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Romanian Energy Law Welcoming New Roles on the Energy Market

Romanian Energy Law Welcoming New Roles on the Energy Market

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On July 30, 2020, Law no. 155/2020 amending and supplementing Law no. 123/2012 on electricity and natural gas (“Romanian Energy Law”) and other regulatory acts entered into force. Part of the changes brought to the Romanian Energy Law are aimed at implementing the regulatory framework necessary for the development of an integrated EU energy market through common energy market rules and a cross-border infrastructure, pursuant to the Clean energy for all Europeans Package, including inter alia, Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (“Internal Market Regulation”) and Directive (EU) 2019/944 on common rules for the internal market for electricity (“Internal Market Directive”). Such framework is aimed at ensuring the necessary structure for consumers to become more active and to effectively contribute to keeping the electricity system stable, through a balance of the supply and demand.

In this context, the relevant framework regulates some market flexibility mechanisms, including a demand response mechanism; that is, pursuant to the Internal Market Directive, the change of electricity load by final customers from their normal or current consumption patterns in response to market signals, including in response to time-variable electricity prices or incentive payments, or in response to the acceptance of the final customer's bid to sell demand reduction or increase at a price in an organized market.

In order for as many consumers as possible to have access to the electricity market through this demand response mechanism, the aggregator is expressly regulated as a (new) type of energy service provider meant to act as an intermediary between the other players on the market and consumers.

The aggregator’ role is now also fully embedded in the Romanian Energy Law, although it should have already been recognized under the Romanian law / market as a result of the direct application of the Internal Market Regulation that has become applicable as of January 1, 2020. In fact, in the application of the Internal Market Regulation, the National Energy Regulatory Authority (ANRE) had issued inter alia (1) in 2019, Order 236/2019 for the approval of rules intended to eliminate and /or mitigate the impact of certain measures which can contribute to the restriction of price formation on the wholesale market, that vaguely refers to aggregation and (2) in March 2020, Order 65/2020 whereby a few other orders concerning market functioning were amended to accommodate the aggregator role. While the recognition of the aggregator’s role based on the mere direct application of the Internal Market Regulation is not yet clear, it appears that the legislator has been slowly building the relevant framework for the new role.  

What exactly is an aggregator?

Pursuant to the amendments brought to the Romanian Energy Law, aggregation is the activity carried out by an individual or a legal entity that combines (a) multiple customer loads or (b) electricity generated from multiple sources, in view of sale, purchase or auction on any electricity market. This corresponds to the definition provided in the Internal Market Directive. 

Further on, independent aggregator is defined as the market participant engaged in aggregation, which is not affiliated to the customer’s supplier. Therefore, the aggregator is meant to be an intermediary between a customer (groups) and the market, a service provider that contracts, monitors, aggregates, dispatches and remunerates flexible assets on the customer side.

In principle, an aggregator works in two ways:

  • either by accumulating flexibility by increasing or decreasing electricity consumption of the costumers in its portfolio according to the amount of energy available on the market or in response to time-variable electricity prices.

For example, the aggregator will seek the lowest costs to meet the energy demand of its portfolio, taking the costs for capacity usage into account.

  • or by grouping excess electricity generated by self-consumers (g. prosumers), followed by its sale on the wholesale market.

Pursuant to the Internal Market Directive, all customer groups (industrial, commercial and households) should have access to the electricity markets to trade their flexibility and self-generated electricity. Customers should be allowed to make full use of the advantages brought by the aggregation of production and supply over larger regions, and benefit from cross-border competition. The aggregator is designed as an instrument whereby such objective should be met. 

What are the advantages of aggregation?

The consumer centered aggregation activities are deemed to have many advantages, including:

  • a form of market balancing; basically, market balancing is achieved through the services provided directly to the final consumers/by final consumers (compared to the system in which market balancing is achieved (only) through the energy producer's obligation to balance the market at the request of the system operator) which allows for a better control of consumers over the best ways to reduce costs, by lowering or adjusting their consumption at strategic times; thus, flexibility can be added to loads by scheduling energy intensive devices or operations – such as preheating or pre-cooling buildings, depending on the relevant market prices.

For example, refrigerators in a supermarket need to operate at a certain intensity to maintain temperatures between 10 and 15 degrees Celsius. If the electricity system is not balanced, and presumably the supply frequency would be low, the aggregator could remote control the amount of electricity used for those refrigerators by setting the temperature to the higher value i.e. 15 degrees, so as to make them consume less energy for a certain period.

Or charging customers’ batteries when wholesale prices are low / discharging them when wholesale prices are high.

  • integration of more renewable energy into the grid; the participation of demand response through aggregation is considered an important factor in stabilizing electricity markets in the context where renewable sources of electricity determine possible intermittencies in production;
  • reduction of overall system costs; aggregation ultimately determines significant reductions in the electricity used (especially by large consumers), which compensates the potential energy to be produced and further enables a healthier process for building additional power plants;
  • contribution to energy system security, by supporting local distribution networks at times and locations when/where they are stressed, for example when the electricity demand goes higher than forecasted or when a power station fails.

