less than 400 kW) only, safeguarding existing plants that enjoy this priority; members states may withdraw this benefit if the markets are fully accessible to renewables, the penetration of renewables is on the path to reaching the targets or exceeds 50% of final electricity consumption;
- possible derogations from balance responsibility only for small-scale renewables plants (less than 400 kW) or innovative technologies, safeguarding existing plants or incentivizing them to assume such responsibility;
- definition of a European framework for introducing capacity remuneration mechanisms: need for analysis of the adequacy of European and national mechanisms, strategic reserves as the preferable option, plans for reforming the electricity market to eliminate the causes of market failure and regulatory barriers, phase-out clauses for mechanisms if there are no longer any adequacy problems, emission limits for participation of new and existing plants.
While the regulation will be directly applicable once the definitive text is published in the Official Journal of the European Union, the Directive must be transposed through specific legislative acts of the member states within two years of its entry into forth.
Directive 2018/2001/EU on the promotion of the use of energy from renewable sources (Renewable Energy Directive)
On December 21, 2018, the new directive of the European Parliament and of the Council of December 11, 2018 on the promotion of the use of energy from renewable sources was published in the Official Journal of the European Union.
The main objective of Directive 2018/2001, which repeals Directive 2009/28, is to accelerate the transition towards the development of renewables. To achieve this, the directive establishes a new binding EU target of a share of a least 32% of renewables in the EU’s gross final consumption by 2030, including a clause for assessing whether to increase the target by 2023. Furthermore, the directive:
- establishes new rules for designing mechanisms to support renewable energy to provide certainty to investors by avoiding retroactive changes;
- allows members states to introduce auctions limited to specific technologies. In any case, member states must provide a schedule of future auctions for at least the following five years, indicating the timing, volumes and budget;
- provides effective simplification and streamlining of administrative procedures, including for repowering existing plants; > draws attention to the elimination of regulatory barriers that block the wider use of corporate Power Purchase Agreement (PPAs);
- establishes a clear and stable regulatory framework for self-consumption;
- raises the ambition gap for the transport and heating/cooling sectors; and > improves bioenergy sustainability.
The directive sets the renewable energy target for the transport sector for 2030 at 14% and is placed on fuel suppliers. Electric mobility is encouraged through to a multiplier of 4 for renewable electricity used in road transport. The directive envisages a sub-target of 3.5% for “advanced biofuels” by 2030, while first-generation biofuels will be limited to a maximum of 7% for the entire EU, with further limits by member state if below 7%. The counting of biofuels at high risk of indirect land-use changes (ILUC) will be frozen at 2019 levels and gradually eliminated between 2023 and 2030.
Directive 2018/2002/EU on energy efficiency (Energy Efficiency Directive)
The new directive of the European Parliament and of the Council of December 11, 2018 on energy efficiency was published in the Official Journal of the European Union on December 21, 2018. The directive establishes a new EU energy efficiency target for 2030 of at least 32.5% compared with the reference scenario and includes a provision for revising it upwards by 2023. It also requires member states to achieve end-use energy savings for the 2021-2030 period of 0.8% per year, to be met by through obligation schemes on operators or through alternative measures. The provisions of the directive must be transposed by the member states by June 25, 2020.
Regulation 2018/1999/EU on the governance of the Energy Union and climate action (Energy Union Governance Regulation)
Alongside with the Renewable Energy Directive and the Energy Efficiency Directive, the EU published in its Official Journal the new Regulation 2018/1999/EU on the governance of the Energy Union and climate change. This regulation sets out the governance mechanism to achieve the EU targets for greenhouse gas emissions, in line with the Paris Agreements, and energy and climate policy targets for 2030. It aims to ensure greater regulatory certainty and investor certainty. The governance mechanism is based on the long-term objectives of the European Commission and the member states with a perspective of at least 30 years, the integrated national energy and climate plans that cover ten-year periods starting with 2021-2030, the corresponding member states’ integrated national energy and climate progress reports and the integrated monitoring arrangements by the European Commission. The governance mechanism ensures effective opportunities for the public to participate in the preparation of the national plans and the long-term strategies.
It provides for a structured process between the Commission and the member states for the purpose of finalization and subsequent implementation of the integrated national energy and climate plans and the corresponding Commission action.
Directive 2018/844/EU on the energy performance of buildings (Energy Performance of Buildings Directive)
On June 9, 2018, Directive 2018/844/EU on the energy performance of buildings, which amends the previous directive governing this issue and part of the directive on energy efficiency, came into force. The new directive provides for each EU member state to establish a long-term strategy to support the renovation of the national stock of residential and non-residential buildings, both public and private, in order to obtain a decarbonized and energy efficient building stock by 2050. In the long-term renovation strategy, each country will have to establish a roadmap with indicative interim milestones for 2030, 2040 and 2050, and measurable progress metrics and indicators.
The directive also promotes electric mobility, setting requirements for the installation in buildings of recharging points and ducting infrastructure, namely conduits for electric cables. In particular, non-residential buildings with more than 10 parking spaces, whether new or undergoing major renovation, shall be equipped with at least one recharging point for electric vehicles and must be prepared for the subsequent installation of recharging points with the installation of appropriate ducting infrastructure for at least one parking space in five. By January 1, 2025, the member states will also have to set additional requirements for the installation of a minimum number of recharging points for all non-residential buildings with more than 20 parking spaces. Residential buildings with more than 10 parking spaces, whether new or undergoing major renovation, shall install ducting infrastructure for each parking space to enable the installation at a later stage of recharging points for electric vehicles.
The “Clean Mobility” legislative package
In 2018 the European Commission completed its “Clean Mobility” package, which was begun in 2017. The package is organized into three parts, the first two of which were published in 2017 and the third in May 2018. It contains a series of legislative proposals and other measures to make traffic safer, reduce CO2 emissions and air pollution, promote the development of zero- and low-emission vehicles and create a production chain for batteries in Europe.
The main measures adopted in the first part are designed Report on operations 121 to encourage the adoption of charging for road use based on distance driven (tolls) to best reflect actual use, emissions and pollution produced by vehicles. More specifically, the proposal calls for internalizing the external costs deriving from noise and air pollution into tolls in addition to incentives for zero-emission vehicles. The second part of the package includes three primary measures. The first sets CO2 emissions standards for new cars and vans as at 2025 and 2030. The second, a proposed review of the Clean Vehicles Directive (Directive 2009/33/ EC), provides a clear definition of “clean vehicle” (based on combined pollution and CO2 emission thresholds) and aims to promote clean mobility solutions in public procurement tenders using a system of procurement targets for the member states, thereby providing a solid boost to the demand for and to the further deployment of clean mobility solutions.
Finally, two main initiatives have emerged with the third and final part of the package. The first sets CO2 emissions standard for new heavy vehicles as at 2025 and 2030 and provides for a review of the regulation to be conducted in 2022, which will extend the scope of application of the standards to other categories of heavy vehicles, including buses.
The second initiative provides for an action plan for batteries in order to ensure access to a sustainable supply of raw materials through the use of European resources (including those from recycling) and appropriate trade agreements with other countries, to support the growth of European battery production and to accelerate the creation of the enabling regulatory framework (e.g. rapid adoption of market design legislation, CO2 standards for vehicles).
Starting with the presentation of the first package in 2017, the European Parliament and European Council have worked on a number of dossiers to arrive at a common position on the Commission’s proposals. On December 17, 2018 a political agreement was reached on the dossier for the CO2 emission standards for new cars and light commercial vehicles. The final agreement calls for cutting CO2 emissions for new cars by 15% by 2025 from the 2021 level of 37.5% for new cars, and a 31% reduction for new vans by 2030. It also envisages an incentive mechanism to accelerate the transition for zero- and low-emission vehicles.
In 2019, trilogue meetings between the European Parliament, European Council and European Commission will be held to prepare the final text of the other legislative actions contained in the three packages that had not been finalized in 2018.
The Italian regulatory framework
The current structure of the Italian electricity market is the result of the liberalization process begun in 1992 with Directive 1992/96/EC, transposed into law with Legislative Decree 79/1999. This decree provided for: the liberalization of electricity generation and sale; reserving transmission and ancillary services to an independent network operator; the granting of concessions for distribution to Enel and other companies run by local governments; the unbundling of network services from other activities.
The introduction of Directives 2003/54/EC and 2009/72/ EC (transposed with Law 125/2007 and Legislative Decree 93/2011, respectively) in Italy lent further impetus to the process, particularly through the complete opening of the retail market and the confirmation of the total independence of the national transmission network operator (already provided for in the decree of the Prime Minister of May 11, 2004) by separating its ownership from that of other electricity operators.
The process of liberalizing the natural gas market began with Directive 1998/30/EC, transposed in Italy through Legislative Decree 164/2000, calling for the liberalization of the import, production and sale of gas and the separation of network infrastructure management from other activities through the establishment of distinct companies. As regards the model for unbundling transport from other non-network activities, with Resolution 515/2013/R/ gas, the Authority for Electricity, Gas and Water System (AEEGSI, since 2018 it has become the Regulatory Authority for Energy, Networks and the Environment - ARERA) mandated the transition to ownership unbundling pursuant to Directive 2009/73/EC.
With the decree of November 10, 2017, the Ministers of the Environment and of Economic Development adopted the 2017 National Energy Strategy. The document, in line with the European Energy Union Plan and the Energy Roadmap 2050, establishes the development targets for the energy sector by 2030 in terms of competitiveness, sustainability, the environment and procurement security. In light of the agreements reached at European level regarding the Clean Energy Package, the national targets may also be revised. The new targets will be proposed to the European Commission through the integrated national energy and climate plan, which will be finalized in 2019.
Wholesale electricity generation and market
Wholesale electricity generation and market
Electricity generation was completely liberalized in 1999 with Legislative Decree 79/1999 and can be performed by anyone possessing a specific permit.
The electricity generated can be sold wholesale on the organized spot market (IPEX), managed by the Energy Markets Operator (GME), and through organized and overthe-counter platforms for trading forward contracts. The organized platform includes the Forward Electricity Market (MTE), managed by the GME, in which forward electricity contracts with physical delivery are traded. Trading can also be conducted in derivatives with electricity as their underlying. The organized market for such transactions is the forward market (IDEX), operated by Borsa Italiana, while financial derivatives can also be negotiated on OTC platforms. Generators may also sell electricity to companies engaged in energy trading and to wholesalers that buy electricity for resale at retail.
In addition, for the purposes of the provision of dispatching services, which is the efficient management of the flow of electricity on the grid to ensure that deliveries and withdrawals are balanced, electricity generated may be sold on a dedicated market, the Ancillary Services Market (MSD), where Terna procures the required resources from generators.
Dispatching services are usually procured on the spot market, but Terna has the right to procure services on the forward market, subject to ARERA’s prior approval. ARERA and the Ministry for Economic Development (MED) are responsible for regulating the electricity market.
With regard to dispatching services, ARERA has adopted a number of measures regulating plants essential to the security of the electricity system. These plants are deemed essential based on their geographical location, their technical features and their importance to the solution of certain critical grid issues by Terna. In exchange for being required to have electricity available and providing binding offers, these plants receive special remuneration determined by ARERA.
As for the cost reimbursement scheme for essential generation units, ARERA has approved the following Enel Produzione plants: Brindisi Sud, for 2018 and for the 2019- 2020 period, Sulcis for the 2019-2020 period, and Assemini and Portoferraio for the 2019-2020 period.
Enel Produzione’s Porto Empedocle plant has instead been included in the multi-year cost reimbursement system until 2025.
