Clean energy package & digitalisation

The new rules mark a major stepping stone in Europe's transition towards the use of cleaner and more sustainable energy. The Clean Energy Package takes into account the rise in the share of volatile renewable energy sources and the increased use of electricity in sectors such as transport or heating and cooling. To bring the electricity system into line with these new market realities, more flexibility and innovative solutions are needed.

Digitalisation can help to pave the way for the integration of more renewables and new technologies into the electricity system while also providing benefits for consumers. Terms such as 'smart meter', 'smart grid' or 'building automation' are no longer an exception to the business reality in the energy sector. All market players are affected by the digitalisation of the energy system and the Clean Energy Package takes a first step to provide them with a sound legal framework to reap the benefits of energy digitalisation and open up new business opportunities. The Package puts several rules in place to facilitate the digitalisation of the energy system, in particular through the new rules on electricity market design and for energy efficiency of buildings.

In this article we will describe what measures the Clean Energy Package holds for the energy digitalisation. For more information on the Clean Energy Package see our detailed overview here or Peter Willis' graphic summary here.

I. Electricity Market Design & Digitalisation

Electricity Directive (EU) 2019/944 and Electricity Regulation (EU) 2019/943 update the existing electricity market rules from 2009. Member States have until 31 December 2020 to transpose the Electricity Directive into national law while the provisions of the Electricity Regulation will already be applicable from 1 January 2020.

Notably, digitalisation now plays a more prominent role in the electricity market design. Where previously terms associated with digitalisation like 'smart', 'technology' or 'data' were barely mentioned, they are now an inherent part of the new rules. Intelligent technologies such as smart meters also help to achieve one of the key aims of the Clean Energy Package: To put the consumer at the centre of the clean energy transition. 

1. Smart meters

For the first time, the Electricity Directive gives consumers a clear right to request a smart meter and a dynamic electricity pricing contract to be able to profit from the digitalisation of the energy system. The new electricity market rules allow consumers to directly participate in the market through the use of smart meters. Smart meters enable consumers to participate in demand response programs, react to market price signals to adjust their consumption and benefit from lower electricity bills. Other market actors, such as distribution system operators, can also benefit from the use of smart meters because better network management can reduce operation and maintenance costs.

Member States are required to rollout smart meters, subject to a positive cost-benefit-analysis. At least 80 per cent of final customers shall be equipped with smart meters within seven years of a positive cost-benefit-analysis or by 2024, where Member States have already begun a smart meter rollout before entry into force of the Electricity Directive.

Smart meters have to satisfy minimum functional and technical standards such as being able to provide information on actual electricity consumption and actual time of use as well as on historical consumption. Smart meters also have to be interoperable with consumer energy management systems and smart grids. Cybersecurity, data protection and privacy rules will apply to the use of smart meters to ensure a high level of consumer protection.

2. Data management

Data management is of increasing importance in a digitalised energy sector as data exchanges take place between different actors and consumers have to be able to access data on consumption, demand response or other services. To facilitate the implementation of data management systems, the European Commission can establish network codes on data exchange and cybersecurity issues of cross-border electricity flows.

Member States are required to put in place data management systems to allow for the exchange, storage and access of data. Such data management systems have to comply with relevant data protection and privacy rules such as the General Data Protection Regulation. Distribution system operators ('DSOs'), transmission system operators ('TSOs') and national regulatory authorities also have responsibilities with regard to data management, data protection and cybersecurity. They are required to establish a compliance programme which includes rules on non-discriminatory access to data. Specially appointed compliance officers or competent national authorities have to ensure that the parties responsible for data management comply with the relevant data protection and cybersecurity laws. The European network of transmission system operators for electricity ('ENTSO-E') and the European entity for distribution system operators ('EU DSO') further support the development of data management systems, cybersecurity and data protection.

3. Smart grids and integration of innovative technologies

Although the Clean Energy Package is not very specific on the development of smart grids, it recognises the increasing importance of a smart grid. ENTSO-E and the EU DSO therefore have to promote the digitalisation of the transmission and distribution grids, including through the deployment of smart grids, efficient real-time data acquisition and intelligent metering systems. DSOs and TSOs are responsible for the development of smart grids that promote decentralised generation, energy efficiency and the integration of energy from renewable sources. Smart grids shall also enable the smart charging of electric vehicles, for instance through demand response programs.

The rules on the new electricity market design encourage the development and integration of innovative technologies into the energy system. For instance, the revised Electricity Regulation provides that for the dispatch of power-generating facilities, demonstration projects for innovative technologies have to be given priority. With regard to balancing, demonstration projects for innovative technologies can be excluded from balancing responsibility and balancing markets must allow for the integration of new technologies. Member States are encouraged to remove barriers for the development of new technologies like energy storage, demand respond or aggregation.