In European markets, most independent aggregators seem to provide services to rather large consumers, either in the industrial or the commercial field. Examples of independent aggregators engaging with residential consumers appear to be still limited.

Principles set to govern aggregators’ activity

The aggregation activity is to be carried out under a license issued by the regulator. Other than that, the Internal Market Directive provides further principles that should govern the aggregators’ activity; some of these principles already result from the legislation enacted so far, some other may further need to be reflected in (secondary) implementing legislation.  

  • Aggregators’ participation in all electricity markets must be fair, in the sense that market participation of the final consumer (through aggregation) must be non-discriminatory;
  • Each market participant engaged in aggregation, including independent aggregators, must be guaranteed the right to enter electricity markets without the need for consent of other market participants;
  • Transmission and distribution system operators must treat aggregators equally with other market participants, including when they procure services;
  • Transparent rules assigning roles and responsibilities to all market participants must be put in place and rules for data exchange between market participants must be set out; in relation to the exchange of data between the market participants engaged in aggregation and other electricity undertakings that ensure easy access to data, rules must apply that should ensure non-discrimination and transparency, while fully protecting commercially sensitive information and consumers’ personal data.
  • If an imbalance is caused in the electricity system, the market participant engaged in aggregation must be financially responsible;

This obligation derives from the balance responsibility principle reiterated in article 5 of the Internal Market Regulation, according to which all market participants shall be responsible for the imbalances they cause in the system. As any other market participant, the aggregator which does not wish to bear this responsibility is allowed to contractually delegate their responsibility to a balance responsible party of their choice.

It is also worth noting that the Internal Market Directive provides for a conflict resolution mechanism to be put in place between market participants engaged in aggregation and other market participants, which also applies to conflicts arising from liability for imbalances.

  • Aggregators can offer aggregation contracts to customers who will not need to obtain the consent of their supplier. Even more, the Internal Market Directive states that the final customers that concluded a contract with an independent aggregator cannot be subject to undue payments, penalties or other undue contractual restrictions by their suppliers; this provision is aimed at allowing aggregators to have access to less accessible markets and at improving competition amongst market players.
  • Member States shall also ensure that the right to switch supplier or market participants engaged in aggregation is granted to customers in a non-discriminatory manner in terms of cost, effort and time.

Aggregation contracts

The relationship between aggregators and consumers will be reflected in a service contract, based on which the aggregator can either temporarily reduce the consumer’s electricity consumption (in case of high electricity demand) and then sell the 'flexibility' output on the market, thus generating a profit, or increase consumption of an electricity consumer when prices are low. Aimed at ensuring the strongest possible protection of consumer rights, the Internal Market Regulation and also the Internal Market Directive laid down certain rules in relation to the aggregation contract, namely:

  • all customers are free to purchase and sell electricity services, including aggregation, other than supply, independently from their electricity supply contract and from an electricity undertaking of their choice. Moreover, as mentioned above, if a final customer wishes to conclude an aggregation contract, it will be entitled to do so without the consent of the final customer's electricity undertakings;
  • aggregators must fully inform customers of the terms and conditions of the contracts that they offer to them;
  • final customers are entitled to receive all relevant demand response data or data on supplied and sold electricity free of charge at least once every billing period if requested by the customer;
  • pursuant to the Internal Market Directive, there may be (1) a contract termination fee (a charge or penalty imposed on customers by market participants engaged in aggregation for terminating an electricity supply or service contract) and (2) a switching-related fee (a charge or penalty for changing market participants engaged in aggregation, including contract termination fees). Switching of market participants engaged in aggregation shall be carried out within the shortest possible time, namely a maximum of 3 weeks from the date of request and, starting with 2026, within no longer than 24 hours, on any working day. The termination / switching-related fee should not be applicable for household customers and small enterprises.

No need for centralized trading

Despite the principle set forth in the Internal Market Regulation with regard to bilateral trading, the Romanian Energy Law still provides for an obligation incumbent on market players to only trade electricity in a centralized, transparent, competitive and indiscriminatory manner. As a result, the recent amendments brought to the Romanian Energy Law provide two new exceptions from centralized trading, whereby:

  • a market participant combining electricity from several energy sources may enter into bilateral contracts with the owners of those sources.
  • a market participant combining the tasks of several customers may enter into bilateral contracts with them and their suppliers.

Boosting digitalization in the energy sector

The services of independent aggregators are expected to rely on automation, information technology and the installation of certain smart appliances, in order to, among others, permit the aggregator to access the relevant capacities through remote real-time monitoring.

When an aggregator wishes to adjust the energy demand of a certain facility (situated on a customer’s premises) to respond to certain market incentives (such as time-variable electricity prices), the smart appliances installed should automatically react to these incentives and adjust the electricity consumption accordingly, such as a smart thermostat that allows for the remote adjustment of electricity consumption.

By Monica Iancu, Partner, and Madalina Arcana, Associate, Bondoc si Asociatii