The remaining capacity is subject to alternative contracts as essential plants. In addition, to cut natural gas consumption in the thermoelectric sector in gas emergency situations and to ensure secure supplies of electricity, Article 38-bis of Decree Law 83/2012 authorized MED to identify plants that can be powered by fuel oil and fuels other than gas, thereby ensuring their availability to be called into service as a matter of urgency. These plants, deemed “units essential for the security of the gas system”, in exchange for the service provided, receive a cost reimbursement fee based on the regulations set by ARERA. The MED made recourse to these units for gas years 2012-2013 and 2013-2014. However, with Resolution 113/2018/R/eel, ARERA rejected the request for reimbursement for the 2013-2014 gas year submitted by Enel Produzione in 2016 and set out the new criteria for determining the cost reimbursement fee for that gas year. Enel Produzione then requested reimbursement under the new rules and also filed an appeal against the resolution with the Regional Administrative Court of Milan. Since the launch of the market in 2004, the regulations have provided for a form of administered compensation for generation capacity.
In particular, plants that make their capacity available for certain periods of the year identified in advance by the grid operator to ensure the secure operation of the national electricity system receive a special fee.
In August 2011, ARERA published Resolution ARG/elt 98/11, which establishes the criteria for introducing a market mechanism for compensating generation capacity (capacity market), replacing the current administered reimbursement. This mechanism involves holding auctions through which Terna will purchase from generators the capacity required to ensure that the electricity system is adequately supplied in the coming years.
With a decree of the Minister for Economic Development of June 30, 2014, the capacity market operational mechanism previously issued for consultation by the Authority for Electricity, Gas and Water System was approved.
The mechanism is based on the allotment, by auction, of option contracts (reliability options) that provide for payment of a premium, established in the auction with the Report on operations 123 setting of a marginal price, against which a generator undertakes to return any positive difference between the price formed on the spot electricity and ancillary services market and a benchmark price set ex ante in the option contract.
The rules approved provide for a cap of the premium to be paid for existing capacity and for newly constructed capacity.
On February 7, 2018 the European Commission announced that Italy’s capacity market is compliant with the guidelines on state aid for environmental protection and energy, however it proposed some adjustments, which were subsequently made with Resolution 261/2018/R/eel. In addition to adjusting its rules to the commitments made by Italy to the European Commission, in that resolution ARERA made further changes based on previous consultations.
The MED has yet to adopt the decree approving the scheme. Within the context of its power to procure dispatching services on the forward market as provided by Resolution 111/2006, ARERA, with Resolution 326/2016/R/eel, charged Terna with conducting the competitive tender for assigning contracts for the supply of replacement tertiary reserves in Sardinia for the period from July 1, 2016 to December 31, 2018. The contracts awarded by Terna establish a requirement to supply the Ancillary Services Market (MSD) at the variable cost paid to the plant for a premium established in the competitive tender.
Following the tender, all of the capacity was contracted with Enel’s Sulcis plant.
Following ARERA’s Resolution 342/2016/E/eel, on October 6, 2016 the Competition Authority began an enquiry involving Enel SpA and Enel Produzione SpA to determine the existence of a possible abuse of a dominant position in the MSD of the Brindisi Sud plant, which concluded in May 2017 with the acceptance of the commitments proposed by Enel SpA and Enel Produzione without the imposition of sanctions. More specifically, the commitments consist of the introduction, for the years 2017-2019, of a cap on total annual revenue that can be generated by the Brindisi Sud plant, net of variable costs paid under current regulations.
The cap will also apply in the event the plant is included under the cost reimbursement system pursuant to Resolution 111/2006.
Through Resolution 314/2017/R/eel, ARERA also provided that, with regard to the commitments made by Enel Produzione as part of the proceedings, any amounts exceeding the caps for the plant for the 2017-2019 period will be transferred to Terna. With Resolution 319/2018/R/eel, ARERA changed the parameters involved in the determination of the variable cost recognized for the generation units of the Brindisi Sud plant for the remainder of 2018.
Resolutions 314/2017/R/eel and 928/2017/R/eel, which approved the admission of the Brindisi plant to the cost reimbursement system for years 2017 and 2018, was challenged by another operator before the Regional Administrative Court of Milan (Enel Produzione intervened in the case to defend the legality of these resolutions). The hearing was held on October 10, 2018 and the Court has yet to issue its decision.
With Resolution 422/2018/R/eel, ARERA approved the scheme proposed by Terna under Resolution 300/2017/R/ eel to allow aggregate virtual mixed units (AVMU, composed of generation units that do not require approval and consumption units) to participate in the dispatching market
The extraction, import (from EU countries) and export of natural gas have been liberalized. According to the provisions of Legislative Decree 130/2010, operators are permitted to hold market shares of up to 55% of domestic consumption.
The spot trading platform (the “Gas Exchange”) began operation in 2010 and ARERA established the balancing market in 2011. The forward market later completed the structure of the Italian wholesale market, joining the Gas Exchange.
As for the balancing market, ARERA, implementing Commission Regulation 2014/312/EU, redefined, starting from 2016, the rules for its functioning, in order to boost the availability of flexible resources to balance the system and improve the set of information for users.
In 2017 the Ministry for Economic Development (MED) indicated that, starting from 2018, the figure of market maker would be introduced in markets organized by the Energy Markets Operator (GME). In 2018 Enel Global Trading SpA was added to the list of operators that act as market makers.
Transportation, storage and regasification
Transport, storage and regasification (of LNG) are subject to regulation by ARERA, which sets the rate criteria for engaging in these activities at the start of each regulatory period.
Storage is carried out under a concession issued by the MED to applicants that satisfy the requirements of Legislative Decree 164/2000. Each year, the MED issues a decree establishing the criteria for allocating capacity through an auction mechanism. LNG activities are subject to the grant of a special ministerial permit to ensure third-party access (TPA). The MED may grant an exemption from the TPA rules. As for regasification, in 2017 ARERA envisaged replacing the rate-based method for allocating capacity with a system of auctions starting in 2018. Transport activities, defined by regulatory criteria for rate periods, continue to be subject to fees updated annually by ARERA. In 2017 it extended, with a few corrective measures, the rate criteria for 2014-2017 to 2018-2019, which were challenged by Enel Trade consistent with previous disputes, still pending, regarding the 2010-2013 and 2014-2017 periods.
In particular, with regard to the gas transport rates for the 2010-2013 period, with ruling 1840 of March 23, 2018, the Council of State found that Resolution 550/2016/R/gas, with which ARERA recalculated the rates for that regulatory period, was compliant with the rulings of the Regional Administrative Court and the Council of State in the associated judgment on the merits. Enel Trade, exercising the option recognized by the Council of State, appealed the aforementioned resolution before the Milan Regional Administrative Court, claiming that it was illegitimate for reasons other than violation of the ruling.
Distribution and metering
e-distribuzione provides distribution and metering services under a 30-year concession set to expire in 2030. The general criteria for the regulation of distribution rates are set by ARERA at the start of each regulatory period based on covering the cost of providing the services, including operating costs, depreciation and providing an appropriate net return on capital.
The rate component covering operating costs, established at the start of the regulatory period based on the most recent final costs available, is updated annually using a pricecap mechanism, taking account of the inflation rate and an annual rate of reduction of unit costs (called the X-factor), to restore any efficiency gains achieved by operators in previous regulatory periods. The return-on-capital and depreciation components are instead updated each year to take account of new investments, depreciation incorporated in rates and the revaluation of existing assets using the deflator for gross fixed capital formation.
Based on the recognized costs, each year ARERA authorizes for each distributor a level of annual revenue (“permitted revenue”) by setting reference rates that are different for each company. This revenue is not dependent upon volumes distributed owing to the equalization mechanisms, managed by the Energy and Environmental Services Fund, which compensates operators for any differences between permitted revenue and actual revenue received from invoicing sellers, based on the mandatory rates set by ARERA at national level.
The rate for the fifth regulatory period (2016-2023) is covered by ARERA Resolution 654/2015/R/eel. This period lasts eight years and is divided into two sub-periods of four years each (NPR1 for 2016-2019 and NPR2 for 2020-2023). The regulatory framework for NPR1 is basically a continuation of the past, although with some new features, including shortening the “regulatory lag” from two years to one for the period before remuneration for new investments is recognized and lengthening by five years the useful life of medium- and low- voltage lines that have entered into service since 2008.
For the NPR2 period instead, ARERA proposed an eventual transition to rate regulation based on the no longer distinct recognition of operating costs and investment (the Totex method). ARERA has not yet established the schedule and manner of implementation for this new method.
The criteria for setting WACC for electricity and gas infrastructure services were set by ARERA with Resolution 583/2015/R/com for the 2016-2021 period, with an update at the end of 2018 to take account of economic trends.
The real pre-tax WACC for electricity distribution for the 2016-2018 period was 5.6%. This amount was updated to 5.9% for 2019-2021 by Resolution 639/2018/R/com.
As for distribution and metering rates, in 2018 ARERA approved both the definitive reference rates for 2017, calculated by taking into account the actual balance sheet data Report on operations 125 for 2016 (Resolutions 150/2018/R/eel and 174/2018/R/eel), and the provisional reference rates for 2018 on the basis of the preliminary balance sheet data for 2017 (Resolutions 175/2018/R/eel and 176/2018/R/eel). The definitive reference rates for 2018 are expected to be published by February 28, 2019 on the basis of actual balance sheet data communicated to ARERA at the end of 2017.
With regard to second generation smart metering systems, with Resolution 222/2017/R/eel, ARERA approved edistribuzione’s plan for placing the meters in service during the 2017-2031 period and established the standard cost based on which the efficiency incentives will be calculated.
Resolution 646/2016/R/eel guarantees that the metering service rates for end users will remain unchanged.
ARERA also issued specific measures to establish the regulatory framework to accompany the various implementation phases of the plan with reference, for example, to required disclosures to end users, making the metering data available to the Integrated Information System (IIS) and to transport users, and to the transition to hourly delivery for the purposes of settlement of services provided using the new meters.
As regards service quality, ARERA, with Resolution 646/2015/R/eel as amended, established output-based regulation for electricity distribution and metering services, including the principles for regulation for 2016-2023 (TIQE 2016-2023) and authorized the start of trials to test some of the advanced management functions for the distribution grid.
With regard to increasing the resilience of the electricity transmission and distribution networks, with Resolution 31/2018/R/eel, ARERA updated the TIQE, ordering the distribution companies to prepare their resilience plans with a horizon of at least three years and to integrate these plans into a specific section of their development plans. All the measures identified by the distribution companies must be aimed at containing the risk of disruption associated with the main critical factors that may impact their networks. This provision supplements the measures already introduced with Resolution 127/2017/R/eel, which extended to 72 hours the time limit beyond which automatic compensation to users of power grids for prolonged interruptions shall be borne entirely by the grid operators.
Finally, with Resolution 668/2018/R/eel, ARERA established an incentive mechanism for measures to increase resilience, which will apply starting from the next 2019- 2021 Resilience Plan to 2024, for “high-risk” measures (“eligible” measures). The “eligible” measures whose benefits exceed the costs can receive rewards or be subject to penalties, while “eligible” measures that have benefits that are less than the costs will only be subject to penalties. There is, however, the possibility to fully eliminate the effects of the penalties if in the span of the three-year plan period measures are carried out that involve at least 90% of the customers that can take advantage of “eligible” measures. ARERA also – following future consultations – will introduce regulatory mechanisms that offer incentives for quickly restoring the normal operation of the distribution network following exceptional weather events.
With Resolution 377/2015/R/eel, ARERA completed the regulatory framework governing losses on the distribution grid, providing for new conventional loss percentages for deliveries to and withdrawals from the grid to be applied starting in 2016. With Resolution 677/2018/R/eel, ARERA confirmed the percentages for 2019 and at the same time initiated the process to complete the regulatory framework governing losses, particularly regarding the equalization mechanism for distributors.