II. Energy Performance of Buildings & Digitalisation

The Clean Energy Package also promotes the development and integration of digital solutions into buildings through the Energy Performance of Buildings Directive (EU) 2018/844. Member States must transpose the Directive into national law by 10 March 2020.

Digitalising building systems can help to unlock energy savings and improve the overall energy efficiency of buildings. Generally, the Energy Performance of Buildings Directive aims at replacing existing buildings systems with automated and smart systems where this is technically and economically feasible. 
New buildings have to be provided with self-regulating devices to separately regulate the temperature in individual rooms or designated heating zones in a building unit. Building automation systems and electronic monitoring shall replace inspections of heating and air conditioning systems to provide for significant energy savings. These systems shall monitor, assess and allow for the adjustment of energy use, improve energy efficiency and detect and inform about efficiency losses of technical building systems. Automation and control systems have to be interoperable and must be able to communicate with connected technical building systems and other appliances in the building.

The Energy Performance of Buildings Directive further introduces a smart readiness indicator ('SRI') for buildings. The SRI will assess the ability of buildings to use information and communication technologies to adapt to the needs of the occupants and of the grid and to improve energy efficiency. The SRI's purpose is to increase awareness amongst building owners and occupants for the benefits of building automation and actual energy savings. By the end of 2019, the Commission is required to adopt further legislation on the SRI to clarify its definition and lay down rules on its calculation methodology and technical modalities. Data protection, privacy and cybersecurity rules also apply to the SRI. However, use of the SRI remains optional for Member States.

Besides the functionality and interoperability of smart meters, building automation and control systems or communication networks, the SRI can also take into account smart charging infrastructure for electric vehicles. The Energy Performance of Buildings Directive lays the groundwork for rolling out electric charging points in buildings. New non-residential buildings with at least ten parking spaces are required to install at least one recharging point while new residential buildings have to put in place conduits for electric cables and other necessary infrastructure to enable the installation of recharging points at a later stage. Innovation and the development of new technologies would also enable car batteries to be used as a source of power to provide more flexibility to the electricity grid.

III. Renewable Energy Directive & Digitalisation

The Renewable Energy Directive (EU) 2018/2001 also provides for some rules on energy digitalisation. The Directive promotes the development of and investment into innovative technologies for renewable energy production and storage or renewable heating and cooling solutions such as heat pumps, geothermal, solar thermal or waste heat and cold. Other new technologies with relation to the trade of renewable energy are not specified by name but merely touched upon: Smart contracts, Blockchain or other distributed ledger technologies.

Under the Renewable Energy Directive consumers are entitled to become 'renewable self-consumers', who can consume, store or sell self-generated energy. Such trade can be facilitated through 'peer-to-peer' trading whereby the energy is sold between market participants by means of a contract with pre-determined conditions governing the automated execution and settlement of the transaction. Nevertheless, the Clean Energy Package does not contain further specifications on the use of smart contracts or Blockchain for the implementation of peer-to-peer trading in practice. Member States could lay down further specifications on the use of these technologies for peer-to-peer trading when they transpose the Renewable Energy Directive into national law by 30 June 2021.

IV. Conclusion

The Clean Energy Package takes an important step towards utilising digital solutions for the clean energy transition and building a more flexible electricity system. Businesses in the energy industry are provided with a solid legal framework for an increasingly digitalised energy economy and possible new business opportunities. The practical application of the new rules will show where future amendments might be necessary to better adapt to the energy industry's digital realities. Given the rapid development of technology, the digitalisation of the energy sector will keep moving forward and regulators have to keep pace with the developments.

In June 2019, the Council of the European Union already adopted a set of principles and priorities for the future of energy systems in the Energy Union. Digitalisation of the energy sector was one of the key fields highlighted in the conclusions. Investments into research, development and innovation of new technologies shall further improve energy efficiency measures and facilitate the deployment of renewables or the use of carbon capture storage solutions. Developing smart grids, data management systems and ensuring a high level of data protection and cybersecurity will also be fundamental for future energy systems.

The Commission has to take into account the Councils' conclusions when presenting new legislative proposals and it is therefore likely that the new Commission will update and put in place new rules on the digitalisation of the energy sector during its five-year mandate, starting from 1 November 2019. It remains to be seen to what extent the framework which the Clean Energy Package has laid will be supplemented or extended to further push the energy digitalisation. For now, the energy industry has to practically implement the new rules of the Clean Energy Package and remain alert for further changes and opportunities which the energy digitalisation will bring.