With Resolution 268/2015/R/eel, ARERA established the Model Grid Code for transport services, which governs the relationship between sellers and distributors concerning the guarantees given by sellers to distributors, the payment terms for the transport service and the terms of payment of the system costs and other components by distributors to the Energy and Environmental Services Fund and the Energy Services Operator (GSE). The resolution also provided for the elimination starting from 2016 of the uncollectible portions of turnover withheld by distributors as a result of the strengthening of the system of guarantees.
As regards the calculation of the transport service guarantees, a number of different administrative court decisions handed down between May 2016 and November 2017 voided ARERA’s provisions requiring the inclusion of guarantees to cover system charges if not paid by end users in transport contracts between distributors and sellers. 126 Annual Report 2018 e-distribuzione decided to challenge the last ruling by the Council of State (Section VI, ruling 5620/2017) before the Court of Cassation, where the proceeding is pending.
In accordance with these decisions, Resolution 109/2017/R/ eel established a temporary regime involving a 4.9% reduction in the amount of guarantees for system charges to take account in advance of the average arrears of end customers (conservatively set at equal to the unpaid ratio recognized by the Central-South Regions, where the levels of arrears are higher than average). This resolution was appealed by a number of operators and the related proceeding is currently pending before the Milan Regional Administrative Court.
ARERA also issued Resolution 50/2018/R/eel, which introduces a reimbursement mechanism for non-recoverable receivables of distribution companies in respect of the general system charges paid to the Energy and Environmental Services Fund and the Energy Services Operator (GSE) but not collected by defaulting sellers whose transport contract has been terminated. The provision permits the recognition of receivables accrued as from January 2016. This resolution was also challenged by a number of operators and a consumer association, and the related proceeding is pending before the Milan Regional Administrative Court. At present, the Court has issued a decision only with regard to the latter challenge, which was denied.
Given the rise in breaches by sellers with regard to their failure to provide adequate guarantees, with Resolution 655/2018/R/ eel ARERA intervened urgently to amend the Model Grid Code to allow the termination of contracts for transport services for failure to provide guarantees as to level of revenue.
As regards the procedures and financial terms for the connection of generation plants to distribution grids, ARERA, with Resolution 581/2017/R/eel, updated the Integrated Grid Connection Code (TICA) in order to implement the simplification measures provided for in the Ministerial Decree of March 16, 2017 for the connection and operation of micro-generation plants powered by renewables. In addition, following the close of the preliminary inquiry provided for by Resolution 412/2015/E/eel, ARERA with Resolution 564/2018/R/eel further updated the TICA, introducing new rules governing payments for testing conducted by distributors of network plants constructed by generators, recognizing the activities carried out during the testing by the companies and also providing that the estimated payment for testing be adjusted according to the actual activities performed.
As for the regulatory framework for private grids (specifically, closed distribution systems and basic generation and consumption systems), Resolution 276/2017/R/eel updated the relative codes, adopting the provisions of Article 6(9) of Decree Law 244/2016 concerning general system charges. The subsequent Resolution 894/2017/R/eel updated the definition of consumption unit and postponed until June 30, 2018 the deadline for “hidden end users” to declare themselves. In addition, ARERA is continuing its work to rationalize the regulatory framework in the context of the recognition of cases of private networks. With Resolution 530/2018/R/ eel and the subsequent Resolutions 613/2018/R/eel and 680/2018/R/eel, ARERA established the new internal user network (IUN) and other closed distribution systems (OCDS) registers for monitoring “hidden end users”, whose publication is expected by July 1, 2019. With Resolution 628/2018/R/eel, ARERA opened a consultation concerning the regulation of the exchange of data between Terna, distributors and significant grid users - SGU (i.e. generators, closed distribution systems and high-voltage or closed distribution system customers, or customers connected to distribution grids that provide flexibility services). The first phase of the consultation will be completed by March 14, 2019.
Energy efficiency - White certificates
The Energy Efficiency Certificates (EEC or white certificates) mechanism is regulated by the MED along with the Ministry for the Environment. ARERA is required to establish the criteria and the method for covering distributors’ costs for electricity and gas as entities obliged to satisfy the obligation to purchase EECs. Such coverage is guaranteed through the payment of a rate subsidy, the amount of which in €/EEC is set annually by ARERA.
The Interministerial Decree of January 11, 2017 set the new energy efficiency targets for 2017-2020 and the new guidelines for the functioning of the mechanism. The Ministerial Decree of May 10, 2018 amended and updated the Interministerial Decree, introducing, among other things, a cap of €250/ EEC on the rate subsidy for obliged entities.
ARERA Decision 4 of June 22, 2018 set the amount of the definitive rate subsidy for 2017 at €311.45/EEC.
With Resolution 487/2018/R/efr, ARERA updated the rules establishing the rate subsidy under the Decree of May 10, 2018. Enel filed an appeal with the Regional Administrative Court challenging the measures and the corrective decree of May 10, 2018, disputing the provisions that could jeopardize the recovery of the costs incurred in satisfying the efficiency obligations.
Reform of electricity rates
With Resolution 782/2016/R/eel, ARERA fully eliminated, with effect from January 1, 2017, the progressivity of the distribution rate for domestic customers
The resolution provides for the first steps to be taken in 2017 to reduce the effect of progressivity on general system charges. The system charges reform that was expected to be completed by January 1, 2018, with complete elimination of the progressive structure, was extended by ARERA with Resolutions 867/2017/R/eel and 626/2018/R/eel to December 31, 2019.
With Resolution 922/2017/R/eel, ARERA implemented, starting from January 1, 2018, the reform of the structure of the general system costs for non-residential customers provided by Law 21 of February 25, 2016.
As part of the reform of the general system costs for nonresidential customers, ARERA, with Resolution 921/2017/R/ eel, established the implementing provisions for the grant of concessions for energy-intensive companies, as provided by the MED Decree of December 21, 2017, with effect as of January 1, 2018.
As provided for by Directive 2003/54/EC, starting from July 1, 2007 all end users may freely choose their electricity supplier on the free market or participate in regulated markets. Law 125/2007 identified these regulated markets as the “enhanced-protection” market (for residential customers and small businesses with low-voltage connections) and the “safeguard services” market (for larger customers not eligible for enhanced-protection services).
Enhanced-protection service is provided by sellers connected with distributors. Prices are set by ARERA and are updated periodically based on criteria designed to ensure that the operators’ costs are covered.
ARERA updates the component for covering the operators’ costs in the enhanced-protection market (RCV) annually so as to ensure that their operating costs, delinquency charges and amortization and depreciation are covered and that they receive a fair return on capital. Resolutions 927/2017/R/eel and 706/2018/R/eel established rates for 2018 and 2019.
With Resolution 706/2018/R/eel, ARERA also updated as of January 1, 2019 the levels of RCV payments, which represent the reference price of the free market sellers. The RCV levels for 2018 were set by Resolution 633/2016/R/eel.
Free-market operators are awarded contracts to provide safeguard services on a geographical basis through twoyear auctions. For the 2017-2018 period, following the procedure governed by Resolution 538/2016/R/eel, Enel Energia was awarded the areas corresponding to the regions of Liguria, Piedmont, Valle d’Aosta, Trentino-Alto Adige, Lombardy, Lazio, Puglia, Molise and Basilicata. For the 2019-2020 period, following the procedure governed by Resolution 485/2018/R/eel, Enel Energia was awarded the areas corresponding to the regions of Calabria and Sicily. The financial terms applied to end users were defined on the basis of the provision of the applicable primary and secondary legislation.
The annual competition law (Law 124/2017) was approved on August 4, 2017 and was modified by the Decree Law of July 25, 2018; it provided that the electricity and gas sectors of the price protection market would be eliminated as of July 1, 2020. The law gives MED, in consultation with ARERA and the AGCM, the task of establishing the procedures for phasing out the market, ensuring that consumers are kept informed and that there is a range of suppliers.
The law also provides for the creation within the MED of a list of electricity sellers that are authorized to sell electricity on the retail market, having met certain technical, financial and reputational requirements proposed by ARERA.
ARERA, in accordance with the law above, issued Resolution 555/2017/R/com, requiring all sellers to include in their portfolios offers at free market prices with conditions equivalent to those of the protected market (PLACET offers), targeted at households and small businesses starting in early 2018. This was done to make it easier for end users to understand and compare offers and participate in the free market. In addition, to improve understanding of the free market, on July 1, 2018 the offers portal (established by Resolution 51/2018/R/com, as provided by Law 124/2017) became operational. Sellers are required to make available through the portal all offers targeted at households and small businesses, to ensure that they can be compared transparently with other sellers’ offers.
In 2016, ARERA lent significant impetus to the development and implementation of the Integrated Information System (IIS). This system was established under Law 129/2010 and is designed to manage the flow of information between gas and electricity market operators, based upon a central database of withdrawal points.
Through a number of measures ARERA governs various services, gradually centralizing the management of the commercial processes for contract transfer and switching, of the indemnification system and of metering data for both sectors (electricity and gas) and, for the electricity sector only, the aggregation of metering at hourly withdrawal points for the purposes of monthly settlement.
Thanks to the development work carried out, the IIS is increasingly operating as a central hub for the exchange of information among all system operators and for this reason Ministerial Decree 94 of May 13, 2016 designated the IIS as the mechanism for managing the process of billing TV license fees through electricity bills. To cover the costs of managing this process, ARERA Resolution 291/2017/R/ eel established the distribution criteria to be used by the Italian Revenue Agency in calculating and paying sellers in the 2017-2018 period the lump-sum grant under the decree for the years 2016 and 2017 only.
In application of Law 205/2017 (the “Maxi Adjustments Act”, which introduced a two-year period of limitations for electricity, gas and water supply contracts), ARERA issued Resolution 264/2018/R/com establishing for the electricity sector that, in cases of adjustments deriving from multiyear corrections by distributors for which the end user had protested the amount invoiced, the seller may ask the distributor to recalculate the amounts relating to transport, with the consequent restitution of amounts previously paid by offsetting them against other amounts owed.
With regard to the proceedings initiated on May 11, 2017 by the AGCM against Enel SpA, Enel Energia SpA and Servizio Elettrico Nazionale SpA for alleged abuse of dominant position on the retail electricity market for residential and non-residential end users connected to the low voltage grid, please refer to the chapter “Contingent assets and liabilities” in the notes to the financial statements.
Legislative Decree 164/2000 established that, as from January 1, 2003, all customers may freely choose their natural gas supplier on the free market. However, sales companies must also offer a safeguard service to their customers (only for residential customers pursuant to Decree Law 69 of June 21, 2013), together with their own commercial offers, at the regulated prices established by ARERA.
If there is no company supplying this service, the continuity of supply for small customers not in arrears on bill payments (residential and other uses with an annual consumption of less than 50,000 standard cubic meters) and for users involved in providing public services shall be ensured by the supplier of last resort. If the customer is in arrears with bill payments or it is not possible for the supplier of last resort to provide service, supply continuity is ensured by the default distribution supplier selected, like the supplier of last resort, through voluntary tenders for geographically-based contracts.
With Resolution 465/2016/R/gas, ARERA updated the rules governing public tenders for the award of last-resort services for October 1, 2016 - September 30, 2018. Following the competitive procedures, Enel Energia was designated as supplier of last resort for 7 of the 8 areas involved in the auction (Valle d’Aosta, Piedmont and Liguria; Lombardy; Trentino-Alto Adige and Veneto; Tuscany, Umbria and Marche; Abruzzo, Molise, Basilicata and Puglia; Lazio and Campania; Sicily and Calabria) and as default supplier in 3 areas out of 8 (Abruzzo, Molise, Basilicata and Puglia; Lazio and Campania; Sicily and Calabria).
With Resolution 407/2018/R/gas, ARERA updated the rules governing public tenders for the award of last-resort services for October 1, 2018 - September 30, 2019. Following the competitive procedures, Enel Energia was designated as supplier of last resort for 4 of the 9 areas involved in the auction (Abruzzo, Molise, Basilicata and Puglia, Lazio, Campania, Sicily and Calabria) and as default distribution supplier in 2 out of 9 areas (Lombardy, Trentino-Alto Adige and Veneto).
Starting from October 1, 2013, the reform of the financial terms and conditions applied to safeguard customers entered into force. In this situation, ARERA modified the procedures for determining the raw material component, indexing it fully to spot market prices, introduced components to ensure a gradual transition (including one specifically for the renegotiation of long-term contracts) and increased the component covering retail sales costs to enhance cost-reflectivity.
With regard to the raw material (gas) cost component, Report on operations 129 on January 24, 2014, the Regional Administrative Court of Lombardy, in the course of an action brought by Enel Energia and Enel Trade, voided the resolutions by which ARERA changed the formula for determining (and thereby reducing) the QVD component for the 2010-2011 and 2011- 2012 gas years. In 2014, ARERA filed an appeal with the Council of State. In 2016, the Council of State denied the appeal, granting the appeal of Enel Energia and Enel Trade, finding the measures were in conflict with the statutorily established principle of the necessary “correspondence between recognized costs and actual costs”. Resolution 737/2017/R/gas, in accordance with the Council of State’s decision, recalculated the value of the raw material for the October 2010 - September 2012 period. With Resolution 32/2019/R/gas, ARERA established the rules governing the manner of handling the amounts owed to operators. With regard to the definition of the component covering natural gas supply rates, ARERA also confirmed, until September 30, 2019, the current procedures, with full indexing to the spot prices reported on the Dutch Title Transfer Facility (TTF), pending the development of greater liquidity in the Italian wholesale markets.
New regulations for gas settlement were introduced in 2017, providing for the recovery of a share of the costs associated with grid loss for the previous period (2013-2017) and all of the costs for the transition period (2018-2019). With Resolution 548/2018/R/gas, ARERA approved the provisions for the almost complete disbursement, by 2018, of the amounts relating to the results of the first adjustment session (for 2013-2016) due to operators with a credit
A number of operators challenged ARERA’s resolutions and consultations on the adjustment sessions for previous periods and the transition period (2013-2019) before the Lombardy Regional Administrative Court, asking that they be suspended and ultimately annulled. Enel Global Trading has intervened in support of ARERA’s regulation. The Court denied the requests for suspension and has yet to set a date for a hearing on the applications for annulment.
As from January 1, 2020, under the provisions of Resolution 72/2018/R/gas, the new regulations for gas settlement will enter into force, providing for the socialization of network losses that are directly sourced by Snam Rete Gas and allocated in the rate.
With regard to metering, Resolution 669/2018/R/gas raised to 85% the requirement for distributors with more than 50,000 end users to place G4-G6 class smart meters in service; the deadlines for compliance vary based on the number of end users.
In order to enable the application of Law 205/2017 (the “Maxi Adjustments Act”), which introduced a two-year period of limitations on supply contracts, ARERA Resolution 683/2018/R/com extended to the gas sector, starting from January 1, 2019, the regulations already in force in the electricity sector under Resolution 264/2018/R/com.
The regulatory framework for supporting renewable energy technologies in Italy envisages a range of remuneration systems. Incentives for technologies other than photovoltaic are awarded through competitive procedures established with Legislative Decree 28/2011, transposing Directive 2009/28/EC, and the associated implementing ministerial decrees of July 6, 2012 and June 23, 2016. The decrees envisage the use of Dutch auctions and feed-in tariffs, based on the installed capacity and technology. Specifically:
- dutch auctions for plants with capacity of over 5 MW;
- registries for plants with capacity of less than 5 MW;
- direct access for wind plants with capacity of less than 60 kW, biomass plants of less than 200 kW and hydroelectric plants of less than 250 kW.
The above incentive mechanisms will terminate when the indicative cumulative annual cost of the incentives reaches €5.8 billion. At November 30, 2018, the indicative cumulative annual cost was about €4.7 billion.
With regard to solar generation, the incentive system provided for the application of a number of Energy Accounts, of which Accounts I, II, III and IV (from September 19, 2005 to August 26, 2012) were based on a feed-in premium (a rate premium over the hourly zonal price), while Energy Account V (from August 27, 2012) was based on a feed-in tariff (comprehensive price) and was terminated once a cost of €6.7 billion was reached on July 6, 2013.
In March 2018, the new draft decree on all renewables from mature technology was issued; MED still has to notify it to the European Commission for approval in accordance with the state aid guidelines.
Under the decree, the development of renewable resources will be supported through Dutch auctions and registries (for plants of less than 1 MW), assigned through two-way contracts for differences.
ARERA Resolution 558/2018 - Remuneration of renewable energy plants for non-interconnected minor island
The February 14, 2017 decree of the MED gave instructions for gradually covering the electricity needs of the non-interconnected minor islands with renewable energy. The decree envisages remuneration for energy generated from renewable resources related to the cost of the fuel avoided and the launch of pilot projects to integrate renewable resources in the electricity systems of those islands.
On December 22, 2018, Order TEC/1366/2018 was published, establishing the electricity access rates for 2019, leaving them unchanged from the existing rates as it did the year before. This order suspended the incentives available under Order ITC/3127/2011 until the capacity mechanisms for adapting to European law and therefore to the energy transition process are reviewed.
Natural gas rates
Order ETU/1283/2017 of December 22, 2018 confirmed the natural gas access rates for 2018, unchanged from the previous year. It also raised the final rates of last resort (TURs) by 5% owing to the increase in the price of raw materials.
On June 30, 2018, the TURs for the 3rd Quarter of 2018 were published, increasing by 3.4%. For the 4th Quarter of 2018, the TURs were raised by a further 7.4% compared with the previous period, as a result of the increase in raw material costs.
On December 22, 2018, Order TEC/1367/2018 was published, establishing the natural gas access rates for 2019, leaving them unchanged from the existing rates. Instead, on December 26 the final TURs as of January 1, 2019 were published, lower on average by about 4% compared with the previous period because of the decline in the cost of raw materials.
Law 18/2014 of October 15, 2014 containing urgent measures for growth, competition and efficiency created a National Energy Efficiency Fund to help achieve energy efficiency objectives.
Order ETU/257/2018 of March 16, 2018 set Endesa’s contribution to the National Energy Efficiency Fund at €29 million, corresponding to the energy savings obligations for 2018.
In December the Ministry for Ecological Transition initiated the process of drafting the law that sets Endesa’s contribution to the National Energy Efficiency Fund for 2019, setting it at €28 million.
Social Discount (“bono social”)
On April 9, 2018 Order ETU/381/2018 was published. It modifies the forms used to apply for the “bono social”, which were established with Order ETU/943/2017 of October 6, 2017. Order ETU/381/2018 extends until October 8, 2018 the temporary deadline for accrediting electricity users qualified as vulnerable under Royal Decree 897/2017 who are already beneficiaries of the “bono social”.
Order TEC/1226/2018 was published on November 21, 2018 in the Official State Gazette (BOE), laying out the percentage contributions for funding the 2018 “bono social”; Endesa’s share is 37.15%.
Public consultation of the National Commission on Markets and Competition (CNMC) on the rate of return for regulated activities
On July 27, 2018 the Spanish National Commission on Markets and Competition (CNMC) opened a public consultation on the method for calculating the rate of return for the 2020-2025 period for distribution and transmission activities and for the extra-peninsular electricity system and renewables system. Subsequently, CNMC issued a report on October 30, 2018 in which it proposed a return of 5.58% for distribution, transmission and extra-peninsular systems, and 7.09% for renewables.
Based on this report, on December 28 the Ministry for Ecological Transition presented a draft law containing these rates of return for the 2020-2025 period. However, for renewable installations benefitting from incentives prior to Royal Decree Law 9/2013, the return cannot be revised during the 2020-2031 period, but rather the current rate of 7.389% will apply, while they can deduct indemnities awarded in arbitra- Report on operations 131 tion already concluded. The installations, however, can opt out of this regime and adopt the general scheme.
Following the presentation of the draft law, the government approved Royal Decree Law 1/2019, laying out in detail the determination of the rate of return.
Law 6/2018 of July 3, 2018 on the State budget
Law 6/2018 concerning the 2018 State budget was published on July 4, 2018. Among other things, for 2018 the budget law contemplates allocating the surplus revenue of the electricity system to paying indemnities for resolving disputes in the sector. At the same time this surplus can be allocated for an unspecified period of time to pay down the debt of the electricity sector or, alternatively, it can be used towards paying the system’s regular liquidation items. In addition, this law contains a provision whereby there is no longer need for a decision on the compatibility of investments in extra-peninsular installations with EU or national legislation, provided that the installations are necessary to ensure an efficient supply
Order TEC/1158/2018 of October 29, 2018, assigning the additional remuneration scheme to certain installations in the extra-peninsular systems
In accordance with Law 6/2018 and given the need for capacity in each extra-peninsular system identified by the System Operator (REE) in its reports, Order TEC/1158/2018 of October 29, 2018 was published, assigning an additional remuneration scheme to certain installations in Gran Canaria, Tenerife and Menorca, based on the investment that must be made in compliance with applicable environmental regulations.
Royal Decree 1048/2018 of August 24, 2018, on the electricity system deficit for 2013
On September 1, 2018, Royal Decree 1048/2018 was published, changing the method for calculating the interest to be paid on the financing for the 2013 rate deficit, such that this interest is calculated starting from when the corresponding payments are made, and not just starting from January 1 of the following year.
The total amount to the paid to the agents that financed the 2013 rate deficit has been raised to €15 million, of which €7 million to Endesa. The Royal Decree establishes that this method be used for any deficit that arises in the future.
Royal Decree Law 15/2018 of October 5, 2018, containing urgent measures on energy transition and consumer protection
On October 5, 2018, the Council of Ministers approved Royal Decree Law 15/2018, establishing a set of measures to accelerate decarbonization, giving momentum to renewables, e-mobility and energy efficiency and ensuring greater protection for consumers.
The first block contains measures for protecting vulnerable consumers, in particular it expands the pool of those eligible for the “bono social”, including single-parent households or those with a large number of dependents who are below certain income thresholds. In addition, it broadens the number of cases in which service cannot be suspended for delinquent payments, with means of funding analogous to those for the “bono social”. Furthermore, it introduces a “thermal” “bono social” for heating costs, which will be funded through the State budget.
This Royal Decree Law calls for a national strategy to battle energy poverty to be approved within six months. On December 19 the Ministry opened a public consultation on this issue.
The second block of measures aims to give consumers more options, for example by increasing the flexibility on choosing contracted capacity.
A third block of measures seeks to boost self-consumption, simplifying access to it and making collective selfconsumption possible, and eliminating the application of the rates on self-consumption generated by renewables, cogeneration or waste. Measures were also introduced to simplify the bureaucracy, especially for small installations.
The fourth block of measures aims to increase the penetration of renewables and e-mobility. They extend until March 31, 2020 the licenses for entry into service of renewable capacity awarded before Law 24/2013, which would have otherwise expired on December 31, 2018. With regard to e-mobility, it eliminates the gestor de carga, or e-mobility manager, to make it easier to develop e-mobility services.
Finally, the Royal Decree Law contains fiscal measures, which, for example, suspend the tax on the value of production for electricity for the 4th Quarter of 2018 and 1st Quarter of 2019, and it eliminates the special tax on hydro- 132 Annual Report 2018 carbons for electricity generation. To ensure in all cases that the system is sustainable, the higher revenue from the CO2 emission rights auctions will be used, as will the accumulated surpluses of the electricity system. Royal Decree Law 15/2018 was ratified on October 18, 2018 by the Congress of the Deputies.
Order TEC/1380/2018 of December 20, 2018, establishing the basis for granting aid to renewable installations
On December 25, 2018, Order TEC/1380/2018 was published, establishing the basis for granting aid for investment in extra-peninsular wind and photovoltaic plants, co-funded by the European Regional Development Fund (ERDF).
On December 27, 2018, the Spanish Institute for Energy Diversification and Saving (IDAE) approved a resolution to hold auctions to grant aid for investment in wind plants in the Canary Islands with a budget of €80 million for a maximum capacity of 217 MW.
Royal Decree Law 20/2018 of December 7, 2018, containing urgent measures for financial competitiveness in industrial and commercial sectors in Spain
This Royal Decree Law, published on December 8, 2018 in the Official State Gazette (BOE), seeks to stimulate competition in the industrial sector through actions that include reducing the cost of energy. Specifically, the Royal Decree Law introduces closed distribution systems, which already exist under EU law, and announces that a statute will be drawn up for energy-intensive industrial customers that takes into account their special needs. This law also calls for extending by two years the life of certain high-efficiency cogeneration plants.
Urgent measures to bring the powers of the Spanish National Commission on Markets and Competition (CNMC) in line with EU law
Royal Decree Law 1/2019 was published on January 12, 2019, with the purpose of bringing the powers of the national regulator (CNMC) into line with the prerogatives laid down in EU law, specifically the Third Energy Package of 2009.
Under the Royal Decree Law, the CNMC is responsible for approving the structure, method and concrete values of the rates for accessing the electricity and natural gas transmission and distribution grids and LNG facilities, and the rates of return for grid operators and electricity and gas system operators, up to the maximum limits set by the government.
As for distribution and transmission, the maximum limits set by the government refer to the average rates of returns on 10-year government bonds over the last 24 months, plus a spread. Instead, regarding extra-peninsular generation, the regulated rate of return will be set directly by the government, still based on the return on 10-year government bonds.
The Ministry for Ecological Transition will also approve a series of energy policy guidelines that the CNMC must follow, regarding matters such as energy supply security, the economic and financial sustainability of the system, the battle against climate change, the management of demand and rational energy use. The Ministry will have one month to approve CNMC’s circulars and can seek the assistance of a cooperation committee to resolve any differences. The CNMC’s new functions will take effect starting January 1, 2020.
In the 2017 renewable energy auctions, Enel Green Power España was awarded 540 MW of wind energy and 338 MW of photovoltaic power. The auction rules established dates before which the possible projects had to be specified, indicating 50% more than the capacity allocated, through which the capacity would be developed. These dates were February 4 and April 13, 2018, respectively. Enel Green Power identified the projects by these deadlines.
After conducting a public consultation in 2017 on new regulations for access and connection to networks, at the end of the 1st Half of 2018, the government started the procedures for the approval of the regulation.
Since the beginning of June, after the no-confidence vote of the People’s Party, Spain has a new government. During June, the new government focused mainly on organization without taking any action relevant to the renewables business in Spain.
At the start of October, the Spanish government published a Royal Decree Law setting out a variety of measures for the electricity sector, including: protection for the most vulnerable consumers; measures for the financial stability of the electricity system; measures to facilitate self-consumption of electricity; measures for installing charging stations and for renewable.
Specifically, regarding renewables, the Royal Decree Law contains measures to extend the period of validity of access licenses and grid connections of some projects from past auctions. It also includes measures to stop speculation with grid connection points for new-generation renewables. It also includes measures to facilitate demand for new connection points for renewables at substations that have no difficulties with expansion. Finally, it also exempts generators from paying the rate on the value of production under Law 15/2012 (7%). The extension applies to the three final months of 2018 and the first three months of 2019.
In the 2nd Half of 2018, the government began the process of reviewing the reasonable rate of return for renewables for 2020-2025. CNMC presented its proposal and, based on it, the government began to draw up a preliminary draft law, which should become law in 2019.
Furthermore, in the 2nd Half of 2018, the government worked on drafting the Integrated National Energy and Climate Plan. However, on December 31, 2018 the draft had not yet been submitted to the European Commission. The government has, in various public acts, stated parts of its target for the penetration of renewables in Spain by 2030 with respect to the total percentages for Europe.
In addition, the government is working on a number of proposals on energy transition, but nothing had been formalized as of the end of 2018.
Europe and EuroMediterranean Affairs
Electricity and capacity market
On May 18, 2018, the presidential decree concerning the achievement of the national economic development targets by 2024 was published. The decree calls for the government to approve by October 1, 2018 an infrastructure development plan that ensures the supply of electricity throughout the country. The main points of the decree concern:
- the development of centralized electricity systems, including the modernization of thermal, hydroelectric and nuclear power generation on the basis of the demand created through socio-economic development;
- the development of distributed generation including renewable sources, mainly in distant and isolated regions;
- the digitalization and the introduction of smart systems for grid management.
The draft decree concerning incentive schemes for modernizing and modifying the capacity market rules was completed on December 14, 2018, agreed between the ministries and approved by the Deputy Prime Minister for Energy. The signature of the Prime Minister and the official publication are expected to occur at the end of January 2019.
The implementing decrees for holding the capacity market auctions were adopted by the Market Committee and will enter into force as of the date of issue of the decree.
The first auction, for projects intended to enter into service in 2022-2024, is scheduled to be held by March 1, 2019, before the long-term capacity auction (KOM 2022-24). The main conditions of the auction are:
- definition of maximum volumes (2.4 GW for 2022, 3.2 GW from 2023 onward) and approval of the CAPEX ceilings based on the types of modernization projects by the government (based on installed capacity and type of fuel);
- selection of projects on the basis of the minimum levelized cost of energy (LCOE); the pre-qualification and localization requirements apply 100%;
- conditions for capacity-supply contracts (DPMs): payment guaranteed for 16 years with prices such to ensure the repayment of CAPEX and OPEX costs with a fixed return (base WACC = 14%) linked to long-term government securities (base return of 8.5%). For the first 12 months that a plant enters into service, only repayment of OPEX is envisaged. The return will be revised after the first auction based on analysis of the impact of the final rates.
n addition to incentives for modernizing plants, changes were made to the normal procedures for capacity market auctions:
- selection of 6-year projects. A tender for capacity for the 2022, 2023 and 2024 will be held by May 1, 2019 and a tender for capacity for year 2025 by November 15, 2019;
- indexing of the parameters of the demand curve set in 2017 based on the CPI (2017, 2018) + 15% for 2022 and 2023; CPI (2017, 2018) + 20% for 2024 and 2025; starting 2020 only annual indexing based on the CPI.
On December 27, 2018, Federal Law 522-FZ was published regarding smart meters. The law requires that smart meters be installed starting June 1, 2020 in public building by “guaranteed” suppliers and for other consumers by distribution system operators (DSOs). According to the law, the costs of replacing obsolete meters will be included in the rates charged by the guaranteed suppliers and by the DSOs.
Supplier of last resort
Beginning on July 1, 2018, Enel Energia and Enel Energie Muntenia have been appointed obligated suppliers for Enel distribution areas. Enel Energie Muntenia was appointed by regulator ANRE as an alternative supplier for the other five distribution areas. New maximum prices have been approved for universal service, with an average increase of 3% at the national level compared with the prices valid for the 1st Half of the year
In June 2018, amendments to the Energy Act were introduced. By January 1, 2024, smart meters will be installed for prosumers and customers with consumption levels above a threshold to be set by ANRE. In October 2018 ANRE published the method for the full roll-out through 2028, enabling distributors to draw up detailed investment plans.
The criteria for the approval of the roll-out plans are based on the results of the smart metering pilot projects conducted in 2014-2016 and on the investments made in 2017-2018, as well as the ratio between the economic value of the smart metering projects and the total annual investment plan of the distributors. ANRE will publish the calendar for the rollout for each distributor and will modify it annually. By April 30 of each year, it will also publish a report on the status of the smart metering implementation as at December 31 of the preceding year.
Distribution rates - 4th regulatory period
In September 2018, ANRE published the method for calculating the distribution rates for the 4th regulatory period (2019- 2023). During the first year of the period, the distribution rates were raised by 1% on average nationally, in nominal terms.
The main differences compared with the rules for the preceding period are:
- the rate of return of the regulatory asset base (RAB) was lowered from 7.7% to 5.66% (6.66% for new investments);
- assets no longer in use or shared with other business activities beyond that of distribution have been reduced by the starting RAB;
- personnel and security costs are taken out of the incentive mechanism for operating costs, and therefore are treated as a clearing entry;
- it sets a ceiling of 5% on the efficiencies achievable by distributors, net of the personnel costs above;
- all costs are adjusted annually and not at the end of the regulatory period.
In June, Parliament approved GEO 24/2017, which amends the regulations governing renewable resources.
The main changes include:
- the value of green certificates financed by end users increases from €11.1/MWh to €12.5/MWh from 2022 and can subsequently be further amended by the regulatory authority;
- green certificates contracted on the spot market for the same price will be transferred by sellers on a prorated basis in accordance with demand;
- without prejudice to bilateral green certificate transfer contracts concluded before April 2017, at least 50% of green certificates must be purchased by the obligated parties on the anonymous spot market;
- generators with plants of up to 3 MW can only conclude bilateral contracts for the sale of power and/or green certificates with final sellers;
- generators will be able to aggregate their output in order to participate in the electricity market;
- renewable energy stored in battery systems will be eligible for green certificates.
Under the same legislation, renewables generators with an installed capacity of up to 27 kW are entitled to offset electricity generated with that purchased from their supplier. The sale price shall be equal to the weighted average of the spot prices for the previous year, i.e. to RON 22.7 bani/kWh for 2018. Generators are exempt from taxation of the power generated.
Government Emergency Order 114 of December 28, 2018 introduced:
- an increase in the annual tax on energy companies, raising it from 0.1% to 2% of the previous year’s revenue;
- the mandatory sale of a portion of the electricity generated on the regulated market for households.
In addition, a change in the national tax regulations requires that wind towers be considered buildings and as such are subject to a tax of up to 1.3% of their value starting in 2019.
On November 15, 2018, the General Court of the European Union annulled the European Commission’s decision of July 23, 2014 that authorized the aid scheme for the electricity capacity market in the United Kingdom. According to the Court, the Commission should have had doubts as to the compatibility of the UK’s measure with EU rules and, therefore, it should have initiated the formal investigation procedure in order to allow interested parties to submit their observations.
As a result of the annulment, the European Commission plans to initiate the investigation required by the Court and must carry out a new assessment of the English measure in light of any observations that may be proposed by interested operators.
From January 1, 2017 new renewables capacity must participate in public auctions to access the support mechanism based on a “feed-in premium” system. The first two auctions held in 2018 (July and December) are part of the plan to develop additional wind and photovoltaic capacity for a total of 2.6 GW between 2018 and 2020. The total capacity awarded in 2018 was 331 MW of wind capacity and 169 MW of photovoltaic capacity.
In October 2018 the Ministry of Environment, Energy and Climate Change opened a public consultation on the national energy and climate plan (NECP) in which, among other things, the Greek government indicates its commitment having at least 30% of national energy consumed from renewable resources and at least 55% of electricity produced from renewables.
Law 4513/2018 promotes the creation of so-called “energy communities” for the production, distribution and supply of energy locally. It contains specials provisions for, among other things, the development of self-consumption, energy storage and charging stations for electric vehicles.
Last May 2018 an amendment to the renewables regulations was approved. Starting from January 1, 2019, the change provides for the replacement of the current feed-in tariff for plants larger than 4 MW with a feed-in premium financed through the sale of electricity on the Independent Bulgarian Exchange (IBEX) spot market, supplemented by the Security of the Energy System Fund.
The regulator postponed the start of the pre-qualification phase for the wind auctions for volumes of 2 GW (Turkish Electricity Transmission Company - TEIAS bids) to April 2020. The government cancelled the YEKA (Renewable Resource Area) auction for 1,200 MW of offshore wind power scheduled for October 23, 2018.
The government cancelled the YEKA-2 auction for 1 GW of photovoltaic power scheduled for January 31, 2019. On November 7, 2018 the government announced the next YEKA auction for 1 GW of wind power, scheduled for March 7, 2019.
The government introduced a regulation that allows households to install systems for generating electricity from renewables with installed capacity of up to 10 kW without the need for a generation license. In addition, they can sell excess electricity produced to the supplier of last resort.
On June 8, 2018 the Parliament approved an amendment to the renewables regulations (EEG 2014), which requires until June 1, 2020 local communities as well to participate in renewables auctions with authorized facilities only (BImSchG).
The Germany energy law (Energie-Sammelgesetz) was published on December 17, 2018, modifying various regulations in the energy sector. Among the changes were the introduction of additional renewable auctions for the 2019- 2021 period for volumes totaling 8 GW (4 GW for wind and 4 GW for photovoltaic).
The Group operates in South America in Argentina, Brazil, Chile, Colombia and Peru. Each country has its own regulatory framework, the main features of which are described below 136 Annual Report 2018 for the various business activities.
Under the regulations established by the competent authorities (regulatory authorities and ministries) in the various countries, operators are free to make their own decisions concerning investment in generation. Only in Argentina, following the change in energy policy in recent years, is there a regulatory framework that envisages greater public control of investments and a model for remunerating activities that is evolving towards a remuneration model based on average cost. In Brazil plans for new generation capacity are imposed by ministerial order, and this capacity is developed through auctions open to every representative. All of the countries have a centralized dispatching system with a system marginal price. Usually, the merit order is created based on variable production costs that are measured periodically, with the exception of Colombia, where the merit order is based on the bids of market operators.
Currently in Argentina and Peru, regulatory measures are in place governing the formulation of the spot market price. In Argentina, regulators are working to ensure greater sustainability in the electricity market, increase the efficiency of that market and implement a sweeping rate revision to enable operators to meet their cash needs and resume maintenance of power stations and networks.
Long-term auction mechanisms are widely used for wholesale energy and/or capacity sales. These systems guarantee continuity of supply and offer greater stability to generation companies, with the expectation that this encourages new investments. Long-term sales contracts are used in Chile, Brazil, Peru and Colombia. In Brazil, the price at which electricity is sold is based on the average long-term auction prices for new and existing energy. In Colombia, the price is set by auction between the operators, which usually enter into medium-term contracts (up to four years). Finally, a regulatory framework recently introduced in Chile and Peru allows distribution companies to sign long-term contracts to sell electricity on regulated end-user markets.
Chile, Peru and Brazil have also approved legislation to encourage the use of unconventional renewable resources, which sets out the objectives for the contribution of renewable resources to the energy mix and governs their generation.
Rate revision and other regulatory developments in 2018
Under the new rate system, provided for under Resolution 64/2017, the wholesale electricity market (Mercado Eléctrico Mayorista) limited increases in the Valor Agregado de Distribución (VAD), the distribution rate, with specific instructions to ENRE. The new value for this rate component took effect on February 1, 2017 but invoicing of the amount is initially limited to a maximum of 42% of the total. Invoicing of the full amount was only possible as from February 1, 2018.
The rules also establish that ENRE shall pay Edesur and Edenor the portion already accrued and not invoiced between February 1, 2017 and February 1, 2018 in 48 installments as from February 1, 2018, which will be incorporated in the value of the VAD to be invoiced subsequently.
The new rules also provide for updating the rates of distribution companies on the basis of inflation and criteria for service quality and regulation of supply.
New regulations on natural gas generation
On March 7, 2018, with Decree (PEN) 187/2018, the government published the new organizational chart for the Ministry of Mining and Energy. As a result of Ministerial Resolution 64/2018, the functions of the Secretariat for Electric Energy were transferred to the new Undersecretariat for Electric Energy (SSEE).
Resolution 46 was published on August 1, 2018 and it reduced the average price of gas to be used for electricity generation from $5.20 to $4.20 per MMBtu. In addition, it makes the SSEE responsible for launching a tender to estimate the gas to be allocated to generation at the maximum price established.
For this reason, the SSEE instructed CAMMESA, the wholesale electricity market operator, to purchase natural gas under revocable and non-revocable conditions through the electronic gas market (MEGSA) to supply thermal generation. Finally, the tender was held to award revocable contracts for the September-December 2018 period. The average price bid was $3.69 per MMBtu, about 13% lower than the price set by Ministerial Resolution 46.
On November 7, 2018, Resolution 2018-70-APN-SGE was published in the Official Journal. It enables generators, cogenerators and self-generators in the Mercado Eléctrico Mayorista to autonomously procure fuel to generate electricity.
Initially the rules applied to natural gas and allowed generators to obtain an additional margin by using the fuel in the case in which the purchase price for gas was lower than that set by CAMMESA.
This resolution also contains a grant for the variable cost of Report on operations 137 production (CVP) based on recognized rates. CAMMESA is therefore responsible for continuing to supply fuel to generators that do not purchase their own
In December 2018 the authorities authorized the export of natural gas, establishing a new export licensing procedure. The surplus is the result of the increased availability of natural gas from the Vaca Muerta gas field.
The exports authorized have been sent to Chile and Brazil for a total volume of 479,250,000 cubic meters, under revocable terms: until 2020 to Chile and up to 600 MW of electricity production to Brazil.
In September 2018, the Undersecretariat for Renewable Energy presented the third cycle (Ronda 3) of the RenovAr program, known as MiniRen, the main characteristic of which is the use of the capacity available in the medium-voltage grid and the promotion of regional development in the country.
The RenovAr MiniRen program offers 400 MW of capacity for the entire country, to be connected to the 13.2 kV, 33 kV and 66 kV medium-voltage grids. The maximum capacity allowed for the project is 10 MW, while the minimum is 0.5 MW.
As for the contractual portion, the winning projects will sign a Power Purchase Agreement with wholesale market operator CAMMESA, in the same way as the previous cycles, and a contract with trust fund FODOR to guarantee three months of invoicing for contracted projects.
The Ronda 3 program was initiated in October with the publication of the specifications and will continue from March 2019 with the presentation of the bids, the qualification process, the awarding and the signature of contracts that will conclude in July 2019.
A total of 82 out of 88 projects were signed for 1,969.1 MW for the second cycle (Ronda 2).
On September 12, 2016, the regulator ANEEL approved Regulation 733/2016 establishing the conditions for applying the new hourly rates for low-voltage power, the socalled “white rate”.
The white rate is a new hourly rate option that changes depending on the time of day and differs on the basis of the consumption level of each customer as from 2018. Initially, the new rate applies to consumers with low-voltage connections (127, 220, 380 or 440 V, group B) and new customers. As from January 2020, it will be an option for any consumer, with the exception of those who already benefit from certain preferential rates.
The above regulation establishes the following concerning the application of the white rate:
- it shall apply starting from January 2018 for customers who consume more than 500 kWh/month and for new connections;
- it shall apply starting from January 2019 for customers who consume more than 250 kWh/month;
- it shall apply to all customers after 2020;
- applying this rate option, the cost of electricity is calculated by dividing the day into peak, intermediate and low consumption hours, and applying the rates approved by ANEEL following the periodic revisions with distributors;
- economically disadvantaged customers and public illumination projects cannot opt for the white rate;
- the cost of the meters is borne by the distributors, expect for those that have special additional features;
- any adjustments of technical installations to connect them to the electrical grid must be borne by the customer/owner
Date of the rate revision for Enel Distribuição Goiás changed from October 2017 to October 2018
ANEEL approved Enel’s request to change the date of the rate revision for 2018 for Enel Distribuição Goiás following a public hearing. The decision was made for the rate revision to take place in October 2018 and subsequently every five years. The new reference date for investments to be incorporated in the rate was moved to April 30, 2018.
Rate revision for Enel Distribuição Rio
On March 13, 2018, ANEEL approved the fourth provisional rate revision for Enel Distribuição Rio, with effect from March 15, 2018, following the assessments and evidence presented during public hearing 078/2017.
This means an average increase of 21.04% for consumers given that rates have risen by 19.94% for high-voltage customers and by 21.46% for low-voltage customers. In addition, the T-component of the X-factor was set at 0.00% and technical losses at 9.1%.
Rate revision for Enel Distribuição Ceará SA
On April 17, 2018, ANEEL approved the provisional rate revision for Enel Distribuição Ceará with effect from April 22, 2018.
This means an average increase of 4.96% for consumers given that rates have risen by 7.96% for high-voltage customers and by 3.8% for low-voltage customers.
Rate revision for Enel Distribuição Goiás SA
On October 16, 2018, ANEEL approved the provisional rate revision for Enel Distribuição Goiás with effect from October 22, 2018.
This means an average increase of 18.54% for consumers given that rates have risen by 26.52% for high-voltage customers and by 15.31% for low-voltage customers.
Rate revision for Enel Distribuição São Paulo (formerly Eletropaulo)
On July 4, 2018, ANEEL approved the provisional rate revision for Enel Distribuicão São Paulo with effect from October 22, 2018.
This results in an average rate increase of 16.4% composed of an economic adjustment of 10.5% and a financial adjustment of 5.9%.
This means an average increase of 15.8% for consumers given that rates have risen by 17.7% for high-voltage customers and by 15.1% for low-voltage customers.
Electric vehicle charging
With Resolution 819 of 2018, ANEEL set rules for the recharging of electric vehicles.
Distribution companies can autonomously install public charging stations for electric vehicles in their concession areas, classifying them in the most appropriate rate categories (group rates for high- and medium-voltage consumers or group B3 rates for low-voltage consumers).
Operating charging stations can generate revenue that derive from setting freely negotiated prices under the terms and conditions specified for the performance of ancillary activities provided for by Resolution 581/2013.
Customers intending to install private charging stations must notify the distributor in advance to allow it to make any necessary adjustments to the utility connections.
Public charging stations must be compatible with all connection standards to enable communication, monitoring and remote control.
Electric vehicle recharging stations must comply with the rules and standards set by the distributors, as well as those established by the competent official bodies, including ANEEL regulations.
Electric vehicles are prohibited from delivering electricity to the grid and, as a result, participate in the electricity remuneration system (Resolution 482).
Public hearing 60/2018
ANEEL decided to open a public hearing to gather further comments and information to enable it to complete the regulation for monitoring the measurement, extraction and processing of data from low-voltage meters. The final date for receiving comments and information was February 18, 2019.
Public hearing 46/2018
The first phase of public hearing 46/2018 was held between October 4 and December 3, 2018 with the purpose of gathering further comments and information to enable it to complete and revise the regulations on the continuity of electricity supplies and to encourage improvement in service quality by addressing the following points:
- formulation of indemnities to be paid to customers for service interruption;
- rate revision;
- structuring of service continuity indicators.
The second phase of the public hearing will be conducted in the 1st Half of 2019.
Decree 9642 of December 27, 2018
ANEEL prohibited the application of a cumulative discount rate, instead requiring that the most advantageous rate for the consumer be charged.
ANEEL conducts different auctions for each kind of technology, taking into account the development and investment plan prepared by the Energy Research Company (EPE), which is responsible for their planning, in order to reach the objective capacity targets for non-conventional renewable energy plants.
2018 Regulatory Plan
With Exempt Resolution 20 of January 12, 2018, in accordance with the provisions of Article 72-19 of the law on general electricity services, regulator CNE published its annual work program for the preparation and development of the technical resolutions corresponding to 2018. The document sets out the general guidelines and programming priorities for CNE’s 2018 regulatory work plan and the suspended regulatory procedures from the 2017 plan, which will continue to be developed in 2018
2019 Regulatory Plan
With Exempt Resolution 790 of December 10, 2018, in accordance with the provisions of Article 72-19 of the law on general electricity services, regulator CNE published its annual work program for the preparation and development of the technical resolutions corresponding to 2019. The document sets out the general guidelines and programming priorities for CNE’s 2019 regulatory work plan and the suspended regulatory procedures from the 2018 plan, which will continue to be developed in 2019.
Rules published in 2018
The following rules were published in 2018 in the Chilean electricity sector:
- rules for the group of experts: on January 5, 2018, the Energy Ministry published new rules for the group of experts in the Official Journal. The scope of these rules is to establish the provisions for the operation, financing and powers of the group of experts, as well as the procedures necessary for its proper functioning;
- rules for the electricity coordinator: on April 3, 2018, the Energy Ministry approved the rules for the independent coordinator of the national electricity system. The purpose of these rules is to establish the provisions for the organization, composition and functioning of the independent coordinator of the national electricity system, as well as the necessary procedures for the proper performance of its functions;
- rules for the security of ancillary services and the storage and distribution of electricity: on June 12, 2018, the Ministry of Energy approved the security standards for plants for generation, transport, provision of ancillary services, storage systems and distribution of electricity
Development plan for the electricity transmission grid - 2018
In the course of the annual transmission planning for 2018, CNE invited all interested parties to take part in the phase for presenting proposals for projects to expand transmission, which will last until April 30, 2018, in accordance with the provisions of Article 91 of the electricity law. The invitation states that proposals can be submitted up to April 30, 2018. Once the phases of the process were completed, on November 14, 2018, CNE published a preliminary technical report that contains the annual expansion plan for transmission corresponding to the year 2018.
2018-2022 Energy Plan
With its publication in the Official Journal of April 10, 2018, the Energy Ministry approved the long-term energy plan for the 2018-2020 period. This corresponds to the first energy planning process under the provisions of Law 20936. This plan, which is non-binding, must be updated every five years, in accordance with Article 83 of the electricity law.
Law 21076/2018 - Requirements concerning the removal and replacement of meters
On February 27, 2018, Law 21076 was published in the Official Journal, modifying the electricity law to require distributors to pay for the removal and replacement of meters in the event they become unusable for reasons of force majeure. The sole article of the law states that meters are part of the distribution network and that ownership will be modified to the extent that the meters are modified based on the requirements of the electricity grid.
Determination of the transmission rates for the 2020-2023 period
As part of the process for setting the transmission rates for the 2020-2023 period, the transmission services qualification processes, the determination of the useful life of transmission plants and the establishment of technical and administrative databases for analyzing enhancements for transmission plants are all currently under way.
For the purposes of the qualification process for transmission services for the 2020-2023 period, CNE issued Exempt Resolution 771 of December 29, 2017 containing the pre- 140 Annual Report 2018 liminary technical report in which it identifies transmission plants by segment (national, zonal and dedicated). Interested parties (duly listed in the register of citizen participants) submitted comments on this report in early January 2018. Subsequently, CNE issued the final technical report with Exempt Resolution 123 of February 13, 2018. Upon completion of the phases indicated in the regulations, interested parties will present their objections before the group of experts in a public hearing.
During this process, the group of experts requested additional information from CNE within the framework of analyzing and studying the discrepancies presented. As a result of this request, CNE found inconsistencies in the application of the method for qualifying structures, for which it began an administrative procedure to invalidate that process. On September 4, 2018, CNE published Resolution 613, with which it invalidated the phases already carried out, rejecting the preliminary technical report published. Therefore, on October 5, 2018, CNE published a new preliminary technical report with Resolution 673, which incorporated the observations of the registered interested parties. Subsequently, with Resolution 761 of November 21, 2018, CNE issued the final technical report on the qualification of transmission systems structures for the 2020-2023 period. Upon completion of the phases of the process, the interested parties submitted their observations to the group of experts.
With Resolution 212 of March 15, 2018, CNE issued a preliminary report on the process for determining the useful life of transmission installations. Interested parties (duly listed in the register of citizen participants) submitted their observations and participated in the gap analysis process with the group of experts. On June 5, 2018, CNE approved the final technical report that established the useful life with Resolution 412.
Finally, in order to establish the technical and administrative databases for analyzing enhancements for transmission plant, CNE published preliminary technical and administrative data with Resolution 769 of December 29, 2017. More generally, this document sets out the process for defining transmission rates and lays down the rule that has to be applied identifying two areas: one national and one for zonal plants and dedicated structures.
In accordance with the law, interested parties (duly listed in the register of citizen participants) submitted their requests and observations concerning the drafting of the document in early January 2018.
Subsequently, CNE issued Resolution 124 of February 13, 2018 containing its final technical report. Upon completion of the phases indicated in the regulations, the interested parties presented additional observations to the group of experts through a public hearing. The formalization of the definitive databases is subject to the completion of the qualification process for the plants indicated above.
Regulatory changes in 2018
Supreme Decree 005-2018-EM modified Supreme Decree 026-2016-EM to make clearer certain aspects relating to participation in the wholesale market (MME), guarantees to be pledged, cases of non-compliance, withdrawal or exclusion of participants from the MME.
Supreme Decree 017-2018-EM established a rationing system in emergency situations involving the procurement of natural gas; an emergency is defined as the total or partial lack of natural gas on the domestic market and is officially declared by the Ministry of Energy and Mining.
Supreme Decree 022-2018-EM (amended by Supreme Decree 026-2018-EM) modified the rules governing the tender for electricity procurement approved by Supreme Decree 052-2007-EM in order to establish how to evaluate proposed modifications to the contracts resulting from any bids made in public auctions.
Unregulated customers market: rate revisions
In Peru, distribution rates (Valor Agregado de Distribución - VAD) are set every four years. However, the most recent period lasted five years since a year was needed to implement the reforms approved in 2015 with Legislative Decree 1221. In 2018, the process for setting the VAD for Enel Distribución Perú for the 2018-2022 period was completed. In general, once rates are set, the annual revenue received from the company prior to the start of the process, which corresponded to 2013-2107, is maintained.
Regulatory changes in 2018
In February, Resolution CREG 030 of 2018 was issued, which set out a simplified authorization process for small-scale selfproducers (up to 1 MW), large-scale self-producers (up to 5 MW) and distributed generators (defined as 0.1 MW) that use non-conventional renewable energy sources (FNCER).
March 2018 saw the issue of Ministry of Mining and Energy Decree 0570 of 2018, on the basis of which the longterm public policy guidelines for the use of energy were decided. The objectives of the decree are: to strengthen the resilience of the generation matrix through risk diversification, to promote competition and efficiency in price formation through new and existing projects, to mitigate the effects of climate variability through the use of the available renewable resources, to strengthen national energy security, to reduce greenhouse gas emissions, in accordance with COP21 commitments.
Carrying forward from this decree, the Ministry of Mining and Energy issued Resolutions 40791 and 40795 of August 2018, finalizing the regulatory cycle of public policies that will make it possible to strengthen, integrate and diversify the country’s energy matrix, achieving a historic result like that for its first long-term electricity tender.
Through Resolutions 41307 and 41314 of 2018, the Ministry of Mining and Energy officially kicked off its first longterm electricity auction, which will conclude in the first few months of 2019 and is intended to diversify, integrate and strengthen the competitiveness of the energy matrix, making it more resilient to climate variability, contributing to cutting CO2 emissions and ensuring energy security.
Unregulated customers market: rate revisions
In February 2018, the Regulatory Commission published Resolution CREG 015 of 2018 which definitively sets out the distribution remuneration methodology for the new rate period. It determines the remuneration for the existing asset base on the basis of the presentation of investment plans, the remuneration of operating and maintenance costs, setting out goals for the reduction of losses and the improvement of service quality.
Resolution CREG 085 was issued in July 2018 in response to comments submitted by distributors. It clarifies and correct some provisions of Resolution CREG 15. The new distribution rates for 2019 are expected to be approved using the new method.
In September 2018, the Regulatory Commission published Resolution CREG 114 of 2018 which lays out the principles and general conditions to be satisfied so that distributors’ costs can be incorporated into the rate components that regulated market users must pay.
North and Central America
In June 2018, an Energy Department memo describing federal actions in the US electricity markets was leaked to the media. The memo sought to justify non-specified federal actions to ensure financial stability for coal and nuclear power plants for a two-year period with the goal of impeding the retirement of plants that, according to the memo’s authors, could be necessary for national security reasons. If these actions are carried out, the delayed closures of the coal and nuclear plants could cut into the market for new renewable power projects in some areas.
In 2018, the Trump Administration enacted the Affordable Clean Energy (ACE) rule to replace the Obama era’s Clean Power Plan (CPP), a complete program for regulating greenhouse gas emissions by the energy sector. Rather than base the emission reduction requirements on the sector as a whole, including new renewable energy technologies, the ACE would only require efficiency enhancements at the single-plant level.
In 2018, the Trump Administration enacted the Affordable Clean Energy (ACE) rule to replace the Obama era’s Clean Power Plan (CPP), a complete program for regulating greenhouse gas emissions by the energy sector. Rather than base the emission reduction requirements on the sector as a whole, including new renewable energy technologies, the ACE would only require efficiency enhancements at the single-plant level.
The Energy Ministry published the requirements for the Energía Limpia certificates that companies must meet for the years 2018 through 2022, specifically: 5.0% for 2018; 5.8% for 2019; 7.4% for 2020; 10.9% for 2021; 13.9% for 2022.
The Comisión Reguladora de Energía (CRE) and Comisión Federal de Electricidad (CFE) published the methodology for calculating the regulated rate and the rates for 2018. They will be revised each year.
In the 1st Quarter of 2018, the latest Wholesale Market Handbook was published, and powers were transferred from the Secretariat of Energy to the CRE. One of the most important handbooks published is that for the Interconnection and Connection of Power Plants and Load Centers, which sets out the new method for calculating the financial guarantees for the different interconnection standards applicable as from 2015. All new projects under development will be governed by the new handbook. In the 2nd Quarter, the market rules consultative committee was established.
The Enel Group participated in three of the four committees:
- Wholesale market;
- Operating in the market;
- Legacy contracts;
- Grid development
A number of working groups have been set up to review the market rules and offer proposals for improving them.
During the same period, the National Electricity System Development Program (PRODESEN) for the years from 2018 through 2034 was published.
In the 4th Quarter of 2018, as a result of the reform of the public administration, the Secretariat of Energy must coordinate with the CRE to set the regulated rates for the services indicated in the Electricity Industry Law.
Previously this was done solely by CRE. The regulated rate includes those for: transmission, distribution, SSB operations, CENACE operations, regulated connection services, electricity costs and associated costs (e.g. capacity remuneration - CEL).
Enel has begun a two-year term as representative of the 20 MW hydroelectric companies on the Operating Committee. The primary function of this committee is to tackle issues relating to National Integrated System operations and is composed of representatives of each company operating in the electricity sector. Enel is an active participant in the committee, submitting proposals on how to modify commercial practices, operating regulations, and ways of scheduling system operations.
In the 1st Quarter of 2018, the risk aversion curve (storage in the Fortuna basin) was redefined, enabling a more efficient use of the lake’s water.
In the meantime, the minimum requirements for the meters to be used for large customers were also redefined. In contracting with a generation company to provide electricity, large customers can opt to use the distributor’s meter and avoid incurring the cost of buying a commercial electric measurement system. This should speed up the process of acquiring large-customer status and improve competition between generators.
In the 2nd Quarter of 2018, the government presented a draft law modifying Law 6 concerning the electricity sector. The proposed modifications include the creation of a new figure in the electricity market to simplify the management of the Electricity Transmission Company, which is responsible for electricity sale and metering. Enel and other market actors actively participated in the consultation stages. At the moment, the implementation of these changes has been postponed.
In the 4th Quarter of 2018, the regulator approved new electricity rate rules.
In the 3rd Quarter of 2018, the 5-year rate rules for distributor Empresa Eléctrica de Guatemala were set.
In the 4th Quarter, the new rules were approved for the coordination of the dispatching of electricity, the commercial metering system and the importation of electricity (NCC-10 and 14).
Central American Regional Electricity Market (MER)
The second plenary meeting between the institutions of the Central American Regional Electricity Market (Mercado Eléctrico Regional - MER) was held in the 1st Quarter of 2018. Senior officials of MER meet to analyze the governance of that market. In 2018 MER’s Steering Committee launched a study on how to integrate Mexico into the market. As of December 31, 2018, the detailed complementary Report on operations 143 process (PDC) will no longer apply and instead will be replaced by the MER Regulation (RMER), which takes effect on January 1, 2019.
Africa, Asia and Oceania
South Africa approved a target of 17.8 GW of installed renewable capacity by 2030 based upon the long-term energy strategy set out in the 2010-2030 Integrated Resource Plan (IRP). The primary tool to be used in achieving this target is the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), an auction system launched in 2011 that seeks to install around 13 GW in new renewable capacity between 2014 and 2020 (hydroelectric <40 MW, concentrated solar and photovoltaic, wind, biomass, biogas and landfill gas power). The first four rounds have already been held, with the award of more than 5,000 MW of capacity. In 2015 an additional round – called the Expedited Round, or Round 4.5 – was added and held for an additional 1,800 MW, which have not yet been assigned and which will probably be cancelled.
In August 2018, the 2018 Integrated Resource Plan (IRP) was published for consultation. The IRP is the long-term plan setting out the development strategy for the country’s electricity sector through 2030. In the new draft the capacity targets for the development of wind and solar photovoltaic power were raised to 19.4 GW of almost entirely wind (11.4 GW) and photovoltaic power (8 GW) compared with the previous version of the IRP. This capacity is cumulative, including that already online or committed under the REIPPPP. The new IRP also includes an allocation of specific capacity (200 MW/year) for distributed generation (1-10 MW).
The public consultation process was concluded in December 2018. Given the importance of energy policy for the country, the timetable for the final promulgation of the IRP (with possible modifications) will depend heavily on the national elections that will be held in May 2019.
It is possible that in 2019 – following the promulgation of the IRP – a new auction, Round 5 of the REIPPPP, will be held as originally scheduled.
After a pre-qualification phase, which is concerned with technical and financial issues, qualified projects are chosen based upon two criteria: the bid price (weighted 70%) and the economic development content of the project (weighted 30%). The latter is based upon a series of parameters focusing on the economic development of the country, including local content and the creation of jobs for South Africans, especially non-whites.
The winners are awarded 20-year power Purchase Agreements (PPAs) with Eskom, the national power utility. Eskom’s payments are guaranteed by the governments.
India is a federal republic composed of 29 states, each of which has specific responsibilities in various sectors as well as shared responsibility with the federal government in the electricity sector.
The Ministry of New and Renewable Energy (MNRE) defines and implements policy for the development of renewable energy at the national level. In addition to the Ministry, the power market is supervised at the federal level by the Central Energy Regulatory Commission (CERC), which sets guidelines and standard rates, and by the State Energy Regulatory Commissions (SERC), which implement them at the state level.
In 2015 the government headed by Prime Minister Narendra Modi approved a target of 175 GW of renewables capacity by 2022, including 100 GW from solar, 60 GW from wind and about 15 GW from other technologies. This ambitious target was further strengthened in October 2016, when India ratified the Paris climate agreement in 2015, committing itself to cut CO2 emissions by 33-35% (Intended Nationally Determined Contribution - INDC) from their 2005 levels and to ensure that 40% of its installed capacity will be generated from non-fossil sources by 2030.
The renewables sector is highly fragmented since each state has its own regulatory scheme for developing new capacity. As a general rule, each state sets annual obligations, called Renewable Purchase Obligations (RPOs), for the share of electricity to be generated from renewable resources. The state distribution companies must meet the RPOs by buying or producing renewable energy or by purchasing Renewable Energy Certificates (RECs). The RPO has been set at the national level, to gradually rise to 21% of the sales of distributors by 2022. The states must take part in the national RPO to the greatest possible extent in order to reach the national target for renewable energy generation.
Renewable energy must be bought through auctions, in use since 2010 for solar power and 2017 for wind power 144 Annual Report 2018 and overseen mainly by Solar Energy Corporation India (SECI).
In general, the winners of the auctions are awarded 25- year Power Purchase Agreements (PPAs) at fixed rates with SECI or the Power Trading Company (PTC), which will sell the electricity through Power Sales Agreements (PSAs) to state distribution companies (Discoms). Auctions are held frequently in India, even if some of them in 2018 were cancelled due to failure to reach the capacity offered since the rate restrictions imposed on participants were too strict. In 2018 auctions were also held for floating photovoltaic plants, for offshore wind plants and for hybrid wind/photovoltaic plants.
The PPAs can also be signed with private customers.
In 2018 it was established that solar and wind plants that enter into service by March 31, 2022 will be exempted from interstate transmission charges and losses for 25 years. The Electricity Act is currently being revised.
Among the proposals put forth by the Ministry of Power are reducing the wheeling charge, requiring the states to comply with the national RPO, exempting renewable power plants from the requirement to obtain a generation license and and unbundling distribution.
The regulations for ancillary services are also being revised, with a proposal to hold auctions for the purchase of such services.
Morocco is a constitutional monarchy that is relatively stable politically and whose economy is steadily growing.
The Moroccan electricity sector is highly energy dependent. More than 90% of energy procurement is in the form of imports of coal, gas and oil. However, in the last few years Morocco has approved a series of regulations that seek to both reduce dependence on foreign markets and expand the role of renewables.
In 2009, the government adopted the new National Energy Strategy (NES), imposing national energy policy targets through 2030. The development of renewables is a key component of this policy with the target of making up 42% of total installed capacity by 2020 and 52% by 2030. In order to achieve these ambitious goals, in 2010 the Moroccan government adopted Law 13-2009, which in principle allows independent power producers (IPPs) to generate and export electricity.
The regulatory framework was further completed in 2015 with Law 58-2015, which introduced a net metering scheme for high-voltage photovoltaic solar and wind plants (subsequently extended to medium- and low-voltage) which offered private operators the opportunity to resell to their excess electricity to the grid, but for no more than 20% of their annual production. However, this option was to have been implemented with appropriate legislation that has not yet been issued.
The new regulatory framework set out a “hybrid” market model in which, alongside a regulated market with the Single Buyer (Office National de l’Electricité et de l’Eau Potable - ONEE) and distributors, there is to be a free market in which IPPS can negotiate electricity sale contracts with ONEE or directly with end users (owing to a lack of implementing legislation, this option is for the moment only exercised with respect to high-voltage customers).
The task of overseeing the implementation and proper functioning of the market is given to the Electricity Regulatory Authority (ANRE - Autorité Nationale de Régulation de l’Electricité) by Law 48-2015 of 2016. While a President of ANRE was appointed in August 2018, it is not yet currently operational.
With regard to procurement, an auction system is used to promote renewables.
Specifically, in 2009 and in 2010 two programs were launched: the Morocco Solar Program and the Integrated Wind Energy Program, with the goal of developing 2 GW each of solar and wind capacity, managed respectively by the Moroccan Agency for Solar Energy (MASEN) and by ONEE. Both programs offer electricity sale contracts with MASEN/ONEE having durations of 25 years for solar and 20 years for wind.
The expected reform of the law on renewables is under way; a series of consultations have been held with the main stakeholders during the year. The reform should improve the regulatory framework for the access of IPPs to the medium-voltage grid and for the sale of electricity generated in excess of the needs of end users. The reform should be completed in 2019.
In September 2018, King Mohammed VI requested an upward revision of the targets of renewables in the energy mix, higher than the current one of 52% by 2030.
Australia is a federal constitutional monarchy composed of six states and two territories. The electricity sector is regulated by a collection of federal and state policies, overseen by various actors. The primary regulators at the Report on operations 145 central level are: the Council of Australian Governments (COAG), made up of the federal and state energy ministers who guide the development of energy policies; the Australian Energy Regulator (AER), which is the economic regulator; the Australian Energy Market Commission (AEMC), which is the rule maker and is responsible for market development; the Australian Energy Market Operator (AEMO), which is the system and market operator; and the Clean Energy Regulator (CER), responsible for managing green certificates. Each state has its own regulatory bodies.
The electricity system is divided into two primary markets: the National Electricity Market (NEM), which covers the eastern part of the country where almost 90% of the population resides, and the Wholesale Electricity Market (WEM) in the west, which is much smaller. Both the NEM and the WEM, albeit in slightly different ways, operate as spot markets for electricity, facilitating exchange between generators and suppliers to end users (retailers) and to large industrial customers.
The country has a Renewable Energy Target (RET) scheme that is operated in two parts:
- the Large-scale Renewable Energy Target (LRET), set in 2015 at 33,000 GWh (around 23% of demand) of generation by 2020, to be maintained at this level until 2030. The LRET creates a financial incentive for renewable energy power plants, which can produce Large-scale Generation Certificates (LGSs) to be sold to retailers. These retailers are required to buy them in an amount equal to a certain percentage of the electricity sold to end users, currently around 20%;
- the Small-scale Renewable Energy Scheme creates a financial incentive for households or small business customers to install small-scale renewable energy systems (usually rooftop solar panels), for which they can receive Small-scale Technology Certificates (STCs). Retailers are also required to buy these STCs in specified amounts.
The states have their own renewable energy policies and some – with more ambitious targets than the federal ones – have introduced in recent years programs in support of green energy. The state renewable energy targets are, for example:
- Victoria: 25% of electricity from renewable sources by 2020 and 40% by 2025 (about 3.3 GW), to be achieved in part through auctions that began in 2017;
- Queensland: 50% by 2030;
- South Australia: 50% by 2025. The Australian regulatory framework is evolving rapidly, with the primary objective of maintaining the security of the electricity system in a country that is experiencing the progressive obsolescence of its coal-fired generation plants, which are slowly being replaced by gas-fired and renewable energy plants.
At the end of 2017 the federal government introduced a new policy for the NEM, addressing primarily the security and reliability of the electricity system, consumer prices and reducing emissions. Under the new policy, called the National Energy Guarantee (NEG), retailers are required to buy an appropriate mix of resources to provide:
- a “reliability guarantee”, to ensure the right amount of dispatchable energy;
- an “emissions guarantee”, to help reduce emissions in line with Australia’s international commitments (reduction of emissions by 26-28% by 2030 compared with 2005).
The NEG was almost finalized when, in August 2018, an abrupt change in government caused it to be put on hold.
The part regarding the emissions guarantee was rejected, while that on the reliability guarantee is slowly moving forward, in a manner still to be defined.
At the end of 2018 the government launched a new program called Underwriting New Generation Investment (UNGI), which appears to promote generation from traditional fossil sources provided that there are concessions for nonintermittent new generation sources or for extending the life of existing assets.
In 2019 federal elections will be held, the results of which will heavily influence the future course of the country’s energy policy.